Dingdong (Cayman) Ltd ADR

Good morning and good evening, ladies and gentlemen. Thank you for standing by and welcome to the Ding Dong Limited second quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. Please note that this event is being recorded. I will now turn the conference over to the first speaker today, Roger Zhu, Senior Director of Investor Relations. Please go ahead, sir.

Thank you. Hello, everyone, and welcome to Dingdong's second quarter 2022 earnings call. With us today are Mr. Chang Lingliang, our founder and CEO, and Ms. Le Yu, our CFO. You can refer to our second quarter 2022 financial results on our IR website at ir.100.me. You can also access a replay of this call on our IR website when it becomes available a few hours after its conclusion. For today's call, management will provide their prepared remarks first, and then we'll be hosting a question and answer session. Before we continue, I would like to refer you to our safe harbor statement in our earnings press release, which also applies to this call, as we will be making forward-looking statements. Please note that all the numbers stated in the following management prepared remarks are in RMB terms. and we will discuss non-GAAP measures today. We shall more thoroughly extend and reconcile to our most comparable measures reported in our earnings release and filing with SEC. I will now turn the call to our first speaker today, founder and CEO of Bindong, Mr. Liang.

Okay. Thank you, investors, analysts, and journalists. Thank you, good friends of Bindong Market. Hello, everyone. Welcome to the Q2 earnings call of Dingdong Fresh in 2022. On the call today, I'll mainly cover three areas. First,

I'll briefly report our Q2 operating performance. Second, I'll discuss our product development capabilities. And lastly, I'll share the company's further development plans.

Firstly, let me report the company's operating performance in Q2 2022. Our Q2 revenues were $6.63 billion.

representing 42.8% year-over-year growth. We also achieved a non-debt net profit of over $20 million for the first time, marking an important milestone for our development.

The whole of the last half of the year, the profit of the long triangle region has reached 3.7% of the net profit. Since 2017, Jindong Maicai has started to serve Shanghai consumers, gradually expanding to the long triangle region, and then to other parts of China. We see that since Shanghai, the whole of the long triangle region has become a strong base for Jindong Maicai. The Yangtze River Delta region, or YRD in particular, achieved profitability with an operating margin of 3.7% in the first half of 2022. We started our business in Shanghai back in 2017

and gradually expanded to the whole YRD region and then to other cities across China. We have seen that the entire YRD has become a solid market for the company following Shanghai. We're also confident that our product development capabilities, methodology, and management talents accumulated in the YRD region will help us grow and serve more users in other cities.

I think We have prioritized product development capabilities

to increase users and orders ever since the adoption of the quality growth strategy in August 2021. And we have made great progress. Specifically, in Q2, of all products sold, we had a total of 217 SKUs that were uniquely Dengdong. And our private label accounted for 17.5% of the total GMV, with the majority being developed and processed in-house in our 3F factory. We have become not only a large-scale fresh grocery e-commerce leader, but also a food manufacturer with R&D and innovation capabilities. As we all know, Shanghai was hit by another pandemic wave from March to May 2022. During that period, we overcame various supply chain and management difficulties to ensure the continuity of Shanghai residents' livelihood.

The first story is about a night in April. A Jindong driver came back from a small neighborhood. Suddenly, he heard someone shouting from the window of the residential building to the Jindong driver. Jindong Maichai, come on! Then many neighbors shouted, Jindong Maichai, come on! That was the most difficult moment of the protest. We fought hard every day. The voice of the users cheering for Jindong Maichai made us full of energy. Jindong Maichai is always with the users, willing to fight for the needs of the users.

Actually, on an evening in April, one of our riders was driving through a neighborhood on his way back from delivering an order when he suddenly heard a shout of Ding Dong Jia You, which means cheer on Ding Dong in English. Then many neighbors joined in the chanting. It was the most difficult time in the fight against the pandemic, and we were exhausted every day to fulfill the market demand. But the cheers of our users gave us the strength to battle on.

The second story is that I saw a picture of a student. In the picture, there is a Dindong rider. After the ride, he hung up the package. The Dindong logo on each package is red radish. In the picture, the Dindong rider has a red cape and a tall black sheep. This little painter gave the painting a name called Radish Hero. There are many memorable hero stories in anti-epidemic. Because Dindong Maishan has been holding on to the port of anti-epidemic protection. He has also become a hero in the hearts of children. We are particularly proud.

