JD Logistics Inc

HKEX:2618

Earnings Call Analysis

JD Logistics Q2 2024: Revenue Growth and Record Profitability

In the second quarter of 2024, JD Logistics reported a revenue of RMB 44.2 billion, up 7.7% year-over-year, with external customer revenue growing by 8.1%. The net profit achieved a record high at RMB 2.46 billion, nearly triple that of last year, and a net profit margin of 5.6%. The company's enhanced operational efficiency and technology upgrades contributed significantly to this success. EBITDA surged by 50.3% to RMB 5.63 billion. Despite macroeconomic pressures, JD Logistics remained optimistic and focused on maintaining growth through strategic improvements and cost efficiencies.

Strong Financial Performance

JD Logistics saw significant improvement in its financial metrics in Q2 2024. Revenue rose to RMB 44.2 billion, marking a 7.7% year-over-year increase. A notable highlight was the revenue from external customers, which jumped 8.1% to RMB 30.7 billion, comprising 69.4% of total revenue. The non-IFRS net profit reached RMB 2.46 billion, almost tripling from the previous year, with a non-IFRS profit margin of 5.6%, an increase of 3.5 percentage points year-over-year .

Growth in Integrated Supply Chain Revenue

Revenue from integrated supply chain (ISC) customers increased to RMB 21.3 billion, a growth of 4.4% year-over-year. This was driven by RMB 13.5 billion from JD Group and RMB 7.8 billion from external ISC customers. The number of external ISC customers rose by 11.2% to 58,000, reflecting JD Logistics' efforts to enhance its service offerings and expand its customer base in specific segments .

Technological Enhancements

JD Logistics has been integrating advanced algorithms and technology into its operations to boost efficiency and reduce costs. This technological focus has been a key driver behind the company’s improved margins and operational performance. Customized services, like the Tianlang goods-to-person system developed for a leading domestic semiconductor company, highlight JD's continuous push for innovation and operational excellence .

Sector-Specific Solutions

JD Logistics provided tailored solutions for different industries, such as the apparel and alcoholic beverage sectors. The company partnered with global apparel brands for reverse logistics, B2C, and B2B integrated inventory services. In the alcoholic beverage industry, JD Logistics offered solutions that optimize warehouse deployment and minimize fulfillment times, gaining a reputation for excellence in various logistics segments .

Employee and Operational Optimizations

The company's employee benefit expenses were RMB 15.14 billion, up 13.1% year-over-year, driven by the increasing number of frontline operational employees. Despite this, total outsourcing costs decreased by 3.6% year-over-year, accounting for 31.6% of total revenue. JD Logistics has been able to achieve cost efficiencies through increased automation and better resource allocation using advanced algorithms .

R&D and Governance

R&D expenses for the quarter were RMB 880 million, down 4.3% year-over-year, indicating JD Logistics’ shift towards maximizing current technological capabilities. General administrative expenses saw a slight increase of 1.2% year-over-year. These investments are crucial for maintaining the company’s competitive edge and ensuring sustainable growth in the long term .

International Expansion

Internationally, JD Logistics has been expanding its footprint, providing integrated warehousing and distribution services in 18 countries. Although the international business currently forms a small percentage of total revenue, it is growing at a faster rate than domestic operations. The company’s strategic collaborations and technological capabilities position it well for sustained international growth .

Future Outlook

Looking forward, JD Logistics is optimistic yet cautious about the second half of 2024. Management expects to maintain growth momentum by expanding its cross-border e-commerce freight and delivery services and focusing on cost optimization and technological innovations. The company aims to become the world’s most trusted supply chain solutions and logistics service provider through continuous evolution and improvement .

Earnings Call Transcript 2024-Q2

[Operator]

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the JD Logistics Second Quarter 2024 Results Conference Call. [Operator Instructions]

I will turn the call over to Ms. [indiscernible], Head of Investor Relations at JD Logistics. Go ahead, [ Sean ].

[Unknown Executive]

Thank you, operator. Good day, ladies and gentlemen. Welcome to our second quarter 2024 results conference call. Joining us today are our Executive Director and CEO, Mr. Hu Wei; and CFO, Mr. Wu Hao.

