Yatsen Holding Limited

Ladies and gentlemen, good day and welcome to the Yassin Second Quarter 2023 Earnings Conference Call. Today's conference call is being recorded. At this time, I would like to turn the conference over to Irene Liu, Vice President, Head of Strategic Investment and Capital Markets. Please go ahead.

Thank you, Operator. Please note the discussion today will contain four local statements relating to the company's future performance. and are intended to qualify for the safe harbor from liability as established by 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 Yasmin's business and financial results is included in certain filings of the company with the Securities and Exchange Commission. The company does not undertake any obligation to update this forward-looking information, except as required by law. During today's call, management will also discuss certain non-GAAP financial measures for comparison purposes only. Please see the earnings relief 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 Yasin's senior management are Mr. Jingbo Huang, our founder, chairman, and CEO, and Mr. Donghao Yang, our CFO and director. Management will begin with detailed remarks. and the call will conclude with a Q&A session. As a reminder, this conference is being recorded. In addition, a webcast replay of this conference call will be available on Yasin's investor relations website at ir.yasinglobal.com. I'll now turn the call over to Mr. Jinfeng Huang. Please go ahead, David.

Thank you, Irene. And thank you, everyone, for participating in Yasen's second quarter 2023 earnings conference call today. The beauty industry experienced a modest post-COVID recovery during the second quarter of 2023. According to the National Bureau of Statistics of China, total retail sales of consumer goods grew by 10.7%, year-over-year, while declining by 2% quarter-over-quarter. More specifically, beauty retail sales rose by 11.5% year-over-year and 0.8% quarter-over-quarter in the second quarter. The year-over-year growth was partially affected by the prior year period's low base while quarter-over-quarter growth indicated a mild recovery pattern during the quarter. Online beauty sales also rebounded, demonstrated by the beauty sales growth on Timor and Douyin on both a yearly and a quarterly basis, mainly driven by promotion activities during the June 18th shopping festival. Against the industry backdrop, we continued to focus on rebalancing our category mix, expanding growth margins, and improving net margins through enhanced operational efficiency. Our business transformation remained largely on track, evidenced by our second quarter revenue beating the guidance we provided previously. Net revenues from our skincare brands increased by 2.3% year-over-year to RMB 325.2 million. Within skincare, our clinical and premium brands delivered another solid performance, with Galanick, Dr. Wu, and Yife Long recording 13.3% year-over-year growth in combined net revenues. With respect to revenue contribution, our skincare brands accounted for 37.9% of total net revenues in the second quarter, up from 33.4% in the prior year period. Revenues from color cosmetics declined in the second quarter as Perfect Diary continued to undergo a brand transformation. Furthermore, the number of Perfect Diaries offline stores totaled 136 as of the end of the second quarter compared with 228 a year ago as a result of targeted closures of underperforming offline stores. Our product mix optimization as well as our disciplined approach to discounts and promotions continued to drive improvements in our overall growth margin, which has demonstrated a clear upward trend over the past four quarters. We also improved our net margin year over year, reflecting our effective cost reduction and channel optimization strategies. Turning to our product. Beyond our investments in the existing Hero products, we also introduced new skin care products during the quarter. One highlight was Galanix Secret Diatilin Active Cream, a new anti-aging product enhanced with our patent Snow Algae peptide to promote collagen reproduction. Additionally, several of our existing hero products received recognition this quarter. With Galactic's Anti-Occident No. 1 VC Serum ranking No. 1 in both Timor, Austin Lee's Livestream Premium Brightening Serum category and Douyin's Premium Serum category during the June 18th Shopping Festival. Yiflong also turned in a solid performance during June 18, with the Iflon cleanser coming in first among premium cleanser products on Tmall. For our color cosmetics brands, we continued to advance product development, releasing high-quality products with strengthened functional features. During the second quarter, Perfect Diary launched its standing holiday collection, tailored for summer wear, as well as translucent blurring longwear foundation, which delivers a long-lasting, flawless finish. We also rolled out new and upgraded products for Little Onding and Pin Bear, driving growth in both brands. Little Onding made the Timor June 18th top 100 best-selling list with its brand-new 3D shadow and highlighter eyeliners, while Pin Bear launched its new jelly lipstick. Brand building remains a critical component of Yasen's long-term strategy. In July, two of our skincare brands, Galanique and Dotawoo, participated in the World Congress of Dermatology in Singapore, raising this brand's awareness among an internationally renowned group of clinicians, scientists, and industry professionals. Dr. Wu also celebrated his 20th anniversary this summer, a testament to his product's enduring popularity and the strength of his brand equity. Moving on to our recent R&D achievements, our R&D expenses reached 3% as a percentage of total net revenues, reflecting our continuous efforts in scientific advancement and product development. We are pleased to report that in June, we took our partnership with Regene Hospital, an affiliate of the Shanghai Jiao Tong University School of Medicine to the next level with the official unveiling of the Yasen Regine Medical Skincare Joint Laboratory in Shanghai. We formed this alliance with Regine Hospital to jointly conduct research on skin disease mechanisms and developed efficient skin products, skincare products. Leveraging Yasheng's deep experience and strong capabilities, as well as Ruijin's remarkable achievements in resource integration across the beauty industry. Educational and research institutions and hospitals, we look forward to advancing the future of skincare together. Furthermore, operations of the Guangzhou Manufacturing Hub we established with Cosmos officially commenced on August 11th, enabling further optimization of our supply chain. Powered by this development and our enhanced capabilities, we are confident about the prospect to successfully explore and launch more hero products in the future. Before I conclude, I would like to mention that we recently released our 2022 Environmental, Social, and Governance, or ESG report, marking our second consecutive year of ESG reporting. We are proud to provide a comprehensive review of our ESG initiatives and developments, including corporate governance, research and development, employees' rights protection, human capital development, environmental sustainability, and social responsibility, among others. We are grateful for the opportunity to demonstrate our commitment to creating a better society by fulfilling our corporate social responsibilities. To summarize, China's beauty market is still finding its footing in the post-pandemic era. and we understand that the recovery pattern of consumer demand remains uncertain. However, our strategy transformation is proceeding as planned, and our portfolio of strong, distinctive brands, as well as our sufficient financial resources, will empower us to adapt with flexibility. We will continue to build our brands across the board, elevating our skincare brand's growth while positioning our color cosmetic brands for success in the future. With that, I will now turn the call over to our CFO, Donghao Yang, to discuss our financial performance. Thank you, everyone.