Q2 2022 Dada Nexus Ltd Earnings Call

Good morning, ladies and gentlemen, and thank you for standing by for <unk> second quarter 2022 earnings conference call.

At this time all participants are in a listen only mode.

After the managements prepared remarks, there will be a question and answer session.

As a reminder, today's conference call is being recorded.

I will now turn the meeting over to your host for today's call Ms. Caroline Dong head of Investor Relations for data.

Please proceed Carolyn.

Okay.

Thank you operator, Hello, everyone and thank you for joining our second quarter, which as you can see earnings conference call on the call today from data we have Mr. Chairman.

Chairman and CEO .

Yeah, well you can't of course E.

He called me President Mr. <unk>, Chen CFO and Mr. Jean Young cofounder and CTO.

So far I will talk about our operations and company highlights then Mr. Chen will discuss the financials and guidance. They will all be available to answer your questions. During the Q&A session that follows.

Before we begin I'd like to remind you that this conference call with me all of these statements. Please refer to our latest the safe Harbor statement Kingsville, Ernie Thrasher lists all of our sites.

We shall find todays call also during this call we will discuss certain non-GAAP financial measures. Please also refer to our earnings press release, which contains a reconciliation of non-GAAP measures to the comparable GAAP measures.

Please note that all lives otherwise stated all figures mentioned during this conference call are in RMB. It's now my pleasure to introduce our chairman and CEO . Mr. Phillips. Please go ahead.

Thank you Caroline.

Thank you all for joining us today.

Today with mixed emotions are announced.

Resignation from that as chairman of the board and CEO .

I'd like to take this chance to thank everyone, who joined our journey together.

And inspired and I'm proud of what we have achieved I believe this transition will picked up to the next chapter and we are now more ready than ever before to return the leaf.

I'm extremely pleased to announced that Jeff <unk>, our vice President and my trusted partner has been appointed as our precedent.

Jeff has been instrumental in our tremendous growth in the past eight years and our.

We deepened our collaboration with J D.

Such contribution speaks for itself.

This demonstrates that our strategy of execution and the leadership capabilities. He has won the trust and support from the team and the board.

Meanwhile, I'm also thrilled to welcome Mr niche seemed.

Seen between two joiners.

Is the chairman of the board.

Under the leadership of Jeff Julien.

It was a long standing so far it is from leaching and dot com.

We'll be in good hands.

I look forward to the continued strong partnerships with J D to create more compelling value for our shareholders and the society.

Now, let's discuss our second quarter results, we're pleased to announce another strong quarter and wish that our group maintained the rapid revenue growth with continuously improving operating efficiency.

During the second quarter of 2022 total net revenue increased by 55% and adjusted net loss margin narrowed by 10, three percentage points year over year.

I would like to highlight some general market developments before providing more updates on the two o'clock.

Gotcha and will go through our financial results in greater detail.

Starting with the currency.

Industrially and the regulatory environment.

Fully right.

The pro employment CRO consumption policies.

Suddenly we support the consumption recovery and employment stability through participation in major government less promotional events, such as Sunday Sunday to international consumption season in Shanghai as.

As well as the pilots program of work related injuries insurance for writers.

Meanwhile, as China ends to promote the robust development of the platform economy.

Firmly supports regulatory policies.

Sees opportunity of high quality growth to develop our platform in fully complying with regulations.

We believe our innovative and a solid business model can play a part in improving the efficiency of resource allocation and facilitating the progress of the domestic economy.

On the anti epidemic Franz we actively cooperated with local governments and in Shanghai, Beijing and other cities affected by COVID-19 during the second quarter to maintain the local supply of daily necessities.

Leveraging our strengths.

And then on demand at retail and delivery platform to fully embrace our social responsibilities.

In June .

Received an appreciation leather from the Shanghai Municipal Commission of Commerce.

Our group's significant contribution to the COVID-19 fight in Shanghai, where our highly valued by the local government.

Yes, I would like to provide some updates on our deepened cooperation with JD com.

During the second quarter, the JV off shelf now ourselves to go the unified brands for all on demand the retail services within JD ecosystem more than tripled year over year.

For search result optimization in second quarter, we fairly further expand is chophouse merchant base and product offerings to improve the availability of one hour delivery options in each local grid.

As a result, our search exposure rate E J D increased by 3% points compared with the previous quarter.

For nearby or Fuji.

Pat Fujian team, though we further rollout this entry point to more cities. So far nearby has covered or cities nationwide English we have a launch at the shelf in our service.

Driven by the improvements he exposure click through rates and the conversion rate the GMB from nearby have increased by more than 80% year or quarter over quarter.

Now, let me walk you through the operational highlights of our two platforms D. D D J and I don't know before going into details I would like to highlight the results of June 18th Scranton promotion, a major mid year online shopping festival in China.

Both J D D J and that Enel made breakthroughs in this year's promotion.

For JBT J D N V on the peak day surpassed RMB 600 minute.

And Jamie during the promotional increased by more than 70% year over year.

Or that or no.

Number of daily others delivers exceeded 10 million for two consecutive days.

Now, let's spend more time E D J, the leading local on demand retail platform in China.

As of the end of June so they sent it to the number of annual active users on J D. D. J increased by 42% year over year to $72 8 million.

Retailer empowerment brand cooperation and technology innovation continues to be the Foucault yourself J D. D. J in the second quarter I will elaborate on each of the three areas.

Firstly, we have continued our efforts to empower retailers.

<unk> was the supermarket category, we have now established partnerships with 87 out of the top 100 supermarket chains in China.

In addition to Onboarding more powerful hundreds supermarket, hence we're also signing up more local original leaders.

Moreover.

Supermarket category is gaining momentum in shop now.

Thanks to the increase.

In online traffic and conversion rate as well as offline customer acquisition.

Jamie of supermarket, and merchants and yourself now channel increased by multiple times year over year.

Let's move on to the consumer electronics and home appliance category.

Based on our consumer.

Consumer insights are the grid level, we continue to move the right product supplies online.

During the second quarter more than tens of thousands of consumer electronics and home appliance stores were newly launched on J D. D J.

In the smartphone subcategory.

As the largest also sells platform for xiaomi products.

We established an official partnership with Xiaomi brand in the second quarter.

As of now there are more than 3000 sell me home stores, let's say down J D D J <unk>.

We generated I mean home the Xiaomi home stores increased by more than 10 times year over year in the second quarter.

In the PC and accessories.

Category, we further expanded offerings in the penetrated new settlements.

During the quarter, we formed new partnerships with leading brands, including panel and Aurora.

In the home appliance subcategories in collaboration with merchants, we hence our service capability.

Integrated delivery installation and after sales service a large home appliances.

As a result, the JV of home appliance sub category more than doubled on a sequential basis.

And the mom and baby category, we facilitated the cooperation between leading retailer chains, and mom and baby brands, such as waste and elite.

As a result, GMB of mom and baby channels on J D D J more than tripled year over year.

We are also working more closely with trends in the liquor category, such as J D literate worth <unk> and 1919 Yashili Alger.

JV off liquor stores more than doubling year over year.

Yeah.

In the home and furniture category.

We have further penetrated smart home products for example in the second quarter J D. D. J has established partnerships with more than 10 smart lock chance.

Sure.

Tenants, including like tidy should and abroad to solvent smart source online.

Providing users with a convenient one stop shopping experience integrating delivery and installation.

Okay.

Secondly, we continue to push forward our cooperation with Brent.

During the quarter, we continued to.

Sulfide our leadership in the auto space in terms of both the number of brands, we work with them.

The depth of engagement with our brands.

Our online marketing services recorded year over year growth exceeding over 80% in the quarter.

In the second quarter, we further expanded our diversified brand partner base with strikes.

Several new partnerships with food and beverage brands, such as selling and somebody talked about as well as beverage alcohol brands, such as the auto and <unk>.

In addition, we sign up mom and baby brand, such as our boss and pharmaceutical brands such as Johnson.

We also saw impressive results from our brand marketing campaigns.

June 1st TDD, J teamed up with 11 mom and baby brands, including waste and huggies to launch a joint marketing campaign.

As creating a virtual mother and baby shop at offers extensive product and good price and available for one hour delivery.

Total GMB of participating brands increased nearly four flows.

The year over year basis.

On June 17th.

