ATRenew (RERE) Q2 2026 Earnings Call Transcript

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DATE

Thursday, Aug. 20, 2026 at 8:00 a.m. ET

CALL PARTICIPANTS

• Head of Investor Relations - Jessie Jin
• Founder, Chairman, and Chief Executive Officer - Kerry Xuefeng Chen
• Chief Financial Officer - Rex Chen

TAKEAWAYS

• Revenue -- RMB 6.6 billion, representing 32.4% growth driven by increased sales of pre-owned consumer electronics through online channels.
• Net Product Revenue -- RMB 6.2 billion, an increase of 35.9% reflecting the expansion of the company's 1P business model.
• Net Service Revenue -- RMB 414.6 million, a decrease of 4.2% primarily due to discretionary discounts and subsidies provided to merchants during promotional campaigns.
• Non-GAAP Operating Income -- RMB 206.3 million, representing a 70.1% increase compared to the same period in 2025.
• Non-GAAP Operating Margin -- 3.1%, an expansion of 69 basis points driven by economies of scale and refined operations.
• GAAP Net Income -- RMB 129.1 million, a 78.6% increase resulting from higher operational efficiencies.
• Consumer Products Transacted -- 11.6 million units, compared to 10.3 million in the second quarter of 2025.
• 1P Gross Margin -- 15.7%, up from 13.2% in the prior year due to improved supply chain and compliant refurbishment capabilities.
• 1P-to-C Revenue Share -- 48.8% of product revenue, up from 34.4% last year as the company optimized its diversified retail channel mix.
• 1P Refurbished Product Revenue -- 87.8% growth year over year, as the company met increased demand for value-for-money devices.
• 1P-to-C Retail Revenue -- 92.4% growth year over year, reflecting strong demand for curated pre-owned smartphones and computers.
• Registered Merchants -- 2.2 million on the PJT Marketplace, reflecting expansion into more fragmented lower-tier markets.
• PJT Inspection Penetration -- 84.4%, an increase of 11.5 percentage points year over year as more merchants used platform warehousing and inspection services.
• Luxury Recycling Revenue -- 77.3% growth, following the upgrade of select AHS locations into specialized luxury-themed stores.
• Multi-category Service Revenue -- Over 30% growth year over year, excluding the impact of the gold category.
• Gold Service Revenue -- 35% decrease, reflecting gold price volatility and a strategic decision to offer higher payouts to users.
• Overseas Monthly Sales -- HKD 120 million in June, marking a milestone for the company's international export business.
• AHS Store Count -- 2,117 locations, as management adjusted its network by closing poorly located or underperforming units.
• Q3 Revenue Guidance -- RMB 6.3 billion to RMB 6.4 billion, projecting a year-over-year increase of 23.1% to 25.1%.
• Cash and Reserves -- RMB 2.2 billion, including cash, short-term investments, and funds receivable from third-party payment providers.
• Share Repurchases -- 1 million ADSs repurchased for USD 4.2 million during the quarter, with USD 14.8 million total repurchased under the current USD 50 million program.
• Fulfillment Expenses -- RMB 540 million, up 31.1% due to higher logistics costs and personnel requirements associated with business growth.

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RISKS

• CFO Rex Chen noted that net service revenue decreased 4.2% primarily due to "discretionary discounts on service fees provided to merchants during the extended June 18 brand promotion event period."
• CEO Kerry Chen warned that gold service revenue declined 35% year over year because "Gold prices were volatile and trended lower in the second quarter."
• Kerry Chen noted that current market expectations for the iPhone 18 could shift volume shipments into the fourth quarter and first quarter of next year, stating that "Apple may introduce more premium models and some standard modules could shift to next spring."

SUMMARY

Management reported that ATRenew Inc. (NYSE:RERE) prioritized its 1P business model and end-to-end value chain capabilities to exceed its quarterly revenue guidance. The company stated that the secondhand electronics industry is undergoing a transition toward stricter regulation and compliance, which management noted benefits its direct supply operations and 1P business. ATRenew is also pursuing global expansion through its FoneSquare B2B marketplace and the ReRe consumer brand, targeting primary distribution hubs in Hong Kong, Dubai, and Miami.

