Yatsen Holding Limited

Ladies and gentlemen, good day and welcome to the Yatsen fourth quarter and full year 2021 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Irene Liu, Head of Strategic Investment in Capital Markets. Please go ahead.

Thank you, Operator. Please note that the discussion today will contain four 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 Security Litigation Reform Act. Such statements are not guarantees of future performance and 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 to differ materially from those mentioned in today's press release and this discussion. A general discussion of the risk factors that could affect Yasin'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. For definition of non-GAAP financial measures, and a reconciliation of gap to non-gap financial results. Please see the earnings release issued earlier today. Joining us today on the call from Yasen's senior management are Mr. Jinfeng Huang, our founder, chairman, and CEO, and Mr. Donghao Yang, our director and CFO. Management will begin with prepared remarks, and the call will continue with a Q&A session. As a reminder, this conference call is being recorded. and the webcast replay will be available on Yasin's investor relations website at ir.yasinglobal.com. I'll now turn the call over to Mr. Linfeng Huang. Please go ahead.

Thank you, Irene, and thank you, everyone, for participating in Yasin's conference call for the fourth quarter and the full year of 2021. Last year, we celebrated our first year as a public company, as well as our fifth anniversary since our establishment. In all aspects, 2021 was an important year of change, marked by challenges in the market and the start of our evolution to the next stage of strategic focus. In order to provide everyone with a clear picture of our overall strategy and direction, let me take a moment to talk about our development history. For most of our first five years of development, the Chinese color cosmetic market, especially the online portion, experienced rapid growth. As a result, we focused on increasing market share, achieving high revenue growth, and establishing Purpose Diary as the leading upstart color cosmetic brand in China in this first phase of our development. We have largely achieved this goal by late 2020. More importantly, in the process, we have built a highly capable team with full spectrum of capabilities necessary to run a highly digitalized business model, covering R&D, supply chain, brand management, technology, and online-offline operations. However, as the color cosmetics market started to decelerate in 2020 and then experienced low growth in the second half of 2021, Competition also intensified among our domestic and global players. Given such market developments, we evolved our business focus to take a more balanced and holistic approach to sustainable growth. This new phase of our development, which began last year, includes building a diversified brand portfolio covering different price tiers within color cosmetics and skincare categories. upgrading our R&D capabilities, and promoting iconic, durable brands with reduced discounts and promotions. While we believe this is the right approach for Yasen, the positive impact from our strategy evolution will take several quarters to take effect. Our financial results may not show improvements in a linear fashion from quarter to quarter. With this context in mind, let me go over our financial highlights for 2021. Total net revenues for full year 2021 grew by 11.6% to RMB 5.8 billion. While we began on a strong note in the first half of 2021, we experienced a significant deceleration in the second half, particularly during the fourth quarter when total net revenues declined by 72.1% year-over-year. Our total net revenue from color cosmetic brands, including Proprietary, Little Owning, and Pin Bear, declined by 33.9% year-over-year in the fourth quarter. Although on a full-year basis, they were down by only 2.3% compared with the prior year. Black-ish consumer demand, the high prior year base for comparison, and our conscious decision to limit discounts and promotions contributed to this performance. One of 2021's bright spots was the robust performance of our skincare brands, which in aggregate quadrupled in size compared to 2020. Exhibiting particularly strong growth during the fourth quarter, full-year total net revenues for our skincare brands surged by 327.7% on a year-over-year basis, representing 21.3% of total net revenue, compared with 4% in the prior year period. We believe the outperformance of skincare relative to color cosmetics validates our strategy of acquiring a number of solid skincare brands since 2020. Despite the competitive dynamics, we did not give ground on growth margins. Our full year growth margins increased by 2.5 percentage points to 56.8%, compared with 54.3% in the prior year. In the fourth quarter, we achieved growth margin of 55%, compared with 56% in the prior year period. due to RMB 47.7 million of inventory provision booked at the year-end. Without inventory provision, we would have achieved a growth margin of 68.1% and 68.3% for the fourth quarter and the full year, 2021, respectively. 