Meituan ($3690)

Thank you for standing by, and welcome to the Meituan First Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to Scarlett Xu, VP and Head of Capital Markets. Please go ahead.

[Audio Gap] Now I will turn the call over to Mr. Xing Wang. Please go ahead, Xing.

Hello, everyone. In the first quarter of 2026, we stay focused on our long-term retail technology strategy driving high-quality growth for both our company and the whole industry. And the preferred local service platform for consumers, merchants Meituan ecosystem showed strong resilience. Despite complex market environment, we kept innovating products and services. We increased the investment in our ecosystem and technology and remain committed to creating long-term value for both consumers and merchants. We also expanded cost retail and overseas business with improving operating efficiency. Meanwhile, we accelerated the application of AI in real business use cases. thanks to these efforts, both our core local commerce and new initiative segments delivered solid results in the first quarter. Their operating losses narrowed significantly compared with quarter. Now let me walk you through each segment in detail. The first quarter [indiscernible] industry, the irrational subsidy moderated compared with the last quarter. And even so our food delivery business continued to attract a large number of new users. This shows that consumers through this Meituan for our comprehensive and reliable services rather than price incentive alone. In addition, our stable reliable delivery services during holidays and extreme weather, together with our growing high-quality [indiscernible] have further strengthened our users' stickiness. Notably, high and mid-frequency users become more active. Their ARPU increased royalty strengthened. A large number of mid-frequency users upgraded to high-frequency users. These high-quality users have a more diverse consumption needs and value services and supply quality more. Meanwhile, for users of Meituan shopping also demonstrated higher order frequency. Notably, the post 2000 generation has emerged as a key growth driver. Our user structure advantages support our industry-leading operational efficiency. In the first quarter, the operating loss of our own monetary business narrowed sharply on a quarter-on-quarter basis. To better meet unit demand, especially that of our core users, we continue to improve our delivery services, merchant supply the whole ecosystem. First, we expanded the coverage of our high-quality delivery service, more food delivery users now choose to use one-to-one express delivery, [indiscernible], and they are willing to pay a premium for faster delivery. During the holiday shopping season, we further promoted this delivery service for Meituan Instashopping. This service addresses use time-sensitive shopping needs for categories such as mother and baby products or daily necessities and their needs for high-end gift purchase, including electronics, Bajo. Second, we further enhanced our supply chain capabilities for food delivery, our branded satellite stores in [indiscernible] expanded rapidly with our comprehensive operational support, these stores achieved higher conversion rates and repeat purchase rates than traditional restaurant -- for Ping Haven, we worked closely for the merchants to optimize their menus based on our in-depth insights into local consumer preferences. For me instant shopping, we upgraded our supply chain services for all met instant bars. We help the merchant improve product assortments enhanced procurement efficiencies and elevate the consumer experience. [indiscernible] B and branded flagship Instamart [indiscernible] or continue their steady expansion, further enriching the product supply available on our platform. [indiscernible] We expanded support for small- and medium-sized merchants and further improved productivity governance to build a healthier platform ecosystem. In the first quarter, -- we provided a targeted operational support for more high-quality local restaurant merchants. We launched practical to roost policies to improve merchant experience. including malicious review management, order damage protection and AI-powered operational solutions among others. On food safety, we launched 10 improvement initiatives in April, we strengthened food safety governance in 3 core areas. The first is merchant onboarding and the second is transparent operations and the third is cross-party supervision. Our goal is to build a safer, more trusted worthy further environment for all users. For our in-store hotel and travel business, we continue to optimize our supply system and focus on ROI-led investment. This effort further solidified our leading position in local services. Our core categories achieved steady growth in the first quarter. Attributable to our sustained efforts to reinforce consumers' perception of Metron as a one-stop local service platforms. First, on the supply side, we built