ZKH (ZKH) Q3 2025: Private Label GMV Up 16.7%, AI Productivity Gains Drive Margin Recovery

2025-11-20 | By EarningsIQ Research

ZKH’s third quarter marks a decisive inflection, with private label growth and AI-driven productivity fueling a return to pre-optimization revenue and profit levels. Margin recovery and disciplined cost control signal a new phase of sustainable profitability, while management’s focus shifts toward scaling proprietary brands and deepening AI integration. Execution on supply chain, product breadth, and selective international expansion positions ZKH to leverage operating leverage and industry consolidation tailwinds into 2026.

Summary

• Private Label Expansion Accelerates: Proprietary brands outpace overall growth and become a core margin lever.
• AI-Driven Efficiency Surges: Automation and workflow optimization sharply boost productivity and reduce losses.
• Profitability Inflection Confirmed: Losses narrow materially, with Q4 profitability targeted and sustainable growth prioritized.

Performance Analysis

ZKH’s Q3 results confirm a successful transition from a period of business optimization to renewed growth, as both GMV and revenue rebounded to prior year levels. GMV declined modestly, but private label GMV surged 16.7% year-over-year, now representing 8.2% of total GMV—a clear signal that ZKH’s proprietary brand strategy is gaining traction and outpacing the broader platform. Gross margin remained stable at 16.8%, with notable expansion in the core 1P (first-party) and marketplace take rates, reflecting improved procurement discipline and a richer product mix.

Operational discipline was evident across the cost structure, with total operating expenses down 14.4% year-over-year, driven by lower employee benefits, warehouse rental, and credit loss allowances. This cost control, combined with higher-margin product growth, narrowed operating loss by 69.3% and improved non-GAAP EBITDA margin from negative 2.8% to negative 0.4%. Net cash from operations swung positive, underlining the quality of the recovery and the effectiveness of working capital management.

• Private Label Margin Impact: Proprietary SKUs deliver higher gross margins and now drive a growing share of sales.
• AI Productivity Gains: Automation of 45 business process scenarios increases order and procurement efficiency by over 40% and 50%, respectively.
• Expense Leverage Materializes: Expense ratio falls to 18.1% of revenue, unlocking operating leverage as scale returns.

Monthly break-even was achieved in September, and management is confident in delivering full-quarter profitability in Q4, marking a pivotal shift toward sustainable margin expansion.

Executive Commentary

Strategic Positioning

1. Private Label as a Margin Engine

ZKH’s private label products—proprietary SKUs developed and sourced in-house— are now the company’s principal strategic lever for margin expansion and customer loyalty. With over 600 new private label SKUs launched in Q3 and GMV from these products growing at double-digit rates, management is targeting a step-change in mix, aiming for private label to reach 30% of GMV long-term. This shift is already visible in margin outperformance and is expected to structurally improve profitability as scale builds.

2. AI-Enabled Operational Transformation

AI integration is reshaping ZKH’s core workflows, from product recommendation to order processing and customer service. The launch of Expert Ling Long, a proprietary AI large model tailored for MRO procurement, has automated 45 business scenarios and driven sharp increases in productivity—customer service and procurement efficiency rose 42% and 52% YoY, respectively. AI-driven product recommendation alone generated over RMB 100 million in incremental sales, highlighting the tangible impact of digital transformation.

3. Supply Chain and Product Breadth as Moat

ZKH’s one-stop MRO platform model depends on breadth (over 19 million SKUs) and supplier depth (1,200+ new suppliers onboarded in Q3). The company’s specialized supply chain, with 13 chemical warehouses and dedicated last-mile logistics, underpins its differentiation in industrial and chemical categories. This infrastructure supports both scale and customization, especially for complex or hazardous products, and is a key barrier to entry for new competitors.

4. Disciplined International Expansion

International efforts are focused on serving Chinese manufacturers abroad, with measured investments in Southeast Asia and Mexico yielding initial wins in Q3. Expansion in the US and Europe is being approached cautiously, with management prioritizing break-even for the overseas segment by 2026. This capital-light approach mitigates risk while leveraging core supply chain strengths for global customers.

5. Industry Consolidation and Competitive Position

Management views the domestic MRO market as stabilizing, with leading players’ scale and supply chain capabilities becoming more pronounced. ZKH’s professional B2B focus and investment in innovation centers, R&D, and supply chain integration position it to capture share as the industry consolidates and digital adoption accelerates.

Key Considerations

Q3 marks a structural inflection for ZKH, with operational leverage and AI-driven process gains converging to support a credible path to sustainable profitability. The company’s ability to scale private label, deepen AI integration, and manage international risk will determine the pace and durability of future margin expansion.

Key Considerations:

• Private Label Mix Shift: Accelerated growth in proprietary brands is driving margin gains and will be a key metric to monitor as ZKH targets 30% GMV mix.
• AI as a Productivity Multiplier: Deepening automation across sales, procurement, and customer service is yielding tangible cost and efficiency benefits, positioning ZKH ahead of less digitalized peers.
• Expense Discipline: Operating leverage is now visible, with expense ratios and losses falling sharply; continued discipline is essential as growth resumes.
• International Execution Risk: Overseas expansion is prudent and focused, but regulatory and certification hurdles in the US and Europe could slow progress and require ongoing capital discipline.

Risks

Competitive intensity remains high in China’s MRO sector, especially as larger players like JD Industries pursue IPOs and expand online procurement capabilities. Execution risk in scaling private label and sustaining AI-driven gains is material, while international expansion faces regulatory, certification, and localization challenges that may delay break-even or dilute returns. Macro volatility and customer mix shifts could also pressure margins or working capital.

Forward Outlook

For Q4 2025, ZKH guided to:

• Quarterly profitability, building on September’s break-even month
• Continued double-digit private label GMV growth

For full-year 2025, management maintained guidance:

• GMV growth of 15-20% per year over the mid-term
• Disciplined investment in AI, product, and supply chain capabilities

Management highlighted several factors that will shape the outlook:

• Expense control and operating leverage are expected to further improve margins as revenue scales
• Private label and AI will remain the primary engines for growth and profitability

Takeaways

ZKH’s Q3 is a turning point, with private label and AI integration driving margin recovery and operational leverage. The company’s disciplined approach to cost, product breadth, and international expansion supports a credible path to sustainable profitability and market leadership.

• Margin Expansion via Private Label and AI: Proprietary brands and digital automation are now the key drivers of margin improvement and future growth.
• Execution on Cost and Productivity: Expense discipline and process automation have sharply reduced losses, with further gains likely as scale returns.
• Strategic Focus for 2026: Investors should track private label mix, AI-driven productivity, and international segment break-even as leading indicators of long-term value creation.

Conclusion

ZKH’s Q3 2025 results mark a clear inflection toward profitable growth, underpinned by private label momentum and AI-enabled operational gains. Execution risk remains, but the company’s strategic focus and improving financial profile position it as a consolidator in China’s MRO market and a digital leader in supply chain transformation.

Industry Read-Through

ZKH’s results and commentary signal a broader industry shift toward digitalization and proprietary brand scaling in China’s MRO sector. The company’s margin and productivity gains from AI adoption set a new benchmark for operational excellence, while the focus on supply chain depth and last-mile capabilities highlights the rising bar for competitors. Industry consolidation is likely to accelerate, favoring platforms that can combine breadth, digital process automation, and brand differentiation. Other B2B and supply chain players should note the growing importance of private label, AI-driven workflow automation, and disciplined international expansion as key levers for value creation and resilience.

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