Q4 2021 Yatsen Holding Ltd Earnings Call
Today's conference is being recorded at this time I would like to turn the conference over to Irene Lou edits are cheap strategic investment and capital markets. Please go ahead.
Thank you operator, please note that the discussion today will contain forward looking statements relating to the company's future performance and are.
Intended to qualify for the safe Harbor from liability established 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 this discussion a general discussion of the risk factors that could affect yeah. So there's lots of financial result, as well.
Ill start from filings of the company with the Securities and Exchange Commission.
The company does not undertake any obligations to update this form of fund formation, except as required by law.
During today's call management will also discuss certain non-GAAP financial measures for comparison purposes, Oh for a definition of non-GAAP financial measure and a reconciliation of GAAP and non-GAAP financial results. Please see the earnings release issued earlier today.
Joining us today on the call from JASO Senior Madison are Miss searching for false our founder chairman and CEO and Mr. Joe <unk>, our director and CFO .
Management will begin with prepared remarks, and the call will conclude with a Q&A session.
Also a reminder that public policy are recorded on the web cast replay will be available on Yahoo basketball lethal frostbite.
I R about Yahoo Global stockpile.
I'll now turn the call over to MS. Third football's. Please go ahead.
Thank you Irene and I, thank everyone for participating.
The conference call for the fourth quarter and full year.
On the wall.
Oh, Yeah, Oh, yeah.
Celebrated our first year as a public company as well as all our fifth anniversary since our establishment.
In all of FY 2021 what the I'm quoting here okay.
Hi challenges in the market on the thoughts of all evolution to the next stage of strategy focus.
In order to provide everyone with a clear picture of our overall strategy and direction.
Let me take a moment to talk about all of them develop a month history.
Well most of our first five years of development.
The Chinese Kolokoff emetic market, especially the all like walking experience rapid growth.
As a result, we focus on increasing market share achieving high revenue growth and establishing profit diary as the leading.
Telecom metaphor I can China, Inc.
This first phase of development.
You bet.
We have largely achieved this goal by late 2020.
More importantly in the past that we have built a highly capable team with foods backend capability necessary to run a highly digitalized business model.
Hover in R&D supply chain from management technology and online offline operation.
However.
Colorful somatic market participant decelerated in 2020.
And then if you're in a low growth in the second half will tend to send to one <unk>.
Petition also intensified among all the domestic and global players.
Given such market development, we evolved our business focus.
A more balanced and a holistic approach to sustainable growth.
This new phase of all of the battlefield, which began last year.
<unk>, beating our diversified brand portfolio poverty and different pricing between color cosmetics and skin care categories.
Upgrading our R&D capabilities and promoting iconic durable brands with reduced discounts and promotions.
Why do we believe this is the right approach for us that the positive impact from our strategy evolution will take several quarters to take effect.
Our financial results mean muscle improvement in the liner fishing in Atlanta in the lineup action from quarter to quarter.
With this concept in mind, let me go over our financial highlights for anything to watch.
Total net revenues for full year 2010 to one grew by 11, 6% to RMB five 8 billion.
While we began almost some notes in the first half of sensible one we experienced a significant deceleration in the second half.
Particularly two into four fourth quarter when total net revenue declined five 7% to 72, 1% year over year.
All told him that revenue from telecom, many fronts, including formulary auditing and skincare declined by 33, 9% year over year in the fourth quarter.
Although on a full year basis.
They were down by only two 3% compared with the prior year.
Sluggish consumer demand the higher the high pipe prior year base for comparison, and our conscious decision to limit the discounts and promotions.
To this performance.
One of the 20th any one bright spot was the robust performance of our skincare breath, which in aggregate are.
In comparison.
Comparison can be plenty.
Inhibiting, particularly the strong growth during the fourth quarter full year total net revenue for all of our thinking brand search by Rihanna.
327, 7% all year over year basis.
Resenting 21, 3% of total net revenue.
Compared with 4% in the prior year period.
We believe the outperformance of skincare relative to call it cosmetics validates our strategy.
A number of Bali didn't get Brian since 2020.
Despite the competitive dynamic within Lucky if ground on gross margin.
