JD.com Q2 2024 Earnings Report

JD.com EPS Results

• Actual EPS: $9.36
• Consensus EPS: $0.79
• Beat/Miss: Beat by +$8.57
• One Year Ago EPS: $0.68

JD.com Revenue Results

• Actual Revenue: $291.40 billion
• Expected Revenue: $291.01 billion
• Beat/Miss: Beat by +$389.39 million
• YoY Revenue Growth: +1.20%

JD.com Announcement Details

• Quarter: Q2 2024
• Date: 8/15/2024
• Time: Before Market Opens
• Conference Call Date: Thursday, August 15, 2024
• Conference Call Time: 8:00AM ET

JD.com (NASDAQ:JD) is a major Chinese e-commerce company that operates a comprehensive online retail platform selling a wide range of consumer goods, including electronics, appliances, apparel, groceries and everyday household items. The company combines direct retailing—purchasing inventory and selling products itself—with a marketplace for third-party merchants, offering consumers both self-operated and third-party choices. In addition to its core retail business, JD.com has expanded into adjacent services such as digital marketplaces for cross-border commerce, online pharmacy and healthcare services, and enterprise-facing cloud and technology solutions.

A distinctive feature of JD.com's business model is its integrated logistics and fulfillment network. The company operates an extensive logistics arm that provides warehousing, inventory management and last-mile delivery, with investments in automated distribution centers, cold-chain capabilities for perishable goods, and innovative delivery technologies such as drones and unmanned vehicles in selected areas. These logistics capabilities support fast delivery options, including same-day and next-day services in many Chinese cities, and are also offered as services to external merchants and partners.

Founded in 1998 by Richard Liu (Liu Qiangdong) as a physical retail business and relaunched online in the early 2000s, JD.com grew rapidly into one of China’s largest e-commerce firms and completed a public listing on the NASDAQ in 2014. The company is headquartered in Beijing and primarily serves consumers and businesses across Mainland China while maintaining cross-border and international e-commerce activities to reach overseas suppliers and buyers. Over time JD.com has pursued strategic partnerships and investments to broaden its ecosystem, while continuing to emphasize technology, logistics and customer service as core competitive strengths.

JD.com Q2 2024 Earnings Call Transcript

Key Takeaways

• JD.com achieved a record non-GAAP net profit of RMB14.5 billion and non-GAAP operating profit of RMB11.6 billion in Q2, with net margin hitting 5% for the first time.
• Gross margin expanded to a historical high of 15.8% in Q2, driven by enhanced supply-chain efficiencies and scale benefits.
• General merchandise revenue grew 8.7% year-on-year in Q2, with the supermarket category delivering double-digit growth for the second straight quarter.
• The 3P platform ecosystem saw over 20% year-on-year growth in order volume, narrowing commission revenue declines and returning advertising revenues to double-digit growth.
• JD repurchased USD 2.1 billion of shares in Q2 (4.5% of outstanding shares) and completed USD 1.2 billion in dividend payouts, demonstrating strong shareholder return commitment.

Presentation

[Operator]

Hello, and thank you for standing by for JD.com Second Quarter and Interim 2024 Earnings Conference Call. At this time, all participants are in listen-only mode. After management's prepared remarks, there will be a question and answer session. Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the meeting over to your host for today's conference, Sean Zhang, Director of Investor Relations. Please go ahead.

[Sean Zhang, Head of Investor Relations at JD.COM]

Thank you. Good day, everyone. Welcome to JD.com's second quarter and interim 2024 earnings conference call. For today's call, CEO of JD.com, Ms. Sandy Xu, will kick off with her opening remarks, and our CFO, Mr. Ian Su Shan, will discuss the financial results. Then we'll open the call to questions for analysts. Before turning the call over to Sandy, let me quickly cover the safe harbor. Please be reminded that during the call, our comments and responses to your questions reflect management's view as of today only and will include forward-looking statements. Please refer to our latest safe harbor statement in the earnings press release on IR Website, which applies to this call. We'll discuss certain non-GAAP financial measures. Please also refer to the reconciliation of non-GAAP measures to the comparable GAAP measures in the earnings press release.

[Sean Zhang, Head of Investor Relations at JD.COM]

Also, please note, all figures mentioned in this call are in RMB, unless otherwise stated. Now let me turn the call over to our CEO, Sandy. Sandy, please.

[Sandy Xu, CEO at JD.COM]

Thank you, Sean. Hello, everyone. Thanks for joining us today to discuss our Q2 2024 results. Facing a very dynamic and competitive market, we delivered a solid set of results, notably achieving the highest single-quarter non-GAAP net profit in our history. Our team did a great job executing our long-term strategy of relentlessly pursuing lower cost, higher efficiency, and best-in-class user experience. We saw a set of key drivers of our business, including user growth, user experience and engagement, price competitiveness, and platform ecosystem continue to move in the right direction in the quarter. Our results speak strongly about the quality of our business and our commitment to the healthy long-term growth with financial discipline.

