Yatsen Holding Limited

Ladies and gentlemen, good day and welcome to the Yattson Second Quarter 2024 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 motion 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 factor that could affect Yassin'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 form of information except as required by law. Here today's call, management will also discuss certain non-GAAP financial measures for comparison purposes only. We see the earnings relief issues 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. Jinfeng 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 Yasson's semester relations website at ir.yassonglobal.com. I'll now turn the call over to Mr. Jinfeng Huang.

Thank you, Irene, and thank you, everyone, for participating in Yasson's second quarter 2024 earnings conference quarter day. I will start with an overview of the macro environment and our key financial metrics before moving on to the strategy, brand and the quarter update. China's beauty industry has subdued the second quarter with the 2018 shopping festival falling short of expectations. According to the adjusted data published by China's National Bureau of Statistics, duty retail sales rebounded in May, likely due to the early start of the 6-18 festival and the cancellation of pre-sales, followed by a significant year-over-year decline in June. For the full second quarter, duty retail sales decreased by 1.2% year-over-year, lacking the overall market. where total retail sales of consumer goods grew by 2.7% year-over-year. In addition, online beauty sales remained muted. While Tmall and Douyin's combined beauty sales recorded year-over-year growth in the second quarter, the growth rate was significantly lower than in the prior year period. The dropped performance of China's beauty market impacted our revenue, to revise our revenue guidance in July. Total net revenues for the second quarter were RMB 794.5 million, reflecting a 7.5% year-over-year decline, in line with our revised expectations. Net revenues from our skincare brands were basically flat year-over-year, while combined revenues from Galanique, Dr. Wu, and Yves Long grew by 5% year-over-year. Polar Cosmetics brand's net revenues decreased by 11.4% year-over-year, primarily due to the ongoing strategy transformation of the Pervidari brand. Its full flagship product line, the BioLip Essence 2, is performing well as the brand continues to build its new product line-up. On the profitability side, our overall growth margin increased to 17.6%. from 17.47% for the prior year period, thanks to an increased contribution from high growth margin products. Our net loss margin also narrowed by 1.9% points to 10.8% from 12.6% for the prior year period. Our long gap net loss margin, however, increased to 9.4% from 5.1% for the prior year period. The year-over-year increase in our non-GAAP net loss margin was mainly due to higher channel traffic expenses as a result of Douyin's growing contribution to sales and our investments in marketing events to strengthen brand equity in the second quarter. Given the challenges in the industry and where we are in our strategy transformation plan, we will remain focused on improving our channel mix and optimizing our cost structure to reduce losses for the remainder of the year. Meanwhile, we will maintain our investments in brand building and R&D as we pursue a sustainable growth path. Our skincare brand delivered another steady performance during the second quarter, given not only by our hero product, but also by an increasingly diverse and extensive product portfolio. This launch renewal treatment oil gained significant disability on the Douyin platform after being featured in the remote edges of YouTube's live streaming room, successfully boosting the product's revenue contribution. DelaNIC also experienced growing sales from its viewing services, integrating Michael Mask. Our telecosmetic brands also continued to develop and launch standout products in the second quarter, Profit Diary introduced multiple power products, including a translucent layering long-wear cushion foundation, while Little Ondine brought the Born Wild dual-ended gel gel pen and a gold compact powder to market. Also, Profit Diary's Biolink Essence Lipstick recently won the gold award in the beauty and personal care category at the Big Tiger Roll Awards. showcasing our effective brand repositioning and appealing hero products. The second quarter also included a host of brand building opportunities across our brand portfolio. In May, Yasem participated in the 2024 China Conference of Cosmetic Science and Technology, as well as the related 15th Academic Symposium. During the event, Perfect Diary released latest scientific research report compiled in collaboration with the China Association of Pregants, Labor and Cosmetic Industries, and the Rijin Hospital of Shanghai Jiao Tong University School of Medicine. On the skincare front, Galanick held a major brand event in Bali in collaboration with GQ, featuring several experts and KOLs. Glenick also announced swimming world champion Ms. Zhang Yufei as its new brand ambassador during the quarter. Furthermore, Dr. Wu participated in the 13th Asia Dermatology Congress, the most widely attended and representative event in the field of dermatology in Asia, focusing on Asian skin's unique anti-aging needs. Dr. Wu collaborated with top industry experts to present the latest advancement in anti-aging treatments and to demonstrate its new to retinal anti-wrinkle firming serums efficacy. So before I wrap up, an update on R&D. I'm proud to share that on May the 28th, the Yangtze Global Innovation R&D Center was officially inaugurated in Shanghai, marking China's first global R&D hub for a national beauty brand. With nearly 4,000 square meters of R&D space, the sector's successful completion and operational launch will provide robust support for Yasen's product development and technological advancement. In conclusion, the second quarter was challenging from a macro perspective. We will remain focused on the sectors we can control. Designing continued improvement in our loss margin through cost and efficiency optimizations, while impacting our channel mix and advancing product development. With that, I will now turn the call over to our CFO, Donghao Yang, to discuss our financial performance. Thank you, everyone.