Yatsen Holding Ltd (YSG) 2025 Q2 法說會逐字稿

Ladies and gentlemen, good day, and welcome to the Yatsen second-quarter 2025 earnings conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Irene Lyu, Vice President, Head of Strategic Investment and Capital Markets. Please go ahead.

Thank you, operator. Please note that discussion today will contain forward-looking 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 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 Yatsen's business and financial results is included in certain filings with the company with the Securities and Exchange Commission. The company does not undertake any obligation to update this forward-looking information, except as acquired by law.

During today's call, management will also discuss certain non-GAAP financial measures for comparison purposes only. Please see the earnings press issued earlier today for a definition of non-GAAP financial measures and a reconciliation of GAAP to the non-GAAP financial results.

Joining us today on the call from Yatsen'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 the Q&A session.

As a reminder, this conference is being recorded. In addition, a webcast replay of this conference call will be available on Yatsen's Investor Relations website at ir.yatsenglobal.com.

I'll now turn the call over to Mr. Jinfeng Huang. Please go ahead.

Thank you, Irene, and thank you, everyone, for joining Yatsen's second-quarter 2025 earnings conference call today.

I will begin with a brief macro overview and a summary of our financial results, followed by an update on how our R&D-driven initiative have supported the healthy development of our brand portfolio.

China's beauty industry for another modest quarter, according to the adjusted data published by the National Bureau of Statistics. Beauty sales increased by 2.6% year over year falling short of the 5.4% growth in total retail sales of consumer goods. Typically, during May and June, the key promotion period around the June 18 shopping festival, Beauty sales rose by 4.4% in May but declined by 2.3% in June.

Despite the uncertain environment, we stayed focused on executing our R&D-driven strategy anchored in our vision of becoming a world-class pioneer in beauty innovation. We have continued expanding our international innovation network, attracting top global R&D talent, and deepening collaborations across the industry, academia, and research institutions. These efforts have laid a solid foundation for both product innovation and brand equity, which supported the rebound in our financial performance.

Building on the momentum that began in the fourth quarter of 2024, we delivered year-over-year revenue growth and achieved non-GAAP profitability for the third consecutive quarter. In the second quarter of 2025, total net revenues grew by 36.8% year over year, significantly exceeding our previous guidance.

Revenues from in skincare brands increased 78.7% year over year driven by an 8.1% growth in the combined revenue from our three major skincare brands: Galénic, DR.WU, and Eve Lom.

Our color cosmetics brands also delivered year-over-year growth of 8.8% with Perfect Diary back on a growth category. As operating leverage begin to take effect, coupled with our efforts to improve efficiency in our operations and marketing spend, we narrowed our net loss margin to 1.8% from 10.8% for the prior year period and achieved a non-GAAP net profit margin of 1.1% for the second quarter of 2025 as compared with non-GAAP net loss margin of 9.4% for the prior year period.

Let me now walk you through some brands and product highlights, powered by our solid R&D successes. Galénic posted strong results, supported by a robust quarter of highlights and effective product marketing. Our number one vitamin C serum continues to lead sales while our upgraded brightening micro mask, featuring the brand's micro precision and active anchor technology ranked number one among premium single-use masks on both Tmall and the JD during the June 18 period.

The number two VA serum also received increasingly positive feedback, particularly ongoing. In addition to online growth, we began expanding dynamic offline presence, opening experience stores in Guangzhou, Shanghai, Wuhan, and Shenzhen by the end of June. These stores are designed to strengthen brand visibility and deepen consumer engagement.

DR.WU also benefited from a more diverse and balanced product portfolio. Its Pore Refining Renewal Essence Toner formulated with the gentle acid complex effectively adjusted to antioxidant and brightening needs of oily and acne-prone skin. This product resonated strongly with its targeted consumers and reinforce the brand positioning as a leader in professional skin renewals.

The second quarter also marked a key milestone for Perfect Diary. Since the launch of the Biolip Essence Lipstick in September 2023. Perfect Diary embraced a new philosophy of makeup skinnification. Building on this, we introduced the third-generation biotech technology and applied it to facial makeup. The new [Bioface Essence Foundation] provides a flawless finish while supporting the skin barrier.

We also launched the translucent blurring setting power powered by the SmartLock technology to control oil, combat oxidation, and reduce dullness. These innovations played a key role in putting Perfect Diary back on its growth path.

As our commitment to R&D remains central to our long-term strategy, we continue to strengthen our capabilities and presence in the scientific community. In May, we participated in the 2025 China Cosmetic Science and Technology Conference in Yunnan as a guest speaker and joined a roundtable discussion on emotional skincare at the 2025 International Cosmetics Innovation Conference in Shanghai. In June, our joint laboratory with Ruijin Hospital unveiled its latest innovation at the 30th International Council of Nurse Congress in Helsinki, Finland.

We are also proud of our ongoing social responsibility initiative. During the second quarter of 2025, our Create a Beautiful Life program launched in partnership with the China Women's Development Foundation celebrated the graduation of its first 2025 cohort in Guizhou. Now in its fifth year, the program provides free professional makeup training for low-income women, helping them pursue new opportunities in employment and entrepreneurship.

