AiHuiShou International Co. Ltd. (RERE) Q4 2021 Earnings Call Transcript

AiHuiShou International Co. Ltd. (RERE)
Q4 2021 Earnings Call
Mar 10, 2022, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning and good evening, ladies and gentlemen. Thank you for standing by and welcome to ATRenew, Inc. fourth quarter and full year 2021 earnings conference call. At this time, all participants are on a listen-only mode.

We will be hosting a question-and-answer session after management's prepared remarks. Please note, this event is being recorded. I will now turn the call over to the first speaker today, Mr. Jeremy Ji, director of corporate development and investor relations for the company.

Please go ahead, sir.

Jeremy Ji -- Director of Corporate Development and Investor Relations

Thank you. Hello, everyone, and welcome to ATRenew's fourth quarter and full year 2021 earnings conference call. Speaking first today is Kerry Chen, our founder, chairman, CEO; and he'll be followed by CFO Rex Chen. After that, we'll open the call to questions from analysts.

Our fourth quarter and full year 2021 financial results were released earlier today. The earnings release, [Inaudible] slides accompanying this call. And filings with the U.S. SEC are available our company's -- our website at ir.atrenew.com.

There will also be a transcript following this call. For today's agenda, Kerry will share his thoughts on our fourth quarter and full year performance, as well as a review of our business strategy, followed by Rex, who will address the financial highlights. Both Kerry and Rex will join the Q&A session. Please note, 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 statement in the earnings press release.

Any forward-looking statements that ATRenew makes on this call are based on assumptions as of today, and ATRenew does not take any obligations to update our assumptions on these statements. Also, this call includes discussions of certain non-GAAP financial measures. Please refer to our earnings 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 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.

Kerry Chen -- Co-Founder, Chairman, and Chief Executive Officer

[Foreign language]

Unknown speaker

Hello, everyone, and thank you for joining us on our fourth quarter and full year 2021 earnings conference call.

Kerry Chen -- Co-Founder, Chairman, and Chief Executive Officer

[Foreign language]

Unknown speaker

Before we begin, I would like to extend my gratitude to all our employees, merchant partners, and industry partners. I could not be prouder of how our teams have worked together across the country to overcome the challenges of the COVID-19 resurgence. Our combined efforts enabled us to find creative solutions to navigate through such a challenging environment, offering consumers safe and convenient recycling, trading, and shopping services. I also want to thank our merchants and circular ecosystem partners for their continued trust and collaboration.

Together, we are promoting a low carbon lifestyles where recycling and reuse of preowned consumer electronics has become mainstream.

Kerry Chen -- Co-Founder, Chairman, and Chief Executive Officer

[Foreign language]

Unknown speaker

We are delighted to share with you our continued growth momentum at group level. In 2021, our GMV and total revenues reached RMB 32.5 billion and RMB 7.8 billion, representing year-over-year increase of 65.8% and 60.1%, respectively. These growth rates were significantly higher than those in 2020 and 2019. What contributed to this rapid growth was not only the increase in consumer demand for trading, but also our strong strategy execution of penetrating in lower tier cities and enhancing our confidence of sourcing supply locally.

Kerry Chen -- Co-Founder, Chairman, and Chief Executive Officer

[Foreign language]

Unknown speaker

On profitability, we have achieved significant efficiency optimization. In 2021, non-GAAP operating loss was RMB 100 million, and the non-GAAP operating margin narrowed to a negative 1.3% from negative 3% in 2020. Notably, revenues in the fourth quarter beat guidance, and we have successfully achieved a non-GAAP operating profitability. We are confident in maintaining this going forward.

With sufficient capital and a clear strategy, we are on the fast track of healthy and sustainable growth trajectory.

Kerry Chen -- Co-Founder, Chairman, and Chief Executive Officer

[Foreign language]

Unknown speaker

Next, let's take a more detailed look at our operations in four aspects. One, how will we deploy and manage the nationwide age as store network. Two, some newly updates on the city level service integration model. Three, how will we balance the scale expansion and raising take rate of marketplaces.

