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JD.com (JD 0.82%)
Q1 2022 Earnings Call
May 17, 2022, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Hello, and thank you for standing by for JD.com's first quarter 2022 earnings conference call. [Operator instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the meeting over to your host for today's conference, Mr.

Sean Zhang, director of investor relations. Please go ahead.

Sean Zhang -- Director of Investor Relations

Thank you, Michelle. Good evening and good morning, everyone. Welcome to our first quarter 2022 earnings conference call. Joining us on the call today are Mr.

Lei Xu, our CEO; and Ms. Sandy Xu, our CFO. For today's call, they will kick off with opening remarks, and Sandy will discuss the financial highlights. After that, we'll open the call to questions from analysts.

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Before we continue, let me remind you, today's call will include forward-looking statements, and please refer to our latest safe harbor statement in the earnings press release on our IR website, which applies to this call. Also during this call, we'll discuss certain non-GAAP financial measures. Please also refer to our earnings press release, which contains a reconciliation of non-GAAP measures to the comparable GAAP measures. Finally, please note, unless otherwise stated, all figures mentioned in this call are in RMB.

And now, I would like to turn the call over to Mr. Lei Xu, our CEO. 

Lei Xu -- Chief Executive Officer of JD Retail

[Foreign language]

Unknown speaker

Hello, everyone. This is Xu Lei. Thank you for joining JD.com's 2022 first quarter earnings call.

Lei Xu -- Chief Executive Officer of JD Retail

[Foreign language]

Unknown speaker

Since the start of 2022, we have seen many challenges arise in our external environment, including the COVID resurgence, supply chain disruptions, and soft consumer sentiment, among others. As a supply chain based technology and service provider, JD is strongly committed to social responsibility of its leadership. And thanks to the supply chain that we build overtime, we are able to take concrete action to help ensure supplies of daily necessities and to mitigate the impact of the pandemic on society and economy.

Lei Xu -- Chief Executive Officer of JD Retail

[Foreign language]

Unknown speaker

JD's solid business foundation positions us to navigate the current challenges, which we believe are short-term in nature. In the first quarter, we once again delivered high-quality results, thanks to our supply chain capabilities and resilient business model. Our total revenues saw a solid year-on-year growth of 18%. This reflects increasing trust we have gained from our consumers and business partners.

It also demonstrates that we have better control across our entire business process and supply chain. Therefore, we projected greater visibility than the overall sector during times of change. Moreover, we also recorded steady profitability in this quarter, driven by better operating efficiency and more focused business strategies.

Lei Xu -- Chief Executive Officer of JD Retail

[Foreign language]

Unknown speaker

In terms of COVID, JD has always walked at frontline and spared no efforts. Once coronavirus first broke out in January 2020, we mobilized quickly to establish a special line for COVID to ensure transport capacity, providing essentials to affected regions, donating protection and medical materials that were in urgent need, and launched a set of supportive measures for our merchants and suppliers. This time, facing the more transmissible omicron variant, JD once again fully leveraged our supply chain and mobilized all of the group's forces to fight the epidemic and ensure supply of daily necessities across China. Taking Shanghai as an example, JD Retail, Logistics, Health, Dada, and other business segments have sourced goods, allocated transport and logistics resources, and delivered tens of thousands of home supplies to Shanghai, including staple foods and baby care products and more.

We have also recruited and deployed over 4,000 frontline employees to fully support operations and deliveries in Shanghai. On behalf of JD, I'd like to express our most crucial gratitude and respect to our employees, especially those working on frontline, for their selfless devotion and dedication. In addition, as a new type of real economy enterprise, JD has also introduced a series of new and existent initiatives for merchants and SMBs that have suffered from the epidemic in order to lower their operating costs and help them gradually resume function. JD Supermarket also works together with JDDJ to help toward to Shanghai to resume online operations and provide delivery manpower in a timely manner by leveraging data from our solution.

We hope to join hands with all of our partners to tackle these challenges and difficulties and together contribute to stabilize the people's businesses and the economy.