a full-scope value-for-money supply system, spanning all categories and price tiers with a particular emphasis on high-quality supply. We expanded the reach and influence of our authoritative recommendation list, including the [indiscernible] this must stay hit. This recommendation list helped targeted traffic to high-quality merchants while providing consumers with clear, reliable guidance to inform their decision making. In addition, we supported nearly 1.3 million skilled adidas on our platform. We help them upgrade professional skills and build personal brands through digital profiles and training programs. We continue to serve as a key link connecting merchants adidas and consumers. And second, on the product side, we launched a new point system that integrates platform points with loyalty programs of trained merchants. And this help merchant refine operations based on an data and insights. It also supports merchants in transitioning from onetime customer acquisition to long-term user retention and customer relation management. Moreover, we actively upgraded industry-wide service standard and consumer production mechanism. We expanded assurance programs for prepaid service's across fitness, [indiscernible] categories. We also introduced equipment medicine verification processes. -- for dental care, medical aesthetics and other health care services. Our goal is to reduce information asymmetry in local services and build a standardized trust system. We believe this will help lower barriers to transaction conversion and particularly for nonstandard local service categories, thereby supporting the long-term sustainable growth of both our platform and merchants. Now let's turn to our new initiatives segment. In the first quarter, we focused on the high-quality development of grocery retail and Keeta. For grocery retail, [indiscernible] sugar markets increased its coverage to 55 cities in the first quarter through accelerated expansion while sustaining robust GTV growth it further strengthened its supply chain capabilities, offering consumers a broader selection of high-quality and very competitively priced products. For example, in the first quarter, private label products accounted for a higher share of HGTV. And for Keeta, driven by economy of scale and refined operations, we achieved meaningful efficiency gains in both Hong Kong and Saudi Arabia in the first quarter. Keeta also posted solid growth in other Middle Eastern markets and Brazil. following their respective market launches, leveraging our accumulated operational experience, Keeta has achieved efficiency gains in certain new markets at a faster basis than we realized in our mature markets, comparable stages of development. Going forward, we will continue to leverage our strength in product, technology and operations to deliver better consumption and delivery experience to Keeta users. This quarter, we continue to make progress in AI development. We upgraded our AIS system shorten. It brings users improved AI search experience. We recently added a dedicated short term entry point within the Meituan app, make it easier for users to access and engage with the AI system. It also helped users make quicker and smarter decisions on local services. On the merchant side, our AIs are designed to address real pain points in their online operations. In the in-store dining domain, our smart manager, [indiscernible] has served over 700,000 merchants in total. This quarter, we expanded its coverage from individual stores to train stores. Our digital staff, [indiscernible] continue to support small and medium-sized merchants in services retail. -- it now or over 300,000 merchants across a wide range of services categories. Moving forward, we will continue to evolve our AI from Single point AI empowerment toward human machine collaborations. AI will support decision-making in merchant complex business scenarios. It will also enable end-to-end automation for routine repetitive merchandises. Looking back at the first quarter, I would say we delivered solid results and ongoing industry changes. All our businesses showed strong resilience amid a competitive market environment. For the full year of 2026, we aim to further deepen our competitive moat for core local mass while further improving overall operational efficiency. We will continue optimizing our products advancing technological innovations and deepening investment in our ecosystem. We will further improve user experience help a merchant improve operational efficiency and revenues and protect the rise and interest of curious. For new initiatives, we will focus on grocery retail and overseas expansion with a focus on achieving higher ROI. In addition, we will continue to invest in AI across both the physical and digital worlds, leveraging technology to drive retail upgrades and create long-term sustainable value for all stakeholders. With that, I will turn the call over to Shaohui for an update on our latest financial results.