And fourth, pipeline sales performance during the spring festival.

Kerry Chen -- Co-Founder, Chairman, and Chief Executive Officer

[Foreign language]

Unknown speaker

First, on store operations. In 2021, we added 576 new stores, growing to a total number of offline stores to 1,308. This greatly exceeds our previous guidance of 200 new openings at the beginning of 2021. The store network covers 214 cities, an increase of 43 cities compared to the end of 2020, shouldering in-person delivery and fulfillment.

Writing on geographic expansion, we also deepened penetration in lower tier cities and increased density of stores in existing markets in order to further enhance sourcing capabilities and expand service coverage to individual consumers.

Kerry Chen -- Co-Founder, Chairman, and Chief Executive Officer

[Foreign language]

Unknown speaker

Among all the stores, 595 were self-operated AHS stores, where we meet our consumers recycling demand directly, as well as provide trade-in services for JD's new device sales. Notably, store economics set a new record high in the fourth quarter as monthly average revenues per self-operated store exceeded RMB 690,000 while achieving a net margin of 3.7%. Leveraging our strengths in such industry-leading UE, self-operated AHS stores continue to enhance our competitive moat on the supply side across different use cases and contribute to both the top line and bottom line growth of the 1P business.

Kerry Chen -- Co-Founder, Chairman, and Chief Executive Officer

[Foreign language]

Unknown speaker

Meanwhile, the number of 20 operated AHS stores reached 692, including standard franchise stores with the same format of self-operated ones. Partner stores we started and accelerated to open since 2021 and were incorporated in local retailer stores. Together, these jointly operated stores have contributed to our channel penetration and brand recognition, especially in lower tier markets.

Kerry Chen -- Co-Founder, Chairman, and Chief Executive Officer

[Foreign language]

Unknown speaker

In addition, we have 21 Paipai selection retail stores that provide a premium guaranteed and integrated online/offline shopping experience to customers.

Kerry Chen -- Co-Founder, Chairman, and Chief Executive Officer

[Foreign language]

Unknown speaker

The second aspect I would like to address is the city level service integration model. As introduced and emphasized in the third quarter earnings call, we reallocated resources in each city and integrated our core capabilities of three major business lines locally to establish a cohesive operating unit to penetrate deeper across local markets and to enhance local sourcing capability, as well as transaction efficiency. We then review the financial performance of each city and provide incentives accordingly.

Kerry Chen -- Co-Founder, Chairman, and Chief Executive Officer

[Foreign language]

Unknown speaker

The city level service integration model has proven to be the right path for growth judging by our progress in the fourth quarter. Local penetration rate equivalent to the trading volume preowned devices divided by the sales volume of new devices recorded significantly sequential increases of 46% in Langfang, Hebei province and 53% in [Inaudible]. In the first quarter 2020, we have launched 22 pilots cities. It turns out that 18 out of them achieved faster growth compared with the baseline.

B2B GMV increased by over 100% in 12 cities, including [Inaudible], [Inaudible], and [Inaudible]. We remain steadfast in the city level service integration strategy and will leverage it for refined analysis on local operations. It enables us to improve our sourcing process, promote recycling at city level, serve our customers better and in turn generate additional service revenue. Compared with the baseline, we expect to generate an extra GMV growth of 40% in the pilot cities.

Kerry Chen -- Co-Founder, Chairman, and Chief Executive Officer

[Foreign language]  Third, we have a comprehensive take rate of 4.8% for our marketplaces in the fourth quarter and we will balance the rising take rate and healthy growth of the [Inaudible] in the long run. For B2B business, we are devoted to offering a high quality transaction platform to meet as small merchants, empowering them with digital tools of efficient sourcing, inventory management, sales, logistics, and balance management. We take a small fraction of service fees out of the value we create. In 2021, our high quality services are an endorsement from merchants, leading to a 33% year-over-year increase in registered merchant counts.

