ATRenew Inc. (RERE) Q2 2025 Earnings Report, Transcript and Summary

Good morning, and good evening, ladies and gentlemen. Thank you for standing by, and welcome to the ATRenew Inc's Second Quarter 2025 Earnings Conference Call.[Operator Instructions] 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 Second Quarter 2025 Earnings Conference Call. Speaking first today is Kerry Chen, our Founder, Chairman and CEO, and he'll be followed by Rex Chen, our CFO. After that, we will open the call to questions from the analysts. The second quarter 2025 financial results were released earlier today. The earnings press release and the 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 early convenience. For today's agenda, Kerry will share his thoughts of our quarterly performance and business updates, followed by Rex, who will address the financial highlights. Both Kerry and Rex will participate during the Q&A session. Please note that our Safe Harbor statements. Some of the information you will hear during our discussion 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 that ATRenew does not take any obligations to upgrade 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. I'd now like to turn the call over to Kerry for business and strategy updates.

[Interpreted] Hello, everyone, and thank you for joining ATRenew's Second Quarter 2025 Earnings Conference Call. We are pleased to update you on our above expectation revenue growth and operational dynamics this quarter to address your questions on the progress and share our business plans and capability-building initiatives for the second half of this year. First, providing the stable and rapidly growing trajectory of the secondhand industry, we achieved revenue exceeding the high end of our guidance through continuous innovation and industry leadership. In the second quarter, our total revenue reached RMB 4.99 billion, representing year-over-year growth of 32.2%. Within this, 1P product revenue grew by 34% year-over-year to RMB 4.56 billion, while 3P service revenue increased by 15.4% year-over-year to RMB 430 million with revenue growth rates significantly exceeding the guidance we set last quarter. Non-GAAP operating profit margin was 2.4%, meeting our full year target alongside brand investment accelerated store expansion and enhanced capability building initiatives. These solid results stem from our enhanced front-end development of recycling scenarios and continuously strengthen in-store and doorstep fulfillment capabilities. Through the best-in-class user experience, AHS Recycle is building a stronger brand recognition as China's top recycling brand. Taking a closer look within our 1P business, our C2B recycling business maintained robust double-digit growth in the second quarter, benefiting from national subsidies and June 18th e-commerce promotional campaigns alongside expanded partnerships with high- quality consumer electronics brands to jointly develop recycling and trade-in supply chain capabilities. Notefully, we observed a distinctive year-over-year growth performance in JD's trade-in scenarios. The resulting achievement is closely tied to our front-end fulfillment capabilities. We remain committed to our accelerated store expansion strategy. By the end of the second quarter, we operated 2,092 AHS stores nationwide including 987 self-operated stores in Tier 1 and Tier 2 cities and 1,105 jointly operating stores in lower-tier cities enabling users to access nearby in-store services and in a convenient manner. Additionally, our self-operated to-door service team expanded to 1,160 personnel at the end of the second quarter. Benefiting from our intelligent order dispatch and fulfillment capabilities, we have broadened our coverage area and strengthened our capacity to manage volume surges during major promotional periods while enhancing fulfillment time limits. Consequently, our channel expansion and fulfillment capability upgrades collectively create superior recycling and trade-in experiences for users. Mostly, our in-store and to-door teams