[Sandy Xu, CEO at JD.COM]

Instead of addressing the shifting market environment with hefty subsidies for short-term top-line performance, we continue to focus on leveraging our core strengths in supply chain capabilities to offer competitive prices and better user experience, and at the same time, to grow our business and the profits sustainably. This is a proven path to drive sustainable growth and has led us through many market shifts over the past two decades. Despite the seasonal fluctuation of revenue growth in Q2, we are confident that our long-term market position will continue to improve. Now, let's discuss our category performance. Revenues of electronics and home appliances were down 4.6% year-on-year in the quarter.

[Sandy Xu, CEO at JD.COM]

This is primarily due to last year's high base, as well as our disciplined strategy during the June 18th promotion, as we prioritized the sustainable growth of our business rather than short-term growth fueled by excessive subsidies. We believe with decades of operating experience in this category and unparalleled supply chain capabilities, we will continue to offer the best-in-class user experience and enhance JD's market position and win over market share in a sustainable way. We see continued strong momentum in our general merchandise category, with revenues up 8.7% year-on-year, further accelerating from the previous quarters. To highlight, supermarket revenue saw double-digit year-on-year growth in the quarter, led by strong order volume growth and improving user mindshare.

[Sandy Xu, CEO at JD.COM]

This momentum has persisted for two consecutive quarters now and is mainly attributable to our stepped-up efforts to improve user experience across all aspects of product quality and selection, price competitiveness, and service quality. With its massive TAM, we expect supermarket to continue to be an important growth driver for us. Despite mixed top-line performance, we saw broad-based profitability improvement across many categories and segments, which collectively contributed to record highs in both non-GAAP operating profit of CNY 11.6 billion and non-GAAP net profit attributable to ordinary shareholders of CNY 14.5 billion. Non-GAAP net margin in Q2 climbed to 5% for the first time. This was primarily driven by gross margin expansion to a historical level of 15.8% in the quarter, with improvement in almost every category. As we focus on price competitiveness-...

[Sandy Xu, CEO at JD.COM]

Our gross margin has been on an upward trend year-on-year for each and every quarter over the last two years. This underscores our improving supply chain capabilities that enable us to continually benefit from scale and efficiency. Now, let me walk you through the progress we made on the key drivers of our business, namely user growth and user engagement, price competitiveness, and platform ecosystem. First, on user growth and user engagement. In Q2, we saw robust user momentum in both the higher-tier and lower-tier markets. Collectively, the number of our total quarterly active customers continued to grow at double-digit pace year-on-year in Q2 for the third consecutive quarter. I want to reiterate that our goal is to serve users across different income spectrums and demands with the right product, right price, and service offerings.

[Sandy Xu, CEO at JD.COM]

Our user growth in the quarter was broad-based across user cohorts of both new users and existing users, particularly those who have stayed with us for over two years, as well as Plus members. It clearly demonstrates JD's value proposition not only resonates with new users, but continues to gain mind share and wallet share from the loyal users. In addition, overall shipping frequency and order volume on our platform both grew by double digits year-on-year in Q2. We also saw average order value declined year-on-year as a result of soft consumer spending, as well as our low-price strategy, category mix shift, and wide range of free shipping service. Such user momentum is a strong proof of our effective user experience programs.

[Sandy Xu, CEO at JD.COM]

In Q2, we further enhanced our industry-leading trade-in program to provide users with better coordinated services, including delivery and installation of new devices and disassembly of used devices. We also extended our best price guaranteed period to up to 365 days for certain categories, starting with 1P. In addition, we made solid progress on programs including free shipping, free doorstep pickup for return, cashback for delayed shipping, and expanded their coverage from 1P to more and more 3P offerings. Other initiatives, such as our supermarket categories, direct shipment from suppliers to customers, and 24-hour fresh milk delivery, saw increasing user appreciation. As a result, our 3P Net Promoter Score has improved sequentially for the past two quarters, while our 1P NPS remains at a very high level.

[Sandy Xu, CEO at JD.COM]

Going forward, we will continue to invest in user experience, as we believe it will translate to stronger user mind share and user engagement, which are the fundamentals to drive sustainable growth for JD. Second, moving on to the price competitiveness, which we continue to reinforce firmly. On the 1P side, we further built upon our strong supply chain capabilities to provide our users everyday low price in a sustainable way. This is the bedrock of our low-price strategy. Well, on the 3P side, we stepped up the effort to supplement the products on our platform with more value for money offerings to address a wider spectrum of user demands. In Q2, our NPS for price competitiveness continued to grow year-on-year on both the 1P and 3P sides.

