- Earnings call transcript Q3 2022

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Operator

Ladies and gentlemen, good day, and welcome to the Yatsen's Third Quarter 2022 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Irene Lyu, Head of Strategic Investment and Capital Markets. Please go ahead.

Irene Lyu

Thank you, Operator. as today performance, forward-looking qualify and Safe from discussion the relating for that U.S. Harbor future the company's are liability, note will statements contain to the Please by established intended to Private Securities Reform Litigation Act. performance, statements to are and factors. certain Such assumptions, subject uncertainties, and of and not guarantees other are future risks

Yatsen's filings to business company the of today's Exchange actual in differ information, materially and discussion from of are financial obligation the results required risk beyond A The this to Some the update and company's is Securities control, discussion. mentioned of could included certain results in press as does that these Commission. risks and release this could affect cause any law. factors except those with the undertake forward-looking not company by and general

and During Please today today's purposes a non-GAAP comparison certain call, issued discuss to earlier release measures also reconciliation management measures of for non-GAAP for financial non-GAAP financial will a see definition of results. earnings GAAP the only. financial

call prepared will on Q&A and Chairman are Founder, team Jinfeng us Mr. Mr. the today and begin management senior a our from CEO; will with Yang, Management Yatsen's our Huang, Director. and Donghao conclude CFO with remarks, call and Joining session. the

reminder, a conference this As is recorded. being

a go Please I now Huang. turn will webcast call will over Relations ir.yatsenglobal.com. at Mr. be sir. this Jinfeng addition, replay In conference Investor the of site available on Web Yatsen's ahead, to call

Jinfeng Huang

evolve team drive and strategy With outlining strategy model. conference our Irene, launching five-year year today. plans target the participating business fine-tune management growth. Yatsen's continued to We by the you, in third quarter Thank thank our call sustainable our XXXX the earnings you roadmap, and this for and to everyone a as long-term business our started

the in by and the impacted market XXXX. third softening recorded growth quarter the of solid COVID-XX, Skincare our beauty Brands negatively of resurgence Although

quarter account loss, loss of to slowdowns macro of retail third which Overall, by plan. have experience down third spending, margin, Beauty third and on resurgence cosmetics [Ph] exasperated non-GAAP the X.X% our XXXX seen published as COVID-XX. sales our according We color by products National XXXX Statistics. the of and extending double levels quarter second in both the of of the sales by continued gross in on the fell the XXXX. went downward Sales Tmall of optimization result have improvements XXXX digits year-over-year [latest] of in trend lower year-over-year China in consumer challenging by Bureau net of the data of a net skincare also quarter cost of been and headwinds to quarter in

Our revenue the year-over-year third total XX.X% high net RMBXXX.X end for the guidance. by of meeting XXXX million, of to quarter our revenues declined

Brands our this detail. DR.WU, a revenue net at as look year-over-year growth [Ph] solid our Skincare Let's [XX%] brands, from Lom, delivered Net premium revenues by mix highlight, total XX% revenues of RMB increased fast-growing year-over-year to and in quarter. GalÃnic the million, clinic and Eve of XXX.X

XX.X% contributed third quarters, net Skincare for [Ph] [XX.X%] with total revenue of compared of revenues third has In terms total of net which for revenues consecutive XX% of two Brands quarter of total contribution, revenues for of our the XXXX. the XXXX, net exceeded quarter

portfolios. international and continued for demand to policies XX.X% quarter Cosmetics hand, higher both the to total decline softness stricter across Brands, optimization, market third in for intensified Brands, and domestic as products for our margin brand year-over-year well a of XX.X% saw increased Gross from pricing cost revenues of the due the and by the XX.X% reflecting XXXX of [RMBXXX.X one sales million] industry Skincare other our from third competition cosmetics quarter increased as from margin discount color point [Ph], to brands. growth Color Our in percentage our on all the net of XXXX,

the was third XXXX, or margin period. from second the XX.X% an X.X representing loss the net of quarter percentage Our prior percentage improvement of points quarter year XXXX, in points of from X.X

of was Our percentage margin cost second non-GAAP our of improvement XX.X% the points in quarter XXXX net the loss attributable third an representing continued prior-year XXXX, period. X.X percentage The optimizations. of is quarter or from points the to improvement X.X from