4.8 and 3.6 percentage points higher than prior year periods on a comparable basis. We ended the year with a cash balance of approximately RMB 3.1 billion, giving us ample flexibility to pursue our strategy goals. As we look forward to implementing our strategy evolution during the rest of 2022, we will focus on the following execution areas. First, on brand building. For our color cosmetic brand, we plan to build brand equity with compelling high-impact marketing, while limiting discounts and promotions. Our successful 2021 China Girl campaign for Puppet Diary is a great example of our focused brand building approach. We partnered with Cosmo Magazine to create content showcasing the dreams and aspirations of a diverse group of women across different locations and demographics, reinforcing our product's broad appeal while establishing our company as the face and future of modern Chinese feminine beauty. On the other hand, our skincare brands will build on last year's momentum, capitalizing on their brand strength and pre-existing hero products. In 2021, we significantly boost the revenue from Galactic, Yvron, and Dr. Wu by employing our Yaxan Plus playbook for rapid scaling brands via e-commerce channels. In 2022, we intend to bring these brands to the next level To achieve their next growth rate, we will continue to elevate our skincare brand, develop new compelling products, and win the trust of new customers. We understand that building an enduring, category-defining, prestigious beauty brand is by no means easy nor quick, and we remain committed to growing our skincare brand while increasing growth margins and brand-level profitability throughout 2022. Second, we will continue to strengthen our R&D capabilities, while we believe we'll be a major differentiator as we upgrade our product offerings. We increased R&D spending by 136% in 2021, representing 2.4% of net revenues, compared with 1.3% in the prior year. In terms of output, we increased the number of total patents by 71%, to 118 patents, including 39 invention patents. We also developed several preparatory formulations, including SmartLock technology, a key component of our newly launched proprietary pearl loose powder system, and a nano-targeting delivery system used in Dr. Wu's new Mandelic Multiple Acid Renewal Map. as well as our patent anti-skin darkening technology in our little-own-thing long-wear foundation product. We significantly expanded our capabilities in the fundamental research, applied research, and efficacy testing by recruiting top talent from our global peers and renewed research institutions, as well as through R&D collaborations under our OpenLAC collaboration framework with leading institutions such as the Rijin Hospital, one of Shanghai's premier hospitals, and the Shenzhen University. This year, we look forward to building more partnerships to help us identify and commercialize the best innovations from both local and global universities and research institutions for the China beauty market. Our next step is to redouble our focus on sustainable growth. One aspect of this strategy is to optimize profitability across all of our channels, both offline and online. To this end, we plan to uphold high ROI requirements for traffic expenses on our traditional e-commerce channels. Moreover, after significantly increasing our Douyin live streaming revenue by more than 200% on a year-over-year basis in the fourth quarter, we plan to further enhance our operational proficiency and product mix offerings on this critical sales channel in 2022. For our offline source, we intend to take a multi-pronged approach in order to boost output and improve profitability. We plan to print certain outlets experiment with and fine-tune the different store formats, and ensure greater support for offline channels from a product and promotion standpoint. In addition, we plan to explore incremental revenue opportunities for various brands by increasing our exposure to offline and online third-party distributors. We are also looking at our operating expenses. identifying ways to improve efficiency and adjusting our variable and fixed cost space in line with our readjusted revenue scale. As I mentioned previously, we plan to optimize our sales and marketing expenses by raising the ROI requirement of our traffic expenses, as well as refine our general administrative expenses and fixed asset footprint. Given the deleveraging effects from the top-line adjustments throughout the year, the impact from this initiative may take some time to materialize. Still, we expect the cumulative effects from continued margin improvement and cost optimization to have a positive outcome on our bottom line over time. Lastly, the final aspect of our sustainable growth strategy is our commitment to ESG-backed practices and pursuing our CSR goals in line with our corporate values. We are in the early stage of a comprehensive review of our supply chain, procurement, and manufacturing process to identify areas we can upgrade with industry-leading ESG practices and have already implemented a number of eco-friendly initiatives. This year, we joined the roundtable on sustainable palm oil to promote the sourcing and use of sustainable palm oil in our supply chain and conducted a cradle-to-grave carbon footprint assessment for our core product. Slim Heel Lipstick. Furthermore, our Yves Long brand has incorporated biodegradable materials into its products and participates in the European Green Dock Packaging recycling scheme. We look forward to releasing more details about our ESG efforts in our first annual ESG report later this year. From a CSR standpoint, we have identified the empowerment of women through the promotion of Chinese feminine beauty and the protection of beauty in nature as twingles for the company. This year, Yasen partnered with the China Women's Development Foundation to launch the Shape Your Beauty public welfare training program in Sichuan Province, which helps lower-income female entrepreneurs master professional beauty skills, empowering them to create and build their own business in the beauty industry. We also offer jobs to outstanding programs, graduates, and provide financial support for potential startups. With this program, we are embracing our social responsibilities, facilitating