Q3 2021 Yatsen Holding Ltd Earnings Call

Ladies and gentlemen, good day and welcome to the Yadkin third quarter 2021 earnings conference call.

Speaker 1: Ladies and gentlemen, good day and welcome to the Yadkin Third Quarter 2021 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Irene Liu, Head of Strategic Investments and Capital Markets. Please go ahead. Thank you, Irene. Thank you, everyone. Good afternoon. Thank you, Irene. I'm so happy to be here. I'm so happy to be here. I'm so happy to be here. I'm so happy to be here. I'm so happy to be here. I'm so happy to be here. I'm so happy to be here. I'm so happy to be here. I'm so happy to be here.

Today's conference is being recorded.

At this time I would like to turn the conference over to Irene to head in that kind of a strategic investment and capital market. Please go ahead.

Thank you operator, when you see all of the discussion today will come from a falloff of payments relating to the company's future for falling tendency.

Speaker 2: Thank you, operator. Please note the discussion today will contain four looking statements relating to the company's future performance and are intended to qualify for the safe harbor from liability as established by the U.S. Private Security Mitigation Reform Act.

Qualify for the safe Harbor from liability.

Establishing by the U S Private Securities Litigation Reform Act.

Such statements are not guarantees of future performance and are subject to certain risks and uncertainties assumptions and other factors. Some of these risks are beyond the company's control and could cause actual results to differ materially from those mentioned in today's press release and the fashion.

Speaker 2: Such statements are not guarantees of the future performance and are subject to certain risks and uncertainties, assumptions, and other factors. Some of these risks are beyond the company's control and could cause actual results to differ materially from those mentioned in today's press release and this discussion.

A general discussion off the risk factors that could affect business and financial results is included in certain filings of the company with the securities and exchange.

Speaker 2: A general discussion of the risk factors that could affect Yasen's business and financial results is included in certain filings of the company with the Securities and Exchange Commission.

Commission.

The company does not undertake any obligations to update this forward looking information except as required by law. During today's call Nashville will also discuss certain non-GAAP financial measures for comparison purposes, only for a definition of non-GAAP financial measures and the reconciliation of GAAP to non-GAAP financial result.

Speaker 2: The company does not undertake any obligation to update this forward-looking information except as required by law. During today's call, management will also discuss certain non-GAAP financial measures for comparison purposes only. For a definition of non-GAAP financial measures and the reconciliation of GAAP to non-GAAP financial results, please see the earnings release issued earlier today.

Please see the earnings release issued earlier today.

Tony yesterday on the copper call from Jaco Senior management are Mr. Sinful falls, our founder Chairman and CEO and Mr. Joe <unk>, our director and CFO National will begin with prepared remarks, and the call will call food with a Q&A session.

Speaker 2: Joining us today on the conference call from Yeltsin Senior Management are Mr. Jinfeng Huang, our Founder, Chairman and CEO , and Mr. Donghao Yang, our Director and CFO . Management will begin with prepared remarks and the call will conclude with a Q&A session.

As a reminder, this conference is small and recorded an additional a webcast replay of this conference call will be available on yourself lesser relations website at IR about Yahoo, Global Dot Com I will now turn the call over to MS. Circling football. Please go ahead.

Speaker 2: As a reminder, this conference is being recorded. In addition, a webcast replay of this conference call will be available on Yasen's investor relations website at ir.yasenglobal.com. I will now turn the call over to Mr. Jinfeng Huang. Please go ahead.

Yeah.

Thank you Gary and thank everyone for joining today's conference call.

Speaker 3: Thank you, Irene, and thank you everyone for joining today's conference.

So our net revenue grew by 6% year over year to one one street media R&D in the third quarter in line with the old guidance.

Speaker 3: So our net revenue grew by 6% year-over-year to 1.3 billion RMB in the third quarter, in line with our guidance.

We made significant progress with all of the skincare brands in the quarter, which increased to approximately six 2% of total gross dose compared to around 40% during the prior quarter and around 5% during the same period last year.

Speaker 3: We made significant progress with our skin care brands in the quarter, which increased to approximately 16% of total gross sales.

Speaker 3: compared to around 14% during the prior quarter and around 5% during the same period last year.

Since of the Premier amortization of the book the diary breath and an increase in skincare sales our gross margin increased by two two percentage points year over year to almost 68%.

Speaker 3: Since the premiumization of the Puppet Diary brand and an increase in skincare sales, our growth margin increased by 2.2 percentage points year over year to almost 58%.

So we saw a significant deceleration in general consumer and the color cosmetic spending in China This quarter.

Speaker 3: So we saw a significant deceleration in general consumer and the color cosmetic spending in China this quarter.

According to the China National Bureau of Statistics, and general consumer retail spending and a beauty retail spending each recorded year over year growth of approximately 5% in the third quarter.

Speaker 3: According to the China National Bureau of Statistics, in general consumer retail spending and beauty retail spending, each recorded year-over-year growth of approximately 5% in the third quarter.

It was even lower sales growth in Cmos kolokoff metrics category.

Speaker 3: with even slower sales growth in T-MORS Colour Cosmetics category.

The industry wide slowdown extended into the singles day promotion period between November 1st and then November 11th.

Speaker 3: The industry-wide slowdown extended into the single-state promotion period between November 1 and November 11, 2021.

If anyone.

During the week color cosmetics sounds on T mall fell by low single digits compared to the primary prior year.

Speaker 3: during which color cosmetic cells on T-more fell by low single digit compared to the primary prior.

So this industry churn is study called in nature, driven by macro economies uncertainties and the unusual seasonality pattern caused by the COVID-19 pandemic last year.

Speaker 3: So this industry trend is statical in nature, given by macroeconomies uncertainties and the unusual seasonality pattern caused by the COVID-19 pandemic last year. Our business is likewise.

Our business is likewise undergoing significant changes.

Gross outs from all kind of cosmetic brands, which make up approximately 84% of total gross sales decreased by mid single digit year over year in the third quarter.

Speaker 3: growth cells from our color cosmetic brands, which make up approximately 84% of total growth cells, decreased by mid-single-digit year-over-year in the circle.

These results were mainly due to our continued to be aligned themselves, but it's the only.

Partially offset by the steady performance will put the diary and the team there.

Speaker 3: partially offset by the steady performance of Profidari and the PIMB.

Gross sales for all of our skincare run which include maybe its voice and data.

Speaker 3: Growth sales from our skincare brands, which include Aby's Choice, Dr. Wu, Galanic, and Yvlon, grew by around 257% on a year-over-year basis.

But I need you blow by around 257%.

On a year over year basis.

Since the majority of this quarter's sales come from color cosmetics dispatches inevitably slow the group the group's overall girls.

Speaker 3: Since the majority of the disordered cells come from color cosmetics, these factors inevitably slow the growth, the groups overall.

Despite these changes we remain one of the largest public distant to pure play beauty companies in China by revenue size during the third quarter.

Speaker 3: Despite these changes, we remain one of the largest publicly listed pure play beauty companies in China by revenue size during the slow crisis.

So the diary was once again, the largest color cosmetic brand home chemo channels in terms of cells and the T. Mo ranked behr is number one new domestic brands, although missed the color cosmetic Brian during november's Singles' day event.

Speaker 3: Perfect Diary was once again the largest color cosmetic brand on T-Mall channels in terms of sales. And T-Mall ranked PinBear its number one new domestic color cosmetic brand during November's single-state event.

It wrong and daughter Who's sells on T mall grew by 100% and 1400% respectively.

Speaker 3: Yip Long and Dr. Wu cells on Timor grew by 100% and 1400% respectively.

Why is the Natalie Atlantic VC Steri shield product was the top selling imported facial serum.

Speaker 3: While Galenix VC Serum Heal product was the top selling imported facial serum during the single stage.

During the singles day care.

The overall gross sales for all skincare brand grew by around 477% compared to the prior year's Singles' day period.

Speaker 3: The overall growth sales from our skincare brand grew by around 477% compared to the prior year's single-stay period. Underscoring the strength of our...

Underscoring the strength of our skincare business this year.

As we look to the near future. We are committed to shop in our growth model, which is underpinned by St Peters.