• Kerry Chen noted that during periods of soft new device sales, brand manufacturers and platforms increase investments in trade-in programs to drive upgrades.
• CEO Chen stated, "Our goal is to build FoneSquare into a global version of PJT marketplace in three years," with plans to build regional capabilities in Dubai and Miami.
• CEO Chen noted that China has transitioned from a net consumer to a global supplier of pre-owned smartphones, establishing an industry trend where mid- to low-end modules are exported.
• The company plans to upgrade more locations into specialized category-themed stores, such as luxury and sports themes, following positive data validation in pilot stores.
• ATRenew expanded its to-door fulfillment team to nearly 3,000 people during the June 18 shopping festival to manage peak recycling demand in top-tier cities.

INDUSTRY GLOSSARY

• 1P: First-party business where the company owns the inventory and manages the direct sale of products.
• 3P: Third-party business where the company provides a marketplace platform for independent merchants.
• AHS Recycle: The company's brand for offline and online consumer electronics recycling and trade-in services.
• PJT Marketplace: A B2B marketplace platform for professional buyers and sellers of pre-owned consumer electronics.
• Paipai: A B2C retail platform for secondhand consumer goods.
• FoneSquare: The company's international B2B marketplace launched to facilitate global trade of pre-owned devices.
• C2B: Consumer-to-Business, referring to the model where individuals sell their used devices to a company.

Full Conference Call Transcript

Operator: Good morning, and good evening, ladies and gentlemen. Thank you for standing by, and welcome to ATRenew Inc.'s Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note today's event is being recorded. I will now turn the call over to the first speaker today, Ms. Jessie Jin, Head of Investor Relations. Please go ahead, ma'am.

Jeremy Ji: Thank you. Hello, everyone, and welcome to ATRenew's Second Quarter 2026 Earnings Conference Call. Speaking first today is Kerry Chen, our Founder, Chairman and CEO, and he will be followed by Rex Chen, our CFO. After that, we will open the call to questions from the analysts. The second quarter 2026 financial results were released earlier today. The earnings press release and investor slides accompanying this call are now available at our IR website, ir.atrenew.com. There will also be a transcript following this call for your convenience. For today's agenda, Kerry will share his thoughts of our quarterly performance and business strategy, followed by Rex, who will address the financial highlights.

Both Kerry and Rex will participate during the Q&A session. Please note our safe harbor statement. Some of the information you will hear during our discussion today will consist of forward-looking statements, and I refer you to our safe harbor statements in the earnings press release. Any forward-looking statements that management makes on this call are based on assumptions as of today, and that ATRenew does not take any obligation to upgrade our assumptions on the statements. Also, this call includes discussions of certain non-GAAP financial measures. Please refer to our earnings press release, which contains a reconciliation of non-GAAP measures to GAAP measures.

Finally, please note that unless otherwise stated, all figures mentioned during this conference call are in RMB and all comparisons are on a year-over-year basis. I'd now like to turn the call over to Kerry for business and strategy updates.

Xuefeng Chen Kerry: [Foreign Language]

Xiaoyi Jin: [Interpreted] Hello, everyone, and thank you for joining ATRenew's Second Quarter 2026 Earnings Conference Call. We are pleased to review our operating results for the quarter and share our views on industry trends and our strategy.

Xuefeng Chen Kerry: [Foreign Language]

Xiaoyi Jin: [Interpreted] In the second quarter, total net revenues exceeded the high end of our guidance, increasing 32.4% year-over-year to RMB 6.61 billion. Our continued focus on 1P has strengthened our end-to-end capabilities and driven rapid growth in product revenue, up 35.9% year-over-year to RMB 6.19 billion. Non-GAAP operating profit grew 70.1% year-over-year to RMB 210 million (sic) [RMB 206.3 million], while non-GAAP operating profit margin expanded by 69 basis points year-over-year to 3.1%.

