Q1 2023 Yatsen Holding Limited Earnings Call
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Ladies and gentlemen, good day and welcome to the Yetsen first quarter twenty twenty three earnings conference call.
Today's conference is being recorded.
At this time, I would like to turn the conference over to Irene Mailloux, Vice President, Head of Strategic Investment and Capital Markets. Please go ahead.
Thank you, operator. Please note that 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.
Such statements are not guaranteed for future performance and are subject to certain risks and alternatives, assumptions and other factors. Some of these risks are beyond the company's control and could cause actual results to be permaterially from those mentioned in today's press release and this discussion.
A general discussion of the risk factors could affect Yasen's business and financial results as included in certain filings with the company with the Securities and Exchange Commission. The company does not undertake any obligation to update this overlooking information except to acquire by law.
During today's call, management will also discuss certain non-GAAP financial measures for comparison purposes only. Please see the earnings release issued earlier today for a definition of non-GAAP financial measures and the reconciliation of GAAP to non-GAAP financial results.
Joining us today on the call from Yasen's senior management team are Mr. Jin-Beng Huang, our founder, chairman, CEO , and Mr. Duong-Hao Yang, our CFO and director.
Management will begin with prepared remarks and the call will conclude with the Q&A session.
As a reminder, this conference is being recorded. In addition, a webcast replay of this conference call will be available on the Yatse's investor relations website at ir.yasenglobal.com. I'll now turn the call over to Mr. Jin-Jung Hwang. Please go ahead, David.
recorded. In addition, a webcast replay of this conference call will be available on Yasen's investor relations website at ir.yasenglobal.com. I'll now turn the call over to Mr. Jin-Jung Hwang. Please go ahead David.
Thank you, Irene, and thank you everyone for participating in the first quarter 10-23 earnings conference call today.
The first quarter of 2033 showed a positive change for the beauty industry.
Total beauty retail sales achieved year-over-year growth of 5.9% in the quarter, according to the adjusted data published by the China National Bureau of Statistics.
and a supplement in market sentiment.
and the gradual recovery of offline consumption following the lifting of pandemic restrictions.
were major drivers of this Outworld trend.
While we are pleased to see signs of recovery in the retail environment, we expect a rebound in our revenue to take time as consumers gradually engage in travel, social activities, and general consumption in the post-COVID era.
Our sites remain focused on long-term sustainable growth as we continue to refine our business model.
For the first quarter of 2023, our total net revenue declined by 41% year-over-year to RMB 765.
0.4 medium.
begin the guidance we provided previously.
Net revenue from skincare brands increased by 34.2% year-over-year to RMB 245.1 million.
Our clinical and premium brands, including Dr. Wu, Galanick, and Yplong, recorded a solid growth of 58.6% year-over-year for the first quarter of 2023.
In terms of revenue contribution, our skincare brand accounted for 32% of total net revenues in the first quarter.
Up from 20.5% for the period.
percent for the year period.
Net revenues from our color cosmetic brands declined by 29.1%.
year over year to RMB 400.
8 medium.
In terms of profitability, we achieved ongoing improvement in our growth margin and net margin.
Growth margin increased significantly by 5.3% coins.
to 7.3% for the first quarter of 2023.
for the first quarter of 2023 from 6-9.
percent for the prior year period.
Reflecting our persistent efforts to fine-tune our product mix.
implement disciplined pricing and discount policies.
and optimize production costs.
Most importantly, we recorded a net income margin of 6.6% for the first quarter of 2023 as compared with the net lose margin of 32.7% for the prior year period.
In addition to our efforts in cost optimization, the net income we recognized for the first quarter of 2023 was primarily
to a reversal of recognized share-based compensation expenses of RMB 109.4 million and a decrease of RMB 42.2 million in recognition of share-based compensation expenses.
using the graded vesting method over the vesting term of the company's awards.
non-GAAP net lose margin narrowed to 3.4% for the first quarter of 2023 from 7.2% for the same period last year.
Moving on from our financial highlights, we may progress in our quality development and brand awareness improvement initiatives.
If long launched its radiant phase oil.
featuring 10 pressure plant extras.
that provide the spa level in
nourishment, combined with five major reparative ingredients to firm and plump the skin.
We also hosted a major brand event for Galanique in France.
to explore the legendary benefits.
of the brand's pregnant snow algae series.
with international questions and beauty QLs.
During the quarter, our color cosmetic brand also introduced Valentine's Day themed gift sets with campaigns to celebrate the vibrant colors and the passionate emotions.
associated with the holiday.