Hey occurring with J D. S June 18th screened promotion that started as H P. M. We partnered with 23 brands, including P&G, Pepsico and <unk>, Hi, Terry to launch a live streaming campaign with the slogan.

Placing orders at ATM get delivered through our Daas rose by 19.

On the day of the live streaming and in.

Total <unk> of these brands increased by more than three times year over year.

Certainly.

We also continued our efforts to empower retailers and brands with innovative technologies.

And then June the <unk>.

Hi, Bose system, our Omnichannel also operating system for retailers.

Being deployed by more than 200 merchants around.

7700 retailer stores.

Yes, hi.

<unk> have successfully penetrated new categories.

Including like pet stores, and the mother and baby stores, while serving more supermarkets and convenience stores.

We continue its rolling out new highball features to address what merchants need most and helps them wherever they see challenges.

Another example is that we launched a new module, enabling merchants to directly connect to Jd's warehouse system sort of hydro one's a source supplies from J D.

This helps retailers procurement staff say significant labor hours.

Rudolf merchants adopting this module saw their procurement efficiency improved by three times.

Our earth grid systems, or <unk>, which helps brands, whose itself by providing them with high grade ore by store self data has been welcomed by a growing number of brands.

In addition.

Sharp now becomes an increasingly important channel for brand sales growth.

The upgrade is <unk>.

SKU analysis feature to help brands cereal.

Tenuously monitor the availability of their goods at both J D. D. J N shop, now so that brands K, improving the product supply and self.

Our digitized in store picking service that are picking also made significant progress.

Since the establishment of our partnership with care for we have helped us.

<unk> picking fulfillment rate.

Customer experience and cost efficiency.

For example, customer compliance rates related with picking was lowered by half.

Past three months after.

Started to utilize the startup picking.

As a result of the impressive results we have continued to deepen our collaboration with Carrefour.

Now that are picking covers all of the churn.

Key OXXO stores.

Yeah.

Driven by expanded store coverage and the increased penetration of that are kicking in partnering stores. The total number of orders fulfilled by that are kicking in the second quarter increased by more than three times year over year.

Now, let's move to that are now the leading local on demand delivery platform in China.

While total revenue maintained rapid growth and announced a pretty efficiency also improved significantly as we optimize pricing strategy and the merchant portfolio.

I will start with our K or Tim merchant business.

Revenue of our on demand delivery services to K merchants increased by 45% year over year, while average gross profit per other turned positive.

Our ability to provide integrated fulfillment services, consisting of warehousing management picking and delivery gives us unique advantages. Therefore, we continue to consolidate our leading position in the supermarket category.

In the second quarter revenue generated from supermarket case increased by over 50% year over year.

In addition, we sign up new supermarket chains, like Walmart who may.

And the restaurant and beverage category revenue generated from beverage maintained rapid growth more than doubling year over year.

Moving onto our SME and CPC business, others fulfilled increased by over 70% year over year, while we continued to optimize <unk> economy is significantly year over year.

Thanks to our further penetration into lower tier cities, others for field for SME merchants increased by more than 40% year over year.

Lastly on last mile services.

For last mile delivery, we continue to leverage our flexible cross sourcing network to ensure the procurement of JD logistics, others, especially amidst the pandemic and during peak promotional campaigns.

For a pickup service.

<unk> had strong growth momentum, mainly driven by our further penetration into virus picking scenarios.

And to wrap up I would like to say a few words on ESG.

Our sustainable development plays an increasingly important role in Chinas economic strategy.

We are committed to creating value integrating social responsibility with copper our strategy in.

Empowering our partners carry.

Caring for our employees development and satisfy consumer needs.

So that we can achieve a resolve that bring benefits to the company our shareholders and the society at large.

At the end of June we released our first ESG report, providing stakeholders with a comprehensive overview of our efforts and progress on key ESG issues.

Going forward, we will continue to integrate ESG initiatives into our long term development strategy and actively shoulder our corporate social responsibility.

With that I will now pass the call over to Dr. Chen to go over our financials for the quarter.

Okay.

But before we go over the numbers just a few housekeeping items in advance but.

We believe year over year comparisons the most useful way to judge our performance. Therefore, all percentage changes I'm going to give will be on that basis.

And all figures are in renminbi, unless otherwise noted.

The total net revenues in the second quarter increased by 55% to $2 3 billion net revenue from that are now increased by 37% to $816 million, mainly driven by the increases in order volume of intra city delivery.

Two chain merchants.

Net revenues from <unk> increased by 66% to one 5 billion, mainly due to the increase in JV, which was driven by increases in the number of active consumers and average order size.

The increase in online marketing services revenue as a result of the increasing promotional activities also contributed to the revenue growth of ADT Jay.

Moving over to the expenses side operations and support.

One 4 billion. The increase was primarily due to an increase in <unk> costs as a result of increasing order volume for intra city delivery services provided to my wrist chain merchants on the platform and the retailers on the <unk> platform.

Selling and marketing expenses were $1 2 billion. The increase was primarily due to the growing absolute dollar amount of incentives to J P J consumers and increasing advertising and marketing expenses to attract new consumers to J D D J platform and amortization.

The opinion cooperation agreement in writing from share subscription transaction with J P. Dot com in February this year.

G&A expenses.

100 million flat year over year is a result of our expenses control measures.

R&D expenses rose to 160 million, mainly attributable to increasing research and development personnel cost as the company continues to strengthen its technology capabilities.

non-GAAP net loss attributable to ordinary shareholders of data was 300 and a $96 million.

non-GAAP net loss margin was 17% improving by more than 20 percentage points year over years, and six percentage points quarter over quarter and an issue with ADT Jay direct margin turned positive during the quarter, making a remarkable remarkable milestone in our path.

Cost to profitability.

As of June 30, 2022 the company had 435 billion in cash cash equivalents restricted cash and short term investments.

As we are into our $17 million share repurchase authorization authorization announced in March 2022 as of June 32015, Q, we had repurchased approximately.

$33 million, so 88 this and this.

This program.

In terms of our outlook for the third quarter of 2022, we expect total net revenue to be between two point certified in the 245 in <unk>.

Representing year over year growth rate of 39% to 45%.

In addition, we expect the net loss margin in the third quarter of 2022 should continue to significantly narrow year over year and achieved sequential improvement for the sixth consecutive quarter.

This concludes our prepared remarks and.

And operator, we are now ready to begin the Q&A session. Thank you.

Thank you.

Ladies and gentlemen, if you wish to ask a question. Please press star one on your telephone and wait for your name to be announced.

If you wish to cancel your request please press star two.

If you are on speakerphone, please pick up your handset to ask your question.

We will wait for a moment, while the question queue assembles.

Okay.

First question is from the line of Ronald Keung from Goldman Sachs. Please go ahead.

Thank you. Thank you.

Back and Caroline too.

Two questions first is how should we think about business executive and board changes.

Would there be a future CEO role as I think you've now filled.

President and chairman, respectively, and also see an increase in independent directors. So is that part of a board change to align with some of the Hong Kong stock exchange guidelines and any comments on eventual lifting or dual primary listing in Hong Kong.

And my second question is on the encouraging 18 percentage points improvement in net margins that you've flagged that back so.

As user subsidy rates trended so far and are we continuing to expect the direct margin breakeven this year and EBIT turnaround by next year. Thank you.

Okay. So thank you for the question Rona.

The first question, yes, so we have actually net added one independent director and now actually three out of six.

Directors independent, which is fully compliant with substantial Hong Kong listing rule and also right now four out of six board directors are female directors wishes wish him very.

I guess aside and.

They all have.

Very solid international backgrounds, and we hope that all of those.

Directors will contribute to.

The growth of the company in the future and also we will be proactively.

Push forward to Hong Kong.

<unk> procedures.

To protect our share.

Shareholders' interests and also.

I want to thank for their contribution.

Of.

But as to the due to the.

The company for the past eight years. So after internal discussions we are not positioning our CEO low and actually president Jeff.

Executing.

And be responsible and in charge of the daily operation and report to the board in the future.

And about the second question.

Yes, so actually our overall subsidies ratio.

<unk> is actually decreased by 20.

Yes.

<unk> to the first quarter so in 'twenty.

And in Q2 actually our consumer incentives decreased to four 5% as a percentage of <unk> and in the third quarter, we expected.

