ATRenew Q2 2024 Earnings Report

ATRenew EPS Results

• Actual EPS: $0.04
• Consensus EPS: $0.05
• Beat/Miss: Missed by -$0.01
• One Year Ago EPS: N/A

ATRenew Revenue Results

• Actual Revenue: $519.69 million
• Expected Revenue: $514.00 million
• Beat/Miss: Beat by +$5.69 million
• YoY Revenue Growth: N/A

ATRenew Announcement Details

• Quarter: Q2 2024
• Date: 8/20/2024
• Time: Before Market Opens
• Conference Call Date: Tuesday, August 20, 2024
• Conference Call Time: 8:00AM ET

ATRenew (NYSE:RERE) Inc., through its subsidiaries, operates pre-owned consumer electronics transactions and services platform in the People's Republic of China. It primarily sells mobile phones, laptops, tablets, drones, digital cameras; and vintage bags, watches, liquor, gold, and various household goods through its online platforms and offline stores, as well as provides services to third-party merchants to sell the products through its platforms. The company was formerly known as AiHuiShou International Co. Ltd. and changed its name to ATRenew Inc. November 2021. The company was incorporated in 2011 and is headquartered in Shanghai, the People's Republic of China.

ATRenew Q2 2024 Earnings Call Transcript

Key Takeaways

• In Q2 2024, AT Renew delivered revenue of RMB 3.78 billion, up 27.4% year-over-year, surpassing the high end of guidance and lifting non-GAAP operating profit margin to 2.5%, a 0.7 pp improvement from Q2 2023.
• Self-operated consumer electronics recycling volumes grew 27.8%, and overall self-operated volumes (including low-ASP products) surged 38.9%, reinforcing its leadership position in the secondhand market.
• Partnership with JD.com deepened as May’s recycling value via JD trade-ins jumped 97.6% and June 18 volume doubled year-over-year, while Apple official trade-in gross margin turned positive in Q2.
• Platform business service revenues rose 14.6% to RMB 371 million, driven by a nearly 400% year-over-year increase in multi-category recycling GMV, highlighting demand beyond consumer electronics.
• AT Renew ended Q2 with cash and equivalents of RMB 2.8 billion, has repurchased US$8 million of ADSs under its buyback program, and forecasts Q3 revenues of RMB 3.97 billion–4.17 billion (up 21.9%–25%).

Presentation

[Operator]

Good morning, and good evening, ladies and gentlemen. Thank you for standing by, and welcome to ATRenew Inc.'s second quarter, two thousand and twenty-four 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 would now like to turn the call over to our first speaker today, Mr. Jeremy Ji, Director of Corporate Development and Investor Relations of the company. Please go ahead, sir.

[Jeremy Ji, Director of Corporate Development and Investor Relations at ATRenew Inc.]

Thank you, Chuck. Hello, everyone, and welcome to ATRenew's second quarter twenty twenty-four 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'll open the call to questions from the analysts. The second quarter twenty twenty-four financial results were released earlier today. The earnings release and the investor slides accompanying this call are 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 about our quarterly performance and business strategy, followed by Rex, who will address the financial highlights. Both Kerry and Rex will join the Q&A session. Let me cover the safe harbor statements.

[Jeremy Ji, Director of Corporate Development and Investor Relations at ATRenew Inc.]

Some of the information you hear during this conversation 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 today 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.

[Kerry Chen, Chairman and CEO at ATRenew Inc.]

[Foreign Language]

[Kerry Chen, Chairman and CEO at ATRenew Inc.]

Hello, everyone, and welcome to ATRenew's second quarter twenty twenty-four earnings conference call. We are pleased to share our achievements this quarter and the strategies we have implemented in the evolving landscape, where the circular economy has been driving consumer behavior.

[Kerry Chen, Chairman and CEO at ATRenew Inc.]

[Foreign Language]

[Kerry Chen, Chairman and CEO at ATRenew Inc.]