Before we start, we would like to remind you that today's discussion will contain forward-looking statements, which involve a number of risks and uncertainties. Actual results and outcomes may differ materially from those mentioned in today's announcement and this discussion. The company does not undertake any obligation to update this forward-looking information, except as required by law.

During today's call, management will also discuss certain non-IFRS financial measures for comparison purposes only. For a definition of non-IFRS financial measures and the reconciliation of the IFRS to non-IFRS financial results, please refer to the announcement of the results for the 3 months and 6 months ended June 30, 2024, issued earlier today.

For today's call, management will read the prepared remarks in Chinese and will only be accepting questions in Chinese during the question-and-answer session. A third-party interpreter will provide simultaneous interpretation in English on the second line for the duration of the call. Please note that English translation is for convenience purposes only. In the case of any discrepancy, management's statements in the original language will prevail.

I would like to turn the call over to Mr. Hu Wei. Please go ahead, sir.

[Wei Hu, executive]

Dear investors and analysts, welcome to JD Logistics second quarter 2024. This is Hu Wei, the CEO of JD Logistics. Thank you for joining us today.

As China's economy continued to recover and improve in the second quarter of 2024, JD Logistics achieved a total revenue of RMB 44.2 billion, an increase of 7.7% year-over-year. Revenue from external customers increased about 8.1% year-over-year to RMB 30.7 billion, with the percentage of the total revenue increasing year-over-year to 69.4%. Our profitability set a new record in this quarter, reaching its highest level for any quarter to date since listing.

Our non-IFRS net profit was RMB 2.46 billion, nearly 3x that of the same period last year. And our non-IFRS net profit margin was 5.6%, an increase of 3.5 percentage points year-over-year.

These impressive results reflect our consistent efforts to optimize warehouse network deployment, as well as our iterative upgrades of technology applications and ongoing end to end efficiency and business quality improvements.

In the second quarter, revenue from integrated supply chain customers reached RMB 21.3 billion, an increase of 4.4% year-over- year. This included RMB 13.5 billion in revenue from JD Group and RMB 7.8 billion in revenue from external ISC customers, both maintaining a steady growth trend. The number of our external ISC customers amounted to 58,000, an increase of 11.2% year-over-year. Such growth was primarily attributed to our efforts in addressing the pain points and needs of customers in specific segments and enhancing our capabilities of ISC solutions and services. This has resulted in a good reputation and benchmark effect. effectively expanding business cooperation opportunities with more customers.

Given the high return rates of apparel products and the trend toward inventory integration across online and offline channels, we have developed specialized solutions and services tailored to the apparel industry, creating a more flexible and agile supply chain for various apparel brands. This quarter, we partnered with an apparel company that owns several global brands, marking our first international collaboration in the apparel industry. The scope of our collaboration includes multiple scenarios, including forward and reverse logistics, B2C and B2B integrated inventory, transfer logistics services between stores, et cetera. Through this international partnership, JD Logistics has gained operational and system experience that will support our future expansion with more international customers.

Furthermore, we have developed a service model incorporating cross docking, value-added processing, and drop-shipping to align with the e-commerce trends of sales-driven procurement and rapid inventory turnover. This model has been expanded to several apparel production zones, effectively helping customers managing order volume fluctuations during platform promotions and support rapid turnover.

We also collaborated with an apparel company, [ Miiow ], this quarter. As their order volumes surged during the live-streaming events and the June 18 Grand Promotion, we provided robust support for operational security, significantly improving key metrics such as on-time delivery rates. Additionally, we have developed specialized logistics services and products for corporate customers in the alcoholic beverage industry, successfully penetrating various sub-sectors such as white wine and red wine. Our solutions help customers quickly optimize their nationwide warehouse deployment planning and inventory distribution, significantly shortening the fulfillment time for online multiple channel orders and reducing in-transit damage rates.

As we continue to deepen our supply chain services in the alcoholic beverage industry, we have also developed several value-added services, such as full-process visibility, traceability and anti-counterfeiting, standardized packaging, and authentication services. In short, our ISC logistics services empower our customers to rapidly expand their businesses.