And incentive ratios will be.

Decrease the more.

And that they will all be contributing to our.

Derek can margin level and for the whole year.

We maintained.

Forecast that the direct margin will be turning positive in there.

The company will be attending poly.

Positive profit in the first half of next year.

Wonderful thank you.

Thanks.

Thank you Ron.

Thank you.

Next question comes from the line of Thomas Chong from Jefferies. Please go ahead.

Yeah.

Hi, Good morning, Thanks management for taking my questions. My first question is about the <unk>.

Our landscape as we are seeing an increase in loan bore interest the entering into the space.

These days.

Thanks, Paul.

A shortfall medial and.

Also launched.

How should we think about the competitive.

Our bond H P J.

My second question is about after the board change.

We think about our cooperation with our JV going forward.

Accelerating synergies with JD. Thank you.

Okay.

That helps.

Hope, we can now call last week.

Linea <unk> assets the asset monetization.

Currency neutral and tier.

So when I see you said that this is high quality user.

<unk> heard some charters high five.

Cheater Youll soon.

New digester to lead the way.

<unk> and that leads to the Windows gross order the agenda <unk> with Keybanc.

So about <unk> <unk> due to the outflow of chapter two pages.

Okay. So.

This is Jeff so.

First and.

For both our positioning as a pure play marketplace an hour.

Enabling digitization capabilities has enabled us to.

<unk> was more extensive extensively with those all those leading chamber teams and our brands.

So which makes us more competitive in the.

Right.

The quality and prices of product price.

We will maintain to underpin heightened lease proposal.

Also in 2010.

The yield.

Yes, so as we always tell our partners as a pure market pays we never can.

Pete with our retail partners. So we are now engaging retaining ourselves so.

That's why.

No those retailers are more willing to work with us.

Alright.

It.

<unk>.

<unk> here.

Yes.

Thank you Shannon.

Alright.

<unk>.

Who canceled anti ship such as CTO.

That could have taken months shelf into the tissue.

And diluted.

Well most of those orders are hidden agenda.

And so some chunky some kintigh this halloween continuous on GAAP equity yes.

Hudson is huge schedule that has us.

So even though our competitors.

The fifth is more impacted.

The impact to <unk>.

Our profit to US is very limited an hour.

As I said, so our incentive ratios decreased sequentially. So the rationale behind is that typically these only driver of demand.

It needs to be continuous filled with high quality supplies. So pattern patterning with Lowe's, leading retailers gave us a clear age on the supply chain front over our peer and.

So for the long term.

It is too soon at the time the usage sooner than that.

<unk>.

So Shannon will achieve who see the central <unk> achieved onto <unk> titi here <unk>.

P J.

Second also in June the Johnson's Asia, which end newfield kind of chicken Sheila and Susan.

The tongue GMP, the EQ quality defined.

This is Jeff I am putting anytime soon.

Sue.

Sue will that go towards a peaceful.

Thank you <unk>.

Okay.

<unk> and <unk>.

Tanya <unk> defined <unk> to sell certain synergies.

And <unk>.

Therefore.

Biogen is sudhakar soon voucher almost see a bump.

We saw some <unk> begin to Donaldson.

And a couple of them.

Tijuana La Quinta the sheet <unk> pass onto one could we do to you.

Suddenly ourselves with Chile.

Okay. So.

And we also enable our.

Retail partners with our capabilities.

In digitalization. So for example, take hydro system as an example also.

We continued rolling out our new hybrid features to address.

What merchants need most and help them reduce cost while enhancing.

The operating efficiencies so as of today as of June <unk>. It has been deployed in around 7700 retail chain stores.

Another example is our integrated fulfillment solutions, consisting of warehousing management picking and delivery so.

There is a key difference between the on demand and retail and the food delivery.

So.

This is the picking and packing in the in the in the retail stores.

Our integrated fulfillment solution enable retailers to reduce the order picking time, while our other peaking service to help them mitigate labor and labor shortage through it.

Innovative digitize digitize the crowd sourcing model, which are more highly valued by our retail partners.

And lastly, our consumer audience.

Earth grid systems helps brands boost sales by optimizing channel supply.

Down to each like.

The grades of the area.

Champs needed talent solutions user.

On <unk>, we can say foods as it sounds LTE.

Quite a few times the PB <unk> project with the Jamul.

And then we are also proactively to expand across different categories.

Categories.

And in our capabilities in the system.

Of Digitization can easy.

Really.

Capex to extend from the most complicated of supermarket categories to other categories like Sarisi categories appliance categories. As we have said before so this is also.

PRA and capability of our platform compared to our peer company.

200, <unk> <unk> uses.

And <unk>. So there is some <unk> sales, which is up.

With you guys on kidney champions in shelf pool.

Versus smartphone in the Wuxi.

Tom.

Salesforce on assembly artisan sandwiches.

So cheese or the <unk> hundred 90.

As of June <unk>, the impact UC.

<unk> okay.

Now assemblies to challenge some of our key title resource group <unk>.

Panel.

And also the brand partnership so tougher on the top retailers, we have extensive partnerships with the brands.

<unk>.

The retail chains on our platform are critical offline distribution channels too many consumer product brands. We can offer our brand partners integrated marketing service across both online and offline channels and also as well as digitization tools pursue our.

Collaboration brands are not only able to generate more sales, but also improve their consumer insights and channel insights.

And we can also leverage jd's resulted to bring more brands on board and in particular like the brands in consumer electronics, where JD enjoy strong consumer mind share.

So in our peer is actually lagging us in terms of both number of the brands in the depths of the engagement with the brands.

Alright.

<unk> consolidated agenda.

<unk> changed our full year 19.

<unk> consumer.

<unk> opinion on it.

Relative to South Dakota, Jamie to be 10 times.

Yeah.

Yes, let's talk about the collaboration with J D. So we continue to deepen our cooperation with JD com and during the quarter as the second quarter of this year, Jamie of shaft, no sharp chabot more than tripled year over year.

<unk>. This is the constant currency <unk>.

On the social profoundly mbt's in a sense of that yet.

In the second quarter, we further expanded the shelf now merging.

And the product offerings to improve the availability of one hour delivery options in each local grid. So as a result, our search exposure rate in JV increased by three percentage points quarter over quarter.

To help put in P&L, <unk>, chunghwa soy or subsequent using HIFU license.

Hi.

Samsung and <unk>.

Sure.

The digital food is another chimney lumpy.

And on top of us.

The details of course these are solid Jamie Shen <unk>.

So for nearby Fujian tab.

We further rolled out this entry points to more cities, so far and the nearby tab has covered or cities nationwide in which we have launched <unk> services.

Driven by the improvement in exposure click through rate and conversion rate.

<unk> from nearby tab increased by more than 80% quarter over quarter.

And contributing 10% of the shaft <unk> Jamie.

Sure.

Thank you Thomas.

Thank you.

Okay.

Okay.

Thank you.

Our next question comes from the line of Eddie Leung from Bank of America Merrill Lynch. Please go ahead.

Good morning, guys.

Two quick questions. The first one is about consumer behavior.

Can you give us an update on <unk>.

<unk> patients.

Hum.

Consumer was up two lane.

<unk> be some months after the opening of Shanghai and Amit inflation for example, any change in the past.

And then secondly could.

Jonathan the mining.

B J.

D J.

You mentioned that gap.

Continuously going up.

Okay. So let me answer the second question first and I will pass the first Eric to answer so.

The average order value of our <unk> surgical platform in Q2 was 225, RMB, which is.

Which is increasing by 10 RMB.

Care to our first quarter and in the long term. We think we will continue to drive up average order value as we as we said so we will.

Have more.

Diversified.

There is.

New categories products and they are all.

With higher <unk> and contributing contribute.

Positive to margin to the platform, which would also not only help us to increase.

Diversity of our products to be offered to the consumers and also at cash due to our profit improvement.

And ill give you.

Some.

Updates on both the supply side and demand side from short term and long term perspective, our observation.

So.

In short term, we are seeing from the supply side from the supply side.

We are working with the <unk>.

Key merchants chance with the strong supply chain.

Capabilities and they are much more resilient to the turbulence.

So therefore under this challenging environment.

The retailers or the retailer we have been working with are much stronger.