[Sandy Xu, CEO at JD.COM]

We also saw stronger momentum for lower-tier markets on our platforms in terms of user base expansion, order volume growth, and shipping frequency, among others. Again, JD's price competitiveness is built on our strengths in lower cost, higher efficiency, and best-in-class user experience. Low price is a result of our core capabilities instead of driven by subsidies. This will continue to distinguish us in the e-commerce industry. Thirdly, we have also made encouraging progress on our platform ecosystem. On the 3P side, during the quarter, we continued to provide healthy user traffic and effective supporting measures to help 3P merchants grow their businesses. 3P merchants responded well to our efforts, and our active merchant base continued to expand quickly, both year-on-year and sequentially in Q2. In addition, we also saw an accelerated year-on-year growth of active buyers who purchased from 3P merchants on our platform.

[Sandy Xu, CEO at JD.COM]

At the same time, such users recorded higher shopping frequency in this quarter. This led to an over 20% year-on-year increase in our 3P order volume in Q2. Its fastest pace in the last two years. In terms of monetization, the decline in commission revenues narrowed in the quarter as the impact of our reduced commission fees gradually lapsed. Meanwhile, JD Retail's advertising revenues, generated from 3P merchants, recorded a double-digit growth. We still have a lot to do, especially to drive better ROI for our merchants. To reiterate, our goal is to build up a thriving platform ecosystem that propels the development of our 1P business, and incentivizes 3P merchants to provide diverse product and service offerings, as we aim to address a wider array of user demands. In closing, our Q2 results demonstrate our firm commitment to high quality, long-term business growth.

[Sandy Xu, CEO at JD.COM]

We believe this is the best approach to navigate the current market conditions. Our profitability improvement is sustainable, as it is driven by our expanding scale efficiency, arising from our supply chain advantages, and our focus on creating value for our end users. At the same time, our key business drivers, including user base and engagement, price competitiveness, and platform ecosystem, are all trending in the right direction. We are confident that as we stay focused on executing our long-term strategies to offer lower cost, higher efficiency, and best user experience, we will maintain a healthy growth of our business scale, profit, and cash flow, and solidify our market position in the long-term. With that, I'll turn it over to Ian for our financial highlights. Thank you.

[Ian Su Shan, CFO at JD.COM]

Thank you, Sandy, and hello, everyone. In Q2, we stayed committed to our strategy of building core capabilities for sustainable growth, despite the short-term headwinds impacting our top line growth. Our non-GAAP net profit margin hit an all-time high of 5%, with improvements across many of our categories and segments. This was driven by our expanding scale efficiency, arising from our supply chain advantages and our focus on creating value for users. On the back of these high-quality results, we continue to step up efforts to return value to shareholders. In Q2, we repurchased a total of 137 million Class A ordinary shares, equivalent of 68 million ADS, which accounted for 4.5% of our ordinary shares outstanding as of March 31st, 2024. The total value of the shares repurchased in Q2 was $2.1 billion.

[Ian Su Shan, CFO at JD.COM]

In the first half of this year, we have bought back a total of 7.1% of our ordinary shares, outstanding as of the end of 2023. The progress reflects our commitment to creating value for shareholders. With that, let me turn to our Q2 financial performance. Our net revenue grew by 1% year-on-year to CNY 291 billion in Q2. Breaking down the mix, product revenues were flat in the quarter, primarily due to a 5% year-on-year revenue decline in our electronics and home appliances category for the quarter. This is in line with our expectations, as we had a high base for the sales of summer appliances last year due to seasonal factors, as well as our disciplined promotions in the quarter.

[Ian Su Shan, CFO at JD.COM]

Our general merchandise category delivered another robust revenue growth of 9% year-over-year in Q2, its highest growth rate for the past two years. In particular, our supermarket category has hit double-digit year-over-year revenue growth for two consecutive quarters, and we believe this momentum will continue for the rest of the year. Service revenues grew by 6% year-over-year in Q2, of which marketplace and marketing revenues were up 4%, and logistics and other service revenues increased by 8%. On the marketplace and marketing, commission revenues recorded a narrow decline in the quarter as the impacts of our supporting measures to merchants, including commission cuts, gradually lapsed. Advertising revenues delivered a healthy growth rate year-over-year in the quarter, with a faster pace than GMV, as we further optimized the traffic allocation efficiency.

[Ian Su Shan, CFO at JD.COM]

It's worth noticing that JD Retail's advertising revenues bounced back to a double-digit year-on-year growth in Q2. We see plenty of room to further grow advertising revenue as we continue to boost user growth and improve user efficiency. Now, let's turn to our segment performance. JD Retail revenues were up 1.5% year-on-year in Q2, reflecting the mixed category performance, as previously mentioned. In terms of profit, JD Retail achieved a broad-based increase in profitability for the quarter, thanks to its gross margin expansion across many categories and disciplined promotions. As our supply chain advantages continue to drive up scale benefits, we are able to get competitive procurement benefits and then pass down to our users, while at the same time supporting our growth margin.

