Q2 2021 Yatsen Holding Ltd Earnings Call
Ladies and gentlemen, good day and welcome to the Yadkin second quarter 2021 earnings conference call.
Today's conference is being recorded.
At this time I would like to turn the conference over to Irene Lee head of strategic investment and capital markets. Please go ahead.
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So you put all the discussions today will become more volatile.
For the company's future performance and are intended to qualify for the safe Harbor from liability as established by the U S tablet.
Litigation Reform Act.
Statements are not guarantee about the future formula.
There are risks out there.
This and other factors. Some of these risks are beyond the couple of Copel and could cause actual results could differ materially from those mentioned in today's press release and Vista.
Yes.
General discussion of the risk factors that could affect your business and financial results.
And our stuff is included in certain filings of the company with the securities.
Commission income.
<unk> does not undertake any obligation to update this forward looking information except as required by law. You also they saw Nashville will also discuss certain non-GAAP financial measures for comparison purposes.
For a definition of non-GAAP financial measures a reconciliation of GAAP to non-GAAP financial results. Please see the earnings release issued earlier today.
Today on the call from Yahoo, Senior management are Mr Singh Footwall, our founder Chairman and CEO and Mr. Joe How young our CFO.
Director Nashville was well prepared remarks on the call will conclude with a Q&A session.
Minor for Tallgrass as small recorded in addition, a webcast replay of this conference call will be available on <unk> Investor Relations website.
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<unk> and.
I'll now turn the call over to Mr. Duval. Please go ahead.
Yes.
Thanks, Gary.
Thank you everyone for participating in <unk> second quarter 2021 are these conference call today.
So our total net revenue grew $53 five.
Or is that year over year in the second quarter in line with our guidance.
Due to steady contribution from our flagship forbid diary brand and a better than expected performance of our newly launched and acquired right.
So the number of D C customers increased by 33% year over year.
$510.2 million.
And the average net revenue per DTC customer went up by 17, 6% to 117 RMB from Nike My RMB during the second quarter of 2020.
So this result came despite intensifying competition.
She had a rising customer acquisition costs.
So even as China's beauty market grew at about 20% overall during the second quarter growth in the premium segment and in skincare with notably stronger than other market segments.
So we believe this market development validates that.
Growth initiatives launched in May to sharpen our growth model.
Specifically, we are optimizing internal resources and organization structures to enhance the power of our brands.
To facilitate the positive innovation.
Capitalize on new growth channels, and the optimized cost structure.
And the efficiencies.
But this ongoing trend smart chunk more.
She had limited partners, who continue to meet them, even though we have already seen some early signs of success in the latest quarter.
So we used our proven ability to disrupt the traditional beauty industry using the digital lives.
Structure to DTC model, we are now building a portfolio of durable iconic brands supported by consumers insights and innovation.
So we believe these strategic initiatives are essential tools to position us on the pass up a high quality sustainable growth, particularly as we.
These four busy season in the beat up too Singles' day in the fourth quarter.
During the second quarter, we launched several new products under our plan.
Okay.
She has loosened flooring, a loose powder with my love technology, and the ultra lights purifying cleansing oil.
Prepared all of these new products featured proprietary technology and have received very encouraging user feedback.
So despite the comp.
From both international and the domestic peers during the June 18th shopping Festival.
<unk> was one of the top two bestselling domestic Chinese colleagues.
That's magic right.
And even more than before I'm just talking.
Gross.
My other helo partner.
So the launch of our higher priced than lipstick, sorry boss all sorts of tests during the May 20th Chinese Valentine's day campaign with SEC.
More than.
<unk> thousand units.
He has also introduced the profit diary, Brent to Mayo customers, who are buying for their significant others.
Heading into the second half of the year.
Plan to make a strong push into the face makeup category and a premier mice that put the Barbie brand among our new.
And why does it seem to users.
So speaking of brand building, we continue to be recognized by the industry for our chip.
So this quarter the 20th century, once you're more beauty of wars nowhere the Oscar off the beauty industry named to put it I read the most sought after brand up the year and I guess in the pocket.
Rhodium beauty group in 2021.
Well Brent lab recognized the diary is one of the China five times your most valuable brands opportunities into one.
In which we are the only color cosmetic brands and the youngest beauty brand on the boost.
Now turning to other.
In the upper 40, B continues to optimize return on investment or little hunting and it'd be choice during the second quarter.
