Q1 2023 Dingdong (Cayman) Limited Earnings Call
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Second our owner and sales volumes in Q1 were also impacted by our decision to stop services in several cities due to difficulties in attaining profitability in the short term.
However, it is worth noting that the average order volume per station increased by seven 7% year over year and order frequency per user rose by 13, 8%.
This indicates that both water quality and profitability have improved.
Meanwhile, geographically speaking a G. A V in the East China region alone went up 676, 3% over last year.
Demonstrating a significant expansion of our regional reach and operational capability across east China.
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Another contributing factor to our Q1 result is that we have completely shifted away from our previous strategy of gaining and retaining consumers through subsidies and discounted pricing.
Such a change was based on a timely analysis after post pandemic consumption trends and opportunities and a review of our strengths and challenges.
Our new approach Intel's crafting exceptional and differentiated products to grow user mindshare, and built trust and brand attachment.
With the expanded order scale product development has improved creating a new flywheel.
There is a Chinese saying that's the deeper you squad the higher you can jump.
Therefore, the temporary slowdown in Q1 was anticipated and was necessary for future development.
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In summary during Q1 2023, there was reduced consumer demand for our products as China lifted its dynamic zero Covid policy and people were traveling during the Chinese new year and engaging in spring outings.
We also incurred additional expenses and labor costs to ensure timely order fulfillment during the holiday remaining open through the Chinese new year.
Despite these setbacks we are proud that we were still able to achieve our expected non-GAAP breakeven this quarter.
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Our operational results demonstrate a remarkable level of efficiency that allows us to make profit. This indicates that our product development strategy is effective and in line with our organizational goals.
I would like to provide you with an update on the progress of developing our products.
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We have been focusing on efficiency first empower typing product development as our main growth driver since Q3 of 2021 in Q1 of this year. Our management team agreed that building trust and Brent attachment is key to increasing use of mindshare and blue.
<unk> cells, which will in turn empower product development, our new growth flywheel revolves around this idea.
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After analyzing post pandemic consumer demand and trends. We found is that there was a high demand for immunity boosting and healthy foods. That's why we have been promoting our clean label series, increasing the proportion of functional food products and launching healthy food.
Sports specific demographics.
Our company has a solid food R&D and processing capabilities that allow us to provide high quality nutritious prepare foods there are both tasty and cooked using minimum oil, resulting low calorie and sodium content.
We were pioneers in the industry to prioritize clean label products.
In Q1, our private label prepare food made up 19% of our total G. M D and we saw more than 70% increase in private label penetration.
A number of private label products with monthly cells exceeding 10 million RMB. Each has increased from seven to 12.
Our Taichung T breads, which offers home cooking style preparing meals has to use a penetration rate of 27% and generate over 70 million RMB in monthly sales on our platform.
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As previously stated in our earnings call our selection of baby food meals and snacks known as Mums choice is the at Tiffany.
Epitome of health traceability, and nutritional planning backed by science.
Our entire mom's choice nine contains minimal additives and is subject to rigorous quality control.
This quality made up 5% of our total sells in the first quarter.
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In addition, our senior planet page is dedicated to providing quality food and drink options for health and weight conscious millennials and Gen Z consumers, we offer a diverse range of low G. I rice noodles and pastries in addition to a low carb.
Very good and beers high fiber beverages, and low fat low sodium seasonings.
Tomorrow, we offer the ability to generate customized diet plans based on individuals' Tel Aviv requirements and allow users to archive their calorie profiles.
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These initiatives clearly demonstrate our continuously improving product development capabilities with this growth we are poised to expand our user mindshare and form a new and improved growth a flywheel.
Kingdom is a startup dedicated to providing safe healthy and delicious food to users.
Our mission is to innovate relentlessly for the betterment of People's life.
We will leave no stone unturned to create value for consumers and society.
While adhering to our roots and maintaining strict discipline.
Our beliefs extend far beyond mere profitability.
<unk>, our passion and drive to achieve success, both now and in the future.
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Based on our current operating situation, we expect to maintain non-GAAP profitability for both Q2 and the full year of 2023.
Thank you for your attention. This concludes my speech next I would like to welcome Ms. Eula CSO of the company to present the financial results.
Thank you Mr <unk> and Hello, everyone before I walk you through our detailed financial results. Please note that omnibus, stating the following remarks.
RMB terms.
In Q3, 2021, we began this strategy efficiencies Wednesday with due consideration of skin and the focus on product development capability as our costumes and the primary growth driver.
But an effective execution of this strategy through the beginning of 2023.
We have achieved a superior product the quantity was consistency along with significant product differentiation and the diversity in the product mix.