Speaker 3: As we look to the near future, we are committed to sharpen our growth model, which is underpinned by three pillars.

<unk> investments in our brand equities.

Commitment to developing world class R&D capabilities, and a focus on sustainable growth.

Speaker 3: commitment to developing world-class R&D capabilities and a focus on sustainable growth.

We expect the implementation of these growth initiatives can take multiple quarters to hold these results but.

Speaker 3: We expect the implementation of these growth initiatives to take multiple quarters to produce results, but we believe we are on the right track.

But we believe we are on the right path to future success.

We have already seen positive results from our efforts to upgrade and refine to put the diary Brett.

Speaker 3: We have already seen positive results from our efforts to upgrade and refine the profitability program.

And the China cosmetic conference Moe and the Davos Forum of the beauty industry.

Speaker 3: At the China Cosmetic Conference, known as the Davos Forum of the Beauty Industry, the 2021 Bruce Rose Awards named Tofidari as the most influential brand for the second consecutive year, a strong endorsement of our country.

One whose roles awards named it the diary as the most influential brands for the second consecutive year.

Strong endorsements of our continued innovation.

We introduced several new products in the third quarter.

Speaker 3: We introduced several effective new products in the third quarter, such as the Silver Wings Slim Heel Lipstick with Herald Color and the unique Microsphere Wrapping Technology.

Especially as placebo, we leave Q lipstick is how color and a unique microspheres racking technology.

And the written lip staying with the everyday technology.

Speaker 3: and the README lip-sync with the ever-standing technology.

So both parties, our leading position in the color cosmetic area.

Speaker 3: So both are in our leading position in the color cosmetic area.

We also unveiled a series of new products through ICU crossovers, and the collaboration with well known brands in other fees, especially yes owner of King Eyeshadow, palettes and keep yoga gift box.

Speaker 3: We also unveiled a series of new products through IT crossovers and collaboration with well-known brands in other sectors.

Speaker 3: such as Owner of King's Eyeshadow Palette and Keep Yoga Gift Box.

Furthermore, well known Chinese celebrities Hogan joined this international acclaimed.

Speaker 3: Furthermore, well-known Chinese celebrities, Liu Haoran, joined with international acclaimed Chinese actress Zhou Xun to serve as the joint spokesperson for Puffy Barry, further strengthening our brand recognition.

Actually it's so cheap to Sylvia Cheung most person booked with a battery.

To strengthen our brand recognition.

Now, let's look at the other brands.

Little Andi is continuously gaining traction among young place yours.

Speaker 3: Little Ondine is continually gaining traction among young

Specifically powered by a new product launch such as Disney a b lines crossover and the opening of our first offline physical stores in Shanghai T. S Y had more in September.

Speaker 3: specifically powered by a new product launch, such as our Disney-Villains crossover, and the opening of our first offline physical stores in Shanghai, TSY, and more in September .

So building on our momentum from last quarter. We also continued to invest in our team there Brett.

Speaker 3: So building on our momentum from last quarter, we also continued to invest in our PinBear brand. In the third quarter, we developed a new lip gloss using PinTouch technology, as well as a new eyeshadow.

In the third quarter, we developed a new leap grows using pen touch technology and as long as the new eye Shadow collection.

Resonated strongly with Ping bears diverse young community.

Speaker 3: which resonated strongly with PinBear's diverse, young community.

Tim Bear also engaged a Chinese singer and actions change out says spokeswoman reinforcing timbers positioning as the brand of choice for young girls.

Speaker 3: Tin Bear also engaged a Chinese singer and actress, Chen Xiao, as his supposed woman, reinforcing Tin Bear's positioning as the brand of choice for young girls.

Now turning to our skin care category.

We completed several integration.

Speaker 3: We completed several integration initiatives for Galanique and Iflong during the first half of the year and began to ramp up both brand marketing and branding activities in the third quarter.

Initiative.

If long during the first half of the year and it began to ramp up those brands marketing and branding activities in the third quarter.

So in early September we appointed Chinese simple model, let's see and the famous Chinese after younger escalade leak and Islam.

Speaker 3: So in early September , we appointed Chinese supermodel He Sui and the famous Chinese actor Yang Yang as Galenic and Yif Long brand ambassadors.

Brent ambassadors respectively.

Accompanied by high profile publicity and media events.

Speaker 3: accompanied by high-profile publicity and a media event.

So given that prestige brand duty paid patients didn't happen.

Speaker 3: So given that, prestige brand building takes patience and effort.

Got you continue investing in branding and marketing for these two brands one.

Speaker 3: We expect to continue investing in branding and marketing for these two brands.

Why is that it would be adding new hero skus and the product categories over time.

Speaker 3: while steadily adding new hero FKUs and product categories over time.

So on the R&D front, we increased the R&D expenses to 2.7% of total net revenues in the third quarter.

Speaker 3: On the R&D front, we increased R&D expenses to 2.7% of total net revenues in the third quarter, compared with 1.1% in the prior period.

Compared with one 1% in the period in the prior period.

Also established an innovative skincare luxury this reach in hospitals.

Speaker 3: We also established an innovative skin care laboratory with three gene hospitals, dermatological department, as well as the R&D collaboration platform with Sun Yat-sen University during the course.

Dermatology co Department, that's why it's the R&D collaboration platform with CSA University during the quarter.

Reaching hospital part of Shanghai, Telcom University School of Medicine is a great three level General hospital visit and eat almost a 100 year history.

Speaker 3: Weijun Hospital, part of Shanghai Jiaotong University Schools of Medicine, is a grade 3 level general hospital with an enormous one-year history.

If the mythology Cope department has a nationally renowned national great clinic.

Speaker 3: If the dermatological department has a nationally renowned, national grade clinic specializing in the diagnosis and the treatment of refractory skin disease.

Well I think in diagnosis and achievement of our refract three skin disease.

Our three year joint R&D program. This thing ethane University will focus on that because these new ingredients and the four meters to a gesture specific scheme issues.

Speaker 3: Our three-year joint R&D program with Sun Yat-sen University will focus on efficacy's new ingredients and formulas to address specific skin issues.

Our collaboration with <unk> to pre eminent academic research institutions will significantly bolster our open lap R&D capabilities.

Speaker 3: Our collaborations with these two preeminent academic research institutions will significantly bolster our open lab R&D capabilities.

Additionally, during the third quarter, we completed our investment in Hangzhou me meet tight and.

And in the wake of company, focusing on R&D of Michael ecology called skincare products.

Founded in 2018, Hangzhou meat Tyson.

Speaker 3: founded in 2018 Hangzhou Meitai Shenwu owns ENT.

Jim.

Michael Ecology called Skincare brand endorsed by Dermatologists.

Speaker 3: a microecological skincare brand endorsed by Dermatology.

Between our online and offline resources, it's about as often lack R&D capabilities.

Speaker 3: By leveraging our online and offline resources, as well as open-lab R&D capabilities, we will further promote the development of R&D solutions.

We will further promote the development of Jensen.

The quarter also included an investment in me Matt Biotechnology.

Speaker 3: The quarter also included an investment in MIMAP biotechnology.

Our cutting edge companies spoke with you on the development of industry, leading pharmaceutical products.

Speaker 3: a cutting-edge company focusing on the development of industry-leading pharmaceutical products.

Part of Pili poverty medical offensive in the wake of duty jocks cell therapy, and it's more and more crew in the La India.

Speaker 3: with a pot-a-pie line covering medical assessors, innovative beauty drugs, cell therapy, and a small mock group immunology, immunocology.

Immunology immuno oncology.

With this investment we intended to stand at the forefront of developing cutting edge biomedical technology for future potential applications in the field of beauty.

Speaker 3: With this investment, we intended to stand at the forefront of developing cutting-edge biomedical technology for future potential applications in the field of beauty.

So lots of the the final piece of our evolutionary strategy is our framework for sustainable growth.

Speaker 3: So lastly, the final piece of our evolutionary strategy is our framework for sustainable growth.

Encompass both sales growth and cost optimization edmunds.

Speaker 3: which encompass both sales growth and cost optimization advantage.

In the near term you plan to focus on increasing sales contributions from our Mac teach and premium skincare brands such as both a wound dynamic and at your floor.