XXXX, which technology achieved its with their celebrated [Ph] who iconic sensitive Now, on especially China, triple-action anniversary our initiatives the brand's efficient in with or evolving Serum] needs proven the loyal and products WU portfolio And Lom share the XX [exposed] recently high-performing we new skin [Repair environments. for [Ph]. and with of efficacies Eve were In active and third industry quarter I major of skin the the quarter's repair across the developing products strengthening seek business growth Chinese tailored those some [styles] challenging will designed despite our developments. the types. DR. launched consumers' teams brands with to of infused customers [Ph], robust

quarter GalÃnic launching partnered category remained experience [indiscernible], growth Retinol While in strong the to to cultivate Shanghai, a in a with recorded we cleanser online world-leading category, XXXX. the the strong brand for Serum. September, and of in the In a Repair by Radiance [Ph] expanded also luxurious premium third [celebrated] serum Eve very brand. Lom

number stayed premium quarters gained the and two Ondine. in category, share have serum more one consecutive market for We

industry premium maintained amplifying raised dermatological of its attended of skincare leading of steady serum While the the in the the serum sphere. experienced our leaders, quarter XXXX in in position, Secret experts the third active Secret also leadership and D'Excellence launch quarter its and brand, awareness [hero The growth VC active D'Excellence third XXXX. the was thought the serum] by [Ph] of

business growth year-over-year experienced aggregate. a of XX.X%, our Color Cosmetics improved saw While in we decline margin

improvement achieved promotion achieved number ranked Perfect Brands another model. year. of Ondine year-over-year Brands, from all Our to ranking sales control among Color Color Cosmetics and it number through growth sustainable XX%, went optimization develop Diary channel strong three business and two last

throughout result. a stores underperforming closed as XXXX also have We offline

beginning we experience the constantly XXXX, reduction monitoring representing XX, of total brand, XXX offline year. In September space store to our the moving since offline the XX of support situation net of better the will of of the market a and are operated quarter, brand program continue, we Perfect stores stores retail the Diary optimization As these of forward. fourth a strategies

an product. market addition quarter. in also gained Tmall compared market optimization, Loose to the the that our addressing In more channel we the Diary's Blurring to makeup increase anti-dullness on category and to in are in last in to Translucent [compassion] Perfect technology, category efficacy product Powder, facial adds and mix share addition upgrade share SmartLOCK original [Ph] loose

applied newly Concealer Clear expand the it also to facial patented Cover to an this technology attempt We categories. other X-color launched Palette as to

are debuted Federations healthy a R&D. expenses September. of robust Chemistry at investments product increased Our International and technologies, the backed Cosmetics R&D by prior-year to X.X% the with from period. new in in revenues launch continuous of net We in X.X% pipeline Congress of cutting-edge Societies two

R&D We efforts as build growth. for a future strategy core strong will our our capability continue to

township's in and social, We infrastructure. are the commitment Guangdong technology of of quarter our the the government [indiscernible] help also located governance donated environmental, constantly of Yatsen to reminded XXXX, third the projection information province to and equipment improve the computers of to In program. importance our

and actively corporate to support initiative to future. social to challenging the of will our involved take continue in in contribute assume elevating are quality life responsibility and of those We the circumstances, the in more

environment we meet first of objectives. have While challenging XXXX for strategy expect the sufficient we and to the the of remain to our retail for XXXX, rest half resources

third growth. saw year, performance this the WU category outstanding category in strategy from acne high In WXX Lom made our and gross evolutionary journey. place significant Eve Tmall. narrowed have achieved premium of quarter got [not XXXX. Galénic brands. brand, margin, we progress loose] first on and respectively year-on-year skincare Shopping sales our contribution With Festival we serum digit in the control [indiscernible] During [Ph] in our DR. significantly skincare improved already summary, and in cleaner triple higher the

investment strategy of sufficient that, financial goals. now we restricted billion in you, end Yang call RMBX.X this the to Donghao everyone. will With flexibility CFO, pursuit the performance. and discuss the Thank I of to balance at With and cash, our short-term long-term our over quarter, of have resources turn cash our