In Q1 2023 <unk>. It was five point 45 billion down six 8% year over year revenue was 5 billion down 8.2% over last year.
To break it down the <unk> in January and the February enhanced by five points, 3% a year ago and the decline in much what the comparison was a high base from the lockdown in Shanghai last much.
<unk> speaking the JV of our East China region went up six 3% in Q1 year over year due to higher penetration in the region.
For the rest of our cities we recorded.
Lower JV in Q1 and important contributing factors with that last two we withdrew from a handful of cities because of the difficulty of attending short term profitability.
Our Q1 gross margin was 30 point to 7% up two percentage points over a year ago going forward. In addition to deepening our upstream engagement for fresh grocery products. We will also invest in non fresh grocery categories and Ftes were building differentiation.
<unk> F T use is easier than in fresh groceries.
Such differentiation have increased user mindshare and enhance brand image.
And <unk> also have batch of blended gross margins over fresh groceries with lower fulfillment costs in our regional presence in centers and from nice fulfill most patients.
In Q1, the fulfillment expense ratio was 23.9% down three three percentage points year over year.
It'll be one of 2.7% over last year. Despite the high base grows in lockdown, suggesting that we are gaining user mindshare, thanks to our superior product development capability.
Average at any other peripheral nerve fulfillment station increased by seven 7% over last year, which also improved our operational efficiency.
Sales and marketing expense ratio was one 8% down one five percentage points year over year. The main driver was our product development capabilities that allowed our Friday, we owe to gain a stronger momentum.
On a year over year basis, G&A expense ratio was optimized from two 2% to one 7%.
And R&D expense ratio from four 3% to four 2%, while remaining committed to energy and the resource management and energy Environmental protection, We will continue to invest heavily in infrastructure such as a food.
And what kind of technology and the technical data algorithms in order to solidify our competitive edge in the wrong one.
As projected in our last earnings call. We successfully reached the non-GAAP profitability in Q1, this year and optimized our non-GAAP net margin by 7.9 percentage points from <unk>.
Year ago, despite multiple headwinds in the quarter.
To put this in perspective.
The Q1 top line is typically the lowest of all quarters due to Chinese new year travels and holiday overtime compensation that as expenses.
Especially in this Q1 after China's opening we started the pre pandemic seasonal sectors returned to impact on the quarterly performance.
We're getting these challenges we delivered a strong quarterly results and a continued to demonstrate the viability of our from nice assume ongoing model.
Our operating cash outflow was $307 million in Q1, mainly due to the sequential decline in <unk> at the end of Q1, resulting in a sequential decrease of 422 million in accounts payable.
We ended Q2 with $5 7 billion in cash cash equivalents with Jupiter cash and short term investments in Q1, we managed to deliver previous forecast and a breakeven on a non-GAAP basis, despite headwinds such as seasonality and extra labor costs in the court.
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Our success and confidence in our ability to achieve our full year non-GAAP breakeven for 2023.
This concludes our prepared remarks for today operator, we are now ready to take questions.
Thank you we will now begin the question and answer session.
To ask a question please.
100 <unk>.
If you are using a speaker phone we ask that you. Please pickup your handset before pressing the keys.
To withdraw your question. Please press Star then two.
And when asking a question.
Your question in Chinese first and then I'll repeat your question in English for the convenience of everyone on the call.
Today's first question comes show more Xu.
With credit Suisse. Please go ahead.
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Congratulations on the Libra and now Theyre quarterly profit.
We're wondering where the company returned to the growth trajectory all skill.
How do you balance of skills and profit in the future. Thank you.
Hi, Susan.
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Thank you for your question, let me review the three reasons behind the decline in ourselves firstly due to the shortage of supply during the pandemic demand increase on our platform and we fulfilled more orders during the lockdown, which resulted in a high base. Therefore, when the pandemic ended there.
The supply and demand returned to normal we saw a year over year decline.
Currently after conducting a comprehensive analysis last year, we exited some cities that were not profitable in the short term.
This reduction in the number of frontline fulfillment stations affected the overall order volume in cells.
Finally, we shifted our operational strategy to focus on developing quality products and building user mindshare for long term growth.
Although this adjustment may take some time for users to adopt and have affected the growth of order volume temporarily it is necessary for our long term development.
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However by focusing on specific indicators, such as monthly order volume compared to non lockdown month from the previous year. The daily average order for frontline fulfillment station and order size in East China, We can see that our development has improved year over year.
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We're confident about our long term success will continue to generate profits, while making necessary operational adjustment for a more stable and healthy development. This will lead us toward a consistent growth trajectory in the near future.
Thank you.
Our next question today comes from George <unk> with BMO. Please go ahead.
