• GMV: RMB2.69 billion in Q3 2024, a slight year-over-year decline.
• Revenue: RMB2.28 billion in Q3 2024, a 0.7% year-over-year increase.
• Gross Margin: Increased from 16.3% to 17% year over year in Q3 2024.
• Adjusted Net Loss Margin: Improved from 4.4% to 2.9% year over year in Q3 2024.
• Net Product Revenues: RMB2.21 billion, a 2% increase from the prior year period.
• Net Service Revenues: RMB57.7 million, a 27.8% decrease from the prior year period.
• Operating Expenses: RMB493.8 million, representing 21.6% of net revenues.
• Fulfillment Expenses: RMB100.2 million, an 11.8% decrease from the prior year period.
• Sales and Marketing Expenses: RMB168.2 million, a 7.7% decrease from the prior year period.
• Research and Development Expenses: RMB49.8 million, a 12.2% increase from the prior year period.
• General and Administrative Expenses: RMB175.6 million, a 16.6% increase from the prior year period.
• Net Loss: RMB81.8 million compared with RMB97.7 million in the prior year period.
• Non-GAAP Adjusted Net Loss: RMB66.2 million compared with RMB98.7 million in the prior year period.
• Cash Flow from Operating Activities: RMB160.5 million generated in Q3 2024.

• Warning! GuruFocus has detected 3 Warning Signs with ZKH.

Release Date: November 22, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• ZKH Group Ltd (NYSE:ZKH) reported improvements in business structure, quality, and resilience, driven by strategic optimization efforts.
• The company achieved a gross margin increase from 16.3% to 17% year over year in the third quarter.
• ZKH Group Ltd (NYSE:ZKH) substantially narrowed its adjusted net loss margin from 4.4% to 2.9% year over year.
• The company successfully catered to over 75,000 customers from January to September, marking a year-over-year increase of over 30%.
• ZKH Group Ltd (NYSE:ZKH) is expanding into the US market with a standalone site launching on December 1, focusing on high-value products for manufacturing SMEs.

Negative Points

• Overall GMV decreased by 7.2% year over year due to business optimization initiatives.
• Net service revenues decreased by 27.8% year over year, primarily due to a lower proportion of GMV from the marketplace model.
• Operating expenses as a percentage of net revenues remained high at 21.6%, only a slight decrease from the previous year.
• Research and development expenses increased by 12.2% year over year, impacting overall profitability.
• The company faces potential geopolitical risks and tariffs in its US market expansion, necessitating supplier diversification efforts.

Q & A Highlights

Q: Can management share the performance by product and industry verticals in the third quarter? A: Long Chen, CEO, explained that sectors like EVs, electrical and equipment manufacturing, and food have shown high growth, while traditional sectors like ICE cars and mining have decreased. High growth was also seen in products like MRO fasteners and electrical automation products, which have high gross margins.

Q: What is the outlook for China's MRO procurement service market and the company's business outlook for 2025? A: Long Chen, CEO, stated that the MRO market remains vast with inelastic demand. The competitive landscape is stabilizing, with a focus on in-house product management and private label development. The company is optimistic about future growth, emphasizing a vertical ecosystem and upstream manufacturing capabilities.

Q: How might higher tariffs between the US and China impact the company, and what measures are in place to address this? A: Long Chen, CEO, noted that the US MRO market is lucrative and fragmented. The company plans to compete with new business models and diversify its supplier base to mitigate geopolitical risks. The US site will launch with over 1,000 SKUs, initially relying on third-party logistics.

Q: Can you provide more details on the strategic cooperation with Tmall? A: Long Chen, CEO, explained that the partnership leverages Taobao's reach to SME customers and ZKH's warehousing capabilities. This collaboration aims to reduce customer acquisition costs and address counterfeit issues, creating a win-win situation for both platforms.

Q: What are the company's strategies for overseas expansion? A: Long Chen, CEO, highlighted that the US is the first overseas market, with plans to expand to Canada, Mexico, and Europe once the business model stabilizes. In Southeast Asia, the focus is on supporting Chinese key account customers with localized services.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.