Speaker 3: In the near term, we plan to focus on increasing sales contribution from our must-teach and premium skincare brands, such as Dr. Wu, Galamic, and Evlok.

Which provide excellent gross margins and a higher quality growth.

Speaker 3: which provide excellent growth margins and a higher quality.

While we seek opportunities to increase sales contribution from non traditional channels.

Speaker 3: Meanwhile, we will seek opportunities to increase sales contribution from non-traditional channels where we see room for sustainable growth and incremental sales penetration.

Where we see room.

The pinnacle gross and incremental sales penetration.

Yeah.

In terms of cost optimization, we aim to continue to improve our performance based marketing all I and the shift more resources to branding investments.

Speaker 3: In terms of cost optimization, we aim to continue to improve our performance-based marketing ROI and shift more resources to branding investment.

While we may sacrifice certain low quality growth in the short term. We believe these optimization strategy enabled us to build our brand equities across our portfolio and to sustainably reduce sales and marketing expense overtime.

Speaker 3: While we may sacrifice certain low-quality growth in the short term, we believe this optimization strategy will enable us to build brand equities across our portfolio and sustainably reduce sales and marketing spend over time.

We also plan to optimize all fulfillment and G&A expenses in the near future should we align with our new growth strategy.

Speaker 3: We also plan to optimize our fulfillment and G&E expenses in the near future to realign with our new growth strategy.

Pat.

These initiatives enabled us to achieve sustainable growth.

Speaker 3: We expect that these initiatives will enable us to achieve sustainable growth with a near path to profitability in the medium to long run.

Near path to profitability in the medium to long run.

So in closing before I hand, it over to Don I would like to reflect on the journey that has brought us here.

Speaker 3: So, in closing, before I hand it over to Donghao, I would like to reflect on the journey that has brought us.

Yeah. So celebrated its fifth birthday in September so why I'm proud of our team's achievement since yes since founding I remain as determined as of one day on day, one to ensure that sounds continuous success in the next stage of development.

Speaker 3: Yasen celebrated his 5th birthday in September . So while I'm proud of our team's achievements since Yasen's founding, I remain as determined as on day one to ensure Yasen's continued success in the next stage of his development.

I'll focus on sustainable growth until some shops and adjustments and it may take time to produce results.

Speaker 3: Our focus on sustainable growth will entail some short-term adjustments and may take time to produce results.

But we are confident that this is the right moment, yes development for Disney essential shipped.

Speaker 3: but we are confident that this is the right moment in essence development for this essential ship.

As we navigated these periods of unprecedented.

Speaker 3: As we navigate this period of unprecedented challenges, we are optimistic of our Yashan

<unk>, we are optimistic about <unk> future.

To further demonstrate our confidence in the company's prospects our board of directors have authorized a winder media and your father share repurchase program to be completed over the next 24 months.

Speaker 3: To further demonstrate our confidence in the company's prospects, our board of directors have authorized a 100 million US dollar share repurchase program to be completed over the next 24 months.

So thank you everyone with that I will now turn the call over to our CFO to discuss our financial performance.

Speaker 3: Thank you, everyone. With that, I will now turn the call over to our CFO , Donghao Yang, to discuss our financial performance.

Thank you, David and Hello, everyone before I get started I would like to clarify that all financial numbers presented today are you having them be amounts and all percentage changes referred to year over year changes unless otherwise noted.

Speaker 4: Thank you, David, and hello, everyone. Before I get started, I would like to clarify that all financial numbers presented today are your M&B amounts, and all percentage changes refer to year-over-year changes, as is otherwise noted.

Our total net revenues for the third quarter of 2021 grew by 6% to RMB 134 billion.

Speaker 4: Total net revenues for the third quarter of 2021 grew by 6% to RMB 1.34 billion from RMB 1.27 billion in the prior period. The growth was primarily attributable to increased sales from our newly launched and acquired brands.

Billion from RMB 127 billion in the prior year period. The growth was primarily attributable to increased sales from our newly launched and acquired Brian.

Gross profit for the third quarter of 2021.

Speaker 4: Gross profit for the third quarter of 2021 increased by 9.6% to approximately RMB 911.8 million from 831.6 million in the prior period. Gross margin improved by 2.2 percentage points to 67.9% in the third quarter.

<unk> by nine 6% to approximately.

RMB 911, 8 million from $831 6 million in the prior year period gross margin improved by two two percentage points.

67, 9% in the third quarter.

Oh 2021, as compared with 65, 7% in the prior year period, mainly due to increased sales from higher margin brands and products we.

Speaker 4: of 2021 as compared with 65.7% in the prior year period, mainly due to increased sales from higher margin brands and products.

We have also seen an increase in sales from our skincare, Brian this quarter, enabling us to achieve higher average order value and better Margaret <unk>.

Speaker 4: We have also seen an increase in sales from our skincare brands this quarter, enabling us to achieve higher average order value and better margins.

Total operating expenses for the third quarter of 2021 decreased by 13, 2%.

Speaker 4: Total operating expenses for the third quarter of 2021 decreased by 13.2%.

Two a 1.28 feeling RMB from 1.48 million in the prior year period.

Speaker 4: to 1.28 billion RMB from 1.48 billion in the prior period. As a percentage of total net revenues, total operating expenses decreased to 95.4 percent from 116.6 percent in the prior period.

As a percentage of total net revenues total operating expenses.

Decreased to 95, 4% from 400.

16, 6% in the prior year period.

So filament expenses for the third quarter of 2021.

Speaker 4: Fulfillment expenses for the third quarter of 2021.

For 100.2 million RMB as compared with 91.5 million RMB in the prior year period.

Speaker 4: were 100.2 million RMB as compared with 91.5 million RMB in the prior year period.

As a percentage of net revenues fulfillment expenses increased to seven 5% from seven 2% in the prior year period, primarily due to an increase in customer service expenses and.

Speaker 4: As a percentage of net revenues, fulfillment expenses increased to 7.5% from 7.2% in the prior period, primarily due to an increase in customer service expenses and share-based compensation expenses compared to the third quarter of 2020, partially offset by a slight decrease in fulfillment logistics expenses.

Based compensation expenses compared to the third quarter of 2020.

Definitely offset by a slight decrease in fulfillment logistics expense.

Selling and marketing expenses for the third quarter of 2021, or $911 3 million RMB as compared with $864 3 million in the prior year period.

Speaker 4: Selling and marketing expenses for the third quarter of 2021 were 911.3 million RMB, as compared with 854.3 million in the prior period. As a percentage of total net revenue.

As a percentage of total net revenue.

Selling and marketing expenses were 67, 9% compared with 67.5% in the prior year period, However, on a non-GAAP basis, which exclude.

Speaker 4: selling and marketing expenses were 67.9% compared with 67.5% in the prior year period. However, on a non-GAAP basis, which excludes

Expenses related to <unk> based compensation and amortization of intangible assets.

Speaker 4: expenses related to fare-based compensation and amortization of intangible assets, selling and marketing expenses.

Selling and marketing expenses were 60.

Four 9% of total net revenue compared to 67, 5% in the prior year period. This was the result of our focus on improving our selling and marketing expenses.

Speaker 4: 4.9% of total net revenue compared to 67.5% in the prior year period. This was the result of our focus on improving our selling and marketing expenses ROI.

General and administrative expenses for the first quarter of 2021, or $233 9 million RMB as compared with $514 9 million in the prior year period as a percentage of total net revenue general and administrative expenses.

Speaker 4: General and administrative expenses for the first quarter of 2021 were 233.9 million RMB as compared with 515.9 million in the prior year period.

Speaker 4: As a percentage of total net revenue, general and administrative expenses for the third quarter of 2021 decreased to 17.4% from 40.7% in the prior period.

For the third quarter of 2021 decreased 17, 4% from 40.7% in the prior year period.

The decrease in percentage was primarily due to lower SBC expenses compared to the same period last year, partially offset by an increase in salary.

Speaker 4: The decrease in percentage was primarily due to lower SBC expenses compared to the same period last year, partially offset by an increase in salary.

Research and development expenses for the third quarter of 2021, or 45.8 million RMB compared with 14.4 million RMB in the prior year period.

