Dingdong (Cayman) Ltd ADR

Good morning and good evening, ladies and gentlemen. Thank you for standing by and welcome to the Dingdong Limited First Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. Please note that the event is being recorded. I will now turn the conference over to the first speaker today, Nikki Zheng, Director of Investor Relations. Please go ahead, sir.

Thank you, hello everyone. Welcome to Dingdong's first quarter 2025 earnings call. With me today are Mr. Changlin Liang, our founder and CEO, and Mr. Song Wang, our CFO. You can refer to our first quarter 2025 financial results on our website at .m100.me. You can also access a replay of this call on our website. When it becomes available a few hours, update 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's prepared remarks are in R&B terms. And we will discuss non-GAAP measures today, which are more thoroughly explained and reconciled to the most comparable measures reported in our earnings release and the findings with the SEC. I will now turn the call to our first speaker today, the founder and the CEO of Dingdong, Mr. Liang.

Thank you, investors, analysts, and friends of Dingdong Grocery. Welcome to the 2020 Q1 financial analysis and the 2025 Q1 financial analysis. Dingdong Grocery has achieved a profit of 10 consecutive seasons under the non-GAAP standard, and has achieved a profit of 5 consecutive seasons under the GAAP standard. Income has also achieved a steady increase of 5 consecutive seasons. The steady growth and profit capabilities are the basis for the company's continued progress and solid foundation. In this meeting, I will report to you the situation of the management performance of the first quarter, the situation of the company's business, and finally, I will share with you the company's recent strategic thinking.

I will outline our operating performance in Q1, offer a thorough analysis of our product status, and discuss recent strategic insights.

In the first

quarter of 2025, Dingdong reported a GMV of 5.96 billion RMB, a .9% increase compared to the previous year. Revenue for the same period reached 5.48 billion RMB, a rise of .1% year on year. Non-GAAP net profit stood at 30 million RMB with a non-GAAP net profit margin of 0.6%. Gap of the previous year was .9% and non-GAAP net profit was 8 million RMB with a non-GAAP net profit margin of 0.1%. Building on the profits from 2024, we successfully achieved both profitability and growth in scale in the first quarter.

2025 Q1 is the first quarter of the four seasons of Dingdong's strategy of implementing good users, good products, good services, and good new products. We made a large number of adjustments in the company's target organization structure and assessment method. We continue to experience transitional challenges. Nevertheless, even amidst the difficult time of the transition, we have achieved the same growth.

The first quarter of 2025 marks the commencement of Dingdong's implementation of the 4G strategy, which emphasizes good users, good products, good services, and good mindshare. Significant adjustments have been made to the company's objectives, organizational structure, and evaluation methods. We continue to experience transitional challenges. Nevertheless, even amidst the difficult time we have achieved -on-year performance growth.

The average user turnover is over 830,000. The same growth rate is 11.1%. This is a good result in terms of user acquisition and flow transfer. The same growth rate of the user turnover is 2.4%. This proves that we have continued to optimize our commercial development capabilities and app display recommendations. Commercial products are more attractive to users. The user's route from shopping to shopping is more smooth. In terms of user connectivity, the monthly sales of the order frequency has reached 4.1%, and the same has been increased by 2.4%. We have created a high-quality shopping experience helping users to develop high-quality service habits. The growth of these data shows that the 4G strategy of good users, good products, good services, and good mindshare has achieved a good start. People often say that a good start is a successful start. We believe that we are doing the right thing and will start the development of positive flying wheels to achieve better results.

The growth in performance was primarily filled by higher user engagement in existing markets and our continued improvement in product development capabilities and optimization efforts. This quarter, the order volume rose by .1% -on-year with the average daily active user count surpassing 2 million, a .5% increase -on-year. This reflects strong market demand, enhanced appeal of Dingdong's products, and our upgraded product development capabilities. Regarding user conversion, the average daily transaction users exceeded 830,000, an .1% -on-year increase, owing to our effective strategies in user acquisition and traffic conversion. This conversion rate for ordering users improved by 2.4 percentage points -on-year thanks to the continued enhancement in product development, operational efficiency, ad-based recommendations, as well as the appeal of our offerings. This has created a more seamless transition from browsing to purchasing. Users' stickiness continued to increase with average monthly order frequency rising to 4.1 times, an increase of 2.4 times a percent -on-year, driven by our superior shopping experience that includes both products and services, which helps users cultivate a habit of frequent repartitions. The growth in these metrics mark a promising start of our 4G strategy, which emphasizes good users, good products, good services, and good mindshare. People often say that a good start is half the battle. We firmly believe that we're undertaking the difficult yet right course of action, which will undoubtedly activate a positive development flywheel and deliver better performance.

