ZKH Group Q2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
August 22, 2025

Key Takeaways

  • Negative Sentiment: Total GMV declined 12.1% year-over-year and revenues decreased 3.7% to RMB2.17 billion, primarily due to last year’s SOE business optimizations.
  • Positive Sentiment: Excluding the impact of SOE adjustments, the platform’s underlying GMV still demonstrated year-over-year growth, reflecting core demand resilience.
  • Positive Sentiment: Gross margin on a GMV basis expanded by 0.8 percentage points to 14.8% in Q2, marking the sixth consecutive quarter of margin improvement driven by procurement efficiencies and high-margin private label products.
  • Positive Sentiment: Net loss narrowed by 20% to approximately RMB53 million, with the company achieving monthly breakeven in June while continuing to invest in AI, last-mile delivery, and overseas expansion.
  • Positive Sentiment: Overseas revenue in the U.S. surged 260% Q/Q with ~6,000 registered customers, and the firm plans to launch its European standalone site by year-end, supported by a supplier base that is 70% non-China.
AI Generated. May Contain Errors.
Earnings Conference Call
ZKH Group Q2 2025
00:00 / 00:00

Transcript Sections

Skip to Participants
Operator

Ladies and gentlemen, good day, and welcome to ZKH Group Limited Second Quarter twenty twenty five Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jin Li, Head of Investor Relations. Please go ahead.

Jin Li
Jin Li
Head - IR at ZKH Group

Good morning, and welcome to our call today. With me are Mr. Eric Chen, our Founder, Chairman and CEO and Max Lai, our CFO. Today's discussion may include forward looking statements. Related factors are described in our today's press release, and we will also discuss certain non GAAP financial measures for comparison purpose only.

Jin Li
Jin Li
Head - IR at ZKH Group

Please refer to the earnings release for definitions of these measures and a reconciliation of GAAP to non GAAP results. With that, I will turn the call over to Eric. Eric, please go ahead.

Moderator

Hello, everyone. Thank you for joining our second quarter twenty twenty five earnings conference call for CKH. Despite ongoing macroeconomic challenges, we achieved solid business development in the second quarter through strategic focus and strong execution. Customer activity on our platform remained high with a number of customers reaching a new quarterly record driven by growth in new customer acquisition and a sustained increase in repeat purchases from existing customers. Due to the business optimization initiative related to State Owned Enterprise or SOE and central SOE customers in the second half of last year, our GMV for the second quarter declined year over year to billion.

Moderator

However, excluding the impact from this initiative on the total GMV base, our underlying GMV still demonstrated year over year growth. The quality of our business also continued to improve. In the second quarter, our gross margin on a GMV basis reached 14.8% representing a 0.8 percentage point year over year increase. This marked our sixth consecutive quarter of year over year gross margin expansion, driven by procurement cost optimizations and our high margin private label products robust GMV growth. In terms of profitability, our net loss narrowed to approximately RMB53 million in the second quarter, a 20% year over year reduction.

Moderator

Notably, we once again achieved monthly breakeven in June, following our first monthly breakeven in March. What's even more impressive is that we attained this milestone while continuing to invest in strengthening our core competencies, including product capabilities, AI and last mile delivery as well as expanding our overseas business. While maintaining our forward looking investment to support our medium to long term growth, we have also optimized our organizational structure, streamlined processes and promoted the adoption of AI tools to enhance overall operational and workforce efficiency, all aimed at bolstering profitability. For example, in the second quarter, the average number of orders processed per customer service representative grew by 48% year over year, while our through warehouse fulfillment cost decreased by approximately 18%. Our warehouse fulfillment efficiency and cost management have now reached industry leading levels.

Moderator

Next, I would like to provide a detailed update on our domestic and global business performance in the second quarter. Starting with our domestic business, our dual platform model continued to generate strong synergies. The ZKH platform remained focused on serving large and medium sized enterprise customers, while the GBB platform empowered SME and micro enterprise customers, enabling us to meet the needs of a diverse customer base. First, let's discuss the DKH platform. From a customer perspective, in the second quarter, GMV from industry key accounts rose by approximately 11% year over year and the number of these transacting customers increased by around 22% year over year.

