Yatsen Q1 2024 Earnings Call Transcript

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May 22, 2024

There are 5 speakers on the call.

Operator

Ladies and gentlemen, good day, and welcome to the Yatson First Quarter 2024 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Irene Roux, Vice President, Head of Investment and Capital Markets. Please go ahead.

Speaker 1

Thank you, operator. Please note the discussion today will contain forward looking statements relating to the company's future performance and our intention to qualify for the Safe Harbor from liability as 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.

Speaker 1

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 Yaoxong'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 this forward looking information, except as required 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 a reconciliation of GAAP to non GAAP financial results.

Speaker 1

Joining us today on the call from Yatso's senior management are Mr. Zhu Huang Huang, our Founder, Chairman and CEO and Mr. Donghao Yang, our CFO and Director. Management will begin with prepared remarks, and the call will conclude with a Q and A session. As a reminder, this conference is fully recorded.

Speaker 1

In addition, a webcast replay of this conference call will be available on Yatcong's Investor Relations website at ir. Yatcongrobo.com. I will now turn the call over to Mr. Yixong Zhang, Mr. Hester.

Speaker 2

Thank you, Irene, and thank you, everyone, for participating in JAPAN's Q1 2024 Earnings Conference Call today. I will start by providing a macro overview before reviewing our strategy and the progress we have made across our segments and brands. China's beauty industry continued to grow moderately in the Q1 of 2024. According to the adjusted data published by the National Bureau of Statistics of China, total retail sales of consumer goods grew by 4.7% year over year in the Q1 of 2024, while total beauty retail sales increased by 3.3% year over year. Online sales trends remained mixed.

Speaker 2

Beauty sales on Douyin recorded another quarter of double digit year over year growth, while sales on Tmall remained largely flat year over year in the first quarter. While the Q1 is traditionally a low season in the beauty industry, we still manage to maintain the growth category that started last quarter. As our 5 year strategy transformation plan focuses, we plan to strengthen our market position through superior products and strong brand equity across our brands, while rapidly optimizing our long term cost structure. For the Q1, total net revenues were RMB 773,400,000 growing 1% year over year, in line with guidance. Net revenues from our color cosmetics brands increased 3.2% year over year, indicating progress in proprietary brand positioning as well as continued growth of legalounding and the finger.

Speaker 2

Skincare brand revenues increased by 0.1% year over year. Combined revenues from our clinical and premium skincare brands, Galenic, Doctor. Wu and Yiflong, rose 6.4% year over year. Gross margin improved to 77.7% from 74.3% for the prior year period. Thanks to an increased contribution from higher gross margin products, Our net loss margin was 16.1% compared with the net income margin of 6.6% for the prior year period, primarily due to the exceptionally high base resulting from the reversal of recognized share based compensation expenses of RMB109.4 million related to the corporate of unvested awards granted to a former executive officer.

Speaker 2

Our non GAAP net loss margin was 10.8% compared with 2.4% for the prior year period, attributable to increased investment in marketing activities and a shift in our channel mix with the growing contribution from Douyin. Next, a brand and product update. For our Thin Care segment, our Q1 initiatives include brand building events and the quarter launches in preparation for the June 18 Shopping Festival in the 2nd quarter. Balenet and Yves Long presented their latest R and D results and products as the 4th China International Consumer Product Expo in April, where Glenig launched its couture secret satellite. The Essence and the Yiflong launch is daily rejuvenating cream.

Speaker 2

Furthermore, Doctor. Wu launched several new products, including its truismol anti wrinkle firming serum and the sun care UV protect whitening lotion. In the color cosmetics segment, Survey Diary continues to realize its Biley Essence collections potential. The brand ranked number 2 in the listed category among our mixed brand in terms of retail sales value on Tmall and Douyin combined for the Q1 of 2024. The Biery Essence Match Listed launched earlier this year also delivered a good performance during the March 8 shopping festival.

