Yunji Q2 2023 Earnings Call Transcript

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Provided by Quartr
August 24, 2023

There are 4 speakers on the call.

Operator

Good morning and good evening, ladies and gentlemen. Thank you for standing by and welcome to Yunji's Second Quarter 2023 Earnings Conference Call. With us today are Mr. Sheng Liu Zhao, Chairman and Chief Executive Officer Mr. Peng Zhong, Vice President of Finance and Ms.

Operator

Kay Liu, Investor Relations Director of the Company. As a reminder, this conference call is being recorded. Now, I would like to hand the conference over to our first speaker today, Ms. Kaye Liu, Investor Relations Director of Yoon Ji. Please go ahead, ma'am.

Speaker 1

Hello, everyone. Welcome to our Q2 2023 earnings call. Before we start, please note that this call will contain forward looking statements within the meaning of Private Securities Litigation Reform Act of 1995 that are based on our current expectations and current market operating conditions and related events that involve known or unknown risks, uncertainties and other factors of Yunzhi and its industry. These forward looking statements can be identified by terminologies such as well, expect, anticipate, contingent or other similar expressions. For a detailed discussion of these risks and uncertainties, please refer to our latest document filed with the US SEC.

Speaker 1

Any forward looking statements that we make on this call are based on assumptions as of today and expressly qualifies entirely by cautionary statements, risk factors and details of the company's filings with the SEC. Greenxi do not undertake any obligation to update these statements as required under applicable law. With that, I will now turn over to Shang Yue Soh, Chairman and CEO of Qunxi.

Speaker 2

During the first half of this year, with consumption gradually and steadily recovering, a number of notable trends emerged. 1st, in terms of consumption habits, the post pandemic surge in consumer mobility triggered by a transition away from stockpiling of goods towards a preference for seasonal purchases. To capitalize on these, we will further enhance our supply chain so that we are better equipped to address seasonal consumer demand. As in time, we will optimize our marketing campaigns to sharpen their focus on holidays, seasonal transitions and social trends. In addition to these shifts, we have also observed the resurgence of local community services in the consumption landscape and the substantial support these services have drawn from national policies.

Speaker 2

The convergence of these 2 trusts presents exciting opportunities for our gourmet food strategy. Over the course of Q2, we've done well rolled out our gourmet food products in local neighborhood groups and online and offline communities in certain second and third tier cities. Our probably bone meat products proved especially popular, gradually generating notable levels of repeat purchases. During the Q2, we have noted a trend where an increasing number of our companies have adopted a price war strategy as we open stimulating consumption, it is crucial to highlight that RMB adheres to a substantial healthy and value oriented strategy rather than merely burning money by resorting to subsidies or adopting a low price strategy. Our prudent approach is centered around refining our operations, saving our funds for subsidies and leveraging our highly curated product range and economies of scale to offer users unparalleled value.

Speaker 2

The resounding success of our private label range underpins our confidence that we can offer users cost effective products without resorting to price Recently, Suyen, our private label beauty brand, marked its 13th anniversary we celebrated its milestone by holding an event in Shenzhen with the theme of China peptide new attitude. During the celebration, SuYe unveiled its latest product, White Peptide 3.0, marking the dawn of a new year end aimed at addressing the specific skincare needs of the Chinese people. Importantly, Sujian has signed a strategic agreement with a leading domestic supplier of raw materials for cosmetics. Furthermore, Suye Rinse released its 2023 anti aging white paper and welcomed the 1st groups of customers to its offline affiliate store. Recognizing the burgeoning market potential created by an aging population of the next decade, our private labels are continuously expanding their presence within the health care sector, delivering an enhanced consumption experience, In line with our commitment to promoting healthy lifestyles, we actively encourage users to shoulder responsibility for their families' health, nurturing good habits and maintaining the well-being of every family member.

Speaker 2

As a result of these efforts, our healthcare brand, Kingfuryoft maintained its strong momentum with cumulative pro biote sales exceeding RMB200 1,000,000. In addition, our newly introduced the coenzyme Q10 product sold out within the first 31 minutes of its launch. Let's turn to our marketing initiatives. We are fully confident that in the age of information overload, we face a limited window for capturing users' attention. To optimize our use of these precious time, it is essential to maximize the impact and efficiency of our connection with users by establishing an effective terminal.

Speaker 2

Crafting such a terminal necessitates an effective blend of high quality content and timely distribution. To meet the challenging of producing high quality content, we harness the capabilities of our cutting edge AI large scale model technology. Going forward, we will intensify our current investment and explore innovative approaches, including AI digital human live streaming and collaborations with virtual presenters. We have already launched our digital human live streaming initiative, significantly reducing labor and materials costs. Our private label products, especially those in the health care sector, naturally resonate with young mothers.

Speaker 2

In our experience, these products are more effectively promoted by service managers than by influencers. For marketing of health care products, we compete through specialized retail and more efficient information dissemination. By engaging in collaborative product research and development processes, We cultivate a more thorough understanding of our products. Furthermore, by tracing product origins, we can generate richer and more authentic content. This high quality content is then disseminated to thousands of service managers who, having undergone professional retail training are able to engage in meaningful interaction with users.

Speaker 2

Our service managers equipped with the high quality content we produce and the specialized training we provide are able to address the majority of the user inquiries. To further empower our business managers, we have developed an AI health advisor that they can consult to tackle more specialized inquiries. This model of specialized retail combined with AI technology is better aligned with the needs of the Chinese households and local communities. With that, I will turn the call over to Mr. Zhang Ping, our Chief Financial Finance, to go through the financial results.

