ATRenew Inc.

Good morning and good evening, ladies and gentlemen. Thank you for standing by and welcome to ATRenew, Inc.' 's first quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. We will be hosting a question and answer session after management's prepared remarks. Please note today's event is being recorded. I will now turn the call over to the first speaker today, Mr. Jeremy Gee, Director of Corporate Development and Investor Relations of the company. Please go ahead, sir.

Thank you, Drew. Hello, everyone, and welcome to ATR News' first quarter 2024 earnings conference call. Speaking first today is Kerry Chen, our founder, chairman, and CEO. And he'll be followed by Rex Chen, our CFO. After that, we'll open the call to questions from analysts. The first quarter 2024 financial results were released earlier today. The earnings release and investor slides accompanying this call are available at our IR website, ir.atunew.com. There will also be a transcript following this call for your convenience. On today's agenda, Kerry will share his thoughts of our quarterly performance and business strategy, followed by Rex, who will address the financial highlights. Both Kerry and Rex will join the Q&A session. Let me cover the safe harbor statements. Some of the information you'll hear during our discussion today will consist of forward-looking statements, and I refer you to our safe harbor statements in the earnings press release. Any forward-looking statements that management makes on this call today are based on assumptions as of today, and that AT Renew does not take any obligations to upgrade our assumptions on these statements. Also, this call includes discussions of certain non-GAAP financial measures. Please refer to our earnings press release, which contains the reconciliation of non-GAAP measures to GAAP measures. Finally, please note that, unless otherwise stated, all figures mentioned during this conference call are in RMB, and all comparisons are on a year-over-year basis. I'd now like to turn the call over to Kerry for business and strategy updates.

Hello everyone and welcome to HRE News first quarter 2024 earnings conference call. We are very pleased to share with you our recent developments, pivotal growth drivers and business strategies. In terms of revenue, the total revenue of the first quarter reached 36.5 billion yuan, reaching the high end of the revenue guide zone, with a growth of 27.1%. Among them, a batch of product revenue contributed to the main growth drive, with a growth of 28.5% to 33.1 billion yuan. After that, the growth drive of EBE business will be fully opened. The 3P platform revenue of 3.4 billion yuan has achieved a 15.1% growth rate. The platform revenue has recovered double in two consecutive seasons. There has been a growth in the business of Paiji Tang and PaiPai, which are two trading platforms. There has also been a contribution of multi-level recovery, which has increased the profits and operating profits of the company. Let's begin with some first quarter financial highlights. On the top line, our total revenues increased by 27.1% to 3.65 billion, the high end of our guidance. Net product revenues from 1P business

continued to be the primary growth driver, increasing by 28.5% year-over-year to $3.31 billion. Later on, I will elaborate on the growth drivers of our 1P business. Net service revenues were $341 million, marking year-over-year growth of 15.1% and continuing its double-digit growth. This was attributable to the growth of PJT and PiPi Marketplace service revenues and multicat-grade restructuring service revenues which contributes to the company's growth and operating profits. In terms of profit, Nungap operating income for the first quarter was $80.2 million, and our Nungap operating margin increased by 70 basis points year-over-year to 2.2%, representing meaningful improvements.

In terms of strategy, Nungap insists on the core development logic of the second-hand industry, At the scene of recovery, we insist on the best conversion scene of Jingdong Apple's official exchange, and the best conversion scene of the recovery door. Low cost, high efficiency, lock the first-hand high-quality goods. We build its quality and service newness through the scene of goods. At the supply chain, we continue to improve the operating efficiency through the automation. Through the standardization of the harmonization, the standardization of the standardization of non-standard second-hand products,

strategically, we remain committed to our core development principles, which focus on developing recycling scenarios and supply chain capabilities. On forcing used products, we continue to leverage effective user conversion scenarios to secure first-hand high-quality supplies through JD.com, Apple's official trading program, and our offline AHS recycle stores. We acquire customers and build our brand through these scenarios. On the supply chain, we enhance operational efficiency through our next-level automated quality inspection systems. With compliant refurbishment, we also improve product standardization and customer access to more ample choices of like-new electronic products.

