ZKH Group Limited Q1 FY2026 earnings call

• Overall Financial & Growth Performance

  • Both GMV and revenue grew at accelerating year-over-year rates for the second consecutive quarter, with GMV returning to double-digit growth at 12.9% year-over-year, reaching RMB 2.45 billion. Total revenue grew 9.2% year-over-year to RMB 2.11 billion, the strongest quarterly growth in recent periods.
  • Adjusted net profit increased 103% year-over-year, marking the first time the company achieved adjusted net profitability in the seasonally slow first quarter; operating loss narrowed 72.2% year-over-year to RMB 22.5 million.
  • Net cash outflow from operating activities narrowed significantly to RMB 34 million from RMB 97.1 million year-over-year, strengthening financial resilience.

• Customer Segment Expansion

  • Total transacting customers grew 11% year-over-year to 66,000, reflecting accelerating adoption of online MRO procurement among Chinese manufacturers.
  • Recovery accelerated among central SOE customers, with GMV returning to double-digit year-over-year growth. GBB platform extended the company's service reach to smaller, more fragmented customer groups as an additional growth driver.

• Product & Supply Chain Improvements

  • The company identified 10 high-priority core product lines (including factory automation, electrical automation, pumps/pipes/valves, and cutting tools) and increased resource allocation; the new SA Mall digital procurement platform for factory automation was launched to address traditional procurement pain points.
  • Total sellable SKUs increased from 23 million at the end of Q4 2025 to 27 million at the end of Q1 2026; over 400 new private label SKUs were launched in the quarter.

• Fulfillment & Operational Efficiency

  • Investment in warehouse network optimization and automation drove a 36% year-over-year improvement in warehouse efficiency; comprehensive fulfillment costs fell 17% year-over-year. GMV per effective employee increased over 20% year-over-year, reflecting strong workforce productivity gains.
  • Total operating expenses decreased 8.8% year-over-year to RMB 376.5 million, falling to 17.8% of net revenue from 21.3% year-over-year, driven by strict cost discipline.

• AI Strategic Deployment

  • The company is building full-stack AI capabilities for the industrial MRO industry, with ongoing improvements to industrial data structure and industry knowledge graphs. The 2026 goal is to launch a knowledge graph with over 100 million industrial product data points and 10 million industry relationships.
  • The Hangjia Linglong vertical large language model was upgraded with multi-modal capabilities, and the industry's first intelligent visual search engine for MRO, Hangjia Huiyan, was launched. More than 60 custom AI tools were developed by internal business teams in Q1, freeing over 2,000 labor hours per month, with a 2026 goal of increasing AI code generation rate from 30% to 80%.

1. Core ZKH Platform SME Customer Segment: GMV grew over 20% year-over-year, accounting for ~30% of total GMV; this segment has higher gross margins than large customer segments. 2. Central SOE / Large Key Account Segment: GMV returned to double-digit year-over-year growth; large key accounts account for ~60% of total GMV, with GMV growing over 20% year-over-year across major verticals including electrical manufacturing, communications electronics, new energy, and steel and non-ferrous metals. 3. Emerging High-Growth Industry Segment: GMV grew over 30% year-over-year across emerging sectors including semiconductors, energy storage, optical modules, robotics, and optical communications. 4. GBB Platform Segment: GMV grew over 30% year-over-year, serving distributors, resellers, and micro/small businesses with strong synergies to the core ZKH platform. 5. Private Label Product Segment: GMV grew over 20% year-over-year, accounting for 9.7% of total Q1 2026 GMV with higher gross margins than third-party products. 6. International Business Segment: Revenue grew over 600% (six-fold) year-over-year in Q1 2026, with the 2026 full-year goal of reaching break-even.

• Full-year 2026: Management maintains confidence in achieving double-digit GMV growth and full-year adjusted profitability, after delivering strong results in the seasonally slow first quarter.
• Q2 2026: Management expects GMV growth to accelerate further from Q1 2026's 12.9% year-over-year rate, based on current order and shipment trends.
• Private label penetration: Long-term target to increase private label GMV share from the current 9.7% to over 30%.
• AI deployment 2026: Target to increase the AI-powered product identification rate in quotation workflows from the current 30% to 70% by end of 2026, with data-intensive product lines targeting 80% to 90% AI adoption.
• International business 2026: The company maintains guidance to reach full-year break-even for its overseas business, with a focus on high-quality, efficient growth rather than unprofitable scale expansion.
• Fulfillment cost: Management expects further reductions in the comprehensive fulfillment cost ratio as warehouse network upgrades and transportation digitalization continue.

No explicit material risks or operational failures were discussed by management during the earnings call.

Q: Gross margin declined slightly year-over-year in Q1 despite sequential improvement. What is the long-term gross margin trend, and what actions is the company taking to improve gross margin?

A: The year-over-year gross margin decline was driven primarily by faster growth of lower-margin product categories including diesel, transformers, industrial oil, and silicon photonics wafers. The company is improving gross margin over the long term through three key levers: shifting product mix toward higher-margin advantageous categories (such as personal protection, fasteners, cleaning, and storage), growing the share of higher-margin SME customers (which are currently growing 20% year-over-year), and expanding higher-margin private label products (targeting 30% long-term GMV share from the current 9.7%). The company prioritizes absolute profit growth and overall supply chain capability expansion over short-term single-quarter gross margin maximization.

Q: Advanced manufacturing subsectors such as communication electronics, auto manufacturing, and equipment manufacturing saw accelerating growth in Q1 and early Q2. How is ZKH performing in these segments, and what initiatives are you taking to expand market share?

A: ZKH has seen strong growth across high-tech manufacturing: all core advanced segments (electrical manufacturing, communications electronics, new energy, non-ferrous metals) grew GMV over 20% year-over-year, with January-April daily average order volume up 100% for steel/non-ferrous metals, 45% for communications electronics, and 33% for new energy. To expand penetration, ZKH has formed dedicated sector-specific sales teams, built industry-tailored product catalogs for target segments, and launched the dedicated Factory Automation (SA) Mall to serve growing demand from robotics and smart manufacturing segments.

Q: Overseas revenue grew very rapidly in Q1. What is ZKH's 2026 strategy for international business?

A: ZKH's international business has two core pillars: first, serving Chinese manufacturing clients expanding overseas by leveraging existing customer relationships and strengthening regional last-mile fulfillment capabilities across geographies; second, building localized operations in the U.S. with a focused, disciplined approach. The company is prioritizing investment efficiency and returns over rapid unprofitable expansion, focusing first on building out warehousing-focused product categories in the U.S. before expanding into other segments. The firm maintains its 2026 full-year goal of reaching break-even for the overall international business.