Xuefeng Chen Kerry: [Foreign Language]

Xiaoyi Jin: [Interpreted] First of all, I'd like to share 4 key external shifts and trends. The first dynamic is the year-over-year decline in new device sales. The intuitive thinking is that this could drive our recycling business. But counterintuitively, when new devices are selling well, recycling and trade-in programs are just supplementary value-added services and are not a top priority. Conversely, when new device sales soften, trade-in programs become the most critical and effective promotional tool. Major manufacturers and platforms place greater emphasis on and allocate more resources to trade-in initiatives. We have seen this clearly in our business trends over the past few years.

Xuefeng Chen Kerry: [Foreign Language]

Xiaoyi Jin: [Interpreted] Second is macroeconomic headwinds in consumption and significant growth in demand for high-quality affordable pre-owned smartphones and other secondhand products. This is clearly reflected in the sustained robust growth of our curated B2C business.

Xuefeng Chen Kerry: [Foreign Language]

Xiaoyi Jin: [Interpreted] The third shift is increasingly strengthened regulation, including taxation and device refurbishment. AHS has always been committed to compliant operations, while tighter regulations disproportionately impact fragmented small-scale and noncompliant operators. They benefit our 1P business.

Xuefeng Chen Kerry: [Foreign Language]

Xiaoyi Jin: [Interpreted] The fourth shift is the accelerating trend of exporting domestic pre-owned devices. As the penetration rate of trade-in and recycling programs continues to rise in China, domestic supply is expanding rapidly. China has shifted from a net importer to a net exporter of pre-owned smartphones, establishing a clear industry trend where high-end modules are sold domestically while mid- to high-end and low-end modules are exported. With that, let us now move to our business update.

Xuefeng Chen Kerry: [Foreign Language]

Xiaoyi Jin: [Interpreted] In recent years, we have firmly prioritized 1P business because trust and efficiency are critical in the secondhand consumer electronics industry. Our 1P model starts with first-hand supply from C2B channels. We add depth to the value chain through compliant refurbishment, strengthen B2C retail for premium curated products and leverage B2C retail pricing capabilities to offer better pricing and user experience on the recycling side. Together, those efforts enhance our end-to-end capabilities across the value chain.

Xuefeng Chen Kerry: [Foreign Language]

Xiaoyi Jin: [Interpreted] On recycling, we capitalized on opportunities as brand e-commerce platforms and offline retailers prioritize and invest in trade-in programs, leveraging AHS Recycle's increasingly extensive fulfillment network to enhance the user experience. Trade-in and recycling demand was strong during the June 18 shopping festival. In response, we expanded our nationwide to-door fulfillment team, including flexible capacity to nearly 3,000 by the end of June, up sharply from the end of March. Together with our 2,117 AHS stores, this gave us strong advantages in sourcing and customer service over industry peers. During the major promotional period from May 13 through June 18, the recycling value of mobile phones and consumer electronics at AHS Recycle increased 57% year-over-year.

Both to-door and in-store recycling orders grew 45% year-over-year, while face-to-face orders accounted for 80% of recycling orders across all channels. Multiple user experience metrics also continued to improve.

Xuefeng Chen Kerry: [Foreign Language]

Xiaoyi Jin: [Interpreted] Our compliant refurbishment business also continued to accelerate. Revenue from 1P refurbished products increased 87.8% year-over-year. With higher new device prices, stable preowned market sentiment and more refined pricing strategies and operations, 1P-to-C retail revenue grew 92.4% year-over-year in the second quarter. As a percentage of product revenue, 1P-to-C retail revenue increased 3.6 percentage points sequentially to 48.8%, allowing us to meet user demand better for curated phones, computers, smart devices and other products.

Xuefeng Chen Kerry: [Foreign Language]

Xiaoyi Jin: [Interpreted] Turning to our 3P businesses. Service revenue decreased 4.2% year-over-year in the second quarter. Within 3P business, we maintained our industry-leading position in B2B, while B2C 3P services faced pressure from merchant activity. In multi-category recycling, we navigated the headwinds from gold price fluctuations and continue to focus on more refined operations.

