Q1 2023 JD.com Inc Earnings Call
Speaker 1: Hello and thank you for standing by for JD.com's first quarter 2023 earnings conference call.
Speaker 1: At this time all participants are in the listen-only mode. After management's prepared remarks, there will be a question and answer session. Today's conference is being recorded. If you have any objections, you may disconnect at this time.
Speaker 2: Thank you. Good evening and good day everyone. Welcome to GD.com first quarter 2023 earnings conference call. For today's call, CEO of GD.com Mr. Lei Xu will kick off with opening remarks. Our CFO , Ms. Sandy Xu will discuss the financial results. After that, we'll open the call to questions from analysts. Let me quickly cover the safe harbor. Please be reminded that during this call, our comments and responses to your questions reflect management's view as of today only. We'll include four looking statements and please refer to our latest safe harbor statement in the earnings press release on our.
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Speaker 3: Hello everyone, this is Xilai. Thank you for joining JD.com's first quarter 2023 earnings call. In the face of profound changes in the external environment of the industry, together with our own proactive adjustments to our business, JD achieved a high-quality performance in Q1. As many of you know, during the past three years of COVID, JD spared no efforts to maximize our business model and supply chain capabilities, and allocated tremendous resources and energies to ensure daily supplies and provide reliable services to our customers and up and down stream business partners.
Speaker 3: JD was able to play an important role in the economy and people's livelihoods throughout that challenging period.
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Speaker 3: The macroeconomy and consumption have started to pick up, but the organic forces driving consumption demand are not yet sufficient. We've seen different paces of recovery for different categories, as well as changes in the demographic structure and people's lifestyles and spending patterns. JD has taken initiative.
Speaker 3: to embrace the new external environment and industry dynamics in a post-COVID era. 2023 is a year of proactive adjustment for JD, and a year that will set a solid foundation for JD's long-term development. Here, I will go through our major adjustments.
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Speaker 3: with the goal of long-term healthy and sustainable growth. This includes optimizing of a product mix and the same channels in order to further improve our operating efficiency and quality. Also, I shared last time we have always encouraged innovative business initiatives.
Speaker 3: while we need to regularly review these new initiatives within each business sector and focus our resources on those businesses that can create long-term value. Therefore, we scale it back on some of our new businesses.
Speaker 3: As we have been building a healthier business model, we've seen stronger profitability in both JD as a whole and in our corn business.
Speaker 3: with this reporting quarter setting a new record among all quarter one in our history.
Speaker 3: This again demonstrates we have a lot of upside in terms of long-term profitable growth. While improving the overall health of our businesses, our core categories, such as home appliance and home goods, PC and electronics, as well as categories such as liquor and baby and mom products that are seeing industry-wide challenges.
Speaker 3: have all been maintaining and even expanding their leadership positions and market share. These trends have continued to strengthen so far in Q2, as we see consumption progressively recovering.
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Speaker 4: Second, we are improving efficiency of management and operations with recently rolled out an organizational rate adjustment.
Speaker 3: for core segments such as JD Retail and JD Logistics, with the purpose of further streamlining company hierarchy building a more flat, nimble and efficient management structure and further empowering front-line business teams. After the adjustment, JD Retail, which has tens of thousands of employees,
Speaker 3: We have just the three levels in the reporting line from an entry-level procurement inquiry to CEO , which will be the flat-taste of managerial structure among all similar-sized industry players. The reorganization will bring greater decision-making power to the execution teams closest to the market and uses.
Speaker 3: incentivize each business unit and give young talent more growth opportunities. This type of organizational structure is a essential driving force for us, as we embrace the post-to-covid era and pursue a new chapter of growth.
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Speaker 4: and from this year, it is 4th of April , and it is 11th of July , and it is also the year of the NPS. At the same time, we have been pushing the RLP strategy for the day to day, we also have a high-end 3-month-old HGP MPS, and the RLP strategy is to make us believe that we will not be able to achieve our goal.
Speaker 4: The company has a lot of new users and new users' demand for the market. Third, we are further in-house of a marketplace ecosystem and user experience. User focus has been built into JDCNA. On top of our continuous efforts to optimize costs and efficiency,
Speaker 5: We are committed to providing users with best-in-class product offerings, prices, and shopping experiences. Adressing user demand are all fronts, including superior selection, speed, quality, and value. Both 1p and 3p models are means to serve users. JD's goal this year is to build a robust ecosystem that attracts more people.
