AiHuiShou Worldwide Co. Ltd. (RERE) Q1 2022 Earnings Name Transcript – The Motley Idiot

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AiHuiShou Worldwide Co. Ltd. (RERE 0.37%)
Q1 2022 Earnings Name
Could 24, 2022, 8:00 a.m. ET
Operator
Good morning, and good night, girls and gents. Thanks for standing by, and welcome to ATRenew Inc. first quarter 2022 earnings convention name. [Operator instructions] Please word that this occasion is being recorded.
Now I might like to show the decision over to the primary speaker at the moment, Mr. Jeremy Ji, director of company growth and investor relations of the corporate. Please go forward, sir.
Jeremy Ji — Director of Company Improvement and Investor Relations
Thanks. Hi there, everybody, and welcome to ATRenew’s first quarter 2022 earnings convention name. Talking first at the moment is Kerry Chen, our founder, chairman, and CEO. And he might be adopted by Rex Chen, our CFO.
After that, we’ll open the decision to questions from analysts. Our first quarter 2022 monetary outcomes had been launched earlier at the moment. The earnings launch and investor slides accompanying this name can be found on our IR web site at ir.atrenew.com. There may also be a transcript following this name in your comfort.

For at the moment’s agenda, Kerry will share his ideas on our quarterly efficiency and enterprise technique, adopted by Rex, who will deal with the monetary highlights. Each Kerry and Rex will be part of the Q&A session. Please word that since Shanghai is below lockdown, administration joins at the moment’s convention name through completely different traces in Shanghai. Kindly excuse us if there’s any connectivity concern through the name.
A number of the info you’ll hear throughout our dialogue at the moment will include forward-looking statements, and I refer you to our secure harbor statements within the earnings press launch. Any forward-looking statements that ATRenew makes on this name are based mostly on assumptions as of at the moment and that ATRenew doesn’t take any obligations to replace our assumptions on these statements. Additionally, this name consists of discussions of sure non-GAAP monetary measures. Please check with our earnings launch, which comprises a reconciliation of non-GAAP measures to GAAP measures.
Lastly, please word that except in any other case acknowledged, all figures talked about throughout this convention name are in RMB and all comparisons are on a year-over-year foundation. I might now like to show the decision over to Kerry for enterprise and technique updates.
Kerry Chen — Co-Founder, Chairman, and Chief Govt Officer
OK. [Foreign language]
Unknown speaker
Hi there, everybody, and thanks for becoming a member of us on our first quarter earnings convention name.
Kerry Chen — Co-Founder, Chairman, and Chief Govt Officer
[Foreign language]
Unknown speaker
Within the first quarter, we realized fast progress throughout a really difficult time frame through the extremely transmittable Omicron variant. GMV for the primary quarter elevated by 51.6% 12 months over 12 months to RMB 9.38 billion, and the whole income elevated by 45.7% 12 months over 12 months to RMB 2.21 billion, each exceeding our steering. Beginning in mid-March, we confronted headwinds of the pandemic. In opposition to this tough backdrop and low season of the spring pageant, we’re delighted to announce that now we have prolonged our previous quarter’s sturdy efficiency into this quarter to realize non-GAAP working revenue.
As well as, we recorded a constructive money circulate from working actions of RMB 120 million.
Kerry Chen — Co-Founder, Chairman, and Chief Govt Officer
[Foreign language]
Unknown speaker
As we navigate the pandemic challenges, I wish to deal with two points in at the moment’s earnings name. First, how will we reply to the transitory difficulties brought on by the pandemic? Second, what’s the outlook for shopper demand in the long term? And the way can we seize alternatives within the post-pandemic round financial system?
Kerry Chen — Co-Founder, Chairman, and Chief Govt Officer
[Foreign language]
Unknown speaker
On the primary concern relating to the pandemic and our response, there are three traits of our enterprise which I belief a lot of our viewers at the moment are aware of. First, our on-line enterprise constitutes a big proportion of our total enterprise. Particularly, PJT and Paipai marketplaces are each on-line coaching platforms and due to this fact skilled a restricted impression from offline lockdown. AHS recycle, although characterised by offline shops, additionally acquired a big proportion of its orders on-line.