Speaker 2

Our 2 other major color cosmetic brands, beta Andi and KimBear, remained on a solid ground trend. KimBear launched its sugar Glow E Lipstick during the quarter and was honored at the Beauty Inks Awards as the Newcomer of the Year. Looking ahead, both Lisa Ondi and PingBear will continue to explore new color trends and hit IP to secure sustainable growth path. Net R and D. Our R and D expenses as a percentage of revenues increased to 3.6% from 3.2% for the prior year period.

Speaker 2

We continued to push the boundaries of time, recently hosting the 1st Galenic Dermatology Research Fund Annual Research Summit in France. Renewed dermatologists and experts from around the globe gathered to discuss the latest research in Stintyre and present the project for final review. Also, Doctor. Wu officially announced the launch of the 2nd Doctor. Wu acne research fund project in March and will begin solidifying new acne research topics in the first half of twenty twenty four.

Speaker 2

In conclusion, we were pleased to maintain our growth trend this quarter and we'll stay focused on sustainable growth and brand building as we move ahead. With that, I will now turn the call over to our CFO, Donghao Yang, to discuss our financial performance. Thank you, everyone.

Speaker 3

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 refer to year over year changes unless otherwise noted. Total net revenues for the Q1 of 2024 increased by 1% to RMB773.4 million from RMB765.4 million for the prior year period. The increase was primarily attributable to a 3.2% year over year increase in net revenues from color cosmetics brands combined with a 0.1% year over year increase in net revenues from skincare brands. Gross profit for the Q1 of 2024 increased by 5.7 percent to RMB600 900,000 from RMB568.7 million for the prior year period.

Speaker 3

Gross margin for the Q1 of 2024 increased to 77.7% from 74.3% for the prior year period. The increase was primarily driven by an increase in sales of higher gross margin products. Total operating expenses for the Q1 of 2024 increased by 31.7 percent to RMB758.7 million from RMB575.9 million for the prior year period. As a percentage of total net revenues, total operating expenses for the Q1 of 2024 were 98.1% as compared with 75.2 percent for the prior year period. Fulfillment expenses for the Q1 of 2024 were RMB51.4 million as compared with RMB51.9 million for the prior year period.

Speaker 3

As a percentage of total net revenues, fulfillment expenses for the Q1 of 2024 decreased to 6.7% from 6.8% for the prior year period. Selling and marketing expenses for the Q1 of 2024 were RMB 539.2 million as compared with RMB459 million for the prior year period. As a percentage of total net revenues, selling and marketing expenses for the Q1 of 2024 increased to 69.7% from 60% for the prior year period. The increase was primarily due to increased investments in the Douyin platform in line with the growing revenue contribution from Douyin as well as our investments in new product launches and building brand equity across our portfolio. General and administrative expenses for the Q1 of 2024 were RMB140.1 million as compared with RMB40.7 million for the prior year period.

Speaker 3

As a percentage of total net revenues, general and administrative expenses for the Q1 of 2024 increased to 18.1% from 5.3% for the prior year period. The increase was primarily attributable to the exceptionally low general and administrative expenses reported in the prior year period as a result of the reversal of recognized share based compensation expenses of RMB109.4 million due to the procedure of uninvested awards granted our former Chief Technology Officer upon his resignation. Research and development expenses for the Q1 of 2024 were RMB27.9 million as compared with RMB24.2 million for the prior year period. As a percentage of total net revenues, research and development expenses for the Q1 of 2024 increased to 3.6% from 3.2% for the prior year period. The increase was primarily attributable to higher personnel costs, reflecting our commitment to enhancing our research and development capability.

Speaker 3

Loss from operations for the Q1 of 2024 was RMB157.7 million as compared with RMB7.2 million for the prior year period. Operating loss margin was 20.4% as compared with 0.9% for the prior year period. Non GAAP loss from operations for the Q1 of 2024 was RMB107 1,000,000 as compared with RMB62.4 million for the prior year period. Non GAAP operating loss margin was 13.8% as compared with 8.1% for the prior year period. Net loss for the Q1 of 2024 was RMB124.9 million as compared with net income of RMB50.7 million for the prior year period.