In the home appliances industry, we continue to provide omni-channel ISC service for many leading customers. We have extended these services to warehouse network planning, inventory layout and replenishment recommendations, effectively reducing cross-region fulfillment and overall logistics costs. Many leading home appliances customers have expanded their collaboration with us, fully demonstrating our expertise and service advantages in the home appliances logistics.

While continuously strengthening our leading position in China's ISC market, we are also actively expanding our international business. Through our Global Smart Supply Chain Network plan, we have strategically developed our overseas warehousing. As of the end of the second quarter of 2024, we operated approximately 100 bonded warehouses, international direct distribution warehouses and overseas warehouses, covering aggregate gross floor area of nearly 1 million square meters. Our overseas warehouses now cover 18 countries and regions worldwide, providing high-quality, efficient, and comprehensive ISC solutions to Chinese go-global brands and overseas customers.

Over the past 2 years, our revenue from overseas ISC logistics services has maintained a strong growth trend, with our overseas warehousing services increasingly becoming the preferred choice for overseas customers. We provide integrated warehousing and distribution logistics services to numerous overseas customers in the United States, the Netherlands, Germany and Australia, among other countries, earning their trust and recognition.

This quarter, we expanded and deepened our partnership with a well-known [ drinkware ] brand in the United States, undertaking all order fulfillment services for its online platforms in the United States. We've also successfully replicated this service model for more overseas customers.

Regarding Chinese go-global customers, we provided a full-process automotive spare parts supply chain solution for a Chinese auto brand, covering the full process from domestic pick-up to overseas warehousing and distribution. This has improved delivery efficiency, accelerated the turnover of goods, and opened new pathways for the international development of Chinese automotive brands.

Our network infrastructure consists of 6 logistics networks, including warehouse, line-haul transportation and last-mile delivery. As of the end of the second quarter of 2024, our warehouse network covered nearly all counties and districts in China, consisting of over 1,600 self-operated warehouses and over 2,000 third-party warehouses and owner-operated cloud warehouses under our Open Warehouse Platform. Our warehouse network has an aggregate GFA of more than 32 million square meters, including warehouse space managed through the Open Warehouse Platform.

In the second quarter of 2024, our revenue from other customers, primarily including express and freight delivery, increased by 11% year-over-year to RMB 22.9 billion. In terms of express delivery services, our revenue has maintained steady growth and our profitability continues to improve. This quarter, we partnered with multiple e-commerce platforms and further increased our share of reverse logistics from a leading live-streaming e-commerce platform.

In addition, with the continuous enhancement in capabilities of JD Airlines' all-cargo airplanes, we significantly optimized our service capabilities for the delivery of fresh produce such as cherry and lychee. This ensured the fast delivery of fresh fruits across the country with high-quality and reliable services. In terms of product capabilities and experience, we continue to expand the coverage of our next-morning and next-day delivery, continuously upgrading customer experiences and satisfaction. According to survey results published by the State Post Bureau of the People's Republic of China, our express delivery services have constantly maintained best-in-class customer satisfaction ratings.

Moving into the freight delivery services. With the consolidation of Deppon Logistics, we rank among the top tier in China in terms of both freight volume and revenue. We steadily advanced our network integration with Deppon Logistics, particularly with respect to transit and transportation, and further expanded our market share with comprehensive and flexible products and services.

We consistently prioritize technological innovation as the core of our development. We continuously integrate algorithms and technology into our daily operations, driving transformations in logistics network deployment, operational processes, and automation applications, thereby reducing costs and enhancing efficiency. Furthermore, we continuously upgrade and iterate our intelligent technology products, driving high-quality industry development and demonstrating our innovative strength on the international stage.

This quarter, we provided customized services to a leading domestic semiconductor company with our self-developed Tianlang goods-to-person system. This marks another significant breakthrough following our established successes in the 3C, automotive spare parts, and pharmaceutical industries. Additionally, we established a strategic cooperation with the Saudi Electricity Company. Both parties will promote collaboration in areas such as warehouse automation upgrades and supply chain system optimization, fully leveraging our extensive practical experience in successfully serving many corporations in the power industry in China.

