Q2 2023 Yatsen Holding Limited Earnings Call
Speaker 1: Ladies and gentlemen, good day and welcome to the Yassen Second Quarter 2023 Earnings Conference Call.
Speaker 1: Today's conference call is being recorded. At this time, I would like to turn the conference over to Irene Liu, Vice President, Head of Strategic Investment and Capital Markets. Please go ahead.
Speaker 2: Thank you, operator. Please note that the discussion today will contain four local statements relating to the company's future performance and our intended to qualify for the safe harbor from liability as established by a U.S. Private Security and
Speaker 2: Such statements are not guaranteed of future performance and are subject to certain risks and uncertainties, assumptions, and other factors.
Speaker 2: 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.
Speaker 2: A general discussion of the risk factors that could affect Yassen's business and financial results is included in certain filings of the company with the Securities and Exchange Commission. The company does not undertake any obligation to update its fore-look information, except as required by law.
Speaker 2: During today's call, management will also discuss certain non-GAAP financial measures for comparison purposes only. Please see the earnings relief issued earlier today for a definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results.
Speaker 2: Joining us today on the call from Yasen's senior management are Mr. Jinbo Huang, our founder, chairman and CEO , and Mr. Dong Hao Yang, our CFO and director. This will begin with prepared remarks and the call will conclude with a Q&A session.
Speaker 2: As a reminder, this conference is being recorded. In addition, a webcast replay of this conference call will be available on the Yassen Investor Relations website at ir.yassenglobal.com. I'll now turn the call over to
Speaker 2: Mr. Du Fung-Hua, please go ahead David.
Speaker 3: Thank you Irene and thank you everyone for participating in Yassen's second quarter 2023 earnings conference call today.
Speaker 3: The beauty industry experienced a modest post-COVID recovery during the second quarter of 2023. According to the National Bureau of Statistics of China, total retail sales of consumer goods grew by 1047% year-over-year, while declining by 2% quarter-over-quarter. Please see the Mohammed resolution screening guide This presentation is ainging on TestTube Could be used for quality accounting andSAN conditions, business Oss
Speaker 3: More specifically, beauty retail sales rose by 11.5% year over year and 0.8% quarter over quarter in the second quarter.
Speaker 3: The year-over-year growth was partially affected by the prior year period's low base.
Speaker 3: Wild quarter over quarter grows indicated a mild recovery pattern during the quarter. Online beauty cells also rebounded and demonstrated by the beauty cells growth on Timo and O'Ea, on both yearly and quarterly basis.
Speaker 3: mainly given by promotion activities during the June 18th shopping festival.
Speaker 3: Against the industry backdrop, we continue to focus on rebalancing our category mix.
Speaker 3: expanding growth margins, and improving net margins.
Speaker 3: through enhanced operational efficiency.
Speaker 3: transformation remained largely on track.
Speaker 3: Evidence by our second quarter revenue in reaching the guidance we provided touristy.
Speaker 3: Net revenues from all skincare brands increased by 2.3% over year to RMB325.2 million.
Speaker 3: Within skincare, our clinical and premium brands delivered another solid performance.
Speaker 3: With galanic, daughter wool and a Yip long, recording 13.3% year-over-year growth in combined net revenues.
Speaker 3: With respect to revenue contribution, our skincare brands accounted for
Speaker 3: 37.9% of total net revenues in the second quarter.
Speaker 3: up from 33.4% in the prior year period.
Speaker 3: Revenues from Calicosmetics declined in the second quarter.
Speaker 3: as Pervidari continued to undergo a branch transformation.
Speaker 3: Furthermore, the number of perfect diaries of line stores totaled 136.
Speaker 3: as of the end of the second quarter, compared with 228 a year ago.
Speaker 3: as a result of targeted closures of underperforming offline stores.
Speaker 3: Our product mix optimization, as well as our disciplined approach to discounts and promotions, is scheduled to drive improvements in our overall growth margin.
Speaker 3: which has demonstrated a clear upward trend over the past four quarters.
Speaker 3: We also improved our net margin year-over-year, reflecting our effective cost reduction and channel optimization strategies.
Speaker 3: Turn into our product.
Speaker 3: Beyond our investments in the existing hero products, we also introduced new skincare products during the quarter.
Speaker 3: One highlight was Galanick's secret de-assilence active cream.
Speaker 3: A new anti-aging product enhanced with our patent Snow-LG peptide to promote collagen with torsion.
Speaker 3: Additionally,
Speaker 3: several of our existing hero products.
Speaker 3: received recognition this quarter.