[Ian Su Shan, CFO at JD.COM]

JD Retail's operating profit increased by 24% year-on-year to RMB 10 billion, with operating margin recording a 72 basis points expansion to 3.9%. Looking now to JD Logistics. JD Logistics revenues increased by 7.7% year-on-year in Q2, with healthy momentum for both internal and external revenue streams. Internal and external revenues increased by 7% and 8% respectively. As JD Logistics continue to benefit from its increased the scale and improved operating efficiency, its non-GAAP operating margin also increased by 370 basis points year-on-year in the quarter, hitting a new record of 4.9% since its listing. Turning to new business. In the quarter, revenue of new business was down 35% year-on-year, primarily due to the adjustments of the Jingxi business and others.

[Ian Su Shan, CFO at JD.COM]

Non-GAAP operating loss of new business was RMB 695 million in the quarter, compared to a gain of RMB 23 million a year ago, excluding the impact of the disposal gain of JD Property's long-lived assets. The result was largely due to the increased loss in the Jingxi business and others. Moving on to our consolidated profit performance in Q2. At the group level, our gross profit grew by 11% year-on-year, and gross margin increased substantially year-on-year to an all-time high of 15.8% in Q2. It's worth pointing out that this is the ninth quarter in a row that our gross margin improved on a year-on-year basis, both at the group level and at the JD Retail level, which clearly highlights the quality of our business growth.

[Ian Su Shan, CFO at JD.COM]

Our non-GAAP operating profit increased by 34% year-on-year to a new record of CNY 11.6 billion, with a strong non-GAAP operating margin of 4%, primarily driven by the improved profitability of JD Retail and JD Logistics as our supply chain continued to build up scale benefits. Non-GAAP net income attributable to ordinary shareholders came in at a new record of CNY 14.5 billion in Q2, representing a 69% year-on-year increase. Non-GAAP net margin reached 5%, up nearly two percentage points from a year ago. In addition, non-GAAP diluted net income per ADS grew by 74% year-on-year in Q2 to CNY 9.36 or $1.29 in the quarter. Our last twelve-month free cash flow as of the end of Q2 was CNY 56 billion, compared to CNY 33 billion in the same period last year.

[Ian Su Shan, CFO at JD.COM]

The year-on-year increase in free cash flow was primarily driven by seasonality factors, our robust profit, as well as moderated CapEx. By the end of Q2, our cash and cash equivalents, restricted cash and short-term investments added up to a total of RMB 209 billion. As we head into the second half of the year, we will dedicate ourselves to accelerate top line, to outpace the growth of the total retail sales of China for the full year. It takes a lot of efforts under the current environment. We will also continue to invest with financial discipline, focusing on areas that contribute to our long-term competitiveness, particularly in user experience and user growth, low-price strategy, and platform ecosystem. Thus, we are confident to achieve a healthy growth of our full year profit.

[Ian Su Shan, CFO at JD.COM]

We believe this is the right approach for the current environment and to ensure sustainable growth for the long run. With that, I will turn it back to Sean. Thank you.

[Sean Zhang, Head of Investor Relations at JD.COM]

Thank you, Sandy and Ian. For the Q&A session, you're welcome to ask questions in English or Chinese, and our management will answer your question in the language you ask. We'll provide English translation when necessary for convenience purpose only. In the case of any discrepancy, please refer to our management statement in the original language. Okay, operator, we can open the call for our Q&A session.

[Operator]

The question and answer session of this conference call will start in a moment. In order to be fair to all callers who wish to ask questions, we will take one question at a time from each caller. If you have more than one question, please request to join the question queue again after your first question has been addressed. Your first question comes from Kenneth Wong with UBS.

[Kenneth Fong, Director at Head of China Internet Research]

...Hi, Sandy and Sean, [Foreign language]

[Translator]

Congrats, management on a strong quarter to deliver robust, profitable earning growth. I have two questions. First is on our low-price strategy. These recently we start to see some news that our competitor are fine-tuning their strategy from low price to more GMV focus.

[Translator]

JD recently also announced our Super 18 discount day recurring at each month. Can you share with us the strategy on price competitiveness and whether we have any changes to our strategy in response to the market change? And second is platform ecosystem. Over the past year, we have been onboarding more new merchants, expanding SKU, cultivating consumer mindset, and build a very vibrant 3P ecosystem, and we have seen encouraging results. With competitor also speeding up platform monetizations through various service fee and advertising product, can management share with us how we think about the path and timeline for speeding up our 3P monetization? Thank you.

[Sandy Xu, CEO at JD.COM]

[Foreign language]

[Translator]

Thank you, Kenny, for your question.

