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ZKH Group Ltd ADR reported a disappointing fourth-quarter 2024 performance, with an earnings per share (EPS) of -$0.18, falling short of the forecasted $0.08. Despite a steady revenue of RMB 8.8 billion for the full year, the market reacted negatively to the earnings miss. The company’s stock showed a slight pre-market increase of 0.55%, closing at $3.63, but the future outlook remains uncertain.
Key Takeaways
- ZKH Group reported a significant EPS miss for Q4 2024, with an actual EPS of -$0.18 against a forecast of $0.08.
- The company’s full-year revenue remained stable at RMB 8.8 billion, despite a 16.5% drop in GMV.
- ZKH achieved positive operating cash flow for the first time, amounting to RMB 229.1 million.
- The company is targeting profitability in 2025, with plans for global expansion and increased private label sales.
Company Performance
ZKH Group Ltd reported a mixed performance in 2024. While the company maintained its revenue at RMB 8.8 billion, its gross merchandise volume (GMV) declined by 16.5% year-over-year. On a positive note, the adjusted net loss improved by 44.5% from 2023, and the gross profit margin held steady at 17.23%. The company also achieved positive operating cash flow for the first time, marking a significant operational milestone. InvestingPro data reveals the company maintains a healthy balance sheet with more cash than debt and a strong current ratio of 1.73, indicating solid short-term liquidity.
Financial Highlights
- Revenue: RMB 8.8 billion (steady year-over-year)
- Earnings per share: -$0.18 (missed forecast of $0.08)
- Gross profit margin: 17.2% (up from 16.7% in 2023)
- Adjusted net loss: RMB 159.5 million (improved by 44.5% from 2023)
Earnings vs. Forecast
ZKH Group’s Q4 2024 EPS of -$0.18 was a significant miss compared to the forecasted $0.08, marking a surprise percentage of -325%. This miss reflects ongoing challenges in the company’s operational and financial strategies, especially when compared to previous quarters where performance was more aligned with expectations.
Market Reaction
Despite the earnings miss, ZKH Group’s stock saw a modest pre-market increase of 0.55%, closing at $3.63. This movement is relatively minor and suggests that investors may be cautiously optimistic about the company’s future plans, despite the disappointing earnings report. The stock remains well below its 52-week high of $20.07, indicating potential volatility and investor uncertainty. InvestingPro’s Fair Value analysis suggests the stock may be undervalued at current levels. For detailed valuation metrics and comprehensive analysis, visit our Most Undervalued Stocks page.
Outlook & Guidance
Looking forward, ZKH Group is targeting full-year profitability in 2025. The company aims to increase its private label products to account for 30% of total sales and expects over 20% growth in key industry sectors. Additionally, ZKH plans to enhance its gross margin by 1-1.5 percentage points annually, as part of its strategic initiatives for global expansion and product innovation. InvestingPro’s Financial Health Score indicates "GOOD" overall company health, suggesting potential for successful execution of these growth initiatives. Access the full Pro Research Report for comprehensive analysis of ZKH’s growth strategy and financial outlook.
Executive Commentary
Eric Cheng, CEO of ZKH Group, expressed confidence in achieving profitability by 2025, stating, "We are fully confident that we will be able to turn a profit in 2025." He emphasized the company’s goal to become a leading player in the MRO space, akin to "a Costco in the MRO space." Cheng also highlighted the importance of product quality and capabilities in meeting customer demands.
Risks and Challenges
- Supply Chain Issues: Potential disruptions could impact product availability and costs.
- Market Saturation: Increasing competition in the MRO industry may limit growth opportunities.
- Macroeconomic Pressures: Economic downturns could affect customer spending and demand.
- Tariff Impacts: Changes in trade policies may influence operational costs and profitability.
- Global Expansion Risks: Entering new markets poses challenges related to regulatory compliance and local competition.
Q&A
During the earnings call, analysts inquired about ZKH’s strategy for entering the U.S. market and its approach to mitigating tariff impacts. The company outlined plans for global supply chain diversification and emphasized its commitment to enhancing product offerings to meet international standards.
Full transcript - ZKH Group Ltd ADR (ZKH) Q4 2024:
Conference Operator: Ladies and gentlemen, good day, and welcome to ZKH Group Limited’s Fourth Quarter and Fiscal Year twenty twenty four 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, Head of Investor Relations, ZKH Group Limited: Thank you, operator. Thank you, everyone, and welcome to our call today. Joining us today are Mr. Eric Cheng, our Founder, Chairman and Chief Executive Officer and Mr. Max Lai, our Chief Financial Officer.
