Yunji Inc (YJ) 2021 Q2 法說會逐字稿

Good morning, and good evening, ladies and gentlemen. Thank you, and welcome to Yunji's Second Quarter 2021 Earnings Conference Call.

With us today are Mr. Shanglue Xiao, Chairman and Chief Executive Officer; Chengqi Zhang, Vice President of Finance; and Ms. Kaye Liu, Investor Relations Director of the company.

Now I would like to hand the conference over to first speaker today, Ms. Kaye Liu, IRD of Yunji. Please go ahead, ma'am.

Hello, everyone. Welcome to our second quarter 2021 earnings call. Before we start, please note that is call will contain forward-looking statements within the meaning of Private Securities Litigation Reform Act of 1995 that are based on our current expectations and current market operating conditions and related to events that involve known or unknown risks, uncertainties and other factors of Yunji and its industry. These forward-looking statements can be identified by terminologies such as will, expect, anticipate, continue or other similar expressions. For a detailed discussion of these risks and uncertainties, please refer to our related documents filed with U.S. SEC.

Any forward-looking statements that we make on this call are based on assumptions as of today and are expressly qualified entirely by cautionary statements, risk factors and details of the company's filing with the SEC.

Yunji do not undertake any obligation to update this statement, except as required on applicable law.

With that, I will now turn over to Shanglue Xiao, Chairman and CEO of Yunji.

[Interpreted] Hello, everyone. Welcome to Yunji's Second Quarter 2021 Earnings Call.

Based on product selection and social sharing, Yunji's marketing model has established a complete and healthy life cycle. The cycle starts with product selection, promotion by our service managers and purchase facilitation. While our service managers benefit from promotional incentives, our members have a better understanding of the product through the service managers' introductions, receive cost-effective products that satisfy their needs, establish trust with Yunji platform and our sharing based model and conduct repeat purchases. Meanwhile, our service managers will earn and combine delivery services. Common prosperity has also been Yunji's unlimiting vision since its establishment.

To create more user value and offer products with better quality, we remained focused on three core strategies, highly curated product selection, differentiated supply chain and specialized retail system.

In May 2021, we launched the "Yunji 99" special sales portal on our Yunji App as one of the core portals for our curated product selection strategy. Aiming to become the portal for megahit products across all of the Internet, our "Yunji 99" portal funnels our platform's core traffic to a refined selection of megahit products across all categories. The addition of this section reinforces our refined supply chain strategy as well as the cultivation of megahit product sales by connecting Yunji members to quality items with viral appeal. By focusing on highly cost-effective products, we help millions of members access quality products from all over the world.

The "Yunji 99" special sales portal features a curated selection of up to 99 products each day. These 99 products are vigorously screened and selected through strict criteria and a basic product pool selection process. Of the 99 products, the top 10 best sellers will be highly recommended and provided with more resource support. Providing such high-quality brands at affordable prices enhances the Yunji shopping experience and encourages purchases. We will continue to optimize our product selection and utilize data-driven insights to enhance the Yunji shopping experience and provide our users with a true one-stop shopping solution.

As for our differentiated supply chain strategy, we recently celebrated the 11th anniversary of our private label skincare brand, Solo Life. By utilizing our social sharing capabilities, we have helped Solo Life to better express its brand value and accumulate a large group of loyal users over the years. By the end of 2020, Solo Life had become a skincare brand with annual sales of more than RMB1 billion on the Yunji platform and cultivated multiple megahit products with hundreds of millions in unit sales. Within our differentiated supply chain matrix, we also introduced a number of unique products in various categories. For example, the first batch of our newly developed line of beauty drinks, which included [58,000] (corrected by the company after the call) products, was sold out within just 57 seconds of its launch. We are currently optimizing production capacity and shipment speed and look forward to this product line's performance after our production capacity has improved.

We chose to differentiate our strategic focus on the health industry for a number of reasons. First, we believe that the tailwind generated by the health industry brings tremendous value to not only us, but also our members. More importantly, we want to provide our service managers and members with methods to improve their physical strength and beauty. It is also our sincere hope that our service managers will develop a lifelong career on our platform that benefits not only themselves, but also their families.