collectively handle nearly 90% of orders in the first and second-tier cities and about 80% in the third and fourth tier cities. We continuously increased the proportion of orders with face-to-face services, order confirmation and payments by expanding our self-operated fulfillment network, therefore, enhancing user experience. In lower-tier cities, temporary constraints in-store [ density ] and to-door staffing limited our face-to-face fulfillment order ratio to below 50%, leaving significant room for store expansion and to-door capability building. In terms of our supply chain capabilities, we continue leveraging mature end-to-end capabilities while expanding compliant refurbishment capacity. In the second quarter, refurbished products contributed 13.5% of 1P revenue. Mostly, our on-demand refurbishment model added laptops and smart watches to its scope, generating over RMB 100 million GMV in the quarter. Compliance refurbishment operations expand retail-ready products for all channels such as Paipai selection, AHS, official website, AHS store and Douyin platforms. Consequently, 1 P2C retail revenue surged 63.7% year-over-year in the second quarter, accounting for 34.4% of product revenue. This continuous improvement reflects our value creation for more retail users. Our 3P service revenue also sustained growth in the second quarter, increasing by 15.4% year-over-year with an overall take rate of 5.3%. Let's zoom in on the 3 quarters business segments. First, our B2B marketplace, PJT sustained a strengthened industry openness by providing open supply chain services to merchants and Douyin users. Specifically, warehousing inspection GMV searched year-on-year, increasing the warehousing inspection penetration rate for B2B platform operations from 62% in the first quarter of 2024 to 73% in the second quarter of 2025. Meanwhile, we also captured new user traffic and growth opportunities through the innovative specialty buyer model with cumulative registered users exceeding 1.16 million. In the second quarter, [indiscernible] achieved robust double-digit growth in overall performance. Second, our B2C marketplace in developing Paipai's 3P business. As we previously shared, we have implemented a consignment model designed to provide enhanced operational convenience for small- and medium-sized secondhand merchants. Under this model, the Paipai team handles product and store management, traffic operations and aftersales services on behalf of merchant users. This consignment approach ensures consistent front-end product lifting, standardized service quality, managed product quality and reliable aftersales support, resulting in comprehensive improvements to both sales performance and user experience. Daily in-stock inventory volumes of Paipai consignment service have now increased by 100% compared to the first quarter of this year. Paipai's consignment GMV in the second quarter surged 128% year-over-year, driving a modest recovery in the platform take rate and delivering cost- effective secondhand product transactions to a broader user base. Third, multi-category recycling GMV and related service revenue both increased by nearly 110% year-on-year this quarter, with a take rate of 3.4%. Service coverage expanded alongside our accelerated store opening strategy. As of June 30, 692 self-operated stores and 112 strongly operated stores launched multi-category recycling services tailoring offerings to local user consumption habits based on store locations and commercial districts. Building on our upgraded luxury recycling services at AHS self-operated stores, we leverage AI technology to enhance automated identification capabilities to improve the recycling and pricing experiences for users, thus defining a best-in-class user experience. Our platform-based multi-category recycling service boosts local store efficiency without additional CapEx, enabling further expansion of our high-quality off-line store network. The aforementioned reflects our effective operational practices. As for our long-term strategy, we would like to take