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During the prepared remarks, Mr. Raul mentioned the growth flywheel twice and that the company has a new one could you kindly introduce your new growth flywheel and what's the driving force for this flywheel is it already started.
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Alright. Thank you for your question online competition within the e-commerce industry frequently relies on subsidies and price cuts to a lower end users and increase traffic. However, our findings have shown that this approach is not sustainable firstly fresh grocery products have.
Unique characteristic where the quality of the products cannot be guaranteed when relying on discounted prices and subsidies.
Over emphasizing low prices and subsidies also contradict our mission of enhancing the quality of life for our customers.
Secondly, relying on low prices to attract user cannot generate a positive cycle competitive advantage or profitability in today's business landscape, our company that fails to generate profits will struggle to survive.
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With that in mind, our management team has refocused on our original aspiration and Michigan as a startup company that provides nothing but top quality food.
We're unwaveringly committed to producing healthy Casey and innovative food products that are designed to help people live better Moorefield live better and more fulfilling lives.
Our current growth flywheel is to build user mindshare by ensuring that our brand image is at the highest quality trustworthy and reliable on this basis as we increase use of purchase frequency, what a mouse or the volume and scale will continue to develop superior.
<unk> and increased profit this positive growth flywheel is our unequivocal path to success.
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We understand that gaining changing and retaining the mind share of users is a challenging task, but it is also highly rewarding the key to our flywheel is to consistently create exceptional unique and innovative products. This requires a long term commitment.
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Our flywheel is gaining momentum our mom's choice product line, which features quality items, where children has contributed to 5% of our total sales.
We've also created a dedicated page on our platform named Ciena on planets to cater to millennials and Gen. <unk>, who are looking to maintain a healthy lifestyle.
On this page, we offer various healthy food and drink options, including low Gi rise low carb bakery products low carb beer high dietary fiber drawings, and low fat and low sodium seasonings.
Category alone accounts for over 7% of our total cell.
In addition, we've introduced many more delicious and healthy prepare food products, which contribute to 19% of ourselves.
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Thank you.
Yes.
Thank you and our next question today comes from Thomas Chong of Jefferies. Please go ahead.
Yes.
Thank you ladies and gentlemen.
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Prepared food has been mentioned market multiple times in the past seven I'll call and Mr. Gao mentioned today that prevalent labor, probably that's probably prepared foods accounted for 90% of all Japan can be so what's the next step for the development of prepared food category profitable for the company.
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Thank you for your question now our prepared food products are designed to satisfy your cravings without compromising your health we specialize in authentic dishes that are simply mouthwatering, such as our classic deep fried monitoring fish in Sweden, soursop archetype and chicken soup and.
Hot and sour fish with pickles mustard Greens.
We understand the need for healthier food options, which is why we have created a range of clean label products that are additive free.
In addition, we offer low sugar low sodium and low Gi option to cater to all dietary needs.
Our ultimate goal is to enrich people's lives through our food choices.
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Our next goal is to create a wider variety of prepared food options using innovative methods that prioritize both taste and nutrition. Additionally, we plan to expand our sales channels to include overseas markets. So that people worldwide.
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Our prepared food category is proving to be quite profitable just like many other R&D projects that we have undertaken.
As we continue to expand our scale gain more experience and improve our supply chain, we expect <unk> profitability to grow even more strongly.
Our goal is not only to become the biggest company in the prepared foods segment, but also the most profitable one.
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Hi, Mr. Laing can you comment on the current competitive landscape and who is your biggest competitor.
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Thank you for your question, we are a startup company that is committed to providing high quality food that adds value to both consumers and society.
We remain focused on our mission and maintain discipline, while keeping an open mind.
Rather than solely concentrating on competition.
Although some of our industry peers have experienced their own shares of ups and downs, we are committed to steady progress.
Instead of viewing others as competitors, we strive to build a collaborative ecosystem that benefits all.
Our company is unique and we want to work together with our peers to create value for our consumers and improve people's lives.
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We have many advantages, including strong product development supply chain management and quality control.
Our financial stability allows us to generate profit and abundant cash flow and our business is gaining momentum.
However, we acknowledge that the market is vast and consumer demands are diverse and we are only scratching the surface of our potential.
We're motivated to work harder to tap into the larger market. Thank you.
Thank you. This concludes our question and answer session I would like to turn the conference back over to management for closing remarks.
Okay. Thank you again for joining us today.
If you have any further questions. Please feel free to contact Mary a rig classes.
Right.
We look forward to speaking with everyone.
The earnings call have a good day.
Thank you. This concludes today's conference call. We thank you all for attending today's presentation you may now.
Now disconnect your lines and have a wonderful day.