Before turning the call over to Eric, I’d like to briefly review our safe harbor provisions. Please note that the comments made during today’s call represent management’s view as of today and may include forward looking statements. For further details, please refer to our latest safe harbor statement in the earnings release on our IR website. We will also discuss certain non GAAP financial measures for comparison purpose only. Please refer to the earnings release for definitions of these measures and a reconciliation of GAAP to non GAAP results.
With that, I will now turn the call over to Eric. Eric, please go ahead.
Eric Cheng, Founder, Chairman and Chief Executive Officer, ZKH Group Limited: Hello, everyone. Thank you for joining ZKH’s fourth quarter and full year twenty twenty four earnings conference call. In Q4, we achieved a GMV of RMB2.69 billion, bringing our full year 2024 GMV to RMB10.48 billion. While both figures show a slight decline compared to the previous year, this was primarily a result of our business optimization initiatives. Excluding the impact of those optimizations, both Q4 and the full year GMV for 2024 delivered double digit year on year growth.
In terms of profitability, we narrowed our adjusted net loss in Q4 to RMB15 million and achieved profitability in December 2024 on a single month basis. For the full year 2024, we substantially narrowed our adjusted net loss by approximately 44% year over year, bringing it down to RMB160 million. Our adjusted net loss margin also improved from 3.3% in 2023 to 1.8% in 2024, reflecting a substantial enhancement in our profitability. Moving on to cash flow. In Q4, net cash inflow from operating activities reached RMB171 million, marking the third consecutive quarter of positive cash flow.
For the full year 2024, net cash inflow from operating activities totaled RMB229 million, achieving positive operating cash flow for the full year for the first time, which highlights the improvement in our financial stability and resilience. As of Q4 twenty twenty four, we have essentially completed the strategic optimizations of our relevant business sectors. The impact of these adjustments on revenue growth is expected to gradually diminish moving forward, and we are confident to achieve rapid growth in 2025 and achieving full year profitability for our China business. Now let’s dive into our progress in customer acquisition, product capability development and AI driven growth. Starting with customer acquisition, we remain committed to our three pronged strategy, deepening engagement with industry key account customers, prioritizing coverage in key regional markets and expanding into overseas markets.
This approach has yielded notable results. In managing our industry key accounts, we focused on thoroughly understanding and addressing application scenarios in key industries, refining our product pool and fostering closer collaboration with strategic suppliers. These efforts drove breakthroughs in cost reduction and product innovation, enabling us to offer industry customers more cost effective procurement solutions. For the full year 2024, we achieved over 20% GMV growth in these industries: electricals, electronics and telecommunications, new energy vehicles, transportation and public utilities. In terms of regional coverage, we implemented a grid based strategy for deep penetration and advanced localized operations, further elevating fulfillment efficiency while extending customer reach.
We also further boosted transaction conversions through precision marketing. Driven by these coordinated initiatives, the total number of our transacting customers rose to approximately 84,000 in ’24, a year over year increase of 26%, marking four consecutive years of rapid growth. As for overseas markets, our U. S. Independent website was officially launched at the end of last year, covering multiple product categories, including personal protective equipment, hand tools, power tool accessories and material handling and storage solutions.
Since its launch in December 2024, the U. S. Website has maintained rapid month over month growth in the number of transacting customers, demonstrating both the growth potential of The U. S. Market and the competitiveness of our products in this market.
To boost our product capabilities, we have established a joint laboratory with a national quality supervision authority, strengthening our R and D capabilities and the quality system of our private label products. In 2024, the GMV of our private label products increased by 29% year over year, now accounting for 6.7% of our total GMV, up from 4.9% in the same period of the previous year. In addition, we have optimized our supply channels, integrated upstream resources and enhanced cost control, driving improvements in overall gross margin. Now let’s turn to AI applications. Leveraging our extensive product data and industry expertise, we have crafted a suite of intelligent tools that have effectively elevated operational efficiency and customer experience.
For customer enablement, we focused on addressing the challenge of material standardization for our customers through an AI material manager. Within just three months of its launch, it has enabled customers to standardize over 2,000,000 material entries, achieving an identification accuracy rate of more than 90%, greatly improving the efficiency of material management for our customers. For internal efficiency, we have developed an AI expert assistant, which automates responses to routine inquiries from customers and suppliers. To date, this tool has served over 12,000 enterprises. In the area of process automation, as of the February 2025, we have developed and deployed over 1,200 RPA robots covering major business processes, reducing the need for manual intervention.