回收场景是爱回收EP业务的壁垒。就三个主要的来源来看,第一, The return rate of old-age Huanxin in the Jingdong retail scene has been further increased, and the attention of second-hand businesses in Jingdong continues to increase. Since the State Council issued a notice of large-scale consumption of old-age Huanxin action plans, we have seen that some cities have launched local-level action plans, and brand manufacturers have also actively launched supply plans to promote old-age Huanxin. Jingdong has launched a special support plan to implement the old-age Huanxin of 3C digital products. The total of RMB3 billion will be added to the Renewable Energy Supply. The goal is to move the sales of new products to more than RMB1 billion in the next three years. In the implementation process of this project, Jindong will join hands with mobile phone 3C exclusive recovery partner Ai Recovery to jointly strengthen the construction of end-to-end supply chain capabilities. Occupying these precise recycling scenarios fortifies the competitive edge of our 1P business. Firstly, JD.com continues to bring strong momentum to the growth of our product revenues.

As JD pays greater attention to the secondhand goods business, our recycling and trade-in business penetrated further to JD's new product sales business. In addition, in March 2024, China's State Council released an action plan to promote large-scale trade-ins of consumer goods, and municipal action plans followed. Brand manufacturers are also enthusiastically participating by offering trade-in promotions. JD has announced the launch of a dedicated plan promoting trading for consumer electronic products, which include a $3 billion RMB subsidy. The goal is to drive new product sales exceeding $100 billion RMB in the next three years. To implement this initiative, JD has partnered with AHIS Recycle, its exclusive used consumer electronic supply chain partner, to enhance end-to-end solutions and continuously optimize the service process and user experience related to trading. In the first quarter of 2024, the growth resulting transaction value of trading products sourced from JD.com increased by 43% year-on-year. Together with JD.com, we will continue to strengthen strategic cooperation.

Second, in the scene of Apple's official recovery, we provide competitive prices for Apple Store and 47 Apple Store retail stores. and through Apple Power, provide users with a simple and elegant recovery experience. Users can participate in the replacement, upgrade of equipment, and save money. Due to Apple's official channel special pricing mechanism and some market factors, last year's four seasons of operation had some negative effects on the profit margin. But from this year on, we have optimized the recovery pricing strategy. We believe that Apple is irreplaceable in the mainstream market and the position of the user's heart. We will continue to optimize services through cost-controllable high-quality members to acquire routes and more efficient sales capabilities for popular models to acquire stable business profits.

For trading originating from Apple's official program, we serve Apple's customers with competitive offers through Apple's official website and 47 Apple stores in mainland China. At these flagship retail stores, Apple staff provides hassle-free trading services. Customers pay a smaller amount of money when buying a new device if they choose to trade in. It's a joyful way to upgrade electronic products. due to Apple's unique pricing mechanism and some market factors. In the fourth quarter of 2023, it had a negative impact on our gross profit margin. However, since 2024, we have optimized our front-end bidding strategy. Our approach is rooted in Apple's presumed customer mindshare, especially in major cities in China. Looking ahead, we remain committed to optimizing our services by, first, obtaining high-quality products through more disciplined sourcing costs. And second, improving sales efficiency for popular models. We believe these measures can ensure stable operating profits for the Apple business.

Third, at the Apple store, we open our own stores in the first and second-tier cities, focusing on recycling and sales, to catch up with the recycling and transformation needs of the first and second-tier cities' mainstream users. In the three to five-tier cities, we open joint stores and combine standard stores. You shall so we do. We so we do. So I do. So I can see how they you got into our. I mean, I don't want you to get done. I saw you. Yeah. So we do. So we do. So we do. You do. You do more. You do more. I mean, I do. I mean, I do more. I mean, I do more. I mean, I do more. I mean, I do more. I mean, I do more. Compared to the same period, it has achieved quality growth, and it has consolidated the first-hand source of the second-hand mobile phone and third-hand business market. The second-hand store and the chain-based standard store are always our core service users. Complete recovery and delivery to ensure that the user experience continues to improve. It is also a scene that mainly contributes to the profit and operation of the store's income and operating profits. Third, we further leverage our offline source.

We have open self-operated stores in first and second tier cities that mainly focus on refluxing and standard jointly operated stores in a broader mass market with a focus on retailing as well as refluxing. As of the end of March, we had 711 self-operated AHS stores and 557 standard joint operated AHS stores. Both store formats have achieved quality growth compared to the same period in 2023. These standard stores ensure primary sources of product supply, and they are crucial user touchpoints as we provide recycling and trading services with a premium user experience. In addition, they generate revenue and operating profit at the store level. In contrast, for the shopping shop format that opens in offline retail scenarios, we have made some adjustments migrating them to PJT sellers or using doorstep collection. The adjustment of shop-in-shop format has reduced the total number of our stores, but its impact on our revenue and profit is limited.