The newly launched Colorado Metic Red team Baer has seen fast growth since his departure in March 'twenty one.
He is sensational deal right so over.
Brian if I point this out.
Lip glosses during this first June 18th campaign.
Generally the award as the fastest growing new cosmetic brand on Tmall entities into one.
And as we head into the second half of the year, we will continue to expand Kim beer into the eye and face makeup categories.
We are also excited about our progress in here.
She has grown to represent more than 20% of off road sales in the second quarter.
Our new in the wake of skincare products from the rapid nature of this all consumers.
Fewer rights anybody to them you see powder quickly.
Yes nishu.
Initial launch on mainland China. This April.
So after a relatively soft periods of integration into our platform.
Dr. Wu's mainland China sales grew dramatically during the second quarter to become the number one in this category on Tmall.
So during the June 18th shopping festival.
Dr. Wu's cells increased around 700% from the same period last year.
Meanwhile, if long whats the number one premium cleans up Brent.
During the second quarter, and Astellas there'll be karthik cleaning cream product grew by 53 per se year over year during the June 18th shopping Festival.
We'll see more.
So the rock Creek progress we have made so far clearly shows that there is great growth potential for these brands in the future.
We continue to focus on improving all eye on our sales and marketing expenses across the firm.
Throughout the June 18th shopping festival, we were.
On to maintain discipline on pricing and these columns as well.
Well as allocated resources, our brands in the channels with high Oh.
The end result was the decline in ourselves and the marketing expenses to 51% of the total net revenues based on non-GAAP measures compared to 71.
April than last quarter, and the fifth four 7% in the fourth quarter of 2020.
But we have also stepped up our investment in R&D, which increased to two 3% of total net revenue this quarter from one 4% a year ago.
Our increased investment in R&D has.
One person he has already borne fruit as demonstrated by the smart lock technology that we developed in house and use into new chance Lucentis blurring loose powder lie.
So besides launching this in the wake of product.
So recently announced the establishment of a joint research laboratory.
Has strongly with the National Engineering Research Center for Nano Medicine.
Which will form under the Washington University of a science technology to further enhance our R&D capabilities in advance in here.
Digitally nano based chips that are multi deeper system for active ingredients.
Looking ahead.
The lower year over year growth rate in Q3 as reflected in our guidance.
It's largely due to the unusual quarterly seasonality pattern caused by the COVID-19 pandemic last year.
In a typical year the China online beauty market is characterized by higher sales in Q.
Thank you <unk>.
As a result of the June 18 promotions across all sales channels.
This pattern was disrupted in 2020 due to social distancing and quarantine policies. During the COVID-19 pandemic in Q2, followed by relatively stronger sales in Q3 as the market recovers.
To help to buy the pent up demand from the previous months.
It creates a low base in Q2 and the high base in Q3 for year on year comparisons this year.
However, if you compare our combined sales in Q2 and Q3 this year, which represented 53, 5%.
Covered in the five to 10 based on our guidance year over year growth rates, respectively. The year over year growth is projected to be tentative percent you tend to 9%.
We live this is a more accurate picture of outgrows trend, taking last year's unusual seasonality into account.
We expect to have a normal basis.
In comparison, Q4, and the or year over year.
Be a resume its normal.
Trajectory.
We are confident that.
Successful execution of our strategy growth initiatives, all expanding talent pool, and the ample financial results along.
This is chip.
<unk> well to continue playing out either leading role in China's evolving beauty market. So.
So thank you everyone with that I will now turn the call over to our CFO to discuss our financial performance.
Thank you, David and Hello, everyone.
Before I.
With that I'd like to clarify that all financial numbers presented today are you you mean, BMI and all percentage changes refer to year over year changes unless otherwise noted.
Total net revenue.
For the second quarter of 2021 grew by 53, 5% at one point.
<unk> five 3 billion RMB.
$993.2 million RMB in the prior year period.
Growth was primarily attributable to increased contribution from diversified sales channels and newly launched and acquired frankly.
Gross profit for the second quarter of 2021 increase.
By 65, 1% to approximately 1 billion RMB six.
607 million RMB in the prior year period gross margin improved by four six percentage points.
The 65, 7% in the second quarter 2000.
21 as compared.
Increased 61, 1% in the prior year period.
The fact of increased sales generated from higher margin brands and products.