this earnings call as an opportunity to update our investors and analysts on ATRenew's 3 strategic goals which we last spoke on during our offline Investor Day in early July. The first goal against the backdrop of national subsidies and policies stimulating domestic consumption, we leverage the value of our unique trade-in programs and comprehensive supply chain capabilities to partner with strategic allies such as JD.com and Apple, delivering the best-in-class trade-in user experience. By integrating our comprehensive supply chain capabilities across B2C, B2B and compliant refurbishment operations, ATRenew continues to strengthen our position as China's largest and most robust leader in the transaction and service of pre-owned consumer electronics. According to third-party data from CIC, China's recycling penetration rate for pre-owned consumer electronics remains in single digit versus over 30% in developed economies, indicating substantial growth potential. The second goal, in response to the changing consumer landscape, we leverage it AHS recycled distinctive brand value and utilize our nationwide network of our 2,000 AHS stores to continuously expand our platform-based recycling businesses across additional high-value product categories. This strategy creates new growth opportunities for us in the secondhand recycling market, and we are committed to establishing AHS recycle as China's top recycling brands. Moving up to the third goal, capitalizing on the surging momentum [ offering ] consumption, we will leverage our unique business model advantage, combined with our distinctive dual track offline presence spanning both shopping malls and communities. This positioning enables us to create a closed-loop ecosystem that seamlessly integrates commercial monetization and user acquisitions across both low-frequency high-value and high-frequency low-value transactions, reinforcing our commitment to becoming a pioneer of sustainable consumption. I'd like to point out that all business models take money from their accounts, while AHS Recycle adds money to our users' accounts. Our business model is unique and disruptive. On August 1, we launched the AHS Recycle Green Wallet enabling users to purchase a growing range of products at surprise discounts in recognition of their eco-friendly actions. Through co-branded partnerships with consumer brands, we promote eco-friendly recycling and green consumption, engage an increasing number of users and set a new trend of new lifestyle. This represents our long-term vision and embodies our mission to give a second life to all idle groups. These 3 strategic goals represents our road map for fulfilling our long-term commitments and form the fundamental strategy driving accelerated business growth. Earlier this year, we identified emerging opportunities from national trade-in subsidies from consumer electronics alongside the expanding secondhand market. Accordingly, our initial guidance estimated that this year's revenue growth will not only sustain its momentum, but accelerate further, slightly surpassing last year's growth. As we enter the third quarter, we have strong confidence in meeting our full year operational objectives. Based on strong confidence in our performance, we are pleased to announce a 3-year shareholder return program committing to return low debt than 60% of our annual non-GAAP net profit to shareholders via dividends, share repurchases or a combination of both from 2025 through 2027. One more thing, our ESG progress. In June this year, we released our fifth annual ESG report, marking a significant milestone with our first carbon reduction commitments. Using 2024 as our baseline year, we have set ambitious targets to reduce Scope 1 and Scope 2 greenhouse gas emission intensity by 35% and Scope 3 emission intensity by 50% by 2030. You are more than welcome to explore more about our ESG highlights and improvements from the full report, which is available on our Investor Relations website. Now I'd like to turn the call over to CFO, Rex for financial updates.