Moderator

Notably, GMV in sectors such as automotive, new energy, electrical equipment manufacturing and property management and tourism grew by more than 15%. These results were driven by our ongoing efforts to curate and refine industry specific and customer specific product pools, leveraging AI technologies to gain deeper insights into customer needs and provide tailored product selections and recommendations, thus further increasing customer wallet share. For regional SME customers, our region based service and grid based staffing strategies continue to yield strong results. In the second quarter, GMV from regional SME customers grew by approximately 7% year over year and a number of these transacting customers grew 13% year over year. Key regions including Guangdong, Anhui, Henan, Shanghai, Jiangsu and Zhejiang each saw GMV growth of over 10%.

Moderator

This achievement stems from our efforts to enhance our service capabilities for regional customers, accelerating both coverage and customer acquisition. For SOE and central SOE customers, GMV in the second quarter declined by over 50% year over year, primarily due to a high comparison base from business optimizations in the second half of last year. As mentioned in previous earnings calls, these business adjustments are now complete and their impact is subsiding. Our SOE and central SOE business recorded sequential growth in the second quarter. We remain confident that building on our supply chain advantages and the proven value we deliver to customers, this business segment will gradually regain growth momentum.

Moderator

Turning to the GBB platform, we drove continued scale growth with a rapidly increasing number of transacting customers in the second quarter. Profitability also improved, thanks to broader coverage of SMEs and micro enterprises and our strategic focus on higher margin MRO categories. The GBB platforms gross margin expanded by 1.4 percentage points year over year and gross profit rose by more than 23%. Recently, we have been further sharpening GBB's strategic focus, placing greater emphasis on construction materials and hardware, a large and underserved market. By leveraging our online marketing channels and supply chain advantages, we aim to deliver high quality competitively priced construction materials and hardware products to both B2B micro enterprise customers and B2C individual consumers.

Moderator

In the second quarter, we have also achieved significant progress in product and AI capabilities. In terms of product capabilities, we launched our smart manufacturing base in Taicang, Suzhou as integral part of our strategic smart manufacturing initiatives, this facility will further enhance our capabilities and product research and development, testing and production. We believe it will serve as a key driver in strengthening our private label product development capabilities and their competitiveness. During the quarter, GMV from private label products rose to RMB 210 million, a growth of 25% year over year and its contribution to our total GMV increased to 8.7%. Looking ahead, we remain committed to our long term target of increasing the share of private label products in total GMV to approximately 30%.

Moderator

Moving on to AI, we've seen that AI is becoming an increasingly important driver of growth across various business metrics, including material management, product selection and recommendation, sales conversion, data standardization and process efficiency improvement. In the second quarter, we continue to advance our AI infrastructure with a particular focus on data development. We are consistently improving the quality of our product data by enriching attribute parameters, standardizing attribute rules and optimizing image quality. And we've completed high quality annotation for over 1,000,000 product data points. In combination with our deep optimization of LLMs and algorithms, these annulated data sets have led to significant improvement in business in key business metrics.

Moderator

Furthermore, we are building a comprehensive product data management platform that spans the entire data lifecycle from collection and allocation to governance and application. Our goal is to achieve substantial growth in the generation of high quality product data this year, and to establish the industry's most comprehensive and advanced large scale database for MROs, which we call the ZKH Data Dictionary, providing our industrial customers with highly specialized data services. Turning to our overseas business. We have adopted a localized operating strategy in both The U. S.

Moderator

And European markets, capitalizing on our supply chain strength, a curated portfolio of high quality and cost efficient products and innovative technologies to accelerate market entry. By the June, our U. S. Standalone website NorthSky had attracted approximately 6,000 registered customers with around 600 SKUs launched across a dozen product lines. In the second half of the year, we will expand the SKU base to enhance product coverage and customer experience.

Moderator

In terms of sales performance, our U. S. Revenue grew by 260% in the second quarter from the first quarter. We are also actively preparing for our entry into the European market with our European business operations and standalone website expected to launch by the end of this year. Beyond The U.

Moderator

S. And Europe, we are pursuing a strategy partnering with major Chinese customers to support their overseas expansions in regions such as Southeast Asia, South America, Africa and The Middle East, providing targeted services to fulfill their MRO procurement needs in local factories. To date, we have begun receiving orders from these Chinese customers overseas plants in 10 countries, including Thailand, Indonesia, Malaysia, Mexico and The UAE. To provide global customers with a high quality, reliable supply of MROs, We're actively diversifying our supplier network. Currently 70% of our suppliers for overseas business are based outside of China, creating a more balanced and resilient supply chain and mitigating potential geopolitical risks.

