ATRenew Inc.(RERE)Q1 2025 法說會逐字稿

Good morning and good evening ladies and gentlemen. Thank you for standing by, and welcome to ATRenew Inc.’s first quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. We will be hosting a question and answer session after management’s prepared remarks. Please note today’s event is being recorded. I will now turn the call over to the first speaker today, Mr. Jeremy Ji, Director of Corporate Development and Investor Relations of the company. Please go ahead, sir.

Thank you. Hello everyone and welcome to ATRenew’s first quarter 2025 earnings conference call. Speaking first today is Kerry Chen, our Founder, Chairman and CEO, and he will be followed by Rex Chen, our CFO. After that, we will open the call to questions from analysts. The first quarter 2025 financial results were released earlier today. The earnings press release and investor slides accompanying this call are now available at our IR website, ir.atrenew.com. There will also be a transcript following this call for your convenience. For today’s agenda, Kerry will share his thoughts on our quarterly performance and business strategy, followed by Rex who will address the financial highlights. Both Kerry and Rex will participate during the Q&A session. Please note our Safe Harbor statements. Some of the information you will hear during our discussions today will consist of forward-looking statements, and I refer you to our Safe Harbor statements in the earnings press release.

Any forward-looking statements that management makes on this call are based on assumptions as of today and ATRenew does not take any obligation to update our assumptions on these statements. Also, this call includes discussions of certain non-GAAP financial measures. Please refer to our earnings press release which contains a reconciliation of non-GAAP measures to GAAP measures. Finally, please note that unless otherwise stated, all figures mentioned during this conference call are in RMB and all comparisons are on a year-over-year basis. Now I’d like to turn the call over to Kerry for the business and strategy updates.

Hello everyone and thank you for joining ATRenew’s first quarter 2025 earnings conference call. We are excited to share updates on our performance and business development and to address your questions about the company’s recent progress. Firstly, in terms of operating results, total net revenues for the first quarter once again exceeded the high end of our guidance range, increasing by 27.5% year-over-year to RMB 4,653.5 million on the profitability guide. Our non-GAAP operating income increased by 39.5% year-over-year to over RMB 110 million. Non-GAAP operating margin reached 2.4%, indicating healthy progress compared to the first quarter of last year. The strong and stable growth of total revenue was primarily driven by the accelerated growth of our 1P business. We continue to invest in our 1P business and recycling fulfillment capabilities, in-house supply access, and strengthen AHS Recycle brand recognition among consumers to further improve the penetration of our 1P2C retail sales in our sales mix.

Let me provide more color for the three key drivers of the 1P business. Firstly, in the first quarter 1P business revenue grew by 28.8% year-over-year, excluding the high base impact from Apple’s official trade-in program and overseas business, as mentioned during the fourth quarter earnings call. Product revenue in the first quarter increased by over 50% year-over-year, exceeding our expectations. Supported by the national subsidies for smartphones and digital products, as well as increased demand for user upgrades in the scenario of our strategic partner, JD.com’s platform, our C2B consumer electronics recycling value grew by over 50% year-over-year. We are committed to advancing strategies on direct engagement with consumers at the front of recycling and retailing. On the capability side, we continue to enhance offline fulfillment capabilities, achieving a net addition of 458 AHS stores year-on-year by the end of March 2025 and broadening our door-to-door fulfillment coverage with more prompt service.

This effort improved multiple metrics, indicating C2B recycling customer satisfaction and ensures a high-quality experience for trade-in users while on national subsidies. We have strengthened our long-term closed development supply chain with JD.com, delivering best-in-class user experience and efficient fulfillment. By optimizing the trading process, we’ve reduced barriers to national subsidies, enabling customers to trade in used devices for new ones in a better and cheaper way. This not only stimulates demand but also improves supply of high-quality pre-owned consumer electronics to boost recycling penetration. Consequently, the growth of the trade-in segment continues to outpace. Looking ahead, we will continue to enhance our trade-in supply chain and services to expand our market share in the pre-owned consumer electronics industry. At the same time, we have strengthened AHS Recycle’s brand presence through new media channels with creative marketing and influencer partnerships, encouraging users to experience AHS Recycle’s wide range of recycling services and accelerating the growth of our recycling channel.

We have launched the revised environmental protection initiative AHS Recycle brand and fully integrated it with our existing initiatives. This encourages more consumer brands to collaborate with us, enhancing user recognition of AHS Recycle’s value proposition and increasing engagement with our services. In April while celebrating Earth Day, we collaborated with 12 leading domestic consumer brands to promote initiatives focused on recycling and the circular economy through joint campaigns across online and offline channels. By continuously leveraging our mature end-to-end supply chain, we enhanced our direct-to-consumer retail operations and the 1P business. In the first quarter, 1P2C revenue grew by 73.5% year-over-year. Retail revenue accounted for 33% of 1P revenue, representing an upward trend. Supported by our refurbishment capabilities, we have seen the pilot program of on-demand refurbishment effectively leverage retail capabilities, creating strong synergies with our in-house compliant refurbishment operations.