I also saw a picture of a Ding Dong rider drawn by a primary school student. The front and back of the scooter were covered with parcels, and each box was painted with a carrot, the Ding Dong logo. The rider's red cloak was flying high, and the young artist had named the painting Carrot Man. We are proud that our riders have become heroes in the eyes of the children because of their dedication to securing the supply of daily necessities in their fight against the pandemic.

The second big direction, I would like to talk about Dingdong Grocery's commercial strength construction. Before we introduced, before we created Dingdong Grocery, our last creative project was a mother and child community. In that time of entrepreneurship, we found a big pain point in Chinese families, that is, every family will be worried about the health and safety of their children. So, in this entrepreneurship, we hope that through our efforts, we can solve this pain point. Through our efforts, we can make our users, especially our children, eat healthy and at ease.

Second, I would like to discuss the cultivation of our product development capabilities. Our last entrepreneurial endeavor before Dingdong focused on the mother-child community. We discovered a pain point through that venture. Chinese families were constantly worried about whether their children were eating healthy and safe food. Therefore, we started Ding Dong to provide our users, especially children, with healthy and safe food products and convenience. Therefore, product quality is not only about our growth and profitability, but also the mission of our founding team. We have improved our product development capabilities from the following five aspects. First, we don't compromise on product quality. Steve Jobs was taught carpentry by his stepfather who told him, it is just as important to make the backsides of cabinets and fences right, even though they're hidden. This is what we call craftsmanship, to be meticulous where it is not seen. It is especially true in producing fresh groceries and other food products.

For example,

To avoid excessive pesticide residues in the cultivation of leeks and shallots, we visited over 10 provinces in China before finally establishing a reliable planting base that fulfilled our DGAP and order-based planting requirements. But these efforts and costs are hidden from consumers who only see that our products appear nicer and fresher than the others and sometimes at a lower price.

Another example is how we have always advocated for the clean label on our products.

Normally, you would see various chemicals, flavorings, and preservatives densely written on the ingredient list on the product packaging. But our principle is no additives unless necessary. We call this the clean label, which we achieve through the continuous improvement of technology. Even though by doing this, our costs sometimes increase, and although our clean products may not taste as savory as those with additives, We ensure the health and safety of our consumers first and foremost.

第二呢,我们不断加大自己的研发和生产, 更多开发京东特的商品。 前面已经介绍过,京东买菜不但有自由品牌, 而且自己研发和生产商品占比已经很高。 京东买菜已经是一个拥有研发和创新能力的食品企业。 在Q2,人物无有的京东特的商品有217个FQ。

Second, we keep developing more signature products unique to Dingdong. As mentioned earlier, we have private labels and we are increasing contribution from in-house developed products. We have become a food manufacturer with proprietary R&D and innovation capabilities. In Q2, we had a total of 217 SKUs of signature products.

I don't know. I don't know. For example, our 1972 farm-to-table cross-beer, jointly developed by Dingdong and Qiandaohu Brewery, can be delivered to consumers within 24 hours of shipping from the brewery.

thus maintaining the beer's delicate taste and ultimate freshness. Another example is that by transforming and applying the patented technology of Changnan University, we have exclusively developed the Kongka Kongka prune enzyme drink, which is the fusion and sublimation of California prune, citrus fiber, probiotic fruit, and vegetable enzymes. The drink achieves a refrigerated shelf of 45 days with zero preservatives. making it a delicious choice for young users to maintain a healthy intestinal tract and a fit physique.

Our bakery's self-developed lotus dim sum, which combines deliciousness and oriental aesthetics,

coincided with the release of the hit TV series Menghua Lu, which introduced a similar dim sum from the Song Dynasty. The strong cultural resonance between the two struck a chord with many young female consumers and was widely publicized in domestic and international media. Eating Ding Dong's Lotus Dim Sum while binge-watching the TV drama series became trendy.