We have also seen a continuation of the premium migration plan for the perfect salaried, Brian in the quarter.
Labeling laws to achieve higher.
Rich order values and better margins.
Operating expenses for the second quarter of 2021 increased by 61% to $1 four 1 billion RMB.
On the $35.3 million RMB in the prior year period.
As a percentage of total net revenue.
Operating expenses.
Creek to 92, 6%.
94, 2%.
Higher year periods.
Fulfillment expenses for the second quarter of 2021 or 118 million.
Million RMB as compared with 80.
Totalling 7 million RMB in the prior year period as.
As a percentage of net revenue fulfillment expenses decreased to seven 7%.
Eight 2% in the prior year period.
Was primarily attributable to the high base effect.
Prior year period.
Which.
81 logistics costs or.
Hi, as a result of the COVID-19 pandemic last year.
Marketing expenses for the second quarter of 2021 or 975.
$2.5 million RMB as compared with $62$2.5 million RMB.
The prior year period.
As a percentage of total net revenue.
Yes marketing.
Expenses were 63, 8%.
Compared with 62, 7% in the prior year period, however, on a non-GAAP basis.
It's food.
And related to share based compensation and amortization of intangible assets.
Marketing expenses were 61, 4%.
Net revenue.
Compared with 71% in the prior quarter and $62.
7% in the same period.
Last year.
The decrease in the selling and marketing expenses as a percentage of total net revenue was a result of our focus on improving the IRI on a cell.
And marketing expenses.
General and administrative expenses for the second quarter of 2020.
Any one or $286.4 million RMB as compared with $216.8 million RMB in the prior year period.
As a percentage of total net revenue.
And administrative expenses for the second quarter of 2021.
18.
8%.
21, 8% in the prior year period.
The decrease in percentage was primarily due to lower STC expenses.
For the same period last year.
Research and development expenses for the SEC.
Second quarter of 2021.
With $45.2 million RMB as compared with $14.3 million RMB in the prior year period.
As a percentage of total net revenue research and development expenses for the second quarter of 2021 increased to two 3% from one four.
4% in the prior year period, the increase was primarily due to higher personnel costs and share based compensation expenses as a reflection of our commitment.
Hence our R&D capability.
Loss from operations for the second quarter of 2021 increased by 20.
At 9% to $409.9 million RMB three.
$328.3 million RMB in the prior year period.
Operating loss margin was 26, 9% as compared with 33, 1% in the prior year period.
Non-GAAP.
For us from.
Operations for the second quarter of 2021 increased by 17, 7%.
$211.4 million RMB from $179.6 million RMB in the prior year period.
Non-GAAP operating loss margin was.
Four 9% as compared with 18, 1% in the prior year period.
Net loss for the second quarter of 2021.
Keith.
By 21, 6% to $291.2 million RMB.
321.7 million.
13 months in the prior year period net loss margin was 25, 7% as compared with 32, 4% in the prior year period.
Non-GAAP net loss from the second quarter of 2021 increased by 12, 6% to RMB.
$194.9 million.
$173.1 million.
Non-GAAP net loss margin was 12, 8%.
As compared with 17, 4% in the prior year period.
Yes.
Net.
Attributable to.
Ordinary shareholders per diluted ads for the second quarter of 2021 decreased to your 0.6 to RMB.
5.8, RMB in the prior year period.
Non-GAAP net loss attributable to ordinary.
Loss.
Diluted EPS for the second quarter of 2021 decreased to.
Europe.
One RMB.
128, RMB in the prior year period.
As of June 30.
2001, the company had cash and cash equivalents.
And the restricted cash for.
<unk>, one 1 billion RMB as compared with 5.73 billion RMB as of December 31, 2020.
Looking at our business outlook.
Third quarter of 2021, we expect our toe.
Revenue.
<unk> one <unk>.
RMB.
And 1.39 billion RMB.
<unk> year over year growth rate of approximately 5% to 10%.
This forecast reflects our current and preliminary.
On the market and operational conditions.
Which is subject to change with that I would now like to open the call to Q&A.
We will now be GAAP right.
Yes.
We will now begin the question and answer session to ask a question you May Press Star then one.
View on your telephone keypad.
If you are using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
For the benefit of all participants on today's call. If you wish to ask you a question to management in Chinese. Please immediately repeat your question in English.