The trust and the confidence we obtain from merchants also evidence why we can successfully adjust the fee structure for certain service items.

[Foreign language]

Unknown speaker

Looking ahead, we will continue to balance our needs to increase the take rate and our desire to expand the scale of B2B marketplace. We hope to achieve sustainable and high quality growth in the coming quarters as we unfold the city level services integration strategy. Our positioning for PJT Marketplace is to be with a basic service for the industry rather than to harvest the fruit aggressively. We are ready to fulfill third-party retailer's growing demand to trade in better, to attract more and more merchants and their supply to the online marketplace as we continue to increase customer engagement and improve the service experience.

Kerry Chen -- Co-Founder, Chairman, and Chief Executive Officer

[Foreign language]

Unknown speaker

Fourth, let me quickly cover high priced development. We achieved stable growth in B2C platform GMV and reached new high end service take rate. Thanks to our improved brand recognition, tighter control over self-operated supply chain and improvement in after sales services. In the fourth quarter, take rate for mobile category and their pipeline consignment model exceeded 10% for the first time ever.

We also collaborated with JD Group's marketing campaign related to the naming rights of [Inaudible] and provided full scale services. During the holiday, GMV Paipai marketplace grew by 71% year over year. Furthermore, we achieved year-over-year sales growth of over 300% on both [Inaudible].

Kerry Chen -- Co-Founder, Chairman, and Chief Executive Officer

[Foreign language]

Unknown speaker

In terms of profitability, we further refined over management and achieved a non-GAAP fulfilled gross margin of 14.6%, with non-GAAP operating profit reaching RMB 9.7 million in the fourth quarter. We also saw meaningful improvements in fulfillment and G&A efficiency as the non-GAAP fulfillment expenses and non-GAAP G&A expenses declined remarkably as a percentage of total revenue. We believe such efficiency can be further improved as a result of persistent execution of city level service integration strategy and wider implementation of automated inspection systems.

Kerry Chen -- Co-Founder, Chairman, and Chief Executive Officer

[Foreign language]

Unknown speaker

Operating an internet plus recycle business, ATRenew is evolving with the circular economy advocated by Chinese government. In 2022, we aim to serve our customers well while upholding our position as an important partner in JD's ecosystem. We root in deep in supply chain capabilities, continue upgrading automation technologies, and optimize cost structure and margins. With no doubt, city level service integration strategy stays core to our business and drives organic growth across local markets in China.

We are confident in our sustained growth without compromising profitability.

Kerry Chen -- Co-Founder, Chairman, and Chief Executive Officer

[Foreign language]

Unknown speaker

With that, I will hand the call over to our CFO, Rex, to go over the financials.

Rex Chen -- Chief Financial Officer

Thanks, Kerry, and hello, everyone. We're very pleased to report that we have achieved the profitability [Inaudible] while delivering fourth quarter revenues that exceeded our previous guidance. I will start by sharing some of our financial highlights before we go into a more detailed look at the numbers. Please note that all amounts are in RMB and all comparisons are on our year-over-year basis, unless otherwise stated.

In the fourth quarter of 2021, we delivered 48.2% revenue growth to achieve total revenues of over 2.4 billion, exceeding the high end of our previous guidance range provided in the third quarter earnings conference call. Total GMV growth by over 50.7%, driven by strong growth in both product sales GMV and the online marketplace GMV. In this quarter, the commission rate of our third-party marketplaces rose to 4.8% at the group level, marking a historical high. This is a testament that our merchants uses technology PJT in the Paipai marketplace for digitalized, safe, and convenient transactions.

Bidding [Inaudible] transactions continue to show very strong growth. Gross margin at the group level was 26.1% in the fourth quarter. Gross margin for our [Inaudible] business stabilized at the 13.3% sequentially as we rolled out our nationwide strategy to secure sources of supply at our best efforts. This further meets consumers demand for easy recycling and trading while obtaining greater consumer market share.