Lei Xu -- Chief Executive Officer of JD Retail

[Foreign language]

Unknown speaker

In terms of challenges, JD always looks to harness our advantages and advanced solutions that move the needle. Certainly, we have made proactive adjustments to our user strategy. With a steady expansion of our user scale, we have been increasingly focused on improving user quality. In Q1, our annual active users reached 580 million.

And more importantly, user purchasing frequency and ARPU still accelerating growth, both of which were at or near record highs. This merely reflects the increasing recognition and trust that users are placing in JD. The increasing user [Inaudible] in having experienced high user growth for the past few years. And China's Internet industry is entering a more mature development stage going forward as we optimize and expand our omnichannel ecosystem and we continue to expand and meet the diversity of our users creating long-term user value. 

Lei Xu -- Chief Executive Officer of JD Retail

[Foreign language]

Unknown speaker

We're also proactively optimizing and adjusting the investment pace in our new businesses based on our analysis of the macro and industrial landscape. In Q1, before the shift in focus to regions where we saw improving scale and efficiency as well as better synergies with our core Beijing business. In such regions JD's efforts to improve user experience, sales channels, local supply chains as well as digital operations have begun to bear fruit. We are proud that JD's supply chain capabilities and the business model have proven themselves valuable in the fight against the epidemic.

For example, this Beijing's COVID resurgence starting at the end of April, you can see our community group purchase business has seen average daily GMV and new users nearly doubled, with better operating efficiency and UE. In the future, we will continue to optimize overall operating efficiency and drive a sustainable high-quality growth with healthy cash flow and profitability.

Lei Xu -- Chief Executive Officer of JD Retail

[Foreign language]

Unknown speaker

The current challenges also provided JD with upside opportunities. Firstly, our efforts and commitment to social responsibility during COVID enabled us to fulfill society's trust and resulted in stronger reputation and appreciation among our users and business partners. This is highly significant for our long-term development. Secondly, JD's supply chain as well as our organizing and coordinating capabilities have withstood the pressure of the epidemic and become stronger.

Thirdly, despite increasing uncertainties, we have persistently executed on our long-term strategies and built up four competencies such as our supply chain middle platform, marketplace ecosystem and omnichannel and infrastructure capabilities. In pursuit of more disciplined invest -- pay and higher efficiency, JD also helps business partners to generate higher efficiency and more profitability without external disruption. As such, we have gained recognition from our business partners during the epidemic.  We are encouraged to see that merchant participation and engagement has reached a higher level than previous years in the preparation for the upcoming 618 Grand Promotion.Fourth, the complex epidemic situation and macro economy have caused companies to reexamine their sales and supply chain and procurement systems. Many of them have realized the irreplaceable value of integrated supply chain logistics services.

This helped to drive the growth of JD Logistics' revenues from external customers, which accounted for a record high revenue percent of total revenue in Q1, further optimizing JDL's revenue structure. Moreover, in this quarter, JDL's profitability improved year on year, thanks to its optimized operations and better customer structure. JDL also made steady progress in building up its logistics capacity. By the end of Q1, it operated approximately 1,400 warehouses with a total gross floor area over 25 million square meters under management.

All of these advantages constitute a solid foundation for JDL to further expand in the industry-leading position and market share over the long term.

Lei Xu -- Chief Executive Officer of JD Retail

[Foreign language]

Unknown speaker

It is evident that the first half of 2022 has brought many challenges and uncertainties. At this time, I believe it is important for companies to have a long-term mindset, remain unwavering on strategic priorities, while maintaining flexibility to adapt to short-term dynamics. JD has experienced many challenges over the past 19 years, but has taken each one as an opportunity for the company's total development. Today, our business logic with supply chain at the core is very clear.

Our core competency is highly differentiated, and the resilience of our business model has been proven many times and continues to evolve. As a new type of enterprise that is based on and always serves the real economy, JD today is an ever more solid brand. Looking ahead, we will continue to build upon our strength. We remain confident and determined to achieve healthy, high-quality, long-term development.

Thank you all for your support and trust. This concludes my remarks. Now I'd like to give the floor to Sandy.

