Yatsen Holding Limited Price & Performance (YSG)

Please note that discussion today will contain forward looking statements relating to the company's and are intended to qualify for the from liability as established by The U. S. Such statements are not guarantees of future are subject to certain risks and uncertainties assumptions and other factors Some of these risks are beyond the company's control and could cause actual results differ materially from those mentioned today's press release and this discussion. A general discussion of the risk factors that could affect Yasuo's business financial results in certain filings of the company's 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. Joining us today on the call from Yasen's senior management team are Mr. Jing Feng Huang, our Founder, Chairman and CEO and Mr. Dong Ho 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. In addition, a webcast replay of this conference call will be available [indiscernible] Investor Relations website at ir.yashenglobal.com. I'll now turn the call over to Mr. Ji Feng Huang, please go ahead, sir.

Thank you, Irene. And thank you, everyone, for participating in Yassen's fourth quarter and full year twenty twenty four earnings conference call today. I will start with the macro overview and our key financial performance. Followed by insights into our key strategy initiatives and updates on our brands and products. China's beauty industry remained subdued over 2024. With beauty sales underperforming the overall retail market. According to the adjusted data published, by the National Bureau of Statistics of China, Total retail sales of consumer goods grew by 3.83.5% year over year in the fourth quarter and the full year In contrast, total beauty beauty retail sales declined 1.5% year over year for the quarter and 1.1% for the full year. Despite these challenges, our total net revenues in the fourth quarter grew by 7.1% year over year. In line with our guidance. The combined revenues from our three clinic clinical and premium skincare brands including Gleniq, Doctor. Wu and Yif Long achieved year over year growth of 3%. Color Cosmetics revenues point 4% for the quarter, primarily driven by the recovery of Pivotali. Looking at our profitability in the fourth quarter, our gross margin increased to 77.8% from 73.7% in the prior year period, driven by a higher [indiscernible] Our net loss margin improved to 33% representing a significant decrease from 46% for the prior year year period.

On a non GAAP basis, we achieved a net income margin of 9.3% compared to a non GAAP net loss margin of 8.7% in the prior year period. For the full year 2024, total net revenues declined by only 0.6% year over year, indicating stability. Color cosmetics revenues saw a modest decline of 0.3% year over year. Meanwhile, skincare revenues grew by 0.7%. Largely driven by a 5.4% year over year increase from our three clinical and premium skincare brands. Revenues from our skincare brands accounted for 41.1% of our 2024 full year total net revenues, reaching a record high Reflecting our revenue growth, our profitability also improved for the full year. With gross margin increasing from 73.6% to 77.1% We also achieved our lowest full year net loss and non GAAP net loss since 2020. Net loss margin decreased to 20.9% from 22% while non GAAP net loss margin improved to 3.8% down from 8.7% in 2023. Although there is still work ahead, these positive outcomes demonstrated that our strategic transformation is on the right path. Our key initiatives under this plan were designed bolster our brand portfolio, and strengthen each brand to holistic Over the past three years, we have successfully balanced our revenue mix to support the growth of our skincare [indiscernible] for our color cosmetic brands and invested in R and D to develop a promising pipeline of new products.

In addition, we have implemented effective cost cutting measures and enhanced operating efficiencies. Now I would like to talk a little deeper into our key initiatives. First, we are balancing our revenue mix to support the growth of skincare brand. In the skincare segment, Galenik continued to deliver solid performance throughout the year. Driven by strong brand equity, effective products and soft scientific communication. The brand maintained a leading market position of its iconic No. One VC Serum while launching the No. Two VA Serum. Additionally, we boosted sales of the excellent snow LG series, [indiscernible] These initiatives received broad industry and consumer acclaim, As evidenced, Galenik winning the Beauty of the Year awards from Vogue and L for its remarkable contributions to skincare innovation. [indiscernible] Second, we are refining the product and the channel mix for our color cosmetics brands. Publiciary made significant progress in its strategic transformation in 2024. Primarily driven by its refreshed portal lineup. The BIO LEAP Essence lipstick and its second generation version top performers. Achieving leading positions in the Double-eleven Festival sales, rankings, across multiple [indiscernible] The product's innovative design and formulation received international recognitions. Including the Muse Designer Award and the French Designer Award.

We are very encouraged by lipstick success we leverage the consumer insights and professional expertise gained during its development to create more exceptional products. In terms of the channel mix, Pfei Diary achieved revenue growth on the Douyin channel, while increasing its revenue contribution from offline distribution channels. Scientific innovation remains a key driver in the growth of both our skincare and color cosmetics experience. Our R and D expenses represented 3.2% of total net revenues for the full year 2024, Underscoring our commitment to innovation and the product development. Notable highlights from 2024 include our third appearance at the IFSC Conference. Known as the Nobel Prize for Cosmetics. Where we unveiled an exclusive patent for active micro ecological ingredients in collaboration with Sun Yatsen University. In addition, Fubidar is pioneering anti aging research [indiscernible] were featured in world leading scientific journals including Nature Medicine and Science Bulletin. Doctor. Wu's team also worked alongside leading experts to present its research at the National Acne Academy Conference. Showcasing five patents four specialized ingredients, and 11 clinical collaborations. We are confident that these new ingredients and the surge and research initiatives will drive deeper product innovation, contributing to our brand's sustainable growth.

