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 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to the first speaker today, Nicky Zhang, Director of Investor Relations. Please go ahead, sir.

Thank you. Hello, everyone, and welcome to Ding Dong's second quarter 2024 earnings call. With me today are Mr. Changlin Liang, our founder and CEO, and Mr. Song Wang, our CFO. You can refer to our second quarter 2024 financial results on our IR website at IR100ME. 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 go through their prepared remarks, which will be followed by 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 numbers stated in the following management prepared remarks are in RMB terms, and we will discuss non-GAAP measures today, which are more thoroughly explained and reconciled to the most comparable measures reported in our release and the filings with the SEC. I will now turn the call to our first speaker today, the founder and the CEO of Ding Dong, Mr. Liang.

Thank you, investors, analysts, and friends of Dingdong Grocery. Welcome to the Q2 financial report analysis of Dingdong Grocery in 2024. As of Q2 2024, Dingdong Grocery has achieved a profit under the standard of Long Gap for seven consecutive seasons. And after Q1 this year, it has again achieved a profit under the Gap framework. Especially since Q1 this year, Hi everyone, thank you for joining Dingdong's Q2 2024 earnings call. As of Q2 2024, Dingdong has achieved profitability for seven consecutive quarters

based on non-GAAP standards. Additionally, after Q1 of this year, the company has again achieved GAAP profitability. Notably, we have a resumed growth since Q1 of this year. Both profits and revenue have shown positive year-over-year growth for two consecutive quarters. These achievements are mainly attributed to Dingdong's world-leading fresh grocery supply chain capabilities, which facilitate our continued growth in scale and profits.

In my speech, I'll review our Q2 performance, discuss Dingdong's growth drivers, and provide an outlook for future development and performance. Let me briefly introduce Q2's performance. In 2024, Q2, the total purchase value of Q2 Q2 Q2 Q2 Q2 Q2 Q2 Q2 Q2 Q2 Q2

Let's take a brief look at our Q2 performance. Dingdong achieved a GMV of 6.22 billion RMB, a 16.8% increase year-over-year. Based on non-GAAP standards, net profit was 103 million RMB, nearly 13 times more than the prior year. And net profit margin was 1.8%, up by 1.6 percentage points year-over-year. Meanwhile, in June, we saw remarkable growth, with the same source, GMV, increasing by 21.6% year-over-year, and all regions experienced positive year-over-year growth in scale.

This is an unprecedented growth, mainly due to the continuous improvement of the order size and user up. Q2, the number of orders in the Japanese army is about 7.3 million, and the same increase is 11.7%. The number of orders in the Japanese army is nearly 900,000, The hard-earned growth can be attributed to the consistent increase in transacting users in R2. In Q2, we recorded 7.3 million transacting users monthly, up 11.7% year-over-year.

Additionally, the average daily number of transacting users approached 900,000 of 17% year-over-year. With a 4.3% year-over-year increase in DAU, the company also benefited from ongoing enhancement in service capabilities and supply chain operation improvement. Consequently, the conversion rate of DAU to daily transacting users increased by 4.3 percentage points compared to the same period last year.

User loyalty and wallet share on Dingdong increased during the same period. Our users' monthly ARPU increased 6% year-over-year.

Specifically, members' monthly R pool rose 7.8% year-over-year, surpassing 500 RMB.

The abundance of products can satisfy the needs of different groups of people. It can completely buy all the ingredients needed for a meal. In addition, we want to look at the leisure scene to promote the abundance of products. It mainly includes fruit, wine and drink, leisure department stores, and baking. Q2 has already achieved stage-level progress.

