Margin Trajectory
Margin Trajectory
Dingdong's operating turnaround is real, but it has already crested. The three-year core-line arc — a RMB132.4 million loss in 2023 to a RMB121.9 million profit in 2024 and back to a RMB13.3 million loss in 2025, once subsidies and interest are set aside (The Financial Record) — resolves into a sharper quarterly pattern: the recovery peaked in the second half of 2024 and reversed through 2025. The counter-fact is that cash generation has not crested.
The core operating line, three years
The core line removes the two items that do not come from selling groceries — the RMB145.0 million of other operating income (largely government subsidies) and the RMB108.8 million of net interest on the cash pile. What is left is the operation itself, and its record is a clean arc: a widening loss narrowed, turned to profit, and turned back.
Source: derived from the FY2025 consolidated statements of operations; core operating line = total revenues less total operating costs and expenses, excluding other operating income [1].
The 2024 figure is the genuine inflection: total revenues of RMB23,066.3 million against operating costs of RMB22,944.3 million, a RMB121.9 million operating profit [2]. By 2025 that had reversed: RMB24,359.9 million of revenue no longer covered RMB24,373.2 million of costs, and the reported RMB231.7 million of net income was assembled entirely from the RMB145.0 million subsidy line and RMB108.8 million of interest [3]. The operating business that a deal-break would leave behind (Operating Value) is the one charted above, and its direction of travel in 2025 was down.
Where it turned, and where it turned back
The annual figures blur a sharper quarterly pattern. The core operating line is seasonally low in the first quarter — Chinese New Year and softer food prices — and strongest in the third. Tracking each quarter against the same quarter a year earlier removes that seasonality, and the same-quarter comparison is where the reversal is unambiguous.
Source: derived from Dingdong quarterly results releases, Q1 2023–Q4 2025; core operating line = total revenues less total operating costs and expenses. Representative quarters: 3Q24 [4], 4Q24 [5], 3Q25 [6], 4Q25 [7].
The peak was the third quarter of 2024, when the core line reached a RMB99.8 million profit on GAAP income from operations of RMB110.5 million [8]. A year later the same quarter earned RMB40.8 million at the core line, income from operations more than halved to RMB59.3 million, and non-GAAP net income fell from RMB161.6 million to RMB101.3 million [9]. The fourth quarter shows the same shape more starkly: a RMB57.0 million core profit in 2024 [10] became a RMB9.9 million core loss in 2025, with GAAP income from operations down from RMB61.5 million to RMB12.0 million and the reported net margin at 0.5% [11]. The recovery did not hold for a full year.
What moved the margin
The deterioration was not a cost problem. Fulfillment expense — the frontline stations and delivery riders that are the model's largest controllable cost — kept getting more efficient, falling to 21.9% of revenue in 2025 from 22.0% in 2024 and 23.5% in 2023 [12]. What gave way was gross margin.
Source: derived from Dingdong quarterly results releases; ratios are quarter revenue-weighted [13], [14].
Full-year gross margin fell from 30.1% in 2024 to 29.2% in 2025 [15], and the second quarter of 2025 marked the low at 28.8%. Management attributes the pressure to falling food prices — the declining CPI of pork, eggs and vegetables — in a market where three well-funded platforms are subsidising instant grocery delivery [16]. The roughly one point of gross margin given up in 2025 is worth about RMB230 million on RMB24 billion of revenue — enough to overwhelm the modest fulfillment savings and tip the core line back below breakeven. The price war (Instant Retail) shows up first, and most clearly, in this line.
Volume did not rescue it. GMV growth, positive year-over-year for eight straight quarters, decelerated to 0.1% in the third quarter of 2025 and 2.4% in the fourth, and revenue growth slowed to 1.9% and 5.7% respectively [17], [18]. Flat volume and thinner margin fell together.
The held-for-sale distortion
The most recent quarter appears to break the trend, and the appearance is an accounting artifact. In the first quarter of 2026, with the China business reclassified as a discontinued operation held for sale under the pending Meituan sale (The Meituan Sale), its reported income from discontinued operations jumped from RMB3.3 million a year earlier to RMB218.0 million [19], and net income for the China business rose 643.5% [20].
That step-up is not an operating recovery. Once assets are classified as held for sale, US GAAP stops recording depreciation and amortization on them. The company states this lifted quarterly net income by approximately RMB138 million (US$20.0 million), and that it will keep doing so every quarter until the Meituan deal closes. Fulfillment expense fell to 20.4% of China revenue overnight, a move no prior quarter's operating trend supports.
Source: Q1 2026 results — cessation of depreciation on held-for-sale assets [21].
Adjusting the China business's RMB162.1 million first-quarter core operating profit for that roughly RMB138 million of ceased depreciation leaves an underlying figure much closer to the breakeven the prior eight quarters describe [22]. The last quarter that reads the operating trajectory cleanly is the fourth quarter of 2025, and it reads as a 0.5% net margin sliding toward zero [23].
What the trajectory implies
For an investor weighing the deal-break case, the direction of the operating line matters as much as its level. A business earning approximately nothing but improving would offer a margin-recovery cushion beneath the cash floor. Dingdong's is not improving: on the same-quarter evidence through 2025, the core line is getting thinner. The margin of safety sits in the cash and the strategic bid, not in an operating recovery that the numbers do not yet show.
The read has a real counterweight. The business remained solidly cash-generative throughout the margin compression — the fourth quarter of 2025 was its tenth consecutive quarter of positive operating cash flow, at RMB0.20 billion [24] — and the pressure is priced, not operational: fulfillment efficiency kept improving, and the gross-margin squeeze tracks a food-deflation cycle that will not run forever. A stabilisation in food CPI could restore a point of gross margin and, with it, a thin core profit. What would change this chapter's read is two or more quarters, once the held-for-sale accounting is behind the numbers, of a core operating line back above breakeven without leaning on subsidies. Through the end of 2025, the trend pointed the other way.