Our multi-store recovery strategy promotes further optimization of the doorstep economy model, allowing us to open more main doorsteps, improve doorstep efficiency and profits. Since the multi-product strategy was launched in 2022, the recovery rate of non-3C products has maintained a high-speed record-breaking growth, which is better to meet the needs of consumers in the current period to dispose of idle consumer products to achieve effective recovery transformation. Since this year, we have seen such needs are still growing significantly, with a record as an example. The recovery rate of multi-product recovery businesses, including second-hand sachets, envelopes, gold bracelets, wine and other products,

Our multi-category recycling strategy uplift our store economics, allowing us to open more stores, especially those with higher sales per square meter and better profitability. Since the introduction of the multi-category strategy in 2022, the transaction value of non-electronics categories has grown rapidly quarter over quarter. As such strategy meets consumers' needs, to dispose of idle goods, convert them into cash at hand in the current economic cycle. Since the beginning of this year, we have seen a significant surge in such user demand. For instance, the transaction value of our multi-category second business, including second-hand bags and watches, gold, jewelry, and fine liquor, quadrupled year-over-year to 600 million RMB in the first quarter of 2024.

The growth in users' trust in the love recovery brand, strong door-to-door, front-end contract capacity, and second-hand standard capacity is a reflection of the accumulation of love recovery's ability in the past 10 years. Looking at the data of the cross-referencing of products, for example, in the case of luxury goods, 18% of the users of luxury goods recovery will complete the recovery of other products in 30 days. We believe that in the long term, the conversion rate will be higher. From the point of view of user satisfaction, our gold recovery business is transparent because of the price, the channel is regular, and there are new people. The NPS recommended value of the user is ranked first in all platforms. We look forward to the further development of multi-store recovery business in the future store network and help our new store to be further opened. We believe that multi-store business will continue to grow rapidly in the trading scale of 2024.

At the same time, the multi-cashware recycling business itself is profitable. Conducted under a platform business model, it not only has a live structure without the risk of inventory and price decline, but also brings an additional profit of 7,000 RMB per month to each store. As a remarkable incremental business, multi-cashware recycling grows on the foundation of users' trust in the Ai Huishou brand, and strong performance of existing stores, and our capability of establishing industry standards in the pre-owned sector. It is a reflection of the accumulated capabilities of Ai Huishou over the past decade. Looking at cross-category orders, 18% of users who completed an order to recycle luxury products came back for other product recycling services within 30 days. We believe that the conversion rate can be further enhanced if we extend the timeframe. In terms of user satisfaction, our Gold recycling business ranks first in all categories with a top net promoter score due to transparent pricing, legitimate channels, and trusted brand. We look forward to expanding the multi-category recycling within our existing store network and further promoting the opening of new stores. We are confident that the GMV of our multi-category recycling business will continue to achieve scalable growth this year.

Our supply chain capability is mainly reflected in the standardization of the product through the integration of new products. The overall business through the self-automation of the operating center to improve the efficiency of the contract. In the first quarter of this year, the revenue of He Gui Fan Xin reached 2.8 billion yuan, which further increased the proportion of EP business. We further optimized the operation process of He Gui Fan Xin, based on a rich number of first-hand members. In the process of comparing and selecting goods, we identified a machine that meets the needs of the consumer and has a high level of performance to improve the potential of the machine. In addition, we have introduced zero-waste products in the field of telecommunications and telecommunications,

Now, let's take a look at our supply chain capability from two aspects. Firstly, 1C business improves product standardization through compliance refurbishment. Secondly, the overall business enhances fulfillment efficiency through quality inspection automation in the operation centers. During the first quarter, our robust supply chain capabilities yielded solid results. Mostly, the revenue from refurbished devices sales was 282 million RMB, further increasing its share in our 1P business. We have made additional improvements to our operational processes, expanded access to a wider range of product sources, and identified devices that are both popular among users and have the potential for improved quality. Adding to our retail offerings through AHS stores and AHS websites, The total retail sales revenue as a percentage of 1B product revenues jumped to 24.5%.