Looking at it from a business standpoint, over the course of this year, we've further enhanced the assortment of products in our advantageous dining table category. This has enabled us to better cater to the purchasing needs of diverse consumer groups, providing them with a one-stop shop solution to acquire all the necessary ingredients for a complete meal. We've also expanded the SKUs available for the leisure scene to include fruit, dairy, alcohol, beverages, leisure products, and baked goods, and the strategy achieved initial success in Q2. For example, in the leisure product category, both the number of average purchases per user and frequency of monthly purchases have increased rapidly. leading to a 24% year-over-year increase in monthly ARPU in this category. This year, we've resumed expanding our station network in Jiangsu, Zhejiang, and Shanghai, continuously increasing our station network penetration in these regions. We aim to open approximately 80 new frontline stations in these regions this year, with nearly 40 already completed in the first half of this year. These new frontline stations are quickly ramping up, and each station now manages an average of 800 orders daily.

As I've just outlined our Q3 performance, I would now like to introduce several future growth drivers. First, Jiangsu will continue to grow. In the first half of this year, Dingdong's GNV in Shanghai increased by 9.5%, Zhejiang's GNV increased by 22.7%, and Jiangsu's GNV increased by 22.6%. The growth of the scale comes from the growth of the penetration rate and the growth of the population. Volumes from our Jiangsu, Zhejiang, and Shanghai businesses are expected to keep growing. In the first half of this year, Shanghai achieved a GMB year-over-year growth of 9.5%.

Zhejiang, 22.7% and Jiangsu, 22.6%. The increase in scale was driven by the rise in the penetration rate and the number of orders per user. Due to the large populations, high residential density and strong purchasing power in these regions, Dingdong still has significant potential for growth. We're very confident that we'll maintain speedy growth in these regions for a long time to come.

Second, the growth of the Jiangzhou-Hu region has also improved our power supply and user operation capabilities. This capability will enrich our Huanan and Hubei regions. These two regions will also continue to grow in scale under the gradually increasing profits. In addition, in Q2, we are doing very well in some three or four cities. For example, Yangzhou and Huludun cities have reached a year-on-year growth of more than 50%. The expansion in the Jiangsu, Zhejiang, and Shanghai regions has helped improve our supply chain and user operation capabilities.

It will benefit our operations in South China and North China, which we are expected to continue growing in scale and gradually become profitable. Additionally, we have seen sizable growth in some Tier 3 and Tier 4 cities, such as in Yangzhou and Huzhou, with an impressive year-over-year growth rate of over 50% in the second quarter. Given the high number of Tier 3 and Tier 4 cities in China, this progress will establish a robust foundation for our supply chain and operational strategies in additional regions in the future.

Third, the emergence of the ability to buy and sell makes our food development and production process have a lot of room for growth, and can also create greater value. Currently, Dingdong's meat and cheese processing, and the development and production process of fruit and vegetable products are at the same level in the Chinese consumer market. In addition to being able to produce our products through Dingdong's app, Thank you very much.

An overflow in our supply chain capacity facilitates rapid growth in food R&D, production, and processing, creating more value for us. Our R&D, manufacturing, and processing of meat, grain, bean products, and prepared meals are of top quality in the Chinese consumer market, and we distribute these products to users through the Dingdong app and various retail channels. Moreover, our products are increasingly being sold to consumers through hotel and catering channels, such as Huazhou, Jinjiang Inn, and a tour. By leveraging our reputation and channel logistics advantages, we aim to expand our reach to more business customers in the future, fulfilling our mission of making top-quality ingredients readily accessible to everyone.

Fourth, we can create value in the overseas market. In the past seven years, we have used the power of the supply chain to supply the materials of China's remote areas to consumers in the rich areas such as Jiangzhou. On the one hand, we have satisfied the needs of people for a good life. On the other hand, we have brought wealth to the people of the remote areas and improved the productivity of the entire society. One of the ways we create value is by expanding into international markets over the past seven years.