The Jindong Yuzhi Cuisine section, which has the advantage of consumer products and R&D production, continues to take a step forward. In line with the new consumer trend, the air fryer food series and vegetarian Yuzhi Cuisine series have been launched in succession. Not only has the Jindong Yuzhi Cuisine's consumer scene and use experience been enriched, but it has also led to the R&D direction of Yuzhi Cuisine health and nutrition, and has consolidated the leading position in the Yuzhi Cuisine industry.

Our prepared food category, which exemplifies our prowess in consumption scenario development and manufacturing efficiency, continued to advance with the launch of the air fryer gourmet and vegetarian prepared food series in response to emerging consumer trends. This has further broadened consumption scenarios, enriched the user experience of our prepared food, set the direction for future healthy prepared food expansion, and augmented Dingdong's leading position in the prepared food segment.

Third, we have significantly strengthened our research efforts on user consumption trends and improved the success rate of our new product development.

With our strong data analysis capabilities and loyal user base, our product research department produced 15 consumer insight reports in the first half of 2022 and organized over 10 user testing sessions with nearly 1,000 participants. The consumers gave opinions on product selection and development adjustment directions, which strongly supported key products market positioning and selection. and subsequent growth strategies early on thus significantly increasing the success rate in product development.

Fourth,

We have developed more consumption scenarios to efficiently discover new consumer needs, define new product specifications, and cultivate new labels. Executing our mission of making healthy food for every child and family, we created a specialty category called Mom's Choice.

At the same time, through a week and seven days of different physical and mental structures, so that mothers can more easily plan nutritious and delicious food solutions for their children. Through the program, let the parents who pay attention to the child's physical development be able to obtain rich physical images and scientific nutritional knowledge at the same time. Baomao Yanyuan Channel is exploring the value of the fusion of products and health services. This step improves our user loyalty and profitability.

Products of mom's choice must pass through a comprehensive development system of origin traceability, scientific nutrition, minimum additives, and strict quality control, which eliminates parents' worries about food safety. Ding Dong also became one of the first companies to meet the low sugar content food standards. At the same time, through our Recipe of the Day initiative, which offers varied recipes each day of the week, and our one-click-at-the-basket app feature, parents can easily plan nutritious and delicious meals for their children. Through the Grow With You section, parents concerned about their children's physical development can access diverse food options and scientific nutrition knowledge. Through Mom's Choice, we have explored the fusion of product plus health services to increase user loyalty and operational profitability.

In addition to the selection of insurance companies, we have also developed a channel for young people who are interested in fitness and nutrition, and are planning to serve middle-aged and elderly people with elegant and healthy lives. In the channel of消費主體, we are using the above detailed consumption scene channels from family units to the background of biological individuals, even label individuals,

In addition to Mom's Choice, which provides superior value by integrating products with service, we have also a similar category for young people who love fitness and health, and a project in the pipeline for urban seniors who want to live an elegant and healthy lifestyle. As the general consumer group changes from a family-based unit to an individual or even a label-based individual, Ding Dong keeps launching dedicated categories, serving targeted groups of loyal users, and has grown into a food development and brand matrix operation company with unique advantages.

If we are strengthening our infrastructure, as we have explained in previous earnings calls, Dingdong has the largest high-standard semi-automated warehouse and over 10 food factories.

and we're building three additional large-scale 3F factories. We have also invested generously in food R&D and quality control, which are slowly paying off, ensuring that we launch more unique or industry-leading products while enhancing our product development capabilities.

The three major directions, I would like to briefly introduce the further development of Jindong Maicai. First of all, I would like to emphasize that Jindong Maicai will focus on the industry of freshness and food. Someone compared Jindong Maicai with our Youshang. These few years, Youshang has done a lot of business, and Jindong Maicai has been doing business for five years. At this moment, Qian Zhicang is in the business model. Finally, I would like to touch on Ding Dong's future development plans.

Firstly, I want to emphasize that Ding Dong will stay focused on the fresh grocery and food business. By comparison, our peers have attempted various business models in the past few years, while we upheld our commitment to the frontline fulfillment grid model for the past five years, despite all the struggles and challenges. We call it the clumsy spirit. which is also reflected in the fact that we have been persistent in doing fresh groceries and food, whereas our peers have branched out to other categories. Food is our lifelong passion.