Another perspective, from an area perspective, Jiangzhou and Hubei are still the core sources of our growth. The G&V growth in the Shanghai area this quarter increased by 5.0 percent, while the G&V growth in Zhejiang and Jiangzhou was 17.8 percent and 13.9 percent. All cities in Jiangzhou and Hubei achieved the same growth, including Wenzhou, Huzhou, Nantong, and Tsinghua. More than 50 percent of the cities have achieved annual growth. In addition, the Huzhou and Fuzhou areas in Guangzhou have achieved the same growth of 40 percent. This year, we will continue to accelerate the progress of the G&V network layout in Jiangzhou and Hubei. As a result, Q1Mall has newly opened 14 G&Vs to focus on the G&V network layout and density optimization in the core areas. We will create a more efficient tourism system and a more efficient cost structure to promote overall operation efficiency and continue to improve.

Regionally, the Jiangsu, Zhejiang, and Shanghai regions remain our primary growth drivers. In this quarter, Shanghai's G&V rose by 5 percent -on-year, while Zhejiang and Jiangsu saw increases of 17.8 percent and 13.9 percent respectively. All cities within these regions reported positive -on-year growth. Notable mentions include Wenzhou, Huzhou, Nantong, and Tsinghua, each surpassing 50 percent growth. Additionally, Huizhou and Foshan in the Guangzhou, Shenzhen area experienced over 40 percent -on-year growth. This year, we are further accelerating the deployment of our front-line fulfillment stations in Jiangsu, Zhejiang, and Shanghai. By the end of Q1, we had established 14 new front-line stations. By strategically optimizing the layout and density of our front-line fulfillment network in key areas, we aim to create a more efficient fulfillment system and enhance our cost structure, thereby continually improving overall operational efficiency.

In the fourth quarter of last year, the company has unified its knowledge, and worked together to enhance the quality of our products and develop our diversified goods. After determining the four-stage strategy for good use, good products, and good service, we have established a competitive goal and a business relationship with the strategic mission. In the first quarter, we have established a diversified goods development and performance reward system which is responsible for the whole life cycle of the products.

In the last quarter of 2024, the entire company aligned around a shared understanding, which is we work together to improve product quality and develop differentiated products. After determining the 4G strategy of good users, good products, good services, and good mindsharing, we established performance goals and organizational structures that support these strategic objectives. As a result, in the first quarter, more and more differentiated and good products appeared on our app and gained user popularity, driven by methods such as restructuring the product business unit, establishing an incentive scheme that rewards the development of differentiated and good products, creating a product life cycle accountability system, having core executives visit product sources, and requiring product developers to respond to consumers' negative reviews personally.

The Heshuatian Australian Beef and Beef Steak has gained the Golden Radish Award by its high quality Australian beef and beef raw materials and market-specific knowledge. Since its launch in early March, consumers have been quickly attracted to it. The sales of the products are about 3.4 million yuan. The price of the products including Heshuatian Australian Beef and Beef Steak and other products is 139 yuan. The average value of the large plate is doubled. Our product development team has also been highly educated and has gone into every aspect to ensure that every product meets the high standards of Dingdong.

For instance, our meat products showcase the strength of our six self-operated meat factories which drive our product innovation. After establishing the trusted daily fresh brand, we introduced the Heshuatian brand, emphasizing health and taste, along with the premium black pig pork label, Black Diamond Family. Furthermore, we began expanding our focus on the deprocessing sector within the leisure goods segment, emphasizing health trends, selecting premium raw materials and crafting healthy, tasty daily preparations and snacks. For example, our Heshuatian Australian Grain Fed Wagyu Beef Cribs recently won the Golden Carrot Award during our Good Product Competition thanks to its top quality Australian wagyu beef and distinctive cheese flavor. Since its early March launch, it has rapidly gained popularity among consumers, achieving sales of around 3.4 million RMB. Orders that include this item recorded an average order value of 139 RMB, outperforming the company average by nearly 100%, demonstrating how good products attract good users. Our product development team prioritizes quality and meticulously examines every stage to ensure that each product meets Dingdong's high standards.

Our product development team also uses their professional skills and passion for products to attract users. For example, the Heshuatian Australian Grain Fed Wagyu Beef Cribs and the Grain Fed Wagyu Beef Cribs won the Golden Carrot Award during our Good Product Competition and their developers are known as the Bala and the Bala.

