Yatsen Q1 2025 Earnings Call Transcript

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Provided by Quartr
May 16, 2025

There are 5 speakers on the call.

Operator

Ladies and gentlemen, good day and welcome to the Yatin First Quarter and 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 Investment and Capital Markets. Please go ahead.

Speaker 1

Thank you, operator. Please note that 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 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 Yatin'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 Yaseo's senior management are Mr. Zhifeng Huang, our Founder, Chairman and CEO and Mr. Dohao 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 being recorded.

Speaker 1

In addition, a webcast replay of this conference call will be available on Yaseong's Investor Relations website at ir.yaseonglobal.com. I will now turn the call over to Mr. Zhu Zhou Huang. Please go ahead, sir.

Speaker 2

Thank you, Irene, and thank you everyone for participating in Yaphan's first quarter twenty twenty five earnings conference call today. I will begin with a macro overview and our key financial results, followed by insights into our key strategic initiatives and operational highlights. Highlight Beauty market saw a modest growth in the first quarter of twenty twenty five. According to the China National Bureau of Statistics, beauty retail sales rose 3.2% year over year, slightly trailing the 4.6% year over year growth in total retail sales of consumer goods. Online Beauty sales reflected a similar trend.

Speaker 2

Combined Beauty sales on Q1 and Douyin recorded low double digit year over year growth, with the Women's Day shopping festival delivering moderate performance. In terms of channels, Douyin outperformed Tmall in both skincare and the color cosmetics categories. Despite a soft market environment, we delivered results in line with our guidance. Total net revenues increased by 7.8% year over year. Remarkably, our net revenues from skincare brands rose by 47.7% year over year, driven by a 58% year over year increase from our clinical and the premium skincare brands, including Glynique, Doctor.

Speaker 2

Wu and Yvelon. On the profitability front, for the first quarter of twenty twenty five, our overall gross margin increased to 79.1% from 77.7% for the prior year period, driven by the greater contribution from higher margin products. We also reduced our net loss margin by 15.5 percentage points to 0.7% from 15.1% in the prior year through more strategic marketing spending and streamlined general and administrative expenses. Notably, we achieved a non GAAP net income of RMB7.1 million, representing a significant turnaround from the non GAAP net loss of RMB83.8 million for the prior year period. Our solid performance for the first quarter marked another milestone in our strategic transformation, which particular progress on two key fronts, accelerating the growth for our skincare brands and optimizing our cost structure to prepare us for profitable growth.

Speaker 2

Now let me walk you through the key performance highlights this quarter that reflect the accomplishments we have achieved. Starting with skincare, our portfolio continues to show strong momentum, primarily driven by Glenique and Doctor. Wu. Our skincare brands delivered year over year revenue growth of 47.7%. Glyanic saw another quarter of steady growth.

Speaker 2

Its number one vitamin C serum was the best selling product in the premium whitening serum category in often these live streaming room. While the Secret Deacellence Active Cream ranked among the top six anti aging creams on Tmall in terms of retail sales value in the first quarter. The Micro Mask series also contributed to the brand's strong performance. In May, we hosted an offline event in Yunnan, China to officially launch the upgraded rejuvenating micro mask, which recently obtained the special cosmetic registration certificate for whitening products. At the event, we also announced renewed actress, Zhu Ling Chen as the brand ambassador for the mask series.

Speaker 2

We aim to further elaborate that I need awareness and recognition through continued product innovation and targeted marketing efforts. Doctor. Wu also delivered robust revenue growth in the third quarter supported by a broader product portfolio and a more balanced channel mix. We collaborated with a wide range of celebrities and KOLs to promote diverse products, including the purifying renewable essence toner, the Sun Care UV Protest whitening lotion and the newly launched targeted acne cleaning service. This approach help us drive revenue growth on both Tmall and the OE.