Finally, we remained committed to improve profit As mentioned earlier, we have made significant progress in this area The continuous improvement in gross margin reflects our expertise in product development and the strength of our brand equity. Optimized marketing expenses and streamlined general and administrative expenses. Additionally, our expansion into offline distribution channels which typically require fewer traffic expenses, contributed to improved profitability. Moving forward, we will continue to enhance operational efficiencies and strategically allocate resources to position the company for long term growth. In summary, 2024 was a year of progress. Marked by tangible results of our strategy transformation plan, As we move into 2025, we will stay focused on implementing targeted strategies to further enhance our brands and drive 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. Thank you, David, and hello, everyone.

Before I get started, I would like to clarify that all financial numbers presented today are in MMB amounts. All percentage changes referred to year over year changes unless otherwise noted. Total net revenues for the fourth quarter of twenty twenty four increased by 7.1% to RMB1.15 billion from RMB1.07 billion for the prior year period. The increase was primarily due to a 16.4% year over year increase in net revenues from COLOURN Cosmetics brands, Gross profit for the fourth quarter of twenty twenty four increased by 13% to RMB893 million from RMB790.1 million for the prior year period. Gross margin for the fourth quarter of twenty twenty increased to 77.8% from 73.7% 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 fourth quarter of twenty twenty four, decreased by 3.5% to $28,000,000,000 from 1,000,000,000 for the prior year period. As a percentage of total net revenues, total operating expenses for the fourth quarter of twenty twenty four were 111.8% as compared with 124% for the prior year period. Fulfillment expenses for the fourth quarter twenty twenty four were RMB63.5 million as compared with 62,700,000.0 for the prior year period.

As a percentage of total net revenues, fulfillment expenses for the fourth quarter of twenty twenty four decreased to 5.5% from 5.8% for the prior year period. The decrease was primarily due to an increase in overall average selling price of our products. As well as further improvement in logistics efficiency. Selling and marketing expenses for the fourth quarter of twenty twenty four were $690,600,000 as compared with $717,400,000 for the prior year period, a percentage of total net revenues, selling and marketing expenses for the fourth quarter of twenty twenty four decreased to 60.1%. From 66.9% for the prior year period. The decrease was primarily due to a more strategic marketing spending combined with lower payroll expenses related to selling and marketing personnel. General and administrative expenses the fourth quarter of twenty twenty four were 100 and $100,000 as compared with $158,700,000 for the prior period. As a percentage of total net revenues, general and administrative expenses for the fourth quarter of twenty twenty four decreased to 8.7 from 14.8% the prior year period. The decrease was primarily attributable to lower payroll expenses resulting from a reduction in general and administrative headcount and lower share based compensation expenses. Research and development expenses for the fourth quarter of twenty twenty four were $26,300,000 as compared with $36,900,000 for the prior year period.

As a percentage of total net revenues, research and development expenses for the fourth quarter of twenty twenty four decreased to 2.3%. From 3.4% for the prior year period. The decrease was primarily attributable to our efforts to maintain research and development expenses at a reasonable level relative to total net revenues. Impairment of goodwill for the fourth quarter of twenty twenty four was RMB404.1 million as compared with RMB354 million in the prior year period. Impairment recorded in this quarter mainly represents the amount by which the carrying value of the Yifang reporting unit exceeded its fair value. Based on the goodwill impairment test primarily due to weaker operating unexpected. Loss from operations for the fourth quarter of twenty twenty four was $390,700,000 as compared with $539,600,000 for the prior year period. Operating loss margin was 34% as compared with 50.3% for the prior year period. Non GAAP income from operations for the fourth quarter of twenty twenty four $93,200,000 as compared with non GAAP loss from operations of $125,900,000 for the prior year period. Non GAAP operating income margin was 8.1%, as compared with non GAAP operating loss margin of 11.7%. For the prior year period. Net loss for the fourth quarter of twenty twenty four RMB378.8 million as compared with 494,500,000.0 for the prior year period.

Net loss margin was 33% as compared with 46.1%. For the prior year period, Net loss attributable to Yacen's ordinary shareholders for diluted ADS for the fourth quarter of twenty twenty four three point RMB3.98. As compared with 4.57 for the prior year period. Non GAAP net income for the fourth quarter of twenty twenty four was $107,000,000 as compared non GAAP net loss of $93,700,000 for the prior year period. Non GAAP net income margin was 9.3%. As compared with non GAAP net loss margin of 8.7% for the prior year period. Non GAAP net income attributable to Yexten's ordinary shareholders per diluted ADS the fourth quarter of twenty twenty four was 0 point RMB0.99. As compared with non GAAP net loss attributable to YETZEN's ordinary shareholders per diluted ADS of RMB0.84 for the prior year period. Now I would like to briefly walk you through the highlights of our full year results. Total net revenues for the full year of 2024 decreased by zero point to 3,000,000,000 from $3,410,000,000 for the prior year period. Primarily attributable to the decline in net revenues from color cosmetics brands partially offset by the increase in net revenues from skincare brands Gross profit for the full year of 2024 increased by 4.1% to RMB2.62 billion from $2,610,000,000 for the prior year period.