In the second quarter, we achieved solid growth, especially at the recycling end and in value for money retail business, even though consumers are more prudent with spending. To boost domestic consumption, the government has taken actions to encourage large-scale trade-ins of consumer goods. As a result, more products have entered the pre-owned market through e-commerce platforms and physical retailers. In the near term, we have already witnessed a significant increase in recycling volumes in cities like Shenzhen. More importantly, we believe such policies and support will have a long-lasting impact by raising awareness of sustainable consumption and the recycling of secondhand goods. Such support provides greater certainty to our sustained growth outlook.

[Kerry Chen, Chairman and CEO at ATRenew Inc.]

[Foreign Language]

[Kerry Chen, Chairman and CEO at ATRenew Inc.]

Looking specifically at our business performance in the second quarter, our total revenue reached RMB 3.78 billion, up 27.4% year-over-year, exceeding the high end of our guidance. Product revenue was RMB 3.4 billion, up 29% year-over-year, serving as the main growth driver. Notably, order volume related to our core self-operated consumer electronics recycling business grew 27.8%, while other volume of the overall self-operated business that included low ASP business grew 38.9% year-over-year, leading in the second-hand industry.

[Kerry Chen, Chairman and CEO at ATRenew Inc.]

[Foreign Language]

[Kerry Chen, Chairman and CEO at ATRenew Inc.]

Among primary recycling scenarios, trade-in has become an increasingly mainstream way to shop. We collaborated with JD.com on their old iPhone, iPad, Apple products for new Apple products initiatives, which received widespread praise from users. In May, the recycling value of used products created through JD.com grew 97.6% year-over-year. During the June eighteenth Shopping Festival, the trade-in volume of used consumer electronic products from JD.com increased by 100% year-over-year.

[Kerry Chen, Chairman and CEO at ATRenew Inc.]

[Foreign Language]

[Kerry Chen, Chairman and CEO at ATRenew Inc.]

In our platform business, revenue grew 14.6% year over year to RMB 370 million. PJT and Paipai marketplaces maintained healthy take rates, with an increasing number of third-party merchants leveraging our inspection capabilities and adopting our consignment model. The GMV of our multi-category recycling service business increased by nearly 400% year over year, serving as the main driver of platform business growth and reflecting that in the current macroeconomic environment, an increasing number of users are willing to explore recycling services beyond consumer electronics categories.

[Kerry Chen, Chairman and CEO at ATRenew Inc.]

[Foreign Language]

[Kerry Chen, Chairman and CEO at ATRenew Inc.]

On the gross margin front, we successfully turned the gross margin of the Apple trade-in business positive in the second quarter, raising the overall products revenue gross margin to 12.1%, an increase of 1.2 percentage points from the first quarter of 2024. Gross margin at the group level slightly dropped to 20.8% as the proportion of product revenue increased by 1.1 percentage points compared with the second quarter of 2023. Even though the economies of scale have also led to improved cost efficiency, the Non-GAAP fulfillment expense as a percentage of total revenues decreased by 0.3 percentage points year over year, while the Non-GAAP selling and marketing expense as a percentage of revenue fell by 1.1 percentage points year over year.

[Kerry Chen, Chairman and CEO at ATRenew Inc.]

This overall resulted in a 0.7 percentage points improvement year over year in the Non-GAAP operating profit margin, bringing it to 2.5% in the second quarter of 2024.

[Kerry Chen, Chairman and CEO at ATRenew Inc.]

[Foreign Language]

[Kerry Chen, Chairman and CEO at ATRenew Inc.]

The achievements we've discussed so far are rooted in our core strengths in recycling scenarios and supply chain capabilities. Going forward, we will continue to build on these strengths to drive further growth and success.

[Kerry Chen, Chairman and CEO at ATRenew Inc.]

[Foreign Language]

[Kerry Chen, Chairman and CEO at ATRenew Inc.]

On one hand, we have strengthened our service capabilities in our core business of consumer electronics, recycling and transaction services. In June, we renewed our strategic agreement to deepen our business collaboration with JD.com in areas such as consumer electronics, recycling, trade-in and the retail of value for money secondhand products. This renewal also introduced new trade-in methods for Apple products. We continue to meet the high standards and specific needs of JD's users through our industry leading fulfillment and supply chain capabilities.