In the fourth quarter, we meaningfully optimized the cost structure through reducing fulfillment of costs, both at the storefronts and at operation centers. The progress is evidenced by our strong [Inaudible] GAAP-fulfilled gross margin between 14.6% and representing an increase of 140 basis points over a year ago. Notably, as previously mentioned, we delivered a non-GAAP operating income of 9.7 million this quarter. We expect to continuously optimize operational efficiency and improve our non-GAAP operating margin.

We aim at achieving operating profits throughout 2022 in non-GAAP measures. Now, let's take a detailed look at the financials. So overall, increasing GMV was driven by a strong growth in both product sales and the online marketplace GMV, which increased by 52.9% and 50%, respectively. Product sales GMV growth was mainly driven by improved efficiency in sourcing through the growing density and the penetration rate of AHS stores in China.

Another driver is a single space container of e-commerce in the livestreaming platforms to which we have shared currently in the third quarter conference call. GMV for online marketplaces, including PJT and the Paipai, increased by 50%, mainly driven by, first, stronger merchants demand and higher transaction frequency. And the second is the growth of B2C consignment model as 1P model contributes to profit and the 3P is still loss making at this stage. We strive to achieve more balanced growth rates of 1P GMV and 3P GMV from now setting profitability, higher priority during business expansion.

In the fourth quarter, total revenues increased by 48.2% to 2,435.8 million. Net products revenues increased by 43.9% to 2,076 million. Online service revenues increased by 78.3% to 359.9 million. Growth in net product sales revenue was driven by continued increases in the density of our AHS stores and our enforced trade-in collaboration with JD.com.

Grossing service revenue so driven by growing transaction volumes and increased user monetization capabilities of our marketplaces, reflecting a growing demand for our digital solutions and the technology in common by merchant users. We believe this expansion of commission rate should be organic as we seek a balance between a growing take rate and the growing skill as we prioritize the betterment of our ecosystem participants in the long run through more value added services, including a repair program. We aim to serve our customers well with ample service options instead of imposing comparative fees. Next, turning to our operating expenses.

To provide to provide greater clarity on the actual operating expenses, we will discuss our non-GAAP operating expenses, which better reflect the views of management. The reconciliations of GAAP and non-GAAP results are available in our six filings with the SEC. Operating costs and expenses increased the price of 1% to 2,573.2 million. Non-GAAP operating expenses, which exclude share-based compensation expenses and amortization of intangible assets resulting from business acquisitions, increased by 48.9% to 2,437.7 million.

Merchant [Inaudible] costs increased by 45.6% to [Inaudible] 800.5 million. This is in line with the growth of the legacy product sales revenues. Fulfillment expenses increased by 52.8% to 290.1 million, excluding 10.3 million share-based compensation expenses, which we will refer to as SBC from here on. Non-GAAP fulfillment expenses increased by 47.3% to 279.8 million.

The increase was primarily due to the growing costs related to fulfillment, plus a new logistics and operating center's costs as the company's business continue to scale. Notably, we have located our [Inaudible] operating center to [Inaudible], a city nearby at a lower cost. Meanwhile, advancing automation capabilities there, we're targeting to complete the full scale automation of [Inaudible] operating center in the first half of 2022, further reducing inspection costs per device 20% in sourced China. At the same time, for products with a low selling prices and relaxed delivery requirements, we brought in an economical logistics provider to optimize fulfillment costs.

Selling and marketing expenses increased by 74% to 358.8 million. The increase was primarily due to an increase in costs related to business development, sales promotion, and increase in personnel to match the growing scale of our business. Excluding SBC expenses and amortization of intangible assets from business acquisitions, non-GAAP selling and marketing expenses increased by 100.2% to just 271.7 million. Under the non-GAAP measures, selling and marketing expenses as a percentage of total revenues was 11.2% in the fourth quarter, slightly increase the price seven percentage points sequentially.

To provide more color on some expenses, the investments in advertisements, promotions, and campaigns reached in 92 million. Coupons on Paipai was 63 million, representing an increase of 23 million compared with the fourth quarter of 2020. Commission expenses 56 million and increase in line with the growth in scale and a new livestreaming sales model. For context, Paipai [Inaudible] the model in 2021 and industrial relations, health promotion expenses were en new to this category.