Speaker 3: with Galanix antioxidant number one VC serine ranking number one in both T-MOR Austin Lee's live stream
Speaker 3: Premium Brightening Theorem category and Douyin's Premium Theorem category during the June 18th shopping festival.
Speaker 3: Yifan also turned in a solid performance during June 18.
Speaker 3: With the if long cleanser coming in first.
Speaker 3: among premium cleanser products on Timor.
Speaker 3: For our color cosmetics brands, we continued to advance product development, releasing high quality products with strengthened functional features.
Speaker 3: During the second quarter, Pupit Ari launched his standing holiday collection.
Speaker 3: tailored for summer wear as well as translucent blurring long wear foundation which delivers a long-lasting flawless finish.
Speaker 3: We also wrote
Speaker 3: new and upgraded products for little
Speaker 3: driving growth in both brands
Speaker 3: Littleong game made the Timor June 18th top 100 best selling list.
Speaker 3: with this brand new 3D shadow and highlighter eyeliners.
Speaker 3: while pin bear launched its new journey lipstick
Speaker 3: Brand building remains a critical component of Yasen's long-term strategy.
Speaker 3: in July .
Speaker 3: two of our skincare brands, Galenic and Dotovu.
Speaker 3: participated in the World Congress of Dermatology in Singapore.
Speaker 3: raising this brand awareness among an internationally renowned group of clinicians.
Speaker 3: scientists and industry professionals.
Speaker 3: Dr. Wu also celebrated his 20th anniversary this summer.
Speaker 3: testament to its product's enduring popularity and the strength of its brand equity.
Speaker 3: Moving on to our recent R&D achievements.
Speaker 3: or R&D expenses reached 3%.
Speaker 3: as a percentage of total net revenues.
Speaker 3: reflecting our continuous efforts in scientific advancement.
Speaker 3: in scientific advancement and product development.
Speaker 3: We are pleased to report that in June , we took our partnership with Regent Hospital.
Speaker 3: affiliate of the Shanghai Jiao Tong University School of Medicine.
Speaker 3: To the next level is the official unveiling of the Yasen Regen Medical Skin Care Joint Laboratory in Shanghai.
Speaker 3: We formed this alliance.
Speaker 3: with Regent Hospital to jointly conduct research on skin disease.
Speaker 3: mechanisms.
Speaker 3: and develop official skin care products.
Speaker 3: leveraging Yat-sen's deep experience and strong capabilities, as well as Yurijin's remarkable achievements in resource integration across the beauty industry.
Speaker 3: educational and research institutions, and hospitals.
Speaker 3: We look forward to advancing the future of skincare together.
Speaker 3: Furthermore, operations of the Guangzhou manufacturing hub were established with Cosmash.
Speaker 3: officially commenced on August 11.
Speaker 3: enabling further optimization of our supply chain.
Speaker 3: Powered by this development and our enhanced capabilities, we are confident about the prospect to successfully explore and launch more hero products in the future.
Speaker 3: Before I conclude, I would like to mention that we recently released our 2022 Environmental, and DCO, Governor's.
Speaker 3: Before I conclude, I would like to mention that we recently released our 2022 Environmental, Social and Governance, or ESG, report.
Speaker 3: marking our second consecutive year of ESG reporting.
Speaker 3: We are proud to provide a comprehensive review of our ESG initiatives and developments.
Speaker 3: including corporate governance, research
Speaker 3: employees' rights, protection, human capital development.
Speaker 3: environmental sustainability, and social responsibility, among others.
Speaker 3: We are grateful for the opportunity to demonstrate our commitment.
Speaker 3: to creating a better society by fulfilling our corporate social responsibilities.
Speaker 3: To summarize.
Speaker 3: China's beauty market is still finding its footing in the post-pandemic era.
Speaker 3: And we understand that the recovery pattern of consumer demand remains uncertain.
Speaker 3: However, our strategy transformation is proceeding as planned.
Speaker 3: and our portfolio of strong distinctive brands as well as our sufficient financial resources.
Speaker 3: will empower us to adapt with flexibility.
Speaker 3: We will continue to build our brands across the broad, elevating our skincare brands' growth, while positioning our Calacos-medic brands for success in the future.
Speaker 3: With that, I will now turn the call over to our CFO , Dong Hao-Yang, to discuss our financial performance.
Speaker 3: Thank you everyone.
Speaker 4: Thank you.
Speaker 5: Thank you, David, and hello, everyone. Before I get started, I would like to clarify that all financial numbers presented today are in renminbi amounts, and all percentage changes referred to year-over-year changes, unless otherwise noted. All net revenues for the second quarter of 2018.