Speaker 6: of supporting measures for SMEs, we have accelerated the expansion of our merchant base. In particular, the number of third-party merchants with recorded transactions sold 20% sequential growth in Q1, among which merchants in the fashion, home goods and supermarket categories increased rapidly.
Speaker 7: merchants remain motivated to allocate resources to our platforms thanks to our advantages in providing them with lower cost and better efficiency of operations.
Speaker 8: On the user side, our main JD app maintained healthy traffic growth in Discoota, with DAU growing double digits around year mark. Moreover, as we continue to focus on user quality in Q1, the number of repurchasing users and the paid users of JD Retail experienced the rapid growth of 2020 increased just about 20 to 1 and cause more contact? these quickly increased
Speaker 9: and plus members spend 8.4 times of the average annual amount of non-plus members, sustaining their high shopping frequency and spending power. What's also worth highlighting is that lower tier market users who have stayed with JD for over a year, so healthy growth momentum in both user scale and our point here one.
Speaker 10: and April as well. In addition, as we continue to push forward our everyday low price strategy, we're happy to see that NPS score of our main GDF increase on a sequential basis. This makes us more confident that as we continue to build up the supply side and enhance our user service and user operation,
Speaker 11: We are able to ensure best in class experience while the core users, while at the same time addressing diverse demands of new users. We still have a lot of upside in user acquisition.
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Speaker 13: In recent awhile, there is no change in investment, which is quite a huge number of users, including members in government policies, will offerbooks of COVID-19 for the playersemen of this.
Speaker 14: I hope my sharing today has made it clear that 2023 is to best the timing for JD's proactive adjustment as we undergo a fluid external environment and embrace new opportunities in the post-COVID era. While such adjustments will impact us for now, but we provide a necessary foundation for us to seize the long-term.
Speaker 15: term strategies remain unchanged and our core competitiveness and driving forces are constantly improving, with the remain committed to creating lasting value for our users, business partners, and shareholders.
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Speaker 18: Let me appreciate Liu Zhong Ha and Dolong Analysistails' support and the vision and familiarity. We know each other very well. They've been a? ? in three days. For her. She is engaged to soul and father and household???aux and supernova??, one of her favorite food mitrements. The success of the same year has created very worthy models. She makes full effort in things that today and in the future.
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Speaker 20: Finally, I've submitted my retirement request to the board to spend more time with my family and the board has approved it. Over the years, it's been a great honor working at and growing together with JD, creating value for our users, business partners and the society.
Speaker 21: and working side by side with Richard and our passionate, hardworking and dedicated management team. I'm very grateful to the trust and support from Richard and the board of directors. It's also been important to have worked closely with Sandy for the past years with her profound insight and vision for our businesses.
Speaker 22: outstanding professional achievements and strong dedication. Sandy is the perfect candidate of the next CEO . I will also work together with her and do my best to ensure a seamless transition in the coming months. With that, I'll hand over to Sandy.
Speaker 23: Thank you, Shizong, and hello everyone. It's a great honor to become the third CEO of JD.com, and I'd appreciate the trust from Richard, Shizong, and the board. Richard and Shizong have set strong foundations for our future endeavors, and they will continue to guide our long-term strategic developments.
Speaker 24: I look forward to further driving the high quality and sustainable growth of the company and bringing more values to our customers, business partners and the society.
Speaker 25: Now let's turn to our financial performance.
Speaker 26: In the first quarter of 2023, we continued to build on our progress in business and organizational adjustment and began to see encouraging trends, including improved user engagement as she's just shared.
Speaker 27: Retroventated 3P marketplace performance, improving NPS score and resilience profitability among others. Also as elaborated by Sizong, our ongoing business adjustment, as well as the reorganization announced in April , could result in moderated growth.
Speaker 28: especially as measured by revenues in the short term. And yet, with the encouraging trends we've seen and our focus on building a team that can thrive in ever evolving business environment with adaptability, strategic agility, and resolve. We are more confident than ever in our ability to deliver healthy.