Moreover, our product developers have won over users with their dedication and professionalism. For instance, our users are known as the Bala and the Bala. Users fondly refer to our product creators as Guava Sister and Sorryfish Brother on social media because they developed the acclaimed tree ripe rich cream guava and yangxin jiangyuan, spring fresh wontons and sorryfish and shepherd's purse, both of which won awards in our product competition.

Everyone knows that the current traffic environment is facing a lot of challenges. We also see that the market is struggling to survive and that the market is experiencing a lurching and fierce competition. Everyone is worried that Dingdong Buying and Buying and Buying may continue to win in the fierce competition and even worried that Dingdong Buying and Buying may continue to survive. So how do we look at the current situation and where is our advantage and opportunity in the face of the competition?

challenges. The instant retail sector has become markedly saturated with competitors resulting in heightened competition. There's a common concern about Dingdong maintaining profitability amidst fierce rivalry and there are apprehensions regarding the sustainability of Dingdong as a viable entity. In the case of this competition, what advantages and opportunities do we possess?

First of all, we are very fortunate that in the past competition, we have not been left behind but have been able to stick to the essence of business, through a mode of self-sufficiency, self-reliance and strengthening the core areas. During all the competitive stages, we have been able to stay stable and fight against the harshness of the deep-dive hole. Today, we have not only a strong technical class, but also a solid foundation for self-reliance and our cash reserves are also relatively sufficient and continue to gain profit. All of this has given us the foundation to continue to win the competition.

In

conclusion, we have the following core advantages in this year's fierce competition. First, the solid ability to maintain profitability. The Dingdong Mall's startup center is going to provide quality and healthy food to consumers. From the start, we have understood that we cannot make a difference in the The most important thing is that in the process of transforming the body, we have established a powerful IT system to ensure that we can continue to optimize costs, improve efficiency, and be able to make the ability to make a contribution to more areas and fields.

In conclusion, in the context of today's intense competition, we have identified the following core advantages, robust supply chain capabilities. The company was founded to provide consumers with healthy and high-quality food ingredients. From the inception of our operations, we recognize that our role could not be limited to merely serving as an intermediary or sales channel. Rather, we had to delve deeply into each aspect of the supply chain to enhance quality and improve efficiency. We engaged comprehensively in every stage of the process, including cultivating and producing food ingredients, sourcing, logistics, and warehousing, grading and packaging, food research and development, distribution operations, and delivery to consumers. We referred to the strategic approach as narrow and deep, as narrow as an inch, yet as deep as a mile. Our operational product categories and revenue scale may not highlight a competitive advantage, but we have a substantial lead in enhancing and strengthening the supply chain. Importantly, throughout the transformation and upgrading of our supply chain, we have established a robust IT system that enables us to continuously optimize costs, enhance efficiency, and replicate our supply chain capabilities across various regions and sectors.

Recently,

we have formed a strategic partnership with the DFI Group based in Hong Kong. DFI is a recognized leading global trading and retail company. While they have previously explored cooperation with numerous Chinese companies, they ultimately chose to partner with Dengdong. Their decision is driven by Dengdong's robust fresh grocery supply chain capabilities and advanced IT system capabilities. This, in turn, is a testament to our supply chain effectiveness. Due to our robust supply chain capabilities, we have evolved beyond a conventional retail company, thus positioning ourselves to withstand the intense competition within the instant retail market. As time progresses, the advantages of our supply chain will become increasingly apparent, generating problems for the profit margins that substantially surpass those of instant retail enterprises. Distinct positioning. Our competitors are mostly positioned as online supermarkets, while Dengdong focuses on quality ingredients and products. They mostly follow a simple and efficient strategy of providing high-quality strategy that is wide as a mile, yet as shallow as an inch. In contrast, we have our approach of being narrow as an inch, yet deep as a mile. Competitors rely on price wars for customer traffic, whereas we prioritize quality and service to attract users. Operational data shows that we outperform competitors in key metrics of user trust and quality, such as AOV, repurchase rate, gross profit margin, and satisfaction. While some see us as a basic retail service, we are a full-chain fresh-groceries supply chain company, driven by digital technology. We have established a strategic partnership with DFI in Hong Kong. Concurrently, in the international markets, we are fostering in-depth cooperation with HKTV Mall in Hong Kong, Fair Price in Singapore, and retail groups in Central Asia and the Middle East. On one hand, we provide advanced IT capabilities to these excellent retail partners to enhance their fresh grocery supply chain efficiencies. Simultaneously, we also introduce a new strategy to use China's high-quality ingredients and culinary offers to overseas markets. In the domestic market, we have formed strategic partnerships with numerous agricultural and food research and development institutions and agricultural and food companies. We use our retail and supply chain to develop and develop our retail and supply chain capabilities to empower these organizations to foster and foster collective growth.