Xuefeng Chen Kerry: [Foreign Language]

Xiaoyi Jin: [Interpreted] Specifically, PJT Marketplace continued to expand into fragmented markets, reaching more small-sized merchants, mom-and-pop shops and specialty buyers. By the end of June, total registered merchants on the platform exceeded 2.27 million. For sellers, we offered free shipping on the first 3 orders and aligned inspection standards upfront, lowering selling costs and barriers to trial and error for new small midsized merchants. For buyers, we launched the PJT themed campaign on Douyin and other platforms. Video views rose sharply, driving rapid growth in our specialty buyer model. Together with 1P minimum quantity ordering, these initiatives made it easier for small merchants to start buying on our platform.

After their first transaction, buyers gradually become more engaged on the platform through repeat purchases, VIP membership and participation in the like-new device marketplace, showing consistent improvement in transaction stickiness. Throughout this process of user expansion and support, PJT's 3P warehousing inspection penetration rate reached 84.4% this quarter, up around 11.5% year-over-year, delivering rapid scale expansion with solid growth in service revenue.

Xuefeng Chen Kerry: [Foreign Language]

Xiaoyi Jin: [Interpreted] For Paipai, platform service revenue decreased year-over-year in the second quarter, mainly due to subsidies provided to POP merchants to boost activity during the promotional campaign and our strategic reduction of service fees. Meanwhile, we continue to refine the consignment model by introducing warehousing capabilities for third-party merchants, improving price competitiveness and sell-through and optimizing financial economics. Paipai's consignment business grew 22.4% sequentially.

Xuefeng Chen Kerry: [Foreign Language]

Xiaoyi Jin: [Interpreted] In multi-category recycling services, service revenue maintained a year-over-year growth of over 30%. Gold prices were volatile and trended lower in the second quarter. We also chose to give more back to users. Together, these factors led to a 35% year-over-year decline in gold service revenue. During the quarter, we upgraded a select number of AHS stores to luxury theme stores with improvements to store design and functional areas. Together with more refined tiered pricing and enhanced category-specific service capabilities, luxury recycling service revenue grew 77.3% year-over-year. Building on those positive results and experience, we plan to open more themed multi-category stores this year, including luxury-themed stores and sports-themed stores.

This will give more users a better and more engaging experience when recycling and buying pre-owned products.

Xuefeng Chen Kerry: [Foreign Language]

Xiaoyi Jin: [Interpreted] Our long-term strategy has remained focused and consistent. Here, we would like to reiterate our 3-stage development strategy. Stage 1, we continue to solidify the healthy growth of our core secondhand consumer electronics business. In 2026, the smartphone and consumer electronics market has faced substantial price hikes across the upstream supply chain. Brand manufacturers are actively adjusting their product portfolios and placing greater emphasis on trade-in programs. At the same time, e-commerce platforms are also introducing subsidy programs to support device upgrades. Against this backdrop, we have captured these opportunities through our 1P model, leveraging our front-end fulfillment capabilities and targeted trade-in scenarios, we drove slight growth in our core secondhand consumer electronics business.

At the same time, we are strengthening merchant capabilities with a decentralized strategy to penetrate fragmented markets while leveraging AI-powered automated inspection to reinforce the infrastructure we have built for the industry.

Xuefeng Chen Kerry: [Foreign Language]

Xiaoyi Jin: [Interpreted] Stage 2, we are strengthening AHS Recycle's position as China's leading recycling brand. In the pre-owned industry, word-of-mouth brand names remain scarce. We continue to make prudent investments in building the AHS Recycle brand. As ATRenew marks its 15th anniversary, we invited Leo Wu to serve as AHS Recycle's global brand ambassador. Through his youthful, energetic, stylish and environmentally conscious image, we encourage users to embrace a simpler lifestyle and choose high-quality pre-owned products. This initiative has generated broad positive feedback and engagement from users. From secondhand consumer electronics recycling to multi-category recycling and further into consumer retail, we aim to leverage the AHS Recycle brand name to provide users with better recycling and purchasing experiences.