[Translator]

Let me address your first question about JD's low-price strategy. So for us, our commitment to low-price strategy remains steadfast. As you know, for over 20 years of growth, we have always put our focus on our lower cost, higher efficiency and user experience. The price competitiveness is a very core aspect for user experience. This is also why we always focus on our products, price and user experience.

[Translator]

So user experience has always been at core of JD's mission, and, enhancing it remains our top priority and the most crucial, aspect for JD's business growth.

[Sandy Xu, CEO at JD.COM]

[Foreign language]

[Translator]

And for JD.com as a supply chain based retailer, for our, behind our low price, it's always, our ability in, control the economies of scale and the tech driven, innovations.

[Translator]

We continuously enhance our price competitiveness without compromising the quality of our products and services.

[Translator]

And we'd rather achieve it through our strength, rather than relying on short-term subsidies that leads to unsustainable price reductions.

[Sandy Xu, CEO at JD.COM]

[Foreign language]

[Translator]

So besides our 1P business, we have been working hard to attract increasing numbers of 3P merchants and working with industrial belts and white label manufacturers to our platform.

[Translator]

By partnering with these partners can help us to diversify our low-priced product offerings cater to the various needs of our users. For example, by sourcing and shipping directly from manufacturers, our Jingxi business is able to offer a wide range of lower-priced products to our customers. So we want to emphasize here that our pursuit for low prices never come at the expense of user experience or product quality, or the interests of our business partners... is that we achieve cost reduction through JD's scale effects and tech-driven supply chain innovations, which will effectively eliminate unnecessary costs and genuinely reduce prices.

[Sandy Xu, CEO at JD.COM]

[Foreign language]

[Translator]

So we stepped up our efforts on enhancing our price competitiveness, including reducing our procurement costs on the 1P side and expanding selection of low-priced products on our marketplace, and launching programs like the CNY 10 billion discount initiatives and the CNY 19.9 items with free shipping. This year, we'll continue to execute our low-price strategy and further build up our capabilities. The positive feedback from our users affirms the effectiveness of these efforts. Through the Super 18 initiative, we hope to further strengthen the user mind share of our JD 618 brand promotion and everyday low price to enhance their shopping experience with our low price offerings.

[Sandy Xu, CEO at JD.COM]

[Foreign language]

[Translator]

Finally, I want to emphasize that our focus on our core business metrics remain unchanged. We believe that healthy business development requires a comprehensive evaluation of the key indicators. Under all circumstances, we strive to maintain a balance between GMV, profits, and cash flow. We're committed to ensuring the sustainable growth of our business while creating an unparalleled user experience, with price competitiveness being an important component.

[Ian Su Shan, CFO at JD.COM]

Kenny,[Foreign language]

[Translator]

To answer your second question, we aim to build a thriving platform ecosystem that benefits both our 1P and 3P businesses. We believe that combining these two, models create a superior shopping experience for our users. Our 1P offerings attract users, while 3P merchants help to address diversified needs of our users. So for us, the core of our platform ecosystem is to deliver a best-in-class user experience, and monetization is, will be a natural result of our platform ecosystem's growth.

[Ian Su Shan, CFO at JD.COM]

[Foreign language]

[Translator]

As we mentioned before, JD's platform ecosystem is a long-term strategic initiative, and there's still great potential for us to improve. As shared before, our development progress for the platform ecosystem has a few steps. First, we will continue to expand our merchant base, enrich product offerings, and foster merchant growth and engagement. Our 3P merchants play a very important role in enhancing product supply and improving user experience. They are a very important and essential component, supplement to our platform. In Q2, the number of active merchants continued to see a strong momentum, growth momentum.

[Ian Su Shan, CFO at JD.COM]

[Foreign language]

[Translator]

At the same time, we closely monitor the key metrics of our users, including the numbers of users who purchase from our 3P merchants and the order 3P order volume and GMV generated from 3P et cetera. In Q2, both the number of 3P transaction users and orders experienced accelerated growth, with 3P GMV growth outpacing our total GMV growth. Eventually we will see a natural and organic growth on our 3P monetization. At the current stage, we are observing some positive developments in our marketplace, which includes, first of all, in Q2, our commission revenue showed steady improvement recovery. The impact of our supportive measures to 3P merchants since last year, including reduced commissions and the removal of platform usage fees, is gradually diminishing.

[Translator]

So we anticipate that commission revenue will recover and increase in the second half of the year as 3PGMV continues to grow. And for advertising revenue in Q2, it grew faster than the GMV. We believe advertising is merchants' response to the platform's performance. So we have been enhancing our advertising products and models, and to help our brands and SME merchants to grow their business on our platform. So this in turn, we believe, will drive higher advertising revenues to us. So we remain committed to executing our strategy and plan to advance our platform ecosystem. So in the long-term, our ecosystem will continue to evolve and improve. We expect the proportion of 3P orders and GMV to surpass that of our 1P business. So consequentially, revenues from our commissions and advertising will grow in a healthy manner.