Food is a necessity. Fresh food is not ordinary consumer goods. We aim to ensure not only food availability, but also food quality. We strive to bring happiness and passion for life to the public through food,

and to infuse inspiration and soulfulness into food. Only a team with unwavering, wholehearted commitment and dedication can achieve this goal.

That is why we choose to go deep while our peers choose to go broad. We will stay grounded, focused, and dedicated.

We'll continue strengthening our product development capabilities, reinforcing the supply chain, increasing investment in infrastructure, and working tirelessly for the course of food. China's food market alone is worth over 10 trillion RMB, not to mention the international space. The food market is large enough to give rise to many successful and great enterprises.

We will rebuild the logistics and warehouse system, realize the correct warehouse position and the correct warehouse water. We will optimize the service process, continue to improve the efficiency and warehouse efficiency to serve more users, and continue to increase delivery speed. At the same time, more bribes will strengthen the recruitment and training of the first-tier personnel, provide the leading salary of the industry, provide smooth promotion, and improve the happiness and gain of the first-tier personnel. Happy and happy personnel can also create a happy and happy user experience.

Our second development plan is to improve the user experience. Our user experience was affected during the lockdown because of the difficulties in managing the supply chain, warehouses, and frontline fulfillment centers. After the lockdown, we quickly mobilized resources to improve user experiences. Going forward, we'll reconfigure our logistics and warehousing systems to establish precise warehouse location and accurate inventory. We'll optimize our service process to improve the efficiency of our staff and warehouses to serve a broader user base and expedite deliveries. At the same time, we'll strengthen the recruitment and training of frontline personnel and provide them with industry-leading remunerations and career advancement options to enhance their sense of joy and achievement as we firmly believe that happy riders lead to superior customer experiences.

Finally, I would like to conclude that the milestone profit we achieved in Q2 was partially a result of the lockdown.

Looking ahead to Q3, we may expect a slight loss. However, comparing our post-lockdown and pre-lockdown numbers, we expect the net loss margin to narrow continuously while we sustain our revenue growth. And we're confident that Ding Dong can be fully profitable by the end of this year. Thank you, everyone. With that, I'll hand the call over to Ms. Yu, our CSO, to go over the financials. Thank you.