One once again that with Star then one to ask a question at this time, we will pause momentarily to assemble our roster.
And our first question will come from Dustin Wei of Morgan Stanley.
Please go ahead.
Okay.
Hello management. Thanks for taking my questions. So first question is really regarding the third quarter guidance. So it sounds like it's because the base kind of issue in the third.
Third quarter last year that provide make company sort of provide the very conservative or LOE.
<unk> is now it sounds like it's not because the current COVID-19 outbreak. So that's a little.
To me, it's a little confusing. So just appreciate you can clarify that point and if we are looking for 5% to 10% sales growth you know I think by brand or are we going to assume the perfect dairy could could be Dick's.
Guidance for third quarter or you know could you provide some of the colors like by brand or by channel. So that's the first question regarding the guidance and the second question is you know Consequently, we think about the margin where profit for third quarter, if we assuming like 5% to 10% sales growth does that mean company.
Climbing also control the variable costs. So we are still cause you do see sort of a rationalization on ROI and a reduction on net loss ratio or because of certain operating deleverage in fact in the third quarter, we will temporarily in the quarter seemed like bigger loss or bigger loss ratio.
Company and the third point is back to a date is prepared remarks talk about the transformation plan.
Appreciate you would imagine men could provide some of the details about the goal of that transformation.
The operational target will financial target and how long that we would expect that.
So it will be done and where we're going to see some of the better better financial results. That's my three questions. Thank you very much.
Well. Thank you so much for the question.
So first thing.
I'm disgusted with you about the guidance.
Tim So as I mentioned before we need to keep the Q2 and Q3 combined.
If you look at vehicles fleet.
One of the key reasons is because of the.
And the usual seasonality of lots of it because of the Covid.
So if we look at look at the Q2 guidance.
We cannot provide the effort.
Donald the typhoon, but we still see a very healthy growth.
I remain flat.
Because of the <unk> adjustment now we have more our brands in skincare category and therefore, it is twice and do their own thing we continue to shop in the whole lot.
And then so hopeful that cheaper than where we are.
Allocating resources to the skin such groups.
So that will be about the our Q3 guidance and then you talk about the Covid impacts on Q3, we see some moderate impact on offline stores.
Because right now it is less than one third of the offline store will impact, but you called it.
While we continue.
Continue to already.
Chip into consideration of the impact of Covid.
Colby.
Our ambition.
So.
So.
For the for the transformation plan.
This will take some initiative to really sharpen our growth model.
So that means a few a few things first we continue to improve all online. So this will be reflecting on the AR on the sales and marketing.
Percentage of total revenue and also improvement on a bunch of my.
Second is that right now we are still.
So in the past quarter.
Or where it should be.
Allocated internal resources into skincare brands, which means we move some of the best performers.
And cosmetic skincare.
Skincare of EU.
So that is under the assumption that we think our growth in the color cosmetic category.
We continue.
However, we see a oh AR higher.
The more intense competition.
Cosmetics, so right now we are focusing on.
The growth on put the diary and also because of the already take some very good initiatives to grow this can chip when we see the momentum.
Bill I know you're flowing into these choices moving pretty well, but we'll continue to invest.
<unk> the skincare is like a gross.
Thank you David if I can just follow up on sort of the from margin. The word a profit as back of the questions I have for from a third quarter that you know should we take the third quarter's margin a little bit abnormal because of this.
Investing in growth, where you think.
The ROI and the margin kind of improvement will continue despite the sort of a little bit of low growth for the third quarter itself.
I think so if we think about your two three in Q4 gross so so normally.
Local foods growth comes from the investment on the Q3, because we need to take the repeat purchase rate.
Consideration so normally D. At the new user will be acquired in Q3, we will come back during the singles day promotion. So about Q3, the investments on flushes brand like put the diary and also the skincare brands.
But to be high but somehow we see the churn because of the optimize all y and lower sales and marketing percentage of our revenue. So the button line like improvement will continue.
Okay. Thank you very much David Thank you.
Thank you so much.
The.
This question comes from Christine Cho of Goldman Sachs. Please go ahead.
Thank you so much David.
So I have a quick three questions. So just a follow up on the guidance I think and understanding the seasonality if I just simply add to the second quarter actual revenue.
Next kind of your third quarter guidance, I kind of seems to imply around 25% to 30% growth on a Y O Y basis is this around the level of normalized gross that we should look for going forward.