Moderator

This achievement marks meaningful progress in the development of our global sourcing system. In summary, we have sustained growth we have sustained steady growth despite recent quarter's business adjustments. We have continued to strengthen profitability in our domestic operations while driving meaningful progress in our overseas business, demonstrating our ability to execute and the inherent resilience of the MRO industry. Looking ahead, we will remain focused on advancing our core capabilities across products, digitalization and fulfillment, while also accelerating the expansion of our global footprint. These efforts will support our company's long term sustainable growth and deliver enduring value to our shareholders.

Moderator

Now, I'll turn the call over to our CFO, Max Lai to present our financial results. Thank you, everyone.

Chun Chiu Lai
Chun Chiu Lai
CFO at ZKH Group

Thank you, Eric, and thanks everyone for making time to join our second quarter earnings call today. I'm pleased to walk you through our solid financial performance, highlighted by enhanced revenue quality and optimized operational efficiency. Let me start with the top line performance. Both GMV and revenues came under pressure in the quarter, with GMV declining by 12.1% year over year to billion and total revenues decreasing by 3.7% to RMB2.17 billion. This was largely due to last year's high comparison base, which includes low margin business from SOE and central SOE customers with extended credit terms that we have seen optimized.

Chun Chiu Lai
Chun Chiu Lai
CFO at ZKH Group

However, excluding these factors, our underlying GMV still showed year on year growth. We anticipate these challenges will continue to ease, setting the stage for potential turnaround in top line growth in the second half of this year. Turning to business quality. Our business quality remains strong and healthy. Our gross margin was at 16.5%, slightly down from 17% in the previous year, primarily due to lower revenues from our marketplace model, which carries a 100 gross margin under the net revenue recognition basis.

Chun Chiu Lai
Chun Chiu Lai
CFO at ZKH Group

However, on a GMV basis, our gross profit margin continued to improve, expanding by 84.6 basis points year over year to 14.8%. Specifically, gross profit margin for our product sales 1P model increased by 45.2 basis points to 16% on ZCage platform and 137.6 basis points to 7% on GBP platform. Additionally, the takeaway of marketplace model, 3P model rose by 206.7 basis points to 14.2 year over year. These gains reflect our successful business optimization, procurement efficiency and focus on high margin private label products. On operational efficiency, we made solid progress.

Chun Chiu Lai
Chun Chiu Lai
CFO at ZKH Group

Operating expenses decreased by 5.6% year over year to million, making up 19.8% of total revenues, down from 20.2% in the prior year period. This improvement was achieved even with approximately million in overseas business related expenses, which were almost absent in the prior year period. Breaking this down further, fulfillment expenses were RMB90.8 million, down 8.4% year over year, reflecting lower employee benefits and warehouse rental costs. Sales and marketing expenses declined by 5.3% to RMB149.3 million, primarily driven by lower employee benefits and travel expenses. R and D expenses increased by 7.9% to RMB41.5 million, primarily attributable to higher employee benefit expenses.

Chun Chiu Lai
Chun Chiu Lai
CFO at ZKH Group

General and administrative expenses were RMB147.3 million, down 7.3% year over year, mainly due to lower share based compensation and credit loss allowance, partially offset by higher employee benefits. It is worth noting that our G and A expenses also include salaries for product line personnel and other related costs, which supports the development and enhancement of our product competitiveness. Turning to profitability metrics. While our loss from operations increased modestly to million, RMB we see positive signs of improvement. Non GAAP EBITDA loss narrowed to RMB38.7 million from RMB47.1 million, with margin improving to negative 1.8 from negative 2.1%.

Chun Chiu Lai
Chun Chiu Lai
CFO at ZKH Group

Net loss decreased to million from RMB66.3 million, with the net loss margin improved to 2.5% from 2.9%. Lastly, an update on our share buyback activity. On the 06/13/2025, our Board approved a new share repurchase program operating up to dollars for the buyback of ADS. As of August 2025, we have repurchased approximately 2,650,000.00 ADS for about dollars under the two programs. We remain committed to actively buying back shares subject to market conditions and other considerations as part of our ongoing commitment to returning value to our shareholders.