In the domestic market, we have established a partnership with Goyu Food Group. In the research, production, and development of organic, meat, and vegetable products, we are at the top of the country. Goyu's products are sold to many channels outside of the digital market. They keep growing quickly in terms of scale and profitability. For example, everyone knows that Li Jingji is a well-known food and condiment company. Li Jingji used to sell his own products to retail companies. Only by selling organic food to Li Jingji, we can break through Li Jingji to more overseas channels and sell our products to Li Jingji to improve our commercial capabilities and future development potential.

The Goyu Food Seasoning Company has traditionally sold its products to retailers. Now, we are the sole provider of pre-prepared meals to Lee Kum Kee, facilitating broader overseas distribution of our products. This collaboration highlights our product capabilities and future development potential.

The Goyu Food Seasoning Company is a very successful organization. We have been able to make a lot of money from our business. We have been able to make a lot of money from our business. We have been able to make a lot of money from our business.

We have been able to make a lot of money from our business. We have been able to make a lot of money from our business. We have been able to make a lot of money from our business.

We have been able to make a lot of money from our business. We have been able to make a lot of money from our business. We have been able to make a lot of money from our business. We have been able to make a lot of money from our business. We have been able to make a lot of money from our business. We have been able to make a lot of money from our business. We have been able to make a lot of money from our business. We have been able to make a lot of money from our business. We have been able to make a lot of money from our business. We have been able to make a lot of money from our business. We have been able to make a lot of money from our business. We have been able to make a lot of money from our business. We have been able to make a lot of money from our business. We have been able to make a lot of money from our business. We have been able to make a lot of money from our business. We have been able to make a lot of money from our business. The more unique products there are, the more users are satisfied. The more people read the posts and the more efficient they are. As time goes by, these advantages become more and more obvious. Behind this is our powerful, variable, and anti-crime organization ability.

We have also restructured our organization to help our management team adapt quickly to the changing needs of the business. This year, to strengthen our supply chain and create competitive advantages, we have introduced the 4G strategy focusing on good users, good products, good services, and good mindshare. This shift has led to a significant overhaul of our structure, where our core executives have taken on new roles in product development and improving our supply chain capabilities. Everyone on the team is focusing on the big picture, embracing the new responsibilities with enthusiasm. After five months of hard work, we've begun to see some great results. Ding Dong is rolling out more unique and high-quality products. Our users are happier than before, and our supply chain efficiency is steadily improving. As we continue moving forward, these benefits are becoming even more obvious. This really highlights our strong organizational ability to adapt and bounce back in the face of adversity.

Because Ding Dong's positioning is different and we have a unique advantage, we believe we will benefit from our failures And as time goes by, our advantages are becoming more obvious. Especially with the gradual development of this strategy, we will quickly move out of the pain zone brought by the changes. Soon, there will be a large increase in sales, and the improvement and optimization of our business and profit rate will be increased.

With Ding Dong's distinct positioning and unique advantages, we're confident that we can remain competitive in various competitive landscapes. Over time, our advantages will become increasingly evident. Particularly as this strategic adjustment is progressively implemented, we anticipate a swift recovery from the short-term challenges induced by the transition, leading to a substantial enhancement in sales volume, increased innovation within our business practices, and further optimization of our profit margins.

In 2025, we expect Q2 to continue to maintain the same growth in scale and continue to achieve the profit margin of the non-GAAP. We are still in the period of the change, but this period will pass quickly. By the end of this year, Ding Dong's advantages will be very obvious. We expect that the performance scale and profit rate will increase significantly. That's all for my speech. Thank you. Next, let's have CFO Wang Song introduce the financial situation of the company.

Finally, I'll provide an update on the outlook for Q2's future. In 2025, we anticipate maintaining -on-year growth in scale and achieving non-GAAP profitability for the second quarter of 2025. We're still in the transitional phase of transformation, but this period will pass quickly. By the end of the year, Ding Dong's advantages will be distinctly evident. We expect significant growth in both performance scale and profit margin by then. This wraps up my speech. Thank you. Now, I would like to invite our CFO Wang Song to discuss the company's financial performance.