Our full year gross margin increased by two five percentage points to 56, 8%.
Compared with 54, 3% in the prior year.
In the fourth quarter, we achieved gross margin.
55%.
Pair with 56%.
Yes. It is.
Due to RMB $47 7 million of England supervision.
Yeah.
Without inventory position, we would have achieved a gross margin of 68, 1% and 58, 3% for the fourth quarter and full year 'twenty one respectively.
$4, eight and 3.6 percentage points higher.
Prior year periods are comparable basis.
We ended the year with a cash balance of approximately RMB three 1 billion.
Given us ample flexibility to pursue our strategy goals.
As we look forward to implementing our strategy evolution.
The rest of 2022.
We will focus on the Halloween execution areas.
First on Colombia as.
While our color cosmetic brands, we plan to build brand equity with compelling high impact marketing why are limited.
And the promotion.
Our successful tender 91 kind of girl campaign for the diary is a great example of our focus from video approach.
Pollard with Cosmo magazine to create content, so casting the genes and exploration.
Diverse group of women across different locations and the demographic.
Looking for thing all product.
Appeal, while establishing our company as the phased in the future more than Chinese feminine beauty.
On the other hand, our skincare brands were built on last year's momentum.
Capitalizing on their brand strength and for existing hero products intended to any one we significantly boost the revenue Franco Atlantic if long and Buffalo by employing our yes, I'm slow playbook for rapid scaling Brett Y e-commerce channels.
Intended tended to we intend to bring these brands to the next level.
Chip there next growth rates, we will continue to evaluate.
Elevates, our skin care brand and develop the new compelling products and a winter talk of new possible.
We understand that maybe an enduring category defining prestige beauty brand is by no means easy more quick and we remain committed to growing our skincare brands, while increasing gross margin and brand level profitability throughout 2017.
Okay.
Continue to strengthen our R&D capability.
While we believe will be a major differentiator b upgrades all part of the offer.
We increased R&D spending.
I wander into 13 six percentage in 2021.
Representing two 4% of net revenues.
With one 3% in the prior year.
In terms of outlook, we increased the number of total capital.
One 1% to 118 patents <unk>.
Including Sunday night in human invention patents.
We are also developing several hybrid theory formulation, including smaller technology.
Key components of our newly launched a referral.
Pearl move power other surface.
And then nando targeting delivery system used in Buffalo was new mentally multiple aspects of renewable market.
As well as our patents and is in fact, winning technology in our LIFO on the long wear foundation potash.
We significantly expanded our capabilities in the fundamental research applied research and advocacy passing by recruiting top talent from our global peers and it'll be new research institution.
As well as through R&D collaborations under our.
Collaboration framework with leading institutions, such as the raging hospital, one of Shanghai Oh.
The Premier hospitals, and senior thing University.
We look forward to building more policies to help us identify and commercialize the battery innovation from both local and global universities and research institutions with a ton of beauty market.
All messed up.
I'll focus on sustainable growth.
One outside of that the strategy is to optimize profitability.
All of our channels, both offline and online.
To this end.
Lance you, Oh, Hi art.
Climate for choppy expenses on our traditional e-commerce channels.
Moreover, also significantly increasing our so even like simi revenue by more than 100% or year over year basis in the fourth quarter, we plan to further enhance our operational proficiency.
And put quite amidst the offering on this critical sales channel intelligence.
Understood.
Well our offline stores.
Turn to take them multi pronged approach.
In order to boost output and improve profitability.
We plan to Princess and all that.
Our experiments with gear and to fine tune the different store formats.
And ensure greater support for offline channels from a product and a promotion standpoint.
In addition, we plan to explore incremental revenue opportunities for various brands by increasing our exposure.
The offline and online third party distributors.
We are also looking at our operation operating expenses.
In identifying ways to improve efficiency and adjusting our variable and fixed cost base in line with our we adjusted the revenue scale.
As I mentioned previously we plan to optimize our sales and marketing expenses are racing to ally requirement of our topic expenses.
That's why we have refined our general and administrative expenses in the face.
Yeah.
Even though.
Given the deleveraging effects from the top line adjustments throughout the year the impact from these initiatives may take some time to.
