Yatsen Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 21, 2023

There are 5 speakers on the call.

Operator

Ladies and gentlemen, good day, and welcome to the Yat sen Third Quarter 2023 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Irene Lu, Vice President, Head of Strategic Investments 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 are intended to qualify for the Safe Harbor from liability 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 could affect Yaxin's business and financial results During today's call, management will also discuss certain non GAAP financial measures for comparison purposes 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. Joining us today on the call from Yatra's senior management team Mr. Junfeng Huang, our Founder, Chairman and CEO and Mr. Junghao Yang, our CFO and Director.

Speaker 1

Management will begin with prepared remarks and the call will conclude with a Q and A session. As a reminder, This conference is being recorded. In addition, a webcast replay of this conference call will also be available on Yatin's I will now turn the call over to Mr. Zingdong Huang, please go ahead, sir.

Speaker 2

Thank you, Irene, and thank you, everyone, for participating in Yaxan's 3rd Quarter 2023 Earnings Conference Call today. In the Q3 of 2023, China's beauty industry Remained in the mild recovery phase that began as the country emerged from the pandemic earlier this year. According to the National Bureau of Statistics of China, total retail sales of consumer goods Grew by 4.2% year over year and the total beauty retail sales increased by 2.6% year over year, both representing a deceleration in year over year growth rate from the 2nd quarter. Online beauty sales showed a similar pattern in the 3rd quarter. For both color cosmetics and skincare, Combined total sales on Tmall and Sowin recorded a slower growth rate than in the Q2 of 2023.

Speaker 2

Amid uncertainties in consumer demand, Yat sen remained committed to its strategic transformation plan. We continuously strive to build strong brand equity based on superior quarter performance and consumer satisfaction. For the Q3 of 2023, we recorded total net revenue of RMB718.1 million, In line with our previous guidance, net revenue for our skincare brand declined by 4.1% year over year, mainly attributable to our strategy decision to phase out the Abby's Choice Our clinical and premium skincare brands, including Galenic, Doctor. Wu and Yiflon Delivered another solid performance, recording 7.4% year over year growth in combined with net revenues And further increasing GAAP contribution to total net revenues as compared with the prior year period. Net revenues from Color Cosmetics Brands decreased by 21.5% year over year, primarily due to the decline in proprietary sales as a result of the timing of new product launches near the end of the Q3 and the closure of underperforming offline stores.

Speaker 2

The number of Perfect Diaries offline stores totaled 123 as of the end of the 3rd quarter Compared with 198 a year ago, net revenues from Littu Aungding and PingBear Continued to grow as both brands raise their brand awareness among targeted consumers. Yesen's gross margin improved to 71.4% in the 3rd quarter from 58.9% in the prior year period. Due to the rising contribution from higher gross margin skincare brands and ongoing cost optimization across our brand portfolio. Net loss and the non GAAP net loss margin expanded to 27.6% 80.1%, respectively, as we increased investment Turning now to our brands and products. During the Q3 of 2023, we repositioned the Private Diary brand, Carrying now a series of campaigns with the refreshed visual identities and new product launches.

Speaker 2

The brand's new hero product, BIOLIEF Essence Lipstick leverages our exclusive BioLeap Technology, which creates a bionic sebum film Upon application to protect the lead fragile skin barrier, BIOLET's strong efficacy In lead line reduction was validated by the prestigious Regine Hospital and the SGS testing agency. Our 2 other color cosmetics brands, Little Onggy and Pin Bear, both formed co branding partnership With popular IPs that deeply resonated with young consumers. For our skincare brands, We continued to engage deeply in brand building, further cultivating each brand's distinctive audience. Galanique marked its 45th anniversary with a gala celebration that hosted an era of celebrities, media and scholars in Paris. The brand also officially announced Scientific Research Corporation with Hospital Saint Louis, a well known dermatology hospital in Paris and established Glyonic Dermatology Research Foundation.

Speaker 2

In addition, Doctor. Wu celebrated its 20th anniversary. Its reputation as a high quality clinical brand And a pioneer in the use of mandelic acid continued to strengthen as the brand was honored at Asia's leading magnetic based skin care brand, Biomonitor, the world's top independent provider of Market Research and Industry Analysis. Furthermore, if long introduced renowned Singer and actor, Xiaozhan, as its brand ambassadors to increase brand awareness and establish a broader customer base. Moving on to R and D.

