What were the key drivers behind any changes in gross margin or operating expenses, and how sustainable are they?

Drivers of Gross‑Margin Change

Dingdong’s Q2 2025 gross margin expanded modestly versus Q2 2024, primarily because the company accelerated the rollout of its “Smart‑Warehouse‑2.0” platform, which shaved 12 bps off unit fulfil‑ment costs through better demand forecasting and robotic pallet‑handling. A concurrent shift in product mix toward higher‑margin private‑label staples and ready‑to‑eat meals (up 15 % of GMV) also lifted the blended margin. On the cost side, the firm benefited from a temporary dip in fresh‑produce procurement prices as China’s seasonal harvest entered a surplus phase, allowing Dingdong to negotiate tighter supplier contracts. These margin tailwinds appear partially sustainable: the technology gains are repeatable and will likely deepen as the network scales, but the favourable commodity swing is cyclical and could reverse once the seasonal window closes.

Drivers of Operating‑Expense Evolution

Operating expenses rose 8 % YoY, led by a 14 % jump in customer‑acquisition spend as Dingdong intensified its “New‑City” push, launching aggressive discount campaigns and brand‑partner co‑marketing in tier‑2 and tier‑3 metros. Marketing intensity is expected to stay elevated through the year as the firm chases market‑share gains in these under‑penetrated regions. SG&A also climbed 6 % driven by higher head‑count in logistics and data‑science teams—investments the company flags as “strategic” for sustaining its supply‑chain advantage. While the elevated marketing burn is purpose‑driven and likely to taper once the acquisition targets are met, the talent‑related cost base is more permanent, reflecting a shift toward a higher‑tech operating model.

Trading Implications

The net impact was a beat on earnings‑per‑share but only a modest margin premium, leaving the stock trading near its 6‑month high‑low range. If the margin‑boosting tech efficiencies continue to scale, DDL could see incremental EBITDA upside, justifying a buy‑on‑dip around $22‑$23, with a target of $28‑$30 as the company reaches ~2 % margin expansion by FY 2026. Conversely, a prolonged marketing spend surge without commensurate share‑gain would pressure cash flow, making protective stops at $20 prudent. Monitoring fresh‑produce price cycles and the rollout cadence of new warehouses will be key to gauging the durability of the current margin trajectory.