Speaker 4: Research and development expenses for the third quarter of 2021 were 35.8 million RMB compared with 14.4 million RMB in the prior period.

As a percentage of total net revenues research and development.

Speaker 4: as a percentage of total net revenues, research and development.

For the first quarter of 2021 increased to two 7% from 1.1% in the prior year period.

Speaker 4: expenses for the third quarter of 2021 increased to 2.7% from 1.1% in the prior year period.

The increase was primarily due to higher personnel cost and share based compensation expenses, reflecting our commitment.

Speaker 4: The increase was primarily due to higher personnel costs and share-based compensation expenses reflecting our commitment to enhancing our R&D.

Enhancing our R&D capabilities.

Loss from operations for the third quarter of 2021.

Speaker 4: Slots on operations for the third quarter of 2021 decreased by 42.7% to 369.3 million RMB from 644.6 million RMB in the prior period.

<unk> by 42, 7%.

$369 3 million RMB from $644 6 million RMB in the prior year period.

Operating loss margin or <unk>.

Speaker 4: Operating loss margin was 27.5% as compared with 50.9% in the prior year period.

Seven 5% as compared with 50.9% in the prior year period.

Yeah right.

Some operations.

Speaker 4: non-gap loss from operations for the third quarter of 2021 increased by 11.9 percent.

Third quarter of 2021 increased by 11, 9%.

$221 7 million RMB from 198.1 million.

Speaker 4: to 221.7 million RMB from 198.1 million in the prior period. Non-GAP operating loss margin was 16.5% as compared with 15.6% in the prior period.

Prior year period.

Non-GAAP operating loss margin was 16.5% as compared with 15, 6% in the prior year period.

Net loss for the third quarter of 2021 decreased.

Speaker 4: Net loss for the third quarter of 2021 decreased.

A 43, 8% to 361.8 million RMB from 643.8 million in the prior year period.

Speaker 4: 43.8% to 361.8 million RMB from 643.8 million in the prior period.

Net loss margin was 26, 9% as compared with 50.8% in the prior year period non-GAAP net loss.

Speaker 4: Net loss margin was 26.9% as compared with 50.8% in the prior period.

Speaker 4: non-gap net loss for the third quarter of 2021 increased by 9.6% to 216.3 million RMB from 197.4 million.

The third quarter of 2021 increased by nine 6% to $216 3 million RMB from 197 4 million.

Non-GAAP net loss margin was 16.1% as compared with 15, 6% in the prior year period.

Speaker 4: non-GAAP net loss margin was 16.1% as compared with 15.6% in the prior year period.

Net loss attributable to <unk>.

Speaker 4: Net loss attributable to Yat-sen's ordinary shareholders per diluted ADS for the third quarter of 2021 decreased to

Ordinary shareholders per diluted ads for the third quarter of 2021 decreased two.

0.57, RMB 12.

Speaker 4: 0.57 RMB from 6 RMB in the prior period. Non-GAF net loss attributable to Yat-sen's ordinary shareholders per diluted ADS for the third quarter of 2021 decreased to 0.34 RMB from 1.2 RMB in the prior period.

Six RMB in the prior year period, non-GAAP net loss attributable to yachts and what isn't always shareholders per diluted ads for the third quarter of 2021.

To your 0.34, RMB five one points to RMB in the prior year period.

Looking at our business outlook for the fourth quarter of 2021, we expect our total net revenues to be between 157 billion RMB and 1.67 billion RMB, representing a year over year decline.

Speaker 4: Looking at our business outlook for the fourth quarter of 2021, we expect our total net revenues to be between 1.57 billion RMB and 1.67 billion RMB, representing a year-over-year decline of approximately 15 percent to 20 percent.

Hi.

Approximately 15%.

20%.

David that's an earlier in the call.

Speaker 4: As David mentioned earlier in the call, we expect the high comparison base and our future emphasis on higher quality growth to factor into this projected performance.

The high comparison base.

And our future emphasis on higher quality growth for factor into this protected performance.

This forecast reflects our current and preliminary view on the market and operational conditions.

Speaker 4: This forecast reflects our current and preliminary view on the market and operational conditions which is subject to change.

Subject to change.

The company.

In Florida Director has approved it.

Speaker 4: The company's board of directors has approved a share repurchase program whereby the company is authorized to repurchase up to 100 million U.S. dollars worth of its ordinary shares over the next 24 months.

Our repurchase program whereby the company is authorized to repurchase up to 100 million U S. Dollar worth of its ordinary shares over the next 24 months.

The company proposed repurchase maybe made from time to time through open market transactions at prevailing market prices.

Speaker 4: The company's proposed repurchase may be made from time to time through open market transactions.

Speaker 4: a prevailing market crisis, and privately negotiate transactions in blockchains and or through other legally permissible means, depending on the market conditions and in accordance with applicable rules and regulations. The company's Board of Directors will review the share repurchase program periodically and may authorize adjustments.

Lee negotiate transactions block trades and ore.

Two other legally permissible mean, depending on the market conditions and in accordance with applicable rules and regulations. The company's board of Directors will review the share repurchase program periodically and may authorize it definitely.

All of its term.

The company expects to fund the repurchase with with our existing cash balance.

Speaker 4: of its terms and size. The company expects to fund the repurchase with its existing cash balance.

As of September.

30th 2021, the company had cash and cash equivalent and restricted cash of 3.63 billion RMB as compared with 5.73 billion RMB as of December 31, two.

Speaker 4: As of September 30, 2021, the company had cash and cash equivalents and restricted cash of 3.63 billion RMB, as compared with 5.73 billion RMB as of December 31, 2020. With that, I would now like to open the call to Q&A. Operator.

In 'twenty.

I would now like to open the call for Q&A.

Operator.

Thank you we will now begin the question answer session.

To ask a question you May Press Star then one on your Touchtone phone.

Speaker 1: To ask a question, you may press star and one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys.

If youre using a speakerphone please pick up your handset before pressing the keys.

If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.

Speaker 1: If at any time your question has been addressed and you would like to withdraw your question, please press star, then.

For the benefit of all participants on today's call. If you wish to ask your question to management in Chinese. Please immediately repeat your question in English.

Speaker 1: for the benefit of all participants on today's call. If you wish to ask your question to management in Chinese, please immediately repeat your question in English. At this time, we will pause on the.

At this time, we will pause momentarily to assemble Iraq too.

The first question comes from Dustin Wei with Morgan Stanley. Please go ahead.

Speaker 1: The first question comes from Dustin Way with Morgan Stanley . Please go ahead.

Thanks for taking my questions first question regarding guidance for fourth quarter. So there's 15% to 20% year on year decline there any of that one off adjustment in terms of for example, the store closure for a perfect diet brands or.

Speaker 5: Thanks for taking my questions. First question regarding guidance for fourth quarter. So this 15 to 20 percent year-on-year decline, is there any one-off adjustment in terms of, for example, the store closure for preferred diary brands or further sort of reduction of SKU regarding little Anding or Abbott's Choice?

For the sort of reduction of S. K you regarding a little on the <unk> choice.

Question number two regarding the outlook for next year. So based on the current assessment for the macro or does it dynamics.

Speaker 5: Question number two regarding the outlook for next year. So based on the current assessment for the macro or industry dynamics, I remember last call we kind of talked about like 20 to 30% year-on-year growth without considering the acquisition could be sort of the range to look at for next year. But, you know, what's the refreshed view for the next year?

I remember last call, we kind of talk about like 20% to 30% year on year growth without considering the acquisition could be sort of the range you would too to look at for next year, but you know what what's the refresh view for the next year.

Question regarding competition. So it seems like the global brands, especially the prestige color cosmetics are coming back in terms of the ranking and the growth rate. So what's management's view on that.

Speaker 5: The third question regarding competition. So it seems like the global brands, especially the prestige color cosmetics are coming back in terms of the ranking and the growth rate. So what's management's view on that? Thanks a lot.

Thanks, a lot.

[noise].

Oh, Thanks, that's it for questions.

Speaker 4: Thanks, Justin, for your question, Saab. In our guidance, of course, there will be some one-off expenses regarding closure of some of our non-performing stores, but that's not going to be a major item factored in our guidance. Our guidance, as we said in our statement, reflects our current view.