Chun Chiu Lai
Chun Chiu Lai
CFO at ZKH Group

In conclusion, the shift towards high margin private label products, combined with gradual easing of prior challenges, positions us for our return to top line growth in the second half of this year. Our investment in AI and process optimization are already delivering tangible improvements and gains. Recent interest from capital markets highlights growing confidence in our business model and long potential. For instance, around 8,000,000 ADS were traded through Blockchain on the August 2025, between new institutional investors and IPO shareholder, reflecting a significant endorsement of our market positioning. This transaction also represents a disciplined and professional full exit by this PIPO shareholder, structured to facilitate discovery and address our technical overhead.

Chun Chiu Lai
Chun Chiu Lai
CFO at ZKH Group

Looking ahead, our priorities remain focused on maintaining financial stability and achieving near term profitability in our domestic operations in China, while positioning us for sustainable long term growth. Thank you. I would like to open the call to Q and A. Operator, please go ahead.

Operator

We will now begin the question and answer The first question comes from Liu Chang and Deutsche Bank. Please go ahead.

Leo Chiang
Leo Chiang
Equity Research Analyst at Deutsche Bank

Let me so my question is regarding growth strategy. The Chinese MRO market is huge and online penetration is still in its early stage, suggesting significant room for growth. However, we have observed that the company's business growth has been under pressure in the past few quarters, primarily due to the optimization and adjustment of business from SOE. As the impact of this adjustment graduate diminish, what strategies that the company had for short, mid and long term business growth? Also, can management provide an overview of the company's business outlook for the second half of this year? Thank you.

Moderator

Thank you very much for that question. Yes, indeed. Our performance for the last few quarters has been under a lot of pressure, primarily due to the aforementioned business adjustment and optimization. And we decided to optimize this part of the business because we didn't believe it was going to be very valuable and meaningful for our long term competitiveness. And this part of the business used to account for more than 20% of our total GMV.

Moderator

So as we were phasing out of this 20% of GMV, the reason our total GMV didn't decline severely was primarily due to the fact that we added a lot of new large customers as well as SMEs and the business from these two groups have more than made up for the loss from the adjusted and optimized business. So it's been very clear that our business has been driven primarily by these two groups of customers and we are greatly increasing the number of SMEs, thanks to our online technologies and capabilities. And we're also trying to cover more KAs or key accounts large customers. Out of the top 1,000 manufacturer customers in China, we have already covered six seventy of them and we are proactively increasing our water share with them. And so there's a lot of potential to tap in there.

Moderator

And we are proactively reaching out to penetrate the other 300 as well. So in terms of another aspect, which is GBB, our GBB platform has been focusing more on construction materials and hardware in order to serve the needs of SMEs and consumers better. And of course, from our perspective, in order to grow more sustainably and strongly in the mid to long term, a lot of the growth drivers will come from overseas markets, including Europe and America. So our investment efforts in those overseas markets, believe will start to show effect starting the second half of this year. And starting June and July this year, our performance from the central SOEs and local SOEs have pretty much bottomed out in June and July.

Moderator

And starting August, we have seen from data that things started to turn around and rebound. So we are very, very confident that recovery and the growth positive growth for the second half is very likely.

Operator

Leo, did that answer your question? Did you have a follow-up?

Leo Chiang
Leo Chiang
Equity Research Analyst at Deutsche Bank

Yes, the answer. Thank you.

Operator

Thank you. The next question comes from Zhao Dan Zhang and CICC. Please go ahead.

Xiaodan Zhang
Equity Research Analyst at China International Capital Corporation (CICC)

So in the increasingly competitive landscape of platforms, there is significant concern about the long term competitive advantages of enterprises. Beyond scale, what do you believe are the future competitive barriers or modes that ZKH has built in the China MRO sector that are difficult to imitate or surpass? The company has consistently emphasized the construction and investment in the long term for competitiveness. Please share specific investments made in these areas as well as the impact results on that business development. Thank you.

Moderator

Okay. So compared to traditional trading companies and hardware stores, we have absolute advantages when it comes to things like our product capabilities, our IT capabilities and our nationwide supply chain as well as our talent reserves. I'm not going to delve into the details, but compared to other MRO ecommerce marketplaces, I would like to focus on three areas where we have an edge. First is our product capabilities. Due to historical reasons, we are very versed when it comes to real industrial grade MROs.