In terms of channel optimization, we completed most of our adjustments in our offline spring in 2022.
as the offline consumption recovered due to the lockdown policies.
performance at our offline stores improved in terms of profitability during the first quarter of 2023.
However, the market situation is still evolving.
and the consumption activity has not fully returned to normal.
Going forward, we will closely monitor market dynamics.
focus on identifying the appropriate product mix and growth strategy to drive sales in the offline business.
and adjust our approach to optimizing our offline channels as needed.
Next, I would like to share some of our recent R&D endeavors and accomplishments.
Our R&D expenses as a percentage of total net revenue were 3.2%.
demonstrating our continuous commitment to scientific advancement and product development.
Furthermore, to promote applied research and implementation in cheating acne, we officially launched the Dr. Wu Acne Research Fund.
and establish the Doctor Wu-Esper Committee.
Together, these organizations
We'll integrate expert resources across multiple medical fields and regions to conduct cutting edge exploration and applied research with the goal of discovering solutions.
for the refined and comprehensive management of Acne Pwned Skin.
Before I conclude, I want to share an update on our environmental, social, and governance performance.
which continues to be a great resource of inspiration for Yassen.
In January , we participated in the 2023 World Economy Forum annual meetings in Davos, Switzerland.
where we highlighted Yasen's implementation of sustainability practice in perfect diaries, lipos, steles, lipsticks.
and other Yatlyn products at the event sustainability symposium.
In summary, the first quarter of 2023 was a promising start to gradual recovery of China's beauty market in the post-pandemic era. We are cautiously optimistic about the outlook for the remainder of 2023.
yet aware that uncertainties remain. We will continue to focus on brand building and product development.
as we work to draw upon our skincare brand strong growth momentum and prepare to launch new color cosmetic products in the second half of 2023.
upon our skincare brand strong growth momentum and prepared to launch new color cosmetic products in the second half of 2023. With that...
I will now call over to our CFO , Dung Ho, to discuss our financial performance.
over to our CFO , Dong Hao, to discuss our financial performance. Thank you everyone.
Thank you, David, and hello, everyone. Before I get started, I would like to clarify that all financial numbers presented today are a minimum amount and all percentage changes referred to year-over-year changes as is otherwise noted.
Total net revenues for the first quarter of 2023 decreased by 14.1% to 765.4 million RMD from 891 million for the prior period. This decrease was primarily attributable to a 29.1% year over year.
decrease in net revenues from color cosmetic brands partially offset by a 34.2% year-over-year increase in net revenues from skincare brands.
Gross profit for the first quarter of 2023.
Both profits for the first quarter of 2023 decreased by 7.5%.
to 568.7 million RMD from 614.5 million for the prior year period. Growth margins for the first quarter of 2023 increased to 74.3% from 69% for the prior year period.
the increase with driven by first increasing sales of higher gross margin products from skincare brands.
Secondly, more disciplined pricing and discount policies and certainly cost optimization across all of the company's brand portfolios.
Total operating expenses for the first quarter of 2023 decreased by 37.6% to 575.9 million RMB from 922.5 million for the prior period.
As a percentage of photo net revenues, photo operating expenses for the first quarter of 2023 were 75.2% as compared with 103.5% for the prior period.
Fulfillment expenses for the first quarter of 2023 were 51.9 million RMB as compared with 73.9 million for the prior year period.
As a percentage of total net revenues, fulfillment expenses for the first quarter of 2023 decreased to 6.8% from 8.3% for the prior period. The decrease was primarily attributable to a decrease in warehouse and logistics costs.
due to the outsourcing of most of the company's warehousing and handling operations. Selling and marketing expenses for the first quarter of 2023 were 459 million RMB, as compared with 604.7 million for the prior year period. As a percentage of total net revenue.
Selling and marketing expenses for the first quarter of 2023 decreased to 60%, from 67.9% for the prior year period. The decrease was primarily attributable to the closure of the current market.
underperforming offline stores and a reduction in share-based compensation related to the decrease in selling and marketing headcounts.
General and administrative expenses for the first quarter of 2023 were 40.7 million RMB as compared with 208.1 million for the prior period.
As a percentage of total net revenue, general and administrative expenses for the first quarter of 2023 decreased to 5.3% from 23.4% for the prior year period.