Looking ahead into the second half of the year, we will continue to adhere to our core operational philosophy of reducing the frequency of goods moved and minimizing the distance of fulfilment by further optimizing our logistics network deployment and integrating technology with operations during full process to enhance operational efficiency. We will also continue to deeply cultivate our industry-specific capabilities with ISC logistics and actively respond to national policies such as trade-in of used goods, promoting green and sustainable development throughout the supply chain. Through these efforts, JD Logistics aims to become the world's most trusted supply chain solutions and logistics service provider, contributing to improvement of service standards industry-wide, and sustainable and healthy development of the industry.

Thank you. Next, I'd like to invite Mr. Wu Hao to discuss the details of our financial performance.

[Hao Wu, executive]

Thank you, Mr. Hu Wei. Hello, everyone. This is Wu Hao, CFO of JD Logistics. I'm pleased to present JD Logistics' financial performance for the second quarter of 2024.

In the second quarter of 2024, as China's economy maintained stable and upward trend, JD Logistics significantly improved profitability while driving high-quality growth. For the quarter, our non-IFRS profit was RMB 2.46 billion, an impressive increase of 197.4% year-over-year, with a profit margin of 5.6%, up 3.5 percentage points year-over-year. Other core profit metrics also reached their best-ever quarterly levels since our listing. These results represent our ongoing optimizations in product and customer structure, continuous operational refinements, and consistent efforts to improve end-to-end efficiency while steadily enhancing operational quality.

In the second quarter of 2024, our total revenue reached RMB 44.21 billion, up 7.7% year-over-year. Notably, revenue from external customers increased by 8.1% year-over-year to RMB 30.67 billion, accounting for 69.4% of total revenue, reflecting our external business' steady expansion.

Revenue from ISC customers totaled RMB 21.3 billion in the second quarter, up 4.4% year-over-year. Among them, ISC revenue from JD Group amounted to RMB 13.53 billion, up 7% year-over-year. The growth was attributable to the increased revenue from JD Group, continuously fueled by JD Retail's lower free shipping thresholds for its 1P business. Moreover, during the quarter, our revenue from external customers achieved a steady growth, reaching RMB 7.77 billion, and the number of external ISC customers amounted to 57,889, up 11.2% year-over-year.

Our revenue from other customers maintained healthy growth for the second quarter, reaching RMB 22.91 billion, up 11% year-over-year. The increase was primarily due to our enhanced capabilities in express and freight delivery services. Notably, for our express delivery services, we further improved delivery [ timeliness ] and customer experience through our continuous model innovations, technological investments, and improved capabilities of JD Airlines' all-cargo airplanes. We maintained best-in-class customer satisfaction ratings in the second quarter's express delivery services survey thanks to our robust product capabilities, which are also driving consistent growth in our express and freight delivery business.

We have expanded our market share in the reverse logistics services from a leading live-streaming e-commerce platform and achieved substantial breakthroughs in delivery services from production zones. Regarding the freight delivery services, we maintained our leading position nationwide, excelling in both freight volume and revenue. In addition to our revenue growth, our gross margin in the second quarter was 11.9%, up 3.6 percentage points year-over-year, representing our best quarterly gross margin since our listing.

Next, I'd like to turn to the main costs of revenue. First, employee benefit expenses were RMB 15.14 billion in the second quarter, up 13.1% year-over-year. The increase was mainly attributable to the year-over-year increase in the number of our frontline operational employees in delivery and warehousing, with the number increasing from 410,000 at the end of the second quarter of last year to 430,000 at the end of the second quarter of this year. This increase in the number of operational employees was attributable to the addition of our own employees to key operational processes such as warehousing and last-mile delivery, aimed at ensuring high-quality service and elevating customer experience. For example, we constantly explore market potential and customer needs, offering specialized delivery services across diverse scenarios, while also expanding the coverage of next-morning and next-day delivery.