Speaker 29: We are encouraged to see that during the quarter, the DVTL-LTM average GM per user and shopping frequency continues to increase young year for six quarters in a row, mainly driven by the expansion of our core user base.
Speaker 30: Breaking down the revenue mix. Hurt up to revenues were down 4% year on year in Q1. I will discuss category performance shortly.
Speaker 31: Service revenues grew by 34% young year in Q1, among which marketplace and marketing revenues grew by 8% young year. We are encouraged to see that 3P revenues delivered robust momentum in the quarter reaching the highest growth rate in the last four quarters. Notably, growth of 3P advertising revenues.
Speaker 32: meaningfully outpaced that of one piece in the quarter, which is primarily driven by our continuous efforts to support merchants, particularly SMEs, leading to a substantial merchant-based expansion in the quarter.
We believe this is an important step forward in our business adjustment to build a vibrant marketplace ecosystem and further enrich product supplies and user experience on our platforms. Logistics and other services revenues.
grew by 61% year-on-year in Q1. Now let's turn to our segment performance. City retail experienced a soft revenue performance in Q1, while continuing to expand on both fulfilled growth margin and operating margin.
I've communicated before the continuous improvement of our profitability and bottom line growth. Indeed, it is that we are moving in the right direction towards building a healthy, sustainable business model.
In terms of revenues, City Retail recorded a 2% year-year decline into one. By catch rate, electronics and home appliances revenues were down slightly by 1% year-years during the quarter. Mainly due to the lacking recovery of durable goods, consumption compared to other discretionary
industries becomes more pronounced heading into Q2 and we are confident to not only defend but also to further increase our market share in this category.
thanks to our strong supply chain capabilities, user man-share and solid progress in both online and offline channels. General merchandise revenues were down 9% a year in Q1, a mixed result of our business adjustment, and a high comp for supermarket category last year.
due to the stockpiling during COVID. Since we are on the topic of supermarket category, I'd like to share that it once again achieved an impressive margin improvement as our business adjustment aimed to build a healthier product mix with yielding results.
Our emerging categories such as healthcare products and services, apparel and accessories delivered double-digit pipeline growth in the quarter, demonstrating our broad-based user-manshare across categories. I want to highlight sticky retail's profitability in-pro-
and the improving economies of scale.
This also boosted GD retails operating margin to 4.6% up 101 basis points from a year ago, another impressive margin expansion in four consecutive quarters in a row. Our core retail business remains well on track.
of our long-term margin trajectory. As we are making proactive adjustments to set JD in a stronger position for achieving sustainable growth. JD Logistics saw a 34% revenue growth young year in Q1.
is including the impact of Consolidation of the pump. D.D. Logistics growth rate was 7%.
This is mainly contributable to the resilient growth in revenues from external customers, the proportion of which reached 69% in Q1.
contribute to the resilient growth in revenues from external customers, the proportion of which reached 69% in Q1. In terms of profitability, we have
DGL's NGAP-Oplicating Loss margin was 3.1% in the quarter, primarily due to the extra resources allocated in response to COVID in January and February .
Data reported revenues of 2.6 billion RMB in Q1, and Nanggap operating loss of 217 million RMB in the quarter.
Intercity on the Mount Retail Business remains as an important pillar for us.
And we are glad to see that JDDJ and ShopNow have expanded to cooperate with over 300,000 offline stores and provided more than 2,000 cities and counties with on-demand retail services that cover a wide range of categories.
As a result, our Intuacity Unde-Mount Retail Business Shock now maintained its robust momentum with a young year GMB growth rate of 60% in Q1.
Finally, revenues from new businesses scaled back to 3.5 billion R&B into one, as we continue to adjust investment pace in both sincerity and international businesses, while JD property maintained is your best growth more awesome.
In terms of profitability, operating loss of new businesses continued to narrow down substantially on both year and sequential basis. As shared previously, we will continue to explore new initiatives and encourage innovations that generate better synergies with our core businesses and capabilities.
We are pulling off those that we don't see a clear path for meaningful returns in a foreseeable future. Moving to the consolidated bottom line, as we continue to focus on our core businesses to drive high quality growth and further optimize operating efficiency.