Taking the primary quarter for instance, 58% of recycling orders had been positioned on-line by way of JD’s app, AHS Recycle’s app, and mini program. GMV for the orders fulfilled by way of our offline shops contributed 14.5% of whole GMV within the first quarter. Second, our offline shops are positioned all through China. Because of our self-operated plus collectively operated technique, AHS shops have expanded all through the nation with places in 214 cities nationwide.
Subsequently, non permanent regional lockdowns won’t trigger operational interruptions on the group stage. Third, our operation amenities are decentralized and performance collaboratively. Along with our six regional operation facilities, now we have rolled out 116 city-level operation stations all through the nation by the top of March 2022. This enhances the agility of our enterprise and permits us to safe sources of provide and improves our means to offer provide to retailers at handy places.
Our main working facilities and city-level operation stations operate collaboratively to type, provide, ship merchandise and allocate inspection orders with a excessive diploma of effectivity. And this helped us mitigate the impression of lockdowns and logistics interruption on our operations.
Kerry Chen — Co-Founder, Chairman, and Chief Govt Officer
[Foreign language]
Unknown speaker
The regional lockdown in Shanghai since mid-March has dragged our enterprise progress and its hostile impression prolonged into the second quarter. Within the close to time period, when quantifying the impression, we anticipate such headwind to pull on 20% to 25% of our total income within the second quarter. Nonetheless, taking a holistic view, the pandemic won’t essentially impair our enterprise, due to the resilience of our enterprise mannequin as I discussed earlier.
Kerry Chen — Co-Founder, Chairman, and Chief Govt Officer
[Foreign language]
Unknown speaker
Moreover, we responded shortly to the COVID resurgence. All measures included introducing a work-from-home coverage for workers in Shanghai and leveraged distant working instruments to make sure productiveness. We additionally budgeted for working bills by way of optimizing noncore enterprise. We donated roughly RMB 1 million into supporting our workers and native communities by offering every day requirements and anti-COVID provides.
Leveraging the preowned shopper electronics provide chain, we offered devoted cellular units for PCR testing registration to Yangpu district in Shanghai.
Kerry Chen — Co-Founder, Chairman, and Chief Govt Officer
[Foreign language]
Unknown speaker
As an alternative of being struck by the short-term volatilities brought on by the pandemic, we take a long-term view of wanting into the post-pandemic world, in addition to the evolving round financial system amid financial cycles. The final perception is that the pandemic will finally be introduced below management. Nonetheless, shopper spending is more likely to develop at a slower tempo for a sure time frame. This could result in vital destructive penalties for a lot of industries.
Based mostly on the precedent in Japan and Europe, the secondhand financial system demonstrated resilience within the face of consumption slowdown and possesses the potential to flourish amid financial headwinds. We understand alternatives from two angles. First, shoppers’ demand for cashback tends to extend below monetary stress, and they’re extra more likely to recycle idle units with excessive residual worth. Second, shoppers are likely to go for extra optimistic — excuse me, are likely to go for extra financial options of buying high-quality preowned used units.
Kerry Chen — Co-Founder, Chairman, and Chief Govt Officer
[Foreign language]
Unknown speaker
As such, we stay dedicated to 4 key enterprise methods to grab progress alternatives within the post-pandemic world. First, we’ll additional implement our city-level service integration technique and increase in additional cities to achieve broader market overage. Cell phone recycling is a neighborhood service and must be near shoppers. At the moment, the penetration price continues to be at a really low stage and has massive progress potential.
We consider that our refined technique by way of synergizing service choices regionally and the efficiency overview system throughout every metropolis will profit the expansion of recycling penetration price and enterprise scale. Statistically, amongst all of the 22 cities that carried out the city-level service integration technique within the first quarter, 16 of them exceeded the typical progress price, whereas the vast majority of these 16 cities exceeded by 30%. The town-level service integration mannequin additionally noticeably improved new buyer acquisition. By the top of the primary quarter of 2022, registered retailers on PJT Market surpassed 300,000, representing a rise of 39% 12 months over 12 months.
