ATRenew Launches Major Store expansion

The recycling specialist said it plans to nearly triple its national network of brick-and-mortar AHS Recycle stores to 5,000 over the next three years

Key Takeaways:

• ATRenew has launched a major expansion of its brick-and-mortar store network to boost its brand and retail sales, and increase its supply of recycled products
• The recycling specialist is still tweaking several of its newer initiatives, including its iPhone partnership with Apple and expansion outside China

Online may be fine in the modern retailing landscape. But there's nothing like a traditional brick-and-mortar store for reaching more people directly and building your brand. That said, the online realm of social media is also an important supplement to word-of-mouth when it comes to building brand awareness.

Those are two of the key messages in the latest earnings report from ATRenew Inc. (RERE.US), China's leading recycling specialist handling everything from smartphones at the core of its business to more everyday consumer items like used gold and luxury goods.

The company unveiled a major new expansion for its national network of AHS Recycle stores as it reported 25.2% year-on-year revenue growth in the fourth quarter to 4.85 billion yuan ($669 million), bringing its annual revenue growth to a similar 25.9%. Apart from raising its profile, the major new buildout of its brick-and-mortar store network is also aimed at boosting ATRenew's business of selling direct to consumers, which carries much higher margins than selling to middlemen and other merchants.

Those highlights came as ATRenew revealed it is making tweaks to a high-profile tie-up with Apple (AAPL.US) for iPhone recycling dating back to 2023, as it looks for a profitable formula for a part of its business with big potential. It also disclosed its shuttering of some pilot overseas e-commerce projects that were losing money, but hinted at an upcoming new initiative that could see it enter the cross-border business using a different model.

All of this comes from a company that has spent the last few years nailing down its business model to its current state, which includes healthy profits at both the operating and net levels. At this point, many of its moves are more tweaks rather than major new shifts, as it scales up the most profitable parts of its business and pulls back on the less profitable ones.

The results of those efforts show up on ATRenew's bottom line, as the company reported a record 77.4 million yuan profit in the fourth quarter, only its third such profit on that basis, and besting its previous high by more than four times. It also posted a quarterly operating profit of 53.1 million yuan, its second consecutive profit on that basis, reversing a 16.7 million yuan operating loss a year earlier.

"We want to emphasize that AHS Recycle is a unique brand name with huge potential in the secondhand industry," founder and Chairman Chen Xuefeng, who also uses the English name Kerry, said on the company's earnings call after the release of its latest report.

Investors welcomed the generally upbeat announcement, including the company's forecast that its revenue would continue to grow about 26% in the current quarter as it continued to buy back its shares under an ongoing $50 million buyback program. The company's stock rose 9.4% on Tuesday after the report's release and has nearly tripled over the last year to trade at a three-year high. Its current fan base includes the likes of UBS, Morgan Stanley, T. Rowe Price and Invesco, which all hold 1% or more of its stock.

Store expansion

Next, we'll delve into some details of the highlights we've already mentioned, led by the major expansion of ATRenew's brick-and-mortar network of AHS Recycle stores. The company said that network totaled 1,861 stores in 283 cities by the end of last year, up about 14% in terms of store count from three months earlier.

Chairman Chen disclosed the company plans to nearly triple the store count to 5,000 over the next three years, including plans to open 800 new stores this year. While such an expansion should help the company over the longer run, it might eat into its profits in the shorter term. That fact was reflected by a 31.8% year-on-year jump in its fulfillment costs during the fourth quarter as it added employees and incurred other new store-related expenses.

In another effort to raise its profile, the company said it spent 100 million yuan in 2024 on a new media marketing campaign across popular social media platforms Douyin, Kuaishou and Xiaohongshu.

The physical expansion is aimed not only at raising the company's profile, but also at boosting its direct trading with consumers, which is one of ATRenew's key focuses. It said such direct sales to consumers accounted for 29% of its product revenue in last year's fourth quarter, up from 17% in the first quarter of 2023. Chen said the company's goal over the mid- to long-term is to get half of its revenue from such direct-to-consumer sales.

In terms of its Apple relationship, the company said that initiative was in a "transition phase" as ATRenew adjusts its pricing and operation strategy to improve the program's profitability. It said the program reached its previous target of generating 1 billion yuan in revenue last year, but CFO Rex Chen added "the scale of this business would decrease but the operating profit margin could turn positive" in the first quarter of 2025.

Outside of China, the company revealed it had closed one or more money-losing overseas initiatives during the quarter, which could be its e-commerce business, though it wasn't more specific. The company has previously detailed relationships with partners in Hong Kong, Japan and Sweden. But it hinted at the potential for a new international effort that could involve the sale of its recycled Chinese phones to buyers in other countries.

"There is substantial opportunity in the export and cross-regional circulation of pre-owned smartphones, and we will approach this with innovative approaches," Chen said.

Lastly, the company pointed out that in January China added smartphones to a national program providing subsidies for consumers to trade in their old products. While such a program won't directly help ATRenew in terms of sales, it could provide a big boost to the company's procurement of used phones, providing it with more supply to keep growing its revenue.

Even after its big stock gains over the past year, ATRenew's stock still trades at a relatively low price-to-sales (P/S) ratio of just 0.38. That's ahead of the even lower 0.05 for used clothing trader Rent the Runway (RENT.US), but trails the 0.98 for TheRealReal (REAL.US). The company could also soon have a listed domestic peer for comparison, after rival ShanH Technology made its first public filing for a Hong Kong IPO last September.