Yunji Inc.

Good morning and good evening, ladies and gentlemen. Thank you for standing by and welcome to Yunji's second quarter 2023 earnings conference call. With us today are Mr. Shang Liu Zhao, Chairman and Chief Executive Officer, Mr. Peng Zhong, Vice President of Finance, and Ms. Kay Liu, Investor Relations Director of the company. As a reminder, this conference call is being recorded. Now I would like to hand the conference over to our first speaker today, Ms. Kay Liu, Investor Relations Director of Yunji. Please go ahead, ma'am.

Hello, everyone. Welcome to our second quarter 2023 earnings call. Before we start, please note that this call will contain forward-looking statements within the meaning of Private Securities Litigation Movement Act of 1995 that are based on our current expectations and current marketing operating conditions. and relate to events that involve unknown risks, uncertainties, and other factors affecting the industry. This forward-looking statement can be identified by terminologies such as will, expect, anticipate, contingent, or other similar expressions. For a detailed discussion of these risks and uncertainties, please refer to our latest document filed with USSDT. Any forward-looking statement that we make on this call are based on assumptions as of today and expressly qualify the entirely by cautionary statement, risk factors, and details of the company filing with FCC. Yunji do not undertake any obligation to update this statement, in fact, as a required and applicable law. With that, I will now turn over to Shangyue Xiao, Chairman and CEO of Yunji.

Hello, everyone. Welcome to Yunji 2023 second quarter report conference.

Hello, everyone. Welcome to Renji Sakai Center 2023 Earnings School.

Although the recovery of consumption is not as expected in the first half of this year, we are still observing some new opportunities. First of all, in terms of consumption habits, as the number of people increases, consumption habits slowly turn from stock to emergency purchase. We will continue to increase the supply of emergency needs, and use every marketing event such as holiday, seasonal exchange, and social hot spots.

During the first half of this year, with consumption gradually and steadily recovering, a number of notable trends emerged. First, in terms of consumption habits, the post-pandemic surge in consumer mobility triggered by a transition away from stockpiling of goods towards a preference for seasonal purchases. To capitalize on this, we will further enhance our supply chains so that we are better equipped to address seasonal consumer demand. At the same time, we will optimize our marketing campaigns to sharpen their focus on holidays, seasonal transitions, and social trends.

At the same time, local life has also become the child of the consumer market and gained a lot of support from the national policy. We think this is a new opportunity for the cloud-based food strategy. In the second quarter, we will be able to create a new economy

In addition to these shifts, we have also observed the resurgence of local community services in the consumption landscape and the substantial support these services have drawn from national policies. The convergence of these two trends presents exciting opportunities for our gourmet food strategy. Over the course of the second quarter, we steadily rolled out our gourmet food products in local neighborhood groups and online and offline communities in certain second and third tier cities. Our private label meat products proved especially popular, gradually generating notable levels of repeat purchases.

We also observed that in the second stage, in order to increase sales, more companies joined the price station. What we need to emphasize is that the cloud stage is a sustainable and healthy cost-effective strategy, not because of burning money to make subsidies, nor is it a low-cost strategy. We can save the money that can be used for subsidies through standardized operation, and through timely selection and cooperative scale effect, let users enjoy super high cost-effectiveness. This non-partisan price station can still provide users with super high cost-effectiveness confidence.

During the second quarter, we have noted a trend where an increasing number of companies have adopted a price war strategy as a way of stimulating consumption. It is crucial to highlight that LNG adheres to a substantial, healthy, and value-oriented strategy rather than merely burning money by resorting to subsidies or adopting a low-price strategy. Our prudent approach is centered around refining our operations, saving our funds for subsidies, and leveraging our highly curated product range and economies of scale to offer users parallel value. The resounding success of our private label range underpins our confidence that we can offer users cost-effective products without resorting to price wars.

Meizhuang's free brand, Shouye, has just received its 13th anniversary. Shouye's 13th anniversary is held in Shenzhen with the theme of Chinese Thai and Qingzhi Thai. It is the launch of Baiduotai Sanlingyuan. The opening of Shouye brand is more suitable for the new generation of Chinese skin. In addition, Shouye brand also held the March signing ceremony with the top domestic cosmetic raw materials supplier and released the anti-aging white skin book in 2023. At the same time, Shouye's offline experience store also received the first batch of customers.