Kerry Chen — Co-Founder, Chairman, and Chief Govt Officer
[Foreign language]
Unknown speaker
Second, now we have carried out a tiered retailer system to fulfill differentiated demand for recycling. The providing by way of our community of AiHuiShou is an efficient demonstration of on-line merge offline and certainly one of our core competencies. As of the top of March, we had 1,446 offline shops throughout 240 cities in China. Amongst these offline shops, 598 are self-operated shops, 825 are franchise shops, and 23 are retail choice shops.
In an effort to adapt to rising shopper consciousness of environmental safety and demand for money again from classes apart from cellphones, we’re working our tiered retailer system. Take shops in Beijing and Shanghai for instance. Firstly, we function numerous common shops that effectively recycle telephones from neighboring communities. Then we add on or selectively remodel some common shops by way of a dozen iconic shops positioned in newly developed central enterprise districts, providing multi-category recycling companies comparable to on luxurious items and digital camera tools.
By implementing a tiered retailer system and increasing service choices, we meet clients’ evolving demand for recycling, enhance retailer financial returns with out an excessive amount of further budgeting, create additional progress alternatives and, in return, elevate the model fairness of AHS Recycle.
Kerry Chen — Co-Founder, Chairman, and Chief Govt Officer
[Foreign language]
Unknown speaker
Third, we’ll add extra worth to the trade chain as compliance pointers for the electronics refurbishment market are additional upgraded. In April 2022, the primary pointers for refurbishing preowned digital units in China was introduced by the Individuals Procuratorate Workplace in Shenzhen. This marks a leap ahead for the trade by establishing compliance pointers that result in more healthy progress as trade members are in a position to undertake both formally launched or licensed third-party components and elements throughout WeChat. Moreover, we plan to roll out compliant refurbishment and restore companies at scale, additional increasing our margin alongside the worth chain.
We anticipate a bigger proportion of instantly sourced items to bear a compliant refurbishment earlier than retailing on to shoppers utilizing the white label. We will additional full the closed loop from the availability facet to the demand facet. The rules are anticipated to steer us to a extra affluent way forward for the preowned digital transaction and companies trade through participant inclusion.
Kerry Chen — Co-Founder, Chairman, and Chief Govt Officer
[Foreign language]
Unknown speaker
As of now, we launched a display alternative service for the on iPhone 12 lineup in PJT Market and carried out the upkeep service in Donghua Operations Middle since mid-April. The 2-week trial program processed 4,000 telephones, every bringing in a gross revenue of roughly RMB 150. Moreover display alternative, we additionally offered different companies, together with battery alternative, exterior restoration and telephone reconditioning. We anticipate conducting a compliant recondition 60,000 to 70,000 sensible telephones within the first half of 2022.
Kerry Chen — Co-Founder, Chairman, and Chief Govt Officer
[Foreign language]
Unknown speaker
Lastly, we’ll speed up the automation course of to enhance effectivity and handle prices. We’re delighted that our funding within the automated inspection system has been confirmed value it. We’re pioneering realizing an automatic streamline course of from trash and junk detection, AI exterior scanning, x-ray elements inspection to display verification. Constructing on our automated operation expertise in Chongzhou, our Donghua Operations Middle is accelerating the initiation and testing of assorted automation modules.
The great automation working system might be put into use with an estimated automation processing enchancment of 60% in contrast with Chongzhou. We’re a real believer in provide chain functionality as a workforce. We additionally firmly consider effectivity wins, which is pushed by know-how and scale results.
Kerry Chen — Co-Founder, Chairman, and Chief Govt Officer
[Foreign language]
Unknown speaker
To conclude my half, we responded shortly and successfully to the COVID-19 outbreak in 2022. Though Omicron an infection has surged at the moment, now we have extra religion in navigating by way of the near-term challenges and are steadfast in our clear strategic highway map.
Kerry Chen — Co-Founder, Chairman, and Chief Govt Officer
[Foreign language]
Unknown speaker
And extra importantly, we firmly consider that round financial system in China is away from coverage interruptions. And this enterprise, when goes right into a synchronizing trajectory, is a sustainable enterprise. Within the mid- to long run, we’re dedicated to the clear core technique, particularly enhance market penetration price and keep wholesome progress by way of city-level service integration, lengthen enterprise objective by way of tiered retailer administration and excessive worth reflecting throughout classes, seize extra worth by way of compliance refurbishment at scale, and additional enhance operational effectivity by accelerating the appliance of automation know-how. So far as we implement this methods successfully, we certainly will be capable of unlock the subsequent wave of progress.