Donghao Yang

David, and everyone. Thank you, hello,

to margin in by million margin of RMBXXX.X XX.X% million quarter the RMBX.XX a period. year increase increased was decrease a prior to Gross quarter all Before financial Renminbi all unless XX.X% primarily the decreased percentage the are in quarter for in RMBXXX million brand The from otherwise our Gross Total profit in noted. for percentages period. across XXXX in year would for from revenues third color prior pricing XX.X% from operating RMBXXX.X third like RMBX.XX to from the -- of products XXXX brand. to from amount, skincare third by our started, our by of XXXX year-over-year period. Total of increase of million decreased RMBXXX.X the third clarify gross offset period. brand, I policies revenues sales the the prior revenues driven in increased was year and all numbers of that skincare net presented from optimization, the higher today to XX.X% discount net attributable cost all by year prior The cosmetics I for billion from changes and partially and our changes get referred by expenses decreased primarily XXXX stricter portfolios. quarter decrease to brands, XX.X% XX% net billion to in XX.X%

the revenue, in for quarter the were XX.X% million as with of prior in XX.X% of a Fulfillment period. the XXXX as RMBXXX total prior RMBXX.X compared for million operating third total net percentage expenses year with year period. of compared were expenses quarter As the third XXXX

XXXX with was As our due Selling prior of net the the for The decrease cost logistics the of were quarter RMBXXX.X attributable prior to to fulfillment optimization quarter XXXX a and third in from million RMBXXX.X the compared primarily expenses in of the expenses and marketing year for year warehouse third capacity. as in period. of period. million procurement decrease X.X% revenues, X.X% percentage to total a decreased

for the As of in quarter administrative prior a online for RMBXXX.X XXXX primarily to million the prior the of from expenses attributable year and and higher percentage efficiency and XX.X% store XX.X% closer with provision. decreased marketing partially compared in of decrease marketing as XXXX selling quarter total was third net expenses were expenses million period. year third RMBXXX.X revenues, to The the General by period. activities related of offset the

total quarter general to prior of XX.X% XXXX to expenses third administrative of and attributable for increase for compared and percentage the period. primarily as million lower period. the prior with net of RMBXX.X a Research quarter development revenue in in low was year third XXXX, creating RMBXX.X base million XXXX third in the the the expenses increased The effect. total from XX.X% a was the revenue, As net year of

revenue, quarter As compared for loss quarter in a as the loss as year Net prior operating RMBXXX.X to XX.X% low net RMBX.XX the by from of year from for period. XX.X% increased RMBXXX.X compared was of period. expenses the primarily attributable in the prior to compared decreased quarter period. to million loss operations to compared million XXXX loss from XXXX in XXXX for period. increase with to the prior ordinary loss period. Non-GAAP quarter XX.X% the quarter shareholders creating X.X% third revenues net RMBX.XX loss percentage RMBXXX.X the attributable the Non-GAAP of XX% prior to of period. lower XX.X% prior was year was million XX.X% was million prior the shareholders compared Operating year year for decreased the XXXX net margin the total the decreased RMBXXX.X margin of XX.X% Non-GAAP period. XXXX by in in was in million period. prior RMBXXX.X in of the in third RMBXXX.X million third third Yatsen's RMBXXX.X the third prior diluted with was ADS third Loss by prior and research as the year for attributable for per loss XX.X% with RMBXXX.X to for year with total million XXXX loss million ADS in RMBX.XX as with with operations a The net in year period. quarter year margin effect. from decreased X.X% Non-GAAP development Non-GAAP the XX% year XX.X% was prior to loss the ordinary per by third quarter prior in bases compared third XX.X% Net RMBX.XX quarter margin year period. diluted the Yatsen's as XXXX of as from from Net period. XXXX from in the XX.X% of of net the

and XXXX, cash with used had As the of Net RMBXX.X December of XX, period. of restricted quarter from was cash, prior company the in billion of RMBXXX.X September XXXX. cash, activities compared investments for RMBX.X as of net generated in XX, XXXX operating as with activities million operating the RMBX.XX third million year billion short-term compared cash

at quarter and the This be revenues RMBX.XX XX%. to and and operational that, are our preliminary to to which forecast to open of I current market the a to fourth Looking now RMBXXX.X like business subject total for we With net million our views our outlook billion approximately the year-over-year decline reflects of XX% conditions would change. of Q&A. expect between representing XXXX, call

Operator

Morgan first And from question Instructions] Dustin with Stanley. Wei [Operator you. thank Yes, comes today's

Dustin Wei

questions. my taking for Thanks

management to in related because the lower do by expect by major to third and it that little performance is management's provide key the the the the quarter, to Color do? strongly. comment or the from the Brands of the GP Skincare margin little the skincare and First of some you question for fourth to sequentially Brands excluding related be wondering versus promotion the quarter Choice, more Brands more terms maybe the perspective, sounds performance. second performance or a performance the in terms or question their of of different in could three Abby's WXX? And quarter of strategy Brands. range And And like, I'm Skincare brand of performed for is there a if can WXX progress? performance we kind other a of something expectation is the elaborate a brands ahead in Skincare the But pretty

Jinfeng Huang

Thank you.