positive social development, and proudly introducing more made-in-China beauty products to the world. In December 2021, Yasan was honored to be recognized for its ESG contributions in the 2021 Chinese Enterprise CSR ranking by E-Type. I hope by now I have presented a clear picture of the vision and strategy focus for yet another year. I cannot overstate the team's commitment to this evolutionary process and its importance to our future long-term growth. We consider ourselves fortunate to encounter these challenges at the still early stage of our development. We believe overcoming these challenges will make us stronger in the long run. With that, I will now turn the call over to our CFO, Donghao 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, and all percentage changes referred to year-over-year changes, unless otherwise noted. Total net revenues for the fourth quarter of 2021 decreased by 22.1% to 1.53 billion RMB from 1.96 billion in the prior year period. The decrease was due to the decrease in sales from our color cosmetics brand, partially offset by the increase in sales from our skincare brand. Gross profit for the fourth quarter of 2021 decreased by 23.7% to 993 million RMB from 1.3 billion RMB in the prior year period. Gross margin decreased to 65% from 66.3% in the prior year period. The decrease was primarily attributable to an inventory provision that was charged at the end of the quarter, partially offset by one increased sales from our higher gross margin product, And two, more disciplined pricing and discount policies. Total operating expenses for the fourth quarter of 2021 decreased by 47.3% to 1.49 billion RMB from 2.83 billion RMB in the prior year period. As a percentage of total net revenues, total operating expenses decreased to 97.8% compared with 144.5% in the prior year period. Fulfillment expenses for the fourth quarter of 2021 were 123.1 million RMB compared with 144.7 million RMB in the prior year period. As a percentage of total net revenue, fulfillment expenses increased to 8.1% from 7.4% in the prior year period. The increase was primarily attributable to the lower customer service cost efficiency resulting from a lower level of revenue. Selling and marketing expenses for the fourth quarter of 2021 were 1.08 billion RMB as compared with 1.38 billion RMB in the prior year period. As a percentage of total net revenues, selling and marketing expenses for the fourth quarter of 2021 increased to 70.7%. from 70.3% in the prior year period. The increase was primarily attributable to the expenses related to offline stores, optimization, and an increase in branding expenses partially offset by a decrease in online traffic expenses. General and administrative expenses for the fourth quarter of 2021 were 248.7 million RMB, compared with $1.29 billion in the prior year period. As a percentage of total net revenue, general and administrative expenses decreased to 16.3% from 65.6% in the prior year period. The decrease was primarily attributable to a decrease in share-based compensation expenses compared with the prior year period. When a large share-based compensation expense triggered by the IPO was recognized for U.S. GAAP reporting purposes. Research and development expenses for the fourth quarter of 2021 were 43.3 million RMB, compared with 25.6 million RMB in the prior year period. As a percentage of total net revenues, research and development expenses increased to 2.8% from 1.3% in the prior year period. The increase was primarily attributable to an increase in personnel costs and share-based compensation expenses, which reflect our commitment to enhance our research and development capabilities. Loss from operations for the fourth quarter of 2021 decreased by 67.3% to 501.8 million RMB from 1.53 billion RMB in the prior year period. The operating loss margin was 32.8%, compared with 78.2% in the prior year period. Non-GAAP loss from operations for the fourth quarter of 2021 increased by 25.3%, to 360.9 million RMB from 288 million RMB in the prior year period. Non-GAAP operating loss margin was 23.6%, compared with 14.7% in the prior year period. Net loss for the fourth quarter of 2021 decreased by 69% to 475.1 million RMB from 1.53 billion in the prior year period. Net loss margin was 31.1% compared with 78.1% in the prior year period. Non-GAF. Net loss for the fourth quarter of 2021 increased by 17.8% to 336.3 million RMB from 285.4 million. Non-GAAP net loss margin was 22% compared with 14.5% in the prior year period. Net loss attributable to Yatsen's ordinary shareholders per diluted EDS for the fourth quarter of 2021 decreased to 0.75 RMB from 4.04 RMB in the prior year period. None net loss attributable to Yatsen's ordinary shareholders for diluted EVs for the fourth quarter of 2021 decreased to 0.53 RMB from 0.72 RMB in the prior year period. As of December 31st, 2021, the company had cash and cash equivalents and restricted cash of 3.14 billion RMB compared with 5.73 billion RMB as of December 31st, 2020. When the quarter ended December 31st, 2021, net cash used in operating activities was 250 million RMB. Looking at our business outlook for the first quarter of 2022, we expect our total net revenues to be between 866.7 million RMB and 938.9 million RMB. We're presenting a year-over-year decline of approximately 35% to 40%, primarily attributable to our continued focus on operating margins, improvements, and limits on discounts and promotions, as well as a high base of comparison to the prior year period, which benefited from the release of pent-up demand due to COVID-19 recovery. This forecast reflects our current and preliminary view of the market and operational conditions, which is subject to change. With that, I would now like to open the call to Q&A.