Well in our guidance.

But of course, there will be.

Some one off fences regarding.

Closure of some of our nonperforming stores, but that's not going to be a major item in our factored in in our guidance. So I mean, our guidance says resetting or a statement you know reflects our current view you know our business performance for the for the for the next quarter.

Speaker 4: on our business performance for the next quarter. So I don't think there is any particularly large one of items included in that guidance.

So I don't think there is any particularly large one off items are included in that guidance.

Ah you're second question about next year's projections, well actually we do not give a guidance.

Speaker 4: Your second question about next year's projections, well, actually we do not give guidance for the full year next year, so the only guidance we give is...

Guidance for the for the full year next year. So the only guidance we give is.

For the following quarter.

Speaker 4: for the following quarter, but again, you know, as we

But again you know as we are.

I said earlier in the call it all the time.

Speaker 4: I said earlier in the call, you know, the market environment is changing rapidly.

Market environment is changing rapidly.

And you know, including the competition.

Speaker 4: And, you know, including the competition, as you mentioned, you know, question number three, you know, from overseas brands is intensifying and also, you know, there has been dramatic change.

As he mentioned a question number three from overseas brands is intensifying and also you know there has been a dramatic change.

And the retail I felt so.

So we have to.

Speaker 4: in the retail sales channels that we have to deal with.

Deal with so I don't think we're in a position.

Speaker 4: So, I don't think we're in a position to give any specific guidance for the whole year next year.

Give any specific guidance for the full year next year.

Our competition are well.

Speaker 4: Competition, well, I think the competition from those overseas friends, you know, is intensifying, especially during the double eleventh shopping season.

I think the competition from the overseas friends is intensifying, especially during the double 11.

Shopping festival.

Festival.

Well, what we've seen is you know a lot of the proceeds of corn are color cosmetics brands have.

Speaker 4: Well, what we've seen is, you know, a lot of the prestige foreign color cosmetics brands have, you know, offered deep discounts, really deep discounts.

Offered deep discounts.

Really deep discount.

You know for their products.

We are part of the reason, it's probably you know there's a lot of them are a global company.

Speaker 4: Part of the reason is probably, you know, a lot of them are global companies and their sales are declining, you know, anywhere else outside of China, so China is probably the only place where they can generate some meaningful, you know, sales. So for example, there is one brand.

Companies and their sales are declining.

Anywhere else outside of China, So China is probably the only place where they can generate some meaningful.

L. A so for example, there was a one Brian.

Give me the name here, but that one brand used to.

Speaker 4: I'm not giving you the name here, but that one brand used to.

Ah the mesquite mesquite segment, but during the double 11.

Speaker 4: of the Mastige, in the Mastige segment, but during the Double Heaven.

Shopping festival you know they offer you know this is kind of like you know I won't get one free.

Speaker 4: a shopping festival, you know, they offered, you know, a deep discount like, you know, buy one get one free.

That type of deal.

No.

Speaker 4: type of deals. So they're trying to generate more medium of sales through gifted contracts.

They're trying to.

Generally more medium yourself to get these cats.

So Dave David.

Speaker 4: So, David, do you want to add to that answer?

Want to add to it is a cause to that answer.

Sure. Thank you.

The first thing to know about the than our competition.

Speaker 3: Sure. Thank you. The first thing about the competition...

So in the singles day, we saw this year very aggressive promotion and discount tactics are adopted by global brands.

Speaker 3: So in the singles day, we saw this year very aggressive promotion and discount tactics adopted by global.

And also those group of brands has a booked a lump the small cities the popular else like Austin D. N a bureau called dominated.

Speaker 3: And also those global brands have booked a lot of the slots with the top QOLs, like Austin Lee and Avira, who dominated the remaining traffic and GMB at Timor. So the combination of both factors significantly impacted our sales during the single stage.

The remaining traffic any G M B a T. More so the combination of those factors are significant to the embedded ourselves to in a single state.

So you have to look at yet, but the top 10 T. A beauty brands in the Tmall Singles' day promotion.

Speaker 3: If you look at the top 20 beauty brands in Tmall's single-stay promotion,

So there was no kind of complementary brands in that top 20 brands Lucky if a battery or worse, the 11th well. It's ranked 11 and so I think that's a very important factor, reflecting a very deep promotion on skincare brands and also the.

Speaker 3: So there is no color cosmetic brands in the top 20 brands. Last year, Peptideary was ranked 11. And so I think that's a very important factor reflecting the very deep promotion on skincare brands and also the traffic mainly gained by often the entertainers.

Many gains by D. A.

Boston D I b.

So looking forward, we see about the competition.

Speaker 3: So looking forward about what we see about the competition, I think this is not going to be a sustainable tactic by the global brands, because it will significantly hurt their premium brand image. So after Q4, so during the past one or two weeks, we see the global brand sales is kind of like

I'm, just it's I'm not going to be a sustainable.

But by the global brands cause you do a significantly improved.

Significantly hurts their premium brand image. So so after Q4 be so during the past one or two weeks a b C. D M. The global brain cells.

It's kind of like.

<unk> are normal and also while we are right now for all brands. We are trying to get more shares after the single state.

Speaker 3: remaining to normal. And also, right now for our brands, we are trying to get more shares after the single-stake promotion. So looking forward to next year's

Emotion, so looking forward about next year's.

The growth guidance for sure we are not going to able to all Hawaii and extend them is that number here, but one thing I want to clause that right now the whole company is taking the transition strategy.

Speaker 3: the growth guidance. For sure we are not going to be able to provide an exact number here. But one thing I want to call out is that right now the whole company is taking a transition strategy, which means we are improving ourselves in skincare brands.

I mean, we are improving ourselves in skincare brands.

And then right now skincare brands, taking almost 14% up the M of the of the revenue.

In Q3, and then on the number of group.

Almost increased to 10, 2% in Q4, so looking forward, we believe the percentage of our sales. So skincare brands will continue to increasing next year and the gross the high grocery of the skincare brands. We also helped to bring the company's grows to a to a normalized to stage.

Speaker 3: So looking forward, we believe the percentage of the sales of skincare brands will continue to increase in next year. And the high growth rate of the skincare brands will also help to bring the company's growth to a normalized stage. However, I think this might take a few quarters to reach that. So I think the investors need to be patient about what we are doing right now, because we believe that's the right path to go.

I think this might take a few quarters to reach that so I think key investors need to be patient about we'll be out doing right now because we believe that's the right path to go.

Okay. Thanks, a lot for the sharing indeed, that's a quite challenging environment. So best of luck. Thank you very much.

Speaker 5: Okay, thanks a lot for the sharing. Indeed, that's quite challenging environment. So best of luck. Thank you very much.

Thank you so much.

Your next question comes from Steven Yang with Goldman Sachs. Please go ahead.

Speaker 1: The next question comes from Stephen Yang with Goldman Sachs. Please go ahead.

Okay.

Yeah, well the sharing with the management. So two questions. One is on buyback. So would you mind sharing more color regarding the rationale behind the buybacks and the timing and also what does the management think about Singapore.

Speaker 6: Thanks for the sharing, management. So, two questions. One is on buyback. So, would you mind sharing more color regarding the rationale behind the buybacks and the timing, and also what does the management think about the forward-looking basis, the cash usage, whether it's

The forward looking basis, the cash usage, whether it's going to be used more buybacks or more M&A et cetera, and the second question is regarding the efficacy regulation. So I am.

Speaker 6: Is it going to be used more on buybacks or more M&As, et cetera? And the second question is regarding the efficacy regulation. So has the management seen an impact on the new efficacy regulation to, for example, product launch or any change to the competitive dynamics? Thank you.

The management team and impact from the new assets could be regulation to for example product launch or any change to the competitive dynamics. Thank you.

Yeah for the first question regarding buybacks. So currently the management is healthy and our market cap is a undervalued and you don't.

Speaker 2: Yeah, for the first question regarding buyback, so currently the management will be, our current market cap is undervalued, and given what we're seeing with our transition, it may take...

You know, what we're seeing with our transaction. So it may take several quarter Q1 show that resolved. So we're very confident of the company's long term process. So I think that's a great time since startup buyback program with our existing cash balance given that we still have ample cash reserve.