The decrease was primarily attributable to a reversal of recognized share-based compensation expenses of $109.4 million due to the forfeiture of uninvested awards granted to our former Chief Technology Officer upon these resignations.
and a decrease of 42.2 million RMB in recognition of share-based compensation expenses using the graded vesting method over the vesting term of the company's award.
Research and development expenses for the first quarter of 2023 were 24.2 million RMB, as compared with 35.8 million for the prior period. As a percentage of Protonet revenues, research and development expenses for the first quarter of 2023.
decreased to 3.2% from 4% for the prior year period. The decrease was primarily attributable to the company's efforts to maintain research and its development expenses at a reasonable level relative to total net revenues.
Loss from operations for the first quarter of 2023 decreased by 97.7% to 7.2 million RMB from 308 million for the prior year period.
Operating loss margin was 0.9% as compared with 34.6% for the prior year period.
Non-gap loss from operations for the first quarter of 2023 decreased by 63.3% to 62.4 million from 170.1 million for the prior period. Non-gap operating loss margins.
was 8.1%. That's compared with 19.1% for the prior period.
Net income for the first quarter of 2023 was $60.7 million RMD as compared with net loss of $291.4 million for the prior year period. Net income margin was 6.6% as compared with net loss margin of 32 points.
7% for the prior period. Net income attributable to Yat-sen's ordinary shareholders for diluted ADS for the first quarter of 2023 was 0.08 RMB as compared with net loss attributable to Yat-sen's
for Diluted ADS of 0.46 RMB for the prior period.
non-GAAP net loss for the first quarter of 2023 decreased by 83.2% to 25.8 million RMB from 153.6 million for the prior year period. non-GAAP net loss margin was 3.4% as compared with
17.2% for the prior period.
non-GAAP net loss attributable to just extraordinary shareholders for diluted EDS for the first quarter of 2023 was 0.05 RMB as compared with 0.24 RMB for the prior year period.
As of March 31, 2023, the company had cast, restricted cast and short-term investments of RMB 2.54 billion, as compared with RMB 2.63 billion as of December 31, 2022.
Net cash used in operating activities for the first quarter of 2023 decreased by 80.6%.
to 20.2 million from 104.1 million for the prior year period.
Looking at our business outlook for the second quarter of 2023, we expect our total net revenue
to be between 761.4 million RMB and 866.6 million RMB, representing a year-over-year decline of approximately 10% to 20%. These forecasts reflect
our current and preliminary views on the market and operational conditions.
With that, I would now like to open the call to Q&A. Operator.
Thank you. We will now begin the question and answer session.
To ask a question, you may press star 1 on your touch tone phone.
If you are using a speakerphone, we ask that you please pick up your handset before pressing the keys.
To withdraw your question, please press star then 2. 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.
Today's first question comes from Dustin Way with Morgan Stanley . Please go ahead.
Thanks for taking my questions. My first question related to the first quarter sales speed versus the prior guidance. So may I know what's changed for the last speed of the first quarter? Is that because some of the better execution for instance like the skin care products?
or just the industry environment that's becoming better by the end of the first quarter? And the second question is related to the guidance for the next quarter, the second quarter. So is there any assumption behind it? For instance, the assumption for the June 18th sales results.
and also what the sales trend so far in second quarter. Well thank you very much for the question. We beat by a pretty big margin our Q1 and we beat by a pretty big margin our Q1
because of the things that you just mentioned. First of all, the macro environment has improved quite significantly, especially in the offline business. And we've benefited from that trend. And quite secondly, I think we've done a good job.
executing our business strategy in Q1, which is obviously putting more focus on our screen care plan and at the meantime, trying to execute a...
for our post cosmetic class. And regarding our second question,
As we've mentioned in our call script, we are currently cautiously optimistic.
about the growth of our business. I think that has been reflected in our Q2 guidance, which is substantially better than our Q1 and Q4 last year guidance.
Basically, we're now more confident about the cubic growth of our skin farbranc and also the success of our strategic transformation of our, you know, perfect diagram. Of course.
you know, the success in the upcoming June 18th and pain is one of the factors that we consider, you know, in putting out our for a diagnosis.
Thanks a lot, Zonohau. So, sort of for the second quarter, are we a little bit counting on the good results for the June 18 to perform, you know, to sort of keep up to achieve the guiding number? Or we should say, you know, this guiding number is roughly what we are seeing.
like from Apero moving to May? Well, June 18th is obviously a major event for the second quarter, like every year. This year is no different.
So the success of the June 18 campaign obviously will play a critical role in achieving the guidance. And also, you know…
So the success of the June 18 campaign obviously will play a critical role in achieving the guidance. And also, we're putting more
efforts in our so-called daily sales.