Kerry Chen — Co-Founder, Chairman, and Chief Govt Officer
[Foreign language]
Unknown speaker
With that, I’ll hand the decision over to our CFO, Rex, to go over the financials.
Rex Chen — Chief Monetary Officer
Thanks, Kerry, and howdy, everybody. We’re very happy to report that our first quarter income exceeded our earlier steering regardless of the macroeconomic headwinds. I’ll begin by sharing a few of our monetary highlights earlier than we go right into a extra detailed take a look at the numbers. Please word that each one quantities are in RMB and all comparisons are on a year-over-year foundation, except in any other case acknowledged.
Within the first quarter of 2022, even if it was in OPEC  that we delivered 45.7% income progress to realize whole revenues of over RMB 2.2 billion, exceeding the excessive finish of our earlier steering vary offered within the fourth quarter earnings convention name. Whole GMV grew by 51.6% to RMB 9.4 billion, pushed by sturdy progress in each product gross sales GMV and on-line market GMV, which was 57.1% and 50%, respectively. On this quarter, the fee price of our third-party marketplaces was 4.1% on the group stage, comparatively secure in comparison with outcomes of the primary quarter 2021. Gross margin on the group stage was 25.7% within the first quarter.
Gross margin for our 1P Enterprise was 14.1%. Within the first quarter, we meaningfully optimized value construction in contrast with the identical interval final 12 months. That is seen in GAAP success bills, promoting and advertising and marketing bills, basic and administrative bills, in addition to know-how and content material bills. As such, we’re delighted to report an working margin of seven.2% within the non-GAAP measures.
Now, let’s take an in depth take a look at the financials. Within the first quarter, whole revenues elevated by 45.7% to RMB 2,206.5 million. Internet product revenues elevated by 45.7% to RMB 1,908.9 million, whereas internet service revenues elevated by 46% to RMB 297.6 million. Progress in internet product revenues had been pushed by continued will increase within the density of our AHS shops, our strengthened buying and selling collaboration with JD.com, and our better shopper thoughts share that benefited the expansion of direct to shopper gross sales by way of Paipai Market.
Progress in service revenues was primarily pushed by rising transaction volumes and a rise in value-added companies from our marketplaces, particularly by way of enlargement and supply charges on PJT Market within the first quarter of 2022. Subsequent, turning to our working bills. To offer better readability on returns in our precise working base bills, we may also focus on our non-GAAP working bills, which higher replicate the administration’s views or outcomes of our operations. The reconciliations of GAAP and non-GAAP outcomes can be found in our earnings launch and the corresponding Type 6-Okay furnished with the SEC.
Working prices and bills elevated by 44.7% to RMB 2,352.5 million. Non-GAAP working bills, which exclude share-based compensation bills and the amortization of intangible property ensuing from enterprise acquisitions, elevated by 43% to RMB 2,213.9 million. Merchandise prices elevated by 49.7% to RMB 1,640 million. That is in step with the expansion of our 1P product gross sales revenues.
Success bills elevated by 32.8% to RMB 296.2 million, excluding share-based compensation bills, which we’ll check with as SBC from hereon. Non-GAAP success bills elevated by 26.2% to RMB 251.5 million. Within the non-GAAP measures, the will increase had been primarily resulting from, first, the will increase in logistic bills and operation middle, and self-operated store-related bills, which had been in step with the growing gross sales of preowned shopper electronics and extra 155 self-operated AHS shops in contrast with the primary quarter 2021. And second, a rise in personnel prices in reference to the corporate’s rising enterprise.
So non-GAAP success bills as a proportion of whole revenues was 12.8%, in keeping with that of 2021, and decreased 1.9% from that of the primary quarter 2021. Promoting and advertising and marketing bills elevated by 38.3% to RMB 307.8 million, excluding SBC bills and amortization of intangible property. Non-GAAP promoting and advertising and marketing bills elevated by 41.2% to RMB 206.6 million, together with non-GAAP measures, the rise was primarily resulting from, first, a rise in gross sales promotion and coupon bills in reference to enterprise growth the place we elevated the funding into selling Paipai by RMB 45 million 12 months over 12 months. For context, we began our 1P2C enterprise by way of Paipai within the first quarter of 2021 and enlarged our investments within the following quarters.