[Interpreted] Hello, everyone. We are pleased to report strong financial performance in the second quarter of 2025. As national trade- in subsidies for consumer electronics fueled by market growth, we witnessed a surge in the demand for used device recycling and trade-in, enabling us to capture accelerated opportunities through high precision trade-in services, upgraded fulfillment capabilities and a stronger AHS Recycle brand. Total revenue in the second quarter once again surpassed the high end of our guidance increasing by 32.2% to over RMB 4,990 million and adjusted... Before taking a detailed look at the financials, please note that all amounts are in RMB and all comparisons are on a year-over-year basis unless otherwise stated. In the second quarter, the growth of total revenue was primarily driven by continued growth in both our net product revenue and net service revenues. Net product revenues increased by 34% to RMB 4,560 million, largely attributable to the growth in online sales of pre-owned consumer electronics. Net service revenues were RMB 430 million in the second quarter, representing an increase of 15.4%. The increase was largely driven by the growth in service revenue from our 3P multi-category recycling operations. The overall take rate of our marketplace was 5.3% for the second quarter of 2025 up slightly year-over-year and quarter-over-quarter. During the quarter, our market multi-category recycling business contributed over RMB 63 million of revenue accounted for 14.7% of service revenues and representing a healthy upward trend. Now let's discuss our operating expenses. To provide greater clarity on the trends in our actual operating base expenses, we will mainly discuss our non-GAAP operating expenses, which better reflect how management views our operating results. The reconciliation of GAAP and non-GAAP results are available in our earnings release and the corresponding Form 6-K furnished with the U.S. SEC. Merchandise costs increased by 32.3% to 3,960 million, in line with the growth in product sales. Gross profit margin for our 1P business was 13.2% compared with 12.1% in the same period last year. The gross margin improvement in our 1P business was primarily driven by high efficiency C2B recycling scenarios, compliant refurbishment capabilities incorporated in our supply chain and an increasingly diversified retail channel mix. This allows us to increase the proportion of higher-margin retail sales with 1P- to-C revenue accounting for 34.4% of product revenue in the second quarter of 2025, up from 28.2% in the same period last year. Additionally, the high base impact from Apple's trade-in program in 2024 has eased with significantly improved gross margin in this segment through better pricing strategies. Fulfillment expenses increased by 26% to RMB 410 million. Non-GAAP fulfillment expenses increased by 27.3% to RMB 410 million. Under the non-GAAP measures, the increase was mainly driven by higher personnel and logistics expenses, reflecting a greater volume of restructuring and transaction activities compared to the same period in 2024. Additionally, operation-related costs rose as we expanded our store network and enhance operation center capacity in the second quarter of 2025. Non-GAAP fulfillment expenses as a percentage of total revenues decreased to 8.2% from 8.5%. Selling and marketing expenses increased by 14.9% to RMB 410 million. Non-GAAP selling and marketing expenses increased by 36.7% to RMB 390 million. The increase was primarily driven by higher advertising and promotional campaign related spending as far as an uptick in commission expenses associated with channel service fees. As a result, non-GAAP selling and marketing expenses as a percentage of total revenues increased to 7.8% from 7.5%. General and administrative expenses increased by 6.9% to RMB 77.5 million. Non-GAAP G&A expenses also increased by 33.6% to RMB 75.1 million, primarily due to an increase in personnel costs. Non-GAAP G&A expenses as a percentage of total revenues remained stable at 1.5%. Technology and Content Expenses increased by 25.5% to RMB 62.5 million. Non-GAAP Technology and Content Expenses increased by 33.2% to RMB 58.2 million as well. The increase was primarily driven by elevated personnel expenses. Non-GAAP Technology and Content Expenses as a percentage of total revenues remained stable at 1.2%. As a result, our non-GAAP operating income was over RMB 120 million in the second quarter of 2025 compared to non-GAAP operating income of RMB 94.1 million in the second quarter of 2024. Non-GAAP operating profit margin was 2.4% for this quarter, compared to 2.5% in the second quarter of 2024, representing a modest decline of 6 basis points. The margin stabilized at 2.4% compared to the previous quarter. During the second quarter of 2025, we repurchased a total of approximately 1.6 million ADSs for approximately USD 4 million. As of June 30, 2025, we had repurchased a total of approximately 12.3 million ADSs for approximately USD 31.1 million and the previous USD 50 million share repurchase program. On June 30, we announced that the Board of Directors authorized a new share repurchase program under which the company may repurchase up to USD 50 million of its shares over 12 months starting from June 30, 2025. The share repurchase program will be implemented in conjunction with the 3-year shareholder return than previously shared by Kerry. As of June 30, 2025, cash and cash equivalents, restricted cash, short-term investments and funds receivable from third-party payment service providers totaled RMB 2.35 billion. Our financial reserves are sufficient to support reinvestment in business development and shareholder returns. Now turning to the business outlook. For the third quarter of 2025, we anticipate total revenues to be between RMB 5,050 million and RMB 5,150 million, representing a year-over-year increase of 24.7% to 27.1%. Please note that this forecast only reflects our current and preliminary views on the market and operational conditions, which are subject to change. This concludes our prepared remarks. Operator, we are now ready to take questions.