Thank you, Xing. Hello, everyone. In this quarter, we have achieved substantial financial improvement while maintaining resilient growth and we are the go-to platform for local service merchants to run their business and for consumers to discover and transact. This strong mind share, together with our ongoing investment in user experience, supply and fulfillment allow us to navigate its dynamic environment effectively. Now let's look at our financial results and details. Our comparisons are on a year-over-year basis, unless otherwise noted. Total revenue was RMB 91 billion, up 5.6%. Cost of revenue ratio increased by 8.7 percentage points to 71.5%. This was primarily driven by 2 factors: more consumer incentives deducted from revenue, higher rider incentives to maintain leading service quality amid intensified competition. Selling and marketing expenses ratio rose by 7.6 percentage points to 25.2%, largely due to our increased investments in promotion, advertising and user incentive to enhance our brand awareness and core user engagement to address the competition. R&D expenses ratio increased to 7.7%, reflecting our increased investment in AI, while the G&A expense ratio remaining stable at 3.2%. Our bottom line showed a strong improvement this quarter. Sequentially, we achieved more than RMB 10 billion reduction with total segment operating loss and adjusted net loss narrowing to RMB 4.1 billion and RMB 5 billion, respectively. This meaningful improvement reflected a moderation of competition, our effective execution on high-quality growth and operational efficiency improvement. As of end of March, we held cash and cash equivalents and short-term treasury investments totaling RMB 180 billion. Beyond our own AI initiatives, we are also actively investing into some of China's leading AI and other technology companies to support their growth. As of March 31, our investment portfolio was nearly RMB 53 billion. Separately, fair value changes in certain of our investments, including AI do result in an RMB 7.6 billion gain recognized in other comprehensive income rather than the P&L this quarter. Now let's look at the segment results. Starting with the local commerce segment, segment revenue was RMB 64 billion in Q1 returning to positive year-over-year growth. Segment operating loss narrowed meaningfully from last quarter to RMB 2 billion. on-demand delivery and wide subsidy started to go down in Q1. We further improved our subsidy efficiency and stay focused on high AOV order segment and our core user base. Both the order volume and GTV of our on-demand business maintained resilient year-over-year growth during this quarter. We further solidified our leadership in both food and nonfood sectors. Our own demand deliveries uniconomics improved significantly quarter-over-quarter. This is mainly driven by 2 factors. First, our superior order mix and user structure supports a faster recovery in AOV. And second, our overall bad operational capability allow us to adapt more quickly to market shifts and drive further efficiency. However, both the AOV and subsidy for our own demand business still need more time to go back to a reasonable level. So they continue to weight on the revenue growth and operating profit of on-demand delivery business during this quarter. For in-store, we continue to focus on high-quality growth, we held our position in core in-store categories and effectively capture increased holiday spending and emerging consumption trades. -- our install business delivered steady growth this quarter driven by strong performance across multiple fronts. We continue to see categories, including leader and entertainment, sports and fitness, pet service and et cetera, grow reply in both order volume [indiscernible] in time, we also saw promising traction in service verticals like medical aesthetics, all-care home renovation and et cetera, as we bring more nonstandard local service online and scale our skilled artisan immunity in those industry. In hotel and travel, we also delivered steady growth as we capture as travel demand during holidays. Our industry in position in the low-stock hotel sector stayed strong ongoing competition, our in-store hotel and track business overall operating profit margin remained stable quarter-over-quarter. Now turning to our new initiatives segment. Revenue in Q1 was up 23% year-over-year to RMB 27 billion. Segment operating loss narrowed sequentially to RMB 2.1 billion. First, our gross retail business narrowed their loss quarter-over-quarter, supported by operational efficiency gains and seasonal tailwinds even growing strategic importance and sustained growth, we have started to disclose their product service separately this quarter. The product sales mainly generated from our grocery retail business grew about 41% year-over-year this quarter, contributing meaningfully to the segment's growth. Second, Kita delivered resilient growth in Middle East, even in a challenging environment, further supporting its rapid revenue expansion. The loss from Keeta reduced quarter-on-quarter as we improved operating efficiency across all of its markets. In closing, I want to reiterate our confidence in the company's long-term sustainable growth potential. As we continue to execute our Retail+ technology strategy we will provide greater value to our merchants, consumers and the whole business partners. This will further strengthen our competitive position in the longer term. With that, we are now open for your Q&A.