And secondly, the expansion of non-GAAP promoting and advertising and marketing bills had been additionally resulting from a rise in personnel value in reference to the corporate’s rising enterprise. So non-GAAP promoting and advertising and marketing bills as a proportion of whole income was 9.4%, barely decrease than 9.7% within the first quarter of 2021. In mild of our historically off peak season within the first quarter, we saved such expenditures in coupons on Paipai gross sales promotions and fee to JD.com. Basic and administrative bills elevated by 53.1% to RMB 45 million.
Excluding SBC bills, non-GAAP G&A bills decreased by 3.4% to RMB 28.4 million. Just like the fourth quarter of 2021, the lower in GAAP — G&A bills confirmed an improved value effectivity in our center and again workplaces. Expertise and content material bills elevated by 14.4% to RMB 63.5 million. Excluding SBC bills and amortization of intangible property, non-GAAP know-how and content material bills elevated by 6.5% to RMB 57.4 million.
And the non-GAAP measures enhance was primarily as a result of enhance in operation middle and automotive enlargement system improve associated bills in reference to the elements rising enterprise and R&D bills associated to innovation tasks. In consequence, our non-GAAP working earnings was RMB 3.9 million within the first quarter of 2022. Non-GAAP working margin was 0.2% in contrast with destructive 2.2% in the identical interval final 12 months. As of March 31, 2022, money and money equivalents, short-term investments and funds receivable from third-party cost service suppliers totaled RMB 2.4 billion.
With secure and ample money readily available, we’re assured in sustainable enterprise operation. As a recap, we introduced a USD 100 million share repurchase program on December 28, 2021, out of the administration’s sturdy confidence within the firm’s stable fundamentals and rising momentum. As of March 31, now we have repurchased over 4.7 million ADS within the total marketplace for a complete money consideration of USD 22 million. Now turning to outlook.
For second quarter of 2022, the corporate at present expects its whole revenues to be between RMB 2,000 million to RMB 2,050 million. The extremely transmissible Omicron may impose hostile impacts on the operations of our shops and amenities, in addition to the transaction actions of retailers in 2022. Thus this forecast solely displays the corporate’s present and preliminary views of the market and operational circumstances, that are topic to alter. This concludes our ready remarks for at the moment.
Operator, we are actually able to take questions.
Operator
Thanks. [Operator instructions] The primary query comes from Wen Li of Goldman Sachs. Please go forward.
Wen Li — Goldman Sachs — Analyst
[Foreign language] Thanks, administration, for taking my query, and congratulations on the stable 1Q outcomes. Can administration share with us the COVID impression on provide chain and shopper demand throughout enterprise traces, particularly in Shanghai the place the headquarter is positioned? And what are the important thing assumptions behind our second quarter steering? So wanting ahead, what are our expectations on the second half of 2022? Thanks.
Kerry Chen — Co-Founder, Chairman, and Chief Govt Officer
[Foreign language]
Unknown speaker
Through the quarter, the impacts of the pandemic had been restricted to a number of provincial capital cities, together with Sichuan, Tianjin, Changchun and tier one cities comparable to Shanghai and Shenzhen, with a stronger impression on offline recycling enterprise. We take into account this quarter’s outcomes as solely a cross-sectional view of the pandemic’s total affect on our enterprise.
Kerry Chen — Co-Founder, Chairman, and Chief Govt Officer
[Foreign language]
Unknown speaker
From the attitude of our C2B recycling enterprise, beginning in mid-March, regional lockdowns posed short-term challenges for our enterprise in Shanghai. To adjust to the zero COVID coverage, our Shanghai-based workers began to do business from home and all offline shops in Shanghai had been briefly closed. Though our 1,400 AHS shops are positioned all through the nation, the best ones are within the 600 self-operated shops, primarily positioned within the first- and second-tier cities, the place customers have stronger recycling consciousness and the unit value is excessive, however they’re negatively affected by the lockdown. We have now 102 shops in Shanghai, 89 in Beijing and 56 in Shenzhen, respectively.
At current, Shenzhen has returned to regular, however the management measures in Beijing and Shanghai are nonetheless persevering with. That’s to say, within the second quarter, we estimate that the operation of one-third of self-operated shops has been affected to various levels.