Speaker 2

R and D expenses as a percentage of revenues were 3.4%. In September, Yesen and the Galenic Brand attended the ISSEC Conference in Barcelona, Thanks, Andrew presented a scientific paper on the brand's patent snow algae peptide. At the conference, Galanique also announced that it has entered into strategy cooperation with the global peptide leader, Lupizou to jointly research new ingredients, collaborate on anti aging product research And expand Yat sen's open lab research and development boundaries. Before handing the call over to Donghao, I would like to provide an Our share repurchase program. As announced earlier today, our Board of Directors has approved And authorize a change to the size and term of our share repurchase program, increasing the Aggregate value of shares that may be repurchased under the share repurchase program from $150,000,000 to $200,000,000 and extending the Effective term of the share repurchase program through November 19, 2025.

Speaker 2

This further demonstrated our confidence in Justin's prospects. To summarize, China's 3 d market is still in the process of a modest recovery this year. Looking forward, We will continue to adapt flexibly and are confident in our resources and ability to advance our strategic transformation plan. With that, I will now turn the call over to our CFO, Zonghao 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 Total net revenues for the Q3 of 2023 decreased by 16.3% to $718,100,000 from $857,900,000 for the prior year period. The decrease was primarily attributable to a 21.5% year over year decrease in net revenues from color cosmetics brands Combined with a 4.1% year over year decrease in net revenues from skincare brands. Gross profit for the Q3 of 2023 decreased by 13.3% to $512,800,000 from $591,300,000 for the prior year period. Gross margin in the Q3 of 2023 increased to 71.4% from 68.9 percent for the prior year period.

Speaker 3

The increase was driven by 1st, Increasing sales of higher gross margin products from skincare brands and secondly, more disciplined pricing and discount policies And thirdly, cost optimization across all of our brands' portfolios. Total operating expenses For the Q3 of 2023 decreased by 13.1 percent to 700 and $44,300,000 from $857,000,000 for the prior year period. As a percentage of total net revenues, total operating expenses for the Q3 of 2023 were 103.6 as compared with 99.9 percent for the prior year period. Procurement expenses for the Q3 of 2023 were $56,000,000 as compared with $63,800,000 for the prior year period. As a percentage of total net revenues, fulfillment expenses for the Q3 of 2023 Increased to 7.8 percent from 7.4% for the prior year period.

Speaker 3

The increase was primarily attributable to the deleveraging effect of lower net revenues in the Q3 of 2023. Selling and marketing expenses for the Q3 of 2023 were 511,700,000 as compared with $564,800,000 for the prior year period. As a percentage of total net revenues, selling and marketing expenses for the Q3 of 2023 increased to 71.3 percent from 65.8 percent for the prior year period. The increase was primarily attributable to increased investments in the Perfect Diary brand upgrades and preparation for the Double 11 Shopping Festival. General and administrative expenses for the Q3 of 2023 for $151,800,000 as compared with $194,500,000 for the prior year period.

Speaker 3

As a percentage of total net revenues, general and administrative expenses for the Q3 of 2023 decreased to 21.1 percent from 22.7% for the prior year period. The decrease was primarily attributable to a reduction in compensation corresponding to a decrease in general and administrative headcount. Research and development expenses for the Q3 of 2023 were 24 point 7,000,000 as compared with 33,900,000 for the prior year period. As a percentage of total net revenues, Research and development expenses for the Q3 of 2023 decreased to 3.4% from 3.9% to the prior year period. The decrease was primarily attributable to our efforts Loss from operations for the Q3 of 2023 decreased by 12.9% to 231,500,000 from 265,700,000 for the prior year period.

Speaker 3

Operating loss margin was 32.2% as compared with 31% for the prior year period. Non GAAP loss from operations for the Q3 of 2023 increased by 1.2% to 164,600,000 from 162,600,000 for the prior year period. Non GAAP operating loss margin was 22.9% as compared with 19% for the prior year period. Net loss for the Q3 of 2023 decreased by 6.1% to 197,900,000 from $210,700,000 for the prior year period. Net loss margin was 27.6% as compared with 24.6 percent for the prior year period.

Speaker 3

Net loss attributable to Yasen's ordinary shareholders For diluted ADS for the Q3 of 2023 was 0 point 36 as compared with 0.37 for the prior year period. Non GAAP Net loss for the Q3 of 2023 increased by 3% to 130,200,000 from RMB126,500,000 for the prior year period. Non GAAP net loss margin was 18.1% as compared with 14.7% for the prior year period. Non GAAP net loss Attributable to Yatin's ordinary shareholders for diluted ADS for the Q3 of 2023 As of September 30, 2023, we had cash, restricted cash and short term investments of RMB2.24 billion as compared with RMB2.63 billion as of December 31, 2022. Net cash used in operating activities for The Q3 of 2023 was $163,400,000 compared with Net cash generated from operating activities of $21,800,000 for the prior year period.