Speaker 2: several quarters to show the results, but we're very confident of the company's long-term prospects, so we think it's a great time to start a buyback growth program with the existing cash balance, given that we still have ample cash reserves.

Timing wise as mentioned earlier you know we are at.

Speaker 2: Timing-wise, as mentioned earlier, you know, we

The board has authorized a buyback of up to 100 million U S. Dollar for the next school year.

Speaker 2: The board has authorized a buyback of up to 100 million U.S. dollars for the next two years. So we plan to, you know, do that, you know, as time comes.

So let's do that.

You know as time common when we see fit.

And then for a second question on regulation I think David do you want to take that question.

Speaker 2: And then for second question on regulation, I think, David, do you want to take that question on the product regulation? Sure.

The regulation there.

Yes sure.

So overall, we have been discussing with regulators and and related government to them.

Speaker 3: Yes, sure. So overall, we have been discussing with the regulators and the related government departments and leaders in the past few months. I think overall, if you look at the regulation trend, there will be more and more regulation.

The dominant ended either seem to in the past few months.

I think Oh boy, you've been looking at the regulation churn there will be more and more regulation.

Hum coming out in the coming quarters.

Speaker 3: coming out in the coming quarters.

The key reason behind us.

Speaker 3: So I guess the key reason behind is the government is trying to regulate the industry and also to guide the development for the future product launch and brand development.

The government is trying to regulated to the industry and also to guide the the development for the future put on long term brand development.

So the new efficacy regulation, you just mentioned about so right now I guess because of a very close relationship with government.

Speaker 3: So the new efficacy regulation you just mentioned about, so right now, I guess, because of our very close relationship with the government officials and also our OEM ODMs, so right now we are satisfying the new regulation development.

Government officials and also our OEM ODM. So right now we are satisfying the new regulation development.

However, you know that you are to lead in this part we are taking a few new initiatives to strength our.

Speaker 3: However, in order to lead in this part, we are taking a few new initiatives to strengthen our partnership.

Accuracy test.

Speaker 3: product efficacy test. So right as I mentioned before, so right now we are devoting more and more resources to R&D and one of the few initiatives we are going to take is we are going to strengthen the clinical test for our product test before we launch to market.

So it was the right as I mentioned before so right now we are devoting more and more of a association blah and deep.

And one of the Oh, a few initiatives we are going to take yourself. If you are going to strengthen the clinical test for all put up a test to people will be launched to market.

And also to your collaboration we still reaching hospital.

Speaker 3: So, and also the collaboration with the region hospital will strongly help us to establish the R&D capability and also the product design capability in the dermatologist skincare area.

With strongly help us to establish the the.

<unk> capability and also be a part of.

A design capability in the dermatologist.

Skincare area. So for those products, we could be food be very strongly relying on the efficacy test and also to a relationship we set up at the top of the.

Speaker 3: So for those products, we believe we'll be very strongly relying on the efficacy test and also the relationship we set up with the top dermatologist hospital in China.

Policies hospital in China.

So so right now we think that these chang just gonna to keep more impact on the industry and yes that he's taken a enough initiatives two P M.

Speaker 3: So, right now we think that this trend is going to give more impact on the industry and Yes Man is taking enough initiative to be leading this trend in the future.

Medium discharge in the future.

Yeah.

Yes. Thanks management. So if I may have a follow up question maybe on the ROI regarding so you see a quite improvement Y O Y on the southern expenses.

Speaker 6: Thanks, management. So if I may have a follow-up question, maybe on the ROI regarding, so we see a quite an improvement in ROI on the selling expenses, so I just want to get a sense of what do you think about the COLA Cosmetics industry-wide ROI trend going forward? Is it going upwards or downwards?

Wanted to get a sense of what do you think about the color cosmetics industry wide ROI trend going forward is it going upwards or downwards. Thank you.

The the oil skincare U law is higher than the clinical methods.

Speaker 3: um the the ROI of skincare is overall is higher than the color

So so so so.

Speaker 3: So, if we look at the non-GAAP sales and marketing expenses in the Q3, we can see a decline over there. One of the key reasons is that we keep optimizing the ROI for our existing brands.

So if we look at the non.

Non-GAAP sales and marketing expenses.

Q3, you can see a decline over there one of the key reason is we keep optimizing DIY for our existing brands.

Looking forward, we saw a continued investment in India skincare brands and also we are optimizing the sales channels for our Brent portfolios.

Speaker 3: So looking forward, we saw continuous investment in the skin care brands. And also we are optimizing the sales channel for our brand portfolios. We will see an improvement of the price.

We see an improvement of that possible.

The next question comes from Louise Li with Bank of America. Please go ahead.

Speaker 1: The next question comes from Luis Lee with Bank of America. Please go ahead.

Hi management. Thank you for taking my questions. So my first question is do we have that breakdown.

Oh, that's right so to say or how far too far to think about it.

Speaker 1: for Q3 or for Q4 today about the high channel. So you mentioned that we might invest into more on the unconditional channels. So just I would like to get a sense about the latest breakdown. So.

Hi.

By channel So as I mentioned that we might Oh, that's great.

Uh huh.

And unconditional channels. So I just thought we'd like to get a sense about the latest.

Ladies and stuff like that.

So my second question is.

You just mentioned that we may take several quarters.

Speaker 1: Uh, you just mentioned that we may take several quarters, uh, time to see some.

Good to see some.

So as a result.

So how do we understand Kansas.

Speaker 1: transition results, so how do we understand the transition results? Would it be like, so in terms of the early signs, so would it be like...

Transition, we've talked to where we're at.

So in terms of the early signs so would it be like.

A return to positive growth.

Speaker 1: Cells return to positive growth, or what kind of level of cells growth? Or we're looking for a bottom line break-even. So which one is our priority? So what is the timetable? So is it in the next year or even a longer time?

Or what level.

1000 gross.

Ah we're looking for.

Our bottom line breakeven, so which one is our Pal agents. So what is the timetable.

Yeah, or even a long long time.

So.

Question.

It's also about the.

Speaker 7: is also about the SG&A ratio or particularly the selling and marketing expense. So what is the fixed cost part? Thank you.

SG&A ratio or or particularly the selling and marketing expense. So what do you see your fixed cost.

Thank you.

Yeah.

The first question about those trying to fleet so right now.

I think he most taking around like 40% of the the subs.

Speaker 3: I think Tmall is taking around like 40% of the sales for the total company. We see the percentage is declining and our percentage will be in the live streaming, especially in Douyin, is increasing.

For the total company.

We see that percentage is declining.

Our percentage of being the left you mean, especially a bogey you see increasing.

So looking forward, we think this shouldn't do will continue as well.

Speaker 3: So looking forward, we think this trend will continue as well. But the things like in the past few months, I guess the company has been taking some initiative to optimise our sales in Douyin. Douyin right now is becoming a very important factor for brand's growth. We see the first stage of the Douyin's sales is mainly coming from the discount.

But the things like.

Two months I guess the company has been taking some initiatives to optimize ourselves internally.

But right now, it's becoming a very important enough that search for social brands groups you see the first stage of the adult use sales is mainly coming from the discount. So if you look at some of the skincare brands to benefit from the first stage of the slots do you mean a development.

Speaker 3: So if you look at some of the skincare brands, they benefit from the first stage of the Douyin's live streaming development.

We saw a very deep discounts were up there in the skincare products.

Speaker 3: with very deep discounts for their skincare products.

However, if you look at the some of the recently divested in adult books diaries ranking in the cause.

Speaker 3: However, if you look at some of the recent developments of PerfectDiary's ranking in Douyin, PerfectDiary's ranking is increasing really fast. So right now, if I remember correctly, PerfectDiary is ranking around number three or number four in Douyin Color Cosmetic, but with a higher growth rate than other brands.

Was it already is the ranking in school in <unk>.

Uh huh.

Increasingly DFAST so right now if I remember correctly, so without east went came around the material number four even though you can color cosmetic, but there could be as high gross rate than other brands. So I'm. So I think we saw a commitment you to continues I'm like I'm investing debt channel the percentage of the after.

Speaker 3: So I think with our commitment to continue investing in that channel, the percentage of the Douyin will increase in the future as well. So going back to your second question about the...