Meaning, the convenience are important, but the daily sales are also very critical. So back to your question, April , May, June is an important month. It doesn't mean that April and May, we can't afford to do nothing. This is not the case.
We're going to make real efforts in every opportunity that we can have to drive our adaptive
That is helpful. May I follow up on in terms of the cautiously optimistic, how are we seeing in terms of the industry promotion and the competition? Like year to date, are we seeing gradually last competition, the price discount?
especially online and in live streaming channel, where we are seeing generally similar level of the competition versus like last year.
Well, uh...
From our perspective, I think the competition is intensifying.
As far as we know, most of the international major brands are actually offering
greater than ever to pass in order to drive their sales.
So, as we mentioned in our call script, the macro environment is improving, meaning the total consumption, the demand is going up, but in the meantime, the competition is still in lockdown.
As we mentioned in our call script, the macro environment is improving, meaning the total consumption, the demand is going up. In the meantime, the competition is so intensified.
So that's why we say we're only cautiously optimistic.
about our business growth in the next couple of quarters. Got it, got it. And just lastly, in terms of Yassen's sort of journey to achieve the full year profitability, I know that each quarter will have its own dynamics. You know, full year.
sort of being profitable doesn't mean that every quarter the company will achieve the profitability. But just can we have a look colors like are we betting on a little more for instance like the major event quarter such as the second quarter and fourth quarter to have better profit or a lighter quarter such as the third quarter we will see better profitability.
Well, you know, we're confident that we're on the right track to...
turning profitable in the near to mid-term future. The criminality in our business is quite obvious. Q1 and Q3 are generally the two low quarters.
and Q2 and Q4 are generally the high seasons of the year. So as you just mentioned, in Q1 the low quarter ourselves were compared to the high seasons, you know, a lower, so that's why, you know, Q1 are non-gap.
We recorded a net loss for non-GAAP measures, but we do expect a probability to get better in our high seasons, Q2 and Q4.
Yes, thank you, that's it. Our next question comes from Casper Sheehy with CICC. Please go ahead.
Hi, hello, this is Casper from CICI and thank you very much for taking our questions. Firstly, congratulations on the financial results that beat the market expectation. We also see many multiple positive signs in the indicators. So here we have two major questions. The first one is about our financial results.
Thank you for your question. In terms of our new cloud launch, we will share it by category. First on the scene care category, our main focus is on the existing hero products. So for this June 18th, we're still trying to promote the existing hero products of our three main categories. For more information, visit our website at www.sasktel.com
skincare brands and we think there's still a lot of room for them to grow. At the same time, we did introduce a number of new products for skincare as well. For example, Galanique in May, we just launched a new facial cream, the Secret Exolos active cream.
featuring the finest active ingredient, snow algae, with anti-aging benefits. And also, we mentioned in the call, Yves Lome also launched a radiant space oil. And we think
For the second half of the year, there could be more products launched for the skincare category. And then on color cosmetics, as we previously shared, we think the market will gradually recover, and we have a new product pipeline mostly prepared for the second half of the year.
But then for Q2 we still have a few new products. For example, there's the 520, like the Chinese Violent High State. We have the New Gift Box for Perfect Gallery. and also Google Nik baat
little aunt introduced a new liner as well. So there are more products to be released in the second half of the year.
Okay, that's very clear. Thank you. And our second question is that, could you give us some more color on the self growth of the different skincare brands this year and with the performance of the major hero products in Q1? And how do we expect the skin care sectors?
profitability to evolve this year. Thank you. Yeah, well thank you very much for your question. Well, you know what we don't, you currently do not provide breakdown as well.
of the sales growth and profitability for each of our brands. But in general, our skincare brands are growing.
The growth is very strong. And with this very good probability. And as a compare, the growth margin level of our skincare brands with the Colococomestorant is like a substantial we hire. So as...
You know, I think our sales of a skincare brand You know consists a bigger portion of our total sales next, you know We do expect our overall profitability to improve over time
Okay, okay, that's very clear. These are all my questions, and thank you again for the very detailed answer. Thank you.
Thank you.
As a reminder, ladies and gentlemen, if you'd like to ask a question, please press star, then 1.
Our next question comes from Olivia Tong with Raymond James. Please go ahead.
Our next question comes from Olivia Tong with Raymond James. Please go ahead. Great, thank you. Good morning.