Xuefeng Chen Kerry: [Foreign Language]

Xiaoyi Jin: [Interpreted] Stage 3, we continue to advance breakthroughs in our overseas strategy. Over the past year, our overseas export business has grown rapidly. In June this year, we hit a milestone with HKD 120 million in monthly sales. Building on our solid progress, on July 28, we held our overseas strategy launch event in Hong Kong and updated our global expansion strategy.

Xuefeng Chen Kerry: [Foreign Language]

Xiaoyi Jin: [Interpreted] First, we see a huge pre-owned phone market globally with a scale of over USD 100 billion and Hong Kong, Dubai, and Miami as key hubs. As China is changing from a consumer to a supplier of preowned phones globally, we see a chance to build an international B2B marketplace, leveraging PJT's success domestically. As such, we launched FoneSquare. It relies on 2 core strength of our growing 1P supply and automated quality inspection technology. We will follow our domestic experience and gradually expand from 1P to 3P supply while establishing global standards.

We will also optimize cost and efficiency through automated quality inspections and improve transaction transparency, building a more efficient B2B marketplace than traditional trade-in platforms, aiming to give pre-owned phones a second life globally. While exports are growing fast, FoneSquare still needs time to improve, and we appreciate your patience and support. We also launched our overseas consumer brand named ReRe, that is, 'Revalue what you own, Renew the way you choose.' We will cautiously explore the To-C business model through recycling kiosks and physical stores with a small amount of investment. We will share more updates on our overseas business as appropriate.

Xuefeng Chen Kerry: [Foreign Language]

Xiaoyi Jin: [Interpreted] Looking at 2026 as a whole, we will continue to enhance supply sourcing, customer mind share, merchant services and operating efficiency. We look forward to giving users a better experience, more choices and more value in preowned transactions.

Xuefeng Chen Kerry: [Foreign Language]

Xiaoyi Jin: [Interpreted] Now I'd like to turn the call over to our CFO for financial updates.

Chen Chen: [Foreign Language]

Xiaoyi Jin: [Interpreted] Good day, everyone. I'm pleased to share our outstanding financial performance for the second quarter of 2026. Both revenues and profits reached record highs. During the quarter, the ongoing rollout of China's trade-in programs for consumer electronics, together with the June 18 shopping festival, further boosted consumer demand for device upgrades and expanded the supply of firsthand devices available for recycling. We actively captured these market opportunities, continue to support recycling and trade-in scenarios and fully leveraged the synergies between our supply chain and retail capabilities. As a result, we sustained solid growth momentum over the quarter.

Chen Chen: [Foreign Language]

Xiaoyi Jin: [Interpreted] In the second quarter, total revenue exceeded the high end of our guidance, increasing by 32.4% year-over-year to RMB 6.61 billion, while non-GAAP operating income surged by 70.1% to over RMB 200 million.

Chen Chen: [Foreign Language]

Xiaoyi Jin: [Interpreted] Before we review the financials in detail, please note that all figures are in RMB and all comparisons are on a year-over-year basis, unless otherwise stated.

Chen Chen: [Foreign Language]

Xiaoyi Jin: [Interpreted] In the second quarter, total revenue growth was primarily driven by continued growth in net product revenue. Net product revenues increased by 35.9% to RMB 6.19 billion, largely attributable to the growth in online sales of pre-owned consumer electronics. Net service revenues were RMB 410 million in the second quarter, representing a decrease of 4.2%. The decrease was primarily due to the discretionary discounts on service fees provided to merchants during the extended June 18 brand promotion event period.

Chen Chen: [Foreign Language]

Xiaoyi Jin: [Interpreted] Now let's discuss operating expenses to provide greater clarity on the trends of our actual operating base expenses. We will mainly discuss our non-GAAP operating expenses, which better reflect how management views our operating results. The reconciliations of GAAP to non-GAAP results are available in our earnings release and the corresponding Form 6-K furnished with the U.S. SEC.