[Operator Instructions] Your first question comes from Ronald Keung with Goldman Sachs.

I just want to ask about the food delivery business. So as the industry subsidies gradually rationalized what marginal shifts have you seen in the competitive landscape? And seasonal tailwinds, do you expect the business to turn profitable for the second quarter? And how should we think about the UE progression into the second half? Just building on to that on order volumes, given tough comps, what is your outlook for order volume growth for the next few quarters? And stepping back, if we think about the TAM, and key structural drivers for the overall market? And could you just help us frame that and the long-term UE economic trajectory from here?

So for your question on food delivery subsidy and on the the -- so I think with industrial-wide subsidy finally getting more rational. So we are seeing competition shifting back to the fundamentals. That's operational efficiency and user experience. So this transition was trust our strength. But as we see we gradually pull back subsidies, we can continue to see healthy user growth and stronger engagement from our core users. We also solidified our leadership in mid- to high AOV other segment. This is a natural result of our strong user mine, [indiscernible] and better supply and service quality. And our structural advantage in operational efficiency are becoming increasingly evident at this stage and driving steady improvement in our financials. If competition stays more rational, we expect a meaningful UE improvement in Q2 compared to Q1, supported by seasonal tailwind and we have sustained our market leadership in recent months, but also widening our UE Gap advantage. We will continue to monitor the market closely and adapt thoughtfully. Our focus stays on sustaining our leading position while driving operational efficiency improvement, both for our sales and our merchants. And however, our improved in the second half will still depend on how the competition environment evolves. Also, keep in mind that delivery cost per order is seasonally higher in Q3 and Q4 compared with Q2. And on order volume, given the high basis from last year, we may see negative year-over-year order growth in the second half. But we are seeing a healthier order mix as consumers are increasingly willing to pay for quality. I would say this is a very positive sign for merchants who invest in quality supply. Therefore, we expect the net GTV growth to be more resilient than other volume growth. That really comes down to our leadership in mid- to higher AOB segments. -- and the expected AOV recovery supported by our user structure advantages. And looking long term -- longer term, we continue to see upside in China's food are market. The service is becoming a high-frequency daily necessities for border and broad demographic structural shift that provides sustained momentum for deeper market penetration over time. And as we broaden our reach, we also help merchants access a bigger customer base. In fact, we are seeing the industry user base continue to expand. On one hand, food delivery is penetrating deeper into the lower price segment. On the other hand, in our better service to consumer seeking premium and diverse options, driving steady expansion in the user base as well. We see high growth potential in purchase frequency and retention for the new users and we believe our superior services supplies can well position us to capture this upside. Looking back, this wave of international competition proved in thing volume acceleration driven solely by subsidy is not sustainable. True long-term growth comes down to supply-side innovation and better matching of demand supply across diverse use cases, leveraging AI and other technologies to drive efficiency and experience improvement across the industry is also super important. These are the true foundation for healthy, sustainable growth. And that's actually where we will continue to invest within conviction. We have confidence in the industry long-term growth potential and achieving a sustainable high-quality 1-minute order a day stays our target. On long-term unit economics, we expect competition to be more rational, particularly under regulatory guidance. And we are confident in sustaining our industry-leading operational efficiency, which will support our long-term competitiveness. We believe our food long-term will get back to a reasonable level. And beyond that, significant synergy potential remains untapped across our core local format businesses. We will actively drive cross-selling between food delivery and other services. Ultimately, this will generate a long-term compounding value for the entire whole local commerce segment.

Your next question comes from Thomas Chong with Jefferies.

Given the ongoing competitive pressure from Dan, could management share some color about the recent trend for the in-store business. Should we expect continued pressure on both the top line growth and margin for the in-store business. In the longer term, how do you project the growth and margin trajectory, especially I guess the topic disadvantage versus [indiscernible]