Mature right.
We expect the cumulative effects from continue the marketing coupons and of course optimization to have a positive outcome often long overhaul.
Lastly, the final aspects of our sustainable growth strategy is our commitment to ESG best practices, and if assuming our CSR goals in line with all corporate value.
We are in the early stage of a comparator comprehensive review of our supply chain poker.
Procurement and manufacturing process to identify areas, we can upgrades with industry, leading ESG practices and have already implemented a number of equal.
Eco friendly initiatives.
This year, we joined the.
A round table all sustainable palm oil to promote the full thing and the use of sustainable palm oil in our supply chain.
And they conducted a quad O two graves our carbon footprint.
For our core products.
Slim lipstick.
Furthermore, if lumber and have incorporated biodegrade degradable materials into this part is indeed, the product and to put this space in the European the Green box packaging recycling scene.
We look forward to releasing more details about our ESG efforts in our first annual ESG report later this year.
Well, it's yes at that point.
We have identified the empowerment of women through the promotion of Chinese feminine beauty and the protection of beauty in nature as Pringles for the company.
This year, yes, and partnered with the China Women's development Foundation to launch the shape of your beauty public welfare training program in Sichuan Province.
Which have lower income.
Female entrepreneurs master professional beauty, skus empowering them to create and to build their own business in the beauty industry.
We also offer docs to outstanding program graduates and provide financial support for potential product.
With this program, we are embracing our social responsibility.
Facilitating positive social development and it probably introduce a more meeting China beauty parts of the world.
In December 2021 , yes, I was honored to be recognized for its ESG contributions in the tender to tender one Chinese onto <unk> enterprise.
<unk> bye.
I hope by now I've presented a clear picture of the region and strategy focus for yes end of year.
I cannot overstate the team's commitment to this evolutionary.
Evolutionary process and its importance to our future long term growth.
We consider ourselves fortunate to encounters this challenges at this early stage.
Of our development.
We believe overcoming these challenges will make us stronger in the long run.
With that I will now turn the call over to us yet both of her young 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 in and then Vietnam and all percentage changes referred to year over year changes unless otherwise noted total net revenues for the fourth quarter of 2012.
One decreased by 22, 1% to 153 billion RMB.
From 196 billion in the prior year period. The decrease was due to the decrease in sales from our color cosmetic brands, partially offset by the increase in sales from our skincare brand.
Gross profit for the fourth quarter of 2021 decreased by 23, 7% to 993 million RMB from 1.3 billion RMB in the prior year period gross margins decreased to 65% from 66, 3% in the prior year period.
The decrease was primarily attributable to an inventory provision.
That was charts at the end of the quarter, partially offset by one.
<unk> sales are higher its higher gross margin product into.
More disciplined pricing and discounting policies.
Total operating expenses for the fourth quarter of 2021.
<unk> 547, 3%.
<unk> four 9 billion RMB.
$2 3 billion in R&D in the prior year period.
Total net revenues total operating expenses decreased to 97, 8% compared with 144, 5% in the prior year period.
Fulfillment expenses for the fourth quarter of 2021.
$123 1 million RMB, compared with $144 7 million RMB in the prior year period.
As a percentage of total net revenues fulfillment expenses increased to eight 1% from seven 4% in the prior year period.
The increase was primarily attributable to the lower customer service cost efficiency, resulting from a lower level of revenue.
And marketing expenses for the fourth quarter of 2021, or $1 8 billion RMB as compared with $1 3 billion RMB.
In the prior year period.
Percentage of total net revenues selling and marketing expenses for the fourth quarter of 2021 increased to 77% from 73% in the prior year period.
The increase was primarily attributable to the expenses related to offline sort.
Optimization and an increase in R&D expenses, partially offset by a decrease in online traffic.
General and administrative expenses for the fourth quarter of 2021, or $248 7 million RMB compared with $1 9 billion in the prior year period as a percentage of total net revenues general and administrative expenses decreased.
To 16, 3% from 65, 6% in the prior year period.
The decrease was primarily attributable to a decrease in share based compensation expenses compared with the.
The prior year period, and a large share based compensation expense triggered by the I P O.
