Q3 2024 Yatsen Holding Ltd Earnings Call
Author, producer, cinematographer, screenwriter Qin Qing
Speaker Change: Ladies and gentlemen, good day and welcome to the Yat-sen 3rd Quarter 2024 Earnings Conference Call. Today's conference is being recorded. At this time I would like to turn the conference over to Irene Lyu, Vice President, Head of Strategic Investment and Capital Markets. Please go ahead.
Irene Lyu: Thank you, Operator. Please note that the discussion today will contain forelooking 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 Securities Litigation Reform Act.
Irene Lyu: Such statements are not guarantees of future performance and are subject to certain risks and uncertainties, assumptions, and other factors.
Irene Lyu: 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.
Irene Lyu: 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.
Irene Lyu: The company does not undertake any obligation to update its forwarding information except as required by law.
Irene Lyu: During today's call, management will also discuss personal non-GAAP financial measures for comparison purposes only.
Irene Lyu: Please see the earnings release issued earlier today for a definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results.
Speaker Change: Joining us today on the call from Yasen Senior Management are Mr. Jinfeng Huang, our Founder, Chairman and CEO, and Mr. Donghao Yang, our CFO and Director.
Speaker Change: Management will begin with prepared remarks and the call will conclude with the Q&A session.
Speaker Change: As a reminder, this conference is being recorded. In addition, a webcast replay of this conference call will be available on Yasen Investor Relations website at ir.yasenglobal.com.
Speaker Change: I will now turn the call over to Mr. Jinfeng Huang. Please go ahead, sir.
Thank you. Thank you. Thank you.
Speaker Change: Ma Long, Darong Nguyen, Jiang Khroung, Ai Ye Ju Jian, Mussolini, Huang Zitai, Lederkorn, Qu Yuan Fu chun, Wen turan, Zhou Hiernes, Xu Zhou Hsu Jiabao, Tao Honghui, Tseping Han, Yan Shi
Speaker Change: Thank you, Irene, and thank you, everyone, for participating in YASEN's third quarter 2024 earnings conference call today.
Speaker Change: I will start with a macro overview and our key financial metrics.
Speaker Change: followed by insights into our strategy and updates on our brands and products.
Speaker Change: China's beauty industry faced significant challenges in the third quarter, with beauty sales significantly lagging the overall retail market.
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According to the adjusted data from
Total Retail Sales of Consumer Goods
grew by 2.7% year-over-year for the third quarter.
while beauty retail sales declined sharply by 5.5 percent.
Speaker Change: Notably, September marked the fourth consecutive month of year-over-year declines in beauty retail sales since June.
Online beauty sales were also sluggish in the third quarter.
Timor reported a year-over-year drop in
while Douyin sustained modest double-digit growth.
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Speaker Change: Despite a challenging market, we delivered results in line with our guidance.
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Total net revenues decreased by 5.7% year-over-year.
However, net revenues from skincare brands rose by 3.6% year-over-year.
Speaker Change: given by a 10.5% year-over-year increase in our clinical and premium skincare brands.
including Galanique, Dr. Wu and Yif Long.
Speaker Change: Conversely, net revenues from our color cosmetic brands fell by 10% year-over-year, largely due to decreased sales from the Perfect Diary brand.
Speaker Change: which is undergoing a strategic transformation to revamp its product line and optimize its channel mix.
Speaker Change: On the profitability front, our overall growth margin improved to 75.9% in the third quarter.
up from 71.4% in the prior year period.
given by a higher contribution from
Speaker Change: We also reduced our net loose margin by 9.7 percentage points.
to 7.9% from 27.6% in the prior year.
through strategic marketing spending and optimized general and administrative expenses.
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Speaker Change: Next, I would like to provide more color on the progress of our strategic transformation.
Speaker Change: which we advanced during the third quarter to drive sustainable growth.
Speaker Change: One key initiative is optimizing our revenue mix by prioritizing higher margin products.
Speaker Change: This involves expanding our skincare brands and introducing new color cosmetics products with higher growth margins.
supported by our growing R&D
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We are also refining our cost structure to boost profitability.