Chen Chen: [Foreign Language]

Xiaoyi Jin: [Interpreted] Merchandise costs increased by 31.9% to RMB 5.22 billion, in line with the growth in product sales. Gross profit margin for our 1P business was 15.7% compared with 13.2% in the same period last year. The gross margin improvement in our 1P business, this was primarily driven by high-efficiency C2B recycling scenarios, compliant refurbishment capabilities incorporated in our supply chains and an increasingly diversified retail channel mix. This allowed us to increase the proportion of higher-margin retail sales with 1P-to-C revenue accounting for 48.8% of product revenue in the second quarter of 2026, up from 34.4% in the same period last year.

Chen Chen: [Foreign Language]

Xiaoyi Jin: [Interpreted] Fulfillment expenses increased by 31.1% to RMB 540 million. Non-GAAP fulfillment expenses increased by 30.5% to RMB 530 million. Under the non-GAAP measures, its increase was primarily driven by higher personnel costs resulting from the growth of our business compared to the same period in 2025 as well as higher logistics expenses in line with the increased product sales. Additionally, operating center-related expenses rose along with the increasing volumes of recycling and transactions. Non-GAAP fulfillment expenses as a percentage of total revenues decreased to 8.1% from 8.2%.

Chen Chen: [Foreign Language]

Xiaoyi Jin: [Interpreted] Selling and marketing expenses increased by 24.8% to RMB 510 million. Non-GAAP selling and marketing expenses increased by 29.9% to RMB 500 million, primarily driven by an increase in commission expenses in relation to channel service fees. Non-GAAP selling and marketing expenses as a percentage of total revenues decreased to 7.6% from 7.8%.

Chen Chen: [Foreign Language]

Xiaoyi Jin: [Interpreted] General and administrative expenses increased by 23.5% to RMB 95.7 million. Non-GAAP G&A expenses also increased by 13.6% to RMB 85.3 million, primarily due to an increase in personnel costs. Non-GAAP G&A expenses as a percentage of total revenues decreased to 1.3% from 1.5%.

Chen Chen: [Foreign Language]

Xiaoyi Jin: [Interpreted] Research and development expenses increased by 23.5% to RMB 77.2 million. Non-GAAP R&D expenses increased by 24.2% to RMB 72.3 million, primarily due to an increase in personnel costs. Non-GAAP R&D expenses as a percentage of total revenues decreased to 1.1% from 1.2%.

Chen Chen: [Foreign Language]

Xiaoyi Jin: [Interpreted] As a result, our non-GAAP operating income exceeded RMB 200 million in the second quarter of 2026 compared to non-GAAP operating income of RMB 120 million in the second quarter of 2025, representing an increase of 70.1% year-over-year increase. Non-GAAP operating profit margin was 3.1% for the quarter compared to 2.4% in the second quarter of 2025, representing an increase of 69 basis points.

Chen Chen: [Foreign Language]

Xiaoyi Jin: [Interpreted] As of June 30, 2026, cash and cash equivalents, restricted cash, short-term investments and funds receivable from third-party payment service providers totaled RMB 2.16 billion. Our financial reserves are sufficient to support reinvestment in business development and shareholder returns.

Chen Chen: [Foreign Language]

Xiaoyi Jin: [Interpreted] During the second quarter of 2026, we repurchased a total of approximately 1 million ADSs for approximately USD 4.2 million. On June 30, 2025, the Board has authorized a share repurchase program under which the company may repurchase up to USD 50 million of our shares over 12 months. The Board has authorized the extension of this share repurchase program for 12 months from June 30, 2026, with key terms unchanged. As of June 30, 2026, we repurchased approximately USD 14.8 million under this program.

Chen Chen: [Foreign Language]

Xiaoyi Jin: [Interpreted] Now turning to the business outlook. For the third quarter of 2026, we anticipate total revenues to be between RMB 6.34 billion to RMB 6.44 billion, representing an increase of 23.1% to 25.1% year-over-year. Please note that this forecast may only reflect our current and preliminary views on the market and operational conditions, which are subject to change.

Chen Chen: [Foreign Language]

Xiaoyi Jin: [Interpreted] This concludes our prepared remarks. Operator, we are now ready to take questions.

Operator: The first question today comes from Mandy Liu with UBS.