We have always viewed the local in-store services as more just a traffic-driven business. It is a business built on physical world fulfillment and on consumers' trust. Traffic loan doesn't automatically translate into transactions and local services, Meituan [indiscernible] that cannot, cannot be replicated purely through traffic. First is our brand. Our strong consumer mind share for finding stores and deals, supported by a trustworthy information and review system. Our value for money grew by offerings, verify merchant information integrated services like online reservation and [indiscernible] system and billions of osthetic user-generating reviews together form a strong mode Secondly, is our continuous innovation across the whole value chain to build better and better experience. We support millions of scale [indiscernible] on our platform, and we have deeply [indiscernible] into sectors like medical incentives, elderly care and home maintenance. Our consumer protection initiatives have rebuilt consumer trust in prepaid service. By transforming off-line nonstandard and long-term services into reliable, standardized online SKUs, we have built a very differentiated supply ecosystem. These initiatives continuing to help build a self-reinforcing cycle at scale, continue to provide the best experience in the industry. We also aggressively using AI technology with a focus to reshape the value that we deliver in the local service industry transforming Meituan from a customer acquisition channel into a full rounded AI power business partner in the local ecosystem. While competition has created some near-term noise. We believe market players have to continue to differentiate across category, merchant segment and market scenarios. Our position is a one-stop local service platform stayed strong. Our in-store revenue keeps growing steadily and will continue to lead in core categories. We have also expanded into new service retail verticals and deepen our reach in lower-tier markets. Our investment strategy will adapt directly to the industry trains with primary focus always being the long-term healthy development of the industry. This year, we will focus on 2 things: strengthening our competitive edge in core categories and building a better digital infrastructure for local service merchants. As the industry subsidy gradually normalize, the value we delivered merchant will matter even more in their day-to-day operations. We expect the in-store margin to stay stable in the near term. with room to recover over the long term. We have the conviction and patience to keep leading the evolution of the local service sector.

Your next question comes from Gary Yu with Morgan Stanley.

I have a question regarding -- we've noticed that the Meituan app has recently launched the AI assistant [indiscernible] on his home page, can management share some color on the progress so far. Are there any other initiatives underway to accelerate AI integration on the product side? And what capabilities are you looking to build? And what goals do you aim to achieve on the AI front over the longer term?

Yes, you are exactly right. We have placed our AI system shorter front and center in the Meituan app now sits in the middle of the bottom navigation bar for easier access. But I would say it is still at a very early stage. But anyhow, we are already seeing good initial results. more and more users are coming to short term, not just for very simple and short [indiscernible] for more complex cross-use cases quarries, seems like please recommend a restaurant between 2 locations for guest who do not easier book and on-site repair service. And what makes shorten different is the foundations. It's the authentic consumer reviews and comprehensive POI information. a proprietary model trained specifically for local service businesses. Together, this gives us the ability to understand better the full contact and provide users with personalized recommendations particularly when users change their mind and adjust criteria like price range, locations or anything else, [indiscernible] can seamlessly factor that in all or prior instructions and update its recommendation accordingly. The May Day holidays was a good example session volumes pick up meaningfully compared to Chinese New Year. More importantly, users won't just come in to redeem coupons on [indiscernible] they are actually using [indiscernible] to discover services, destinations and ultimately plan and make a purchase on our platform. And beyond the [indiscernible] we are also embedding AI deeper into some specific verticals. A good example is [indiscernible] our dedicated AI product for health care services. It's built on years proprietary real-world data from pharmacies transactions and online medical consultations on our platform. And it's developed in close partnership with professional medical teams because that's just where you don't want to have any relation. It brings health consultations medication guidance and medical report interpretation all into one seamless experience where users can consult and get all the medication or book appointments or within the major app. And looking ahead, [indiscernible] will be one of our key AI products on the consumer side. We will continue to deepen its integration into Meta. And beyond improving the effectiveness of user agent introductions, we will deploy agent task execution capabilities progressively across our business verticals. And our partnership between Meituan Xiaomi and the Tencent AI chatbot [indiscernible] will also be launched soon. And when I use to submit local services related requests in [indiscernible], it will trigger an agent to agent communication with Xiaomi. And this seamlessly connects the user to our services, [indiscernible] This collaboration will facilitate a streamlined one-stop local service transaction experience for users. I think going forward, we will need to build capabilities not just for 2C to consumers or 2b to businesses and to agents is actually becomes more and more important. And as I've said in the past Q&A, we try to be as not defense in AI. And we consider AI to be a very important opportunity to deepen our moat and unlock new values and we have been investing our own large can model loan cap. We are improving our [indiscernible]. But what really sets us apart is our -- the foundation, the data we have. We have full spectrum local services covers and verify the merger information, authentic user reviews and fulfillment infrastructure. And booking on top of these structural advantages, we will deliver superior AI-powered local service experience to users.

Our next question comes from Kenneth Fong with UBS.

Given the evolving industry and regulatory trends in the travel industry. Could management share the recent performance of the company, hotel and travel business as well as its development strategy for the full year.