Our private label beauty brand marks its 13th anniversary. We celebrated its milestone by holding an event in Shenzhen with the theme of China Peptide New Attitude. During the celebration, Su Ye unveiled its latest product, White Peptide 3.0, marking the dawn of a new year and addressing the specific skincare needs of the Chinese people. Importantly, Su Ye has signed a strategic agreement with a leading domestic supplier of raw materials for cosmetics. Furthermore, Su Ye rings the release of its 2023 anti-aging white paper and welcomes the first groups of customers to its offline e-service stores.

In order to prevent the aging of the future population, to seize the market space for the next ten years, The famous free brand continues to expand on the health channel, bringing health consumption upgrades to users. We encourage users to become the first responsible person for family health, cultivate healthy living habits, and actively maintain the health of the whole family. The big health brand QingZhiYang has maintained a good trend. Among them, the sales volume of Yisheng Jun has exceeded 200 million. The recently launched FuMei Q10 was the first to be sold within 31 minutes.

Recognizing the burgeoning market potential created by an aging population over the last decade, our private labels are continuously expanding their presence within the healthcare sector, delivering an enhanced consumption experience. In line with our commitment to promoting healthy lifestyles, we actively encourage users to shoulder responsibility for their family's health, nurturing good habits, and maintaining the well-being of every family member. As a result of these efforts, our health care branch increasingly maintains its strong momentum with accumulated approval by all T-cells exceeding 200 million RMB. In addition, our newly introduced Coenzyme Q10 product sold out within the first 31 minutes of its launch.

At the end of the year, we believe that in the age of explosion, Let's turn to our marketing initiatives. We are fully cognizant that in the age of information overload, we face a limited window for capturing users' attention.

To optimize our use of this precious time, it is essential to maximize the impact and efficiency of our connection with users by establishing an effective terminal. Crafting such a terminal necessitates an effective blend of high quality content and timely distribution. 优质的内容相对门槛较高 主要由公司配合AR大模型技术完成

To meet the challenging of producing high-quality content, we harness the capabilities of our cutting-edge AI large-scale model technology. Going forward, we will intensify our current investment and explore innovative approaches, including

AI digital human live streaming and collaborations with virtual presenters. We have already launched our digital human live streaming initiative, significantly reducing labor and materials costs.

In the marketing of large health products, we compete with professional retail and more efficient information distribution. Yunji's collaboration and research through products is more understanding of products. Through product data, we produce richer and more authentic content and transmit this content to tens of thousands of service managers. Service managers can communicate and communicate with users through professional retail training. At the same time, we have developed an AI health consultant to provide advice to service managers. Our private label products, especially those in the healthcare sector, naturally resonate with young models.

In our experience, these products are more effectively promoted by service managers than by influencers. For marketing of healthcare products, we compute through specialized retail and more efficient information dissemination. By engaging in collaborative product research and development processes, we cultivate a more thorough understanding of our products. Furthermore, by tracing product origins, we can generate richer and more authentic content. This high quality content is then disseminated to thousands of service managers who, having undergone professional retail training, are able to engage in meaningful interaction with users. Our service managers equipped with the high quality content we produce and the specialized training we provide are able to address the majority of the user inquiries. To further empower our service managers, we have developed an AI health advisor that they can consult to tackle more specialized inquiries. This model of specialized retail combined with AI technology is better aligned with the needs of the Chinese households and local communities.

I will turn the call over to Mr. Zhang Peng.

I will go through the financial results.