This approach allows us to offer competitively priced, quality assured 1P refurbished products to users across Paipai, AHS and other retail partner channels. As a result, JMV has shown a healthy upward trend quarter-over-quarter. Additionally, the retail capability of AHS Recycle’s official store network continues to expand with revenue growing by over 160% year-over-year, amplifying our product accessibility to consumers. Looking specifically at the Apple official trade-in business, revenue declined year-over-year in the first quarter due to the high base driven by early stage pricing strategies; however, benefiting from our management capabilities and operational efficiencies, the margin in this segment improved significantly. For overseas revenues, as we adjusted our business scale, there was a notable improvement in margin as well. Regarding our marketplace businesses, we’ve seen a marked rise in trade-in and service acceptance among both online and offline users, alongside positive shifts in merchant demand.

In response, we have enhanced our B2B, B2C services to deliver best-in-class user experience, thereby boosting user loyalty. We have strengthened our industry capabilities and enhanced services for merchants. As of the end of the first quarter, the number of registered merchants in PJT exceeded one million with a double-digit year-over-year increase in active trade-in merchants. The proportion of higher fee OPT services grew, raising PJT Marketplace’s take rate for secondhand consumer electronics transactions. This reflects PJT’s growing nationwide prominence as an essential infrastructure within the industry and as a leading exchange for secondhand electronics products. PJT is pioneering the innovation of secondhand sales models by expanding diverse online and offline sales channels for merchants. In March, we launched our first offline flagship store in Shenzhen’s Huaqiangbei, driving transparency in the pre-owned consumer electronics industry.

The 1,200 square meter store displays nearly 10,000 secondhand phones that have undergone professional inspection. The flagship store operates under a warehouse-to-retail model, seamlessly integrating storage and sales functions. By offering an all-in-one purchase experience, it significantly reduces the traditional restocking cycles, helping merchants reduce inventory costs and minimize logistic delays. Onsite procurement also reduces after-sales disputes. We will continue to empower more industry merchants, opening up our local and national merchant resources to enrich the offline product selection. In addition, we recently began piloting compact authentication warehouses within our self-operated facility to streamline the quality inspection process for merchants. These warehouses located closer to major trading hubs allow us to operate at lower cost while offering more convenient and accessible services to merchants.

At the same time, we are exploring collaborations with influencers on live-streaming platforms. We opened our 1P and 3P inventory and supply chain under PJT Marketplace to those influencers, enabling them to help users find high-quality devices, creating the specialty buyer model and enhancing the service loop between PJT and consumers. Moving forward, we will open up more platform capabilities to merchants to boost quality product sales and promote distribution capabilities and compliant growth of pre-owned consumer electronics across regional centers. As part of the ongoing transformation of the Paipai consignment business, we are focused on better serving small merchants in the secondhand industry. This includes expanding merchants to increase the variety and volume of available products and strengthening backend systems to include greater accuracy in pricing while driving higher product turnover.

In terms of scale, sales across all categories in the Paipai consignment business grew year-over-year in the first quarter. Looking ahead, we plan to further integrate consignment products into more of our self-operated distribution channels, providing small and medium-sized merchants with broader access to retail opportunities. Throughout the development of multi-category recycling services, both transaction value and revenue nearly tripled year-over-year in the first quarter. Gold recycling saw faster growth while the recycling service fee for luxury goods increased slightly. As a result of these competing factors, the overall multi-category recycling take rate remained stable year-over-year. In terms of user experience, we have continued to optimize our processes and internal capabilities across multiple areas, including pre-recycling consultation, pricing and delivery. Overall customer satisfaction and user experience have improved meaningfully.

In summary, our core businesses achieved faster than expected growth in the first quarter of this year. We see growth opportunities arising from national subsidies by providing a best-in-class trade-in experience. As we enter the second quarter, we are confident in further enhancing our fulfillment capabilities and brand influence. This will enhance awareness of trade-in and recycling, enabling us to seize industry growth opportunities. In the long run, as recognition of recycling and secondhand products continues to rise, the industry is on a positive growth trajectory. With our long-term supply chain strategy, we are committed to achieving growth, enhancing user experience, ensuring the efficient circulation of secondhand products, and creating greater value. Now I’d like to turn the call over to our CFO, Rex for a financial update.