Kerry Chen — Co-Founder, Chairman, and Chief Govt Officer
[Foreign language]
Unknown speaker
For our B2B platform enterprise, strict pandemic management insurance policies disrupted our interactions with retailers. Though our working facilities and city-level operation stations are geographically dispersed and might assist each other throughout lockdowns, which diminished some stress on success, we nonetheless face vital difficulties by way of operations and increasing native service provider protection. As well as, gentle shopper demand for brand new telephones additionally affected the amount of provide of preowned units for provide retailers, particularly for the variety of cellphones ordered shipped out through the first quarter.
Kerry Chen — Co-Founder, Chairman, and Chief Govt Officer
[Foreign language]
Unknown speaker
For the B2C retail enterprise, though we confronted headwinds, together with the decline in shopper spending and up to date logistics interruptions, we’re optimistic about shoppers’ want for good worth merchandise, a selected advantage in consumers’ eyes throughout a recession. We additionally really feel assured that within the mid to long run, compliant refurbishment at scale can enhance the proportion of products recycled from our service choices which can be nonetheless to go for D2C retail. This helps to incorporate extra dots to the economic chain and notice the optimization of product high quality, in addition to revenue from value-added companies.
Kerry Chen — Co-Founder, Chairman, and Chief Govt Officer
[Foreign language]
Unknown speaker
We have now additionally seen hopeful indicators of a restoration. In response to the Shanghai officers, beginning June 1, pandemic controls might be downgraded to an everyday stage and a gradual restoration of labor and life is predicted. Though we’re nonetheless dealing with challenges within the close to time period, we’re very assured in our enterprise mannequin, the resilience and adaptability of our provide chain, and extra margin enchancment from compliant refurbishment.
Kerry Chen — Co-Founder, Chairman, and Chief Govt Officer
[Foreign language]
Operator
Thanks. The subsequent query comes from Joyce Ju of Financial institution of America. Please go forward.
Joyce Ju — Financial institution of America Merrill Lynch — Analyst
[Foreign language] I’ll translate on my own. I wish to ask how is the progress within the first quarter of our city-level service integration, because it was the strategic focus of the corporate talked about for this 12 months, however we face a brand new macro state of affairs, which you see in difficult financial system and in addition the chance of pandemic new wave. So we wish to know like if the administration are going to love have any change or like an adjustment by way of these service integration methods or the launch of like new software program nationwide.
Kerry Chen — Co-Founder, Chairman, and Chief Govt Officer
[Foreign language] OK. Translate.
Unknown speaker
Thanks. We might be much more meticulous when assessing market circumstances. Contemplating lockdown restrictions are nonetheless in place in some components of China, the impacts created by the pandemic are ongoing. Subsequently, we’ll enhance our deal with value administration, effectivity enchancment and wholesome money circulate this 12 months.
And our objective to realize a constructive non-GAAP working earnings for this 12 months stays unchanged.
Kerry Chen — Co-Founder, Chairman, and Chief Govt Officer
[Foreign language]
Unknown speaker
When it comes to retailer community enlargement, we’re focusing on the identical quantity, opening 200 to 300 new shops for this 12 months, with a extra disciplined strategy, whereas prioritizing the opening of collectively operated shops. This permits us to increase our branded recycling community nationwide, sharing earnings whereas dealing with dangers along with native companions.
Kerry Chen — Co-Founder, Chairman, and Chief Govt Officer
[Foreign language]
Unknown speaker
On the third-party retailers and retail finish, we proceed to accumulate new native clients by way of city-level service integration, enhancing the penetration price of the secondhand market by way of the rollout of intracity enterprise. Among the many 16 cities the place progress exceeded the nationwide common, we achieved excessive double-digit year-over-year progress of our C2B plus B2B enterprise in Suzhou, Hefei, Kunming, and Shaodong. Progress momentum was particularly sturdy in Shaodong, the place we achieved about 120% year-over-year progress in January for C2B enterprise, and virtually 200% year-over-year progress in January for B2B enterprise. These are our benchmarks for implementing the city-level service integration mannequin by way of sourcing provide and penetrating native markets.