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Speaker Change: Operationally, we have streamlined our organizational structure to reduce general and administrative expenses.
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Speaker Change: Setting the stage for operating leverage once net revenue returns to growth.
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Speaker Change: These efforts provide a solid foundation for sustainable long-term growth and will enhance our ability to improve profitability as revenue recovers.
As part of our strategic transformation initiatives,
We made substantial investments in R&D.
Speaker Change: with our third quarter research and development expenses totaling RMB 25.3 million.
representing 3.7% of net revenues.
This consistent investment has significantly improved our R&D capability.
enabling us to develop a new high-quality product.
In the third quarter
Speaker Change: Herve Dari launched the second-generation biolip essence lipstick that leveraged the upgraded biotech technology.
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Speaker Change: Launched in late September, the product became the top seller in the lipstick category in terms of retail sales value on Douyin during the first week of October.
Galanique also launched several new products.
The CO2 secret diethylene UV
featuring our innovative ActiveAnchor technology.
provides high-level full-spectrum sun protection.
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Speaker Change: The No. 2 Vitamin A Serum offers a highly efficacious and clinical-proven skincare solution to improve skin texture and reduce wrinkles.
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Speaker Change: For the W11 Shopping Festival, we are pleased to report positive results across our brands.
given by the products we mentioned before.
as well as other offerings launched
including the Gaelic living friend
and our existing hero products.
Speaker Change: At the end of October, Perfect Diary has re-entered the top 20 color cosmetic brands in terms of combined sales on Tmall and Douyin.
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In addition, the Lanik performed strongly during the festival.
Speaker Change: Ranking number one among premium whitening products within Austin Lee's live streaming room, and number three among imported anti-wrinkle serum products on Timor.
Speaker Change: Furthermore, Galainic participated in the 33rd European Academic of Dermatology and Virenology Congress.
in Amsterdam in September.
Speaker Change: where we presented groundbreaking clinical research on our Gelenic number one vitamin C serum.
in conjunction with yellow light therapy for effectively treating melasma.
Speaker Change: This collaboration with leading international experts underscores our dedication to dermatological science.
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Speaker Change: Meanwhile, Yif Long hosted a global summit on emotional skin care at the University of Oxford.
Highlighting the stress-relieving benefits of Yif Long's daily rejuvenating cream.
and showcasing our latest innovations in
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Speaker Change: In terms of our efforts to optimize our cost structure, we also made significant progress in the third quarter.
Speaker Change: Our general and administrative expenses for the quarter were RMB 85 million.
representing 10.6% of net revenues.
Speaker Change: a substantial improvement for RMB 151.8 million or 21.1% of net revenues.
for the prior year period.
Speaker Change: By reducing our fixed cost levels, we are moving closer to our goal of sustainable growth.
Speaker Change: Lastly, I would like to provide an update on our ESG initiatives.
We recently released our 2023 Environmental, Social, and Governance report.
marking our third consecutive year of
Speaker Change: We are proud to maintain our MSCI ESG rating of A.
reflecting our strong performance in several key areas.
including product packaging and waste and chemical safety.
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Speaker Change: Our dedication to excellence in green and low-carbon initiatives continues to enhance our position as a responsible leader in the beauty industry.
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Speaker Change: In conclusion, while the beauty industry continues to face challenges, we remain optimistic about our ability to adapt and thrive.
Speaker Change: With our focus on innovation, brand building, and sustainable practices, we are confident that we are well positioned to achieve year-over-year revenue growth in the fourth quarter.
Speaker Change: Additionally, our commitment in quality and consumer engagement will enhance brand loyalty.
given our long-term progress.
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Speaker Change: With that, I will now turn the call over to our CFO, Donghao Yang, to discuss our financial performance. Thank you, everyone.
Thank you for watching!
Thank you. Bye-bye.
Speaker Change: Thank you, David, and hello everyone. Before I get started, I would like to clarify that all financial numbers presented today are in RMB amounts, and all percentage changes refer to year-over-year changes unless otherwise noted.