To deal with the challenge at the same time most of the retailers are facing.

Difficulties to get offline customers' in store, that's why they really need to expand the <unk> business, that's why our partnership with the.

Retailers has been further improves over the last couple of quarters, So thats from the supply side and from the demand side.

We're seeing that.

For example in July after Shanghai reopened and the Colgate <unk>.

Continue to.

Happen.

<unk>.

Different cities across July and August .

It is absolutely, bringing some uncertainties and we're seeing the confidence of the consumers and their willingness to pay or do you have some way to recover and it does have some impact on our business as well so I think going forward.

Dean.

We're confident in.

We believe that the.

Demand side will.

Pickup over time, while our supply side remained very strong and for the long term I think.

On demand the retail penetration as a percentage of the local retail is still very low at the single digits Thats why the.

The room for long term growth is just tremendous.

And most of the retailers and brands believed that <unk> is the future.

Absolutely number one.

Growth area for the foreseeable future. So we are very much confidence.

Thank you Philippe.

Okay.

Thank you. Our next question comes from the line of Alicia Yapp from Citigroup. Please go ahead.

Hi, Thank you good morning management, Thanks for taking my questions and congrats on the solid results.

I have a follow up on the competitive landscape for J D D J.

I think you know, we're also seeing more payers actually.

Non supermarket category.

J D.

I can't use the synergy bondage, so can management comment.

The landscape, especially for non supermarket category.

Martin.

If so how.

How would that affect the takeaway.

Well Ethan.

Margin for the volume growth in the future and then I'll follow up on that is what else. What can we expect for the direct margin target for JD DJ in Denmark I mean.

Medium term, which is in two to three years. Thank you.

Hi, Alicia I'll give you some of my thoughts and see if <unk> have anything to add.

So we are seeing more players coming onboard in the non supermarket category.

But.

More assay followers as we have been quite successful expanding in the market.

Supermarket category, so they're following without too much of the development. So if you breakdown the.

So called non supermarket category, you will see that.

The category, we're talking about mainly covers like.

Consumer electronics.

Mom and baby <unk> parenting, the Lakers or home appliance so all of those.

Category has very different.

Consumer mindsets are comparing two restaurant food delivery. So this is totally different.

Is there it is.

Remote.

Re mostly links for any consumers to think of like buying a smartphone where buying a home.

Home appliance from a restaurant food delivery platform. So I think that's the key.

And for JD, we are.

We're happy and we're I think we're very lucky to have deeply collaborate with JD that.

The consumers come onboard until they have the strong mindset to buy those category products on JD and with the development of our shop now business. So we can.

Easily leverage the traffic and the consumer mindset on those categories I think those are.

The advantages we enjoy that all of the other players.

It's very difficult for them to build similar mind share in.

Anytime soon.

Yeah and also about the.

But the take rate and also about the direct margin so.

All of those.

New categories actually we are if.

If we subsidy, we have where subsea <unk> subsidy subsidizing much less compared to the supermarket categories, So which means that they all generate positive.

Erika margin.

To the to the company. So we are welcoming all of those new categories onboard and about the trend of our company's direction March <unk> direct margin level we.

And actually in Q2, our direct margin positive two.

4%, so we are expecting.

In the direct margin level to be further increase increasing two 1% or more than 1% in the second half of this year.

And we believe it will be keeping to increasing.

2023.

Which is.

Sure.

Which is very key and essential to the company's overall.

<unk> profit.

The breakeven.

Yes.

Okay.

Thank you.

Our next question comes from the line of Andre Chang from Jpmorgan. Please go ahead.

Thank you management for taking my question.

Have a follow up question regarding our cooperation with JD. So now with this no infrastructure laid out right now.

No.

Thereby tab.

Adds slowed et cetera, but I wonder how we will drive further no.

Growth driven.

Driven by GE are accomplishing J D.

For example will there be more AD load or like there will be more exposure or at from different category beyond electronics, FMC G etcetera, or we are going to promote more to get more visibility for.

Consumers within JD ecosystem et cetera, so any color for the drivers in the second half and in next year.

To increase our traffic contribution from J D will be helpful. Thank you.

Hi, Joe also give you some of my perspective see if.

The rest of the team has anything more to add so in terms of the driver of our growth on J D. I think there are few key things. We're looking at that number one is the penetration of the user base.

So we have we are fully aligned with JD to increase the penetration of consumer on JD com.

So now the penetration is still at the sink.

Single digits.

I'll quickly growing and then we.

Are aiming at a 50% penetration in the long term. So I think this is the number one driver in.

In short term and the long term.

There are few things to help for us to improve the penetration for example, like the exposure so we're getting more and more.

Space.

If you will on JD com in Europe .

We're able to see some more and more often everywhere at the same time, we are expanding geographically and also bringing more of the more supply from various category. So therefore when people are searching browsing our products from various categories.

Now they can see us more and more often.

Before we don't even have the supply of the products in that kind of that new categories now as we bring more stores and supplies onboard the customers are able to see them onto the dot com. So all of those <unk> to improve.

<unk>.

Improve the.

Exposure and the penetration in terms of promotion I don't think it will be a heavy promotion driven.

Expansion at all.

And.

Other than that we actually can fully leverage or the existing successful promotion.

On JD already like the June 18th or.

A double 11, and so on and so forth. So JD has.

Lot of our successful promotion and now we can.

<unk> together with them so I think.

Those are the strategies, we are looking at.

Okay.

Sorry for the <unk> assets.

Concession package.

In Asia.

To help with future <unk> founder Ishares at maturity.

<unk>.

Sit idly on the local and social.

When the social channel Virginian digestion, social essentially the panda and the bulk loans.

Due to that.

Hello.

It's clearly a chunk, we'd say Gee chalet.

<unk>.

<unk>, yes.

Power Gen ACO can either social jeopardy and chip.

I'll be honest with linear tech in general HSV two.

Cheat.

<unk>.

Yes.

<unk> me answer yes, our courses.

Thank God.

P&L two collapses.

So don't meet with Julian and of which you can do with the program.

Simona Hi Kingdom this year.

<unk>, our new hotel lunches before EMEA itself with us into the fault zone CMO in HCP Jen <unk>.

He has got the flu.

<unk>, what you can do about loans and retention.

Okay. So.

Our further.

Elaborate on the exposure opportunities for for example.

And if your if a consumer is searching.

The fresh produce products in their search tab, there will be more exposure to the shop now.

The choices so for the next step we will export exposed we will spend two more category products for example of those.

<unk> products are big power products in the soup market and also we will further increased exposures in different channels like that.

The second second clean.

Channels and also when the consumers.

Placing the orders so when they finish and complete the orders there will be recommendation for then for the nearby stores and this is all in the testing procedures and so we are very confident that we are.

As in the shop nine J D J.

Acquiring more traffics in consumer volumes within the JD ecosystem.

Thank you Andrea.

Thank you.

Our next question comes from the line of <unk> Zhang from UBS. Please go ahead.

Hi, Thank you management for taking my question.

My question is around I wanted to follow up on that.

Sorry, the vintage that you guys mentioned just now I.

I Wonder how do we see that churn rate of merchants, especially on the SME side after the very challenging second quarter.

That effect.

Our potash supply.

For certain long tail categories I understand this may not be an issue with our partnership with a leading supermarket chain, but I do believe we do have a large number of smaller merchants on the platform. So just wanted to hear your thoughts on that thank you.

Sure so for our supply side.

So our strategy is to firstly work with key chance.

Not only supermarket chains, but also other vertical.

Specialty store tenants like our consumer electronics mom and baby liquor and so on so all of those the cage, hence retailers are much more resilient and all of them are still there and the business are relatively well.

So we're not seeing any substantial impact from the supply side and on the other hand.

We're actually happily seeing that almost all of our.

Retailer partners have strengthened partnership with us because they're seeing more challenges and are looking for our help so I think the partnership between the.

With our retailers has actually improved and we are very much confident that we will be able to going through all the turbulence.

Any like circumstances.

Thank you.

There are no further questions at this time I will now hand back the conference to MS. Caroline Dong for closing remarks.

Thank you operator in closing on behalf of <unk> management team, we'd like to thank you for your participation in today's call. If you decline anecdotal information feel free to recapture.

Thank you for joining us today. This concludes the call.