Kerry Chen — Co-Founder, Chairman, and Chief Govt Officer
[Foreign language]
Unknown speaker
The pandemic stays a problem for us. In April, the recurrence led to stricter controls in lots of areas throughout China. We confronted interruptions in each connecting with retailers and offering platform companies on the retail entrance. Progress briefly slowed down in these pilot cities, however we noticed GMV and different volumes in these cities demonstrated greater resilience in contrast with the nationwide common.
Kerry Chen — Co-Founder, Chairman, and Chief Govt Officer
[Foreign language]
Unknown speaker
We pay extra consideration to our personal working effectivity. For gross sales and advertising and marketing bills, we’ll additional optimize our value. As an alternative of spending on short-term promotions, we’ll pivot to the long term by additional investing in constructing the model fairness of AHS Recycle and buying better shopper thoughts share by offering well timed and high quality companies to our clients. As well as, we work properly in controlling our again workplace charges, particularly, basic and administration bills.
We have now stored these at a low stage for 4 consecutive quarters by implementing our compact, however organized structurefor our mid and again workplaces.
Kerry Chen — Co-Founder, Chairman, and Chief Govt Officer
[Foreign language]
Unknown speaker
Macro headwinds and consumption slowdown are difficult points to virtually each trade. In the long term, what we see is a large and underserved secondhand digital transaction and repair market. As we talked about earlier, we consider in our core methods of increasing the city-level service integration mannequin to extend the penetration price, utilizing a tiered retailer technique to supply differentiated companies, persevering with to enhance value effectivity by investing in automated high quality inspection know-how and seizing the possibility to revenue from the open coverage window within the electronics refurbishment market.
Joyce Ju — Financial institution of America Merrill Lynch — Analyst
OK. Thanks.
Operator
[Operator instructions] The subsequent query comes from Jin Yu of Guotai Junan Worldwide.
Jin Yu — Guotai Junan Securities — Analyst
[Foreign language] Within the PR sharing, the administration talked about the brand new recycling coverage of the trade. Are there any particular enterprise plans to share with us?
Rex Chen — Chief Monetary Officer
OK. Thanks, Jin. So I’ll take this query. In Apple, since they issued the primary pointers for digital product refurbishment, which for the primary time clarified the boundary of partaking in compliance refurbishments, together with the supply of products should be authorized, the aim of repairs to the shops, the operate and tariffs, official equipment, additionally third-party equipment with high quality assurance can be utilized comparable to batteries and screens of third-party manufacturers.
Private battery should be strictly clear. When recycling, merchandise must be clearly marked as preowned or refurbished to keep away from confusion. High quality guarantee must be included. Historically, the restore and refurbishment trade had many holdbacks.
The refurbishment was mishandled by retailers as there have been no related rules. Retailers had been frightened about potential dangers they usually function on a small scale. In the meantime, cell phone model producers management the availability of repairing elements. Since they don’t acknowledge using third-party elements, the availability of high-quality items appropriate for 2C gross sales available in the market is inadequate.
As a number one platform, ATRenew has at all times carried out operations cautiously to keep away from promoting dangerous merchandise. And because it had little participation in refurbishment, it has at all times lacked that phase of the trade chain revenue. We consider the rules for refurbishment can profit the trade and the corporate. Extra retailers can conduct restore and refurbishment with confidence, which can assist increase the size of recycling and gross sales.
We additionally goal to avoid wasting such alternative and hail our plan. We’re right here to mix restore and refurbishment on a big scale and enhance earnings fairly. Beforehand, our self-recycling merchandise and third-party provides weren’t repaired or refurbished. Therefore, we solely earned gross revenue in service charges from testing and reselling.
Our price chain lacked upkeep and higher analytics. Lately, we carried out our pilot undertaking, which verified that by altering the display and the battery, the gross revenue per unit might be elevated by 15%. Excluding the price of the element, on common, a telephone which has B2B promoting value of RMB 1,600, after compliant refurbishment, might be offered on the B2C platform at round RMB 2,100. After deducting the element value, the gross revenue per unit elevated by RMB 300, about 15%.