Sandy Xu -- Chief Financial Officer

Thank you, Lei. Hello, everyone. The latest omicron outbreak across several regions in China in the past several months has been challenging for everyone. So I would like to echo what Lei said and add my thanks to our colleagues, especially the frontline workers, for their heroic efforts in serving our customers and providing clients with essential supplies during this critical time.

In the first quarter, net revenues reached RMB 240 billion, representing solid 18% year-on-year growth against the high base from last year. In face of various uncertainties, we have been increasingly focusing on serving our users well and this has increased user lifetime value. Our annual active user base reached a total of 580.5 million, while average GMV per user in the last 12 months continued to increase. We are also glad to see improvements in other user quality metrics.

For example, average order per user recorded a healthy increase for both new and repeat customers. Our quarterly average DAU has been trending up and growing over 20% year on year, reflecting deepening user engagement. Not only did we see a spike in the AU growth during the Spring Festival Gala, effectively promoting JD brand nationwide, we were also inspired to live up to our users [Inaudible] while we saw a notable increase in DAU during COVID resurgence in March and April. As our revenue base continued to diversify, we also saw the varying impact of COVID on different segments in Q1.

Our net product revenues, which mainly consist of our 1P retail business, grew at a solid 17% year on year, demonstrating remarkable resilience, underpinned by our proprietary supply chain infrastructure. Net service revenues continued to grow faster at 26% year on year, further diversifying our revenue base. While marketplace and marketing revenues grew at 25% year on year, our advertising revenues still grew at nearly 30% year on year, in line with the improving ROI of our advertising services. Our marketplace ecosystem continued to optimize as JD Retail continued to grow third-party merchant base by over 20% year-on-year in Q1.

This showed that the support and value creation offered by JD are resonating with more and more third-party merchants who are struggling in a time of uncertainty. Logistics and other services revenues grew by 28% year-on-year in Q1 as JDL continued to gain traction from external customers with its uninterrupted supply chain services during the Chinese New Year. I will discuss more about this later. Now, let's turn to our segment performance.

JD Retail continued to deliver a resilient top line growth amid the latest COVID developments. JD Retail's revenue reached RMB 218 billion in Q1, growing at 17% year-on-year in the quarter. The COVID impact began to appear across the performance of our categories. General merchandise revenues grew 21% year-on-year in Q1, outperforming the electronics and home appliance category growth of 14% year on year.

Since the latest outbreak, customers notably shifted their purchases from nonessential products to essential items. Our supermarket category saw stronger demand with its order volume outgrowing JD Retail in Q1 and in the first half of Q2 and attracted the most number of first-time buyers among all categories. Although our supply chain was heavily disrupted in certain regions, JD Retail and JD Logistics quickly worked together to source and dispatch essential products by utilizing our nationwide warehouse and delivery networks. Once again, this demonstrated our customer-first operating philosophy and our unique business model that enables us to quickly respond to unexpected changes and mobilize our proprietary supply chain capabilities in upholding customer service.

We even went beyond our traditional B2C, including warehouse model to address rising customer needs. Growth of our omnichannel supermarket, including semi-fresh, accelerated in Q1 and as they provided our customers with timely omnichannel fulfillment for grocery and household staples in this critical time window. Moving on to JD Retail's profitability. Operating margin was 3.6% this quarter compared with 4% a year ago, primarily due to the marketing expenses in relation to the Spring Festival Gala sponsorship, and to a lesser extent, the softer fulfilled gross margin during the outbreak.

That said, we expect to see additional COVID-related costs and expenses, particularly in fulfillment, as well as margin impact caused by product mix shift due to the uneven performance of our different product categories in the short term. JD Logistics, or JDL, maintained a healthy top line growth with an improved revenue mix and continued year-on-year margin improvement. Its Q1 revenues grew 22% year-on-year to RMB 27 billion. Revenues from external customers maintained growth momentum, driven by both the number and ARPU of external customers and once again achieved a record high revenue contribution of 58%.