Hello everyone. We are pleased to report strong financial performance in the first quarter of 2025, driven by national subsidy policies, enhanced fulfillment capabilities, and an expanded retail network. Total revenue in the first quarter exceeded the high end of our guidance, increasing by 27.5% to over RMB 4,650 million, and adjusted operating income rose by 39.5% to over RMB 110 million. All amounts are in RMB and all comparisons are year-over-year unless stated otherwise. The growth in total revenues was primarily due to sustained increases in our net product revenues, which rose by 28.8% to RMB 4,260 million, mainly from sales of pre-owned consumer electronics through our online channels. Net service revenues were RMB 390 million, showing a 14.2% increase, primarily from our multi-category recycling business and PJT Marketplace. Our overall marketplace take rate was 5.25% in the first quarter of 2025, supported by over RMB 50 million in revenue from our multi-category recycling business, which made up 13.3% of service revenues, a significant increase from 5.6% in the same quarter of 2024.

Now, let’s discuss our operating expenses. We will primarily focus on our non-GAAP operating expenses to reflect management's perspective on our results. Merchandise costs increased by 22.7% to RMB 3,620 million, consistent with the growth in product sales. The gross profit margin for our 1P business improved to 15.2% from 10.9% a year ago, largely due to our C2B recycling supply chain capabilities, compliant refurbishment, and diverse retail channels. Additionally, we optimized Apple’s official trade-in program strategy, leading to a significant turnaround in gross margin compared to last year. Fulfillment expenses rose by 38.1% to RMB 430 million, and non-GAAP fulfillment expenses increased by 40.2% to RMB 430 million. This increase was driven by higher personnel and logistics costs as we scaled our recycling and transaction activities and expanded our store network. Non-GAAP fulfillment expenses as a percentage of total revenues rose to 9.1% from 8.3%.

Selling and marketing expenses climbed by 30.4% to RMB 420 million, with non-GAAP selling and marketing expenses jumping by 72.8% to RMB 390 million, mainly due to increased advertising and promotional costs as well as channel service fees. General and administrative expenses decreased by 14.1% to RMB 63 million, while non-GAAP G&A expenses increased by 2.2% to RMB 59 million, mainly from higher personnel costs. Non-GAAP G&A expenses as a percentage of total revenue decreased to 1.3% from 1.6%. Technology and content expenses grew by 9.6% to RMB 55 million, with non-GAAP technology and content expenses up 16.5% to RMB 53 million due to rising personnel costs. Consequently, our non-GAAP operating income reached RMB 110 million in the first quarter of 2025, representing a year-over-year increase of 39.5%, with a non-GAAP operating profit margin of 2.4% compared to 2.2% in the same quarter last year.

During the first quarter of 2025, we repurchased approximately 0.4 million ADS for about US $1.2 million, with an ongoing share repurchase program allowing for up to US $50 million in repurchases through June 27, 2025. As of March 31, 2025, we had repurchased approximately 10.7 million ADS for around US $27.1 million. Our cash and cash equivalents, restricted cash, short-term investments, and receivables from third-party payment service providers totaled RMB 2.78 billion, ensuring we have sufficient financial reserves for reinvestment and shareholder returns. Looking ahead to the second quarter of 2025, we project total revenues between RMB 4,710 million and RMB 4,801 million, reflecting a year-over-year increase of 24.7% to 27.4%. This forecast is based on our current view of market and operational conditions, which may change. This concludes our prepared remarks. We are now ready to take questions.

We will now begin the question and answer session. Your first question comes from Joyce Ju with Bank of America. Please go ahead.

Thank you, management, for addressing my questions, and congratulations on a strong quarter. My first question is regarding the national subsidy. How effective has it been in encouraging recycling and trade-in programs? Are you observing similar growth in your second-hand recycling and resale business as a result? Secondly, in the first quarter, we saw strong performance from both revenue and non-GAAP operating margins. Could you explain the increase in the non-GAAP fulfillment margin and self-marketing margins? Will there be any adjustments to this year’s total revenue and margin targets? Thank you.

Thank you for the questions. I will address the first one, and Rex will respond to the second. In relation to your first question, industry research indicates that the shipment of new smartphones in the domestic market grew by 9% year-over-year during the first quarter, marking the fifth consecutive quarter of positive growth. Additionally, sales of new consumer electronics on our partner platform, JD.com, showed strong growth momentum. The trade-in program subsidies, combined with our prominent positioning in key recycling channels, have slightly driven accelerated growth in our 1P business. We have previously expressed the belief that national subsidies will significantly enhance the mobile phone recycling business. Therefore, with our industry-leading brand awareness, fulfillment capabilities, and unique advantages in essential recycling application scenarios, AHS Recycle is well-situated to gain from the rising adoption of recycling in mainstream channels.