After deducting the labor value and the platform charges, the online revenue margin per unit is about 6%. By additional finishing up compliant refurbishment in operation facilities, we’re assured to acquire excessive gross revenue and repair charges introduced by such added worth to the trade. With standardized refurbishment, we goal to extend the proportion of our recycled merchandise which can be appropriate for D2C retail. Doing so might help us to realize our closed group round financial system mannequin and maximize the worth of reused merchandise.
Prior to now, any product sourced from customers had numerous defects and cracks, however 100% of them had been appropriate for D2C retail if no repairs had been achieved. We consider that sooner or later, mixed with refurbishments and scale, we will additional enhance the proportion of sourcing merchandise which can be appropriate for D2C retail in order to enhance the gross revenue on product gross sales. We have now simply begun to interact in refurbishment and there’s a lot of room for progress. We will step by step discover comparable to choosing some forms of merchandise to promote abroad after compliant refurbishment.
Thanks.
Operator
The subsequent query is from Bonnie Liu of China Renaissance. Please go forward.
Unknown speaker
[Foreign language] Thanks administration for taking my query. We noticed some [Audio gap] long term? And if that’s the case, how are you planning to scale back the impression? Thanks.
Kerry Chen — Co-Founder, Chairman, and Chief Govt Officer
OK. [Foreign language]
Unknown speaker
I will take this query. Within the first quarter, particularly since March, we see that OEMs are dealing with better downward stress on new telephone shipments, and the alternative cycle can also be increasing from a few 12 months to greater than 20 months now. However we do have a number of benefits towards draw back danger.
Kerry Chen — Co-Founder, Chairman, and Chief Govt Officer
[Foreign language]
Unknown speaker
The overall addressable market of the secondhand shopper electronics is big, and now we solely have obtained a few of it. Thus, we’re poised to additional increase our penetration price. Moreover, we consider that buyers demand for immediate money again will increase as financial progress turns into flattish, and there are alternatives for changing extra recycling orders.
Kerry Chen — Co-Founder, Chairman, and Chief Govt Officer
[Foreign language]
Unknown speaker
Secondly, the important thing model we serve continues to be rising. The principle mannequin we recycle is Apple, which accounted for 45% of the whole C2B plus B2B recycling transaction quantity in 2021. In contrast with different manufacturers, Apple has maintained a better progress price of latest gadget shipments. So our recycling elementary is comparatively secure.
This 12 months, the stress on new telephone cargo is principally from home manufacturers. On this case, we work carefully with JD.com to offer manufacturers with buying and selling options as a greater promotion measure.
Kerry Chen — Co-Founder, Chairman, and Chief Govt Officer
[Foreign language]
Unknown speaker
Thirdly, we’re additionally making an attempt to deploy multi-category recycling past cellphones, comparable to luxurious items, digital camera tools and different high-value merchandise to fulfill clients’ different demand for recycling. We consider that to hold out multi-category recycling, a very powerful issues are model belief, supply situations, and high quality inspection capabilities. AHS Recycle has a long-term accumulation of brand name recognition, and we consider that multi-category is an extension of our recycling model and companies. Additionally, our nationwide shops have set a great foundation for success, and we would not have to funds for further funding to deal with the non-3C classes.
When it comes to high quality inspection, we goal to realize it by way of self-build or collaboration with specialty retailers. As such, we belief on-line citation platform line success makes the very best mixture of recycling companies. Though new telephone cargo flattened, we stay prudently optimistic about our enterprise outlook. Thanks.
Operator
As there are not any additional questions presently, I might like at hand the convention again over to our administration workforce for closing remarks.
Jeremy Ji — Director of Company Improvement and Investor Relations
Thanks. Thanks all once more for becoming a member of us. A replay of at the moment’s name might be obtainable on our web site shortly. When you have any extra questions, please be happy to electronic mail us at ir@atrenew.com.
Thanks.
Kerry Chen — Co-Founder, Chairman, and Chief Govt Officer
Thanks.
Operator
[Operator signoff]
Length: 64 minutes
Jeremy Ji — Director of Company Improvement and Investor Relations
Kerry Chen — Co-Founder, Chairman, and Chief Govt Officer
Unknown speaker
Rex Chen — Chief Monetary Officer
Wen Li — Goldman Sachs — Analyst
Joyce Ju — Financial institution of America Merrill Lynch — Analyst
Jin Yu — Guotai Junan Securities — Analyst

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