In terms of operating efficiency, EG2's non-GAAP contract fee rate is 8.3%, while the same period fee rate dropped by 0.8% in 2023. This is mainly due to the continuous improvement of the efficiency of the Huanan Automation Operating Center over the past year. The sales fee of Nungap is 6.1%, which is 1.4% lower than before. This is mainly due to the increase in the size of the scale without marketing fees in Apple's official recovery business, which has lowered the average cost of promotion of self-serve business. In terms of platform business, digitalized customer management tools, enhanced application, and platform business customer relationship maintenance and promotion fees have been effectively reduced.

In terms of operational efficiency, our non-GAAP fulfillment expense as a percentage of revenue for the first quarter was 8.3%, a decrease of 0.8 percentage points from the same period of 2023. This was mainly due to cost efficiency improvements at our Southland China Dongguan Automated Operations Center over the past year. Our non-GAAP selling and marketing expenses as a percentage of revenue was 6.1%, a year-over-year decrease of 1.4 percentage points. The reduction in promotional expenses is mainly due to the growth of our trading business with Apple, which operates independently of our marketing efforts. For our platform business, we are gradually increasing the utilization of digital customer management tools. This approach helps us to reduce expenses associated with customer relationship management and promotional expenses on the platform.

We will firmly follow the basics of the second-hand mobile phone 3C. Through a multi-level recovery strategy, we will enhance the user's experience and recognition. Explore and explore more high-end and high-end service scenarios. Solve the problems of more recovery services for users. Establish the recovery first brand in the heart of the user. Long-term creation of a short-circuit economy for consumers.

In the long term, we are committed to reinforcing the foundation of Korean-owned smartphones and consumer electronics business. Through a multi-category recycling strategy, we aim to improve user experience and increase brand awareness for Ai Huishou. We will focus on addressing users' pain points in recycling services by exploring more high-frequency and essential recycling scenarios, aiming to establish ourselves as a top-of-mind brand in consumers' minds. Ultimately, our goal is to create one-stop circular consumption solution for consumers.

First, we will cover more recycling scenarios, improve the penetration rate, and raise user awareness of recycling and trade-ins. Due to low recycling rate,

The 400 million units of new smartphones, tablets, laptops, and other consumer electronics that are shipped in China annually indicate a growing supply of idle devices with used value. As part of our ongoing efforts, we integrate our trading services into new product sales scenarios on e-commerce and brand official platforms. By doing so, we cater to users' demands for product renewal and realize sustained growth in the long-term.

Second, in the current consumer environment, we need to seize the opportunity for users to buy online and offline. In the first quarter, the 2C retail revenue of the EP business gained more than 80% of the net profit growth through the selection of Jindong channels, live news channels, Aihueseo stores and Aihueseo official website channels. The demand for retail high-quality second-hand goods is also abundant. Second, these opportunities in the current consumer environment with an increasing demand for used products online and offline. In the first quarter,

We achieved over 80% year-over-year 1B2C sales growth through PiPi and OnJD.com, live streaming platforms, AHS stores, and official websites. Meanwhile, as business owners' need for ready-for-retail products increases, we explore more opportunities based on the existing B2B service capabilities. For instance, the dispersed retail touchpoints of new phone retailers can help us expand our sales channels and increase the proportion of 2C sales from our self-operated supply.

On the third point, on the end-to-end supply chain capability basis, we will further play a role in the value production and increase the level of the goods and products. With internal capability construction, we will lock more machines suitable for nuclear refining and preparation, and carry out more standardization of the functions and appearance of brands, products, and models. Third, leverage compliance refurbishment capabilities to enhance the grade of 1P recycled products. We anticipate organic growth in the proportion of compliance refurbishment income

within our product revenues. By building more in-house capabilities, we expand the coverage of product categories, brands, models, and functions, et cetera. On the sales side, we open the supply of those products to support both B2C sales and enrich the high-quality supply to business owners on PJT marketplace. Overall, this shall contribute to improving the gross profit margin of our 1P business. In the long term, We aim to gain more market share through a combination of scenarios and supply chain capabilities. In conclusion, we are confident in our strategic path for effective and long-term sustainable development. Now, I'd like to turn the call over to our CFO Rex for financial updates.