We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. For the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English. At this time, we'll pause momentarily to assemble our roster. Our first question comes from Dustin Wee from Morgan Stanley. Please go ahead.

Thank you for taking my questions. The first question is regarding the guidance. So, what's the assumptions behind this, like, you know, negative 35 to 40 percent guide for the first quarter? Like, is there any color, like, by brand or by channel? And, you know, we know that management wouldn't comment on the full year kind of guidance for 22. but should we extrapolate the first quarter 22 guidance to the full year? That's the first question on guidance. And the second question is on the OPAC's optimization. So could you provide a little more details about what kind of the spending that being saved maybe can provide us with some of the examples and how many more efforts that we are going to see for 2022? And also with this kind of ROI being gradually improving, do we have sort of the evidence or operating metrics to show actually for the main brand like Perfect Diary, you know, they are still be able to sort of gain the new quality customer. You know, I think on the one hand, the Perfect Diary brand is sort of reducing some of those, you know, not quality bargain hunter from the customer by reducing the promotion. But are they be able to gain the new customer? And the third set of the question is that, is there any target by the key channel and by the key brands, for example, like the Tmall or Douyin, or the target for the color cosmetics and the skincare in 2022? Thank you very much.

Hey, Dustin. I'm not sure if I can catapult the questions you've asked. Let me try. The first one, Well, as we explained in the announcement, Q1 guidance for year-over-year 35 to 40 percent decline was actually based on our, you know, estimate, you know, of this quarter's performance. You know, a couple of reasons why, you know, we're going to have this negative 35 to 40 percent decline. You know, first of all, Last year, Q1, we still had some pent-up demand from our customers, which came from actually the COVID-19 situation started in the first half of 2020, when a lot of our customers were actually staying at home. They were not able to go to school or factory, so they didn't have nearly as much you know, need for, you know, color makeup. So that's one reason. One other reason is, you know, our current focus is primarily on brand building. So a number of things, you know, we're dramatically, you know, cut our promotions and, you know, discount activities. And as a result of that, you know, our short-term sales, you know, will be, you know, affected. So as to the full year guidance, you know, actually it's the company's policy not to provide any sales guidance beyond, you know, the next quarter. So, Dustin, I'm sorry. So you have too many questions. Can you please remind me of some of your other questions? Sure, sure.

No, no, thanks a lot. So, just follow on with the guidance. Would you provide a little more colors behind this, like, 35, 40% decline, like, by channel or, like, by brand? You know, any more color behind, you know, beyond this number?

So, just to share about that, you know, we are not providing any color or more detailed color behind this guidance. So, this is a guidance policy only for the

sales for the next quarter. And I know you don't really provide a four-year kind of guide, but you mentioned sort of high base in the first quarter. So I'm understanding for the second half of last year, the base won't be that high already. So sort of should we still extrapolate this like sort of decline level in the first quarter to the full year, or it would be, you know, a little too much?

Well, I think the only thing I can tell you here is, you know, we're going to work really hard, you know, for the remaining quarter of this year. And, of course, you know, a lower base, you know, from last year will definitely help with our year-over-year performance comparison. But, again, so far, you know, we're not in a position to provide any further guidance for this whole year's sales numbers. Okay.

Okay, thank you. And my sort of second question, if I may, is that in terms of the OPEX optimization, so just want to know is there any operational examples, like what kind of the cost that being saved, and can they be done more effectively in like 22? And also, I kind of understand that we are reducing the discount, so we also kind of, you know, cut the sales. But I think those sales being cut is more on the sort of lower quality side, like we stopped doing excessive like discounting, but is there any evidence suggesting like because our new products, you know, better R&D, so we can still gain the new customer in a more quality way with, you know, even higher gross margin? So I guess what I'm trying to get is that after this kind of high base being washed out, can the brands that we have, the company has, can still have that kind of sustainable organic growth?