Beyond fourth quarter and beyond.
That's the first question second question is.
Some have any update on the offline store expansion I recall that you.
Around hundred a new opening target for this year it seems like due to the COVID-19 situation and the other kind of factors. So far at the store opening has been slower than the target and lastly, I just wanted to hear some thoughts on.
Is which of the weaker July numbers across the industry.
Do you have any thoughts here do you think this is more of a pull forward of demand.
<unk> towards June 18th.
Or is this something and any other factors that we should think about in terms of interpreting July and August numbers. Thank you.
Yes.
On kind of I think there's so much.
Hum too to answer your first question about looking forward the guidance on Q4, and then and also out of quarters next year.
We think so.
So we I hope.
Nobody would take the Q1 into consideration as well.
So dear average growth.
For Q1 to Q3 will be something that we believe will be a more accurate reflection of our growth looking forward.
And going back to your second question about the about the offline stores. So in Q2 this year.
We are newly opened.
I mean can you help.
Australia was just the second.
Second question over to you offline store opening.
Yes, so so far we have.
Second quarter will have.
Three stores opened compared to the end of the year 241, so it doesn't matter.
30.
Helped with floors. We in fact are comfortable to open Las Flores I've, given you know Richie.
The COVID-19 situation the number of.
Doors that were planned to open later.
Drop a little bit compared to the number that we gave earlier.
[noise].
For your third question about the overall girls of.
Cosmetic industry in July we'd be D C I'm like a slower growth versus.
Pretty good months and also Uh huh.
Lower than our expectation.
So I believe one of the key.
That's behind us so what really drives the growth of previous months. So you can look at the so Oh things June or last year. So in the past the tough months beginning last June to dispute it so that the whole skincare or the whole cosmetic industry.
Regionals was mainly driven by skincare and also a premium brand schools. So we see that growth trend right now is getting a little bit.
Like are slowing down and also so that's why I'm the that the whole market grows.
We think it could be quicker but.
Equal award.
So if we look at the August data.
So we still have the confidence on the.
Cosmetic color cosmetic rules, because we see some new emerging channels got booming.
Please remember that the lead the lifestyle kind of thing less.
Less streaming.
Jenny.
<unk> is growing really fast so now the company's focus is we need to capture the new rules of the new the new category entrants and also newly emerging channels like them.
Thank you that is super clear thank you.
Thank you.
Looking to the next question comes from Louise Li of Bank of America Securities. Please go ahead.
Hi, Jamie.
Thank you for taking my question. My first question is just back in second quarter.
And that's the key driver.
Quarterly it sounds close is about it's not.
Oh God I wish I can share on the Nielsen.
So could you give us some color on the channels that let's just say patient so.
So because most of the last quarter or so I just yeah.
That's just the math corner. So do we see a further extension from that sounds country vision outside of a power of Tmall, particularly don't mean shortly.
Is that a rough controversy I don't know and I remember that you mentioned I don't know Oh I often in Q1 is still at the child.
Parents, Sean do we see an improvement from the.
From this channel because this is my first question My second question is.
So what about the guidance so it.
And it seems like Q3 guidance.
A little bit lower.
But if we look at it.
As I mentioned that normally we see.
Oh, hi at South <unk>.
It's an acute care too.
I was just curious if I look at it.
Past two years is not the case.
And so in this case, how do we how should we look at the Q4 when space becomes even tougher.
So so is that the 20 to 25% to 30% is a normalized approach.
And my third question is based on what we are what we're doing.
So the transformation, so and it seems like Oh.
Hi, Thank a lot.
<unk> not lost control, that's just that sounds close that's the case. Thank you.
Well. Thank you Louis what are your question.
The first one about the channel Miss Yes, we.
We are we are see where see.
Seeing the higher growth rates outside of to see more in terms of channel mix and then so we especially we see a very fast growth of the <unk>.
In bogey because of the Hum the last streaming.
So in Q1, yes.
Yes, we are.
Testing period, so the always not that high in Q2, we significantly improve the online so right now the growth of the leading gets on the right checks and believe this will be reflecting on Oh.
So tenable growth on revenue and also.
So optimized.
All of our sales and marketing percentage of total revenue.
So about the about the guidance on the Q3, I think I I discuss that.
For Christine's question.
If you are taking there to three in Q3, our gross combined and then up.