Gross margin for the full year of 2024 increased to 77.1% from 73.6%. For the prior year period, The increase was primarily attributable to increasing sales of higher gross margin products Loss from operations for the full year of 2024 was RMB824.9 million as compared with $9.30 $13,400,000 for the prior year Operating loss margin decreased 24.3% from 26.7% for the prior year period. Non GAAP loss from operations for the full year of 2024 was $224,300,000 as compared with $427,500,000 for the prior year period. Non GAAP operating loss margin decreased to 6.6% from 12.5% for the prior year period. [indiscernible] Net loss for the full year of 2024 was RMB710.2 million as compared with $750,200,000 for the prior year period. Net loss margin decreased to 20.9% from 22% for the prior year period. Net loss attributable to YETEN ordinary shareholders per diluted ADS for the full year of 2020 was RMB6.99 as compared with 6.81 for the prior period. Non GAAP net loss for the full year of 2024 was 428,200,000.0 as compared with $296,100,000 for the prior year period. Non GAAP net loss margin decreased to 3.8% from 8.7% for the prior year period. Non GAAP net loss attributable to less than ordinary shareholders for Dailu VBS for the full year of 2024 was 1.26 as compared with RMB2.66 for the prior year period.

As of December 31, 2024, we had restricted cash and short term investments. Of 1,360,000,000.00 as compared with RMB2.3 billion as compared with $08,000,000,000 as of December 31, 2023, net cash generated from operating activities for the fourth quarter of twenty twenty four was $202,200,000 as compared with $90,500,000 for the prior year period. Net cash used in operating activities for the full year of 2024 was 243,700,000.0 as compared with $107,400,000 for the prior year period. Looking at our business outlook for the first quarter of twenty twenty five, we expect our total net revenues to be between and $88,800,000 and 866,200,000.0 representing a year over year increase of approximately percent to 12%. These forecasts reflect our current and preliminary views on the market. And operational conditions which are subject to change. With that, would now like to open the call to Q and A. Operator?

We will now begin the question and answer session. On today's call, to assemble our roster. The first question comes from Maggie Huang with CICC. Please go ahead.

Well, thank for taking my question. This is Maggie Huang from CICC. Firstly, I would like to congratulate the management for the non GAAP turnaround in Q4 with a quite good non GAAP net profit margin. So my first question is that with such a performance in Q4, how should we expect expect our profitability in 2025? And my second question is about our strategy for different categories. Because we're seeing that in Q4, our color cosmetic brands began to grow faster than skincare.

So in the future, how will we allocate our resources between Cali Cosmetics and thin care? And which category will be the more important growth driver in the future? And that's my two questions.

Okay. Thanks for the question about the our I think the first question is about our profitability guideline.

And also, I think one there are couple of things I can share with you is how we view about the market landscape. And also what is our competitive edge. So I think the beauty market looking forward, the headwinds will persist which means the price competition will be intensified.

And the consumer will be more rational in purchase decisions. So looking forward, in order to balance the growth and also the profitability, I think it would be very important for us to maintain and even improve the gross margin growth. Through the brand equity strengthening and also the R and D investment. And then on the other hand, we think the skincare will be our key stable growth engine It already contributed over 40% last year. And also, we have a very robust growth for our key brands including Galenie, Doctor. Wenif Long So for color cosmetics, right now, I we already demonstrated the transformation for Pupa Diary. Has gained tremendous outcome. And then looking forward, the high growth high repurchase and also the very competitive products will contribute to a more sustainable growth for our makeup category. So looking forward, so we are going to deliver and also balance the growth and the profitability by enhancing the skincare and makeup growth. On the at the same time, we are also to improve our operation efficiency. So the second question talking about the focus on the category and also the brands. We think at this stage, it's super important to to focus on the competitive products.

In the market. So in the past few years, many driven our very strong and also consistent on the investments We have some very high performing products in the market We will continue to drive those products growth. On the other hand, we are launching some new products. Which has gained a pretty good momentum in the market. For example, we are expanding the gallinic portfolio from vitamin C to vitamin A and also the facial mask launched by Galanix has has very good growing trend. For Public Diary, our lipstick BI lipstick has gained pretty leading positions in multiple platforms. And now we're expanding the the category from leap to to base makeup. And also, we when we're looking at Doctor. Wu, it's a clinical brand and then we expanding the benefit space from acne, removing and then to early age antiaging and also brightening benefit space. So by balancing the skincare and also makeup, so we are going to devote our resources into the fast growing category and also with long term sustainability. So that's our strategy behind on the investment Historically, thank you very much and I have no more questions.

Thank you.

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

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

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