[Operator Instructions]

Probably due to technical issues, we are not able to hear the operator line. Hi, operator, we're not able to hear you clearly.

Apologies, this is the operator. Can you hear me?

Yes, please proceed.

[Operator Instructions]

Yes. Hello. This is Joyce Ju from Bank of America. [Interpreted] Seeing such strong growth momentum in the first half, what are the company's growth expectations for the second half of the year? What are your measures to tackle the high base in the third quarter due to the home appliances national subsidy that was implemented in August last year. Additionally, without the company actually having an updated version of the full year revenue and profit target?

[Interpreted] From a longer-term perspective, we believe the circular economy model centered on trade-ins and secondhand consumption holds enduring potential with its share of new product consumption gradually rising. This stems from younger consumers' heightened appreciation for quality to price ratios and increasing acceptance offering secondhand consumption viewing industry development through an evolutionary review. This will be a long-term process requiring progressive brands and service recognition building, normalizing trade-ins as the default purchasing method for new products. Like other sectors, it necessitates user education and mindset cultivation. At the current stage and during the next 2 years, we are focusing on 2 core strategy priorities. First, we are maximizing our recycling and fulfillment capabilities, including in-store and to-door capabilities allowing safe, convenient and competitively priced recycling and services more accessible. Second, we are positioning AHS Recycle as China's leading recycling brand, while building strong brand equity ensuring AHS Recycle can effectively serve users secondhand Recycling and purchasing needs for the next decade and even next generation. In September this year, new device launches from leading brands will generate significant upgrade opportunities. We expect to capitalize on this cycle to serve Chinese consumers recycling and trade-in demands. We are confident in realizing our revenue growth targets for the second half of this year. Regarding profitability expectations, we maintain our strategy of enhanced investment in brand and capability building, supporting healthy profit outlook. We anticipate scale effects to gradually drive improvements in operating profit margins starting next year to create longer-term value. Operator, please open the line to the second question.

Question from Michael Kim of Zacks Small-Cap Research.

Just one question for me. Just from a supply standpoint, any notable trends in trade-in activity via JD.com or your off-line stores in terms of volumes or the underlying mix of products? And then related to that, any updated thoughts on how the subsidies have obviously impacted volumes more recently and sort of what inning do you think we might be in as it relates to subsidy-driven growth.

[Interpreted] Okay. Thank you for your question. Our results from -- of the second quarter demonstrated that smartphones remain the strongest C2B recycling category benefiting from rising user acceptance of trade-ins, the trade-in program co-launched by JD.com and AHS Recycle sustained robust growth. Enhanced in-store and to-door fulfillment capabilities enabled 80% offline fulfillment adoption across Tier 1 to Tier 4 cities, elevating user experience. Regarding national subsidies, we closely monitor policy development. Recent government directives signal a strong commitment to stimulating consumption through substantial subsidy allocations. During implementation, we optimized fulfillment to capture subsidy-driven replacement demand delivering impressive double-digit growth in C2B recycling results. The recycling results were particularly strong in JD's trade-in scenarios. Notably, our apple-to-apple training model offers brand-funder incentives for devices that were not eligible for the national subsidy. Other brand partners, we collaborate with have implemented similar promotional strategies. Brand owners and e-commerce platforms have a stronger motivation to invest in trade-in subsidies. Moving forward, trade-in and secondhand consumption will gain further traction as mainstream behaviors. We will expand recycling and trade-in scenarios, strengthen store and door-to-door fulfillment, amplify AHS Recycle brand influence and deliver superior value and user experiences. Operator, please take the next question.

Congratulations for the strong results. I have 2 questions. The first one, could you please share the adjustments you made to the Apple's official business and overseas business? And what impact did we have on your financial performance? The second question is, could you share some progress regarding new cooperation channels with brand manufacturers in the recycling sector?

[Interpreted] Our Apple trade-in business, which operates through Apple China's official website and direct flagship stores has maintained profitability since March of last year. We have successfully absorbed the impact from the high revenue base established in the first quarter of 2024, which we previously discussed. We anticipate this business segment will contribute solid product revenue for the full year while generating positive operating profit for us. Beyond Apple, we partnered with high-quality domestic brands, capturing significant recycling and trade-in shares on platforms like [ Baidu Mall, ] Xiaomi Mall. We have established a wide area of mature C2B recycling scenarios, including AHS stores, JD.com, Apple official website and flagship stores and Alipay. This year, we tapped into Honor, DJI and JDE's official retail scenarios and build new partnerships. We embedded secondhand supply chain into new scenarios. High-quality recycling supply sources remain a core strategic priority. We will actively identify better supply scenarios and leverage efficient supply chain capabilities to enhance service experiences and price transparency for users. In addition, regarding the international business, we are making active operation explorations. So we look forward to provide more color on our progresses next quarter.

[Technical Difficulty].

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 e-mail us at ir@atrenew.com. Have a nice day. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]