You're taking 212 <unk> combined we believe for Q1, two or three combined would be something that we believe will be more accurate reflection of our growth expectation for quarters move forward.
And then also so having said that we believe.
Our performance on Bellevue on.
The last streaming.
Give us some opportunity for us to to optimize so we will continue to choose.
Sure.
The multiple efforts to surplus of all competitors in building in China.
How about my last question so looking.
Looking forward, it's always there.
Yes.
Net loss control measures that sounds close or how do we strike a balance here.
I think so we right now we are taking a more sustainable growth strategy.
Keep up because they do own gross but you could look at the the wood that's meaningful for you are saying is that we think that the value of the growth coming from the skincare brands and are coming from our premium can get brands is more valuable for the whole group. So that's why we can we will continue devote more resources.
Q2 grow the skincare brands.
And then also for our flagship brand with the diary as I mentioned before curiosity, we read it.
Moved too fast.
Two we added to our talent team to the skin JP you and now we think because of the intensifying competition, we need to be focused.
And the wholesale watch T mobile resources to to to continue that growth trend, Oklahoma main brand.
So growth will be the key prioritize key priority of the company.
But.
The reason, we see the optimize the bottom line is because we have very high displaying India, all I had okay.
Oh in the resource allocation to maintain.
Our higher our high level puts us at the higher our level is reflecting the whole group, so which means for all our brands. We are taking the same bar. So so that actually means we need to optimize the ABS choice and also a little lumpy.
These gross margin.
[noise] lose a bit more color on your second question. So you were.
I believe you were looking at.
Q2 versus Q3 back in 2019, and then you know.
In Q3 in 2020.
Business.
Yes.
And Youre right, you know even back in 2019 and or.
Excuse me revenue is actually higher than Q2 by about 11% and the reason behind that was because back then we were.
Enjoying really.
High growth phase.
So that's why.
And at the growth our high gross feet actually outweigh.
The seasonality back in 2019.
So that's why.
The COVID-19, Q3 was 11%.
Our revenue was 11% higher than Q2, but if you look at 'twenty 'twenty last year's numbers, our Q3 revenue.
We are 27%.
Higher than Q2.
And that was.
A reflection of the disruption in the seasonality pattern that we were talking about.
Uh huh.
As David has mentioned several times now.
In Q2 last year, we had the social distancing and quarantine policies in almost all of the country.
Which actually depressed.
Assuming demand ourself in fact in Q2, but in Q.
Three tenths.
Pent up demand from the previous.
Q1, and Q2 were actually released.
So thats why we saw a much higher Q3 revenue number last year.
And that was the.
Seasonality patterns change.
We were talking about hopefully I hope that answers your question.
Got it thank you very much.
Sure.
The next question comes from Ingrid Zhang of UBS. Please go ahead.
Hi management. Thanks for taking my question I have three questions. The first is smaller brands.
I called out.
The last quarter.
We commented that big bird and expected to open a restaurant growth. This.
To hear about what was kind of branch would you. Please update on Oh, sorry sales trending as past quarter of Pink there and also for the skincare brands.
We'd love to see the that Dr. <unk>.
South school started taking off in the second quarter, but would you share with us to our new product launch plans in the second half and also when would we expect the growth of our.
If one Atlantic brands to take calls unlike Doctor, who and second the second question is bald.
Marketing cost would you mind to share a bit color about the all all I, maybe by I company level or by channels versus peers, just want to get under mm mm gut feeling about where we are compared with the industry.
Uh huh.
Our last question is about the organization structure.
Sure.
Would you please share with us maybe some color about our resource allocation among different online channels and Ah say social marketing values in terms of personnel is marketing budgets et cetera.
Many thanks.
Thank you Ed.
The question, so if I remember correctly. So the first question is oh or.
Yeah on the skin care category.
We used.
But right now we are spending more and more effort to grow our skincare brands. So both of which are growing really fast and also we see a very also at the very fast growth coming from in there. So the reason we launched team Bill Hum.
So when the put the diary, taking a permanent.
Criminalization of churn so the price point.
We do not see the white space on the under the Hood value price point, so we need to bear to take the market share win but maybe not so we see right now based on the initial.
So without a pin buried the put four months. It is but you know expectation because we think the pin based growth.
Healthy is very high.
Oh, Hi, very fast grows and also the brand's positioning it's very clear so the.
Uh huh.