[Kerry Chen, Chairman and CEO at ATRenew Inc.]

[Foreign Language]

[Kerry Chen, Chairman and CEO at ATRenew Inc.]

Our trade-in business through JD has experienced rapid growth. In the first half of the year, the recycling value of products traded in by JD users increased by over 50% year-over-year. Notably, in June, the recycling value of products fulfilled by trade-in program surpassed that of regular recycling for the first time, establishing it as the leading recycling method through JD. Trade-ins provide a better user experience than regular recycling, effectively capturing users' demand for upgraded devices and receiving growing acceptance and adoption by our users.

[Kerry Chen, Chairman and CEO at ATRenew Inc.]

[Foreign Language]

[Kerry Chen, Chairman and CEO at ATRenew Inc.]

For our Apple official trade-in program, we successfully turned the gross margin positive as anticipated in the second quarter. During this typically off-peak period, we achieved RMB 160 million in revenue. Specifically, we ensured a positive operating margin for this segment in the second quarter, while aiming at a long-term operating profit margin of 3% to 4%. Expenses at the operating level are simple, and we expect the Apple official trade-in program to bring more positive operating profit.

[Kerry Chen, Chairman and CEO at ATRenew Inc.]

[Foreign Language]

[Kerry Chen, Chairman and CEO at ATRenew Inc.]

We continue to build our offline fulfillment capabilities to strengthen our business model. As of the end of the second quarter, we operated 1,516 AHS offline stores in 260 cities nationwide, with a net increase of 19 self-operated stores and 69 jointly operated stores in the quarter. To meet users' demand for multi-category recycling, we upgraded the store image or location of over 50 self-operated stores. Additionally, we have a nationwide doorstep service team of over 600 staff to address users' diverse fulfillment needs. Our service team maintains a consistent brand image and service standard, offering face-to-face device inspections and on-the-spot payments, which provide several advantages over traditional mail-in recycling. In the second quarter, the doorstep recycling business sustained the same year-over-year growth rate as the overall C2B business. Our in-store and doorstep fulfillment options offer users flexible and convenient recycling choices.

[Kerry Chen, Chairman and CEO at ATRenew Inc.]

[Foreign Language]

[Kerry Chen, Chairman and CEO at ATRenew Inc.]

On the other hand, we are further enhancing our core capabilities in client shopping scenarios and supply chain management. These improvements aim to provide users with a wider selection of premium products while strengthening the brand recognition of AHS Selection.

[Kerry Chen, Chairman and CEO at ATRenew Inc.]

[Foreign Language]

[Kerry Chen, Chairman and CEO at ATRenew Inc.]

[Foreign Language]

[Kerry Chen, Chairman and CEO at ATRenew Inc.]

[Foreign Language]

[Kerry Chen, Chairman and CEO at ATRenew Inc.]

We are witnessing a clear trend that consumers are increasingly looking for value for money, high quality, pre-owned products. We offer a curated selection of premium second-hand products in our offline stores, allowing consumers to directly access the quality of certified pre-owned items that are 95% and 90% new, stimulating their interest in trying and purchasing these products. By linking in-store inventory with our nationwide online inventory, we provide consumers with cost effective options for buying second-hand items. This capability has successfully gained the trust and recognition of our AHS Selection brands. In the second quarter, product revenue from AHS Selection in our offline stores and on our official website surpassed RMB 210 million, marking a increase of 31% year-over-year, marking a 31% increase from the previous quarter and an eight-fold increase year-over-year.

[Kerry Chen, Chairman and CEO at ATRenew Inc.]

1P product revenue brought by our 1P to C retail business increased by 125% year over year to RMB 960 million. Retail channels, including Paipai Selection, AHS Recycle websites and physical stores, Douyin, et cetera.

[Kerry Chen, Chairman and CEO at ATRenew Inc.]

[Foreign Language]

[Kerry Chen, Chairman and CEO at ATRenew Inc.]