We've utilized our supply chain expertise to deliver food from remote areas of China to affluent regions, including Jiangsu, Zhejiang, and Shanghai. This has not only satisfied the needs of people in these areas for a better quality of life, but has also generated prosperity for those in remote regions and enhanced overall productivity within society. Considering the global perspective, there exists a significant disparity between food supply and demand. Leveraging our supply chain capabilities, we can work towards facilitating a more efficient movement of food. This is our original entrepreneurial goal. By leveraging our supply chain capabilities and working hard, we aim to generate significant social and commercial value. 最后,我再向大家更新一下我们对整个2024年以及Q3的业绩展望。

Based on the growth of Quora and our better performance in the near future, we will further increase our expectations for profits and scale. As of this year and the third quarter, net profit and scale will grow more than before, and continue to achieve profits in non-GAAP and GAAP contexts. We have full confidence in the growth of this year's scale and profit, and we have even more confidence in the future.

Finally, I'd like to give you an update on our performance outlook for the entire year of 2024 and for the third quarter. Considering our improved performance in the second quarter and also over the past few quarters, we have raised our internal forecast for profitability and scale. We anticipate a significant year-over-year increase in net profit and scale for both the year as a whole and the third quarter. And we're confident that we will continue achieving both non-GAAP and GAAP profitability. We have full confidence in the growth of scale and profits this year, and we are even more confident about the future.

This concludes my speech. Thank you all for listening. Now, I would like to invite our CFO, Wang Song, to go over the company's financials.

在向大家介绍我们的财务情况之前,先说明一下,我们的所有数字都是以人民币为单位的。 Thank you, Mr. Liang, and hello, everyone. Before I review our financial performance for the second quarter, please note that all our figures are in RMB.

2024年Q2,京东买菜实现营收56亿元。

with a growth of 15.7%. Under the GAP standard, the net profit is 1.8%, with a growth of 1.6%. The net profit is 1.03 billion yuan, with a growth of nearly 13 times. We have maintained the profit under the GAP standard for seven consecutive seasons. At the same time, under the GAP standard, we achieved the GAP standard profit again after Q1. The net profit is 1.2%, with a growth of 2%. The net profit is 6713 million yuan, with a growth of 1.04 billion yuan.

In the second quarter of 2024, Dingdong generated revenue of 5.6 billion RMB, up 15.7% compared to the previous year. Non-GAAP net profit margin was 1.8%, a 1.6 percentage point increase from the previous year, with a net profit of 103 million RMB, nearly a 13-fold increase from the previous year. This is the seventh consecutive quarter of non-GAAP profitability. The company was profitable under the GAAP standards for a second consecutive quarter, with net profit margin of 1.2%, up by 2 percentage points year-over-year, and net profit of 67.13 million RMB, an increase of 104 million RMB year-over-year. QI, QI, QI, QI,

Operating cash flow showed a net inflow of RMB 0.25 billion, marking the fourth consecutive quarter of net inflow.

As of the end of June, free cash flow for the past 12 months amounted to 0.51 billion RMB, the highest level in recent years and reflecting a 0.81 billion RMB increase from the same period last year. By the end of Q2, our actual self-owned funds balance after deducting the short-term loans stood at 2.32 billion RMB, a 0.32 billion RMB increase from the end of last year, and a 0.24 billion RMB increase from the end of March.

As we have always emphasized, Dingdong Maicai has not only achieved considerable income growth while continuously improving its profitability, but also continuously improving its financial performance in the event of an additional opening. This shows that we can fully maintain a healthy growth.

As we've always emphasized, Dingdong has not only achieved gratifying revenue growth, but has also continued to increase its profitability. In addition, our financial capacity has been continuously improving, while the number of our frontline stations has also been growing. The above financial performance demonstrates that we're fully self-sufficient and maintaining healthy growth.

接下来我们来看一下QI的具体财务情况。 QI's GNV is 62.2 billion yuan, which has increased by 16.8%. This is due to the increasing coverage and penetration of Jiangsu and Shanghai. Jiangsu and Zhejiang have achieved 16.5%, 28.5%, and 30.4% growth respectively. At the same time, the Beijing area has returned to normal growth. We are expecting to maintain a 6-month growth trend during the summer, including in all areas in Guangzhou and Shenzhen. In addition, the loss of capital in Guangzhou and Beijing is also continuing to shrink. The company's strategy in the area layout is taking effect.