Thanks to the adoption of AI tools, the productivity of our customer service team members in handling order processes has increased by 23. Looking ahead to 2025, we are committed to driving progress across these key areas, prioritizing the refinement and upgrade of our organizational structure, business workflows and workforce management. These efforts will elevate operational efficiency and workforce productivity, ultimately enabling us to reduce operational costs. We are confident that this approach will lead to strong revenue growth and help us achieve our full year profitability target for our China business in 2025. Now, I will turn the call over to our CFO, Max Lai, to present our financial results.
Thank you, everyone.
Max Lai, Chief Financial Officer, ZKH Group Limited: Thank you, Eric, and thanks, everyone, for making time to join our earnings call today. I will now provide an overview of our twenty twenty four fourth quarter and full year financial results. Despite facing challenges in demand environment and the effects of our business optimization, we conclude the year with resilient results. Our total GMV reached RMB2.7 billion in the fourth quarter and RMB10.5 billion for the full year, representing a year over year decrease of 16.15.4%, respectively. If we exclude the effect of our strategic business optimization initiatives, we achieved double digit year over year growth for both of the fourth quarter and the full year of 2024, mainly attributable to the continued growth in SMB customer numbers and the increased contribution of GMV from industry key customers, driven by our enhanced surface capabilities.
We believe that the impact of this adjustment has gradually lessened, putting us on a stronger position towards solid and sustainable growth. Total revenue net revenue experienced a slight decrease of 3% in the fourth quarter amounting to RMB2.4 billion, while full year revenue remained steady at RMB8.8 billion. This was primarily due to lower revenues from the marketplace model, resulting from optimization of our low margin and long customer credit term business, partially mitigated by the increased revenues from the product sales model. While we continue to refine our revenue mix, we are equally committed to enhancing operational efficiency and driving profitability growth. For gross profit, it was RMB405 million in the fourth quarter, reflecting a decrease of 2.9%, while gross profit margin held steady year over year at 17.1%.
Looking at details, the gross profit margin of product sales model with the ZK platform increased from 14.4 to 16.4%, and the take rate of marketplace model rose from 11.1% to 14%. These improvements were mainly due to our business optimization efforts, reduced procurement costs and an increased proportion of GMV from higher margin private label products. For the full year, gross profit was RMB1.5 billion, marking an increase of 4%. Gross profit margin improved to 17.2% compared to 16.7% in 2023, primarily driven by enhanced gross profit margin in the product sales model with the IZEKH platform, resulting from business optimization, lower procurement costs and higher proportion of GMV from more profitable private label products. For the operating expenses, it amounts to RMB431.6 million in the fourth quarter, representing 18.5% of net revenues, an increase from 17.3% in the same period of 2023, mainly due to higher share based compensation expenses.
If we exclude share based compensation expenses, operating expenses amount to RMB423.5 million accounted for 17.9% of total net revenues compared to 17.1% in the prior year. For the entire year of 2024, total operating expenses reached RMB1.85 billion, representing 21.1% of net revenues, a slight decrease from 21.2% in 2023. If we exclude share based compensation expenses, operating expenses amounted to RMB1.74 billion to constitute 19.9% of net revenues compared to 21% in 2023. As a result, for the fourth quarter, loss from operations was RMB 32,600,000.0, resulting in an operating loss margin of 1.4%. For the full year of 2024, the total loss from operations amounts to RMB 338,800,000.0 compared with RMB 398,700,000.0 in 2023, leading to an operating loss margin of 3.9%, an improvement from 4.6% in 2023.
For the fourth quarter, the non GAAP adjusted net loss was RMB15 million, resulting in non GAAP adjusted net loss margin of 0.6%. For the full year of 2024, the non GAAP adjusted net loss totaled RMB159.5 million, an improvement of 44.5% from RMB287.5 million in 2023, with a non GAAP adjusted net loss margin of 1.8% compared to 3.3% in the prior year, making us very close to and approaching to full year breakeven point. Our cash position has also strengthened as we generated net cash of RMB170.7 million from operating activities in the fourth quarter and RMB229.1 million in 2024, making our third consecutive quarter and our first full year of positive net cash inflow from operating activities. Before I conclude, I would like to reiterate our commitment to the referring value to our shareholders. Throughout this quarter, we continue to execute our share repurchase program as announced in June of twenty twenty four.
These ongoing efforts underscores our strong confidence in the company’s growth prospects and respect our dedication to creating long term value for our shareholders. With that, I would now like to open the call to Q and A. Operator, please go ahead.
Conference Operator: We will now begin the question and answer session. The first question comes from Leo Chang with Deutsche Bank. Please go ahead.