Skincare of Lom, achieved right First and each results, now, the WXX question our brands. with DR.WU for Brands; WXX sales GalÃnic, for growth in the for [indiscernible] robust Eve

performing of the So, well. quite each of of some products hero brand the are

year-on-year triple-digit I also has as WXX. GalÃnic achieved for a brands think the Tmall the and top of high sales growth, new

already the high one growth. that And so, now a imported Eve triple-digit year-on-year a essence And cleanser for pretty the the VC also, for D'Excellence continued serum, And is Lom also product, to Secret new and launched becomes strong control the still [indiscernible]. serum, taking DR.WU, category. number it's right Serum premium we the acne also sales category. in the Renew

the top DR.WU performing four And some are of the new serum Tmall. repair products is of on repair the ranking especially really serum at well; triple-action

of looking the improving brands So, our contribute some forward, future. -- Brands of revenue the the to I aggregate, that and, percentage in total Skincare think the help of the the of the of hero in growth products will revenue the

been pretty now a well, turnaround. Brands Color Color Perfect right our Cosmetics, a undergoing big I still And challenge. For think facing Diary has are also

brand protecting the those image. we well and and profitability, growth improve in pricing profitability very across Color policies prioritize margin we the as also order as to the improve So, applied strict all discount and Brands

for on also bottom gross right are to the forward trend the QX, margin, looking So, and the I continue optimizing line. we think

Donghao Yang

and mix, what your has total percentage skincare and lot tell position second question, things. category gross over a trend. to gross the be stronger higher you to will Well, the do long-term, in provision, the the mix, long-term, Well, business and margin comment with margin in upward a we're margin we QX. And product the But on gross in on grows gross is, take lot a our the of I in not as an can inventory make margin. believe,

Dustin Wei

the I Can and you. the one to related thank question more it, ask restructuring. Got expenses

like those like update the that won't we this on that the of And like into on the expect so the now, closure can we or can closure, severance store we full-year quarter focused or et costs expenses will kind you sort some of resource, understanding one-off continue do done environment? an on year XXXX? the optimization, year organization or likely status those including see of of depending XXXX much this share one-off So, human the have number the that pretty cetera, been macro is be costs terms exercise like, has year-to-date, company there one-off in fourth store in in that will costs, for some

Donghao Yang

right. All

we caused due [indiscernible] So, challenges of aggressive pretty especially number mostly closing macroeconomic by the COVID-XX. in store in the have been situation, to our

So, year, expenses it -- breakdown to the the have to at expenses going we're more the But after this -- loss incurred substantial. level. reduced over XXX we've stores. we We XXX stores to beginning the of quite have if provision this well, think close this a stores. little in don't plan, or Well, because total a incur number year, store expenses to we're end of than into But call. you I the going to substantial including next in according stores a or a the terms self-operated manageable current and of during been has that about franchise by XXX of to stores, going I have think with we can process, substantial the provide very due year, closure-related now, our want

Dustin Wei

Got my a questions. for it. lot Thanks answering

Donghao Yang

you. Sure, thank

Operator

[Ph] from the Yu comes CICC. Thank you. And next Lin] question [Quan with

Unidentified Analyst

taking my and Hi, questions. for got questions. I've two thanks

seems quarter. Cosmetics The Color keeps each regarding sales that Cosmetics. first Color decreasing one of It

cosmetics as However, the still well brand asset competitive PD. in company's we in believe as edge color of the

or So, guidance question question. return the the sales growth? at what will to size related And expect is fourth is do what my Color Cosmetics first quarter. second to the this management time So, for

and cosmetics category? the by put net to by Thanks. down to in Could of the it fourth more to elaborate quarter. expected decrease just skincare, is So, you revenue XX% color the the total trend XX% about like

Irene Lyu

sure. Yes,

the Color can three Cosmetics, actually is the year-over-year -- or So, decline in in the a in you the quarter see for for similar scale. total, Diary, -- past Perfect