Brian This is Tony rapidly to the younger generation of consumers, which means the brings trading a lot of new users and new entrants into the color category.
So I think the pain there right now its own check so so both in there right now is really focused on that because category.
For the second half of this year the brand will be expanding to the eye Shadow pedigree and also some basically called this fall. So while we think the the the fast growing channel in there would continue and then will help us to drive the growth of our that is checking the color cosmetics.
So for US that's a war.
So right now we are ready for because they owned a hero product.
But because of what has to be a.
Very strong product lineup architecture. So we think in the Tuesday in Q4, we are going to expand to other.
Essence items.
<unk>.
So the R&D all sorts of wounds.
Well, we're just very strong and the product has proven in the past decade in the market.
The reason, we just chose the first once you wont be very full because that could be think that one used to be very competitive in the market and a product a couple of months.
Exceeding the consumer's expectation, so we strengthened the French equity.
T by making the first few items to become the number one in this subcategory. So in Q2 than in Q3, and Q4 will be expanding the essence lie.
Spending to the facial mask line and also other special items as well. So we think the <unk> the new product.
The launch an expansion plan for the Peru will be very strong based on the existing product lineup.
And in the future. We are also devoting the resources in our R&D and developing new products, new hero products puts up a wistful.
So for the so.
So first.
Question about the all life, so right now because of the the expansion in Belgium, because our live streaming.
So the cost structure in billions more C. P. S based so which means we pay a fixed cost.
Oh that sounds.
So that.
That is really helping us to improving the alloy.
So we think as long as we continue to devote resources to grow India.
The revenue percentage in the league.
The the optimization of DIY will continue.
Yeah.
Checks David My last question was about the organizational structure and our resource allocation among different online channels and social marketing values in terms of like personnel marketing.
<unk> budgets et cetera.
Say, how many people we have for the auto in a partial.
On travel.
Sure.
Yeah.
I cannot remember if he did.
The number of the people working at all Union quite right, but.
But in the past Mommy, we're having the strategy view before all the top half of the year and we see a demand that we need to allocates.
Allocates more talent into the fast growing channel and also fast Korean brands. So lucky because we have a very proficient hadn't pool based.
Based on our management training program and also we are we're getting a lot of liberty experienced people from the industry to join us as.
Well, so we think the.
We have sufficient talent you are to manage the growth of the different channels.
In terms of brand building brand building is one of the key focus for Semgroup.
So in the past year are you in the past couple of years.
We hire very talented people.
Traditional Gucci Hum kilometers and then they brought in a lot of experiences in brand building. So we are strengthening the brand equity and put the battery and also all other brands as well. So we think the investment in brand building the continued to tick.
So percentage of all the sales and marketing expense.
And this is David.
Thank you.
The next question comes from Casper She of C. ICC. Please go ahead.
Hi, this is kind of perfect sense.
And thank you for taking my question.
My first question is about the pace of introducing new programs or new brand because we noticed that recently the painful to introduce introducing new brands is slower than before so I wonder if the 10th Bang for their new product development.
Peter now and the second question is about Oh skincare.
Skincare products of domain brands perfect theory, so fiduciary counterbalance the reasons sales performance and maybe our future plans of the new brand development, especially risky skincare category. Thank you.
I seen in the first half of this year. So we spent ah.
More and more effort in developing better products.
In our fourth while you are seeing with brands. So initially we took a better and a fewer strategy should come up with a very in a way it tastes and long lasting.
And a couple of months.
Excuse for example, the loose powder, we just launched it takes a longer than.
Our traditional products she developed but the technology and also the smart lock to proprietary technology.
Right now it's becoming.
A very strong.
Driver to helping to put up to gaining share in the market. So if we look at the the loose powder and then are we believe it's one will become very important.
Milestone will put the battery because as we all know they lose product category is one of the.
But I would say to the strategy focused on one of them very important competitor in this market.
So which means when we are gaining share and loose powder.
Actually helping us to become more competitive in the market are head to head.
At comparison to our.
Main competitor so so.
Youre right that in the first half we are spending more effort to developing a really competitive product it takes longer time.
For the second half of this year, we will see.
The highest frequency of launch of new products.
That's it that as many.
Because.
Everything like last Q4, and the first two quarters. This year. We have we are comparing for burning in the later part of launch.
Market.
We just launched the our that makeup remover oil and also we are launching a.