We expect those coupons on Paipai to decelerate as 1P, 2C and the consignment of sales getting on track. Overall, sales and marketing expenses as our total revenue remained relatively stable throughout 2021. G&A expenses increased by 41% to 51.9 million. Excluding SBC expenses, non-GAAP G&A expenses decreased by 10.6% to 32.9 million.

Similar to the third quarter, the decrease in expenses showed an improved cost efficiency in our middle and back offices. Technology and content expenses increased by 55.8% to 62 million. The increase was primarily due to increases in personnel costs related to the expansion of our research and development activities. Excluding SBC expenses and our amortization of intangible assets resulting from business acquisitions, non-GAAP technology and  content expenses increased 38% to 52.7 million.

As a result, our non-GAAP operating income was 9.7 million in the fourth quarter of 2021. Non-GAAP operating margin was 0.4% compared with negative 1.5% in the previous quarter. As of December 31, 2021, cash and cash equivalents, restricted cash, short-term investments, funds receivable from third-party payment service providers, and JD on the balance sheet totaled 2.6 billion. Of note, funds receivable from third-party payment service providers and from JD account recorded as amount due from related parties totaled 583.1 million.

These are cash topped off for the companies JD Pay account, [Inaudible], and Alipay accounts to support efficient recycling and transaction services. As [Inaudible], we announced a USD 100 million share repurchase program on December 28, 2021 [Inaudible] management's strong confidence in the company's solid fundamentals and the growth momentum. Now turning to outlook. For the first quarter of 2022, the company currently expects its total revenues to be between 2,150 million and 2,200 million.

We expect to achieve stable and healthy growth in 2022. The recurrence of COVID-19 variants, margin posting adverse impacts on our store operations, warehouses, and the merchants transactions in 2022. Thus, this forecast only reflects the company's current and preliminary views of the market and operation conditions, which are subject to change. This concludes our prepared remarks for today.

Operator, we are now ready to take your questions.

Questions & Answers:

Operator

[Operator instructions] Our first question today comes from Lucy Li with Goldman Sachs. Please go ahead.

Lucy Li -- Goldman Sachs -- Analyst

[Foreign language] The question is on, so in that stage of growth and in 10 in general, so in 2021, the company -- the proposed transaction volume exceeded 30 million pieces. So how do we assess the future growth potential going forward? And the second question is regarding our own business, 1P versus 3P. We observed 1P business deliver the fast growth in both 4Q and this year. So I wonder if we are going to put more emphasis on the 1P compared to 3P, for example.

Thank you.

Kerry Chen -- Co-Founder, Chairman, and Chief Executive Officer

[Foreign language]

Unknown speaker

OK. Thanks for the questions. To address the first one, we believe there is a great potential for growth. Firstly, on the addressable market, the number of devices transacted on our platform this year reached a record high of over 30 million.

However, this is still a small portion compared with 590 million new electronic devices sold in China annually, according to CIC. In addition, other devices, including phones, tablets and laptops, etc., totaled 2.7 billion, indicating a lower rate of recycling. Secondly, on our penetration rate at city level, our services have relatively little presence locally. It was low single digit in 70% of the cities in China, as we mentioned on the last earnings call.

We are poised to increase that through steadfast implementation of our city level service integration strategy. To answer your question to business priority, we plan to seek an accelerated growth of 1P business with steady profit and healthy growth of 3P GMV with more attention to the efficiency and profitability of the marketplaces. Looking back at 2021, GMV of 1P business increased 69.6% year over year, outlining the growth rates over the past years. We attribute this through the solid progresses in new store openings, a stronger trading partnership with JD, and expanding 1P direct 2C retail business on Paipai.