Hejing Liu: [Foreign Language] Congrats on another strong quarter in terms of both revenue and profit. Well, my question is that as the launch of Apple's iPhone 18 is around the corner, how would you expect the impact towards our financial performance ahead? Also, is there any updates on your full year revenue and margin guidance?

Xuefeng Chen Kerry: [Foreign Language]

Xiaoyi Jin: [Interpreted] Thank you for the question. Here, I'd like to reiterate a counterintuitive view. When new devices are selling well, recycling and trade-in programs are just supplementary value-added services. But when new device sales soften, trade-in programs become the most critical and effective promotional tool. Major manufacturers and platforms place greater emphasis on and allocate more resources to trade-ins. This year, against new device sales headwinds, e-commerce platforms, brand manufacturers and recyclers have all increased their investments in trade-in scenarios, making C2B recycling for pre-owned consumer electronics more efficient. With strong sourcing channels and convenient recycling fulfillment, we have built an industry-leading supply base and further strengthen our supply side advantage in the pre-owned value chain.

Xuefeng Chen Kerry: [Foreign Language]

Xiaoyi Jin: [Interpreted] For the third quarter guidance, we take into account this year's major flagship smartphone launches. Take the iPhone 18 lineup as an example, current market expectations are that Apple may introduce more premium models and some standard modules could shift to next spring. This could extend iPhone 18's volume shipment cycle into the fourth quarter and the first quarter of next year. We monitor this closely. Our third quarter guidance has already factored in the potential impact.

Xuefeng Chen Kerry: [Foreign Language]

Xiaoyi Jin: [Interpreted] Should new device prices rise due to higher upstream memory costs, trade-in and recycling could be more valuable for users and prices for high-quality pre-owned products will have room for upside. The second quarter already saw a year-over-year increase in the average order volume of our 1P business.

Xuefeng Chen Kerry: [Foreign Language]

Xiaoyi Jin: [Interpreted] On profitability, we continue to make disciplined investments in fulfillment capabilities and consumer brand marketing in the second quarter. Benefiting from economies of scale and more refined operations, we delivered the expected year-over-year improvement in non-GAAP operating profit margin. Overall, we expect to maintain strong growth in both revenue and profit this year.

Operator: The next question comes from Wan Jiao with CICC.

Wan Jiao: [Foreign Language] Could you please elaborate on the reasons for the decline in service revenue and share your outlook?

Chen Chen: [Foreign Language]

Xiaoyi Jin: [Interpreted] Strategically, our 1P model will play an increasingly vital role in the pre-owned smartphones, consumer electronics category. First, it ensures a premium transaction experience for end users and strengthens brand awareness. In addition, the industry's inevitable shift towards greater compliance will further support the development of our 1P business.

Chen Chen: [Foreign Language]

Xiaoyi Jin: [Interpreted] In the second quarter, net service revenue decreased by 4.2% year-over-year, mainly due to 2 factors. First, we increased subsidies for merchants, including logistic fees incentives for new users as PJT marketplace expanded into more fragmented markets. Second, during the promotional campaign, we provided discounts or waivers on service fees to Paipai POP merchants to boost their transactions.

Chen Chen: [Foreign Language]

Xiaoyi Jin: [Interpreted] Looking ahead, we expect that as PJT continues to penetrate lower-tier markets, more small-sized merchants will gain easier access to the national pre-owned trade-in market. By leveraging our quality inspection technology, platform services and differentiated membership programs, we expect to boost PJT's operational efficiency and grow its platform service revenue in line with the healthy expansion of China's pre-owned consumer electronics and smartphone industry.

Chen Chen: [Foreign Language]

Xiaoyi Jin: [Interpreted] For our Paipai B2C business, we are shifting towards 1P curated retail and 3P consignment models, which will affect revenue in the short term. Under the 1P model, we are co-building capabilities with JD.com to meet consumer demand for curated pre-owned products, helping users upgrade their devices with high-quality affordable options. Under the consignment model, Paipai is continuously exploring ways to support small merchants. We are expanding merchant recruitment, boosting merchant vitality and providing robust support for their store operations, traffic management and after-sales services.

