Yatsen Holding Limited

Ladies and gentlemen, good day and welcome to the Yatzen Third 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 forelooking statements relating to the company's future performance. and are intended to qualify for the safe harbor from liability as established by the US 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 Yashin'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 formal 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 to non-GAAP financial results. Joining us today on the call from Yasin's senior management are Mr. Xinfeng 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 Yasmin's investor relations website. at ir.yasenglobal.com. I will now turn the call over to Mr. Jinzong Wang. Please go ahead, sir.

Thank you, Irene, and thank you, everyone, for participating in Yasen's Third Quarter 2024 Earnings Conference call today. I will start with a macro overview and our key financial metrics. followed by insights into our strategy and updates on our brands and products. China's beauty industry faced significant challenges in the third quarter, with beauty sales significantly lagging the overall retail market. According to the adjusted data from China's National Bureau of Statistics, total retail sales of consumer goods grew by 2.7% year-over-year for the third quarter, while beauty retail sales declined sharply by 5.5%. Notably, September marked the fourth consecutive month of year-over-year declines in beauty retail sales since June. Online beauty sales were also sluggish in the third quarter Keymore reported a year-over-year drop in both color cosmetics and skincare sales, while Douyin sustained modest double-digit growth. Despite a challenging market, we delivered results in line with our guidance. Total net revenues decreased by 5.7% year-over-year. However, net revenues from skincare brands rose by 3.6% year-over-year, driven by a 10.5% year-over-year increase in our clinical and premium skincare brands, including Galenique, Dr. Wu, and Yves Long. Conversely, net revenues from our color cosmetic brands fell by 10% year-over-year, largely due to decreased sales from the Perfect Diary brand which is undergoing a strategic transformation to revamp its product line and optimize its channel mix. On the profitability front, our overall growth margin improved to 75.9% in the third quarter, up from 71.4% in the prior year period, driven by a higher contribution from high-margin products. We also reduced our net loss margin by 9.7 percentage points to 7.9% from 27.6% in the prior year through strategic marketing spending and optimized general and administrative expenses. Next, I would like to provide more color on the progress of our strategic transformation, which we advanced during the third quarter to drive sustainable growth. One key initiative is optimizing our revenue mix by prioritizing higher margin products. This involves expanding our skincare brands and introducing new color cosmetics products with higher growth margins supported by our growing R&D capabilities. We are also refining our cost structure to boost profitability. Operationally, we have streamlined our organizational structure to reduce general and administrative expenses, setting the stage for operating leverage once net revenue returns to growth. These efforts provide a solid foundation for sustainable long-term growth and will enhance our ability to improve profitability as revenue recovers. As part of our strategic transformation initiatives, we made substantial investments in R&D with our third quarter research and development expenses totaling RMB 25.3 million, representing 3.7% of net revenues. This consistent investment has significantly improved our R&D capability, enabling us to develop new, high-quality products. In the third quarter, Perfect Diary launched the second-generation BioLip Essence Lipstick that leveraged the upgraded biotech technology. Launched in late September, the product became the top seller in the lipstick category in terms of retail sales value on Douyin during the first week of October. Galenique also launched several new products. The CO2 Secret Desilence UV Multi-Protection, featuring our innovative Active Anchor technology, provides high-level, full-spectrum sun protection. The No. 2 Vitamin A Serum offers a highly efficacious and clinically proven skincare solution to improve skin texture and reduce wrinkles. For the Double Eleven Shopping Festival, we are pleased to report positive results across our brands, given by the products we mentioned before, as well as other offerings launched throughout the year, including the Galactic Living Fan Michael Mask and our existing Hero products. At the end of October, Perfect Diary has re-entered the top 20 color cosmetic brands in terms of combined sales on Tmall and Douyin. In addition, Bellinique performed strongly during the festival, ranking number one among premium whitening products within Austin Lee's live streaming room, and number three among imported anti-wrinkle serum products on Tmall. Furthermore, Galanick participated in the 33rd European Academic of Dermatology and Virology Congress in Amsterdam in September, where we presented groundbreaking clinical research on our Galanick No. 1 Vitamin C Serum in conjunction with yellow light therapy for effectively treating melasma. This collaboration with leading international experts underscores our dedication to dermatological science. Meanwhile, Yves Long hosted a global summit on emotional skincare at the University of Oxford, highlighting the stress-relieving benefits of Yves Long's daily rejuvenating cream and showcasing our latest innovations in emotional skin care. In terms of our efforts to optimize our cost structure, we also made significant progress in the third quarter. Our general and administrative expenses for the quarter were RMB 85 million, representing 12.6% of net revenues, a substantial improvement from RMB 151.8 million or 21.1% of net revenues for the prior year period. By reducing our fixed cost levels, we are moving closer to our goal of sustainable growth. Lastly, I would like to provide an update on our ESG initiatives. We recently released our 2023 Environmental, Social, and Governance Report, marking our third consecutive year of dependent commitment to transparency and sustainability. We are proud to maintain our MSCI ESG rating of A, reflecting our strong performance in several key areas, including product packaging and waste management, product carbon footprint, and chemical safety. Our dedication to excellence in green and low-carbon initiatives continues to enhance our position as a responsible leader in the beauty industry. In conclusion, while the beauty industry continues to face challenges, we remain optimistic about our ability to adapt and thrive. With our focus on innovation, brand building, and sustainable practices, we are confident that we are well positioned to achieve year-over-year revenue growth in the fourth quarter. Additionally, our commitment in quality and consumer engagement will enhance brand loyalty given our long-term progress. With that, I will now turn the call over to our CFO, Donghao Yang, to discuss our financial performance. Thank you, everyone.