Speaker 2

In addition to strong sales performance, we remain committed to scientific research and collaboration. In March, we launched the third Bocawu Acne Research Fund project led by 14 renowned dermatologists from top institutions. Since its inception in 2023, the project has reached over 20,000 doctors and received more than three fifty clinical research proposals. We look forward to the insights this fund will bring to the field of anti acne treatment. While continuing to invest in product development and the brand building to boost revenue growth, we also made meaningful progress in improving profitability.

Speaker 2

Selling and the marketing expenses as a percentage of total net revenues narrowed to 56.4% from 59.7% for the prior year period. The improvement was primarily due to more strategic marketing spending, particularly offset by higher traffic expenses as a result of growing revenue contribution from the Douyin channel. More notably, general and administrative expenses as a percentage of total net revenues were 7.8%, down by 10.3 percentage points from 18.1% a year ago. This improvement reflected our distinct cost management and provide a solid foundation for our long term growth. Lastly, I would like to highlight a few milestones at the corporate level.

Speaker 2

Our global R and D center in Shanghai, which we inaugurated last year was officially accredited by the China National Accreditation Service for conformity assessment, placing it among the top tier of global testing institutions. This accreditation, alongside the CNAs recognition received by our R and D center in Guangzhou back in 2022 demonstrates our continued commitment to excellence in beauty research. Also in April, we were invited by the China show of Bloomberg and engaged in in-depth interview on the topic of the future of beauty driven by technology. This opportunity reinforce our strategic focus on R and D as a core competitive advantage. Before passing the call to Dong Hao, I would like to provide an update that our Board of Directors has approved a new share repurchase program under which we may repurchase up to 30,000,000 worth of our ordinary shares over the next twenty four months commencing on 05/15/2025.

Speaker 2

This further demonstrates our confidence in Yaxen's future potential. To conclude, while market conditions remain complex, we are encouraged by the progress we have made in executing our strategic transformation. We remain focused on delivering innovative and ethical products, building strong brand equity and driving operational excellence, all of which we believe will position us well for long term sustainable growth. With that, I will now turn the call over to our CFO, Dong Hao 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 first quarter of twenty twenty five increased by 7.8% to $833,500,000 from 7 and $73,400,000 for the prior year period. The increase was primarily due to a 47.7% year over year increase in net revenues from skincare brands, partially offset by a 9.9% year over year decrease in net revenues from color cosmetics brands. Gross profit for the first quarter of twenty twenty five increased by 9.7% to RMB659.1 million from RMB600.9 million for the prior year period.

Speaker 3

Gross margin for the first quarter of twenty twenty five increased to 79.1 from 77.7% 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 first quarter of twenty twenty five decreased by 8.6% to RMB693.2 million from RMB758.7 million for the prior year period. As a percentage of total net revenues, total operating expenses for the first quarter of twenty twenty five were 83.2% as compared with 98.1% for the prior year period. Fulfillment expenses for the first quarter of twenty twenty five were $51,800,000 as compared with $51,400,000 for the prior year period.

Speaker 3

As a percentage of total net revenues, fulfillment expenses for the first quarter of twenty twenty five decreased to 6.2% from 6.7 for the prior year period. The decrease was primarily due to further improvement in logistics efficiency. Selling and marketing expenses for the first quarter of twenty twenty five were 5 and $53,800,000 as compared with $539,200,000 for the prior year period. As a percentage of total net revenues, selling and marketing expenses for the first quarter of twenty twenty five decreased to 66.4% from 69.7% for the prior year period. The decrease was primarily due to the company's more strategic marketing spending combined with the selective closure of offline stores.

Speaker 3

General and administrative expenses for the first quarter of twenty twenty five were RMB64.9 million as compared with million for the prior year period. As a percentage of total net revenues, general and administrative expenses for the first quarter of twenty twenty five decreased to 7.8% from 18.1% for the prior year period. The decrease was primarily attributable to lower share based compensation expenses as a result of using the graded vesting period method over the vesting term of the company's awards and lower payroll expenses resulting from a reduction in general and administrative headcount. Research and development expenses for the first quarter of twenty twenty five were 22,600,000.0 as compared with $27,900,000 for the prior year period. As a percentage of total net revenues, research and development expenses for the first quarter of twenty twenty five decreased to 2.7% from 3.6% for the prior year period.