Okay. Hello, everyone. We are pleased to report another profitable quarter under NEDCAP measures on revenues that once again reached the top end of our guidance. Now let's take a detailed look at the financials. Please note that all amounts are in RMB and our comparisons are year-over-year basis unless otherwise stated. In the first quarter, total revenues increased by 27.1% to 3,601.4 million, primarily driven by the strong growth in net product revenues. Net product revenues increased by 28.5% to 3,309.8 million, while net service revenues were 341.3 million, representing an increase of 15.1%. Growth in net product revenues was primarily driven by an increase in the recycling channel expansion and the sales of pre-owned consumer electronics through both online and offline channels, of which sales of 1P refurbished devices totaled 282.4 million, representing a year-on-year increase of 94.8%. The increase in service revenues was primarily due to an increase in service revenues generated from PJT marketplaces. and our multi-category recycling businesses. So overall transaction value of marketplaces increased consistently with service revenues and the take rate of our marketplaces was 5.41% in the first quarter of 2024. Now let's discuss our operating expenses to provide greater clarity on changing our actual operating based expenses. We will also discuss operating expenses which better reflects how management views our results of operations. The reconciliations of gap and non-gap results are available in our earnings release and the corresponding form 6K furnished with SEC. Merchandise costs increased by 30.9% to 2,947.8 million, in line with the growth in product sales. Growth margin at the group level was 19.3% in the first quarter, Gross margin for our 1P business was 10.9%. Fulfillment expenses increased by 16.3% to $309.8 million, excluding share-based compensation expenses, which we will refer to as SPC from here on. Non-GAAP fulfillment expenses increased by 16.3% to $303.4 million. Under the non-GAAP measures, the increase was primarily due to an increase in personnel expenses as we conducted more recycling and transaction activities compared with the same period of last year. Nangap fulfillment expenses as a percentage of total revenues decreased to 8.3% from 9.1%. Selling and marketing expenses increased by 7.5% to $321.3 million, excluding SBC expenses and amortization of intangible assets and deferred cost resulting from assets and business acquisitions. Then gap selling and marketing expenses increased by 3.6% to 224.5 million, primarily due to an increase in expenses related to marketing activities. Then gap selling and marketing expenses as a percentage of total revenues decreased to 6.1% from 7.5%. General and administrative expenses decreased by 3.4% to 33.8 million, Excluding SBC expenses, Nangap G&A expenses increased by 1.2% to $58.1 million, primarily due to increases in office-related expenses. Nangap G&A expenses as a percentage of total revenues decreased to 1.6% from 2%. Technology and content expenses increased by 5.9% to $52.2 million, Excluding SBC expenses and amortization of intangible assets and the deferred cost resulting from assets and business acquisitions, Nangap technology and content expenses increased by 7.6% to 45.5%. The increase was primarily due to an increase in personnel expenses in connection with the ongoing upgrade of the company's operation center and systems. Nangap technology and content expenses as a percentage of total revenues decreased to 1.2% from 1.5%. As a result, our non-GAAP operating income was $88.2 million in the first quarter of 2024, representing a significant increase of 88.6% year-on-year. Non-GAAP operating profit margin was 2.2% compared to 1.5% in the first quarter of 2023. As of March 31, 2024, cash and cash equivalents, restricted cash, short-term investments, and funds receivable from third-party payment service providers totaled 2.6 billion. Our strong cash position safeguards a sustainable growth outlook. Now turning to the business outlook for second quarter of 2024. We anticipate total revenues to be between 3,670 million and 3,770 million, representing an increase of 23.8% to 27.2% year-over-year. Please note that this forecast only reflects our current and preliminary views on the market and operational conditions, which are subject to change. This concludes our prepared remarks. 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 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 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 our roster. The first question comes from Joyce Ju with Bank of America. Please go ahead.

Good evening, Manager Teng. Congratulations to the company for a very good performance this quarter. And thank you very much, Manager Teng, for accepting my question. uh uh These positive policies will increase our future income, as well as the growth of our sales volume. We will analyze and interpret the contribution and the path of growth, especially to see if we can improve the scale of the specific impact. The second issue is that we have also issued a 24-year income guidance this year. Then I would like to understand that in our 24-year income guidance, we love to collect our own channels, JD, and then Apple will distinguish what we expect to be a growth contribution. What is our assumption in this? And then our platform service in 24 years, platform service income in 24 years, how should we predict what kind of increase will happen? Then I will translate my own question. Good evening, Maggie June. Congrats on the solid results. My first question is, we have seen this year the national and local governments have issued action plans to promote large-scale replacement and trading of consumer products, which could potentially benefit growth of the Ai Huishou. Could management help us understand the potential impact on sales and revenue, especially some quantitative colors? Secondly, we note there are multiple growth drivers contributing to the company's 2024 revenue guidance. Could management work us through the key drivers of the guidance? What's the growth assumptions behind each of the drivers, such as iHeartShow's own channel, JD.com, and Apple, respectively? Also, what will be the growth outlook for the service revenue in 2024? Many thanks.