[Translator]

Thank you.

[Operator]

Your next question comes from Ronald Keung with Goldman Sachs.

[Ronald Keung, Managing Director at Goldman Sachs]

Hey, thank you, Sandy and Sean. [Foreign language]

[Translator]

Congratulations on management on the very strong second quarter profits. And so as we think about the optimal balance between growth and profitability, 2Q seem to be more skewed towards profitability that beat most in the three KPIs. So as we look into an annual basis or into the second half, how are we balancing the optimal targets of these three KPIs for second half? And would this lead to any changes for the full year, given the profit KPI has exceeded expectations for the first six months? And for the second half, we see more companies focusing or talking about GMV growth. So as we target this GMV growth, how do we see or foresee the second half e-commerce competitive landscape into the second half? Thank you.

[Sandy Xu, CEO at JD.COM]

To answer your first question about growth and profits at JD.com, we believe that sustainable growth is driven by delivering an exceptional user experience, and JD is committed to continuously enhancing users satisfaction and enhancing our core capabilities in our 1P and logistics services, and our profits are the result of our ongoing optimization in cost and efficiency. So, for the evaluation of our business performance, we will always strive to strike a balance among GMV, profits, and cash flow to ensure healthy growth of our business.

[Ian Su Shan, CFO at JD.COM]

[Foreign language]

[Translator]

Our performance in Q2 demonstrates the high quality growth we have achieved.

[Translator]

As we previously communicated, our revenue growth in Q2 slowed due to a challenging comparison with last year, particularly in summer categories like air conditioners. However, we observed a strong operational performance, with net income reaching a historic high of CNY 14.5 billion and net profit margin reaching 5% for the first time. A key driver of this margin improvement was the enhancement of supply chain efficiency, leading to a significant improvement year-on-year increase in gross profit margin, which grew by 137 basis points in Q2. Notably, our gross profit margin has improved consistently for 9 consecutive quarters since Q2 2022. These results reflect JD's commitment to high quality growth. Our business units continue to gain operating experience, and are dedicated to investing in long-term, sustainable competitive advantages and ROI to balance growth and profitability.

[Ian Su Shan, CFO at JD.COM]

[Foreign language]

[Translator]

And secondly, in the second half of the year, we will adopt a more dynamic approach to balancing growth and profitability. We will continue to invest in areas such as enhancing user experience, new user acquisition and, expanding market share. So our business at the same time, our business units will further strengthen their operational capabilities and efficiency, driving improvements in supply chain efficiency across the board. And, these advancements enable us to offer more competitive priced products to our users, while enhancing overall operating efficiency and profitability for the company.

[Ian Su Shan, CFO at JD.COM]

[Foreign language]

[Translator]

So, looking ahead to the full year, our goal is to achieve a growth rate that outpaced the overall market's retail sales of consumer goods. As we continue to invest with disciplines in user experience and market share expansion, we expect JD Group's profits and profit margins to increase year-on-year. In the long run, we see a positive cycle between our business growth and profitability rather than contradiction. JD's business model is built on a robust supply chain and focus on user experience. We will make targeted investments in these areas to enhance user satisfaction and strengthen our market position, ultimately achieving long-term sustainable profits. We're confident in our ability to reach the goal of achieving high single-digit profit margin over the long-term.

[Sandy Xu, CEO at JD.COM]

[Foreign language]

[Sandy Xu, CEO at JD.COM]

...

[Translator]

So let me address the second question about the market competition. In our opinion, China has the world's largest e-commerce market and the most mature infrastructure to support its continued growth. We believe that this market will keep expanding for a long time. At the same time, JD Retail's unique and robust 1P supply chain capabilities, combined with our self-operated logistics services, form a strong moat for our business success. So these strengths enable us to deliver a superior user experience while excelling in cost and efficiency. So first, on China's retail market side, particularly the online sector, it offers tremendous opportunities for growth. So while we examine online penetration from the perspective of product categories, user demographics and business innovations, there remains significant room for expansion. So, there is substantial potential for online penetration in categories such as supermarket and home goods, where the online sales still have a lot of opportunity to continue to grow. Even in some categories like 3C products or home appliances, which are traditionally considered standard products, and they already have a high online penetration rate. We continue to see this category growing online. So simultaneously, we are actively developing our offline retail networks for these categories to provide more specialized shopping experiences for our users. So on the demographics for the young generation, they grow up with online shopping. They are already highly accustomed and reliant on e-commerce platforms. And now the older generations are also embracing online shopping, creating new opportunities for growth. At JD, we have observed strong user growth in both these user groups, with their growth rates surpassing our overall user base growth. Additionally, the emergence of new online shopping formats continue to drive increased online penetration. So overall, China's online retail of physical goods is outpacing the broader retail market as we observe. And on this e-commerce market competition landscape, we see, China's e-commerce industry is vast and dynamic, with room for various players employing different models, features, and competitive advantages. We believe that the essence of retail will always boil down to two fundamental questions, that are how to enhance user experience and how to achieve win-win outcomes with partners. At JD.com, we are committed to these long-term goals by continuously optimizing our cost, efficiency and user experience. So JD's key differentiators that separate us from others are our cost efficiency and user experience, driven by our 1P retail business and our self-operated logistics services.

