JD executives interpret the financial report

JD.com today released its third-quarter 2021 financial report. The financial report shows that the group’s third-quarter revenue was 218.7 billion yuan, and the market expected 215.4 billion yuan. It was 174.2 billion yuan in the same period last year, an increase of 25.5% year-on-year; the net loss attributable to ordinary shareholders in the third quarter was 2.8 billion yuan (4 Billion U.S. dollars), and net profit was RMB 7.6 billion in the same period last year. Non-GAAP net profit attributable to ordinary shareholders in the third quarter of 2021 was RMB 5 billion (US$800 million), compared with RMB 5.6 billion in the same period last year.

After the release of the financial report, JD President Xu Lei and JD CFO Xu Ran attended the analyst conference call, interpreted the financial report, and answered questions from analysts.

The following is the main content of the Q&A session for the analysts of this conference call:

Goldman Sachs analyst Ronald Keung: A question about the recent profitability of the company's retail business. Where does the driving force for future profitability growth come from? In the third quarter, the supermarket category grew rapidly, and the operating profit margin was also doing well. So how does the company view the contribution from brands, omnichannel local retail, and marketing? What level can the operating profit margin of the retail business reach in the future? The management also mentioned before that the long-term profit margin target is mid-single-digit to high-single-digit, so does this target still apply to the retail business?

Xu Ran: Your understanding is correct. We continue to develop new business models, including omnichannel, hourly purchases, etc. The company’s financial model may be affected to a certain extent. For example, the omnichannel model may use offline partners’ warehousing And inventory, we will share the gross profit with them, but at the same time we have also saved the performance cost, so the performance gross profit margin remains stable, and the decline in the overall gross profit margin we have seen is due to this new business growth. In addition, changes in gross profit margin will also be affected by changes in category combinations. This is also a problem we have been discussing in the past few years. In the third quarter, the rapid growth of third-party businesses offsets the high frequency of category combinations. Yes, the impact of supermarket product purchase conversion and the gross profit margin of this category is usually relatively low, so in general, the gross profit margin of Jingdong retail in the third quarter was relatively stable year-on-year. Looking to the future, our expectations for the trend of profit margins have not changed. Although in the short term, changes in category combinations and changes in business models will have a certain impact, the company has been strengthening its supply chain capabilities and using technology. To improve the operational efficiency of inventory management, in the long run, I believe we can gradually improve profit margins. As I mentioned before, for many of the company's current categories, our current purchase prices are higher than offline channels, and with the gradual expansion of business scale, economies of scale will also be achieved. In short, our forecast for JD’s retail long-term profit margin remains unchanged.

Analyst at Bank of America Merrill Lynch: The recent macro environment, including the epidemic ban, does the real estate policy have an impact on the company's growth rate of different categories of business?

Xu Lei: We do see that the overall macro environment is still full of challenges. Especially in the second half of the year, macro consumption is relatively weak, the upstream supply chain is also tight, and the prices of raw materials have begun to rise. At the same time, the epidemic in many places in China, including extreme weather, will cause multiple challenges to the entire retail market, including the tight supply chain of certain types of chips and other components. We predict that it will continue into the first half of next year. But because JD’s core competence has always been the supply chain, in this turbulent environment, we are better able to maintain business stability than our industry competitors.

Regarding weak consumption, I want to explain. At present, the main consumers of JD.com are still characterized by urbanization, household consumption, purposefulness, certainty and planned shopping. This type of consumer group currently accounts for a higher proportion of our overall consumption, so JD.com is affected by weak consumption, It is smaller than the company in the same industry. Of course, we do not rule out that under the situation of weak consumption, some random shopping, such as corporate purchases, may have a greater impact.

In addition, because of shortages, such as the shortage of some raw materials, and the subsequent price increase, we estimate that it will gradually be transmitted to the consumer end in the fourth quarter and the first quarter of next year. Since JD.com has always been centered on the supply chain, we will have closer communication with our partners in the near future. Partners also hope to use JD’s advantages and capabilities to work with them to reduce costs and increase efficiency as much as possible. Of course, we will also Do our best to suppress this price fluctuation.

Regarding the impact of the real estate market on home appliance retail, I would like to respond a little bit. In fact, the impact of real estate on home appliances should not only be what everyone has seen recently. There are some news about the real estate industry. In fact, the growth of JD's home appliance retail business this year should be much higher than the level of the entire industry. The main reasons are as follows . First of all, for our B2C home appliance business, the most important thing this year is to "promote new sales" and continuously improve the product structure. The needs of users are also improving in the direction of quality. Including these services such as trade-in and worry-free exchange, it actually helps our consumers to upgrade and realize the growth of online B2C sales and the continuous growth of sales share. In addition, we have attached great importance to the sinking offline market a few years ago and made an advance layout. From today's point of view, we have achieved some gains in the sinking market offline, which accounted for our entire home appliance sales. A certain percentage, including the user and market space that we have not acquired before. Finally, we pay more attention to C2M and jointly develop differentiated products with brand owners to form differentiated competitive advantages. The above three points can enable us to achieve incremental growth in a competitive market like China's home appliance industry.

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