Nice for U S GAAP reporting purposes.
Research and development expenses for the fourth quarter of 2021 were $43 3 million RMB compared with 25.6 million RMB in the prior year period.
As a percentage of total net revenues.
Research and development expenses increased to two 8% from one 3% in the prior year period. The increase was primarily attributable to an increase in personnel costs and share based compensation expenses, which reflect our commitment to Manhattan.
Our research and development capabilities.
Loss from operations for the fourth quarter of 2021 decreased by 67, 3%.
<unk> $501 8 million RMB from.
153 billion RMB in the prior year period.
The operating loss margin was 32, 8% compared with 78, 2% in the prior year period.
non-GAAP loss from operations for the fourth quarter of 2021 increased by 25, 3% to 369.
9 million RMB from 288 million RMB in the prior year period.
non-GAAP operating loss margin was 23, 6% compared with 14, 7% in the prior year period.
Net loss for the fourth quarter of 2021.
<unk> by 69%.
475 1 million RMB.
153 billion in the prior year period net loss margin was 31, 1% compared with 78, 1% in the prior year period.
non-GAAP net loss for the fourth quarter of 2021 increased by 17, 8% to $336 3 million RMB.
And 85 4 million.
non-GAAP net loss margin was 22% compared with 14, 5% in the prior year period.
Net loss attributable to yachtsman ordinary shareholders per diluted ads for the fourth quarter, two 2021 decrease too.
Two 0.75 RMB right.
4.0 for RMB in the prior year period.
Yes net loss attributed.
Attributable to ordinary shareholders per diluted ads for the fourth quarter of 2021 decreased to 0.53 RMB.
<unk> 72, RMB in the prior year period.
As of December 31, 2021, the company had cash and cash equivalents and restricted cash of 3.14 billion RMB compared with 5.73 billion RMB as of December 31, two.
20.
For the quarter ended December 31, 2021, net cash used in operating activities.
250 million RMB.
Looking at our business outlook for the full first quarter of 2022, we expect our total net revenues to be between $866 7 million RMB and $938 9 million RMB, representing a year over year decline of approximately 35%.
So 40% primarily attributable to our continued focus on operating margin improvement and limit discounts and promotions, there's always a high base of comparison to the prior year period, which benefited from the release of pent up demand.
Due to COVID-19 recovery.
Forecast reflects our current and preliminary review of the market and operational conditions, which are subject to change with that I'd now like to open the call for Q&A.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If youre 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 your question to management in Chinese. Please immediately repeat your question in English.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Justin <unk> from Morgan Stanley . Please go ahead.
Thank you for taking my questions. The first question is regarding the guidance so what's the assumption.
Hi, this by you know on negative 35% to 40% guide for the first quarter, but is there any color like by brand or by channel and we know that management, we don't comment on the full year kind of guidance for 'twenty, two but should we extrapolate.
First quarter 'twenty, two guidance to the full year.
Your first question on guidance and the second question is on the Opex optimization. So could you provide a little more details about what kind of the spending that would be safe. Maybe you can provide us with something examples and you know how many more at first that we're going to see for it.
22, and O. So with this kind of ROI being gradually improving.
Do we have sort of the evidence or operating matrix to shell actually for the man brand like paper diary.
You'll be able to sort of gander, new quality customer.
On the one hand, the diary brand is sort of reducing some of those you know are not quantity bargain hunter if all the customer by reducing the promotion, but are they be able to gain a new customer.
And that they're sort of set up. The question is that is there any light target set up by the key channel and up by the key brands for example, like a tmall where domain or the target for the color cosmetics and skincare in 2022. Thank you very much.
Hey, that's and I'm not sure if I can catch up off the questions. You've asked you that let me try the first of all as well as we've explained in the AR.
[noise] announcement.
Q1 <unk>.
The guidance for year over year of 35% to 40% decline was actually based on our on.
On our.
Our estimate.
This quarter's performance.
Yeah.
A couple of reasons why we're going to have this negative 35, 40% decline you know first of all last year.
Q1, we still had some pent up demand.
Customers, Yeah, you know, which.
Kim from actually the COVID-19 situation.