We recorded 7.6 billion R&D non-GAP-9 income attributable to ordinary shareholders in Q1, and non-GAP-9 margin arrived at 3.1%. Up 144 basis points compared to a year ago. Finally, our LTM-3 cash flow as of Q1 was...
19 billion R&D. This was mainly driven by the defurable payment of accounts payables. The impact of reach is exaggerated when sales growth rate moderates.
R&D. This was mainly driven by the defurable payment of accounts payables. The impact of which is exaggerated when sales growth rate moderates. A typical phenomenon for retailers.
As we are working to drive healthy, sustainable growth, we believe our free cash flow will go back to normal levels going forward. By the end of Q1, cash and cash equivalents, restricted cash and short-term investments added up to a total of 203 billion RMB. In alternative trades, the Bay Area Union wascars by US$ perilous investment related to business performance, investing and investing in global forensics in Songa N consider the Sp FX by US$ Thingev hub, its
We also did share buyback of 1.1 billion RMB. The share buyback coupled with our previously announced cash dividend demonstrated our confidence in JD's future prospects and commitment to returning shareholders.
Despite the short-term volatility in the stock market as we go through our proactive adjustment. To conclude my remarks, we ended Q1 with strong footing in improved operating efficiency and expanding profitability.
both in well for our proactive business reorganization. We are working to build an adaptive and efficient business model, a more ownership-oriented team, and ultimately to achieve profitable expansion and market share gain in the long run. The same narrative of data development over the past 20 years.
The city has gone through many cycles and always emerged stronger thanks to our visionary move and steady fast.
has gone through many cycles and always emerged stronger, thanks to our visionary move and steadfast execution.
We will continue to commit ourselves to the three key sense of retail, user experience, cost and efficiency and to the right way to create long-term value for our customers.
business partners and shareholders. With that, let's open the call to the Q&A. Thank you.
Thank you, Sandy. For the Q&A session, Anna is welcome to ask questions in Chinese or English, and our management will answer your question in the language you ask. We will provide English translation when necessary and for convenient purpose only. In the case of any discrepancy, please refer to our management statement in the original language. Operator, we can open a call for Q&A.
for the current session. And it's a welcome to ask questions in Chinese or English. And our management will answer your question in the language you ask. We'll provide English translation with necessary and for convenient purpose only. In the case of any discrepancy, please refer to our management statement in the original language. Operator, we can open a call for current name. Thank you.
The question and answer session of this conference will start in a moment. In order to be fair to all callers who wish to ask questions, we will take one question at a time from each caller. Hello.
If you have more than one question, please join the question queue again after your first question has been addressed. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced.
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to cancel your request, please press star 2. If you are on the speak of phone, please pick up the handset to ask your question.
The first question comes from Thomas Chung with Jefferies. Please go ahead. Go ahead.
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Thank you. Thank you. Thank you. Thank you for taking my questions. My first question is about recent organizational assessment. Can management share about the rationale behind as well as the impact to JD? And my second question is about the subsidies program.
It has been launched for about two months. Can management share about from the perspective of user growth, emergency participation, and GMB growth? Thank you.
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Thank you for your question. This is Sandy. Let me answer the question about the organization restructuring. As you might notice in the news, we have undergone such changes for JD retail and JD logistics business and I would take JD retail's restructuring as an example to give you more explanations on it. The previous level of JD retail's business group has been removed.
and replaced with business departments. Former leaders of business groups will now act as leaders of business departments, and the business departments that used to oversee various product categories will be further split into numerous operational units that focus on specific product categories. And each of these units will have greater decision making and management resources.
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getting involved with these movements, they are all very interesting. What would be good is to meet city leaders and make clear what they are looking for in order to make the city changes. For war, prone and if you'd like to join our local Twitter channel.
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This is Shilay. I will add a few words regarding my rail change. So Cindy, she will be the third CEO of JD.com. She is no stranger to our investors and analysts. In a past of nearly five years, Cindy and I have been working closely from JD. Raiders business to the group level.
and some of you might recall in 2018, it's only because my close teamwork with Cindy that made it possible for us to write through this so-called darkest moment. So Cindy has played a very important role and without her, I don't think I can make it. And plus, Cindy is a very young leader and still have a lot of energies and she has been wildly recognized.
with her professionalism and dedication inside and outside the company. So everyone, including myself, members of the board, and the SEO committee all believe that she is the capable leader to lead JD into the new phase of healthy and high quality growth.