Speaker 5: 2023 decreased by 9.8% to 858.6 million from 951.8 million for the prior period.
Speaker 5: The decrease was primarily attributable to a 16.6% year-over-year decrease in net revenues from color cosmetic brands, partially offset by a 2.3% year-over-year increase in net revenues from skincare brands.
Speaker 5: Growth profit for the second quarter of 2023 increased by 7.2% to $641.6 million from $598.3 for the prior year period.
Speaker 5: Growth margins for the second quarter of 2023 increased to 74.7% from 62.9% for the prior period.
Speaker 5: The increase was driven by
Speaker 5: First, increasing sales of higher gross margin products from skincare brands. Second, more disciplined pricing and discount policy.
Speaker 5: And third, cost optimization across all of our brand's portfolios.
Speaker 5: Total operating expenses for the second quarter of 2023 decreased by 11.3%.
Speaker 5: to $776.7 million from $875.3 million for the prior year period.
Speaker 5: As a percentage of total net revenues, total operating expenses for the second quarter of 2023 were 90.5% as compared with 92.0% for the prior year period. As a percentage of total net revenues, total operating expenses for the second quarter of 2023 were 90.5% as compared to 92.0% for the prior year period.
Speaker 5: 7 million for the prior period.
Speaker 5: As a percentage of total net revenues, fulfillment expenses for the second quarter of 2023 decreased to 6.8% from 7.3% for the prior period. The decrease was primarily attributable to a decrease in warehouse and logistics costs.
Speaker 5: due to the outsourcing of most of our warehousing and handling operations.
Speaker 5: Selling and marketing expenses for the second quarter of 2023 were $542.8 million as compared with $625.7 million for the prior period. As a percentage of total net revenues, the total net revenue is $542.8 million.
Speaker 5: Selling and marketing expenses for the second quarter of 2023 decreased to 63.2% from 65.7% for the prior period. The decrease was primarily attributable to the closure of underperforming offline stores and otherVE
Speaker 5: and a reduction in share-based compensation related to the decrease in selling and marketing headcount, partially offset by an increase in online advertising expenses.
Speaker 5: General and administrative expenses for the second quarter of 2023 were $149.7 million as compared with $147.8 million for the prior period.
Speaker 5: As a percentage of total net revenue, general and administrative expenses for the second quarter of 2023 increased to 17.4% from 15.5% for the prior year period. The increase was primarily attributable to an increase in share-based compensation.
Speaker 5: combined with the deleveraging effects of lower total net revenue in the second quarter of 2023.
Speaker 5: Research and development expenses for the second quarter of 2023 were $25.9 million as compared with $32 million for the prior period. As a percentage of total net revenues, research and development expenses for the second quarter
Speaker 5: for the second quarter of 2023 decreased to 3% from 3.4% for the prior year period. The decrease was primarily attributable to our efforts to maintain research and development expenses at a reasonable level relative to total net revenue.
Speaker 5: Loss from operations for the second quarter of 2023 decreased by 51.2% to 135.1 million from 277 million for the prior period.
Speaker 5: Operating loss margin was 15.7% as compared with 29.1% for the prior year period.
Speaker 5: Non-gap loss from operations for the second quarter of 2023 decreased by 65.8% to 74.6 million from 218.2 million for the prior period.
Speaker 5: non-GAAP operating loss margin was 8.7% as compared with 22.9% for the prior period.
Speaker 5: Net loss for the second quarter of 2023 decreased by 59% to 108.5 million from 264.3 million for the prior year period.
Speaker 5: Net loss margin was 12.6% as compared with 27.8% for the prior year period.
Speaker 5: Net loss attributable to Yattsen's ordinary shareholders for diluted ADS for the second quarter of 2023 was 0.2 RMB as compared with 0.43 RMB for the prior period.
Speaker 5: Non-gap net loss for the second quarter of 2023 decreased by 77.7%.
Speaker 5: to 46.3 million from 207.5 million for the prior year period.
Speaker 5: The net loss margin was 5.4% as compared with 21.8% for the prior year period.
Speaker 5: non-GAAP net loss attributable to the quarter of 2023 with 0.08 RMB as compared with 0.34 RMB for the prior period.
Speaker 5: As of June 30, 2023, we had cash, restricted cash and short-term investments of $2.57 billion as compared with $2.63 billion as of December 31, 2020.
Speaker 5: Net cash used in operating activities for the second quarter of 2023 was 14.4 million compared with net cash generated from operating activities of 111.9 million.
Speaker 5: for the prior year period. Looking at our business outlook for the third quarter of 2023, we expect our total net revenues to be between $686.3 million and $772.1 million representing a year-over-year decline of approximately 2 times 3. hole.