Thank you very much, Tim. We believe that our main source of income in 2024 is still from the EPU, which accounts for 90% of our income contribution. Among them, in terms of the recovery of Zuyin's EP business, we expect that in 2024, there will still be a significant increase in the number of customers that exceed the consumption threshold. There are mainly the following three points. The first point, first of all, we mainly come from the fact that we have received the love and support of users' trust. In the core business circle, we will continue to support the opening and promotion of stores in 2024 to improve the service and production of stores. Second, the accuracy of the new product sales scene in the main station of Jindong, combined with Jindong and the brand's special emphasis on resale, further encourages consumers to participate in the recovery and improve the penetration rate of the resale and resale service of Jindong channels in our current position. Third, through the collaboration with some leading consumer brands, We will work together to improve users' rights, increase the activity rate and power transfer rate of the love recovery small program, and transfer more users to the recovery business in 2G, mobile phone, 3G recovery, and multi-panel. Through the above three scenarios, we will continue to bring high-quality recovery and recovery members to us. In the resale scene of Apple official website and QiJianDian, we will balance the resale price with the purchase of goods this year. It is expected to achieve about 1 billion RMB in revenue per year. In terms of platform business, we will further improve the ability of the Paiji Tang industry supply center to open our platform and improve the solution of the retail end. Thank you for the question. We believe that our primary growth in 2024 will continue to be our self-operated business

which contributes approximately 90% of our total revenues. Domestically, we expect the annual growth rate of our core self-operated business to significantly outpace the broader consumer market in 2024. This is for a few reasons. First and foremost, our growth is fueled by our consumer-trusted AHS stores, which are strategically located in malls within prime commercial areas. We continue our growth with dozens of new self-operated store openings in 2024, while improving the services and output of our stores. Second, we are boosting our recycling penetration rate, which is currently in the low single digits, through precise recycling scenarios integrated into new product sales on JD.com, supported by trading subsidies from the platform and brand. Third, By collaborating with a series of premium high-frequency consumer brands, we bring more benefits to our users. We are upgrading the AHS mini program, which offers richer and more day-to-day scenarios for users to visit our stores and try our secondhand consumer electronics and multi-category recycling services. These scenarios consistently provide us with high-quality product sources. In our collaboration with Apple's official trading program, We balance the pricing mechanism and target models at the recycling end. In the full year 2024, we anticipate the product revenue coming from Apple's trading program to increase by approximately 1 billion RMB. For our open platform business, we have enhanced the full service offerings for over 600,000 merchants, including professional business owners, electronic product franchisees, and mom and pop stores owners on PJT Marketplace. These enhancements include empowering our users with retail business solutions and ample sources of retail supply, which consolidates our 1P high-quality second-hand products. By generating additional value for both merchants and the industry, we are driving healthy growth in service revenues. Thank you. Thank you.

Was there a follow-up, Ms. Ju? Okay, the next question comes from Jiajing Chen with CICC. Please go ahead. Okay.

Let me translate myself. Congratulations for achieving solid growth for the Q1 results. I have three questions. The first question is, What is the company's long-term profit goals and what's the path to achieve that? The second question is, we saw some pressure on the overall gross profit margin and 1P gross profit margin. So how do you view the trend of the GP margin in the future? The third question is, what's your comment on the cash position? That's all my questions. Thank you.