Moderator

So these are real MROs by definition. And specifically, we have an absolute advantage when it comes to things like spare parts, chemicals and manufacturing. Second, we have 600 strong persons of product expert team and we absolutely take a lead in the industry and they are very specialized have specialized know how about various industries and products. Thirdly, we have very strong R and D capabilities and our Taishan factory is definitely going to increase our advantage. So this plant in Taishan enables us to do innovation of products as well as product selection, testing, and recommendations.

Moderator

That was the end of the year ago. The second point I would like to stress is our digitization and AI capabilities. We have a data dictionary built based on 17,000,000 SKUs of MRO, and this database is still quickly expanding. And I believe firmly that in the future, in order to have success in the MRO space, having a highly sophisticated and large database for the MRO vertical definitely lays the groundwork. And we also have very large MRO IT team, about 200 something people.

Moderator

They include algorithm engineers, data engineers, development engineers from both front and back ends and system maintenance engineers. So among the MRO companies in China, we have one of the largest IT teams. So with these two aforementioned points, we will be able to build a very strong edge when it comes to AI product capabilities and digitization. And this will propel us to become an MRO company and it's not MRO company in its traditional sense, but rather an MRO company that is truly digitized and smart and AI enabled. So my third point is our capabilities when it comes to expanding our business overseas in overseas markets.

Moderator

So we are the first Chinese MRO company that set up shop in The U. S. And we are soon going to do that in Europe as well. And we have built our abilities to source products globally. And we are also tracking large Chinese companies and follow them wherever they go to serve them locally there.

Moderator

And so we are soon going to become the first Chinese company that is going to become a truly global MRO company, thanks to our advantages in talent. And so based on these aforementioned three points, we are truly upholding long termism and we are creating value for our customers and we truly value talent. So these points are our true moat and we believe these are very difficult to emulate and be surpassed.

Operator

The next question comes from Ella Ji with China Renaissance. Please go ahead.

Xiaodan Zhang
Equity Research Analyst at China International Capital Corporation (CICC)

So my question is regarding your overseas business. Your U. S. Business has been running for over half a year and you also plan to expand to the European and the Southeast Asia market. What are the main competitive advantages of ZKH comparing to the local players?

Xiaodan Zhang
Equity Research Analyst at China International Capital Corporation (CICC)

What are the biggest challenges as well as the strategies to counter with those challenges? And then lastly, is there a timetable for the revenue and maybe profit of overseas operations? Thank you.

Moderator

Thank you very much for your question. So when it comes to our overseas expansion, we primarily adopt two models, which were mentioned in my presentation earlier. First is to go into advanced economies and to do localized operations there, namely to set up our own e commerce marketplaces. Second is to follow Chinese large customers wherever they go. Like was mentioned earlier, we already started receiving orders from plants of Chinese customers that have set up shop in geographies such as Thailand, Indonesia, Malaysia and Mexico.

Moderator

But I believe relatively speaking, out of the two models, model one is the more challenging one, because we have to build our own brand there, right? And being a new startup from China, our reputation locally, we have to build that from scratch. And the learning curve is going to be pretty steep, so it's going to take some time for us to learn about the local cultures and the customers. But our advantages come from different places, primarily because we have a strong supply chain and relatively low cost, but another factor which is equally important and cannot be neglected is entrepreneurship from being Chinese. And so being Chinese and being a Chinese startup, we have a high efficiency and we are very quick to react to things and these things make us stand out among companies globally.

Moderator

And we have already passed some learning periods and we are already entering a phase of acceleration. So I believe in the second half of this year, both models, Model one and Model two will start to pick up some pace and truly accelerate.

Operator

Did that answer your question, Ms. G?

Xiaodan Zhang
Equity Research Analyst at China International Capital Corporation (CICC)

Yes. Thank you.

Operator

And that concludes the question and answer session. I would like to turn the conference back over to management for any additional or closing comments.

Jin Li
Jin Li
Head - IR at ZKH Group

Thank you once again for joining us today. You can find the webcast of today's call on ir.vkh.com. If you have any further questions, please feel free to contact us. Our contact information can be found in today's press release. Thank you and have a great day.

Operator

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

Executives
    • Jin Li
      Jin Li
      Head - IR
    • Chun Chiu Lai
      Chun Chiu Lai
      CFO
Analysts
    • Moderator
    • Leo Chiang
      Equity Research Analyst at Deutsche Bank
    • Xiaodan Zhang
      Equity Research Analyst at China International Capital Corporation (CICC)
Powered by Quartr