So you can do who's increasing the future small screens, but to your second question about the.

About the rental cars.

I think so we I'm sure was the public that we are going through a pizza some change for our strategy, which is devoting more resources to the screen kitchen bathroom and.

Speaker 3: I think so we we share with the public that we are going to take some change for our strategy which is devoted more resources into the skin cancer development.

So looking at the past singles day, Oh ski kick roles. So he's a brutal bust and then we saw most of the stuff comes your percentage gross versus last year.

Speaker 3: So looking at the past single stay, our skincare growth is very robust, and then with almost 500% growth versus last year. Looking forward, we believe the skincare brands will take a higher percentage of the total companies' revenue.

Looking forward, we believe the skincare brands, who would take a high percentage of the total company's revenue.

So right now we'll be focusing all of you saw the premium brands, including colony, if loan and also the prestige brand.

Speaker 3: So right now, what we are focusing on is on the premium brands, including Galanti, Yiflong, and also the mastic brand, Dr. Wu.

So the three branches on churn and then and also for each of the brand proposition is.

Speaker 3: So the three brands are on trend, and also for each of the brand propositions, we believe there's good potential to monetize the brand proposition.

So we believe there's with potential to monetize the brand's positioning.

Right now the brand has grown really fast mainly because of two fewer products and we plan to launch another two or three short put us in the coming year. So we still put up.

Speaker 3: For example, like Dr. Wu, right now, the brand has grown really fast, mainly because of two heel products, and we plan to launch another two or three heel products in the coming year. So with the product and the category expansion of Dr. Wu, the brand's growth, we believe we are confident about the brand's growth in the next year.

And the category expansion.

Brunswick grows.

Do you.

We are confident the other schools in the in the last year.

So there is some impact because of the supply chain. So so right now the brand has been Oh, the HELOC, although there'll be concern has been filled out in the past few months.

Speaker 3: For Balearic, there is some impact because of the supply chain. So right now, the brand has been the hero product of the VC Serum has been sold out in the past few months.

In the coming one or two months as we think the supply chain challenges remain. However, we are we took our initiatives to resolve the supply chain Portland, and then with the supply chain are running now I guess the so we believe the sales of can I knew who are seeking to improve in the coming quarters as well.

Speaker 3: In the coming one or two months, we think the supply chain challenge will remain.

Speaker 3: However, we took the initiative to solve the supply chain problem. And then with the supply chain running up, I guess we believe the sales of Galani will significantly improve in the coming quarters as well.

And also we are after the first space defense up there, we see certain of colonic youre going to launch other skincare put us and also severance in Q1 and Q2. So we see the lines are expanding we think the.

Speaker 3: And also, after the first stage success of the VC Serum of Glycineic, we are going to launch other skincare products and also serums in Q1 and Q2.

Speaker 3: So with the portal lines expanding, we think the growth for GlideMaker will also benefit from that. So Tokyo.

Those four and I need to be also benefits from that so.

So talking about your floor.

So the.

The claims that have been remaining very strong in the singles day publishing I'm used to the the.

Speaker 3: So, the cleanser has been remaining very strong in the single-state promotion. It's the most premium cleanser in Tmall's single-state promotion. And also, the sales is ranking top for the premium cleanser category. And we didn't see any other competitors in the premium price tier launching or competing with Yvlon for the cleanser.

Most premium cleans or you see more simple Singles' day promotion and also themselves. This is Brent and Paul for the AR for the sort of it seems like folks are there for the premium category and we didn't see any other competitors in the premium priced here launched competing with you blown for cancer.

I think the key messed up for Islam is to expand our product category.

Speaker 3: I think the key next step for Yif Long is to expand product category on top of the

On top of things.

So in the past quarter, we launched a rescue mask and there'll be had the initial success.

So so in the coming quarters.

We have sufficient HUD loans high level as well so while we started we think the three skincare brands will benefit.

Some of it will be designed to put the growth strategy.

The next question comes from chimney land with the ICC. Please go ahead.

Yes.

Thanks for taking my questions.

Speaker 8: Thanks for taking my question. The first, regarding the profitability, it seems that the promotion of Perfect Diary increased during the single days. I wonder if there is any pressure on the company's fourth quarter's gross margin and operating margins.

First of all regarding the profit profitability. It seems now the pro Bowl promotion of perfect diary increase but doing it I think our days I wonder if there is any pressure on the company's fourth quarter, its gross margin and operating margin.

The second regarding the industry outlook as what we've seen is something that's pretty environments like color cosmetics, how do the management see the color cosmetic market in the next three years and the future demand.

Speaker 8: The second regarding the industry outlook, as we've seen the soft industry environment for color cosmetics, how do the management see the color cosmetics market in the next three years and the future of the domestic color cosmetics brands? Thank you.

Domestic are color cosmetics brands.

Thanks, a lot.

[laughter], Oh, sorry, I forgot the question.

Speaker 9: Go ahead David, go ahead.

No.

Go ahead go ahead.

I heard the first one was what is the second question sorry about that.

Hello.

Okay I was always the first one so for the Q4, if you look at the.

Speaker 3: Okay, I will go with the first one. So for the Q4, if we look at the percentage in Justin Lee's live streaming, the percentage of private diaries is low for the total revenue.

Percentage of the in just in these last two you mean.

Uh huh.

So the total revenue.

So so you've looked at the the it'll be of Oh, sorry, eat so essentially increase and in the past singles day. So we didn't see tonnage coming from gross margin.

Speaker 3: So, if you look at the AOV of profit diary, it's actually increasing in the passing gold state. So we didn't see a challenge coming from the gold's margin. So that's my answer to your first question. So I missed your second one, sorry about that.

So so so that's the first question and my answer to your first question. So I missed your second one sorry about that.

Yeah.

Well I think the second question is well what about the outlook.

Speaker 4: Well, I think the second question is about the outlook of color cosmetics business or market in China for the next 30 years, I mean, it's a really long-term perspective. So, David, do you have anything to say on that?

Our color cosmetic business as our marketing time out for the next 30 years and it's a really long time.

Our perspective, so there are they do you have anything to say on that.

Hi color cosmetics.

Speaker 4: Try Color Cosmetics' Chinese market for the next 30 years.

Plenty of market for the next four years.

If I got that one correctly.

I cannot hear very clear about their path.

Speaker 3: I cannot hear very clear about that part. But talking about the color-cognitive industry...

But talking about the color cosmetic industry.

If you look at the in the past singles day promotion as I mentioned before there's no color cosmetic brands ranking in the top 20 brands. So I guess looking for so we still are confident about the kind of cosmetics growth, mainly driven by two things one thing it's the penetration increase.

Speaker 3: So I guess looking forward, we still are confident about the color cosmetics growth, maybe driven by two things. One thing is the penetration increase. The second one is about the premiumization.

The second one yourself out of pre amortization.

So I guess the tonnage for for for all existing brand portfolios is that the because of the Ah in a.

Speaker 3: So I guess the challenge for our existing brand portfolios is that because of the single-stake.

Singles Day.

The global brands has has very deep.

Speaker 3: The global brand has a very deep price cut for their color cosmetic products. And so we see a very clear premaritalization for the makeup industry.

Price cut what are your kind of cosmetic products.

So we see a very clear premier position.

For the for the industry.

But I didn't think that that is going to still see sustained in the coming quarters, So I'm sort of looking for where.

Speaker 3: But I don't think that it's going to sustain in the coming quarters. So looking forward, there's only a few domestic brands playing in the makeup industry.

There's no there's only a few domestic brands play in T O.

Industry.

So I guess right now the only big three main company you are trying to gain shares seem to kind of cosmetic area.

Speaker 3: So I guess right now there are only three main companies are still trying to gain shares in the color cosmetic area.

So I guess.

B.

The consolidation trend in the coming year I'm guessing because you take a <unk> multiple.

Speaker 3: I guess there will be a consolidation trend in the coming year, because we take a multi-brand strategy. We have a message brand, we have a mass brand, and also we have a new brand to get more of the new entrants into the category.

A multi brand strategy. So we have the message brand we have mass brand and also we are a new brand to a two or two to get more of the new entrants into the category.