Let's review the specific financials. GMV was 6.2 billion RMB, up 16.8% year-over-year. Notably, Shanghai, Jiangsu, and Zhejiang saw impressive year-over-year growth rate of 16.5%, 28.5%, and 30.4%, respectively. This growth was attributed to our expanded coverage and penetration in these regions. Additionally, the Beijing region returned to positive growth with an 8.5% year-over-year increase. In June, all regions, including Guangzhou and Shenzhen, achieved year-over-year positive growth, with same-store growth rate achieving 21.6% nationwide. Looking ahead, we anticipate that the growth momentum in June will be sustained during the summer vacation, especially due to the impact of high temperatures. Furthermore, losses in Guangzhou, Shenzhen, and Beijing are gradually narrowing each quarter, indicating the success of the company's regional strategy.

Gross profit margin was 30%, down 1 percentage point year-over-year.

The decrease was due to price concessions to provide more value to consumers and maintain our competitiveness. It was partially offset by an increase in gross profit margin resulting from improvement in our entire supply chain, which includes direct sourcing, production, and processing, warehousing, fulfillment, and distribution.

QI's turnover rate is 22.4%, which is 1.2% better than last year. Increased order volume has led to improvement in operating efficiency. fulfillment cost rate was 22.4%,

1.2 percentage points lower year over year. The increase in order volume has led to improved operational efficiency. Our frontline fulfillment stations processed over 1,000 orders daily on average, up 29.4% compared to a year ago, with Shanghai processing over 1,500 orders daily. We're continually enhancing our service capabilities using algorithms and supply chain operation capabilities. Consequently, the average ASAP order fulfillment time in Q2 was 36 minutes, two minutes faster than the previous year. And the 60-minute delivery availability was 97%, an 18 percentage point year-over-year increase.

QI's sales rate is 2.3%, which is 0.4% higher than last year. Under the premise of excellent financial performance and plenty of cash reserves, we will further increase the sales investment of users and increase the efficiency of flow and profit, and continue to increase the penetration of users in the advantageous areas to increase the scale of growth.

Sales and marketing cost rate was 2.3%, a 0.4 percentage point increase year-over-year. With strong financial performance and ample cash reserves, we plan to increase our marketing investments to enhance user acquisition, optimize traffic operations, expand our user base in key areas, and drive overall business growth.

Total GNA and R&D expenses were 0.4 percentage points lower than in the same period last year, primarily due to economies of scale.

We intend to maintain our investment in R&D for food, agricultural technology, and technical data algorithm.

Non-GAAP net profit margin was 1.8%, resulting in a net profit of 103 million RMB.

GAAP net profit margin was 1.2%. GAAP net profit margin was 1.2%. At the end of Q2, our balance of cash and cash equivalent short-term restricted funds and short-term investment amounted to 4.16 billion RMB. We're continuously improving the efficiency of capital use and our financing structure. After deducting the balance of short-term loans, the actual balance of our own funds was 2.32 billion RMB. In the second quarter, we achieved outstanding financial performance in line with our guidance. Considering our recent operating financial performance and balance sheet strength, we're confident that we will meet our performance expectations for the third quarter and the whole year.

This concludes our speech today. Operator, we can now start the question and answer session.

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. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. When asking a question, please say it in Chinese first and then repeat it in English for the convenience of everyone on the call. At this time, we will pause momentarily to assemble our roster. The first question comes from Thomas Chong with Jefferies. Please go ahead.

Thank you for accepting my question. My question is, I recently saw some reports that Hema has restarted the construction of the front-end warehouse, and Jingdong is also setting up the front-end warehouse. So, according to recent reports, Hema has restarted recruitment and construction of frontline fulfillment stations. And also, JD is also deploying frontline fulfillment stations, and also Meituan is extending the station to more cities. So what are your thoughts on those developments and also how do you foresee the future competition?