Thank you the contents of data has now concluded. Thank you for your participation you may now disconnect your lines.

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Good morning, ladies and gentlemen.

Thank you for standing by for <unk> second quarter 2022 earnings Conference call.

At this time all participants are in a listen only mode.

After the management's prepared remarks, there will be a question and answer session. As a reminder, today's conference call is being recorded.

I will now turn the meeting over to your host for today's call Ms. Caroline Dong head of Investor Relations for data.

Please proceed Carolyn.

Okay.

Thank you operator, Hello, everyone and thank you for getting our second quarter two earnings conference call on the call today from data we have Mr Chair.

Chairman and CEO .

Yeah, well you can haul incoming president and Mr. Chen CFO and Mr. Tang Yan co founder and CTO.

Mr. <unk> will talk about our operations and company highlights then Mr. Chen will discuss the financials and guidance. They will all be available to answer your questions. During the Q&A session that follows.

Before we begin I would like to remind you that this conference call meaningful. These statements. Please refer to our latest the safe Harbor statements in there any rationalize all of our site.

We have five todays call I will sell during these calls.

Discuss certain non-GAAP financial measures. Please also refer to our earnings press release, which contains a reconciliation of non-GAAP measures to the comparable GAAP measures.

And like we have no that allied otherwise stated all figures mentioned during this conference call are in RMB.

It's now my pleasure to introduce our chairman and CEO .

Please go ahead.

Thank you Caroline.

And thank you all for joining us today.

With mixed emotions I announced my resignation from that as chairman of the board and CEO .

I would like to take this chance to thank everyone, who joined our journey together.

And inspired and I'm proud of what we have achieved I believe this transition will pick that up to the next chapter and we are now more ready than ever before to return the leaf.

I'm extremely pleased to announce that Jeff.

Our vice President and my trusted business partner has been appointed as our precedent.

Jeff has been instrumental in our tremendous growth in the past eight years and our deepened the collaboration with J D.

Such contribution speaks for itself.

With demonstrated our strategy execution and leadership capabilities. He has won the trust and support from the team and the board.

Meanwhile, I'm also thrilled to welcome Mr niche.

In between to join Us.

As the chairman of the board.

Under the leadership of Jeff Julien back and with the <unk>.

<unk> standing for Florida from leading anti Dot com.

We'll be in good hands.

I look forward to the continued strong partnership with JD to create more compelling value for our shareholders and the society.

Now, let's discuss our second quarter results, we're pleased to announce another strong quarter in which the group maintained rapid revenue growth with continuously improving operating efficiency.

During the second quarter of 2022 total net revenue increased by 55% and adjusted net loss margin narrowed by 20 percentage points year over year.

I would like to highlight some general market developments before providing more updates on the two platforms.

That churn will go through our financial results in greater detail.

Starting with the current.

Industry and regulatory environment.

We're fully in.

The pro employment CRO consumption policies.

Currently with a further consumption recovery and employment stability through participation in major government labs promotional events, such as <unk> and the two international consumption season in Shanghai as well as the pilots program of work related injuries insurance for riders.

Meanwhile, as China and to promote the robust development of the platform economy other group.

Firmly supports regulatory policies.

We will seize the opportunity of high quality growth to develop our platform in fully compliance with regulations.

We believe our innovative and a solid business model can play a part in improving the efficiency of resource allocation and facilitating the progress of the domestic economy.

On the anti epidemic front, we actively cooperated with local governments in Shanghai, Beijing and other cities affected by COVID-19 during the second quarter to maintain the local supply of daily necessities.

Leveraging our strengths as an on demand at retail and deliver its platform to fully embrace our social responsibilities.

In June .

<unk> received an appreciation leather from the Shanghai Municipal Commission of Commerce.

Our group's significant contribution to the COVID-19 fight in Shanghai, we're highly valued by the local government.

I would like to provide some updates on our deepened cooperation with steady dot com.

During the second quarter, the GMB, our shop now ourselves to go the unified brands for all on demand the retail services within JV ecosystem more than tripled year over year.

For search result optimization in second quarter. We further further expanded chophouse merchant base and product offerings to improve the availability of one hour delivery options in each local grid.

As a result, our search exposure rate in JV increased by 3% points compared with the previous quarter.

For nearby or <unk>.

<unk> Foods, Inc. Teamed up with further rollout this entry point to more cities. So far nearby has covered or cities nationwide English we have launched the sharpen our service.

Driven by the improvements in exposure click through rates and the conversion rate the GMB from nearby have increased by more than 80% year or quarter over quarter.

Now, let me walk you through the operational highlights of our two platforms DJ and that are now before going into details.

I would like to highlight the results of June 18th Grand promotion.

Major mid year online shopping festival in China.

Both JD DJ and that Enel made breakthroughs in this year's promotion.

For JBT, Jay Dnb on the peak day surpassed RMB 600 million.

And Jamie during the promotional increased by more than 70% year over year.

For that Enel <unk>.

Number of daily others delivers exceeded 10 million for two consecutive days.

Now, let's spend more time on <unk>, the leading local on demand retail platform in China.

As of the end of June 2022 the number of annual active users on <unk> increased by 42% year over year to $72 8 million.

Retailer empowerment brand cooperation and technology innovation continues to be the focus of <unk> in the second quarter I will elaborate on each of the three areas.

Firstly, we have continued in our efforts to empower retailers.

Beginning with the supermarket category, we have now established partnerships with 87 out of the top 100 supermarket chains in China.

<unk> to Onboarding more popcorn vendors supermarket tests, we're also setting up more local original leaders.

Moreover.

Supermarket category is gaining momentum in shop now.

Thanks to the increase.

In online traffic and conversion rate as well as offline customer acquisition.

January of supermarket, and merchants and sharpen our channel increased multi.

Multiple times year over year.

Let's move onto the consumer electronics and home appliance category.

Based on our consumer.

Consumer insights grid level, we continue to move the right product supplies online.

During the second quarter more than 10000, consumer electronics and home appliance stores were newly launch on JD Vijay.

In the smartphone subcategory.

As the largest also sells platform for xiaomi products.

We established an official partnership with Xiaomi brand in the second quarter.

As of now there are more than 3000, <unk> home stores, let's say, Ontario D J J.

<unk> generated I.

My home the Xiaomi home stores increased by more than 10 times year over year in the second quarter.

And the PC accessories.

Subcategories, we further expanded offerings and have penetrated new settlement.

During the quarter, we formed new partnerships with leading brands, including panel.

And Aurora.

In the home appliance subcategories in collaboration with merchants, we enhance our service capability.

<unk> integrated delivery installation and after sales service for large home appliances.

As a result, the GMB of home appliance sub category more than doubled on a sequential basis.

And the mom and baby category, we facilitated the cooperation between leading retailer chance and mom and baby brands, such as waste and elite.

As a result, <unk> mom and baby channels on JD DJ more than tripled year over year.

We're also working more closely with trends in the liquor category, such as JD Liquor award signal into Australia and.

<unk> 1919 Yao Zhou.

JV off liquor stores more than doubling year over year.

Yeah.

In the home and furniture category.

We have further penetrated smart home products for example in the second quarter GDP, Jay has established partnerships with more than 10 smart lock tenants sooner. So.

The tenants, including like.

Tidy should and abroad to solvent smart source online.

Providing users with a convenient one stop shopping experience integrating delivery.

Yes.

Secondly, we continue to push forward our cooperation with Brent.

During the quarter, we continued to.

Solid five our leadership in the auto space.

In terms of both the number of brands with workers and the depth of engagement with our brands.

Our online marketing services.

The year over year growth exceeding over 80% in the quarter.

<unk>.

In the second quarter, we further expanded our diversified brand partner base with strikes.

Several new partnerships with food and beverage brands, such as <unk> and <unk> as well as beverage alcohol brands, such as the auto and Motorola.

In addition, we sign up mom and baby brand, such as a bot and pharmaceutical brands such as Chantal.

We also saw impressive results from our brand marketing campaigns.

June 1st TDD, J teamed up with 11 mom and baby brands, including wastes and huggies to launch a joint marketing campaign.

It's creating a virtual bundle and baby shop at offers extensive product and good price and available for one hour delivery.

Total GMB of participating brands increased nearly four flows.

The year over year basis.