[Translator]

Over the past year, we have intensified our efforts to strengthen our supply chain capabilities and enhance our user experience. In Q2, we continued to see double-digit user growth, led by our record users and long-term core users with over two years of engagement with us. Users' shopping frequency also maintained a double-digit growth. Overall, we are confident on China's e-commerce market growth. Thank you.

[Sean Zhang, Head of Investor Relations at JD.COM]

Thank you, Ronald. Next question, please.

[Operator]

Your next question comes from Alicia Yap of Citigroup.

[Alicia Yap, Equity Research Analyst at Citi]

Hey, hello. Thank you.

[Alicia Yap, Equity Research Analyst at Citi]

[Foreign language]

[Translator]

So, two questions.

[Translator]

First is that, given the latest announcement of central government support of the push forward the appliance trade-in initiative, and how and what are JD's plans on cooperating with the local government and also the appliance suppliers? Understood that JD has been participating and facilitating the trade-in process during the normal routine demand. How much incremental or what can we expect from the later push of the central government to translate to the JD's top line growth in the coming quarters? And then second question, in light of the soft consumption sentiment, will JD shift more focus to enhance the FMCG SKU offering with the innovative pricing promotion to boost the consumption demand for the FMCG product, given the product is actually more resilient into the weak economy? Thank you.

[Sandy Xu, CEO at JD.COM]

Thank you, Alicia, for your question. First, based on our past experience, trade-in is a relatively effective measure to promote high unit price products, especially home appliance consumption. Our business has actually been practicing this for many years and has also accumulated a lot of experience. We have relatively good linkage strategies with brands. We very much support and welcome the country promoting consumption through these trade-in measures.

[Translator]

From our JD's experience has shown that promoting trade-ins is an effective way to boost big-ticket consumption. We have been actively implementing our relevant initiative for some time and building strong partnerships with other brand partners and accumulating valuable experience in this aspect.

[Translator]

We highly support and welcome the government's support in promoting trade-ins and other measures to stimulate consumption. And on the policy level, as you mentioned that, in the end of July, the NDRC has issued a supportive policies on the trade-in services, and home appliances is a a key area eligible for these supportive measures, and we expect certain policies will be rolled out very soon.

[Sandy Xu, CEO at JD.COM]

[Foreign language]

[Translator]

So currently, for the implementation, we have been working with the local government and various brands to carry out the implementation of these supportive policies and subsidies.

[Translator]

Since the release of the trade-in action plan in March, we have been establishing partnerships with various provinces and city governments, and we have been selected as the designated platform to distribute government subsidies and applying them to products that meet the policy criteria. So far, our cooperation models and promotional efforts have yielded some positive results.

[Sandy Xu, CEO at JD.COM]

[Foreign language]

[Translator]

And with the central government's recent policy announcement, we will build on our solid collaboration foundation with the governments and partners to further collaborate on the trade initiative, helping distribute subsidies to the local consumers. Both on the system level, on the processes level, we are very ready, for example, with the technical back-ends and on every front.

[Sandy Xu, CEO at JD.COM]

[Foreign language]

[Translator]

Not only our collaboration online, we are also leveraging our offline presences, including our JD's home appliances experience stores, chain stores for home appliances to provide all kinds of services on the trade-in promotions to our consumers across the country.

[Sandy Xu, CEO at JD.COM]

[Foreign language]

[Translator]

At the same time, we have partnered with the brands to launch JD Home Appliance Trade-in Alliance, and introducing trade-in subsidy activities across 20 provinces and cities. Through this alliance, we can offer cost-saving products and convenient services to our customers in different regions.

[Sandy Xu, CEO at JD.COM]

[Foreign language]

[Translator]

To circle back to your question, from our business perspective, the release of the new policies, we do expect this will be effective to drive the growth of our home appliance industry. For JD.com, it will provide certain incremental, and we anticipate that the sales share from trade-ins on JD platform will increase in the near future. We will also leverage the trade-in service, our trade-in service capabilities on the systems and the processes to maximize this opportunity to implement relevant measures and working alongside local governments and manufacturers to further stimulate home appliance consumption. Thank you.