Leo Chang, Analyst, Deutsche Bank: Thank you management for taking my questions. I have two questions. The first one is, can management share China’s MRO industry outlook in 2025 and the long term growth outlook? My second question is, could management share the 2025 outlook of company’s GMV and performance by customer verticals? Thank you.
Max Lai, Chief Financial Officer, ZKH Group Limited: Got
Eric Cheng, Founder, Chairman and Chief Executive Officer, ZKH Group Limited: Sure. China’s manufacturing industry is enormous. And now what’s in front of us is this opportunity of doing business globally as well as in China. I think that is a better opportunity for us. Yes, we do have geopolitics and tariffs are exerting some impact, but I would say the vast majority of MROs in Europe and The U.
S. Are no longer produced locally. The manufacturing capabilities congregate in China or Chinese companies that have relocated to Southeast Asia. So despite the fact that there’s tariffs, the Chinese MRO companies have not lost their advantages. Quite to the contrary, for those Chinese companies that have the capabilities to integrate global supply chains, this is a better this is a great time for them.
And on the other hand, digitalization is only happening more rapidly in this space and we are seeing more consolidation in the MRO space. So that is to say for leaders in this space, we will definitely be able to enjoy longer term and sustainable growth. So we are enjoying a very good leading edge in the MRO space and we are also a leader when it comes to expanding business overseas. We are the first Chinese based MRO company to ever set up shop in America and we have fully prepared for having a globalized supply chain. We have also set up a production innovation center in Taitang.
And so we are the first Chinese MRO company to ever engage in R and D and innovation to make our product offerings more competitive. So basically, we have enjoyed and we are enjoying a leadership position in the MRR space on practically all fronts. And in terms of where we are in our journey, this early stage of uncertainty of starting up a business is already behind us. In 2024, we were on the verge of profitability and we are fully confident that we will be able to turn a profit in 2025. And our cash flow and cash reserves are both going very strongly.
So what we are going to do and what we need to do going forward is to keep improving our operational efficiency, expand our market share to enjoy a very good developmental period. So to answer your second question, as of right now, as of the first quarter of twenty twenty five, in terms of order value or order GMV coming from our large clients and the regional SME clients, they have both recorded close to 20% year on year growth. And specifically, the GMV of purchase orders from large clients in sectors such as electrical equipment, EVs, telecommunication electronics, new pharmaceutical materials, steel and non ferrous metals and transportation has grown by over 20% year over year as of the first quarter. Even though the impact from the business adjustment that was mentioned earlier would continue to have about one to two months of impact. We expect the business in 2025 to grow much higher than 2024.
That were my answers to your two questions. Thank you.
Conference Operator: The next question comes from Kai Zhao with CICC. Please go ahead.
Kai Zhao, Analyst, CICC: So I have two questions here. First, could you provide some updates on overseas and The U. S. Business operations since the independent website launch in December? And any color on 2025 overseas business outlook will be great?
And the second one is, could you share some views on tariff impacts on the company’s overseas business and any progress on replacing the domestic suppliers with overseas suppliers? Thank you.
Eric Cheng, Founder, Chairman and Chief Executive Officer, ZKH Group Limited: So when it comes to developing our business overseas, there’s two things we primarily consider. Firstly, we follow Chinese companies, large Chinese companies wherever they go. So when Chinese companies go to Southeast Asia or Europe to set up shop there, we will follow them. And we have already registered a subsidiary in Thailand and very soon this company will be able to or this subsidiary of ours will be able to serve Chinese companies there and some local companies in Southeast Asian countries including Thailand and Malaysia. Second point is we always track where high value, high margins, high prices lie.
And our conclusion is when it comes to the MRO market, those high margin products tend to exist in markets where there’s no existing manufacturing capacity. And specifically, I’m talking about markets like Europe, The U. S, Japan. So basically those developed markets, right? So we are we have decided and have already gone to those we decided to go to those markets and we will be setting up a local company, a local brand and localized team and manufacturer and supply our MRO products to those the customers in those markets.
And we have already done that and are doing that in The U. S. And we plan to replicate once we succeed in The U. S, we plan to replicate that success in the European market as well. Specifically for our strategy in The U.
S. Market, our goal is to become a Costco in the MRO space. And given the local realities, given the local supply chain capabilities, it is impractical for us to replicate our model in China. So we decided to cherry pick MRO SKUs in The U. S.
Market. And so far, we have made four twelve SKUs available in our in The U. S. Market and 1,300 SKUs are yet to be launched. And we have covered sectors including PPE, hand tools, power tools and accessories, packaging, HVAC and the refrigeration equipment and office supplies.