Thank you for your question. In the early days, due to the changes in the macroeconomic environment and the changes in the competitive structure, people were doubting and worrying about the life and death of the dynamite. However, the continuous profit and the growth of the scale can fully show that we have firmly survived. Even in such a relatively low consumption environment, we are also growing and increasing our profit, and we can live better and better. Before, people thought that the front line could not be run through, and even thought that Thank you for your question. In the past, doubts and concerns arose about our chances of survival due to changes in the macro environment and competitive landscapes.

However, our consistent profitability and growing scale demonstrate that we have not only survived but thrived even in a slow consumption environment. Previously, there were concerns about challenges in the frontline fulfillment station grid model or even in the fresh grocery e-commerce industry. But I believe our success in this area has encouraged peers to participate and contributed to the growth of a frontline fulfillment grid model and the fresh grocery e-commerce industry.

Now, here I want to briefly share our differentiation compared to our peers. There's no right or wrong, good or bad, but only our understanding of our business model. First, there is a difference in the understanding of low-end principles in the raw materials industry. In the same industry, the low-end principles of traditional retail are more adhered to. The low-end principles that have been verified from Walmart are to reduce the cost of procurement and transportation through low prices and scale. This has failed in the raw materials industry. We believe that the low-end principles of the raw materials industry are to be efficient from end-to-end to profit from end-to-end to profit from end-to-end to profit from end-to-end to profit from end-to-end to profit from end-to-end

First, there are different interpretations of the fundamental principles within the fresh grocery industry. Many in the industry adhere to the traditional retail approach, which is achieving scale by offering low prices and then leveraging that scale to drive down procurement costs and operating expenses. However, we've realized that the first principle of traditional retailing, which has been successful since the Walmart era, is not applicable to the fresh grocery industry. Instead, the first principle of success is to continuously enhance end-to-end efficiency. To achieve growth at scale, seek profitability, and bolster competitiveness, it is crucial that we focus on consistently improving our supply chain capabilities. With these capabilities, we'll be able to serve a larger customer base and meet their evolving needs.

Second, in the past, as our industry developed, everybody was exploring and pursuing various changes to business models.

Some constantly modify their operational methods in search of the best solution. We, on the other hand, focused on adapting our development strategy to accommodate changes in our environment. We always believe that strong supply chain capabilities are essential and that beyond this, the specific model and structure are not as crucial. Robust supply chain capabilities allow us to quickly and effectively adapt to evolving market conditions.

Third, the direction of development in the future is different. Our copper industry will basically be positioned as a retail or e-commerce enterprise, while Dingdong Grocery is essentially a fresh supply chain enterprise. With the development of Dingdong supply chain, we will serve more people in more areas. We will also serve more consumers in a more flexible form. We will have a greater opportunity and space for development.

Our growth strategy is unique. Unlike our competitors who focus on retail or e-commerce, Ding Dong is primarily a fresh grocery supply chain business. As our supply chain expands, we'll be able to reach more people in different regions in a more adaptable manner. We'll also be able to cater to a wider range of consumers in flexible ways. We're not constrained by traditions or forms, but focus on the core elements, observe the world, work diligently. and therefore have greater opportunities and room for development.

For many years, our industry competitors have experienced ups and downs, but we have been steadily moving forward. We're not

overtly concerned about competition and rarely evaluate our peers. Our focus is on our initial purpose, mission, and self-development. Thank you.

The next question comes from Robin Long with GAIWA. Please go ahead.

Hi, thank you for accepting my question. I noticed that in the previous financial analysis meeting, the two main topics were about public relations, ability to build, and how to make profit from the company. Today's content is very different, more about future growth. Thanks, management, for taking my question. And during previous earnings call, management focused on supply chain capability fielding and ways for the company to generate profits. However, today the focus seems to have shifted to future growth. So would you share what is the future revenue growth rate look like for Dingdong in the future? Thank you.