Yeah, exactly. We believe so. So the costs that we're, you know, cutting the most are actually, you know, number one, traffic. So, you know, we're aiming at a much higher ROI than, you know, the previous quarters. And secondly, you know, we're trying to optimize our headcount. That will help us save some costs. But again, you know, since the sales numbers are declining year-over-year, to some extent, that will offset some of our efforts from a percentage point standpoint.

From the customer's perspective, I think the diversity of our brand portfolio is really differentiating from one year ago. Because right now, the percentage of the skincare brands is taking It's getting higher. And also we have some high-end brands, including Atlantic and Yves Long, which are appealing to the consumers with higher affordability and also higher age. So right now we see the diversified of our customer base. It's differentiating from the majority parts coming from for the diaries. So that's one of the operation evidence we see for our customer base. And now, on the other hand, is the incremental of the growth, the sales growth coming from the skincare brands will help us to improve the growth margin and also improve the retention rate of the consumers. which will help us to gradually reach to a profitability growth model. That's what we see about the customer base change.

Thanks a lot, David. May I just ask the last question about sort of the channel, you know, your view on, like, you know, Douyin, could you elaborate a little more, and maybe on Tmall, and also maybe some of the core brands, is there going to be some of the different, in terms of, you know, product launch or, like, marketing, give us some of the examples that can, that would be really helpful. Thank you.

Sure. So in the, so in the first month and second month of this year, the color cosmetic sales in Timor declined by 2.4%. And for skincare, it's almost the same percentage decline, like 2.8%. So if you look at the traditional e-commerce channels, we see they are looking forward. We think it will not be the main growth drivers for our brand portfolios. So right now, our company has devoted more and more talents and resources into Douyin, and we see quite remarkable growth in the last quarter, in the fourth quarter up here. And also recently, we also see a very remarkable and also confidence coming from the operations in Douyin as well. So looking forward, we think the percentage of our total revenue will continue to grow. And also, we are also going to diversify our sales channel in online and offline through the distribution model as well.

Okay. Thank you very much.

Thank you. Our next question comes from Christine Cho from Goldman Sachs. Please go ahead.

Thank you. Thank you, Kevin and Donghao. Two quick questions. One, just at a high level, I was wondering what do we need to see for really color makeup to rebound as the industry? And if there's any kind of surprises here to date when thinking about the color makeup market that has surprised you compared to, for example, six months ago? that'd be great to hear your thoughts there. And then secondly, if there's any major product pipeline that is upcoming in the next few quarters, it'd be great if you can give us some color there as well. Thank you.

Hi, Christine. Can you clarify on your first question? The second end of your question.

Yes. Yeah, just at a high level, What are some of the things that we need to see for the color makeup category or the overall industry to re-accelerate? Is it really just the base to go away? I feel like the product registrations have been slowing this year generally across the industry. Does that have to accelerate? Does it have to be around the offline recovering, for example, from the COVID restrictions? What are some of the building blocks should we need to see for the whole category to accelerate in your view?

Okay. So for the market development, especially on the color cosmetics, I think there are a few factors influencing the slower growth rate of this market. First is the COVID impact still lasts right now. So with the consumers waiting in the market, we see the lead category is not growing as fast as before. Second, I think for the makeup market, after several years fast growth with the high base, I think right now the market is resuming to a more sustainable and at a lower growth rate. And also what we see from the supplier's perspective, because of the softer market demand and also some of the more competitive market landscape, we didn't see so many new brands emerge in this category. And this will also have some negative influence on driving the consumer's demand on buying the makeup products. So looking forward, we think there are still potentials for the China's color cosmetic market. So we think the penetration will continue to grow. And then with the COVID goes out, the LEAP category will resume as well. So right now we see the growth of the foundation is still driving the market growth. So we think the... There is also some upgrade chance for the makeup market as well. All of those contributors will make this market grow at a more sustainable growth rate. That's our perspective about the makeup market.

Thank you. And on the second question, regarding any major product pipeline that you'd like to highlight in the next few quarters?

Sure. I think for Galenic, so last year we launched a very successful VC-serum product, and then we're looking for a new very high-end skincare bottle line launch in the coming months. And also for Yves Long, we are expanding category into serums, and then we are very excited about the brand upgrade of Yves Long in the coming two months as well. For our Dr. Wu right now, we are launching a very good SKU, which is the color correcting serum. And then, so we launched that product which is just a few days, and then the product has gained a very good seat as front consumers. and KOLs as well. And for our makeup brand, for sure, Pinkberry is growing really fast. And then more and more lip gloss, new SKUs. And the brand is expanding into eyeshadow palettes and also foundations as well. And also for Flickr Diary, we see a very successful new product launch. You want to see the butterfly eyeshadow palettes and also the new lip gloss and then in May, in August, and then there will be another two, a very big launch for the lines for Bermudaria as well. So we think the, so right now our new product for this year has pretty robust pipeline, and then it's not only in makeup, but also in skincare, and then in different price tier, in different category. So we think our, the product offerings is more, category focus right now.

