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Vipshop Responds to Recent Allegations


GUANGZHOU, China, May 13, 2015 /PRNewswire/ -- Vipshop Holdings Limited (NYSE: VIPS), a leading online discount retailer for brands in China ("Vipshop" or the "Company"), today issued the following statement in response to recent allegations made by a few short sellers. Vipshop believes these allegations are unfounded and contain numerous errors, unsupported speculation, and a general misunderstanding of the Company's business model. The Company has made its board of directors and its independent auditors aware of the reports, and will continue to review and address the allegations as appropriate, but today the Company would like to clarify certain key errors contained in the allegations.

Accusations regarding Accounting:

i)   Revenue Recognition:

The allegations question the Company's method of revenue recognition and allege that the Company relied upon an incorrect application of gross revenue basis reporting.  As disclosed and elaborated in the Company's annual report on Form 20-F for the fiscal year of 2014 (the "2014 Form 20-F"), the Company appropriately records its revenue on a gross basis where the ownerships, risks and rewards of these inventories have been fully transferred to the Company after it takes ownership upon deliveries to its warehouses, any loss related to damages to these inventories after the Company receives them from vendors are absorbed by the Company, and it reports these inventories on the Company's balance sheets as its assets.

ii)  Inventory Accounting

The allegations state that the Company improperly commingled inventory-held-on-consignment with purchased inventory, thereby increasing its reported ending inventory and decreasing its cost-of-sales. The conclusion is based on the short seller's own erroneous assumptions. The Company's inventory is reported at the lower of cost or market, and the Company's cost of inventory is determined using the "weighted-average cost" method.   The Company believes this approach is appropriate given the nature of its business and its arrangements with its vendors.  During the periods reported, the Company has full ownership on inventories that are recorded on the balance sheet. 

iii)  Other Receivables

The allegations contend that the Company recorded significantly increased levels of "Other Receivables" which potentially reflect abusive related-party transactions ("RPTs"). This allegation is also unsupported. The breakdown of "Other Receivables" has been clearly disclosed in note 5 to the Company's consolidated financial statements for the year ended December 31, 2014 included in the 2014 Form 20-F, and the increase was mainly due to the increase of deposits and VAT receivables. In addition, as disclosed in note 4 to the Company's consolidated financial statements for the year ended December 31, 2014, other trade receivables in the amount of US$18.3 million relates to lending to some of the Company's suppliers who are not related parties.

iv)  Capital Expenditures

The allegations assert that the Company exaggerated and accelerated its capital expenditures ("CAPEX") to industry-leading levels, despite having significant excess capacity. As reported in the Company's public disclosures, the Company's CAPEX amounted to US$12.4 million, US$22.2 million, and US$256.0 million in the years ended December 31, 2012, 2013 and 2014, respectively. In 2014, the Company's CAPEX increased significantly largely because of the Company's expansion of its warehouses and other logistical infrastructure, the details of which have been disclosed in the Company's 2014 Form 20-F. This expansion is aimed to lower costs associated with logistics and property leasing in the long term.

v)  Cash Flow

The allegations assert that the Company's cash flow from operations is driven not by earnings, but by significant growth in both accounts payables and accrued expenses. This conclusion is also incorrect. As disclosed in its 2014 Form 20-F, the Company's net cash from operating activities amounted to US$505.7 million in 2014, which was primarily attributable to a net income of US$122.8 million, adjusted for non-cash expenses in an aggregate amount of US$382.9 million consisting primarily of share-based compensation expenses, inventory write-downs, amortization of intangible assets and changes in operating assets and liabilities.  

Other Accusations:

Held-to-Maturity Investments

Additionally, the allegations question the Company's Held-to-Maturity ("HTM") investments, including the rates of interest earned thereon, and suggest that they could constitute low-interest loans offered to the Company's founders. These allegations are false. The Company invests in debt securities which are made with third party banks and entered into at market rates. The Company classifies these investments as HTM. None of these HTM investments were extended to the Company's founders or other related parties.

i)  Lefeng and Ovation

The allegations assert that the Company grossly overpaid for stakes in Lefeng and its parent company, Ovation, and that these transactions may not have been conducted at arms-length. The Company believes the valuations of the Lefeng and Ovation investments were reasonable based on prevailing market conditions and both investments were negotiated at arms-length. The acquisitions of Lefeng and Ovation were strategic moves that were intended to strengthen the Company's market share in the large and fast growing cosmetics sector and help expand its reach to female customers.

ii)  Logistics Companies

In addition, there were false allegations regarding the Company's investments into regional logistics companies. This allegation is subjective and is based on inaccurate financial figures. In 2014, the Company made minority investments in several regional logistic companies. Strategically, these investments reflect the Company's effort to expand its nationwide delivery capabilities. 

Accusations regarding Corporate Governance:

The allegations also challenge the independence of the Company's board and its audit firm. This allegation is unfounded.  As required by U.S. securities laws and the NYSE listing requirements, the board of directors of the Company performs annual assessments of director independence, and the independent directors identified in the Company's 2014 annual report on Form 20-F were determined to have met the independence requirements set forth in applicable laws and listing rules.

As disclosed in the 2014 Form 20-F, the Company has a majority independent board of directors as required by U.S. securities laws and the NYSE listing requirements. The Company has implemented its disclosure procedures and corporate governance protocols in compliance with public company standards and applicable legal requirements and will continue to meet corporate governance standards under applicable SEC and NYSE rules and legal requirements.

About Vipshop Holdings Limited

Vipshop Holdings Limited is a leading online discount retailer for brands in China. Vipshop offers high quality and popular branded products to consumers throughout China at a significant discount to retail prices. Since it was founded in August 2008, the Company has rapidly built a sizeable and growing base of customers and brand partners. For more information, please visit

Safe Harbor Statement

This announcement contains forward-looking statements. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. Among other things, the business outlook and quotations from management in this announcement, as well as Vipshop's strategic and operational plans, contain forward-looking statements. Vipshop may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission (the "SEC"), in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including statements about Vipshop's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: Vipshop's goals and strategies; Vipshop's future business development, results of operations and financial condition; the expected growth of the online discount retail market in China; Vipshop's ability to attract customers and brand partners and further enhance its brand recognition; Vipshop's expectations regarding demand for and market acceptance of flash sales products and services; competition in the discount retail industry; fluctuations in general economic and business conditions in China and assumptions underlying or related to any of the foregoing. Further information regarding these and other risks is included in Vipshop's filings with the SEC. All information provided in this press release and in the attachments is as of the date of this press release, and Vipshop does not undertake any obligation to update any forward-looking statement, except as required under applicable law.

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SOURCE Vipshop Holdings Limited

Vipshop Holdings Limited, Millicent Tu, +86 (20) 2233-0732,; ICR, Inc. Jeremy Peruski, +1 (646) 405-4866,