So so it gives me the multi brand strategy.

Speaker 3: I guess with the multi-brand strategy, we are in a very good position if we can take the consolidation period in the coming quarters in the color cosmetic area.

We are in a very good position, if we can take the consolidation period.

Oh in the in the.

In the coming quarters in the color cosmetic area.

The next question comes from Helen Xu with the I T. I C Securities. Please go ahead.

Speaker 1: The next question comes from Helen Xu with CITIC Securities. Please go ahead.

Hello. Your line is open and you May ask your question to management.

Okay.

Okay.

Hum.

Speaker 10: independent cleaners in the acrobatics area.

Okay.

Your next question comes from Helena <unk>.

I T I D.

Speaker 11: The next question comes from Helen Hsu with CITIC Security. Please go ahead.

Go ahead.

Good evening, Hi, Lin Chi.

Speaker 11: In the evening, how long do you choose to answer the questions? The first line is open and you may ask your question to the management.

Uh huh.

Okay.

You May ask your question to management.

Okay.

Okay.

Oh can you hear me.

Okay.

Speaker 9: I know, can you hear me? Sorry, we can't hear you. We cannot. Can you repeat your question?

Well, we cannot can you repeat your question.

I'm sorry can you hear me.

Speaker 12: Sorry, can you hear me?

It's much better now.

Okay, how long cheeseburger I'm kidding I have three questions.

Speaker 12: OK, I have three questions. First one, if we broaden our view outside the brands of yet again, that's to say if we broaden our views towards all the DTC internet new brands.

First one if we brought them all over you Alex aside that that spring.

Yes, and that's.

To say it really broadening out over the years.

Oh the P. P C Internet new brands.

What I've been reading.

Meg C. P people ranked very weak kudos even shrink.

Speaker 12: What are the reasons that CTC brands are bearing through weak growth, even shrink?

And that's it and then the second question.

Speaker 12: And the second question is, how to improve customers' loyalty towards our brand, especially makeup?

How to improve customer loyalty to our brand is make sure they make up.

And that's the other question is how long can the cash support our business.

Speaker 8: And the third question is, how long can the cash support our business considering the operating cash flow and the potential M&A? Thank you.

See there in the operating cash flow and the potential and <unk>.

Thank you.

Yeah.

I think the first one about the D. T C makeup brands.

Speaker 3: I think the first one about the DTC makeup brands, the key reason is not just the DTC makeup brand. It's actually the whole China makeup market being slowed down in the Q3 and also the single day promotion.

The key reason is not just the PTC makeup brands essentially the whole China market being slow down into Q3 and also the singles day promotion.

So I guess one of the a b D. Part of the reason of the slowdown was due to the seasonality caused by the COVID-19.

Speaker 3: So I guess part of the reason of the slowdown was due to the seasonality caused by the COVID-19.

So our Q3 and Q4 last year was a high base when consumers pick up spending optical it. So did it goes to why we are keeping a conservative guidance and keep westfall.

Speaker 3: So Q3 and Q4 last year was high base when consumers pick up spending after COVID. So this is also why we are giving conservative guidance in Q4 as well.

So looking forward so when you're thinking about the channel strategy of all of our flagship brand for the battery.

Speaker 3: So looking forward, so when we are thinking about the channel strategy of our flagship brand, Private Diary, we believe at this stage it's also an initiative and a necessary step to optimize the sales channel for that brand as well.

At this stage is also and initiative and.

Necessary steps to optimize the sales channel for that brand as well.

So the second one talking about the customers' loyalty.

Speaker 3: So the second one, talking about the customer's loyalty.

So I guess, there's a few things we can do the first one is the RMB.

Speaker 3: So I guess there are a few things we can do. The first one is the R&D.

So in the in the past quarters, we launched the Pearl loose powder are supported by the Smart lock technology, which was developed with the yeah. So to maybe.

Speaker 3: So in the past quarters, we launched the Pearl Loose Powder, supported by the smart lock technology, which we developed with the Chungke Yuan. So mainly because of the technology and also the product performance, right now we see the product growth is pretty remarkable.

Mainly because of the technology and also the products performance right now we see the product grows these are pretty remarkable.

The second thing talking about the loyalty of the AR about the category expansion into the foundations to the basically comes.

Speaker 3: The second thing talking about the loyalty is about the category expansion into the foundations, to the base makeups. Previously for Perfect Diary, the brand mainly focused on the lead category and also the I category.

Hum previously full put the battery the brand mainly focused on the lip category and also the eye category.

So put those categories, maybe a color there, especially in children.

Speaker 3: So for those categories, mainly color and fashion-driven. So if we look at the whole, the makeup industry, the growth of the foundation and also the base makeup is leading the growth versus lip category and also eye category.

So if you look at the whole the industry the growth of the foundation and also the base makeup is leading the growth versus the category and also I category. So the expansion into the base may conflict with the diary is very important. So that's why we launched the loose powder the poll.

Speaker 3: So the expansion into the base makeup for Bifidari is very important. So that's why we launched the loose powder, the pearl loose powder, and we launched a new BB cream, we launched a new...

The Pearl loose powder and it would be lost be launching new PV Cui, we launch a new abate.

Of a clean foundation. So those are the new initiatives we are.

In the past quarters, and then right now we are we have seen pick up transport those new initiatives.

So with that I believe you would be the right path to improve the customers love it.

I'm talking about the cash question I guess, how about Ivy and don't have to adjust that.

Speaker 3: Talking about the cash question, I guess, how about Ariane, how to adjust?

Yeah.

Sure Yeah regarding your third question on the.

Speaker 2: Regarding your third question on the cash and also M&A, potential M&A, currently we have 3.6 billion RMB cash at the end of Q3, which I think we think is sufficient to meet our operating needs for the near future, including the potential buyback plan for our medium-term goal is to continue to...

Cash and also M&A potential M&A.

So currently we have $3 6 billion R&D cash at the end of Q3, which I think we think is sufficient to meet our operating needs for the near term.

Sure.

You know, there's lots of potential buyback plan for.

For our medium term goal is to improve our profitability and eventually you know break even as our profit making it fit with our forces a couple too.

Speaker 2: improve our profitability and eventually, you know, break even and start profit-making so we don't foresee the company to be losing cash for long term. And then regarding M&A, we have been continuing looking at opportunities and actually, as David mentioned, we have also recently acquired a very small skin care brand focusing primarily on microbiome or microecological brands endorsed by dermatologists.

Can catch for lost her.

Regarding M&A, we have no absolutely we're all looking at Opex. So let me actually ask David mentioned, we have also recently acquired a very small still kept Brian to focus primarily on our microbiome or Michael ecological France endorsed by dermal collagen. So keeping the there are a lot of 30th.

Speaker 2: So given the, there are a lot of uncertainties right now in the global, in the, in the China economy and also the, the beauty industry.

Right now in their global in the in the China economy and also the.

The beauty industry for our M&A right now, we're primarily and mostly as small to medium sized transaction, where brands that can you know for cooking.

Speaker 2: For our M&A right now, we're primarily looking at small to medium-sized transactions or brands that can prove to be high potential in the future, rather than looking at large transactions. So given that's our strategy right now, we think with our current cash level is ample for us to continue to pursue new M&A opportunities in the future.

Ah ha high potential for sure a lot of that looking at large transactions, but that's our strategy right. Now we feel we feel you know with our current cash level and hopefully also coupled with a new M&A opportunities.

Yeah.

Okay. Thank you. Thank you David and I think.

Thank you.

Yes.

This concludes our question and answer session I would like to turn the call back over to management for any closing remarks.

Speaker 1: This concludes our question and answer session. I would like to turn the call back over to management for any closing remarks.

Thank you once again for joining us today, if you have any further questions. Please feel free to contact us directly or TPG investor relations, our contact information for IR in both China and the U S can be found on today's press release. Thank you again and have a great day.

Speaker 2: Thank you once again for joining us today. If you have any further questions, please feel free to contact us at Yasen Directly or TPG Investor Relations. Our contact information for IR in both China and the U.S. can be found on today's press release. Thank you again and have a great day.

Okay.

Thank you France has now concluded. Thank you for attending today's presentation you may now disconnect.

Speaker 1: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.