Dingdong recently reported a 153.5% increase in second-quarter net income, but a significant portion of the improvement resulted from accounting treatment associated with the pending sale of its China business to Meituan.
Net income reached $40 million, compared with approximately $15.8 million in the same quarter last year. It marked Dingdong’s tenth consecutive quarter of GAAP profitability.
However, the company disclosed that classifying its China operations as held for sale caused it to stop recording depreciation and amortization on the long-lived assets associated with that business.
The accounting treatment increased second-quarter net income by $29.3 million. Dingdong said the same effect will continue to benefit quarterly net income until its pending transaction with Meituan is completed.
The $29.3 million accounting benefit is substantial relative to the company’s $40 million of reported consolidated net income, making it an important consideration when evaluating the headline profit increase.
Dingdong entered into a definitive agreement in February to sell its China business to Meituan. The transaction remains pending and is subject to closing conditions including antitrust approval from China’s State Administration for Market Regulation.
Operationally, the company continued to grow.
Total revenue increased 8.6% to $956.1 million. Revenue from the China business increased 8.3% to $945.3 million, helped by growth in orders, higher average monthly transacting users, increased ordering frequency and the addition of new frontline fulfillment stations in Eastern China.
Overseas revenue increased 36.2% to $10.8 million, although the overseas business remains loss-making.
Gross margin increased to 29.6% from 28.8%, while fulfillment expenses declined 7% to $177.9 million. Fulfillment costs fell to 18.6% of revenue from 21.7% a year earlier.
China operations generated net income of $49.4 million, largely reflecting the cessation of depreciation and amortization, while the overseas business produced a $9.3 million net loss.
Non-GAAP net income was $41.5 million, up 120.2%, although Dingdong noted that this measure is affected by the same held-for-sale accounting treatment.
“The Company has also delivered year-over-year revenue growth for the tenth consecutive quarter.”