Thank you, Kenneth. The hotel and travel industry has entered into a new phase in terms of regulation and competition. Consumer preference has increasingly shifted towards value-for-money options, optic travel, lower-tier cities and local legend shop distance gateway. In first quarter, our hotel travel business delivered steady growth and we further consolidate our leading position in the lower stock hotel area riding on strong travel momentum during Spring Festival holiday, including home visits and leisure travel we offer well-priced high-quality accommodation with outstanding user experience, which effectively left transaction conversion rates. We also continue to deepen our presence across the industry supply chain, catering to the differential needs of merchants at various operational stage which provides end-to-end solutions covering brand establishment, targeting marketing, revenue enhancement, room renovation and PMS system support. These tailored solutions help merchants improve online operational efficiency and achieve long-term sustainable growth. On the high-star hotel front, amid the evoluting regulatory environment. We expand our High-star hotel portfolio to enrich accommodation choices for consumers. Earlier this April, we launched the 2026 Meituan list, featuring thousands of premium hotels across more than 200 cities nationwide. This list has become a credible curated guide for user seeking high-quality launching experience. We partner with selected hotel merchants on the list to offer exclusive presale products for leisure travelers, bringing exclusive benefits, unique experience and one-stop high-quality vacation services. Furthermore, we remain focused on strengthening our membership ecosystem. On the internal front, we ramped up truck-selling between accommodation and other businesses provide high-tier Meituan members with exclusive perks, including complementary room upgrades, free [indiscernible], late checkout, early check-in and special discounts. Externally, we continue to promote joint membership programs with global high-end hotel brands, such as Marriott and launched exclusive membership benefit in partnership with [indiscernible]. Looking ahead to the full year, we recognize that the recent hike in airline fuel surcharge will bring near-term vulnerability to hotel and travel industry, long-distance travel and high-star hotels are likely to face headwinds, while short-term distance led to travel local accommodations and low stock hotels will remain resilient. Our structural advantage in this resilient domains position us well to navigate the current market cycle. In addition, we will fully capture opportunity broad by ongoing regulatory updates. First, we will further solidify our core market leadership in the low-star hotel sector. Second, we will continue to expand footprint in the mid- to high-end hotels, deepened strategic partnerships with merchants enrich our offerings and strengthen our ecosystem synergies. We will also continue to leverage the Meituan membership program to deliver targeted services to high-value users and push for further progress in the high-star hotel domain. We are confident in driving healthy, sustainable and high-quality growth for our hotel and travel base.

Your next question comes from Charlene Liu with HSBC.

I would like to ask about the Middle East situation. Can you help us understand the operational impact on Keeta so far? On UAE, are the UAE improvement trends in Hong Kong and Saudi Arabia are still on track for the quarter? Finally, given the heightened geopolitical uncertainties globally, how are you thinking about Keeta's expansion at investment pace going forward?

Thank you. Regarding the Middle East, we have seen some near-term fluctuations in our growth metrics given what's happening in this region. However, the impact has been managed above so far and our long-term conviction for this market is unchanged. We still believe Middle East is one of the most attractive on-demand delivery markets globally. The market is still growing fast, penetration remains low, and consumers there have strong wellness to pay. Notably, even in this challenging environment, we continue to see a clear acceleration and the transition from offline to online. Consumer mindshare for on-demand retail continues to strengthen and industry-wide online penetration is accelerating on-demand delivery has clearly become an essential infrastructure. This shows the structural resilience of this business model. Broadly speaking, going global is a long-term goal for us and navigating geopolitical complexity is what we need to learn. We will keep sharpening our risk management and building an organization that is better suited for global operations. As we do so, we will continue to grow alongside local players and create value for users, merchants and writers in the local markets. Operationally, it maintained solid growth across all markets in Q1. Following Hong Kong's uneconomic breakeven in Q4 last year, we delivered further efficiency gains in both Hong Kong and Saudi Arabian this quarter. This also it's encouraging to see that the efficiency in ramp-up in other Middle East markets and Brazil has been even faster, thanks to the operational experience accumulated earlier. We will prioritize operation improvement this year over new market expansion. In the longer term, we are confident in Keeta's potential to deliver on both scale and bottom line growth. in many global markets, food delivery is still an occasional service for a small segment of consumers, not a daily necessity for the mass market is demonstrate significant growth potential. Going forward, we will explore market expansion opportunities softly and we will be financially disciplined. Food delivery, it's a proven business model globally and Keeta's steady efficiency gains across existing markets validates our operational playbook as we grow and keep optimizing our operations we are confident we will eventually achieve sustainable profitability at scale. Thank you.

