Yatsen Holding Limited

Ladies and gentlemen, good day and welcome to the Yatsen Fourth Quarter and Full Year 2023 Earnings Conference Call. Today's conference 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 that 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 Securities 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 full booking 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, non-GAAP financial results. Joining us today on the call from Yasin's senior management are Mr. Xinzong Huang, our founder, chairman, and CEO, and Mr. Donghao Yang, our CFO and director. Management will begin with prepared 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 Yasen's investor relations website at ir.yasenglobal.com. I'll now turn the call over to Mr. Jinfeng Huang, who's co-host here.

Thank you, Irene, and thank you, everyone, for participating in Yasen's fourth quarter and a full year 2023 earnings conference call today. I would like to begin with a macro overview before delving into the details of our strategy and progress across our segments and brands. China's beauty market experienced a modest recovery in 2023. According to the adjusted data published by the National Bureau of Statistics of China. Total retail sales of consumer goods grew by 8.3% year-over-year for the fourth quarter and 7.2% for the full year. Against this backdrop, total beauty retail sales were up 1% year-over-year for the fourth quarter and 5.1% for the full year. Online beauty sales patterns were mixed in 2023. Sales on Timor decreased while sales on Douyin increased year over year for both the fourth quarter and the full year. We made solid progress this quarter amid a still-stopped retail environment, returning to a growth trajectory as we executed our strategy transformation plans. Perfect Diaries brand repositioning is also proceeding as intended. To pave the way for future growth, we remain focused on building strong brand equity through superior products and consumer satisfaction, while continuing investments in brand building and R&D. Our total net revenue for the quarter beat our guidance. up 6.7% year-over-year. Net revenues from our skincare brands for the fourth quarter grew by 17.6% year-over-year. Our clinical and premium skincare brands, including Delinec, Dr. Wu, and Yves Long, delivered another solid performance, recording a 23.4% year-over-year growth in combined net revenues, and further elevating their contribution to total net revenues. Net revenues from color cosmetic brands declined slightly by 1.8% year-over-year for the fourth quarter. In terms of channel optimization, we continued to strategically close underperforming offline stores. As of the end of 2023, we operated 110 offline experience stores for the Perfect Diary brand, as compared with 158 stores a year ago. Our two other color cosmetic brands, Little Ondine and Pin Bear, continued to resonate with their customers and recorded year-over-year revenue growth. Our fourth quarter growth margin improved to 73.7% from 71.1% for the prior year period. benefiting from higher growth margin products and a more disciplined pricing and discount policies. Our net loose margin expanded to 46.1% for the fourth quarter, primarily attributable to an impairment of goodwill, as well as increased investment in our brands. The goodwill impairment recorded in the fourth quarter represents the amount by which the carrying value of the EAP loan reporting unit exceeded its fair value based on quantitative goodwill impairment test due to weaker operating results than expected at the time of acquisition. Despite challenges in the market environment and ongoing competition, we still see potential in the brand. For the full year 2023, our net loss margin was 22% as compared with 22.2% in 2022, Our non-GAAP net loss margin narrowed to 8.7% from 12.2% for the prior year period, a significant improvement that underscores our skills in balancing cost structure optimization with the need to grab market opportunities as we drive sustainable growth. Moving on to the brands and products, for our skincare brands, we maintained our focus on brand building and introduced efficient products to foster deeper connections with each brand's audience. Galanick recorded solid performance during the Double 11 Shopping Festival, ranking number one in the premium brightening serum category in terms of retail sales value on both Timor and Douyin with his Hero VC serum. The brand is also making progress on its Couture line, winning the Essence of the Year award at the Bazaar Beauty Awards 2023 for its CO2 Secret excellent active serum. Dr. Wu's acne research fund announced its first batch of pioneering research projects at the 2023 National Congress of Cosmetic Dermatology in Shanghai. Dr. Wu continues to push boundaries in clinical acne research and the application of mandelic acid. propelling the fields of long-term development. Also, Yiflong opened its first offline store in southern China in January this year, bringing the brand's tactile experience to a broader customer base. With respect to color cosmetics, Perfect Diary's brand repositioning continues to gain traction among its target customers. Biolip Essence Lipstick the new hero product we launched in September 2023 has been gaining market share in the lipstick category on both Tmall and Douyin. During 2012, the newly launched lipstick made ProfitDiary the number one lipstick brand in terms of retail sales value on Douyin. Given this product line's potential, we expanded the series to include BioLip Essence Lip Stain in 2023, and a biolip essence matte lipstick in February 2024, enriching offering for customers to experience its advanced formulation. CleverDiary also recently launched its multi-peptide essence tone-up cream, the brand's very first product, integrating the wrinkle-reducing cream with the makeup primer and the natural foundation. Both Little Ondine and Pin Bear introduced new products during the quarter, Little Ondine's Little White Eyeline Pen won the Eye Color Award in the Color Cosmetic category at the Vogue Beauty Awards 2023. Wild King Bear's Fairy Dream Eyeshadow brought home the Sea Beauty Awards Color Development Award. Moving now to the R&D, R&D expenses as a percentage of revenues were 3.4% for the fourth quarter and a 3.3% for the full year, 2023. Over the past year, we have significantly enhanced our R&D capabilities under the leadership of our chief scientific officers, establishing a comprehensive R&D framework and a clear strategy direction. The R&D team has developed iconic products, including Perfect Iris Lipstick Essence, BioLip Essence Lipstick, and Galanix ViviFant We also strengthened our R&D infrastructure by setting up our Shanghai R&D Center. Along with these efforts, we promoted innovation through industry-academia collaboration, including leading initiatives such as Dr. Wu's Acne Research Fund and the Galenic Dermatology Research Fund. Going forward, we remain committed to R&D investment. to drive innovation and growth. So before I conclude, a brief update on our 2023 ESG performance. Yasen's dedication to environmental and social responsibility and employee welfare is integral to our brand and future development. We published our second ESG report in 2023, highlighting our alignment with prevailing green development initiatives. Furthermore, we were honored to be recognized at China's 2023 DEI Employer Awards for our deep commitment to inclusion and employee welfare. To summarize, we are pleased with our return to growth in the fourth quarter and will remain focused on pursuing sustainable growth with innovation across our brands. With that, I will now turn the call over to our CFO, Dong Haoyang, to discuss our financial performance. Thank you, everyone.