Thank you, Mr. Liang. Before I introduce our financial situation, I would like to make it clear that all our figures are in RMB.

Thank you, Mr. Liang. And hello, everyone. Before I review our financial performance for the quarter, for the first quarter, please note that all of our figures are in RMB.

In 2025, Q1, Ding Dong's profit margin has reached RMB .4.8 billion, with a .1% increase in the same proportion. The 5 consecutive quarters have the same growth. The current revenue of the company is RMB 0.3 billion, and the current revenue of the company is RMB 8 million. The current revenue of the company is RMB 0.85 billion. The company continues to maintain its positive profit and its positive current revenue. After the Q1, Ding Dong's profit margin has reached RMB 7 billion. Our actual free capital margin is RMB 28.9 billion. We will continue to maintain our positive profit margin. This year, we will firmly stick to the 1-cent profit margin, a -kilometer-long value, and continue to upgrade our business and serve our customers well. In the construction of quality, stability, and supply stability, we will take our own path of diversification.

We are now at the end of the Q1. We are now at the end of the Q1. We are now at the end of the Q1. We are now at the end of the Q1.

We are now at the end of the Q1. Our profit margin is RMB 64.6 percent. The profit margin has increased by 1.4 percent.

The number of monthly transaction users in Q1 reached a record high in recent years, averaging 64 percent, an increase of 4.8 percentage points year on year. The number of monthly transaction users rose by 10.3 percent year on year, and monthly transaction members grew by 12.6 percent year on year. Additionally, cities such as Wenzhou, Huzhou, Nantong, and Jinhua demonstrated a strong growth momentum, achieving over 50 percent year on year growth. Furthermore, our 2B business has shown solid growth, boasting a revenue increase of 64.6 percent year on year and a rise in revenue share of 1.4 percentage points year on year.

by investing in good products and using the spirit of the craftsmen to deepen our expertise to boost our core competitiveness. In addition, we have benefited from our ability to predict and operate the smarts. We can better match the needs of our users and improve the efficiency of our products and the ability to balance out the shortcomings. The overall growth rate is 11.7 days on average, with an increase of 2.8 percent in efficiency. At the same time as the loss is stable, the total product demand is 1.8 percentage points

lower. The gross profit margin was 29.9 percent, down 0.7 percentage points from last year. This decline in gross profit largely stems from our increased investment in high quality products. The introduction of more quality items and our commitment to removing less favored products. Additionally, consumers benefited from our dedicated efforts in optimizing the supply chain. Moving forward, we will persist in nurturing quality products, focus on in-depth research with the craftsmen's dedication, and strengthen our core competitive edge. Moreover, by utilizing our intelligent forecasting and operational scheduling capabilities, we aim to better meet user needs and improve the efficiency of our inventory turnover and defect management. The average turnover days improved to 11.7 days, a 2.8 percent increase in efficiency year on year. While the loss rate remains stable, the -of-stock rate for leading products decreased by 1.8 percentage points compared to last year.

The profit margin was 29.9 percent, a 0.1 percentage point increase in efficiency year on year. The profit margin increased mainly because of our investment in overseas products, a 0.4 percentage point increase in the profit margin. The domestic inventory turnover is still increasing. Q1's inventory daily volume increased by 2.6 percent, and the impact of the new inventory has not been considered for 20 years. The old inventory daily volume increased by 5.3 percent. At the same time, we continue to provide spring-summer -to-play service to users in the new year. We use the calculation and supply-power management capabilities to bring good service to users. Q1, even when the monthly market is 5 minutes shorter, it reaches 34 minutes.

The fulfilling cost rate rose to 22.9 percent, up 0.1 percentage point from the previous year. This increase primarily stems from the company's overseas investment, representing about 0.4 percent of revenue. Meanwhile, the domestic front line fulfillment stations further enhanced their efficiency with a 2.6 percent -on-year rise in average yearly order volume per station for Q1. If we exclude the effect of newly added stations since 2024, the average daily order volume at established stations saw a -on-year increase of 5.3 percent. During the Lunar New Year in 2025, we also provided users with our non-closing services, leveraging algorithms and operational capabilities to deliver quality services. In Q1, the fulfillment time for ASAP orders was reduced by 5 minutes -on-year, bringing it down to 34 minutes. The sales and marketing expense rate was 2 percent, a decrease of 0.2 percentage points -on-year. Moving forward, we aim to boost our investment in customer mindshare by utilizing high-quality products to drive traffic and improve delivery conversion efficiency. Management and R&D expenses represented 5.7 percent of revenue, a 0.2 percentage points decrease -over-year. Primarily due to economies of scale, we are committed to continuing our investment in food R&D, agricultural technology and data algorithms, which will enhance our product development and full-chain digital capabilities, thereby boosting supply chain efficiency.