Chen Chen: [Foreign Language]

Xiaoyi Jin: [Interpreted] In our multi-category recycling services, we are advancing refined operations to reinforce consumer mind share of the AHS brand through themed stores and differentiated user experiences. We are confident to continue growing faster than broader industry. That's it for the question, thank you.

Operator: The next question comes from Brian Lantier with Zacks Small-Cap Research.

Brian Lantier: Congratulations on navigating what's turned into a challenging year for the smartphone market. I wonder if you could talk a little bit about your development plans and your performance goals for the international business?

Xuefeng Chen Kerry: [Foreign Language]

Xiaoyi Jin: [Interpreted] The main part of our overseas strategy is B2B, which is complemented by our To-C business. B2B remains the core revenue contributor, accounting for around 90% of our overseas revenue. Our goal is to build FoneSquare into a global version of PJT marketplace in 3 years. We will expand our supply and buyers network, bring our automation technologies overseas and improve our open platform. We already have a mature B2B system in Hong Kong, covering inspection, operations and sales. We plan to start building new regional capabilities in Dubai and in the second half of this year.

FoneSquare is now officially available in Hong Kong app stores, and we plan to gradually expand into Middle Eastern markets like Dubai and Southeast Asian markets like Malaysia. We continue to optimize FoneSquare's functionality and user experience and expect to launch the next phase of our user growth initiatives soon.

Xuefeng Chen Kerry: [Foreign Language]

Xiaoyi Jin: [Interpreted] In addition, we are cautiously exploring overseas To-C opportunities under the ReRe brand, whether through ReRe kiosks already deployed in Europe or our first ReRe store in Hong Kong recently opened in Hong Kong. Our overseas To-C business is still at an early stage of exploration. We will share further updates as we make progress.

Operator: The next question comes from Raphael Tse with DBS.

Wut Hei Tse: [Foreign Language] Congratulations for the record-breaking quarter. One question from my side. So the group's number of stores declined quarter-over-quarter in the second quarter of 2026, while the number of in-store visitors increased significantly. How can we estimate or forecast the change in store numbers for this year?

Xuefeng Chen Kerry: [Foreign Language]

Xiaoyi Jin: [Interpreted] To begin with, I'd like to note that AHS team has solid capabilities in innovation and pacing for store operations. There are 2 factors to consider in making phased store count adjustments. First is the need to solidify our operations after rapid expansion. Accordingly, we have repositioned some poorly located stores and closed some underperforming ones. This is standard business practice. Secondly, we are preparing and accumulating experience for our new store strategy. Our luxury-themed and sports-themed stores have already seen good data validation. Moving forward, we will adopt a tiered store strategy, upgrading select locations into specialized category themed stores. You will soon see us rolling out more of these themed stores across different categories.

I also want to emphasize that our budget to build store-based fulfillment capabilities remains disciplined with no incremental investment. We are strengthening these capabilities by reallocating resources within our existing budget.

Xuefeng Chen Kerry: [Foreign Language]

Xiaoyi Jin: [Interpreted] Demand for recycling and trade-in services has been strong this year. We expanded our to-door team to meet higher fulfillment demand in top-tier cities. During the June 18 shopping festival, we used flexible workforce solutions to quickly expand the team to nearly 3,000 people. After the peak period, the to-door capacity adjusted back down, helping us control front-end operating expenses.

Xuefeng Chen Kerry: [Foreign Language]

Xiaoyi Jin: [Interpreted] We will continue to strengthen our in-store and to-door fulfillment capabilities to provide users with a trusted and convenient experience. Thank you.

Operator: As there are no further questions at this time, I'd like to turn the conference back to management for closing remarks.

Xiaoyi Jin: Thank you again for joining us. A replay of today's call will be available on our IR website shortly, followed by a transcript when ready. If you have any additional questions, please feel free to e-mail us at ir@atrenew.com. Have a good day. Thank you.

Operator: This conference has now concluded. Thank you for attending today's presentation. You may now disconnect. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]

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