On June 17th.

Recurring with Jd's June 18th screened promotion that started as APM, we partnered with 23 brands, including P&G, Pepsico and Hi, Kerry to launch a livestream.

Compared with the slogan.

<unk> others that APM is delivered through our daas rose by nine pm.

On the day of the live streaming and in.

Total <unk>.

These brands increase.

<unk> by more than three times year over year.

Certainly.

We also continued our efforts to empower retailers and brands with innovative technologies.

And then June the high ball system, our Omnichannel also operating system for retailers.

Being deployed by more than 200 merchants around.

7700 retailer stores.

Yes, hi.

<unk> have successfully penetrated new categories.

<unk> like pet stores.

And maybe a stores, while serving more supermarkets and convenience stores.

We continue its rolling out new highball features to address what merchants need most and helps them wherever that see challenges.

For example is that we launched a new module, enabling merchants to directly connect to Jd's warehouse system sort of hydro one.

Let's say source supplies from J D.

This helps retailers procurement staff.

A significant labor hours.

Rudolf merchants adopting this module saw their procurement efficiency improved by three times.

Our earth grid systems, or <unk>, which helps brands, whose itself by providing them with high grade ore by store self data has been well count.

Growing number of brands.

In addition.

As shelf now becomes an increasingly important channel for brand sales growth.

We upgraded Sequencers SKU analysis features to help brands simultaneously monitor the availability of their goods at both JD DJ and shove them, so that brands, improving the product supply and self.

Our digitized in store picking service set up ticking also made significant progress.

Since the establishment of our partnership with Carrefour, we have helped us prove picking fulfillment rate.

Customer experience and cost efficiency.

For example, customer compliance rates related with picking was lowered by <unk>.

Past three months after a slower start.

Further to utilize in South Africa.

As a result of the impressive results we.

<unk> continued to deepen our collaboration with tier four.

Now that are picking covers all of the churn.

Key OXXO stores.

Yeah.

Driven by expanded store coverage and the increased penetration of that are kicking in partnering stores. The total number of orders fulfilled by that are kicking in the second quarter increased by more than three times year over year.

Now, let's move to that are now the leading local on demand delivery platform in China.

While total revenue maintained rapid growth and announced operating efficiency also improved significantly as we optimize pricing strategy and the merchant portfolio.

I will start with our K or Tim merchants business.

Revenue of our on demand delivery services to K merchants increased by 45% year over year, while average gross profit for other turned positive.

Our ability to provide integrated fulfillment services, consisting of warehousing management picking and delivery gives us unique advantages. Therefore, we continue to consolidate our leading position in the supermarket category.

In the second quarter revenue generated from supermarket case increased by over 50% year over year.

In addition, we sign up new supermarket channels like Walmart who may.

And the restaurant and beverage category revenue generated from beverage maintained rapid growth more than doubling year over year.

Moving onto our SME and CPC business, others fulfilled increased by over 70% year over year, while we continued to optimize unit economy is significantly year over year.

Thanks to our further penetration into lower tier cities, others fulfilled for SME merchants increased by more than 40% year over year.

Lastly on last mile services.

For last mile delivery, we continue to leverage our flexible cross sourcing network to ensure the procurement of JD logistics, others, especially amidst the pandemic.

During peak promotional campaigns.

For a pickup service.

<unk> had strong growth momentum, mainly driven by our further penetration into virus picking scenarios.

And to wrap up I would like to say a few words on ESG.

Our sustainable development plays an increasingly important role in China's economic strategy.

We are committed to creating value integrating social responsibility with copper our strategy in.

Empowering our partners caring for our employees developments and satisfying consumer needs.

So that we can achieve without that bring benefits to the company our shareholders and the society at large.

At the end of June we released our first ESG report, providing stakeholders with a comprehensive overview of our efforts and progress on key ESG issues.

Going forward, we will continue to integrate ESG initiatives into.

So our long term development strategy and actively shoulder our corporate social responsibility.

With that I will now pass the call over to Dr. Chen to go over our financials for the quarter. Thank you.

Thanks for that.

Before we go over the numbers just a few housekeeping items in advance.

We believe year over year comparisons are the most useful way to judge our performance. Therefore, all percentage changes I'm going to give will be on that basis.

And all figures are in renminbi, unless otherwise noted.

The total net revenues in the second quarter increased by 55% to $2 3 billion net revenue from that and now increased by 37% to $816 million, mainly driven by the increases in order volume of intra city delivery.

Services to chain merchants.

Net revenues from <unk> increased by 66% to one 5 billion, mainly due to the increase in JV, which was driven by increases in the number of active consumers and average order size.

The increase in online marketing services revenue as a result of the increasing promotional activities also contributed to the revenue growth of ADT Jay.

Moving over to the expenses side operations and support.

One 4 billion. The increase was primarily due to an increase in <unk> costs as a result of increasing order volume for intra city delivery services provided to various chain merchants on the platform and the retailers on the <unk> platform.

Selling and marketing expenses were $1 2 billion. The increase was primarily due to the growing absolute dollar amount of incentives to JBT, J consumers and increasing advertising and marketing expenses to attract new consumers to JBT J platform.

The amortization of the vignettes cooperation agreement and rising Frost share subscription transaction with J P. Dot com in February this year.

G&A expenses were.

$100 million.

Flat year over year is a result of our expenses control measures.

R&D expenses rose to 160 million, mainly attributable to increased research and development personnel cost at the company continues to strengthen its technology capabilities.

non-GAAP net loss attributable to ordinary shareholders of data with 300, and a 96 million.

non-GAAP net loss margin was 17% improving by more than 20 percentage points year over year, and six percentage points quarter over quarter. In addition to daily DJ direct margin turned positive during the quarter, making a remarkable milestone in our path.

<unk> to profitability.

As of June 30, 2022 the company had a four point 35 billion in cash cash equivalents restricted cash and short term investments.

Through our $17 million share repurchase authorization authorization announced in March 2022.

June 32015, Q, we had repurchased approximately.

$33 million of Adi.

This and this.

Purchase program.

Terms of our outlook for the third quarter of 2022.

<unk> total net revenue to be between two point 35 billion and a 245 in <unk>.

Representing year over year growth rate of 39% to 45%.

In addition, we expect the net loss margin in the third quarter of 2022 to continue to significantly narrow year over year and achieved sequential improvement for the sixth consecutive quarter.

This concludes our prepared remarks and.

And operator, we are now ready to begin the Q&A session. Thank you.

Thank you.

Ladies and gentlemen, if you wish to ask a question. Please press star one on your telephone and wait for your name to be announced.

If you wish to cancel your request please press star two.

If you are on speakerphone, please pick up your handset to ask your question.

We will wait for a moment, while the question queue assembles.

Okay.

First question is from the line of Ronald Keung from Goldman Sachs. Please go ahead.

Thank you. Thank you.

Back and Caroline.

Two questions first is how should we think about business executive and board changes.

Would there be a future CEO role as I think you have now field.

President and chairman, respectively, and also see an increase in independent directors. So is that part of a can afford change to align with some of the Hong Kong stock exchange guidelines and any comments on eventual lifting or dual primary listing in Hong Kong.

And my second question is on the encouraging 18 percentage points improvement in net margins that reflect that back so.

As user subsidy rates trended so far and are we continuing to expect the direct margin breakeven this year and EBIT turnaround by next year. Thank you.

Okay. So thank you for the question Ron.

The first question, yes, so we have actually net added one independent director.

And now actually three out of six.

Directors independent, which is fully compliant with substantial Hong Kong listing rule and also right now four out of six.

<unk> Board of directors are female directors wishes wish him very I.

Diversified and.

They all have very solid international backgrounds.

We hope that all of those.

Directors will contribute to that.

Growth of the company in the future and also we will be proactively.

Push forward the Hong Kong.

<unk> procedures.

To protect our.

Shareholders' interest.

And also.

I want to thank for their contribution.

<unk>.

To the to the computer.

The company for the past eight years. So after internal discussions we are not positioning our CEO low and actually president Jeff.

<unk> executing.

And be responsible and in charge of the daily operation and report to the board in the future.

And about the second question.

Yes, so actually our overall subsidies ratio.

<unk> is actually decreased by 20.

Yes.

Compared to the first quarter so in Q.