Thank you, Ms. Liang, and hello, everyone. Before I walk you through our detailed financial results, please note that all numbers stated in the following remarks are in RMB terms. All comparisons and percentage changes are on a year-over-year basis, unless otherwise noted. In Q2 2022, we maintain quality growth with revenues increasing 42.8% year-over-year to 6.63 billion. Our product development capabilities and operational efficiency have significantly and steadily improved since we began implementing the strategy of efficiency first with due consideration to scale at the end of August 2021. Our non-GAAP net loss margin has narrowed consistently to 37.2%, 31.9%, 18.9%, and 7.8% over the past four quarters, respectively. This quarter, we also reached a positive non-GAAP net margin of 0.3% for the first time, up 37.5 percentage points from Q2 2021. Now let's look at the Q2 results in detail. The company's revenue reached 6.63 billion, representing year-over-year growth of 42.8%. The GMV to revenue conversion rate was 93.2%, up 6.9 percentage points from the same period last year. The growth margin in Q2 was 31.6%, up 17 percentage points year-over-year and 2.9 percentage points quarter-over-quarter. This is because we kept developing and diversifying the source of our supply. For example, our newly developed food production and processing initiative improved our product R&D capabilities, expanded our processing scale, and boosted our product sales. thus increasing our production's positive contribution to growth margin. Data analytics also empowered our order-based production and reduced production inefficiency and wastage. In addition, a high percentage of direct sourcing has penetrated not only the fresh produced but also the non-fresh produced categories. The final step of our supply chain is doorstep delivery, providing convenient, reliable, and reputable value-added service to the consumers. In summary, the long, multi-linked, and deep supply chain has not only brought us differentiated products that dominated the mindshare of users, but also generated higher growth margins. The fulfillment expenses ratio in Q2 was 23.2%, down 13.2 percentage points year-over-year, mainly driven by the improvement of average order value and enhanced front-line labor efficiency. Q2 sales and marketing expenses ratio was 2.2%, down 6.6 percentage points year-over-year. Our product development capabilities have become a new source of user traffic, reducing both online traffic acquisition expenses and offline marketing expenses significantly, while optimizing average customer acquisition costs. Thanks to the scaling effect, our generic transit ratio was optimized to 2.3% from 6.6% in the same period last year, down 4.3 percentage points our R&D expenses ratio declined to 3.8% from 4.4% last year, despite its absolute value increasing 23.7% year-over-year. Going forward, Dingdong will keep investing in food R&D, agriculture technology, technical data algorithms, and other infrastructure. This investment will strengthen our competitive advantage and create a long-term return for investors. We further improved our efficiency in Q2 with a net loss margin of 0.5%, down 41.2 percentage points from last year. We also achieved a positive non-GAAP net profit margin of 0.3% for the first time. We achieved a net profit in Shanghai back in December 2021, Today, we are pleased to report that our P&L has turned positive for the entire Yangtze River Delta region in both Q1 and Q2 this year. Meanwhile, in the first half this year, the Yangtze River Delta region achieved 47.9% year-over-year revenue growth. Such quality growth and rapid optimization of our unit economics is a strong testament to the profitability of Dingdong's business model and the responsiveness of our organization. In Q2, we had 220 million cash inflow from operating activities. By incorporating supply chain finance into our cash management, we attained 880 million extra operating cash inflow. As of the end of Q2, we had $6.1 billion in cash, cash equivalents, restricted cash, and short-term investments. The pandemic has led to many uncertainties that increased our operational difficulties greatly. However, we outtook these challenges and enhanced our organizational capabilities, supply chain adaptability, and responsiveness. This improvement will remain our most valuable asset. Driven by the growing product development capabilities, we also realize the quality growth and a non-gap positive net margin in Q2. As we establish word amounts on our product development capabilities among consumers, comparing our pre-lockdown and post-lockdown performance this year, we also saw a significant increase in the AOV post-lockdown and an improvement in our operational efficiency, which validated our efficiency first with due consideration to scale strategy. Looking ahead to Q3, we expect quality revenue growth with narrowing losses compared to the pre-lockdown Q1 this year. We also expect to achieve a single-month non-gap break-even in December this year. This concludes our prepared remarks for today. Operator, we are now ready to take questions.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. When asking the question, please state your question in Chinese first, then repeat your question in English for the convenience of everyone in the call. At this time, we will pause momentarily to assemble the roster. And our first question will come from Joyce Zhu of Bank of America. Please go ahead.

Good evening, management team. I am Joyce, an analyst at Meiyin. I have a question for you. Recently, we all know that there are some colleagues who are close to us, and there may be news reports about some difficulties in operation. I hope the management team can share with us how you see this situation as colleagues. I will translate my questions by myself. Recently, we noted there is a close competitor of the company was reportedly having some difficulties in terms of cash flows. and also a shrinkage in operations. We wonder, like, you know, could management share some colors in terms of your view in the market competitive landscape, how this company's, you know, business or, like, you know, situations will actually affect the ding-dong in terms of, like, you know, competitive landscape in terms of capabilities? in terms of the relationship with the customer and also the suppliers. Many thanks.

Thank you for your question. I think This is a hot topic that everyone has been discussing recently. First of all, we rarely judge those who are injured. It is more important to do well than to point a finger at the mountain. In addition, some people see a company facing difficulties and think that the whole industry is not good. We do not approve of this simple and linear way of thinking. Even if we are in the same industry, the difference between different companies may be a thousand times greater. Okay, thank you for your question. Indeed, the news has triggered heated discussions recently. First of all, we rarely comment on our peers.

It's more important to focus on what we do than to point fingers. Also, some people think that the whole industry is doomed when they see one company in trouble. We strongly disagree with such a simple, linear way of thinking. Even in the same industry, the differences between companies can be drastic. Dingdong is very unique in our industry. We have always been focused on one thing, always paid more attention to the needs of our users, and then pushed ourselves to progress. We don't cut corners. We don't compromise. We are committed to developing product development capabilities, which has gained us love and trust from our users. Any company loved by its users is a promising company.