JDL acted quickly and spared no effort to ensure continued fulfillment of essential products to customers and support our business partners in the COVID affected areas. As a result, it incurred additional costs and expenses due to the operational difficulties and disruptions, particularly asset mobilized workforce and resources across different regions where some of our warehouses and the delivery stations were under lockdown restrictions in certain affected areas. However, we still found some silver linings. The customer awareness of the unique advantages of JDL's integrated supply chain logistics services has meaningfully increased, boding well for the future customer conversion and total addressable market expansion.

And thanks to the growth of external business and continuous improvement in operating efficiency, driven by technology, JDL was able to absorb the additional costs to a certain extent and continued to improve its margin in Q1. This non-GAAP operating loss narrowed by more than 55% from a year ago. JDL has once again improved the design and efficiency of its nationwide supply chain network in this challenging market situation. Since we received all required regulatory approvals and completed the additional investment in Dada Group by the end of February, we consolidated the financial results of Dada in our segment reporting starting from March this year.

During the consolidation period, Dada reported revenues of RMB 688 million and an operating loss of RMB 191 million. Dada is an indispensable part of our omnichannel strategy. Shop Now, the on-demand retail brand that we launched together on JD's main app, has been expanding at a triple-digit growth rate year-on-year in Q1 and now made this service available to users in over 400 cities. We are excited to further expand our supply chain service networks in the fast-growing on-demand adoption with Dada.

Finally, turning to our New Businesses segment, where we took proactive optimization measures to improve operating efficiency, particularly in Jingxi business. We further focused our resources in a fewer number of selected markets to strengthen local supply chain capabilities and improve the UE model. These measures resulted in the moderation of revenue growth to 12% year on year, but a meaningful reduction in operating loss of nearly RMB 1 billion sequentially in Q1. Our JD Property business remained a profitable business in a hyper-growth stage.

It has successfully acquired a controlling stake in China Logistics Property Holdings, or CLP, further enhancing its logistics infrastructure. JDP has also entered into definitive agreements with approximately USD 800 million nonredeemable Series B financing in the quarter. So far, you can tell that JD's unique supply chain based business model not only ensured our capabilities in navigating different economic cycles, it also allowed us to proactively and quickly adjust our business strategies for better sustainability. Moving to the consolidated bottom line.

Total expense ratios in Q1 declined by 63 bps year on year. As a result, Q1 non-GAAP net income attributable to ordinary shareholders was RMB 4 billion with non-GAAP net margin of 1.7%. Our free cash flow for the trailing 12 months this quarter was healthy at RMB 27.2 billion. By the end of Q1, cash, cash equivalents, restricted cash, and short-term investments grew to RMB 186 billion, thanks to the stable cash flow contributed by our core businesses in the past few years.

Earlier this month, we also announced a special cash dividend of USD 0.63 per ordinary share or UDS 1.26 per ADS, which reflects our confidence in JD's long-term growth trajectory and strong balance sheet. While we continue to explore the hot and exciting investment opportunities, we constantly take a holistic view and consider different measures as appropriate to give back to our shareholders in the long term. Looking ahead, the omicron situation remains very fluid and adds a lot of variables to our business. The magnitude and duration of the COVID impact will present many uncertainties to the overall consumer behavior, supply chain and our fulfillment infrastructure.

But one thing is for certain, after 19 years of efforts in building our core supply chain competencies and differentiated business model, we are uniquely positioned to swiftly adjust and respond to any dynamic situation and able to be among the first to help our customers, partners and communities during this tough time. When the COVID disruption subsides, we are confident that JD will emerge stronger with expanded consumer market share, more trusted partnerships, and deeper ties with our communities and users. All of these will reinforce our mid- to long-term growth prospects. This concludes my prepared remarks, and we can now move to the Q&A.

Questions & Answers:


Operator

[Operator instructions] Our first question  comes from Ronald Keung with Goldman Sachs. Your line is open.

Ronald Keung -- Goldman Sachs -- Analyst

Thank you. [Foreign Language] My question would be on, when we compare with two years ago, that we've gained a lot of share and grew much faster than industry during the first quarter in the COVID outbreak. We've seen some of the industry numbers for April were relatively weak. So I want to know how are we doing in retail business compared with the industry, some of the differences that we see versus two years ago, and our targets and how we see the second quarter and second half growth as a result? Thank you.