So, Diary, key doing not now stable is And Perfect changing, the now. in achieve a we're then, actually profitability. right terms it's goal we're what by more trend for of to

we're channel going on on undergoing do earlier is now we are right because to we in optimization, the a how we right And we decline, And is so channels, one can terms challenging now. have of think think product channel one, that to the of likely optimization. environment, end all major terms to the of offline, are for Douyin. two that So, will year. that, the category that the second is number will the dropping plans closing this there of One and we're down mix, but also online that are then secondly, in of macro channel contribute stores stabilize by the see sales Color Cosmetics alluded you

So, to also -- and on Douyin doing growth heavily the promote customers. we're new investing heavily attract

the So, for Douyin year-over-year part. how Douyin to so XX%, hope we're quarter, experienced to increase our has well this and a on comfortable do of continues that's pretty

on used So, market our actually that's complexion in increase that Diary share. also channel on the eye that's we a category. terms tap -- to also category very facial market the share But and to about have the and optimization. and larger lip Perfect of be makeup, high And optimization, product we very need in think market

call, of are the as endorsed right, in in our technology, which complexion quarter-over-quarter are we mentioned share a are facial our introducing by market seeing So, makeup. SmartLOCK of products number increase conference we

think more likely trend a turnaround turn I So, and brand help driver year. into Perfect healthy will Diary's that's another next

Donghao Yang

we decline our business. for our our revenue to business about primarily the decline guidance Well, by XX%. your XX% is skincare our by of are fast And, offset color second guiding come market regarding that cosmetics Yes. from growth will the QX, to question going total

growth the color trend especially general working skincare business. And fast in to very will to business. and our very are cosmetics at we our the our healthy in category try of be meantime, around future the business hard So, mix turn

Unidentified Analyst

other it. a questions. Got lot. I no There's Thanks no have --

Donghao Yang

Thank you.

Operator

Thank Tong question from our next Raymond you. And [Operator James. comes with Olivia Instructions]

Olivia Tong

'XX, you how wanted ask view I the that on you to your with brand QX a the stack on year? competitive specifically as to for morning. on two-year up, in sales also they your XX.XX? suggest it's would Good sales. then next And about about starts deceleration greater guide thoughts And into brand, particularly deceleration versus go you a international revenue that Thanks. environment Great. then the stack local basis fiscal --

sort is you about XX as next So, go as something think you now, steady 'XX? the into over months, that or a state of fiscal Thank changes go-forward your the in pace there you. that materially view

Jinfeng Huang

growth I market think already even for Well, zero beauty sometimes declining. right now as the the total almost is while -- market the

at year last intense. and that's normal looking this international Though So, the continues year. since players, in [indiscernible] will whole the for -- also the be to WXX competition [indiscernible] But the market.

brands platform. So, three in on domestic the years, the I think [indiscernible] especially two kept that new front emerging or challenge fast-growing has past industry [indiscernible]

be So I focused of on will the strategy instead we for us, our competition. on think external more focus

very to grow So, right now our strategy our a we turnaround portfolio and clear color business. have the skincare to also in brands

the would profitability be So, the skincare And be will priorities. also, brand priority.

are executing look continue to we forward I will think we when the forward. move consistently and also we strategy So,

expect in future well. strategy clear We very as the

Donghao Yang

our One, which have reasons. into next And our for do Yes, very second don't believe as well decline will But in into of skincare next this provide I anyway, number will rate be for about next question think our the all, growth well, year time the guidance XXXX very we growth we I well, our think working good not deep And we got secondly, color and year's any some we horizon -- cosmetics effort. first of beyond in been hard positive turnaround outlook, your signs year. to our business. as have very seeing for in business we quarter. it continue strong are

trends from start our of had growth you think our I positive, to year our think two if if these overall next stabilize, will consider business rate -- turn together, year-over-year So, a I not standpoint.

Olivia Tong

you so much. Thank

Jinfeng Huang

you. Thank

Operator

closing for back comments. the over question-and-answer would to session. turn concludes management you. the any that Thank to conference I And like

Irene Lyu

joining Thank you for today. us

any at directly further Yatsen to TPG us Investors. please have questions, or our free through feel contact you If

both found press a for day. IR information the today's U.S. and contact Have good can Our in you. China release. in be Thank

Operator

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

You may lines. your now disconnect

Yatsen Holding Limited (YSG) 22 Nov 222022 Q3 Earnings call transcript