Building on our robust end-to-end supply chain capabilities from sourcing to processing to sales, we are exploring synergies with retail partners in addition to the established retail channels of Paipai, AHS store, and live streaming platforms. In June, our B2B transaction platform, PJT Marketplace, partnered with Douyin E-commerce to empower more small and medium-sized businesses to thrive in the new retail landscape by leveraging PJT's leading second-hand consumer electronics supply chain. Key elements of our collaboration include our operation center, which supports product quality inspections and PJT supplying second-hand consumer electronics to Douyin E-commerce. Additionally, PJT has established a strategic partnership with Huitongda, a leading retailer in mass market cities. Together, we are exploring opportunities for second-hand products through Huitongda's extensive offline store network. Initial sales pilot programs have already been launched recently.

[Kerry Chen, Chairman and CEO at ATRenew Inc.]

[Foreign Language]

[Kerry Chen, Chairman and CEO at ATRenew Inc.]

In closing, we would like to share our perspective on establishing our brand as the top of mind choice for consumers nationwide when it comes to recycling.

[Kerry Chen, Chairman and CEO at ATRenew Inc.]

[Foreign Language]

[Kerry Chen, Chairman and CEO at ATRenew Inc.]

Starting last year, we have increased our marketing efforts to promote our upgraded services in recycling, to raise the awareness of our brand, and to improve public understanding of recycling trade-ins and circular consumption. We have distributed educational content about recycling and trade-ins on popular social media platforms, including Douyin, Xiaohongshu, WeChat, video platform, while partnering with key influencers to advertise our brand name. Moreover, we have collaborated with leading consumer brands to launch the Revive Fanhang Xinsheng initiative. In the second quarter, we rolled out trade-in programs in partnerships with 20 brand owners, championing the concept of sustainable circular consumption. To name a few, Jingdong, Jingzao, Mengniu, Bilibili, Naixue and ALDI. We jointly encouraged more consumers to pick up a quest, return more used goods, and claim the rewards.

[Kerry Chen, Chairman and CEO at ATRenew Inc.]

[Foreign Language]

[Kerry Chen, Chairman and CEO at ATRenew Inc.]

Given the clear shift in consumer behaviors, we believe it is crucial to proactively seize the opportunities presented by the circular economy. We will continue to invest in our brands. We aim to acquire greater mind share for our brands and services among consumers through strategic brand marketing, cross-brand partnerships, and revamping our stores.

[Kerry Chen, Chairman and CEO at ATRenew Inc.]

[Foreign Language]

[Kerry Chen, Chairman and CEO at ATRenew Inc.]

Now, I'd like to turn the call over to our CFO, Rex, for financial updates.

[Rex Chen, CFO at ATRenew Inc.]

Okay. Hello, everyone. We are pleased to report another profitable quarter under the GAAP measures, on revenues that once again exceed the top end of our guidance. Before taking a detailed look at the financials, please note that all figures are in RMB, and all comparisons are on a year-over-year basis, unless otherwise stated. In the second quarter, total revenues increased by 27.4% to RMB 3,776.7 million, primarily driven by the strong growth in net product revenues. Net product revenues increased by 29% to RMB 3,401.8 million, while net service revenues increased by 14.6% to RMB 374.9 million. Growth in net product revenues were primarily driven by an increase in the sales of pre-owned consumer electronics, both throughout the company's online and offline channels.

[Rex Chen, CFO at ATRenew Inc.]

The increase in service revenues was primarily due to an increase in the service revenue generated from PJT Marketplace and the multi-category recycling business. The overall gross transaction value of marketplaces increased consistently with service revenues, and the take rate of our marketplaces was 5.28% in the second quarter of 2024. About RMB 30 million were directly attributable to our multi-category recycling business, with an average service take rate of 3%. Multi-category recycling business accounted for 8% of total service revenues in the second quarter of 2024, while the figure was 1% in the same period of 2023. Now, let's discuss our operating expenses. To provide greater clarity on the trends in our actual operating base expenses, we will also discuss our Non-GAAP operating expenses, which better reflect how management views our results of our operations.

[Rex Chen, CFO at ATRenew Inc.]