Speaker Change: The decrease was primarily due to a 10% year-over-year decrease in net revenues from color cosmetics brands, partially offset by a 3.6% year-over-year increase in net revenues from skincare brands.
all.
Speaker Change: Gross profit for the third quarter of 2024 increased by 0.2% to 513.8 million RMB from 512.8 million for the prior period.
Speaker Change: Gross margin for the third quarter of 2024 increased to 75.9% from 71.4% for the prior period. The increase was primarily driven by an increase in sales of higher gross margin products.
Total operating expenses for the third quarter of 2024
Speaker Change: decreased by 12% to $655.2 million from $744.3 million for the prior year period.
Speaker Change: As a percentage of total net revenues, total operating expenses for the third quarter of 2024 were 96.8% as compared with 103.6% for the prior period.
Speaker Change: Fulfillment expenses for the third quarter of 2024 were $50.4 million as compared with $56 million for the prior year period.
as a percentage of total net revenues.
for filming expenses for the third quarter of 2024.
decreased to 7.4 percent.
from 7.8%.
Speaker Change: Selling and marketing expenses for the third quarter of 2024 were $494.4 million as compared with $511.7 million for the prior year period.
Speaker Change: As a percentage of total net revenues, selling and marketing expenses for the third quarter of 2024 increased to 73 percent from 71.3 percent.
for the prior period.
Speaker Change: The increase was primarily due to increased investment in the Douyin platform in line with the growing revenue contribution from Douyin, partially offset by lower marketing expenses as a result of our more strategic marketing spending.
Speaker Change: General and administrative expenses for the third quarter of 2024 were $85 million.
as compared with...
151.8 million for the prior period.
Speaker Change: As a percentage of total net revenues, general and administrative expenses for the third quarter of 2024 decreased to 12.6 percent.
Speaker Change: Research and development expenses for the third quarter of 2024 were $25.3 million as compared with $24.7 million for the prior year period.
Speaker Change: Development expenses for the third quarter of 2024 increased to 3.7% from 3.4% for the prior year period. The increase was primarily attributable to the deleveraging effect of lower total net revenues in the third quarter of 2024.
Speaker Change: The loss from operations for the third quarter of 2024 was $141.3 million as compared with $231.5 million for the prior year period.
Speaker Change: operating loss margin was 20.9% as compared with 32.2% for the prior year period.
non-gap loss from operations for the third quarter of 2024.
Speaker Change: with 98.5 million as compared with 164.6 million for the prior year period. Non-GAAP operating loss margin was 14.5% as compared with 22.9% for the prior year period.
Speaker Change: Net loss for the third quarter of 2024 was $121.1 million as compared with $197.9 million for the prior year period.
Speaker Change: Net loss margin was 17.9% as compared with 27.6% for the prior year period.
Speaker Change: Net loss attributable to Yesen's Ordinary Shareholders for diluted ABS for the third quarter of 2024 was 1.22 RMB, as compared with 1.81 RMB for the prior year period.
Speaker Change: Non-GAP net loss for the third quarter of 2024 was $76.6 million as compared with $130.2 million for the prior year period.
Speaker Change: Non-GAP net loss margin was 11.3% as compared with 18.1% for the prior year period.
Speaker Change: None gap net loss attributable to Yat-sen's ordinary shareholders per diluted ADS for the third quarter of 2024 was 0.77 RMB as compared with 1.19 RMB for the prior period.
2024, we had cash, restricted cash, and short-term investment.
Speaker Change: of 1.31 billion RMB as compared with 2.08 billion RMB as of December 31st, 2023.
Speaker Change: These forecasts reflect our current and preliminary views on the market and operational conditions, which are subject to change.
Speaker Change: With that, I would now like to open the call to Q&A.
Operator
Speaker Change: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys.
Speaker Change: If at any time your question has been addressed and you would like to withdraw your question, please press star and 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.
Speaker Change: The first question comes from Maggie Hung with CICC. Please go ahead.