Speaker 3

The decrease was primarily due to lower lease expenses resulting from more favorable terms under a lease agreement renegotiated during the first quarter of twenty twenty five and lower share based compensation expenses. Loss from operations for the first quarter of twenty twenty five was $34,100,000 as compared with $157,700,000 for the prior year period. Operating loss margin was 4.1% as compared with 20.4% for the prior year period. Non GAAP loss from operations for the first quarter of twenty twenty five was $14,900,000 as compared with hundred and $7,000,000 for the prior year period. Non GAAP operating loss margin was 1.8% as compared with 13.8% for the prior year period.

Speaker 3

Net loss for the first quarter of twenty twenty five was R5.6 million dollars as compared with $124,900,000 for the prior period. Net loss margin was 0.7% as compared with 16.1% for the prior year period. Net loss attributable to Yatin's ordinary shareholders per diluted ADS for the first quarter of twenty twenty five was as compared with RMB1.16 for the prior year period. Non GAAP net income for the first quarter of twenty twenty five was RMB7.1 million as compared with non GAAP net loss of $83,800,000 for the prior year period. Non GAAP net income margin was 0.9% as compared with non GAAP net loss margin of 10.8% for the prior year period.

Speaker 3

Non GAAP net income attributable to Yatin's ordinary shareholders per diluted ADS for the first quarter of twenty twenty five was RMB0.07 as compared with non GAAP net loss attributable to Yat sen's ordinary shareholders per diluted ADS of RMB0.78 for the prior year period. As of 03/31/2025, we had cash and short term investments of RMB1.28 billion as compared with billion as of 12/31/2024. Net cash generated from operating activities for the first quarter of twenty twenty five was RMB23.8 million as compared with net cash used in operating activities of million for the prior year period. Looking at our business outlook for the second quarter of twenty twenty five, we expect our total net revenues to be between $810,400,000 and 889,900,000.0 representing a year over year increase of approximately 2% to 12%. These forecasts reflect our current and preliminary views on the market and operational conditions which are subject to change.

Speaker 3

With that, I would now like to open the call to Q and A. Operator?

Operator

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

Speaker 4

Well, thanks for taking my question. This is Maggie Huang from CICC. And firstly, congratulations on achieving non GAAP net income in this quarter. And I have two questions. My first question is that, how do we plan to promote the new products of Perfect Diary and Ganik, especially the foundation products of Perfect Diary and the anti aging products of Ganik?

Speaker 4

And my second question is about our performance of this June 18 shopping festival up to now. Is that in line with our expectation? That's my two questions. Thank you.

Speaker 1

Thank you, Maggie for the question. So for your first question regarding the proper diary and the Glenix new products. So we think product innovation and efficacy are the most important in driving consumers' repeat purchase and then the favorite. So basically, right now, all our product pipeline are really with strong product innovation and are backed by very strong R and D capability, deep consumer insights and the very strong consumer communication. So right now for Perfect Diary and Philhammik, so far we have seen very good initial achievement results from the consumer feedback in terms of the facial makeup products and the anti aging products, which is foundation and also our VA serum.

Speaker 1

So once we receive more positive feedback from the consumers and fine tune our consumer communication, then we can begin to enlarge our channel distribution and also further build into further view this product into the Zero product.

Speaker 3

All right. Let me take your second question. Well, it's still a bit too early for us to predict our overall performance for the June. But so far so good. I think the sales so far is pretty much in line with our expectations.

Speaker 3

Thank you.

Speaker 4

It's very clear. Thank you very much. And I have no more questions.

Speaker 1

Thank you again for joining us today. If you have any further questions, please feel free to contact us at Yat sen directly. Our company information for IR in both China and The U. S. Can be found in today's press release.

Speaker 1

Thank you and 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 2025
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