Thank you for your question. We talked about four positive points earlier. These positive points are the natural growth of our natural power. We believe that in the future, these four positive points will be able to develop to the same or larger scale as today's business. We highlighted four key drivers for growth.

These factors are linked to the organic expansion of our fresh grocery supply chain capabilities. We're confident that in the future, these four growth drivers will be able to expand to the same scale as our current business lines, or even greater. Additionally, we have divided Dingdong's initial development into two stages. The first stage covers the seven-year period from our business establishment in 2017 to the present. representing the transition from zero to one. During this time, we have achieved profitability and have reached an annual revenue scale of more than 20 billion RMB. Looking ahead, the second stage will encompass the next seven years, representing the transition from one to 10. And we aim to achieve an annual revenue scale of 100 billion RMB. Thank you.

The next question comes from Bai Yang with CICC. Please go ahead.

I will translate it by myself. The management just mentioned that they anticipate in opening 18 new fronts new front line station this year. Will that increase pressure on the company's cash flow?

Thank you.

Thank you for your question. I'll let our CFO Wang Song answer it.

Okay, thank you, Mr. Liang. I'll answer this question in three ways. First, I'll briefly introduce our opening plan. Thank you, Mr. Liang.

I will address this question from three perspectives. First, let me provide a brief overview of our plan for the new frontline fulfillment stations. This year, we have initiated the opening of approximately 80 new stations with a focus on the Jiangsu, Zhejiang, and Shanghai regions. Our primary goal is to bolster our presence in these areas to support the company's long-term growth. As of the first half of this year, we have already achieved nearly half of our targets, and the average daily orders of these newly-opened stations are rapidly increasing to 800.

Our capital reserves are very plentiful. CRI is our release season at the end of every year. After the release of the end of the year, we still achieved a turnover of 2.5 billion yuan, which is the peak of this year. The free cash flow of the past 12 months was 5.1 billion yuan, which is also the peak of this year. As the company's scale of growth and profitability improves, Second, our capital reserves are very strong.

Each year in Q2, we distribute our year-end bonuses of the previous year. Even after distributing the bonuses, we achieved a net inflow of 0.25 billion RMB in operating cash flow, the highest in recent years. Our free cash flow in the past 12 months was 0.51 billion RMB, also the highest in recent years. As our scale increases and profitability improves, We expect a consistent increase in operating cash flow and free cash flow. At the end of Q2, the company had 2.32 billion RMB in cash on hand after repaying short-term loans, marking growth for four consecutive quarters. We estimate that the total capex investment for these 80 new stations will be around 40 million RMB. Therefore, we have enough self-owned funds to complete their opening without impacting our daily operating funds at all.

But thanks to our well-established infrastructure,

mature supply chain capabilities, and operational expertise in Jiangsu, Zhejiang, and Shanghai. Our newly opened frontline fulfillment stations have significantly improved in terms of scale and unit economics ramp up. We estimate that the new frontline fulfillment stations in Jiangsu, Zhejiang, and Shanghai can achieve operational break-even with only 500 orders daily per station. The ramp-up period is about three to six months. Our new frontline fulfillment stations processed an average of 800 orders daily in the first half of this year, and most of them are now breaking even at the operational level. As a result of this rapid progress, the new frontline fulfillment stations will not strain the company's operating cash. Additionally, these new stations will significantly contribute to our expansion and reach in the Jiangsu, Zhejiang, and Shanghai regions.

In summary, we have sufficient capital reserves to support our frontline fulfillment stations opening. The new stations are ramping up very quickly, so there will be no pressure on the cash flow, and they will help us maintain sustained growth. Thank you.

Once again, if you would like to ask a question, please press star then one to join the queue. As there are no further questions, I'd like to turn the call back over to our management for closing remarks.

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

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