Kerry Chen -- Co-Founder, Chairman, and Chief Executive Officer

[Foreign language]

Unknown speaker

The stores continue to generate from profits. In the fourth quarter of 2021, net margin of mature stores reached 4%, improving overconfidence in survey more customers and top up our efforts in these stores. We expect to open 200 new standard AHS stores in 2022. Furthermore, we aim to add 500 partner stores, i.e.

store-in-store, a new format in collaboration with local partners as a part of the city level service integration strategy. This is to facilitate trade in and to expand consumer reach through the synergy with JD and mobile brands, and it helps to grow our footprint in local retail scenarios.

Kerry Chen -- Co-Founder, Chairman, and Chief Executive Officer

[Foreign language]

Unknown speaker

We think city level service integration model, the key to the next stage of growth for PJT and Paipai marketplace. This will be achieved through sourcing premium goods more efficiently. In the first quarter of 2022, we have launched a service integration model in 22 pilot cities. To highlight, the growth rate of B2B business in 12 pilot cities exceeded 100%, including Shenyang, [Inaudible], and [Inaudible], three provincial capitals.

By leveraging the city level service integration model, we dive deep into B2B business, we digitalized the transactions, and encouraged online transactions. Not only do we serve dealers but also new device retailers. Thus, formula closed loop from recycling from users when buying a new device through inspection at our facilities and directly to the retail end.

Kerry Chen -- Co-Founder, Chairman, and Chief Executive Officer

[Foreign language]Next question.

Operator

The next question comes from Joyce Ju with Bank of America. Please go ahead.

Joyce Ju -- Bank of America Merrill Lynch -- Analyst

[Foreign language] Regarding the take rate reached 4.8% this quarter, could management help us elaborate a little bit in terms of how do take rate improved and the future trends in terms of how it could further improve? Thank you.

Rex Chen -- Chief Financial Officer

Thank you, Joyce. Let me take your question. As you can see, service revenue increased by 78.3% year over year in this quarter, surpassing the growth rate of platform GMV. This was due to the increasing take rate for PJT and Paipai marketplaces.

So in the first quarter, the overall take rate, as you mentioned, was 4.8%, a 0.2% increase sequentially. Among them, the take rate of PJT marketplace was -- in average was 4.5% while the take rate of Paipai was 5.4%, which was 0.6% and 1.2% higher than the same period last year, respectively. For PJT Marketplace, we started to charge into an inspection service fee and consumer service fee from service in Q3, which led to an increased in take rate for PJT Marketplace by 0.6% compared with the same period last year. In the future, we will continue to expand and diversify our value-added services, such as maintenance services and the supply chain financing services to increase the corresponding take rate.

The take rate of the top model on Paipai marketplace remained stable compared to the same period the years. The increase of take rate on Paipai was mainly due to the increase in the take rate of its consignment business. The take rate of the consignment model was 10.7%, a significant increase of 4% sequentially. GMV of consignment model accounted for 18% of Paipai GMV in regional quarters.

The consignment model is being quickly adopted by merchants due to the complexity and the fragmentation of the prolonged electronic transaction industry. Recycling has faced numerous challenges when distributing to consumers so the consignment model of Paipai eases the burden of retail for small merchants. In the future, we strive to reach a balance between scale expansion and raising platform take rate. We will provide more service offerings and tighten control over the operations and the merchants ratings, which we believe will be conducive to the long-term development of the platform business.

Joyce Ju -- Bank of America Merrill Lynch -- Analyst

Got it. Thank you then.

Operator

The next question comes from Ella Ji with China Renaissance. Please go ahead.

Ella Ji -- China Renaissance -- Analyst

[Foreign language] Thank you for taking my questions and congratulations on a strong quarter. My question is regarding your margin outperformance. We wanted to see if management can provide a more color regarding the main driver behind your margin outperformance and a healthy outlook for 2022 and onwards. And then within the expenses we do see that sales and marketing has gone up in the quarter.

Could you also provide a more color regarding the sales and marketing expenses, their investment level also in 2022 and onwards? Thank you.