We also hope that the society can be more tolerant towards entrepreneurs, and we wish entrepreneurs who encounter difficulties

will persevere in the moment of darkness and usher in a bright future. All right, that's all for my answer. Thank you.

The next question comes from Ashley Zhu of Credit Suisse. Please go ahead.

Hello, thank you for accepting my question. First of all, congratulations on the very strong performance. And then I want to know, in the epidemic, and in the process of this lockdown, in addition to the growth of revenue, we also got some acceleration drag. What other gains do we have? For example, in operation, in supply chain, see if there are any places worth sharing. Then I will translate it. Thanks, management, for taking my question. I just want to check during the lockdown period, other than our revenue growth, any other improvement or development, especially in terms of our operation or supply chain that is worth sharing? Thank you. 谢谢您,这个问题特别好。

China China China OK, thank you for this particularly good question.

In addition to our revenue growth, Dingdong has grown in three areas after the lockdown. First, we have established a more flexible and adaptive supply chain and built a responsive organization. During the lockdown, we faced various problems, including supply disruption, logistic blockages, regional warehouses and frontline centers being locked down, and personnel management difficulties. However, we adopted and created new supply models, for example, Using direct delivery by merchants and neighborhood group buys not only ensures supply during the lockdown, but also calms prices and sharpen our supply system to hold the basic duty of securing supply in case of unexpected incidents.

Second, we have improved the cohesiveness of the team.

During the lockdown, the workload was heavy, life was tough, and there was the risk of being quarantined at any time. We were under unprecedented pressure, but we all took it upon ourselves to maintain supplies for local residents, creating plenty of heroic stories. But everyone here at Ding Dong could also feel the sense of accomplishment from serving our users. After the lockdown, we as a team became more united.

Third, Dingdong has been with our customers throughout the lockdown, keeping supplies and prices stable. And as a result, we are loved by more customers than ever before.

Whether it's routine consumption or lockdown purchases, Dingdong is always a destination that you can trust without a doubt.

Finally, I would like to highlight that we have been complying with the government's pandemic control requirements

and fulfilling our basic duties as a daily supply company for the general public. We also wish that the pandemic, we hope that the pandemic will end soon and that everyone can enjoy a healthy and stable life. Thank you. That's all for my answer.

The next question comes from Thomas Chong of Jefferies. Please go ahead.

Good evening. Thank you for accepting my question. 我们看到在Q2的话,我们已经是实现了一个阶段性的盈利。 如果我们看Q3、Q4的话,管理层可以分享一下情况会是怎么样。 另外的话,我们应该什么时候会实现了全面的盈利呢? 在实现了一个全面的盈利之前,我们会出现一个先进流的风险。 Thanks management for taking my questions. We have seen we have done a very good job in achieving profitability in Q2. How should we think about the situation in Q3 and Q4? And when should we expect full-year profitability? And also, before we reach full-year profitability, how should we think about our cash flow? Would there be any issues? Thank you.

Okay, let's have Zhou Yunle to answer this question.

All right, our CSO, Ms. Yu, will take your question. All right, our CSO, Ms. Yu, will take your question. All right, our CSO, Ms. Yu, will take your question. All right, our CSO, Ms. Yu, will take your question. All right, our CSO, Ms. Yu, will take your question. All right, our CSO, Ms. Yu, will take your question. Whether it's like commodity power, user reputation, these are the areas that we are most concerned about. Or like this price tag, penetration rate, etc. These very core data indicators all have a relatively large optimization. So we think that Q3 compared to the previous Q1 of the epidemic, the Net Loss Margin of Non-GAAP will have more than 3% optimization. Then the subsequent Q4 will continue to optimize on the basis of this Q3.

Okay, thank you, Thomas, for your question. First of all, Q2 was a very difficult period for the company and the operational headwinds were tremendous under the influence of macro factors. However, the good thing is that the company staff were united to battle the challenges and we finally achieved quarterly positive profits in Q2. We also observed very positive progress post-lockdown compared to pre-lockdown periods. both in terms of product development capabilities and user satisfaction, which are the aspects that we care about most, and also about core performance indicators such as the AOV and penetration rate. We also achieved a very positive progress as well. Therefore, we believe that our non-GAAP net loss will be down at least three percentage points in Q3 compared to the pre-lockdown Q1, and Q4 will be further optimized on the basis of Q3.