In this quarter, we also achieved 0.1 percent of profit margin. In Q1, the cash and -the-cash add-on, short-term revenue and short-term investment, are 42.9 billion yuan. We continue to optimize the efficiency and financing structure of funds.

As of the end of Q1, our cash and cash equivalents, along with our short-term restricted funds and investments, totaled 4.29 billion RMB. We remain focused on optimizing capital use and our financing structure. After accounting for short-term loans, our net balance of funds stands at 2.89 billion RMB. This concludes my prepared remarks. Operator, we can now start the Q&A session.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. 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 state 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 Jeffreys. Please go ahead.

Good evening. Thank you for your questions. Congratulations on your excellent results in this quarter. In your two speeches, you have repeatedly mentioned the 4G strategy for the telephone buying. Could you please share this strategy with us? In order to implement the 4G strategy, the telephone buying has made some adjustments. In the long run, what benefits will the 4G strategy bring? Thanks, management, for taking my questions and congratulations on a solid set of results. In the speech, Mr. Liang emphasized Dingdong's 4G strategy multiple times. Could you elaborate about the 4G strategy? What changes has Dingdong made to execute the strategy? Over the long term, what advantages will the 4G strategy provide to us? Thank you.

Our team has always been determined to take the strategy seriously. We have carefully analyzed the consumer trends and the competition the company is facing. We have realized that if we want to establish a real competition and gain long-term development opportunities, we must compete with the current market. In this respect, we must further develop our public advantage.

Thank you for your question. As you are aware, we delivered a strong performance in 2024. Nevertheless, our team remains cautious. At our strategic meeting at the end of 2024, we closely examined consumer trends, competition, and Dingdong's unique strengths. We understand that to create genuine competitive barriers and secure long-term growth opportunities, we must differentiate our approach compared to our current competitors. Simultaneously, we need to maximize our supply chain advantages. Let's examine the current competitive landscape. We tell customers typically one of the most competitive. We want more faster, better, and cheaper. However, in today's market, where supply is ample, more no longer holds an advantage. An industry standard of 30-minute delivery has erased the competitive edge of speed. Many competitors are still fixating on cheaper. Dingdong takes a different approach. We don't excessively pursue cheaper anymore. Instead, we have introduced what we believe is a better strategy. This income has good users, good products, good services, and good mindshare, which we refer to internally as the 4G strategy. This strategy aligns with our original intention when we started the business. Right from the beginning, our goal has been to provide children with the best education, with healthy and safe food. Although circumstances have changed over time, our commitment to this principle remains steadfast. Furthermore, good quality is central to the food industry. The saying, you are what you eat, underscores the importance of healthy eating for children's growth, balanced development for adults, and overall health and longevity for the elderly. It can even be said that quality food is essential for a nation's strong development. However, you get what you pay for reminds us that an excessive focus on low prices can compromise product quality and hinder healthy industry growth. However, when we consider our strengths, our deep engagement and long-term investment in the supply chain stand out. Only companies like ours with deep roots and dedication in this area can deliver on the promise of good quality.

We have been working together for many years to create a unified understanding. We have adjusted our target assessment. For a period of time, we have not set the target of GMV and profit rate. We only look at the good product ratio, good user ratio, the customer recovery rate, and the customer poor quality. We have also deeply adjusted the production relationship. We have built the original product development center on the organizational framework. We have organized the product development, product operation, and product management. The entire company has established 10 independent business departments, and the core executives of the company lead each business department. This way, the business development team can really leave behind their own experience and develop truly differentiated products. This organizational framework has also allowed the entire company to truly care and understand the products, understand the process of product development, and make differentiated products. In addition, this organizational framework has also allowed every company's department to truly serve good products, continue to improve efficiency, and create value in the whole process of product development.