Rex Chen -- Chief Financial Officer

OK. For the first question regarding profitability, yes, we are confident to continue enhancing our operational efficiency and reach full year non-GAAP profitability target in 2022 and going forward. Our past to profitability can be divided into three aspects. First as the gross margin improves due to the stable pricing strategy and increasing proportion of the social revenue, which can contribute to higher gross margin.

Secondary, our fulfillment efficiency improved a significant could due to more orders at store level in Q4 and the better processing usage of our fixed facility. So the old middle and back offices took total control of credit costs and benefited from the economy of scale, as you can see in the decreased non-GAAP G&A expenses and its percentage of total revenues. So for second question regarding certain expenses to non-GAAP setting and marketing expenses account for 11.2% of total revenue increased by 7.7% sequentially. Selling and marketing expenses mainly included personnel expenses for our B2B sales team, channel fees and commission fees paid to JD, as well as promotion and marketing fees for each different business lines.

For this quarter, the year-over-year growth was mainly due to the expansion of our Paipai consignment businesses, new channel sales, and the 1P 2C sales. We invested 63 million in coupons and 63 million in advertisement for branding and promotion of new channels, including livestreaming in the JD Paipai flagship stores and the Paipai offline stores. Furthermore, variable costs increased in line with our business expansion. The sequential increase compared with Q3 was due to the distribution of coupons and the main marketing promotion activities for Paipai 2C sales related to the Single State Shopping Festival, [Inaudible], and the Paipai anniversary [Inaudible].

As we leverage multiple marketing approaches, we believe non-GAAP operating profit closely reflects our views on the performance of the business. Non-GAAP operating profit was 9.7 million in this quarter and the margin was 0.4%. We anticipate a positive non-GAAP operating margin in 2022 and expect it to continue expanding [Inaudible]. Next?

Operator

The next question comes from Gin Yu with GJTA. Please go ahead.

Gin Yu -- Guotai Junan Securities -- Analyst

[Foreign language]

Kerry Chen -- Co-Founder, Chairman, and Chief Executive Officer

[Foreign language]

Gin Yu -- Guotai Junan Securities -- Analyst

[Foreign language] The pandemic situation in many areas have been quite serious recently. I would like to ask you a question about the impact on the company. What impact of your performance in last year? Your offline store has increased significantly while the pandemic pandemic affect offline business was measured that the company take to deal with it. Thank you.

Kerry Chen -- Co-Founder, Chairman, and Chief Executive Officer

[Foreign language]

Unknown speaker

The COVID recurrences in 2021 had challenged our operations multiple times, but the overall adverse impacts were limited and controllable. This was primarily due to the scattered storefronts and operational facilities. AHS stores spread across 214 cities. Temporary closure of stores in some cities have limited impact on overall performance.

There were seven regional operation centers and 95 city level operation stations nationwide. When there is a regional shutdown, the nearby facilities are able to step up. For example, our operation stations in the neighboring cities handle the orders for Shenzhen and [Inaudible] during their recent incidents. Although our business showed resilience, we can't predict the material negative impacts on our business caused by the recurrences of COVID-19 variants.

We will continue to prioritize safety, keep ourselves prepared and our workplaces clean, and stay flexible. Thank you.

Gin Yu -- Guotai Junan Securities -- Analyst

[Foreign language]  

Operator

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

Jeremy Ji -- Director of Corporate Development and Investor Relations

Thank you. A replay of today's call will be available on our website shortly followed by a transcript when ready. If you have any additional questions, please feel free to email us at [email protected]. Have a good day.

Operator

[Operator signoff]

Duration: 54 minutes

Call participants:

Jeremy Ji -- Director of Corporate Development and Investor Relations

Kerry Chen -- Co-Founder, Chairman, and Chief Executive Officer

Unknown speaker

Rex Chen -- Chief Financial Officer

Lucy Li -- Goldman Sachs -- Analyst

Joyce Ju -- Bank of America Merrill Lynch -- Analyst

Ella Ji -- China Renaissance -- Analyst

Gin Yu -- Guotai Junan Securities -- Analyst

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