Okay, thank you.

Thank you. Our next question comes from Kian Lin from CICC. Please go ahead.

Thanks for the management sharing. I've got two quick questions. The first question regarding financials. You mentioned the increase in sales and marketing expenses was primarily attributable to the expenses related to offline source optimization and an increase in branding expenses, partially offset by a decrease in online traffic expenses. So could the management help break down quantitatively the impact of the three factors? The second question is, the operation of skincare is quite different from color cosmetics on product offerings and marketing strategy. So the company has already proven itself as a leading color cosmetics player. And to what extent has the company upgraded the capabilities to run the skincare business? And that's my question.

Well, again, sorry about that. We're not providing breakdown across different channels regarding our sales and marketing expenses. So I'm sorry about that. And your second question?

About the capabilities, yes. I think, first of all, I think the growth model we've built up in the past few years can be applied in the skincare category. So we see the growth for our skincare brand is still really fast. And then what is different is the skincare brand has higher loyalty and a higher growth margin. Secondly, in the past two years, the company has been very dedicated in strengthening the brand building capability of the company. So we have more talent joining with very good experience in a traditional beauty and fashion company. So we think that what they bring into the company is the brand building framework and also the experience they have mastered in the previous working experience. And the third part is about, so right now, based on our experience, what we see is So our private domain is still contributing for our brands launched from zero to one stage. So we have been repeatedly seeing the evidence from our private domain. So all of those capabilities have been helping us to build more brands.

Gaudi, thanks a lot. That's all the questions I have.

The next question comes from Louise Lee from Bank of America. Please go ahead.

Hi, Danny. Hi, Dong Hao. Thank you for taking my question. So my first question is about our guidance on Q1. So based on the current expectations, Do you expect operating leverage in Q1, i.e., we might see expanding net loss on a non-GAAP level on a Q1-Q basis or on a Y1-Y basis? This is my first question. Second question is, do you have a timetable for the breakeven strategy plan? And third question is about the industry. I remember that in Q4 last year, actually from the second half of last year, the overall beauty market has slowed down a lot. Do we see any trend revision? How can we compare the past two months in year-to-date versus Q4 in last year from the industry level? maybe for color and skin care as well. So you also mentioned that last earnings call that an international brand, they were doing very aggressive promotion. So do we see this promotion level has been eased in the past women's day promotion?

Thank you. Well, obviously there will be some deleveraging impact because, you know, according to our guidance in our sales, our sales are going to decline 35 to 40 percent year-over-year. But, you know, we're trying very hard to offset the delivered impact by, you know, cutting some of our costs and improving our operational efficiency and, you know, ROI on our traffic expenses. So we are expecting to break even on a yearly basis next year. So that is our current goal. Question?

A question about the price discount for global brands. So we see that it's getting worse in the first quarter this year. So in the just past year, March 8th promotion because right now we have only one Super KOL and the price cut is getting even deeper. So we see the effect on price cut is getting smaller and smaller. So at this stage, the company's strategy choices is to lower the percentage of promotion and discount, and then raise the growth margin, spend more on brand building, and then lower the traffic expense, improve the ROI, and also increase the percentage of the skincare, especially on the high-end skincare brands, which we believe will become iconic brands in the future. So that is our response at this stage.

Thank you, David. Thank you, Dong Hao. You mentioned that the competition actually got worse yesterday. Is it because the whole industry is still very weak? Is this the reason?

I think there are a couple of reasons. One is the competition is getting stronger. And also, the market demand is getting soft. And also, because of the, especially for the live streaming, the competition to gain this long is getting more intensified. So for the global brand, the only way they can to keep their sales level is to lower the price. and then have a more aggressive promotion plan in order to get slots so that they can remain at a certain self-level. So that's what we see.

Got it. Thank you very much. I have no questions.

Thank you. This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks.

Thank you once again for joining the Yasin's conference call today. If you have any further questions, please feel free to contact us at Yasin directly or TPG Investor Relations. You can find our contact information for IR in both China and the U.S. in today's press release. Thank you and have a great day.

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