Currently, the national subsidy cap for mobile phone trade-ins is RMB 500, but our average recycling price in the 1P business is around RMB 1,500. This creates a stronger incentive for users to not only utilize the national subsidy but also take advantage of the trade-in service offered at AHS Recycle. Looking ahead to the medium to long term, we are confident in China's ongoing commitment to stimulating consumption. Within our total transaction volume for pre-owned consumer electronics, mobile phones represent the largest category, making up roughly 70%. The average replacement cycle for phones is about two years, and approximately 300 million new phones along with tens of millions of new laptops and digital devices are shipped each year in China. Presently, the penetration rate for recycling and trade-in programs remains in single digits, but we believe there is potential for domestic penetration to exceed 20% in the long run.

The main brands and e-commerce platforms we collaborate with are participating in national subsidy programs and adopting more flexible pricing strategies. Therefore, during the June 18 shopping festival this year, we expect to sustain business growth through trade-in services and are committed to enhancing our delivery capabilities to better serve users in recycling and trade-in.

Regarding the second question, the year-on-year improvement of non-GAAP operating profit margin in the first quarter was primarily driven by our pricing strategy and balanced management of overall expenses. As Kerry noted, in the first quarter of 2024, Apple’s official trade-in program and our business reported high revenue and losses; however, in the first quarter of 2025, after enhancing our business and pricing strategies, the profit margin of these two areas improved significantly. Additionally, by utilizing our supply chain strength, the proportion of retail revenue increased by 8% year-over-year. As our business expanded rapidly, we strategically focused on self-operated stores and increased staffing in fulfillment and operations, leading to a year-over-year rise of 0.9% in the non-GAAP fulfillment expense ratio. The non-GAAP selling expenses ratio also rose by 2.2%, primarily due to increased promotion and advertising costs.

With heightened business demand, we raised coupon-related promotion expenses this quarter; at the same time, to boost brand awareness, we invested in initiatives aligned with business growth, including a new media platform for the AHS Recycle brand. Furthermore, by enhancing recycling and trade-in collaboration with JD.com, channel commissions increased as anticipated. Thanks to our improved management of general and administrative expenses, as well as technology and content expenses, both non-GAAP expense ratios decreased in the first quarter. Consequently, the non-GAAP operating profit margin for the first quarter rose by 0.2% year-over-year. Looking ahead to the full year of 2025, we remain focused on accelerating total revenue growth. We will continue to enhance our fulfillment capability and brand presence to support growth in trade-in volumes driven by national subsidy programs while maintaining competitive pricing strategies. Our goal is to gradually improve our non-GAAP operating profit margin, reflecting our effective operational leverage.

Your next question comes from Xiao Wan with CICC. Please go ahead.

Thank you for taking my question. As you mentioned earlier, your goal is to accelerate store openings this year with AHS Recycle stores. Can you share details on the progress of store openings in the first quarter? Thank you.

As of March 31, 2025, there were a total of 1,886 AHS Recycle stores nationwide, which included 917 self-operated stores and 969 joint-operated stores. This represents a net increase of 458 stores compared to the same time last year. To manage the increased trade-in volumes from national subsidies and enhance user satisfaction, we transitioned some of our joint-operated stores in three major cities to a self-operated model. This change enables us to utilize our efficient self-management capabilities to significantly improve these stores' recycling performance. Over the same period, our two-door fulfillment team has grown by 360 people year-over-year, reaching a total of 1,000, which enhances our fulfillment capabilities across more markets. We are also increasing the share of face-to-face services by expanding both in-store and two-door services. In our NPS service, users express greater satisfaction with these two face-to-face offline services that offer instant confirmation compared to logistics-based pick-up. We will continue to enhance our offline fulfillment capabilities to provide an outstanding trade-in experience. Thank you for the question.

Your next question comes from Michael Kim with Zacks Small Cap Research. Please go ahead.

Great. Good morning and good evening everyone. Just one question from me, just in terms of your initiatives to enhance the AHS Recycle brand. Can you discuss how much traction you’ve seen as a result of your increased focus on marketing and advertising, and then just related to that, how should we be thinking about incremental expenses or customer acquisition costs as you continue to prioritize improving brand awareness and loyalty? Thanks.

Thank you for the question. AHS Recycle has established itself as a leading brand in recycling by offering top-notch fulfillment services. We believe that delivering high-quality services and responding proactively to user feedback are essential for building brand reputation. Given the currently low usage of recycling services, we have strategically implemented well-planned new media campaigns to promote our services and raise brand awareness. We introduced engaging content that highlights our competitive pricing, security, and convenience. Additionally, through geo-targeting, we direct users to nearby AHS Recycle stores, boosting orders via our mini program, official website, and AHS stores. We also improved the new media presence of our jointly operated stores by creating content that resonates with local users, which has helped attract more customers. As a result, in the first quarter, revenue from AHS mini programs and official websites increased more rapidly than our overall business. The national subsidy has also contributed to raising user awareness and adoption of our services. Looking ahead, we will continue to strengthen the AHS Recycle brand and refine our industry-leading recycling service offerings to capture a larger market share and enhance user protection. Thank you.

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

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

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.