Speaker 5: 10% to 20%. These forecasts reflect our current and preliminary views on the market and operational conditions which are subject to change.
Speaker 5: With that, I would now like to open the call for Q&A.
Speaker 1: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing keys.
Speaker 1: To withdraw from the question two, please press star then two.
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.
Speaker 1: At this time, we will pause momentarily to assemble our roster.
Speaker 1: The first question today comes from China Lin with CICC. Please go ahead.
Speaker 6: Thanks for taking my question. This is Chenya from CICC and I've got two questions. The first question is regarding profitability. So are we still on track with the four-year profits? Looking ahead, what are the key drivers that will boost our profitability?
Speaker 6: in the second half of the year. And this is for the first question. And about the second question is regarding...
Speaker 6: growth of color cosmetics. We've seen the launch of Perfect Diaries, new foundation product. And how has the sales performance been so far? Could you provide insight into the upcoming strategies for color cosmetics in the second half of the year? And is there any chance that...
Speaker 1: a tele-cosmetics return to growth in the second half of the year? That's my question. Thank you. Well, thank you very much for your questions. For your first question on profitability, I think we're still on the right track.
Speaker 5: to continually improve our profitability over time. If you compare this quarter with the same quarter last year, the improvement on profitability has been very significant.
Speaker 5: And your second question, we just launched the foundation product for Pribg. It's still too early for us to tell how the new product will perform. But for the second half of the year, especially towards the end of Q3 and beginning of Q4,
Speaker 5: We are making preparations for that major campaign, but it's still too early to tell how the campaign will turn out. And there, of course, will be some uncertainty around the success of that campaign, but we are very confident that.
Speaker 5: We will try our best, and hopefully we can make it a huge success.
Speaker 6: Thank you very much. I have no more questions.
Speaker 5: Thank you.
Speaker 7: Again, if you have a question, please press star then 1.
Speaker 7: The next question comes from Vivi Hang with Morgan Stanley . Please go ahead.
Speaker 6: Thank you for taking my question. This is Vivi from Morgan Stanley . So I have two questions. Firstly is on the industry part. So could management give us a color on what is the industry competition like as we enter into the third quarter? Like how is it like in terms of the competition, especially on online and live stream?
Speaker 6: Double Eleven Festival this year. Do you see like if there is any possibility that a promotional level will likely to intensify on a year-on-year basis or maybe to compare to 6-18 festival this year? Secondly, I would like to add on our offline store strategy.
Speaker 6: Do we expect further forward disclosure when we enter into the second half? This is the question that I will have. Thank you. How should we do that if we will get moreromptusolid
Speaker 2: Yes, thanks Lily for the question. So on the first question in terms of the industry outlook and the competition landscape, so what we see is we saw a modest recovery pattern during the second quarter, even though the year-over-year growth rate was good, but it was a low base last year given the lockdown out of city in June last year.
Speaker 2: So if you look at the quarter over quarter growth pattern, it's actually largely flat, which implies a recovery, but a relatively mild recovery. And we see in the beauty market...
Speaker 2: Different segments are all growing, even within current economic conditions, the premium segment is still growing but at a slightly lower rate. So we do expect that the China beauty market still has headroom to grow, even the per capita beauty spending is still relatively low compared to other mature markets.
Speaker 2: And then looking at competition, over time we have seen that competition has been intensifying and there is actually divergent performance among different categories and different brands. And one of the very obvious trends is brands with strong product efficiencies don't.
Speaker 2: and brand equity are actually outperforming compared to others. And also consumer behavior has shifted a little bit from previous impulsive buying habits towards more rational behavior which also kind of demonstrates that...
Speaker 2: followers very strong efficacy and functional value actually probably a time war consumers Attention and and buy so those are some of the season
Speaker 2: funds that we have in the industry.
Speaker 5: And your second question, in the past two years we've closed around 150 stores.
Speaker 5: of our offline stores, and most of which...
Speaker 5: were obviously underperforming and loss-making stores.
Speaker 5: And going forward, I think we will continue to optimize some of our stores, but I don't think.
Speaker 5: that we're going to close.
Speaker 5: a substantial number of stores.
Speaker 5: down the road.
Speaker 5: But optimization will
Speaker 5: It will always be our strategy.
Speaker 8: Thank you.
Speaker 6: Thank you so much.
Speaker 9: Thank you.
Speaker 7: Again, if you have a question, please press star, then 1.
Speaker 7: And that concludes the question and answer session. I would like to turn the conference back over to management for any additional or closing comments.
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 Piazza in Western 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.