Started in the first half of 2020.
You know a lot of our customers are actually you know.
Staying at home they were not able to go to school or factory.
Didn't have nearly as much.
Need for color.
Color makeup.
So that's one reason.
One other reason is our current focus is primarily on brand building so.
A number of things we're dramatically cut.
Cut our promotions and just kind of.
<unk>.
And as with all of that.
Short term sales.
We'll be.
Affected.
Right.
So after the full year guidance, you know actually it's the company's policy not to provide.
And he sells guidance beyond.
Uh huh.
The next quarter.
So that's I'm sorry, so you're you you've asked too many questions can you. Please remind me of some of the other part for sure.
Thanks, a lot so I'm just a follow on with the guidance would you provide a little more color behind this like like 35% decline like by channel, where like by brand you know any more color behind beyond this number.
Sorry about that you know we are not providing a.
Any color more detailed color on behind this this guidance.
So this is our guidance policy.
Sales for the next quarter.
And I know you don't really provide a full year kind of guide, but you mentioned sort of a high base in the first quarter.
Understanding for the second half of last year the base he won't be that high already so sort of shui still extrapolate this like sort of the dike.
Client level in the first quarter to the full year or.
You would be you know a little too much.
Well.
I think the only thing I can tell you here is you know we're going to work really hard.
If oh.
The remaining quarters this year and of course, you know lower base from.
I'm not sure it will definitely help.
With our year over year.
Performance comparison, but again, so far you know we're not in a position to provide any further guidance for the full year sales number.
Okay. Thank you and my sort of second question. If I may is that in terms of the opex optimization. So just wanted to know is there any operational examples like what what what kind of the cost that being safe and can they be done more effectively by 'twenty two.
So I kind of understand that we are reducing the discount. So we also kind of cut the cells.
Those sales being cut is more on the sort of lower quantities side like we stopped doing excessive discounting.
But is there any evidence, suggesting life because our new products you know better R&D. So we can still get a new customer in a more quality way with even higher gross margin. So I guess, that's what I'm.
Trying to get is that up after this kind of a high base being washed out can the brands that we have in the company has his still have that kind of sustainable organic growth.
Yes, exactly we believe so.
So the customer.
You know cutting the most actually number one.
Traffic.
So now we're aiming at a much higher all right then.
The previous quarter.
Secondly, you know, we're trying to optimize our headcount.
That will help us save some costs, but again.
You know since the cell towers are declining.
Year over year are some extent that will offset some of our efforts from a percentage point.
A point set point.
From a customer's perspective.
The doctors.
Diversity of our brand portfolio.
It's a really differentiating from one year ago.
Because right now the percentage of the skincare brands are seeking is getting higher and also we have some high end brands, including that I think any flaw, which are appealing to D. A.
With consumers is higher affordability and also higher age so right now we see the.
You see the diversifying of our customer base.
Is differentiating for all.
The majority.
Part coming from the battery. So so that's one of the Oh.
Operation evidence D C.
For our customer.
Customer base.
And now on the other hand.
So the incremental off the also.
Growth of course coming from the Singapore and will.
Can you help us to improve the gross margin.
And also are the retention rates of the of the consumers are which would be the.
That would help us to gravity.
We should do a possibility.
Both models.
That's what we see about the customer base change.
Thanks, a lot David and May I, just ask the last question about sort of the channel and your view on like you know do you could you elaborate a little more and maybe on Tmall and also maybe some of the core brands is there going to be some of the difference in terms of the product launch.
Or like marketing, even some of the examples that I can add that would be really helpful. Thank you.
Sure so in the [noise] so.
The first month of six months of this year.
Hum.
Color cosmetic South East Timor declined.
<unk> declined by a coupon 4%.
And it was skincare is.
Almost the same percentage because like people and eight percentage.
If you look at the the traditional e-commerce channels, we see the I'm looking for.
Thank you.
It would not be the main growth I'm sorry.
Ciber for our brand portfolio, so right now.
So our company has devoting more and more patents than it was supposed to go in and we see a quite remarkable growth in the last quarter.
The fourth quarter of last year.
Also our recently.
Yeah, very a remarkable way and also.