Lei Xu -- Chief Executive Officer of JD Retail

[Foreign language]

Unknown speaker

This is Xu Lei, let me answer your question. We have this month the COVID outbreaks that affected Shanghai and other regions also caused a huge challenge to China's retail industry as well as JD.com. 

Lei Xu -- Chief Executive Officer of JD Retail

[Foreign language]

Unknown speaker

Let me share with you some observations on the difference between the outbreak now and two years ago. 

Lei Xu -- Chief Executive Officer of JD Retail

[Foreign language]

Unknown speaker

So the omicron variant this time, it's highly contagious and spreads rapidly. Its R0 value is 9.5, twice that of Delta, while its generation time is only 2.83 days. Also, a certain proportion of the impacted people have no symptoms, making it more difficult to track and detect. So although our virus protection and control policies remain unchanged, there are more cities and consumers affected from the epidemic and the supply chain is under much bigger impact than that in 2021.

In the past two years, the impact of COVID actually brought some positive effect to the Internet and e-commerce sector as there were only limited number of regions affected for limited time. During that time period some offline businesses have been shifted online at an accelerated pace. But this time around, both the online and offline enterprises are heavily affected. 

Lei Xu -- Chief Executive Officer of JD Retail

[Foreign language]

Unknown speaker

And the lockdown of our warehouses and delivery stations in certain key regions have led to fulfillment challenges as both inbound and outbound shipping of merchandising from warehouses are affected. Fulfillment requires much longer time. There have been -- this has resulted some order cancellation rate increase in April, and the situation is getting better in May, but the cancellation rate remains high level year on year. So this year, for the China's four big cities, the first tier cities, Beijing, Shanghai, Guangzhou and Shenzhen have all been affected.

While Guangzhou and Shenzhen were only affected for a short period of time, Beijing and Shanghai have been affected for a longer period of time. And the sales contribution of the four cities account for a higher proportion of JD than the city's contribution in total retail sales in China. So a majority of brands and merchants lowered budgets at the beginning of the year considering this year's economic situation. They focused more on profitability.

Therefore, the business environment also does not support a high growth from the supply perspective.

Lei Xu -- Chief Executive Officer of JD Retail

[Foreign language]

Unknown speaker

So in terms of the categories besides the supermarket and health-related categories, which continue to enjoy some high growth, for the market of electronics and home appliances and apparel category, the market has been changing dramatically.

Lei Xu -- Chief Executive Officer of JD Retail

[Foreign language]

Unknown speaker

So take the IT and electronic categories, for example. In the past two years, due to the global supply shortage and JD's strong supply chain capabilities we've performed relatively well. And this year, this category is faced with the overall proficiency and the price level is going down.

Lei Xu -- Chief Executive Officer of JD Retail

[Foreign language]

Unknown speaker

And for the telecommunications, or the mobile phone category, due to the price rise and the chip shortage, consumers eliminate to replace their devices. The cycle has been expanded.

Lei Xu -- Chief Executive Officer of JD Retail

[Foreign language]

Unknown speaker

As for the apparel category, due to the epidemic and sluggish consumption, there is high level of inventory backlog of spring collections. And as a result, many factories are considering skip the production plan for the summer collection.

Lei Xu -- Chief Executive Officer of JD Retail

[Foreign language]

Unknown speaker

The epidemic has affected consumers' income and confidence. The overall consumption is depressed, as you can see from the April statistics, and this especially affected the sales of some large ticket sized items, and even user traffic has reported in April, we have seen the ticket size is dropping year-on-year in April and May.

Lei Xu -- Chief Executive Officer of JD Retail

[Foreign language]

Unknown speaker

In response to the above-mentioned situation, here are two aspects we have been doing. First, we have been conducting active communications with the local government and getting on a wide range of enterprises for essential supply of more regions and also to ensure the normal operations of our warehouses and fulfillment facilities, and the situation is getting improved now. 

