Dingdong (Cayman) Ltd. Q4 FY2022 earnings call

Operational Results

• Revenue grew 13.1% Y-o-Y to RMB6.2 billion. First time GAAP net profit of RMB49.88 million and non-GAAP net profit of RMB116 million. Operating net cash inflow in Q4 was RMB0.68 billion, and full year 2022 had positive operating cash flow.

Product Development

• Advanced product development through direct sourcing, contract farming, in-house R&D, and private labels. Created differentiated exclusive products with monthly sales over RMB3 million each. About 320 quality products with clean labeling attributes. Refined customer profiling and built Xinyan page for younger user cohorts.

2023 Plans

• Deepen penetration into existing markets and achieve profitability. Emphasize innovation in food products, including healthier prepared foods, improved nutritional value, functional foods for specific demographics, and the Xinyan Planet page for personalized diet plans. Strengthen strategic cooperation with suppliers, holding a supplier conference in late February.

Supplier Cooperation

• Will hold a supplier conference in late February to commend product developers, suppliers, and service providers. Aims to be an enabler connecting great companies to create value for consumers and society.

Revenue for the fourth quarter was RMB6.2 billion, reflecting 13.1% year-over-year growth. GAAP net profit was RMB49.88 million with non-GAAP net profit of RMB116 million. Q4 gross margin was 32.9%, up 5.2 percentage points year-over-year. Fulfillment expense ratio in Q4 was 24.1%, down 8.5 percentage points year-over-year. Sales and marketing expense ratio in Q4 was 1.5%, down 5.1 percentage points. G&A expense ratio remained stable at 2.4%. R&D expense ratio was 4.2% in Q4, down from 5.2% year-over-year. Operating net cash inflow in Q4 was RMB0.68 billion, and full year 2022 had positive operating cash flow. As of 12/31/2022, cash and cash equivalents were RMB1.86 billion and short term investment were RMB4.64 billion.

Forward-Looking Statements

• Expect to maintain non-GAAP profitability for Q1 and the full year of 2023. Acknowledges Q1 seasonality but confident in achieving non-GAAP breakeven for Q1 and full year 2023 despite challenges like Chinese New Year-related consumption patterns.

Risks Discussed

• Challenges during pandemic such as unsmooth supply chain, relatively difficult recruitment, restricted order fulfillment, and additional expenses incurred for pandemic prevention.

Q: Congrats on the profit making this quarter. To what extent the profitability this quarter was because of the pandemic control and outlook for profitability?

A: Le Yu stated that since Q3 2021, Dingdong has been moving towards profitability. Pandemic was more on overall online penetration, but operation faced challenges like supply chain issues. Profitability is sustainable with optimization in P&L due to supply chain construction and operational efficiency improvements.

Q: Management share more color on food product development and manufacturing?

A: Changlin Liang said Dingdong is committed to product development, with Gui accounting for 11.4% of GMV. Gui has created popular brands, with 40% less bad reviews than the whole company, 100% inspection passing rate, and GMV doubling in 2022.

Q: Share experiences and lessons learned since start-up?

A: Changlin Liang summarized three conclusions: leveraging scale to understand customers better, sticking to frontline fulfillment grid model, deeply engaging supply chain. Also mentioned avoiding mistakes from aggressive user and scale expansion with low prices and excessive marketing.

Q: Share more on partnerships with suppliers?

A: Changlin Liang said will break through traditional relationships, allow joint operation on categories, contribute to big data and IT tech, develop supply chain finance, and support innovative partners in areas like user surveys and marketing.