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Will Vipshop's (VIPS) Growing Consumer Base Pare Cost Woes?

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Vipshop Holdings Limited (VIPS - Free Report) is slated to report first-quarter 2018 results on May 14, after the closing bell. Notably, the company has a mixed record of earnings surprises in the past four quarters. Vipshop has been gaining from rising consumer base, driven by increasing preference for online transactions. However, higher promotional costs have been a drag. With these aspects in mind, let’s delve into how things are shaping up for the upcoming quarterly results.

Widening Consumer Base to Aid Performance

Vipshop has been consistently gaining from a growing consumer base. In fact, during the fourth quarter of 2017, the company’s revenues surged 27.1% year over year, owing to a 4% rise in the number of active consumers. Moreover, to keep widening operations and consumer reach, the company actively undertook strategic investments, evident from its partnership with Tencent and JD.com.

Apart from this, the company made investments in upgrading its technology to enhance the shopping experience of online customers. In this respect, the company launched programs such as the WeChat Mini Program in 2017 and released the trial version of WeChat Wallet in February. Additionally, to serve consumers efficiently, the company has undertaken warehouse expansion efforts, especially on the international front. Moreover, Vipshop continues to bolster its last-mile delivery services. Encouraged by such efforts, analysts polled by Zacks expect the company’s revenues to surge 29.5% during first-quarter 2018 to reach $3,001 million.

Vipshop Holdings Limited Price, Consensus and EPS Surprise

Promotional Expenses a Worry

Vipshop has long been grappling with rising promotional costs, amid a highly competitive online retail market. This has led to lower gross margin in the past few quarters, which has affected the company’s profits. In the last reported quarter, gross margin declined 180 basis points. Although Vipshop has been trying to compensate rising promotional spending’s with reductions in other marketing efforts, it is likely to continue hurting profitability. Additionally, the company’s performance is expected to be dampened by costs associated with investments toward the expansion of the internet finance business, witnessed in the fourth quarter.

Thanks to such deterrents, the Zacks Consensus Estimate for earnings for the impending quarter is currently pegged at 13 cents per share, which depicts a decline of 31.6% from the prior-year quarter’s figure. The current estimate has been stable over the last 30 days.

All said, lets see what the Zacks Model reveals about Vipshop’s upcoming quarterly release.

Zacks Model

Our proven model does not show that Vipshop is likely to beat estimates this quarter This is because a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Although Vipshop carries a Zacks Rank #3, its Earnings ESP of 0.00% makes surprise prediction difficult.

Stocks With Favorable Combinations

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Analog Devices, Inc. (ADI - Free Report) has an Earnings ESP of +0.20% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Verizon Communications Inc. (VZ - Free Report) has an Earnings ESP of +0.61% and a Zacks Rank #3.

PayPal Holdings, Inc. (PYPL - Free Report) has an Earnings ESP of +0.15% and a Zacks Rank #3.

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