And for myself, my JD Starray can be traced back to 16 years ago when I first became the company's external advisor in 2007. And in the future, I will also continue to become the first to chairman of JD's Advisory Council.
and my support to JD will be a lifetime commitment. I just change perspectives and position, but I will always support JD whenever the company needs, and this is also a very meaningful and privileged thing for me, and thank you. Thank you.
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Thank you, Mr. Shoule. He has made great achievements and contributions to the development of the company. I would also take this opportunity to emphasize our strategies, which will remain unchanged in the long term and will continue to focus on our business philosophies, to focus on our cost efficiency and user experience, and to continue to create value for the customers, the industries, and the society.
continue to focus on our lower-tier markets to build an open ecosystem and on-demand omnichannel retail. And by leveraging economies of scale and of operating efficiencies, we will continue to diversify our revenue structures to achieve healthy and sustainable growth in the long run. Thank you.
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So let me answer questions about our discount program.
other white label products. We also leverage our supply chain advantages to realize economies of scale and pass on the benefits to consumers. Therefore, JD's ability to offer everyday low price is based on our focus on everyday low cost.
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by making adjustments on marketing strategies, guiding users to embrace our everyday low-price concept instead of stocking up goods only at promotions. Thus, we will see the share of everyday sales increase this year, which is in line with our goal of everyday low price and returning to the essence of retail.
This will also help stabilize the whole industry's supply chain operation, thus enhancing the efficiency and value creation for our partners, brands and third-party merchants.
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since it was launched two months ago, has met our expectation. With our joint investment in marketing resources with brands and merchants, we strive to provide consumers with tangible benefits. Only by truly passing on benefits to users can we attract them, which in turn attracts brands and sellers. By serving users well, we can also serve the brands and merchants well. We have noticed improvements in user traffic, engagement, and repeat purchases, as well as a significant increase.
in a number of active third-party merchants. So we're confident in our ability to control the overall costs, overall impact of this program, and this program has a limited impact on our margins.
Thank you. Thank you. Thank you. Next question, please, operator. Thank you. The next question comes from Ronald Keung with Goldman Sachs. Please go ahead.
Hey innovator on EPIC Arctic and we hope to see you in the next session.
Thank you, Rona. In addition to the two systems, we saw the whole TNV's power supply is more than one-time-based. And the TNV's power supply is still faster than the revenue supply. So, we have to be careful. We have to be careful. We have to be careful. We have to be careful. We have to be careful. We have to be careful.
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the growth rate of GNV is also faster than that of revenues.
We've seen the number of third party merchants with active sales continue to rise and their GNV growth is faster than 1P businesses. And also there's the factor that last year, this quarter, the 3Ps comes relatively lower. In terms of the organization's factor change, we've seen a lot of growth in the last quarter.
We are gradually implementing the detailed funds so the impact will be released over certain period of time in the following course.
So for JD's core retail business, we have always been centered on our customers. So any model that better satisfies consumers diversified demand should be offered to them.
and it will also attract users to make purchases. And JD platform offers those 1p and 3p models to serve consumers and we should always keep the decision making right to the consumers. And one of our unique advantages that these two models are actually complimentary to each other.
So we actually have a lot of product efforts in natural wellbeing. Truth is that our most JAMA must similarities are most complex for the individuals and adolescents so both are better for living life and the poverty-st permettre Maximum living Programs for Human Rights have superior distribution results and Nationals for fat ?? and subparessional learning and certain types of goals are more affordable formentation Sterxi
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So with several categories, JD's self-operated model is highly competitive. For example, high ticket size products, products that require higher level of quality and service assurance for consumers, and products that can generate lower cost and higher efficiency through economies of scale. At the same time, as JD's consumers...
and purchasing the month becoming increasingly varied and differentiated, we need to enrage our supply side through the marketplace of this model.
So our current adjustments including the holistic management of 1P and 2P and the considerations on the KPIs tied to the performances to give better choices and more options to the users.
So for the short term, business adjustments can indeed affect revenue growth, especially for certain categories. However, we believe that through these adjustments, categories such as our supermarket categories will remain J.D.'s most important growth driver and return to a healthier market.