Next, let me share the initiatives we have taken to utilize a specialized retail system and online traffic. These have helped millions of service managers discover and develop life-changing career opportunities. Most of our service managers are women. We train our service managers to deliver professional services to our members and hope that they can gradually earn a decent monthly salary of tens of thousands of renminbi. They are not only service managers, but also experts in various fields. They are entrepreneurs who hope for a change in their lives. We offer them many training programs in areas such as health management and marketing, so that they can become experts in the fields of cosmetics, health and sales. These trainings enable them to reach consumers with a more professional attitude and improved marketing skills. The professional marketing skills are practical in use and also boost our sustainable development. Going forward, we hope that more leaders will emerge from within our service manager group, and we will focus on supporting these leaders while making our specialized retail system more complete and efficient.

During the second quarter, we maintained the entrepreneurial spirit and continued to conduct innovative initiatives. In terms of user retention, we set up a special group to better reach users, engage inactive users and strengthen users' consumption frequency. In addition to developing new traffic channels, this group worked hard on content marketing and created their own original short-form video content. Meanwhile, we have also been preparing for our own live streaming sessions on third-party-wise streaming platforms, where I will host the sessions myself.

With that, I will turn the call over to Mr. Chengqi Zhang, our Vice President of Finance, to go through the financial results.

Thank you, Shanglue. Hello, everyone. Before I go through our financial results, please note that all numbers stated in the following remarks are in RMB terms and all comparisons and percentage changes are on a year-over-year basis, unless otherwise noted.

Starting this year, we committed to enhancing our supply chain differentiation strategy, upgrading our product selection with our new megahit product curation strategy and refining our membership management system. We have also shifted our mindset to focus on sustainable long-term growth as we further improved our efficiency and employee structure.

After several quarters of adjustments, our refined operations have resulted in significant improvements in our profitability despite some fluctuations in our quarterly sales. During the quarter, we recorded an operating income of 16 million and a net income of 17 million compared with an operating loss of 45 million and a net loss of 17 million in a year ago.

Now, let's take a closer look at our financials. Total revenues were 571 million compared to 1,487 million a year ago. Revenues from sales of merchandise was 472 million and revenues from our marketplace business was 88 million.

In line with our renewed long-term growth strategy, we further optimized our selection of suppliers and merchants, which caused revenue decreases in both our marketplace business and merchandise sales during this quarter.

As a result, gross margin improved to [35%] (corrected by the company after the call) compared to 29% a year ago. During this quarter, we improved our operating efficiency by carefully selecting quality suppliers and products, removed certain products that were more [inclined] (corrected by the company after the call) to face pricing and subsidy competition and focused on our differentiated supply chain and megahit product offerings. As a result, gross margin improved accordingly.

Turning to our operating expenses.

Fulfillment expenses were 50 million or 8.8% of total revenues compared to 129 million or 8.7% of total revenue a year ago.

Sales and the marketing expense were 61 million compared to 228 million a year ago. As a percentage of total revenues, sales and marketing expenses were reduced to 10.8% from 15.4% in the same period last year. This decline was due to the decreased business promotion expenses and reduced member management fees resulting from the improvements of our member management efficiency.

Technology and content expenses were 32 million or 5.7% of total revenues compared to 59 million or 3.9% of total revenue a year ago.

General and administrative expenses were 43 million or 7.5% of total revenues compared to 71 million or 4.8% of total revenue a year ago. This decrease was mainly due to a decrease in share-based compensation expenses.

Total operating expenses in the second quarter decreased to 187 million. We recorded an income from operations of 16 million, as compared to a loss of 45 million a year ago.

Net income was 17 million, compared to a net loss of 17 million a year ago. Adjusted net income was 24 million compared with 20 million a year ago.

Basic and diluted net income per share attributable to ordinary shareholders were both 0.01, compared to basic and diluted net loss per share attributable to ordinary shareholders of 0.01 in the same period of 2020.

Moving on to liquidity. As of June 30, 2021, we had a total of 1.1 billion in cash and cash equivalents, restricted cash and short-term investments on our balance sheet. Our liquid assets were sufficient enough to cover our payable obligations and though we did not hold any long-term bank loans or debt on our balance sheet.

As we continue to execute our supply chain differentiation and product curation strategies, we remain focused on our long-term growth objectives and profitability. We are confident that our innovative strategies and refined operational capabilities will continue to drive our sustainable development going forward.

This concludes our prepared remarks for today. Operator, we are now ready to take questions.

(Operator Instructions)

It seems we don't have any questions from the line yet. Presenters, please continue.

(Operator Instructions)

I don't see any questions from the line yet. Presenters or management, please continue.

Thank you for joining us today. Please do not hesitate to contact us if you have further questions, and we look forward to talking with you next quarter. Thanks.

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may now all disconnect.