Coming from the operation.
So even a small but.
Looking forward the thing.
The percentage of <unk> of our total revenue will continue to grow and also we also are going to diversify our sales channel.
Online and offline.
The distribution.
It is true that model at all.
Yeah.
Okay. Thank you very much.
Thank you.
Our next question comes from Christine Cho from Goldman Sachs. Please go ahead.
Thank you. Thank you.
Two quick questions one just at a high level.
What do you need to see for really color makeup to rebound as the industry.
And if theres any kind of surprises me Archie gate when thinking about the market that has surprised you compared to for example, six months ago that'd be great to hear your thoughts there and then secondly, if there's any major product pipeline that is.
Upcoming in the next Q.
A few quarters it.
It would be great. If you can give us color.
Thank you.
Hi, Christine to clarify on your first question. So the just to kind of add up there yes, yeah, just at a high level what are some of the things that.
For the color makeup category or in the overall industry can we accelerate it.
It really just the base to go away is it I feel like the product registration has been snowing. This theory.
Across the industry.
How do you accelerate it.
Does it have to be around the offline are recovering for example from the Colgate restriction there what are some of the building blocks.
Okay.
Oh for the whole category.
Yeah.
Okay.
Okay.
So for the market development, especially on the telecom somatic.
Yeah, a few factors influencing.
Does the slower a slower growth rate of this market.
Firstly, if you a coffee in past few last write offs.
So if the consumer is wearing a mask with Phoebe.
Hum like category is not growing as fast.
I think oh.
For the.
The makeup market after several years fast growth all this the high base I think right now the market.
Presuming some more sustained.
Sustainable.
The lower growth rate and also will be easier from the suppliers.
For capacity.
After a softer market demand and also some of the more competitive market landscape.
We see.
We didn't see so many new.
New brands emerge in this category and this will also.
It has some negative influence.
Although because the consumers demand.
I'm trying to make a point.
So looking forward we think the.
They're still super confidential for the Chinese.
Telecom market.
So we think the penetration with continues to grow and then with the cobot goes out.
The lip category mcfall, but.
But right now we see the.
The growth of the foundation or <unk>.
Driving the market grows so so we think there.
There was also some upgrade Chen.
Okay.
After the fall.
All of those contributors.
This market.
To grow at a more sustainable.
That's our perspective.
While the makeup market.
Okay.
Thank you.
And on the second question regarding our future product pipeline.
To highlight.
In the next few quarters.
Sure.
Thank God for Atlantic.
Last year, we launched a very.
So therefore, we see certain potash and then were looking for.
New.
Pretty high end can you give us a light lunch in the coming months.
And also what you call a weird.
Spending category in 2000, and then we are very excited about for in upgrades off the floor.
Two months as a fall.
For our as I said right now we are we have longevity.
Very I'm very glad for you which is the seller.
Telegraph concern and then so we lost what I would say this is just a few days and then.
<unk> seen a very.
The first one consumers are curious.
As well.
And therefore, our makeup brands pushups embarrass growing really fast and then more and more closer to the U K.
To us and the brand is expanding into a into a set of palace and also foundations that fall.
And also for for the diary, we see a very successful it was alone swanky.
Hi.
I say the pallets and also the.
And then in May.
Yeah.
In August and then there were.
Another to a very good launch for the life of the battery as well so.
So we think.
So right now our new products for this year as P. D. A robust high line and then it's not only in makeup and skin care and then you can get.
Some price here in different category, but we think our.
The offering that's more.
<unk> five <unk>.
My focus right now.
Okay.
Yeah.
Thank you.
Our next question comes from Qian Lin from C. ICC. Please go ahead.
Oh, thanks for the message that management Shelly I've got two quick questions on the first question is regarding financials you mentioned.
The increase in sales and marketing expenses was primarily attributable to the expenses related to your offline towards optimization and an increase in branding.
Partially offset by a decrease in online shopping Nancy.
Could the management help break down quantity bleach the impact of the three bad news and the second question Nice and the operation of skincare is quite different from color cosmetics on product offerings and marketing strategy. So the company has already proven itself as a leading colleagues.
And that is playing and to what extent has the company upgraded our capabilities.