Lei Xu -- Chief Executive Officer of JD Retail

[Foreign language]

Unknown speaker

And on the preparation of the 618 Grand Promotion, we have seen that majority of brands and merchants are under pressure this year. Therefore, they have been more proactively participating in JD 618 Grand Promotion than the previous year. And we hope that with this event, we can support them to boost their sales and the Q2 performance provided the COVID situation is getting better. 

Lei Xu -- Chief Executive Officer of JD Retail

[Foreign language]

Unknown speaker

And finally, I just want to share a little bit more on the relationship between supply chain and the epidemic. And first, given the current macro environment, coupled with the impact of the pandemic, it has led the government and the industry have a very high recognition of the importance of the modernized supply chain, and this has been a very positive and clear signal.

Lei Xu -- Chief Executive Officer of JD Retail

[Foreign language]

Unknown speaker

And second, when JD talks about our supply chain capabilities, it does not only refer to those tangible things people know about, about our logistics or logistic warehouses, vehicles, it is also our algorithm and the industry know-how that we have accumulated over the years, as well as our synergy capabilities with some key brands. And all of this is a combination of the tools, the expertise, the know-how, and our collaboration with other brands. And all of these cannot be immediately achieved through some excessive subsidies or cash procurement.

Lei Xu -- Chief Executive Officer of JD Retail

[Foreign language]

Unknown speaker

And thirdly, the key points for the supply chain is stability and certainty. Under the extreme circumstances of the COVID situation, JD will continue to leverage our professional expertise and our infrastructure capabilities to reach some innovative and new solutions in this difficult situation. And so far, we have gained recognition among our partners and users and delivered some satisfying performance so far.

Operator

Our next question comes from Thomas Chong with Jefferies.

Thomas Chong -- Jefferies -- Analyst

[Foreign Language] My first question is relating to the upcoming June 18 marketing campaign. Can management comment about how we should think about the logistics situation, the consumer sentiment and how are we doing it differently compared to previous years and our KPI? And my second question is regarding our spending. In particular, on user acquisitions as well as the investment in the new business. Would we adjust our investment strategies given the dynamic situation right now? And finally, on omnichannel.

Can management comment about our long-term strategies as well as the revenue contribution that we should expect?

Lei Xu -- Chief Executive Officer of JD Retail

[Foreign language]

Unknown speaker

And just more few words from Xu Lei on the 618. We have seen so glad that, except Shanghai, overall in China, the fulfillment is coming back to a normal operation level. So every day, there are some select situations due to the COVID situation, but overall, we maintain a normal operations. And in Shanghai, there are still a few orders that continue to be fulfilled.

But overall, for the good preparation, it's on the right track.

Lei Xu -- Chief Executive Officer of JD Retail

[Foreign language]

Unknown speaker

As for the participating and engagement of brands and merchants to this year's Grand Promotion, they're very active and this is outside our expectations and everything is going on the right track.

Lei Xu -- Chief Executive Officer of JD Retail

[Foreign language]

Unknown speaker

And in terms of the KPI, I think you are thinking of the sales target, because we are still facing uncertainties of the COVID situation and the [Inaudible] So we don't have a very clear number to share. However, we continue to focus on improving user's experience, and our fulfillment efficiency is the most important thing we will safeguard the shopping festival.

Lei Xu -- Chief Executive Officer of JD Retail

[Foreign language]

Unknown speaker

And so for our new business development, we will focus on the priorities, our strategies, and focus on efficiency and sustainable development.

Lei Xu -- Chief Executive Officer of JD Retail

[Foreign language]

Unknown speaker

And for the users growth, there are certain pressures, but we will continue to focus on the operations of the existing users and also the quality growth of the new users, and we have seen a positive trend on both sides.

Lei Xu -- Chief Executive Officer of JD Retail

[Foreign language]

Unknown speaker

And around some adjustments and optimization of some new businesses, we have done series of adjustments on those businesses that are unable to deliver results after a certain period of time of investment.