Speaker 3

Net loss margin was 16.1% as compared with net income margin of 6.6% for the prior year period. Net loss attributable to Yatin's ordinary shareholders for diluted ADS for the Q1 of 2024 was RMB1.16 as compared with net income attributable to Yexton's ordinary shareholders for diluted ADS of RMB0.42 for the prior year period. Non GAAP net loss for the Q1 of 2024 was RMB83.8 million as compared with RMB25.8 million for the prior year period. Non GAAP net loss margin was 10.3% as compared with 3.4% for the prior year period. Non GAAP net loss attributable to Jesin's ordinary shareholders for diluted ADS for the Q1 of 2024 was RMB0.78 as compared with RMB0.24 for the prior year period.

Speaker 3

As of March 31, 2024, we had cash, restricted cash and short term investments of RMB1.89 billion as compared with RMB2.08 billion as of December 31, 2023. Net cash used in operating activities for the Q1 of 2024 was RMB121 point 8,000,000 as compared with RMB20.2 million for the prior year period. Looking at our business outlook, for the Q2 of 2024, we expect our total net revenues to be between RMB800 and RMB58.6 million and RMB901.5 million, representing a year over year increase of approximately 0% to 5%. These forecasts reflect our current and preliminary views on the market operational conditions, which are subject to change. With that, I would now like to open the call to Q and A.

Speaker 3

Operator?

Operator

We will now begin the question and answer session. The first question today comes from Maggie Huang with CICC. Please go ahead.

Speaker 4

This is Maggie Huang from CICC. I have two questions. My first question is about our strategy for the coming June 18 Shopping Festival. And also, do we have a target growth rate, respectively, for our skincare and also Kyla Cosmetics brands? That's my first question.

Speaker 4

And my second question is regarding our selling and marketing expenses ratio. The management have mentioned that we increased our investment in brand equity building in Q1. So what is our plan to allocate our expenses between such kind of branding and online traffic acquisition? And how should we expect the change of this expense ratio for the whole year? That's my 2 questions.

Speaker 4

Thank you.

Speaker 3

Thank you for your questions. Let me try to answer your first one. Well, this well, in the last 1 or 2 years, the major shopping festivals, online shopping festivals in China, their influence has gradually come down. Brands, owners or manufacturers like us are relying less and less on those shopping vessels in terms of our sales growth. But that said, we're still making our efforts to try to sell more of our products during those festivals.

Speaker 3

And this year, the 6 18 festivals actually is a bit different from the previous year. So this year, the festival started May 20, but it's going to last a lot longer than the previous year. So it's so hard for us to tell what the performance ourselves on that festival this year will be. It's going to take us some more time to be able to tell that. And you also asked about our growth rate forecast for skincare and color cosmetics.

Speaker 3

Unfortunately, we're not providing that kind of growth forecast except for our guidance for the sales for the Q2. And your second question, our selling and marketing expenses, the split between branding and traffic. Well, it really depends on how our actually new product launch performed. So we're currently trying to control or make better use of our selling and marketing expenses. And as you can see in Q1, in our selling and marketing expenses were a bit higher compared to the previous quarters.

Speaker 3

And we are actually taking measures, decided to take it down and to make sure that we become profitable in the near to mid term.

Speaker 4

Okay, I got it. That's very helpful. Thank you very much. And I have no more questions.

Speaker 3

Thank

Operator

you. This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks.

Speaker 1

Thank you once again for joining us today. If you have any further questions, please feel free to contact us at yafengdirectlyor@cfb. For content information for IR in both China and the U. S. Can be found in today's press release.

Speaker 1

Thank you. Have a great day.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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Earnings Conference Call
Yatsen Q1 2024
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