Q2, actually our consumer incentives the decrease that you are four 5% as a percentage of <unk>.

And in the third quarter, we expected.

Incentive ratios will be.

The decrease more.

And that they will all be contributing to our.

<unk> margin level and for the whole year.

We maintained.

Forecast that the direct margin will be turning positive and.

The company will be turning.

Positive profit in the first half of next year.

Wonderful thank you.

And thanks.

Thank you Ron.

Thank you.

Our next question comes from the line of Thomas Chong from Jefferies. Please go ahead.

Hi, good morning.

My question is my first question is about the.

Our landscape as we are seeing that increase in loan bore interest the entering into the space.

These days.

Thanks, Paul.

Stockpile medial and.

<unk> also launched.

How should we think about the competitive.

H J J M.

And my second question is about.

After the board change.

As we think about our cooperation with JD going forward.

Accelerating synergies with JD. Thank you.

Okay.

Nick.

We can now call last week.

India.

Panama asset months' amnesia.

The Cherokee facility.

So when I see you said that this is high quality news.

When we first saw some charters high five.

<unk>.

In order to meet that.

<unk> and our needs through the winter so that the agenda some cash flow impact.

So about <unk> <unk> due to the outflow of chapter two pages.

Okay. So.

This is Jeff so.

First and.

Foremost our positioning as a.

Pure play marketplace an hour.

Enabling digitization capabilities has enabled us to.

<unk> was more extensive extensively with those all those leading chamber teams and our brands.

So which makes us more competitive in the.

Right.

Policy and prices of product price.

We will maintain the tin heightened with.

Also for the Susan in terms of yield.

Yes, so as we always tell our partners as a pure market pays we never.

<unk> with our retail partners. So we are now engaging retaining ourselves.

So.

That's why.

And those retailers are more willing to work with us.

Alright.

Two new songs.

<unk> here.

Yes.

<unk> hundred 59%.

Alright.

<unk>.

Incidentally Cheetah <unk> CTO.

Yes.

The shelf is that the <unk>.

In the utility.

When local assortment the Hilton Santa <unk>.

So some chunky chunky titles hungry sanya.

So Nancy we schedule the details.

Even though our competitors fantasy cities more but.

The impact.

To our profit.

Two assets very limited an hour.

I said, so our intensive ratios or decrease sequentially. So the rationale behind it is that the subsidies on the driver of demand but.

It needs to be continuous fulfilled with high quality supplies, so pattern patterning with low leading retailers gave us a clear age.

Line change rent over our peer and.

So for the long term.

The $3 two.

At the time the usage Susan.

In the knee.

So Shannon will cause you to see the central government liquidity achieved onto <unk> <unk> to <unk>.

100 <unk>.

Second also in the Johnson's Asia, which has info kind of chicken Ciabatta Susan.

Or tongue GMP, the EQ quality defined.

Matt This is Jeff I am putting any time soon.

Sue.

Sue will that go towards pretty soon.

Thank you.

Okay.

Sure.

200, <unk> hundred to defiance, and funko and into some sort and signature.

And then of course the town.

And I know, Jim Suva voucher, almost see a buzzword.

Some <unk>.

And then a couple of them.

Now Tijuana La Quinta the ship.

Julie can pass onto one could we do to you.

Joseph cheaply.

Okay. So.

And we also enable our.

Retail partners with our capabilities.

In digitalization. So for example, take hydro system as an example also.

We continued rolling out our new hybrid features to address.

What merchants need most and help them reduce cost while enhancing.

The operating efficiencies so as.

As of today as of June 30.

It's being deployed in around 7700 retail chain stores.

And another example is our integrated fulfillment solutions, consisting of warehousing management picking and delivery so.

There is a key difference between the on demand and retail and the food delivery.

So.

This is the picking and packing in the in the in the retail stores. So our integrated fulfillment solutions enable retailers to reduce the order picking time, while our other picking service to help them mitigate labor.

Labor shortage through it.

Innovative digitize digitize the crowd sourcing model, which are more.

And highly valued by our retail partners.

And lastly, our culture.

Earth grid systems helps brands it boosted sales by optimizing channel supply.

Down to each like.

The grades of the area.

<unk> latest put in some <unk> user.

<unk> foods as it sounds LTE.

The whole question.

<unk> had a PD.

<unk>, Canada acquisition.

And then we are also proactively to expand.

Cross different categories.

Categories.

So and our capabilities.

Settlement.

Of Digitization can.

Easily.

Capex to extend from the most complicated market categories to other categories like <unk> categories appliance categories. As we have said before so this is also.

Clearly accurate.

<unk> of our platform compared to our peer company.

300, <unk> suddenly in one year.

Hum.

<unk> and <unk>. So there is some <unk>.

S&P Transunion <unk> chartered shuttled teed up.

We can bet on keeping since essentially unfolded in shelf.

Results versus smartphone in the Wuxi.

Tom.

Salesforce on Assembly artisan shall we say to each other.

So these are the 290.

This is <unk>.

The impact EOG.

<unk> uses the same pathway.

So Mr. <unk> Titanfall, two a superwoman.

Panel.

And also the brand partnership so tougher on the top retailers, we have extensive partnerships with the brands since the.

Retail chains on our platform are critical offline distribution channels too many consumer product brands, we can.

Offer our brand partners integrated marketing services across both online and offline channels and also as well as digitization tools pursue our collaboration brands are not only able to generate more sales, but also improve their consumer insights in the China.

Insights.

And we can also leverage jd's resulted to bring more brands on board and in particular like the brands in consumer electronics, where JD enjoy strong consumer mind share.

So.

And our peer is actually lagging us in terms of number of the.

The brands in the depths of the engagement with the brands.

The LNG TSS, our main 30, new consolidations.

<unk> changed our full year <unk>.

Teen consumer.

Yes.

Some policy to South Dakota, Jamie It is 10 months.

<unk>.

Yes, let's talk about the collaboration with JD. So we continue to deepen our cooperation with JD com and during the quarter as the second quarter of this year <unk> of shop now shelf should go more than tripled year over year.

In Q2 of <unk>.

The <unk> <unk>.

The social economy <unk> is in a sense of that yet.

In the second quarter, we further expanded the shelf now merging base.

Base and the product offerings to improve the availability of one hour delivery.

Options in each local grid. So as a result, our search exposure rates and <unk> increased by three percentage points quarter over quarter.

Let's see how <unk> chunghwa soil shall sequencing tightened.

Hi, <unk>.

Chad.

Food is another Jimmy.

And on top of us.

The details of course these are solid Jimmy Fusin total abundance.

So for nearby our Fuji intact.

We further rolled out this entry points to more cities. So far at the nearby tab has covered all cities nationwide in which we have launched <unk> services.

Driven by the improvement in exposure.

Through rate and conversion rate.

<unk> from nearby tab increased by more than 80% quarter over quarter.

And.

Contributing 10% of <unk> Jamie.

Sure.

Thank you Thomas.

Thank you.

Okay.

Thank you.

Our next question comes from the line of Eddie Leung from Bank of America Merrill Lynch. Please go ahead.

Good morning, guys.

Two quick questions.

First one is about consumed.

Behavior.

Could you give us an update on.

No observations.

Jim.

While consumers up to lane in the months after the opening of Shanghai.

Amit inflation for example, any change there.

Absolutely.

And then secondly could you also remind us.

B J.

Okay.

You mentioned that gap.

We continuously going up.

Okay. So let me answer the second question first and our passive.

Erik John there so.

The average order value of our <unk> surgical platform in Q2 was 225, RMB, which is.

Which is increasing by 10 RMB compared to first quarter and in the long term. We think we will continue to drive up average order value as we as we said so we will.

Have more.

Diversified.

Areas.

New categories products and they are all.

With higher contribution contribute.

<unk> margin to the platform, which will also not only help us to increase.

The diversity of our products to be offered to the consumers and also at <unk> our profit improvement.

Yes.

And ill give you.

Some.

Update on both the supply side and demand side from short term and long term perspective, our observation.

So.

In short term, we are seeing from the supply side from the supply side.

We are working with the.

Key merchants chance with the strong supply chain.

Abilities, and they're much more resilient to the turbulence.

Therefore.

This challenging environment.

The retailers or the retailer we have been working with are much stronger.