The reconciliations of GAAP and Non-GAAP results are available in our earnings release and in the corresponding Form 6-K furnished with the SEC. Merchandise costs increased by 28.6% to RMB 2,990.6 million, in line with the growth in product revenues. Gross margin as a group level of 20.8% in the second quarter. Product revenues gross margin, which we also refer to as 1P business gross margin, was 12.1%. Fulfillment expenses increased by 22.1% to RMB 328.3 million, excluding share-based compensation expenses, which we will refer to as SBC from here on. Non-GAAP fulfillment expenses increased by 22.9% to RMB 321.7 million.

[Rex Chen, CFO at ATRenew Inc.]

Under the Non-GAAP measures, the increase was primarily due to, first, an increase in personnel costs as the company conducted more recycling and transaction activities compared with the same period of 2023, and second, an increase in operating center-related expenses as the company expanded its store and operation station networks. Non-GAAP fulfillment expenses as a percentage of total revenues decreased to 8.5% from 8.8%. Selling and marketing expenses increased by 5.6% to RMB 354 million, excluding SBC expenses and amortization of intangible assets and deferred costs resulting from assets and business acquisitions. Non-GAAP selling and marketing expenses increased by 11.7% to RMB 283.3 million, primarily due to an increase in advertising expenses and promotional campaign-related expenses.

[Rex Chen, CFO at ATRenew Inc.]

Non-GAAP selling and marketing expenses as a percentage of total revenues decreased to 7.5% from 8.6%. General and administrative expenses increased by 26.1% to RMB 72.5 million. Excluding SBC expenses, Non-GAAP GA expenses increased by 41.9% to RMB 56.2 million, primarily due to an increase in personnel costs. Non-GAAP GA expenses as a percentage of total revenues was 1.5%, compared with 1.3% in the same period of 2023. Technology and content expenses increased by 10.6% to RMB 49.8 million, excluding SBC expenses and amortization of intangible assets, and deferred costs resulting from assets and business acquisitions. Non-GAAP technology and content expenses increased by 12.6% to RMB 43.7 million.

[Rex Chen, CFO at ATRenew Inc.]

The increase was primarily due to an increase in personnel costs in connection with the ongoing upgrade of the company's operation center and system. Non-GAAP technology and content expenses as a percentage of total revenues decreased to 1.2% from 1.3%. As a result, our Non-GAAP operating income was RMB 94.1 million in the second quarter of 2024, representing a significant increase of 81% year on year. Non-GAAP operating profit margin was 2.5% compared to 1.8% in the second quarter of 2023. Under our ongoing share repurchase program, which our board of directors approved, we're uplifting the limit to purchase $50 million through June twenty-seventh, 2025.

[Rex Chen, CFO at ATRenew Inc.]

We have returned approximately $8 million to our shareholders for a total number of 3.3 million ADSs as of June thirtieth, 2024. As of June thirtieth, 2024, cash and cash equivalents, restricted cash, short-term investments, and the funds receivable from third-party payment service providers totaled 2.8 billion RMB. Our strong cash position safeguards our sustainable growth outlook. Now turning to the business outlook for the third quarter of 2024. We anticipate total revenues to be between 3.97 billion RMB and 4.07 billion RMB, representing an increase of 21.9% to 25% year over year. Please note that this forecast only reflects our current and preliminary views on the market and operating conditions, which are subject to change. This concludes our prepared remarks. Operator, we are now ready to take questions.

[Operator]

Thank you. We will now begin the question and answer session. To ask a question, you may press star, then one on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. When asking the question, please state your question in Chinese first, then repeat your question in English for the convenience of everyone in the call. At this time, we'll pause momentarily to assemble our roster. The first question will come from Joyce Ju with Bank of America. Please go ahead.

[Operator]

[Foreign Language] I'll translate myself. This is Joanna on behalf of Joyce from Bank of America. Thank you for taking my question, and congrats on the solid result this quarter. We see there are recent domestic policies that have increased support for large-scale consumer goods trade-in, such as the subsidies announced by the National Development and Reform Commission in July. How do these policies impact your business? Thank you.