[Sandy Xu, CEO at JD.COM]

[Foreign language]

[Translator]

So for the second, second question on our supermarket category, we've made some good progress in enhancing our operational capabilities in the supermarket categories, and it has resulted some healthy revenue growth. Despite intense competition, and you see this supermarket category is very decentralized and dispersed across the market. Looking at our operational improvements, we still have very strong confidence in the long-term potential of this category. And by leveraging JD's unique strengths, we believe JD supermarkets will continue to help us to enhance user experience and expand market share. It will serve as a key growth driver for the whole company.

[Sean Zhang, Head of Investor Relations at JD.COM]

Okay. Thank you, Alicia. Let's have the last question, please.

[Operator]

Your next question comes from Thomas Chong with Jefferies.

[Thomas Chong, Managing Director at Jefferies]

[Foreign language] Thanks management for taking my question. My first question is about earnings outlook. Can management share your view about the trend in earnings and margins outlook over the next few years? And my second question is about shareholders return.

[Thomas Chong, Managing Director at Jefferies]

Can management share your latest thoughts about share repurchase and dividends? Thank you.

[Ian Su Shan, CFO at JD.COM]

Thomas, [Foreign language]

[Translator]

And thank you, Thomas. To answer your question, our mid- to long-term goal to achieve a profit margin in high single-digit. And, we are optimistic about reaching this target. And our key growth driver includes the growth of our platform ecosystem, category mix optimization and profit margin improvements across various categories.

[Ian Su Shan, CFO at JD.COM]

[Foreign language]

[Translator]

So for JD Group's Q2 net profit hit a historic high of CNY 14.5 billion, with a net profit margin of 5%, driven largely by improved gross profit margins from enhanced the supply chain efficiency. And we see significant potential for future, for further margin expansion in the long-term.

[Ian Su Shan, CFO at JD.COM]

[Foreign language]

[Translator]

As our business and operational efficiency continue to improve, we believe that we will achieve a high single-digit profit margin in the long-term.

[Ian Su Shan, CFO at JD.COM]

[Foreign language]

[Translator]

It is long-term profitability will be anchored by our strong market position and focus on user experience. By continuously investing in our product price and service, we're able to enhance user's experience and satisfaction, so as to drive up our GMV growth to expand market share. By leveraging our increasing scale and market share, we further improve our supply chain efficiency, which in turn will boost healthy profits growth, allowing us to reinvest and enhance user experience.

[Ian Su Shan, CFO at JD.COM]

[Foreign language]

[Translator]

So, to summarize, JD's profitability has ample room for growth, driven by higher 3P contributions and improved category mix and margin potential within each category. So our long-term profit margin target remains set in high single-digits.

[Ian Su Shan, CFO at JD.COM]

[Foreign language]

[Translator]

And on the return to shareholders, we remain committed to return to shareholders. And for Q2, we repurchased approximately $2.1 billion worth of shares across the U.S. and Hong Kong stock markets, equivalent to 137 million ordinary shares or 68.4 million ADS, representing approximately 4.5% of our outstanding shares as of March 31st, 2024.

[Ian Su Shan, CFO at JD.COM]

[Foreign language]

[Translator]

In the first half of the year, we completed share buybacks totaling $3.3 billion, equivalent to 224 million ordinary shares, or 112 million ADS, accounting for 7.1% of our total outstanding shares as of the end of 2023. Additionally, we completed our $1.2 billion annual dividend payment plan in Q2, returning a total of around $4.5 billion to shareholders through dividend and payback in the first half of the year.

[Ian Su Shan, CFO at JD.COM]

[Foreign language]

[Translator]

For future plan of shareholder returns, we will continue our repurchase plan with the goal of gradually reducing the total number of outstanding shares over the long-term. We will also maintain dividend payments based on profits, ensuring that shareholders benefit from the company's value creation. Thank you.

[Operator]

We are now approaching the end of the conference call. I will turn the call over to JD.com Sean Zhang for closing remarks.

[Sean Zhang, Head of Investor Relations at JD.COM]

Thank you everyone for joining us on the call today, and thanks for your questions. If you have further questions, please contact me and our team. We appreciate your interest in JD.com, and we look forward to talking with you again next quarter. Thank you very much!

[Operator]

Thank you for your participation in today's conference call. This concludes the presentation. You may now disconnect.

Participants

Analysts

• Alicia Yap, Equity Research Analyst at Citi
• Ian Su Shan, CFO at JD.COM
• Kenneth Fong, Director at Head of China Internet Research
• Ronald Keung, Managing Director at Goldman Sachs
• Sandy Xu, CEO at JD.COM
• Sean Zhang, Head of Investor Relations at JD.COM
• Thomas Chong, Managing Director at Jefferies
• Translator