To deal with the challenge at the same time most of the retailers are facing.

Difficulties to get offline customers in stores Thats, why they really need to expand <unk> business, that's why our partnership with the.

Retailers have been further.

Crews over the last couple of quarters, so thats from the supply side and from the demand side.

We're seeing that.

For example in July after Shanghai reopened and.

The Kobe.

<unk> two.

<unk> been in.

Different cities across July and August .

This absolutely bring some uncertainties and we're seeing the confidence of the consumers and their willingness to pay or do you have some way to recover and it does have some impact on our business as well so I think going forward.

The.

We're confident in.

We believe that the.

Demand side will.

Pick up over time, while our supply side remained very strong.

And for the long term I think the.

On demand the retail penetration as a percentage of the local retail is still very low at the single digits. That's why the.

The room for long term growth is just tremendous and most of the retailers and brands believe that auto is the future.

Absolutely number one.

Growth area for the foreseeable future. So we are very much confidence.

Thank you Philippe.

Okay.

Thank you.

Our next question comes from the line of Alicia Yapp from Citigroup. Please go ahead.

Hi, Thank you good morning management, Thanks for taking my questions and congrats on the solid results.

I have a follow up on the competitive landscape for J D D J.

So I think we're also seeing more payers actually more aggressive.

Non supermarket category that reach I think J D.

Data can be used to at Joseph Bank.

So can management comment.

The landscape, especially for the non supermarket category.

Intensified.

How would that take.

Take rate or even.

Margin from volume growth in the future and then a follow up on that is what is what.

What do we expect for the direct margin target for JD DJ in Denmark.

In the medium term, which is two to three years. Thank you.

Hi, Alicia I'll give you some of Mysore, Tennessee is just <unk> had anything to add.

So we are seeing more players coming onboard in the non supermarket category.

The more assay followers as we have been quite successful expanding in that market.

Supermarket category. So they are following us without too much of the development.

If you breakdown.

The so called non supermarket category, you will see that.

The category, we're talking about mainly covers like <unk>.

Consumer electronics.

Mom and baby <unk> parenting, the Lakers or the home appliance so all of those.

Categories had very different.

<unk> mindsets are comparing two restaurant food delivery. So this is totally different.

This is a very remote.

We mostly linked for any consumers to think of like buying a smartphone where buying a.

As home appliance from restaurant food delivery platform, So I think thats.

And for JD, we are.

Very happy and I think we're very lucky to have deeply collaborate with JD that.

The consumers come onboard until they have the strong mindset to high dose category products.

And with the development of our shop now business. So we can.

Easily leverage the traffic and the consumer mindset on those categories I think those are.

The advantages we enjoy that all of the other players.

It's very difficult for them to build the similar mind share in.

Anytime soon.

Yeah and also about the.

But the take rate and also about the direct margin.

So.

All of those.

New categories actually we are.

If we subsidy we have we are subsea <unk> subsidy subsidizing much less compared to the supermarket categories, So which means that they all generate positive.

Ericsson margin.

To the to the company. So we are welcoming all of those.

New categories onboard and trained in our Companys direction March <unk> direct margin level.

And actually in Q2, our gross margin positive two.

4%, so we are expecting.

In the direct margin level to be further increase increasing two 1% or more than 1% in the second half of this year.

And we believe it will be keeping to increasing.

2023.

Which is.

Sure.

Which is very key and essential to the company's overall.

<unk> profit.

Breakeven.

Yes.

Okay.

Thank you.

Our next question comes from the line of Andre Chang from Jpmorgan. Please go ahead.

Thank you management for taking my question.

Have a follow up question regarding our cooperation with JD. So now with this no infrastructure laid out right nor shop now and nearby tab.

AD load et cetera, So I wonder how we will drive further.

The growth.

Driven by our accomplishment J D.

For example will there be more AD load or like there will be more exposure or at from different category beyond electronics, FMC G etcetera, or we are going to promote more to get more visibility for consumers within JD ecosystem et cetera, So any color for.

The drivers in the second half and in next year too.

To increase our traffic contribution from J D will be helpful. Thank you.

Hi, Joe also give you some of my perspectives NFC is.

The rest of the team has anything more to add so in terms of the driver of our growth on JD I think there are a few key things were looking at number one is the penetration of the user base.

So we have we are fully aligned with JD to increase the penetration of consumer on JD com.

So now the penetration is still at <unk>.

Single digits.

I'll quickly growing and then we.

Our aiming at 60% penetration in the long term. So I think this is the number one driver in.

In short term and the long term.

There are few things to help for us to improve the penetration for example, like the exposure so we're getting more and more.

Space.

If you will on JD com, and you're you're able to see us more and more often everywhere at the same time, we are expanding geographically and also bringing more of the more supply from various category. So therefore when people are searching browsing.

Our products from various categories.

Now they can see us more and more often because before we don't even have the supply of the products.

As kind of that new categories now as we extend and bring more stores and supply to onboard the customers are able to see them on TV dot com. So all of those helps us to improve the.

Improve the.

Exposure and the penetration in terms of promotion I don't think it will be a heavy promotion driven.

<unk> at all.

And.

Other than that we actually can fully leverage or the <unk>.

Existing successful promotion.

Aunty already like the June 18th or <unk>.

11, and so on and so forth. So JD has.

Lot of our successful promotion and now we can.

<unk> together with them so I think.

Those are the strategies, we are looking at.

Okay.

Well certainly for <unk> assets.

SaaS and Paas.

I'll finish up.

To help with some.

Some of the issues at maturity.

Sure.

The local and social.

When the social <unk>, social sanctioned the panda and the power.

<unk> dot.

Due to that.

So listen it's clearly a chunk, let's say T chalet.

Chipotle tending toward the penis.

He has apologised Gen Asia, social Jawad and chip.

Yes.

And generally she said it too cheap.

Hi.

Pushing you down more debt.

Yes.

In EMEA also in the answer.

Yes, our courses sent Cenkos.

<unk> two collapses.

So that would mean the Chilean number puts you into the program.

Tijuana Kingdom this year, so the loosening in our <unk>, <unk>, CMO and HCP Tien <unk>.

<unk>.

<unk>, what you can do about loans and retention.

Okay. So.

I will further.

Elaborate on the exposure opportunities for for example.

And if your if a consumer is searching.

The fresh produce products in their search tab, there will be more exposure to the shop now.

Choices. So for the next step we will export exposed we will spend a few more category product for example of those.

<unk> products are big power products in the soup market and also we will further increase the exposures in different channels like.

The second second clean.

Channels and also when the consumers.

Placing the orders so when they finish and complete the orders there will be recommendation for then for the nearby stores and this is all in the testing procedures and so we are very confident that we have.

As in the shop now in the J D J.

Acquiring more traffics and consumer mines within the JD ecosystem.

Thank you Andrea.

Thank you.

Our next question comes from the line of <unk> Zhang from UBS. Please go ahead.

Hi, Thank you management for taking my question.

My question is around I wanted to follow up on the supply side of vintage that you guys mentioned just now.

I Wonder how do we see that churn rate of merchants, especially on the SME side. After the very challenging second quarter will that affect our product supply.

For certain long tail categories.

This may not be an issue with our partnership with a leading supermarket chains, but I do believe we do have a large number of smaller merchants on the platform. So just wanted to hear your thoughts on that thank you.

Sure.

For our supply side.

So our strategy is to firstly work with the key chance.

Not only supermarket chains, but also other vertical specialty store tenants like our consumer electronics mom and baby liquor and saw so orders the cage, hence retailers are much more resilient and all of them are still there.

And the business are relatively well.

So we're not seeing any substantial impact from the supply side and on the other hand.

We were actually happily seeing that almost all of our.

Retailer partners have.

And the partnership with us because they're seeing more challenges and are looking for our help so I think the.

Partnerships between the.

With our retailers has actually got improved and we are very much confident that we will be able to going through all the turbulence.

Any like circumstances.

Okay.

Thank you.

No further questions at this time I will now hand back the conference to MS. Caroline Dong for closing remarks.

Thank you operator in closing on behalf of the management team, we'd like to thank you for your participation in today's call. If you require any further information feel free to reach out.

Thank you for joining us today. This concludes the call.

Thank you the conference of data has now concluded. Thank you for your participation you may now disconnect your lines.