And of course, we’ll be adding more SKUs as our business evolves. In terms of our U. S. E commerce website, it was launched in December 2024 and since its launch, the number of registered customers has exceeded 1,500 and both weekly and monthly customer orders have seen rapid growth. To further improve our product quality and the technological capabilities and competitiveness, we have set up an innovation R and D center in Taitang as was alluded to earlier.
And we’re working with research institutions, companies and suppliers. And this center integrates R and D, testing, prototyping, production and warehousing functionalities for a wide range of product categories. So we are able to continually or continuously deliver internationally competitive MRO products. And I believe China is the only country that has such a large vast engineering or engineers dividend. And as long as we work really hard and achieve a lot in terms of R and D, we will be able to have a lot of say in the global supply chain.
So to answer your second question, R and D in China enjoys very high efficiency and low costs. So yes, there might be tariffs and different restrictions imposed on where we can manufacture products, but we can always do R and D in China. So manufacturing locations can be restricted, but we will stay nimble and adjust according to the realities and policies. So we are indeed proactively tackling these risks rising from tariffs. So we have established a global sourcing team and this team is allowing us to diversify our supply chain risks and expand our product categories.
And as of now approximately 40% of SKUs supplied to The U. S. Market can be sourced from suppliers from outside of Mainland China, including South Korea, Vietnam and Malaysia. And even if we factor into tariffs, factoring tariffs and the factor in the possibility and the reality of shifting to suppliers outside of China, ZKH’s products still enjoy a significant price advantages in The U. S.
Market. That was all from me for your two questions. Thank you.
Conference Operator: The next question comes from Ella Zhi with China Renaissance. Please go ahead.
Jin Li, Head of Investor Relations, ZKH Group Limited: So two questions from me as well. First, can management discuss the 2025 outlook of the company’s gross profit margin? Second question is, can management discuss the top three focus and the targets of the company and the CEO for year 2025? Thank you.
Eric Cheng, Founder, Chairman and Chief Executive Officer, ZKH Group Limited: To your first question regarding gross margin, our ZKH1P ZKH platform, in the next few years, our gross margin is likely to increase by one to 1.5 percentage points annually. And we are able to exceed 20% gross margin, and we’re confident to achieve that. In terms and actually, last year, in terms of GMV, our gross margin in the 1P platform grew by 1.4 percentage points. If we look at the DKH platform for our 3P business, our take rate is likely to be steady at around 11%, and we hope to work with more high quality third party merchants. Speaking of our GBB platform focused on serving smaller businesses, we also have an opportunity to further increase its gross margin to over 10%.
Our long term profitability growth is going to be driven by mainly three factors. First, as our scale grows, we are likely to receive more supplier support, thus helping us improving margin. And secondly, our private label products is another strong driver of gross margin. Currently, private label only accounts for about 6% of our total sales, and our goal is to increase it to over 30%. And this high margin product category or business category is likely to further drive our overall profit margin.
And finally, but also importantly, as we expand globally, The U. S. And the European markets will become further stronger drivers for gross margin as we increase sales in those markets. We have already established our top three priorities for this year in terms of our company’s work. The first one is to further strengthen our product competitiveness.
I believe that this is the most important core competitiveness for our company, especially in this age of AI and digital technologies. Customers are going to place a higher demand on our product quality and product capabilities. And I believe with our stronger R and D capabilities and further growth in private label products as well as driving cost lower and margin higher, we are confident that our product capabilities will further improve going forward. And that will help us transform our business truly from a sales driven one to a supply driven one. Our second top priority for this year is to increase our market share.
We will, on the one hand, further increase our wallet share with our existing customers. Given the enormous scale or size of the MRO market, we believe that there is still ample space for us to further increase wallet share with our existing customers. On the other hand, we will also continue to rapidly acquire new customers and that will help us further expand our market share. Our third top priority for this year is to further improve our operational efficiency. And this is also going to be achieved through three main ways.
Number one, to leverage new technologies, including AI and intelligent technologies and advancement in these areas to further improve efficiency. And number two, our talent. We will in the past year, we have already done a lot of work to improve the capabilities of our people, and this is going to be an ongoing effort. And the third driver for operational efficiency is, again, our management, the overall management of the company and our management capabilities. I believe that with these three initiatives going on in 2025, we are hopeful that our operational efficiency will further improve and our cost will go down further.
And we will be able to nurture a disciplined and highly capable team, talent team ready for the future growth and long term growth of our company.
Conference 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, Head of Investor Relations, ZKH Group Limited: Thank you once again for joining us today. You can find the webcast of today’s call on our IR website. 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.
Conference Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
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