Some other new items. This fall so far lipstick, we're going to have a very breakthrough formulary, which we are going to launch right before the singles day, and therefore, our eye Shadow palette, we just launched a false I should've had which was to become the roster of the of.
The ICF category. This year, and then right before Singles' day, you'll see a lot of in U S cable launching among our existing brand not only put the dairy but also its own thing came there and also an Orthodox skincare brand. So we are confident about our initiatives New initiative pipeline.
Second half of this.
Yeah.
Okay.
Okay.
Sure.
Yeah. The second question is about the skincare and fragrance of our main brand perfect dairy so could.
Could you give us some detail.
Tell us about these.
Sales performance in Q2, and maybe it's a guidance into Q3 and Q4.
So skin care part of the profit Berry is.
Similar to our color lands and also male skincare products. They should will be will be a category expansion of budgetary.
So so far the skincare products, we launch for all in our offline stores and now we see the percentage of the skincare.
Skincare product lineup.
Total revenue of offline stores has been continuous growing and are based on the initial feedback from our consumers. They believe.
Brian that those like a skincare items is actually helping to to.
Help me to better apply to make hubs. So I believe the political opponents has been proven and also be well received by the consumers and we'd be so after a test period you expanding here.
The basic skincare.
But the items into other channels as well so looking forward, we will taking like a higher percentage of the total revenue off of that.
Okay. Thank you very much about very detailed explanation.
I have no other question. Thank you.
Thank you.
Our next question comes from Kevin Zhang of 86 Research. Please go ahead.
Okay.
Hi management for taking my questions I have two quick questions. The first one is about.
Data security so how does the company evaluate the potential impact from.
Okay security.
Well it had a regulation because based on our understanding on the one hand, and our customer inside and the product development process with it.
It's really a data driven on the other hand, the firm I, usually spend a lot of dollar in targeted marketing. So I was just wondering.
Dave the marketing ROI will be diluted paid can you sort of database that regulation. This is the first one the second one is about.
The management team because.
Our X C O O our wings and resigned due to health reasons. So what.
What have we done to ensure that the stable.
<unk> and transition and how.
How do we red Red allocated responsibilities Oh, two other members.
Yeah.
Oh. Thank you for your question about the first one the data security law, So right now our legal counsel.
Reviewing the chops to Vegetate Metro station on data security.
So did.
And are you do you always got a theater security will not impact, yes, I'm too much because he has now obtained its customers' data many to the online platforms like Tmall still so they.
But they prefer on tmall are pretty well protected.
The data obtained a four hour private don't mean channels provided a boarding to a voluntary by consumers. So and also we have a very strict security measures in place to prevent you have to use so I think overall our.
Our assessment on the data security and lowest even pets on the company.
So it's something that we believe would not be a pretty big.
The second question related to our co founders are sensitive.
So so because of the house you can do yeah actually left the company around in April So we started the year.
The transition.
In Q2 already.
So originally you she's I'm, taking a pretty big are we supposed to but it took the company's operation and then in it because we have the different care management and also Michael Thunder jump on and he's taken the majority of policy and since Hum.
Our responsibility so in the past five months, we see the operation when our high schools and also are we are we are taking the new initiative to to shopping alcohols model. So I think the team's Murat and also.
The twins operation efficiencies are in line with solid expectation.
Although the team has been facing a very competitive environment.
From the industry and also a very just hoping luckily come on.
Hum environment, but the beef the team right now has been a quiet I would say I'm confident about the initiatives we're taking.
We believe we are heading on to the right direction and then we are shopping at outflows model and also we see some initial success coming from our brand expansion and also how are sales growth since can kick category.
Auto stop some of the very important milestones. We are we are we are making.
So looking forward I believe that the organization has been moving to the next stage.
And then and then we will continue to.
What kind of what we believe the right direction and then it would be a long term focus and there'll be a continued to grow to.
The existing brand portfolios and then gaining more share.
Are you there.
The cosmetics industry.
Thank you David that's very helpful. I have no more questions.
Thank you so much.
And that concludes our question and answer session I would like to turn the conference back over to management for any additional or closing comments.
Thanks, everyone for joining us today, if you have any further questions. Please feel free to contact us directly.
Directly or potentially Investor relations.
Contact information for IR in both China, and the U S can be found on today's press.
Thanks, and have a great day.
[noise].
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.