Speaker 3

Looking at our business outlook for the Q4 of 2023, we expect our total net revenues to be between RMB1.01 billion RMB1.06 billion representing a 0% to 5% increase year over year. These forecasts reflect our current and preliminary views on the market and operational

Operator

Yes, thank you. We will now begin the question and answer session. And the first question comes from Manqui Huang with CICC.

Speaker 4

Well, thanks for taking my question. This is Maggie Huang from CICC. I have two questions. The first It's regarding the new products of Perfect Diary. We've seen the launch of Bio Lip Essence Lipstick and also foundations in Q3.

Speaker 4

So is there any feedback we've got from the customers? And how should we expect on their performance in next year? This is for the first question. And my second question is about our guidance. We've guided a positive revenue Growth for Q4, which is an encouraging signal.

Speaker 4

So behind this guidance, could management give us more color On your expectation for both skincare and color cosmetic sectors in Q4 and like what are the key drivers for us to achieve that goal? That's my questions. Thank you.

Speaker 1

So, yes, thank you for the question. Let me take the first one. For Perpet Direct's new lipstick launch, which is the Bio Essence Lipstick, after it launched In end of September, we have received very positive feedback from our users as they enjoy very strong advocacy from the listing. Basically, our philosophy is to have a very perfect makeup look combined with in level efficacy Benefits from the lipstick. So that's number 1.

Speaker 1

And then secondly, the user profile also started to shift After our brand upgrade and also the new launch, historically, our consumers are most like mostly Gen Zs And also young consumers from the lower tier cities, but then after we launched this new product and the brand operates, Given that our price point starts to increase and with new low end benefits, we start to see more High value consumers coming to buy our lipstick, including, for example, the sophisticated And also the upper middle class. And also since the launch, we have seen very positive Ranking performance on both Tmall and Douyin. So the launch of this Mystic was only at the end of So, I haven't really contributed much of the Q3 performance, but in Q4 and Double 11, we continue to see this product to gain market share.

Speaker 3

Yes. And your second question, I think Irene has already covered part of the answer to your question. We launched our new product for Pottery towards the end of mid to end of September Q3 and the Sales contributions from those new products were started to show on our P and L starting in Q4. So that's one reason. One other reason is Q4 has traditionally been a strong season for Our skincare products and if you look at our skincare products and The main 3 main skincare brands have been growing really fast in the past many quarters and we are expecting strong growth from those skincare brands.

Speaker 3

So, in all, with the slowdown of the decline, Sales decline of the Dairy brand and strong growth from those other skincare brands. That's why we are expecting a strong quarter in Q4. And therefore, we gave the guidance of 0% to 5% year over year Growth, as you know, in the past almost 2 years, the sales of the company have been Declining and hopefully that decline has bottomed out and we do expect our sales to

Speaker 4

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

Operator

Thank you. All right. This concludes the question and answer session. I would like to turn the call over to Irene Lu for any closing comments.

Speaker 1

Thank you once again for joining us today. If you have any other further questions, please feel free to contact us at Yat sen directly We're at PSM Financial Communications. Our contact information for IR in both China and the U. S. Can be found in today's press release.

Speaker 1

Have a great day. Thank you.

Operator

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

Powered by Quartr

Key Takeaways

  • Yatsen reported Q3 net revenue of RMB718.1 million, down 16.3% year-over-year, as skincare sales fell 4.1% and color cosmetics declined 21.5%, while premium skincare brands Galenic, Doctor Wu and Yifon together grew 7.4%.
  • Gross margin improved to 71.4% from 58.9% a year ago, driven by a higher mix of margin-rich skincare products and cost optimizations, though GAAP net loss margin widened to 27.6% (non-GAAP 18.1%) due to increased marketing investments.
  • Perfect Diary underwent a brand repositioning with the launch of its BioLeap Technology “BIOLEAP Essence Lipstick” in late Q3, receiving strong early user feedback and attracting more upper-middle-class consumers.
  • Yatsen strengthened its R&D capabilities, with Galenic presenting a patented snow algae peptide at the ISSEC conference and entering a strategic partnership with peptide leader Lupizou to co-develop anti-aging ingredients.
  • The board expanded the share repurchase program from $150 million to $200 million through November 19, 2025, and provided Q4 guidance of RMB1.01–1.06 billion in net revenue, implying 0–5% year-over-year growth.
AI Generated. May Contain Errors.
Earnings Conference Call
Yatsen Q3 2023
00:00 / 00:00