[Rex Chen, CFO at ATRenew Inc.]

[Foreign Language]

[Rex Chen, CFO at ATRenew Inc.]

Thank you for the question. Since the State Council released its action plan for large-scale consumer goods trade-in in March, we've observed both central and local policy support, mainly focusing on computers, cars, and home appliances. In July, the NDRC and Ministry of Finance issued measures to further support these trade-ins. We've seen more cities implementing specific subsidies for electronic products, including home appliances and computers. ATRenew and JD.com have collaborated to meet users' trade-in needs, securing more high-quality firsthand recycling products.

[Kerry Chen, Chairman and CEO at ATRenew Inc.]

[Foreign Language]

[Kerry Chen, Chairman and CEO at ATRenew Inc.]

[Foreign Language]

[Kerry Chen, Chairman and CEO at ATRenew Inc.]

Currently, phone-specific subsidies are being implemented at the local level. For instance, in Shenzhen's July trade-in subsidy program, we processed used consumer electronics products from JD's trade-in orders. The number of successful recycling transactions increased 2.5 times compared with the number in June, even though June was a peak month considering the grand promotion season, reflecting the popularity of such an initiative. In the second half of the year, we expect more cities to introduce similar subsidies, further promoting the effective recycling of idle electronic products within the circular economy. However, we primarily view these policy subsidies as catalysts for enhancing users' recycling awareness. Some studies suggest this round of subsidy may last longer than previous programs, like home appliances going to the countryside. Therefore, we aim to seize these opportunities to strengthen the recycling system, enhance AHS Recycle brand recognition, and guide users towards trade-ins.

[Kerry Chen, Chairman and CEO at ATRenew Inc.]

We anticipate that as national and local subsidy policies are introduced, user acceptance increases and our fulfillment capabilities strengthen. These factors will collectively promote further penetration of this unique service model in the circular economy.

[Kerry Chen, Chairman and CEO at ATRenew Inc.]

[Foreign Language]

[Kerry Chen, Chairman and CEO at ATRenew Inc.]

Thank you for the question.

[Operator]

The next question will come from Jiao Wan with CICC. Please go ahead.

[Jiao Wan, Analyst at CICC]

[Foreign Language] Congratulations on the solid results, and I have two questions. The first one is about the top line.

[Jiao Wan, Analyst at CICC]

What are the contributions of the compliance refurbishment business and your Apple trade-in business? And the second one, could you please elaborate on how you improve the Non-GAAP operating margin? Thank you.

[Rex Chen, CFO at ATRenew Inc.]

Okay, thank you. I will take your question. In terms of the compliant refurbishment, we saw a 50% year-over-year increase in the second quarter, reaching RMB 300 million in product revenue. In the first half of this year, we continued to enhance our selection of self-recycled goods, swiftly identifying suitable forms for refurbishment and improving efficiency across our value chain. Currently, we have achieved 95% comparison coverage in the mobile phone category, laying a solid foundation for future replication to other categories. At the same time, we have enhanced our repair coverage and capabilities and processing capabilities for different phone conditions. Additionally, we have bolstered our sales capabilities for 1P goods, opening up channels for both retail and business buyers, better connecting the end-to-end industry chain.

[Rex Chen, CFO at ATRenew Inc.]

Regarding Apple's, Apple's official trade-in service, we have successfully optimized our gross margin as planned, achieving a positive gross margin in the second quarter. Although the overall gross margin for our Apple business in the second quarter was only low single digits, we observed significant improvements in the gross margin for goods received during the second quarter. We will continue to refine this business in the second half of this year, aiming to provide an excellent trade-in experience for Apple's official users while maintaining steady profitabilities. In the first half of this year, in addition to our consumer end trade-in service, we also enhanced our service to Apple's corporate offerings. Based on Apple's orders from a number of Fortune 500 corporates, we expect to recover used devices from these corporate clients in next one to three years.

[Rex Chen, CFO at ATRenew Inc.]