Achieving cheaper is straightforward. If you maintain low prices, you can draw in consumers and boost sales. However, striving for better is far more challenging. It involves doing 10,000 small things right and demands a systematic long-term approach. To facilitate this, we have repeatedly held internal brainstorming sessions to develop a unified understanding. We have adjusted our performance metrics, and for a period of time, we're focusing solely on the ratio of quality products and satisfied users, monitoring user repurchase rates, and paying attention to negative reviews. Instead of GMV and profit margin metrics, we also reshape our fundamental challenges to internal structure. We dismantle the original product development center and integrate product development, product operation, and quality control teams into independent business units, each led by a core executive. This setup empowers the product development team to abandon conventional thinking and focus on creating distinctive quality products. Additionally, this organizational adjustment fosters a genuine commitment across the company to fully understand and enhance products, leveraging the supply chain in product development and create unique quality offerings. Furthermore, this restructuring enables each functional department to effectively support quality products, continuously boost efficiency, and create value throughout the product development process. Such a transition will entail a challenging period that compels us all to leave our comfort zones, impacting our rapid scaling and profit margins in the near term. However, to truly succeed, we must embrace a disruption and persevere through the tough times. Even though just five months have passed, we have noted an uptick in the proportion of quality products, an increase in the number of good users, a rise in the user repurchase rate, and more positive feedback on the Dingdong app and social media. Unlike typical retail transformation that are often initiated, external changes are often not as effective as internal changes. Additionally, our approach is an inside-out transformation. While this method may not be widely noticed externally and results may take time, it promises ongoing fundamental improvements. Over time, substantial and transformative changes will occur, significantly enhancing our scale, optimizing profit margins, and fostering genuine core competitiveness that withstand competition. Thank you.

Thank

you.

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

Thank you, Mr. Director, for answering my question. Mr. Liang also mentioned the internal subculture of Gu Yu Food Group. Could you please introduce the relevant business situation? Mr. Liang also talked about the internally incubated Gu Yu Food Group in his speech. Can you give an overview of the current business situation? Thank you.

Thank you for your question. Our CFO is better equipped to address this matter.

Thank you, Mr. Liang. I can introduce the four aspects of Gu Yu's strategic positioning, scale growth, product development, and sales progress. First, Gu Yu is a strategic business that was started in early 2020. It symbolizes our transformation from a food supply chain that we have set up in full chain. We have implemented a complex of the supply chain through the construction of our own factory. We have covered the development of raw materials, raw materials, and the cultivation and planting of the raw materials. We have also worked on the production and processing of the raw materials, and the final sales of the raw materials. We have also strengthened our control over the quality of our products, the cost, and the performance. Currently, we have formed three major business departments in the meat, vegetable, and bones. We have also built and set up 12 self-sufficient factories in more than 540,000 square meters in six cities. We have equipped them with an automated production flow line to strictly control food safety and improve the flavor and quality of the products. In the future, we plan to turn Gu Yu into a symbol of Dingdong, a leading company in the industry, and to become a consumer and provide more beautiful products

for consumers. Thank you, Mr. Liang. I can introduce Gu Yu through four key aspects, strategic positioning, scale growth, product development, and export progress. First, Gu Yu is the strategic business unit that the company began to incubate in early 2020. Marking our transformation into a food supply chain company with a comprehensive industry layout, we achieve vertical integration of the supply chain through self-built factories in compressing a closed loop from product research and development, joint farming and planting of raw materials and ingredients, production and processing to terminal cells, thereby strengthening our control over product quality, cost, and timeliness. Currently, we have established three major business units, meat, pre-prepared meals, and grains, and have built 12 self-operated factories spanning more than 54,000 square meters across six cities, equipped with automated production lines that strictly control food safety while enhancing the flavor and quality of products. In the future, we plan to position Gu Yu as a benchmark for Dingdong and even the industry, providing consumers with even more exceptional products.

In 2020, Gu Yu's GNV on Dingdong was about 50 billion yuan, and the annual growth was nearly 200%. The sales on Dingdong was about 20%. At the same time, we officially launched sales in 2023. In just two years, sales revenue in 2024 was about 300 million yuan, and the same number of points was about 150%. In 2025, Q1's revenue was over 100 million yuan, and the same number of points was nearly 120%. We expect this year's sales revenue to reach 600 million yuan. By 2027, the sales revenue in Gu Yu will exceed 50%.

Second, over the past five years, Gu Yu's production and processing capacity has grown rapidly, with an average annual growth rate of over 40%. In 2024, the GNV of Gu Yu products on Dingdong was approximately 5 billion RMB, with a cager of nearly 200%, accounting for about 20% of sales on Dingdong. We officially began exporting in 2023. In just two years, export revenues in 2024 reached about 300 million RMB, a -on-year growth rate of about 150%. The revenue in Q1 of 2025 surpassed 100 million RMB, a -on-year growth rate of nearly 120%. We anticipate that export revenues this year will reach 600 million RMB, and expect that by 2027 exports will account for more than 50% of Gu Yu's revenues.