In the second quarter, employee benefit accounted for 34.2% of total revenue, up [ 1.6 ] percentage points year-over-year. Second, our outsourcing cost was RMB 13.99 billion in the second quarter, down 3.6% year-over-year. It accounted for 31.6% of total revenue for the quarter, down 3.7 percentage points year-over-year. Notably, transportation-related expenses, the primary component of our outsourcing cost, further decreased year-over-year as a percentage of total revenue, maintaining its consistent downward trend. This improvement was mainly attributable to our ongoing efforts in our operations optimization. By expanding the application of advanced algorithms, we help the matching of shipping needs with transportation resources, while also reducing logistics

Capacity costs through route streamlining and optimization.

Third, our total rental cost was RMB 3.3 billion in the second quarter, down [ 0.3% ] year-over-year. As we continued to promote facility integration and optimize network structure, our total revenue (sic) [ rental ] cost accounted for 7.5% of our total revenue in the second quarter, down 0.6 percentage points year-over-year.

Apart from the major costs mentioned above, our product structure optimizations and ongoing tech-empowered management and control refinements led to a decrease in depreciation and amortization costs and other costs as a percentage of total revenue, down 0.9 percentage points year-over-year.

In terms of expenses, our operating expenses in the second quarter of 2024 were RMB 3.04 billion, up 4.3% year-over-year and accounting for 6.9% of total revenue, down 0.2 percentage points year-over-year. Among them, sales and marketing expenses were RMB 1.37 billion, accounting for 3.1% of total revenue, up 0.1 percentage points year-over-year. Sales and marketing expenses accounted for 4.5% of revenue from external customers, up [ 0.2% ] year-over-year. We maintained moderate investments in key resources such as sales and marketing personnel to drive business growth.

In the second quarter of 2024, our R&D expenses were RMB 880 million, down 4.3% year-over-year and accounting for 2.0% of total revenue, down 0.3 percentage points year-over-year. As our system capabilities gradually matured, we have allocated more R&D resources to strengthen our end-to-end automation, digital and intelligence capabilities, driving cost savings and efficiency improvements.

Our general and administrative expenses were RMB 790 million, up 1.2% year-over-year and accounting for 1.8% of total revenue, down 0.2 percentage points year-over-year.

In terms of profit, please also consider our non-IFRS measures, which we believe may better reflect our core operations. Both non-IFRS profit and non-IFRS EBITDA exclude items that we believe are not indicative of our core operating performance to help investors and other users of financial information better understand and evaluate our core operating results.

In the second quarter of 2024, our non-IFRS profit was RMB 2.46 billion, up substantially 179.4% (sic) [ 197.4% ] year-over-year with a net increase of RMB 1.63 billion. Non-IFRS profit margin was 5.6%, up 3.5 percentage points year-over-year. With our non-IFRS profit margin improving year-over-year for the sixth consecutive quarter, we delivered the highest quarterly profit and margin since our listing. The improvement in non-IFRS profit margin was primarily attributable to the impact of the year-over-year increase in gross margin. Non-IFRS EBITDA for the second quarter was RMB 5.63 billion, an increase of 50.3% year-over-year, with a non-IFRS EBITDA margin of 12.7%, up 3.6 percentage points year-over-year.

We also continued to monitor our cash reserves and cash flow to maintain a healthy balance sheet and sufficient capital to support business development and meet our operational needs. In the second quarter of 2024, considering lease-related payments, we recorded a net inflow of RMB 1.69 billion in free cash flow, turning around from the outflow during the same period last year. Net operating cash flow under IFRS reached RMB 2.83 billion, an increase of RMB 3.12 billion compared to the same period last year, primarily driven by enhanced operations and year-over-year profitability improvement.

Our capital expenditure was RMB1.14 billion for the second quarter, an increase of RMB 190 million year-over-year, primarily due to investments in transportation equipment [ indiscernible ] at improving operational efficiency. Going forward, we will make prudent and efficient capital expenditures based on our business development needs to strengthen our mid to long-term capabilities, improving our network structure and enhance operational efficiency.

Before we wrap up, I would like to express our heartfelt thanks to our stakeholders for their enduring support and trust in JD Logistics. Moving ahead, we will remain focused on cost efficiency and experience. Specifically, we will improve our product and capabilities centered around ISC, enhancing our product competitiveness and industry-specific service capabilities to promote our business' healthy and sustainable expansion.