On the other hand, in January of this year, we were still unable to predict the follow-up of the epidemic. At that time, the management level was set for December of this year. The company's overall goal was to achieve a big break-even. We have never had any changes to this goal. We also believe that it can be achieved.

Second, in January this year, when we were all still completely in the dark about the subsequent lockdown, the management had already set the goal of achieving a single month break even by the end of the year, a goal that we have never changed. And we are still convinced that we will achieve this goal.

Finally, although we have not changed the time of full profit, the performance of Q2 has objectively optimized the loss rate and cash flow of the whole year. The loss and cash flow of Q3 and Q4 this year compared to the same period last year will be greatly optimized. Next year and the whole year, we estimate that the company will also have a positive cash flow the whole year. At the end of Q2, our cash balance is 60.6 billion RMB. The cooperation between the bank and the company is closer. The short-term loan of the bank has increased to 8.9 billion RMB. A lot of banks in Q2 have given the company a higher loan rate after renewing the contract. Finally, although there is no change in the timing of us achieving full profitability, the Q2 results objectively optimize our loss ratio and cash outflow for the year,

So for Q3 and Q4 this year, our loss and cash outflow will be significantly optimized compared to the same period last year. Next year, we forecast that the company will still be cash flow positive. And as of the end of Q2, our cash balance was 6.06 billion RMB. Banks have been working more closely with the company with short-term bank borrowings increasing to 890 million RMB. In Q2, many banks have given us higher credit limits on loans after renewal at the end of the term. In short, we don't have many capital spending needs at the moment, and the balance on the books is still quite sufficient. So we think that the company is not at any cash flow risk. Thank you. That's all for my answer.

The next question comes from Robin Lung of Daiwa. Please go ahead.

Thanks management for taking my question and congratulations on the strong sales results. Some investors have concern on the front-end warehouse models given what happened to Miss Fresh. Also, some competitors in the local retail industry explicitly said front-end warehouse is not going to work. Could management share your thoughts on that? Thanks.

Well, thank you for your question. First of all, I would like to draw your attention to the fact that excluding the three months during the pandemic when the lockdown hit hard, Dingdong has been able to continue improving its loss ratio for 10 consecutive months and we are very confident that we will achieve full and sustained profitability by the end of this year. Therefore, we have a strong belief in the frontline fulfillment grid model. There are many analysis of this model on the market and they are up for you to judge, but we often forget that the most important criteria to assess the pros and cons of the model are whether it really meets the needs of the users and whether it is in line with the changing trend of user consumption behavior. Only the user's choice can determine the success or failure of a business model.

Now our quality control should be at the forefront in the entire raw materials industry.

The frontline fulfillment grid model enjoys the highest efficiency, the fastest delivery, and can better control the quality of fresh food. This model meets the needs of consumers for a better life and caters to the younger generation of new consumption habits. With that, we firmly believe that this is a business model with a bright future, and we in turn push ourselves to strive for progress. When people think that the gross margin of fresh groceries is low, we improve it by making the supply chain deeper and stronger. When people criticize the losses and the high loss rate in fresh groceries, we improve it by enhancing our order density and improving our prediction and product recommendation technologies. As a result, our recommendation is excellent today, and our loss rate is far lower than the traditional fresh produce peers. When people think that the quality control of non-standardized or non-standard products is difficult, we standardize the process and we increase human resources and technology investment. As a result, our quality control nowadays is industry leading in the entire fresh grocery industry.

Our way of thinking is identifying the user's needs and then pushing ourselves to improve accordingly.

Some people see problems and immediately they try to be smart and announce to the world that they know everything. Others, on the other hand, keep their heads down in solving problems. In fact, entrepreneurship is the process of problem solving. Why do we need entrepreneurs if there is this perfect industry with a huge, highly lucrative market with no problems or difficulties? Thank you.

This concludes our question and answer session. I'd like to hand the conference back to our management for closing remarks.

Thank you again for joining our call today. If you have any further questions, please feel free to contact us or request through our IR website. We look forward to speaking with everyone in our next earning call. Have a good day.

The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.