A couple of questions here, some have been answered, but you talked about being cautiously optimistic about the environment. Can you talk about what you're seeing both in skin and color that supports that view? Where you want to feelNull that you've made another approach?
in color.
color.
We feel we're constantly optimistic actually about our own business. Well, the market is recovered.
Due to the lifting of the pandemic control policies.
But again, as I said earlier, the competition is intensified. And if you look at the data from Timo and Doyin, you can have quite different pictures.
So for us, we have been able to grow our skincare brand quite fast, but we have also met some challenges in our color cosmetic business. But in general, I think we are moving in the right direction both in terms of sales growth and profitability.
So that's why we said, all right, we are cautiously optimistic about our own.
That's why we said, all right, we are cautiously optimistic about our own business process.
Understood. Maybe since you put that in context relative to your expectation for Q2, you obviously saw sequential deceleration that narrowed in Q1 by more than you expected. You're guiding for two Qs at the midpoint, which assumes a similar yearly performance in Q2. So, you
Why doesn't the sequential improvement in the year-over-year change continue to narrow from Q1 to Q2 if the market is now so much more established in the reopening, you feel cautiously optimistic about your performance? Just trying to understand what you're seeing in the environment and your own business that would...
wouldn't drive even more improvement in Q2 as events return.
Yeah, so actually for our guidance, if you look at the range, it has been sequentially narrowing down. Because last time we gave a decline of 10 to 20, and the quarter before is 20 to 30, and before that 30 to 40. So definitely on the guidance basis, it's narrowing down. And from what we see from in the markets…
In Q1, as we mentioned, the whole makeup industry for the first time now shows a positive growth of 6% versus a single digit decline over the past week or two. But it's definitely a gradual recovery rather than a very abrupt recovery.
And then secondly, in terms of what's behind our QQ guidance, we think there's still going to be a decline. There are three major reasons. The first one is the main flagship grant perfect diary, which still contributes to a majority of our revenue. It's still under the grant strategic transformation.
And as mentioned, most of the new power launches are planned for the second half of this year. So that's why it's for Q2. We don't think the brand will be back to their growth stage. And then secondly, they're still going to be a high base for comparison, compared to the prior period. Primarily because of the larger scale of the offline business, if a look at last year, we still have...
200 close to 230 stores for perfect alley at the end of June 2022 and then by end of March this year we only have around 150. So offline business because of the large number of closure of stores they're going to be a decline. And then last week for our two care business definitely have a good momentum going at a faster than market average pay but Q1 is not a Q2 is a relatively good.
season for soon care, but the size still relatively small compared to our color business. So those are the few kind of reasons behind our guidance. But again, we do see a sequential narrowing down of our guidance and the yield of the client, which suggests a healthy trend that we are in today.
season for soon care, but the size is still relatively small compared to our color business. So those are the few kind of reasons behind our guidance. But again, we do see a sequential narrowing down of our guidance and the yield or decline, which suggests a healthy trend that we are expecting. I dare to tell our children we we can get rapidify response to cost of harvesting.
My last question is just around the positioning of your mass branch versus your more prestigious brands and how you were seeing that as you could compare and contrast the recovery of your larger mass brands versus...
So your question is kind of the just wanted to clarify the performance kind of comparison between mass and the speech plan or the industry or for all of us.
Honestly both, but you know, you are in the industry and then also your specifically your branch.
Right, okay. Yeah, okay, got it. Um, so we don't actually see a very clear diversion pattern between mass and prestige segments, but instead what we see is within each pricing sphere and the category, there's the grant pens to show more in more clear divergence performance.
because this Q1 to look at CIMON doling, the performance really diver, some brands going very fast, while some of the 40 service brands are going at a flood pace or even have a decline. So...
with the intensifying competition in this...
industry, we do see increasing divergence of performance, even the brand's own equity and also their operational excellence. So in our view, and also we think for our brands, the long-term performance is definitely driven by more like brand-building and R&D and last-life.
So that's why for us, to support sustainable growth, we want to build long-term success. So brand building and R&D investment is definitely the most important initiative that we are...
I'm gonna take that.
Donna, thank you. That's a block. Thank you. This concludes today's question and answer session. I'd like to turn the conference back over to the management team for any closing remarks.
cor.
Thank you once again for joining us today. If you have any further questions, please feel free to contact us at Yassin Directly or please keep the investor relations. Our contact information for IR in both China and the US can be found in today's press release. Thank you, and have a great day. Thank you. This includes today's conference call.
We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.