Additionally, we will further improve profitability through ongoing optimization of our network structure, technological empowerment, and innovative efficiency improvements, thereby creating good value for our shareholders.

Thank you. That concludes my prepared remarks. Now we can start the Q&A session.

[Unknown Executive]

Thank you, Mr. Wu Hao. This concludes our prepared remarks. We would like to open the call to your questions. Operator, please start the Q&A session when ready. Thank you.

[Operator]

[Operator Instructions] Thank you. The first question comes from Citi. Brian, please start your questions.

[Brian Gong, analyst]

Congratulations. You are having very good profitability. I have 2 questions. At present in Q2, the macro economy in China is still holding pressure. The consumption trend is getting slowed down, especially from the live streaming part. Under such a background, I want to ask the impact on your businesses. So on that, do you have some solutions to fight back such pressure? 1P, 2P, 3P, ISC, freight line and delivery, I want to understand the general expectation of the growth momentum and growth rate.

Secondly, in Q2, the profitability was very positive with good uptick. So I want to understand more of the drivers and reasons behind and what is expectation on the second half year trend.

[Wei Hu, executive]

Thank you, Brian, for the question. First of all, if we are watching the transactions from the e-commerce platforms, we could feel the pressure. I do agree with you. However, I want to hold a positive perspective. The total numbers of the packages are still on the rise. The external customers, their profits are at 10% to 11% of our growth rate. I find this trend is still promising. It is also something that could be well sustained.

On top of that, for the consumption structure in the Chinese market, some of the white brand customers may have a higher growth rate. The branded customers hold higher pressure in terms of the growth in the second half of this year. At present, customers are more prudent in buying high-quality products. I could also find this reflected results in our supply chain growth. The ISC services for the branded customers are holding new pressure and we are also exploring good solutions to improve the efficiency, helping them to reduce the cost and facing the challenges from the market.

Generally speaking, the second half of this year, according to what I see today, will not present too many challenges. I believe that the trend will be well kept as we predicted, we will catch up with good momentum, the opportunities. Right now, the e-commerce platforms are obtaining good chances and opportunities. The cross-border e-commerce freight and delivery is also on the rise. That is also a good way we could work on. However, I do recommend us to stay prudently optimistic. We are not going to be too optimistic. We still want to take 2 more quarters to create new win-wins with the cross-border e-commerce platforms. In light of the optimizing profitability for us, I mentioned that over the last 6 months we kept the momentum to optimize our capacities.

The good profitability is having better quality. We are having the good profitability, better revenue. The secrets and reasons behind include refined management and technical investment. For example, in our operational efficiency -- to boost up the operational efficiency, we changed -- we have already made improvements to have better structure. We inquired Deppon Logistics. We did a lot of things to improve the operational efficiency as well as cost reduction.

Moreover, as we're having more businesses, the scale of economy can be [ sold. ] The cost can be well managed. We have volume-based procurement, we have better bargaining power. Those are the strategies we're also having. Also apart from that, we are also investing heavily on technologies and transportation. Right now, we are improving our algorithms to better manage the resources and improving the penetration rate. As a result, the algorithms can offer you better routes. The vehicles and its efficiencies are boosted significantly, reducing the cost.

Moreover, we are managing better terminals last-mile delivery according to our algorithms. According to the algorithm-powered estimation, we could better deliver the products at a cost effective manner. The investments on innovation and technologies help us to stand out, and [ manage ] the data on some buying festivals in China. Right now, better revenues is something we are proud of and we [ care to ] keep that momentum.

Our CFO, Wu Hao, has shared with you some tips why JD logistics can improve the revenue structure and we are seeing very good outcomes by far. And you believe that you could maintain the momentum. And I also want to share with you a few more points. We have grown together with our customers, our fulfillment, our timeliness, et cetera. We made a good stride forward compared to last year.

Generally speaking, we are managing and optimizing our cost. We are maintaining a good growing momentum and we could also boost our technical innovation. We are still transforming us. Thank you.

[Operator]

Next question, Tom Chong from Jefferies.

