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01/11 16:19
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call reveals a mixed but generally positive outlook. Financial performance shows improvement with revenue growth, narrowed losses, and increased cash flow. Despite a GMV decline, gross margin and private label growth are strong. The Q&A highlights management's confidence in profitability and strategic overseas expansion. While risks exist in AI reliance and supply chain, management's clear responses and strategic focus on efficiency and growth signal potential positive stock movement.
GMV Down 2.3% year-over-year to RMB 2.62 billion. This decline was attributed to the headwinds from business optimization initiatives, which have largely cycled through.
Total Revenues Up 2.1% year-over-year to RMB 2.33 billion. This growth indicates recovery from prior optimization efforts.
Gross Margin Remained healthy at 16.8% compared to 17% a year ago. On a GMV basis, gross margin improved by 41.5 basis points year-over-year to 14.9%, driven by optimized procurement costs and higher contribution from private label products.
Private Label GMV Grew 16.7% year-over-year, reaching 8.2% of total GMV. This growth outpaced the overall business and contributed to higher margins.
Operating Expenses Decreased 14.4% year-over-year to RMB 493.8 million, representing 18.1% of net revenues compared to 21.6% in the prior year. This reduction was due to lower employee benefits, warehouse rental costs, travel expenses, and credit loss allowances.
Operating Loss Narrowed 69.3% year-over-year to RMB 32.3 million, with margin improving to negative 1.4% from negative 4.6%. This improvement was driven by efficiency gains and cost reductions.
Adjusted Net Loss Narrowed by approximately 78% year-over-year to RMB 14 million, with margin improving to negative 0.6% from negative 2.9%. This was due to substantial narrowing of losses and optimization of working capital management.
Net Cash from Operating Activities Generated RMB 105.5 million compared to a net cash outflow of RMB 160.5 million in the same period of 2024. This improvement was driven by narrowing losses and better working capital management.
Customer Service Productivity Increased by 42% year-over-year, driven by AI integration and process automation.
Procurement Productivity Increased by 52% year-over-year, attributed to AI-driven efficiency improvements.
Private Label Products: Launched over 600 new private label SKUs in categories like security-related products, personal protective equipment, tools, and material handling and storage products. Private label GMV grew 16.7% year-over-year, outpacing overall growth and reaching 8.2% of total GMV. Plan to increase private label contribution to GMV from 8% to 30%.
Product Expansion: Added over 2.3 million sellable SKUs, bringing total to over 19 million. Onboarded over 1,200 new suppliers, primarily OEMs, enhancing product offerings.
AI-Driven Product Development: AI tools improved product classification models, increasing automated classification rate from 11% to 31%, enhancing product onboarding efficiency and customer need matching.
Customer Base Growth: Number of transacting customers exceeded 70,000, a new quarterly high, strengthening growth foundation.
International Expansion: Plans to advance international expansion while focusing on top-line growth and profitability.
AI Integration: Launched 'Expert Linglong,' an AI large model for the MRO industry, automating 45 business processes and improving productivity. Customer service productivity increased by 42% and procurement productivity by 52% year-over-year.
Operational Efficiency: Total operating expenses decreased by 14% year-over-year to RMB 420 million. Fulfillment, sales and marketing, R&D, and general administration expenses all reduced significantly.
Profitability Improvement: Adjusted net loss narrowed by 78% year-over-year to RMB 14 million. Achieved monthly breakeven in September and on track for quarterly profitability in Q4.
AI as a Strategic Driver: AI is central to reshaping the MRO supply chain ecosystem, driving cost reduction, efficiency improvement, and business growth.
Focus on High-Value Categories: Strategic focus on professional and industrial-grade MRO categories like spare parts, chemicals, and manufacturing parts to differentiate from competitors.
Revenue and GMV Recovery: While revenues have returned to prior year levels, GMV is still down 2.3% year-over-year, indicating lingering challenges in fully recovering top-line growth.
Gross Margin Pressure: Gross margin slightly declined from 17% to 16.8% year-over-year, reflecting potential pricing or cost pressures.
Operating Loss: Despite narrowing losses, the company still reported an operating loss of RMB 32.3 million, highlighting ongoing profitability challenges.
Dependence on AI and Technology: The company’s heavy reliance on AI for operational efficiency and growth could pose risks if technological advancements or implementations do not meet expectations.
Private Label Growth Dependency: The company plans to increase private label products' contribution to GMV from 8% to 30%, which may face execution risks and market acceptance challenges.
Supply Chain Complexity: Managing a robust supply chain with specialized warehouses and hazardous material handling introduces operational risks.
Economic and Market Conditions: Economic uncertainties and market conditions could impact customer demand and overall business performance.
Private Label Products: Looking ahead, we plan to steadily increase our private label products contribution to total GMV from around 8% today to approximately 30%. We will continue to focus on professional and industrial-grade MRO categories, such as spare parts, chemicals, and manufacturing parts.
AI Development: The Expert Linglong large model will remain at the core of our AI development, driving deeper technological empowerment across our product, supply chain, and last-mile delivery capabilities. We will continue to develop our self-service AI-driven procurement agent to speed up responses and further elevate customer experience.
Product Line Expansion: We strategically operate 32 product lines, each with a tailored approach. In the third quarter, we added over 2.3 million sellable SKUs across categories such as chemical reagents, machining, and transmission, bringing our total sellable SKUs to more than 19 million. We also onboarded over 1,200 new suppliers, primarily OEMs.
Revenue and GMV Growth: We expect the positive momentum in average weekday order value to continue through the remainder of the year. Both GMV and revenues returned to approximately last year's levels, providing greater visibility for renewed top-line growth in the quarters ahead.
Profitability: We are on track to deliver quarterly profitability in the fourth quarter. Efficiency gains underpinned margin improvements and a substantial reduction in losses. Operating loss narrowed significantly, and adjusted net loss margin improved to 0.6%.
AI-Driven Efficiency: AI has become the key engine for capturing customer needs and improving supply-demand matching efficiency. Moving forward, we will continue to develop AI tools to optimize processes, enhance customer experience, and improve operational efficiency.
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