Capabilities to round the skincare business.
That's my question.
[noise] well again, sorry about that you know, we're not providing a breakdown across different.
Different channels regarding our.
Our sales and marketing expenses.
So I'm sorry about that.
Your second question.
Yeah I.
I think first of all I think.
Or the.
Growth model, we fill it up in the past two years.
Somebody else with fibers in the skin care category.
We see the.
So.
The gross well it can get Brian to lead it off.
And then.
It's different if you can give for us has higher lows and higher growth market.
Yeah.
Secondly.
In the past few years the company has seen a very dedicated and are.
Jonathan India, Some brand building capability of the company.
We have mortality zoning.
Barry.
It takes years to <unk>.
Additional beauty inefficient company.
So we think that what it brings to companies.
The brand even if they work and also the Spears.
Master to either a piracy.
Yes.
And.
The third highest of all.
So right now based on what we see is so our private domains is still contributing for our friends launched from fill to widely.
So we have seen a repeat of these evidence.
From.
For all her it'll mean.
So all of those capabilities.
Hum.
Enough to bring in more brands.
Got it thanks, a lot and that's all the questions I have.
The next question comes from again.
Luis Lee from Bank of America. Please go ahead.
Hi.
Thank you for taking my question.
Our first question is about.
Our guidance Q1.
So based on the current expectation so so maybe.
Exactly.
Deleverage in Q1, we.
We might see.
No no no no.
On a non-GAAP level on a Q on Q.
[noise] basis or on a Y O Y O y basis.
My first question.
Second question is do you have.
On the timetable for the person.
Our strategy plan.
And third question is about the industry.
So I remember that in Q4 last year.
Okay.
Actually in the second half of last year.
O.
N T, marking and slow down a lot.
Is there any trend.
Trained musician or anytime soon so how can we compare on a P.
Past two months.
Uh huh.
Q4 last year.
The industry level.
Color Bruce Oh.
And and skin cancer.
And so you also mentioned that.
Last earnings call that the international brands being where it is very aggressive promotion.
So to me CD promotion level.
In the past that when they see promotion okay.
Well, obviously, there will be some deleveraging our <unk>.
Impact because according to our guidance here and ourselves.
<unk> declined 35% to 40% year over year.
We're trying very hard to offset the deleveraging impact by yes.
Cutting.
Some of our costs and improving our operational efficiencies.
And Oh I on our.
Traffic expenses.
So we are expecting to breakeven.
On a yearly basis.
Next year.
So that is our current goal.
The first question.
So a question about the price the calmer.
Well global brands. So we see that it's getting worse in the first quarter. This year. So.
No.
And therefore.
Just past.
March ACR promotion.
Because right now we have only one.
Okay well.
The price cuts is getting even deeper.
So so we see the either.
In fact, our highest cost.
It's getting.
One is smaller.
At this stage the company's strategy choices is too.
Lower the percentage of promotion of this call.
And then raise the gross margin.
Spend more on brand building and then a lower capex spend.
In PUL score.
And also increase the percentage of our skincare, especially on the highest skincare brands.
Which we believe will become an iconic brand for the future.
So that is all these balls at this stage.
Thank you Debbie.
Just a follow up you mentioned that the competition actually got worse.
So the reason is is it.
Because I mean, the whole industry.
Hum.
It's still very weak.
And that's the reason.
I think there are a couple of reasons why.
Competition is getting stronger.
And also the market demand is.
Getting soft.
And also.
Because there is.
Especially for the last you mean.
The competition to gain this law is getting like a more intensified before the global brands.
The way they can too.
Chip there.
So the level is to.
A lower price and then have more aggressive promotion plan in order to get a slot. So that they can remain at the at the southern itself.
So that's what we see.
Got it. Thank you very much I have no question.
Yes.
Thank you.
Yeah.
This concludes our question and answer session I would like to turn the conference back over to management for any closing remarks.
Yeah.
Thank you once again for joining this conference call today does not have any further questions. Please feel free to contact us directly or TPG Investor Relations you can find our contact information for IR in both China and the U S. In today's press release, Thank you and have a great day.
Yeah.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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