Speaker 3

Thank you, Xiaomingo. Hello, everyone. Before I go through our financial results, please note that all numbers stated in the following remarks are in RMB terms, and all comparisons and percentage changes on a year over year basis unless otherwise noted. The macro environment continues to present challenges that demand our careful attention and adaptability. Consumer sentiment and purchasing power still need additional momentum before they completely recover.

Speaker 3

Meanwhile, consumer preference are involving swiftly. Based on our marketing data, our strategic pivot towards healthcare and nutritional products has yielded promising results. This shift has not only aligned us changing consumer preference, but also fostered our financial performance. We are dedicated to expanding our product selection and nurturing our private label offerings, ensuring that we stay at the forefront of market trends and maintain a competitive edge. We remain committed to optimizing our cost structure and enhancing operational efficiency.

Speaker 3

By doing so, we will fortify our resilience against the economic fluctuations, reinforce our capacity to weather uncertainties and prosper regardless of the economic cycle. Now let's take a closer look at our financials. Total revenues were RMB 167 1,000,000 compared to CNY284 1,000,000 a year ago. Revenues from sales and merchandise were CNY131 1,000,000 and revenues from our marketplace business were CNY34 1,000,000. The main driver behind the changes were our consistent improvements to our product range across all categories, coupled with optimization of supplier and merchant network, which leads to a short term impact on sales.

Speaker 3

Despite these challenges, we improved our gross margin to 51.6% compared to 40.6% a year ago. This was a result of sustained customer loyalty to our private labels and our effective product curation strategy. Now let's take a look at our operating expenses. Fulfillment expenses were $30,000,000 compared to $43,000,000 a year ago. This was primarily due to decreased warehousing and logistics expenses because of lower merchandise sales and lower personnel costs due to staffing structure refinements.

Speaker 3

Sales and marketing expenses were RMB33 1,000,000 compared to RMB58 1,000,000 a year ago. This was primarily a result of streamlining staffing structures, leading to reduced personnel costs, aligned with the decline in member management fees and decreased business promotion expenses. Technology and content expenses were CNY14 1,000,000 compared to CNY24 1,000,000 a year ago. The decrease was mainly due to a reduction in personnel costs as a result of staffing structure requirements. General and administrative expenses were $33,000,000 compared to $32,000,000 a year ago.

Speaker 3

This was mainly due to a higher allowance for credit losses, partially mitigated by lower personnel costs resulting from staffing structure refinements as well as a decrease in share based compensation expenses. Total operating expenses in the 2nd quarter decreased to RMB111 1,000,000 from RMB157 1,000,000 in the same period of 2022. Loss from operations was RMB12 1,000,000 compared to RMB30 1,000,000 a year ago. Net loss was RMB42 1,000,000 compared with RMB25 1,000,000 a year ago, while adjusted net loss was RMB40 1,000,000 compared with RMB70 1,000,000 a year ago. Basic and diluted net loss per share attributable to ordinary shareholders were both RMB0.02 compared with 0.01¢ in the same period of 2022.

Speaker 3

Moving on to liquidity. As of June 30, 2023, we had a total of RMB583 1,000,000 in cash and cash equivalents, restricted cash and short term investments on our balance sheet compared to RMB669 1,000,000 as of December 31, 2022. Our liquid assets were sufficient to cover our payable obligations, and we did not hold any long term bank loans or debt on our balance sheet. In the near future, we are proactively exploring investment opportunities aimed at enhancing our supply chain capabilities. To conclude, amidst macro environment dynamics, we are pleased to witness the growing synergies between offline and online retail opportunities during the post COVID area, which we believe provide an excellent opportunity for us to develop our private label.

Speaker 3

As we continue to optimize our cost structure, we are confident in our ability to thrive and administer a variety of economy cycles. I would also like to let you know that I have submitted my resignation, and my last working day will be August 25, 2023. I have chosen to step down due to personal reasons, and my responsibilities will retransition to Dean, our Senior Financial Director. My journey with Yunji has spanned 5 years, during which I have experienced significant personal growth. I have full confidence in Ding's exceptional abilities in managing complex financial operations and strategic planning.

Speaker 3

To ensure a seamless transition, I will continue to serve as a consultant. This concludes our prepared remarks for today. Operator, we are now ready to take questions.

Operator

And our first question comes from Ethan Yu of First Trust. Please

Speaker 1

go ahead.

Speaker 3

Thanks for taking my question. The Chinese government has repeatedly issued some policies to stimulate offline consumption. I'm wondering what the management's perspective on this issue and does it have any impact on our business? Thank you.

Speaker 2

Thank you for your question. We are delighted to see consumers gradually regaining their vitality and pursuing a better life. We firmly support national policies and hope to contribute to the recovery of offline consumption. Currently, we have made adjustments in line with consumer trends, such as increasing the supply of seasonal new products, enhancing sales tailored to the specific scenarios and improving our ability to fulfill services. Furthermore, we have hosted various offline events, including origin tracing activities and salon gatherings, allowing our service managers to gain a deeper understanding of the product.

Speaker 2

This in turn makes our productive description more authentic, persuasive and enhances the consumer experience. Yunxi is more than just an online sales platform. We have many private labels, which provide us with greater flexibility. Our sales reach extends beyond the online market as we manage the network of over 100,000 service managers across cities nationwide, which corresponds to a robust local deal team. We look forward to exploring new facilities in off line realm in the future.

Speaker 1

Thank you.

Operator

This concludes our question and answer session. I'd like to hand the conference back to management for closing remarks.

Speaker 1

Thank you for joining us today. Please do not hesitate to contact

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