Thank you. Hello, everyone. Before I go through our financial results, please note that all numbers stated in the following remarks are in RMB terms, and all comparisons and percentage changes are on a year-over-year basis unless otherwise noted. The microenvironment continues to present challenges that demand our careful attention and adaptability. Consumer sentiment and purchasing power still need additional momentum before they completely recover. Meanwhile, consumer preferences are evolving swiftly. Based on our existing marketing data, our strategic pivot towards healthcare and nutritional products has yielded promising results. This shift has not only aligned us changing consumer preference, but also fostered our financial performance. We are dedicated to expanding our product selection and nurturing our private label offerings, ensuring that we stay at the forefront of marketing trends and maintain a competitive edge. We remain committed to optimizing our cost structure and enhancing operational efficiency. By doing so, we will fortify our resilience against economic fluctuations reinforce our capacity to weather uncertainties and prosper regardless of the economic cycle. Now let's take a closer look at our financials. Total revenues were $167 million compared to $284 million a year ago. Revenues from sales of merchandise were $131 million and revenues from our marketplace business were $34 million. The main driver behind the changes were our consistent improvements to our product range across all categories, coupled with the optimization of supplier and merchant network, which leads to a short-term impact on sales. Despite these challenges, we improved our gross margin to 51.6% compared to 40.6% a year ago. This was a result of sustained customer loyalty to our private labels and our effective product curation strategies. Now let's take a look at our operating expenses. Fulfillment expenses were $30 million compared to $43 million a year ago. This was primarily due to decreased warehousing and logistics expenses because of lower merchandise sales and lower personnel costs due to staffing structure refinements. Sales and marketing expenses were $33 million compared to $58 million a year ago. This was primarily a result of streamlining staffing structures leading to reduced personnel costs aligned with a decline in member management fees and decreased business business promotion expenses. Technology and content expenses were $14 million compared to $24 million a year ago. The decrease was mainly due to a reduction in personnel costs as a result of staffing structure refinements. General and administrative expenses were $33 million compared to $32 million a year ago. This was mainly due to a higher allowance for credit losses partially mitigated by lower personnel costs resulting from staffing structure refinements as well as a decrease in share-based compensation expenses. Total operating expenses in the second quarter decreased to $111 million from $157 million in the same period of 2022. Loss from operations was $12 million compared to $30 million a year ago. Net loss was $42 million compared with $25 million a year ago. While adjusted net loss was $40 million compared with $17 million a year ago. Basic and diluting net loss per share attributable to ordinary shareholders were both $0.02 compared with $0.01 in the same period of 2022. Moving on to liquidity, as of June 30, 2023, we had a total of $583 million in cash and cash equivalents, restricting cash and short-term investments on our balance sheet, compared to $669 million as of December 31, 2022. Our liquid assets were sufficient to cover our payable obligations and we did not hold any long-term bank loans or debts on our balance sheet. In the near future, we are proactively exploring investment opportunities and enhancing our supply chain capabilities. To conclude, any mixed microenvironment dynamics, we are pleased to witness the growing synergies between offline and online retail opportunities during the post-COVID era, which we believe provide an excellent opportunity for us to develop our private labels. As we continue to optimize our cost structure, we are confident in our ability to thrive and administer a variety of economy cycles. I would also like to let you know that I have submitted my resignation and my last working day will be August 26, 2023. I have chosen to step down due to personal reasons and my responsibilities will be transitioned to Dean, our Senior Financial Director. My journey with Yunji has spent five years, during which I have experienced significant personal growth. I have full confidence in Ding's exceptional abilities in managing complex financial operations and strategic planning. To ensure a seamless transition, I will continue to serve as a consultant. This concludes our prepared remarks for today. Operator, we are now ready to take questions.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. When asking a question, please state your question in Chinese first, then repeat your question in English for the convenience of everyone on the call. Once again, that was star then one to ask a question. And at this time, we will pause momentarily to assemble our roster. And our first question comes from Ethan Yu of First Trust. Please go ahead.

Thanks for taking my question. The Chinese government has repeatedly issued some policies to stimulate offline consumption I'm wondering what the management's perspective on this issue and does it have any impact on our business? Thank you.

Thank you for your question.

We are delighted to see consumers gradually regaining their vitality and pursuing a better life. We firmly support national policy and hope to contribute to the recovery of offline consumption. Currently, we have made adjustments in line with consumer trends such as increasing their supply of seasonal new products, enhancing sales tailored to these specific scenarios, and improving our ability to procure services.

We also held many offline and offline salons to help service managers better understand our products, and to make our product description and consumer experience more real and convincing. At the same time, Yunji is not only an online sales platform, but also has many free brands, Furthermore, we have hosted various offline events.

including origin tracing activities and salon gatherings, allowing our service managers to gain a deeper understanding of the products. This in turn makes our product descriptions more authentic, persuasive, and enhances the consumer experience. ZMG is more than just an online sales platform. We have many travel labels which provide us with greater flexibility. Our sales reach extends beyond the online market as we manage the network of 100,000 debit managers across cities nationwide, which corresponds to a robust local sales team. We look forward to exploring new possibilities in the offline realm in the future. Thank you.

This concludes our question and answer session.

I'd like to hand the conference back to management for closing remarks.

Thank you for joining us today. Please do not hesitate to contact us if you have any further questions, and we look forward to talking with you next quarter. Bye.

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