[Thomas Chong, analyst]

Congratulations. You have a very good profitability, much better than your expectation, and I see how hard you are working to obtaining that result. My question is on ISC supply-chain. In your future strategies, do you have some new plans on the pipeline? Will you expand to other categories? On top of that, I want to listen to more of your comments on the ISC supply chain competition landmark. Compared to your counterparts and peers, what helps you to stand out?

[Unknown Executive]

Thank you for the question. Thank you, Thomas. I want to take up your questions and give you a quick answer about the ISC supply chain landscape and capacities. In 2024, as we are getting more mature, the services and qualities are on the rise and we have better reputations as well. The numbers of the customers, on the rise as well. To be more specific, we are covering 6 major industries, including the Fast-Moving Consumer Goods, Automotive, Pharmaceutical, Smart Appliances, and et cetera. We are providing them the smart solution to be more competitive on the market.

Simply put, we are penetrating into the domestic market and cross-border segments, offering more solutions to customers. We just talked about the alcoholic industry. We are optimizing the warehousing, the inventory. We want to do more for the customers to help them to address in-season and off-season inventories. And we also want to provide them more value-added services such as cleaning; in terms of the home appliances, we help them to share the inventories from multiple cities and points, helping the customers to reduce their cost and improve the efficiency.

Over the last quarter, we are making stride forward. We are seeing the pain points of the customers after identifying them. Their pain points are something we are seeing as a challenge to help them to find a better market ratio in the long run. We will still focus on the major industries, I talked about. The low -- domestic logistics, the international logistics are something we never give-in or give-up. We will continue to work with them and provide them better solutions. That is my short response. Thank you for staying with me.

[Operator]

Next question, Li Jiulu from CICC.

[Jiulu Li, analyst]

Can you hear me? I want to have a test.

[Operator]

Yes, please go ahead. We can listen to you very clearly.

[Jiulu Li, analyst]

Congratulations again. A very good record for JD Logistics I have 2 questions for you. The first question has been raised. You achieved substantially in making a good revenue. In Q2, I see you are making a big stride forward. In the upcoming quarters, in the longer run, how you could improve the gross margin, net profit sustainably and significantly?

The next question is on the International business. Both management talked about your footprints on International deployment on a warehousing system. I want to look at this question. I want to view this question in a financial perspective about the percentage attributable to your revenue? And what is the future strategies and your expectations for the international market?

[Hao Wu, executive]

Thank you for the 2 questions. According to what I have observed, gross margin and net profit are quite optimal in light of the industry average. I once shared the middle term and long term targets with all stakeholders and investors. In the logistics industry, we care very much about the size and scale. In the long term and middle term, we want to achieve a good record financially and we want to deliver more value to our stakeholders.

In the middle term and long term we will be at optimal stage in the industry. More attention will be focused on the growth part. Still, I hold high expectation to grow our business and we are well prepared to achieve that. In light of the profitability in -- with good profitability, we will continue to invest to expand our market share, our market scale to ensure middle term and long term performance. Internationally, according to my observations, the total size and -- the total size or the percentage were still comparatively low and small. The International business did not give us a bigger boost in terms of the financial ratio, but we are seeing very good growing momentum.

The growth momentum was higher than that of the domestic business line. The supply chain deployment in overseas market was well recognized by our customers. In the foreseeable future, the growth trend of the international market is better than the domestic market. In the upcoming years, that trend will be well kept and maintained. And strategically, I want to invite my colleague to give you the answer.

[Wei Hu, executive]

I have just talked about that. We maintained a very good and faster growth momentum. Our operational efficiency, our customer satisfaction rates, our solutions to kill their pain points, and different products and services such as automation and overcapacity to operate those systems. All those are the capacities we are good at, and we are also making very good brand out, achieving positive impact in the upcoming years in operating the International and overseas warehouses. I'm very confident in doing a good job. And we will continue to invest in our capacity building, reducing our cost and delivering better services. Thank you.

[Operator]

Thank you, Mr. Hu and Mr. Wu. Due to time constraint that concludes today's question-and-answer session. At this time, I will turn the conference back to [ Sean ] for any additional closing remarks.

[Unknown Executive]

Thank you once again for joining us today. If you have any further questions, please contact our IR team directly. Thank you.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]