Okay. Thank you. So, Rex, I will take your questions. To answer the first question, About gross profit and operating profit, first of all, we prioritized a variation of the NGAP operating profit margin, which has been improving over the past quarters. We are currently in the educational stage of consumer recycling. We serve users at the prices of the recycling site, so the cost of markup coupons at the recycling end are included in our merchandise costs, which affects the gross profit of our product revenues. But we will comprehensively balance our sales and marketing expenses in order to improve our operating profits. The promotion of 1P recycling affects our cost instead of expenses, and it's common characteristics of the second-hand recycling industry. Looking specifically at the first quarter, the gross profit margin was 19.3%, an increase of 0.6% from the fourth quarter. The gross profit margin was 10.9%, an increase of 0.3% from the fourth quarter, excluding the negative impact of sales of oversea inventories. The gross profit margin of our core recycling business has increased steadily, with a quarter-over-quarter increase of 1.6%. In the medium to long term, the path to improving our NGAP operating profit margin mainly comes from three aspects. First, compliance and refurbishment. We improve product standardization through our supply chain to gain more profits. The gross profit margin of compliant refurbished products has remained stable above 20% for several consecutive quarters. Second, increased proportion of retail sales revenue as we have established end-to-end coverage. For online channels, JD.com supports reasonable product standards, adjustments from PiPi, and we lift more products with a broader price range to meet buyers' demand. For offline channels, retail, sales through our stores rapidly increased by 21% compared with the previous quarter. As more consumers from medium to low-tier cities are happy to visit our stores, not only for recycling, but also for buying used products. Third, the scale effect further advanced the efficiency of our operating expenses through the amplification of transaction volume. and comprehensively brings an increase in gap operating profit margins. In the first quarter of 2024, there was an other loss in the income from operations below the operating income. Looking at the full year of 2024, we expect a limited impact on our net income. Regarding this particular other loss, in Q4 2023, we subscribed to shares of ecosystem enterprise Hong Kong IPO shares. Impacted by market conditions, its stock price experienced a downward pressure in Q1, resulting in a loss in our other losses. To answer your second questions, in terms of net cash, at the end of March, we prepared 295 million RMB of inventory in advance to meet users' purchasing needs during the second quarter. We sold the majority of them and received a payment in the second quarter. As a result, it appears to be a timing difference. In addition, regarding Apple's trading businesses, we have 45 payable days, as mentioned in the last quarter. And thanks to our efficient second-hand consumer electronics turnover capabilities, this business has a limited impact on our cash flow. If we extend the time horizon, our operating cash flow will be consistent with the steady growth of our operating profit. Thank you.

Yajing, do you have a follow-up question?

No, I don't. Thank you.

Thank you. The next question comes from Michael Kim with Zacks Small Cap Research. Please go ahead.

Great. Good morning or good evening, everyone. Thanks for taking my question. First, just in terms of capital management, be curious if you could provide some perspective on CapEx needs going forward, particularly as it relates to plan to continue to upgrade your operation centers and open new offices? And then second, just kind of stepping back, what's the plan to increase shareholder return, particularly as it relates to share repurchases? Thanks.

Okay, thank you for the questions. We invest in our operation capabilities instead of investing heavily into assets. So our business is in a light asset model, Regarding our CapEx, we expect 100,000 RMB per new store opening. For stores with multi-category recycling offerings, the CapEx per store will be a little bit higher. For joint operated stores, the CapEx are handled by our local partners. On the processing end, as part of our long-term development strategy, we continue to enhance the automated inspection and grading capabilities of our regional operations centers. The existing operation centers in Dongguan and Changzhou have incurred approximately RMB 30 million each in capex for automation upgrades. Currently, these two operating centers support 40% of the quality inspection demand for second-hand consumer electronics nationwide. During daily operations, they maintain flexibility in capacity utilization without operating at full capacity. Regarding corporate finance activities, in March, we announced a 12-month buyback plan to purchase up to $20 million of our ADAC's foreign consultation with our board of directors. In the long run, we will also consider distributing dividend at the end of this year, depending on our profitability. We'll closely monitor efficient capital deployment into our operations and remain committed to developing our scenarios plus supply chain capabilities. We remain open to innovative investments that support our core business development and adhere to profit-driven strategies that deliver sustainable value to our shareholders and users. Thank you.

Mr. Kim, do you have a follow-up question?

No, that was it. Thanks for taking my question.

As there are no further questions at this time, I'd like to hand the conference back to management for closing remarks.

Thank you. Thank you all again for joining us. A replay of today's call will be available on our website shortly, followed by a transcript when ready. If you have any additional questions, please feel free to email us at ir.atrenew.com. Have a good day.

This conference is now concluded. Thank you for attending today's presentation. You may now disconnect.