Through such a program, we can access the corporate service market while addressing the needs of leading international and domestic corporates when disposing of used workplace iPhones and MacBooks of their employees. In terms of profitability, we reported our eighth consecutive quarter with positive Non-GAAP operating profit. In the second quarter, Non-GAAP operating profit was 94 million RMB. Non-GAAP operating margin was 2.5% during the promotional season of e-commerce platforms, compared with 0.8% in the second quarter of 2023. Such improved operating efficiency was a testament to the economies of scale backed by our end-to-end supply chain.

[Rex Chen, CFO at ATRenew Inc.]

As mentioned earlier, in the second quarter of twenty twenty-four, Non-GAAP fulfillment expenses increased by 22.9%, and Non-GAAP sales and marketing expenses increased by 11.7%, both grow slower than our top line. Labor costs in relation to fulfillment as a percentage of total revenues decreased by 0.2% compared with the second quarter of twenty twenty-three. Although promotion fees related to the brand promotion of AHS Recycle increased, but the commission fees and the promotion fees of PJT Marketplace and Paipai in relation to sales and marketing as a percentage of total revenues dropped. The above are the main reasons behind the improved margin. Thanks.

[Jiao Wan, Analyst at CICC]

Thank you.

[Operator]

The next question will come from Michael Kim with Zacks Research. Please go ahead.

[Michael Kim, Analyst at Zacks Small-Cap Research]

Great. Good morning or good evening, everyone. Thanks for taking my questions. First, just curious how the gross margins for the recycling of luxury goods compare to consumer electronics. And then assuming the mix continues to shift in favor of luxury items, just wondering how that might impact overall gross margins. And then I do have a second question.

[Rex Chen, CFO at ATRenew Inc.]

Okay. For your first question, currently, approximately 90% of our total revenues comes from the product sales related to the recycling, quality inspection, refurbishment, and the resale of pre-owned products. So the remaining 10% of our total revenues come from service revenues generated by our platform. Revenue is equivalent to the gross profit for this segment in our financial statements. Of this service revenues, 80% is attributable to our multi-category recycling business operated under the platform model. In terms of the operating profit margin, so luxury goods products will be similar to our electronic products. So when we examine the recycling business of high-value goods, including luxury items, we categorize them as a part of our multi-category business, alongside other Non-consumer electronics categories.

[Rex Chen, CFO at ATRenew Inc.]

This indicates that the multi-category recycling business currently has a limited impact on our overall gross margin. However, we believe that by expanding the scope and accessibility of our multi-category recycling services, we can positively influence our overall gross profit mix and margins, as well as operating profit margin. Thanks.

[Michael Kim, Analyst at Zacks Small-Cap Research]

Got it. Makes sense. Appreciate that. And then second, just given the strength of your, your balance sheet and, and your asset light business model, just curious to, to hear your updated thinking on, on the capital management front. I know you, you talked about, the board recently upsizing and, and extending the, the share repurchase authorization, but, you know, just, wondering how you might be thinking about potentially instituting a dividend down the road and/or, capitalizing on potential M&A opportunities. Thanks.

[Rex Chen, CFO at ATRenew Inc.]

Okay. Thank you. Thanks. In terms of our shareholder returns, we'll maintain regular and open communication with the board and the market to explore the feasibility of share buyback and dividend plans, and our current plan to use most of our current year profit for share repurchase in current year, so considering the current capital market environment and the company's stage of development, we will adopt a prudent approach to capital utilization, and we do not have any M&A plan now. Thank you.

[Michael Kim, Analyst at Zacks Small-Cap Research]

Great. Thanks for taking my questions.

[Operator]

This will conclude our question and answer session. I would like to hand the conference back over to management for any closing remarks. Please go ahead.

[Rex Chen, CFO at ATRenew Inc.]

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

[Operator]

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

Participants

Executives

• Jeremy Ji, Director of Corporate Development and Investor Relations
• Rex Chen, CFO
• Kerry Chen, Chairman and CEO

Analysts

• Analyst at Bank of America
• Jiao Wan, Analyst at CICC
• Translator
• Michael Kim, Analyst at Zacks Small-Cap Research