Lei Xu -- Chief Executive Officer of JD Retail

[Foreign language]

Unknown speaker

So in the coming period of time, we'll continue to optimize our four businesses and some more optimization and adjustment work will be done.

Lei Xu -- Chief Executive Officer of JD Retail

[Foreign language]

Unknown speaker

And on JD's omnichannel strategy, in the past year, it has delivered very fast growth. And in Q1, this business continued a higher than overall revenue growth rate. And this COVID situation will not affect our long-term strategies in this aspect, but we will make adjustments on the investment even in the macro environment situation. And the omnichannel business is composed of two parts with both self-operated and our collaboration with external partners.

For this letter -- in this format, we not only help those offline businesses and shops to pass the traffic, the user traffic difficulties given the COVID situation, it also helps JD to enrich our supply chain and product availability to satisfy the needs of our customers. And given the impact of the COVID situation, some self-developed omnichannel were affected. But overall, the volume is not big and certainly it has limited impact so far.

Lei Xu -- Chief Executive Officer of JD Retail

[Foreign language]

Unknown speaker

And for our on-demand retail business, as part of our omnichannel business, it achieved three-digit growth in Q1. And so far, our Shop Now with the 1-hour delivery service has covered over 1,700 categories, across the country and providing various product categories, and it has been connected with over 15,000 offline stores and we have experienced a rapid growth during the COVID situation.

Lei Xu -- Chief Executive Officer of JD Retail

[Foreign language] 

Unknown speaker

The Shop Now program is supported by Dada's delivery infrastructure. We are using the existing networks and delivery services of Dada to perform our on-demand deliveries and this has accelerated JD's offline business expansion. And currently, together with Dada, we are supporting the digital transformation of more and more brands and offline retailers. And together, we explore the dividend of the omnichannel development.

As the trends become more and more clear, JD is committed to bring faster and quicker services and user experience with more certainty to our consumers. Thank you.

Sandy Xu -- Chief Financial Officer

This is Sandy. I'll add on a little bit on the revenue and GMV's contribution for our omnichannel business. So in terms of GMV and revenue contribution, they are both at a level of around 10% of our retail business. That includes our O2O on-demand sales, our 7Fresh offline fresh product business, as well as our offline home appliance franchise store business.

Operator

Our last question comes from Kenneth Fong with Credit Suisse. Your line is open.

Kenneth Fong -- Credit Suisse -- Analyst

[Foreign Language] Congratulations on another strong set of results. Looking back, we did very well in cost discipline and control. Core GDR and new business up both with margins better than expected. How much more, and what are the ways that we should expect for further cost reduction or optimization over next two quarters? Thank you.

Sandy Xu -- Chief Financial Officer

This is Sandy. Let me take this question. So since mid-March, we have been taking strict cost and expense control measures to step up financial discipline in face of the challenging external environment. We focus more on cash flow management.

For new businesses, that's yet to show a trend of UE turnaround. As Lei Xu just mentioned, our operating efficiency improved. We adjusted the investment pace and further focused on fewer selected regions. So as a result of all these measures, despite additional COVID-related costs and expenses, especially procurement.

So we expect overall, our group level bottom line, we will try to manage that to be less impacted by the COVID situation compared to top line or GMV. So as I mentioned, the control measures just started in mid-March. So we will continue that in Q2, and we will manage our profitability and cash flow dynamically based on the overall macro environment.

Operator

We are now approaching the end of the conference call. I will now turn the call over to JD.com's Sean Zhang for closing remarks.

Sean Zhang -- Director of Investor Relations

Thank you for joining us today on the call and for your questions. If you have any further questions, please contact me and our team. We appreciate your interest in JD.com and we look forward to talking to you again next quarter. Thank you very much.

Operator

[Operator signoff]

Duration: 63 minutes

Call participants:

Sean Zhang -- Director of Investor Relations

Lei Xu -- Chief Executive Officer of JD Retail

Unknown speaker

Sandy Xu -- Chief Financial Officer

Ronald Keung -- Goldman Sachs -- Analyst

Thomas Chong -- Jefferies -- Analyst

Kenneth Fong -- Credit Suisse -- Analyst

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