Your next question comes from Alicia Yap with Citigroup.

I have a question related to your grocery retail and supermarket business. So on-demand delivery price war, we have seen fresh people maintain a rapid growth recently. Could management provide some color on San supermarkets recent performance? And then specifically, how do you view the strategic value of the 1P model like the [indiscernible] supermarket within the Meituan on-demand delivery ecosystem. And what are your long-term targets for this business?

Well, to answer your question, yes, we know that all our peers are growing fast acquisition is growing even faster. So thank you for paying attention to [indiscernible]. But in today's very competitive online environment, and we need to make sure we have the best supply on our platform. for average consumers, they don't understand. They don't care about whether it's a so-called 1P model or 3P model. So they only care about what they can buy from the platform whether the suppliers, the stores can provide good quality and also an equally important predicted reliability. So here and [indiscernible] is competing on a level playing field on the main platform. But it's very important that as everything now becomes the new normal for more users, and they are raising their expectations on product variety, quality and value. they know they can get the same very fast delivery from any center, but they are expecting more from the sellers. And we believe the future growth of on-demand retail markets will be driven by a hybrid model, including the so-called 3D model or like or initiatives by Meituan Instashopping and together with 1P model [indiscernible] market. And Xiaoxiang provides a very consistently high-quality supply with a very competitively priced product fulfillment. So this positions us strongly to capture the substantial growth potential in this evolving space. we think it's a model built directly on our core strength and had a clear path to profitability. But on the other hand, we have a lot to learn in this grocery business. On the operational side, Xiaoxiang has delivered a very robust distributed growth in 2025 significantly outperforming the whole industry. And I'm glad to say that this momentum continued into Q1. And recently, we accelerated our expansion. Now Xiaoxiang covers 55 cities as of the end of Q1 with the plans to enter more markets in the coming quarters. Meanwhile, we continue to strengthen our merchandising capability and go deeper into the entire supply chain. And as an example, our private brand product, PB products are getting greater recognition from consumers and now account for a growing share of our sales. In our more established cities like Beijing and Shanghai, we have seen a notable increase in AOV over the past few quarters. This reflects our success in capturing [indiscernible] by expanding our high-quality competitively priced product offerings. And also to further strengthen our omnichannel capabilities we are actively launching new physical stores. And you may be aware that we -- [indiscernible] started pure online darkstore model. But last December, we have opened our first physical store in Hayden. And building on the success of our first physical store we opened a second one in [indiscernible] in this past April. We believe physical stores can broaden our user reach and allow the consumers for potential customers to see more directly our high-quality physical goods. Because when you enter a physical store, you are going to have a much broader few view compared to any screen and you can not only [indiscernible], you can smell it and you can touch it. So this is much more attractive than any online presentations. So physical store will be a very good channel to [indiscernible] awareness over time. And on the other hand, even with this very rapid expansion, we remain very focused on our line because grocery retail is a long game. And this reflects in our continued year-over-year improvement in margins in Q1. And looking ahead, we are confident that Xiaoxiang will become one of the leading players among online grocery stores. And we are targeting a sustainable low single-digit profit margin in the long run. What's most important is that we want to build Xiaoxiang to become one of the most loved grocery brand in future. because the mission of our company is to help people eat better. besides food delivery, people who want to cook for themselves need to buy grocery. And we want to build a Xiaoxiang to become one of the most loved grocery brands.

There are no further questions at this time. I'll now hand back to [indiscernible] for closing remarks.

Okay. Thank you all for joining our call. We look forward to speaking with everyone next quarter. Thank you for your support.

That does conclude our conference for today. Thank you for participating. You may now disconnect.