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I would like to share some insights on the categories of home appliances and home goods. So in Q1, the performance is still affected by soft consumption demand and the real estate industry. So the recovery of durable goods consumption such as household appliances and home furnishing lags behind that of catering and attainment and other consumer goods. Whereas the good news is that through Jiddies, you're self-buding of our multi-channel.
and we have always delivered a higher than industry performance. So with the economy recovery in the following quarters, we expect the demand will come back on JD's platform.
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And for the 3C and electronics category, it also belongs to the durable and the large ticket categories. So J.D. has a very strong mentality among our consumers and we have also done...
innovative measures on the channels, on the services and continue to lead the market share. And we are seeing that the Q4 market is getting better. And admittedly for these two categories, it still takes some time waiting for more recovery of the market. And it also depends on
the confidence restoration from the factories and the manufacturers. One, the confidence is back, I believe the recovery rate will bounce back quickly.
So, you know let's see how far to access a maximum of eight towards the??, and how we drive it management systems. Much more keep, of course, there will be many platforms where if a capacityym out of fuel, one that isn't good, and once the fuel is medium,
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We will use this opportunity to strengthen our collaborations with our brand partners and for certain categories. They do face operating and inventory pressures, so we will leverage the 618 grant promotions to make more adjustments on the marketing and operations to conduct more innovations to
Create a new high in terms of innovation and partner partnership. How that do that for 20 people, the electronics home, more clients bigger, pulated in car. The T day take hung and I me, LAD Y, me kind is a how she has to best still to the. Also she that she now me a since in do you T woman be contanton, ship in a woman, she should go up be hung. That unle Ho the do Ian.
So just one more observation on the 3C and electronic categories. We're seeing the sales in Q4 is picking up. So for those categories that JDE has some strength on the market, we're confident to continue to meet the market and have outperformed the industry average. In April it's picking up. In April , sorry. My Group
and also best wishes to Xidong. I have questions surrounding the categories, growth and also competition. So while I remain quite cautious, especially for the big ticket items like 3C, but it's also things like the OEM and the hardware, hand-phone, manufacturing are eager to de-stocking.
you know, they're assisting models in preparation for the new models launch in the fall. So how will JD work with them to leverage the upcoming 618 promotion to stimulate the consumer purchasing sentiment? And do you anticipate competition in 3C and appliance to hit up or is JD seeing more competition headwind in the fall?
However, we heard from the brands that all the OEM manufacturers that they are quite well in to provide attractive refaits or discount to boost their sales and also to try to sell to their existing inventory in order to prepare for the new models releasing in the
And also, we heard that, you know, in particular for the brands of home appliance, they are all expecting positive sales growth for the year.
We heard that, you know, in particular for the brands of home appliance, they are all expecting positive sales growth for the year.
In terms of the supermarket competition, I would say our competitive advantages are very different from the other competitors. Again, we are a supply chain driven platform instead of a traffic driven platform. Even though we are facing some short-term challenges because of our proactive business adjustment or proactive channel or product...
are completed or absorbed this year, we will go back to our normal growth trend.
Thank you. As we are now approaching the end of the conference call, I will turn the call over to JD.com?s Sean Zhang for closing remarks.
Please go ahead. Thank you. Thank you everyone for joining the call today. And for your questions, if you have further questions, please contact me and our team. We appreciate your interest and support in JD.com. And look forward to talking to you again next quarter. Thank you.
I have you.
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Hello and thank you for standing by for JD.com's first quarter 2023 earnings conference call. At this time all participants are in the listen only mode. After management's prepared remarks, there will be a question and answer session.
Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the meeting over to your host for today's conference, Sean Zhang, Director of Investor Relations. Please go ahead. Thank you. Good evening and good day everyone.
Welcome to GD.com First Quarter 2023 Earnings Conference Call. For today's call, CEO of GD.com Mr. Lei Xu will kick off with opening remarks. Our CFO , Mr. Li Xu will discuss the financial results. After that, we will open the call to questions from analysts.
Thank you for joining JT.com's first quarter 2023 earnings call. In the face of profound changes in external environment of the industry together with our own proactive adjustments to our business.