Speaker Change: Well, thanks for taking my question. This is Maggie Huang from CICC. I have two questions. The first one is about our performance during Double Eleven Festival and is that in line with our expectation? And the second question is about our plan for product development and channel expansion for the next year. That's my two questions. Thank you.
Thank you for watching!
and fellow Horizontal Stevens.
Speaker Change: Thank you very much for your question. Let me take your first question. I think we have done...
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Speaker Change: pretty well during the double 11 festival, pretty much in line with our expectations.
We sold pretty well through some very well-known KOLs.
in line with our expectations and our...
Perfect Diary also performed pretty well.
Speaker Change: And your second question, what is your plan for product development and channel expansion next? Well, next year I think we're...
Speaker Change: We have made very good plans for our new product development for all of our
Speaker Change: We are now trying to put together a new product development plan for next year as part of our annual budgeting process. Channel Expansion, I think we will continue to work very hard to drive growth through
develop more
Speaker Change: New channels, for example, at The Atlantic we're going to open some new offline stores to explore, you know, the feasibility of, you know, our business opportunities in the offline channels.
Yeah, to view on...
Thank you for watching!
Sorry.
Speaker Change: Okay, so to build on what Donghao shared before, I think my overall evaluation about our performance in the W11 promotion is in line with our objective and in some areas we're exceeding our expectations.
Speaker Change: So, first of all, I think W11 is a very important sales event, as we all know.
Speaker Change: But if we go deeper to our strategy goals for leveraging the 111,
to improve our sales for our strategic brands.
Speaker Change: and also to catch up with the momentum for new product launch. If we are judging based on the criteria before,
I think we have made quite significant progress.
Here are some examples.
Speaker Change: So during this year in Austin Lee's live streaming room, we have four brands join the promotion event.
Speaker Change: And then the purple diary has gained a pretty good momentum to achieve the self-target for the bio-lipstick and also our loose powder.
Speaker Change: As we all know, loose powder is a very important category to provide an opportunity for Purple Diary to expand our category from lip category to face makeup category.
Speaker Change: And then for our Galenic brand, so during the W11 promotion, I think the brand has a pretty balanced sales on T-more and also DOLIN.
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Speaker Change: And also Galenic launched a new product, the Vitamin A Serum, which helps the brand for future growth to expand the benefit space from purely whitening category into anti-aging category.
Speaker Change: which is much bigger than the widening category from the market size perspective.
Speaker Change: There's another thing I want to highlight, is the optimizing the ROI on investments.
Speaker Change: I think in next quarter we are going to release the growth margin for our Q4.
Speaker Change: But during this promotion, we are very disciplined in controlling the price, selling price for our hero products.
Speaker Change: For our lipstick we are selling in Austin Lee's live streaming with 130 RMB for one and also 240 RMB for two lipsticks.
Speaker Change: This provides us with a very good scenario to maintain the sales momentum while keeping a balance on the growth margin improvement.
Speaker Change: I think from the strategic transformation perspective, I think 2011 is in line with our expectations.
Thank you for watching!
Your second question talks about the new product offerings.
Again, going back to the transformation guidelines.
Speaker Change: So I think one of the key important key areas that we have been investing is R&D
Speaker Change: And then based on the robust R&D performance, we are launching some new products based on the efforts we have been committed to devote in the past few years. And we are very thrilled to see some early
Speaker Change: indicators on the products we launched in the market and then based on those indicators we are happy to see the progress we are making.
Speaker Change: As I mentioned before, the bio-lipstick for peripheral diarrhea helps the brain to
Speaker Change: We gained the growth momentum and also improved the brand's profit growth margin.
Speaker Change: And then for our other clinical and skin care brands and we launched some new products and then we are also very happy to see the early results for those products which will provide us some foundations in the future for sustainable growth.
Speaker Change: So that's some of the points I want to add on Donghao's answer.
Thank you for watching
Speaker Change: And that concludes the question and answer session. I would like to turn the conference back over to Irene for any closing remarks.