Third,

we prioritize quality as our core value and meticulously refine our product development capabilities. Currently, we have established a product mix with distinctive features in meat, grains, and pre-prepared meals.

We are also working on the production of pork, beef, and lamb, and the production of pork and lamb. In 2025, we plan to increase our?meetings to 15-20

black, diamond, and diamond shops. The Black Diamond Family brand focuses on high-end black pork. We have established a black pig farming base in partnership with Gauteng Food, engaging ourselves in source breeding, selecting high-quality varieties, and employing coarse-grained grains for a 300-day slow-raising period. In 2024, the GMV of the Black Diamond Family reached about 200 million RMB, with an annual growth rate of 30%. Meanwhile, the offline store of the Black Diamond Family will also ramp up expansion. By 2025, we plan to increase the existing five Black Diamond Family stores to between 15 and 20.

The Black Diamond Family is a joint venture between the Chinese Food and Food Industry, the Chinese Food Industry, and the Chinese Food Industry. The two factories have received the FSSC-22 system certification and the FDA registration project. Not only does the trademark production system reach the top international security control level, but also enters the global high-end market. In 2020, the GMV of the Black Diamond Family reached about 600 million RMB, with an annual growth rate of 22%. The monthly return rate is 40%.

We have three grain factories producing rice, flour, and bean products. We have incubated brands such as the Black Diamond Family and Dou Zhi. For instance, the Black Diamond Family has introduced intangible cultural heritage craft and collaborated with -star-carrying chefs, universities, and multinational companies, all while remaining the essence of traditional craftsmanship to make product innovation more dynamic. As a result, this label has skillfully created products that highlight regional traits, incorporate traditional craft, and promote children's health, among other features. Two of the factories have obtained the FSSC-22 certification and the US FDA registration, which indicates that the production system has reached the highest level of international safety control and paves the way for entering the global high-end market. In 2024, the GMV of Liangxin Jiangren was about 600 million RMB, with an annual growth rate of 22% and an average monthly repurchase rate of 40%.

In terms of fish dishes, we currently have three factories producing meat products, seafood products, and salad fruit. The core of the brand is the deep-seated consumer trend. Based on the data of the whole market, the advanced production technology and the three thousand-many flavor codes, we have developed a healthy fish dish with a regional flavor characteristic. For pre-prepared

meals, we currently operate three factories that cover categories such as meat products, aquatic products, and salads and fruit cuts. With the Cai Changqing brand as our foundation, we developed a wide range of products, including the We have developed a wide range of products, including the We have developed a wide range of products, including the We have developed a wide range of products, including the We have developed a wide range of products, including the We have developed a wide range of products, including the We have developed a wide range of products, including the We have developed a wide range of products, including the We have developed a wide range of products, including the We have developed a wide range of products, including the We have developed a wide range of products, including the We have developed a wide range of products, including the We have developed a wide range of products, including the We have developed a wide range of products, including the We have developed a wide range of products, including the In 2020-2024, the GMV of Cai Changqing was approximately In 2020-2024, the GMV of Cai Changqing was approximately 1.1 billion RMB, with a -on-year growth rate of 27% and an average monthly repurchase rate of 40%.

pois Besides serving

Dingdong, GuYi's products are competitive directly in a broader market due to their high quality. Currently, our products are sold not only in domestic chain channels such as Lianhua Supermarkets, Jingdong 7 Fresh, and Hwaju Hotels, but also in international market where we have distributed our products to over 30 countries and regions through partners like Lee Kum Kee, Hong Kong BFI, and TNT Supermarkets from Canada. Furthermore, we are establishing in-depth cooperative relationships with HKTV Mall in Hong Kong, Fair Price in Singapore, and retail groups in Central Asia and the Middle East. In the future, we will leverage all data production and R&D capabilities to develop products that cater to various channels.

The evolution of Gu Yu

serves as a testament to Dingdong's full industry chain capabilities and the genuine potential of our narrow and deep strategy. It not only enhances Dingdong's product competitiveness, but also effectively establishes a robust, modern, and internationally-oriented, rapidly developing, expanding, and high quality food enterprise. Thank you.

As there are no further questions, I'd like to return the call 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 website. We look forward to speaking with everyone in your 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.