Meanwhile, DR.WU has entered the third year of its campus charity tour, promoting scientific skin care education and raising skin health awareness among university students across China.

In summary, we are beginning to see tangible results from our long-term focus on R&D. We remain committed to nurturing our brands and delivering exceptional products to our customers.

With that, I will now turn the call over to our CFO, Donghao Yang, to discuss our financial performance. Thank you, everyone.

Thank you, David, and hello, everyone. Before I get started, I would like to clarify that all financial numbers presented today are in renminbi amounts, and all percentage changes refer to year-over-year changes unless otherwise noted.

Total net revenues for the second quarter of 2025 increased by 36.8% to RMB1.09 billion from RMB794.5 million for the prior year period. This increase was primarily due to a 78.7% year-over-year increase in net revenues from skin care brands, combined with an 8.8% year-over-year increase in net revenues from color cosmetics brands.

Gross profit for the second quarter of 2025 increased by 39.5% to RMB850.4 million from RMB609.4 million for the prior year period. Gross margin for the second quarter of 2025 increased to 78.3% from 76.7% for the prior year period. The increase was primarily driven by an increase in sales of higher gross margin products.

Total operating expenses for the second quarter of 2025 increased by 21.7% to RMB905.9 million from RMB744.6 million for the prior year period. As a percentage of total net revenues, total operating expenses for the second quarter of 2025 were 83.4% as compared with 93.7% for the prior year period.

Fulfillment expenses for the second quarter of 2025 were RMB63.3 million as compared with RMB51.2 million for the prior year period. As a percentage of total net revenues, fulfillment expenses for the second quarter of 2025 decreased to 5.8% from 6.4% for the prior year period. The decrease was primarily due to further improvement in logistics efficiency.

Selling and marketing expenses for the second quarter of 2025 were RMB722.4 million as compared with RMB544.7 million for the prior year period. As a percentage of total net revenues, selling and marketing expenses for the second quarter of 2025 decreased to 66.5% from 68.6% for the prior year period. The decrease was primarily driven by the leveraging effect of higher total net revenues in the second quarter of 2025.

General and administrative expenses for the second quarter of 2025 were RMB84.1 million as compared with RMB119.1 million for the prior year period. As a percentage of total net revenues, general and administrative expenses for the second quarter of 2025 decreased to 7.7% from 15% for the prior year period. The decrease was primarily driven by lower payroll expenses resulting from a reduction in general and administrative headcount, coupled with the leveraging effect of higher total net revenues in the second quarter of 2025.

Research and development expenses for the second quarter of 2025 were RMB36.1 million as compared with RMB29.7 million for the prior year period. As a percentage of total net revenues, research and development expenses for the second quarter of 2025 decreased to 3.3% from 3.7% for the prior year period. The decrease was primarily driven by the leveraging effect of higher total net revenues in the second quarter of 2025.

Loss from operations for the second quarter of 2025 was RMB55.5 million as compared with RMB135.2 million for the prior year period. Operating loss margin was 5.1% as compared with 17% for the prior year period.

Non-GAAP loss from operations for the second quarter of 2025 was RMB20.4 million as compared with RMB111.9 million for the prior year period. Non-GAAP operating loss margin was 1.9% as compared with 14.1% for the prior year period. Net loss for the second quarter of 2025 was RMB19.5 million as compared with RMB85.5 million for the prior year period. Net loss margin was 1.8% as compared with 10.8% for the prior year period.

Net loss attributable to Yatsen's ordinary shareholders per diluted ADS for the second quarter of 2025 was RMB0.19 as compared with RMB0.77 for the prior year period. Non-GAAP net income for the second quarter of 2025 was RMB11.5 million as compared with non-GAAP net loss of RMB74.9 million for the prior year period.

Non-GAAP net income margin was 1.1% as compared with non-GAAP net loss margin of 9.4% for the prior year period. Non-GAAP net income attributable to Yatsen's ordinary shareholders per diluted ADS for the second quarter of 2025 was RMB0.13 as compared with non-GAAP net loss attributable to Yatsen's ordinary shareholders per diluted ADS of RMB0.67 for the prior year period.

As of June 30, 2025, we had cash, restricted cash, and short-term investments of RMB1.35 billion as compared with RMB1.36 billion as of December 31, 2024. Net cash generated from operating activities for the second quarter of 2025 was RMB77.7 million as compared with net cash used in operating activities of RMB148.2 million for the prior year period.

Looking at our business outlook for the third quarter of 2025, we expect our total net revenues to be between RMB778.6 million and RMB880.1 million, representing a year-over-year increase of approximately 15% to 30%. These forecasts reflect our current and preliminary view on the market and operational conditions, which are subject to change.

With that, I would now like to open the call to Q&A. Operator?

(Operator Instructions) Manqi Huang, CICC.

This is Manqi Huang from CICC. Firstly, congratulations for beating our guidance. And I have two questions. My first question is that as we enter into the second half of the year, how should we expect the trends of profitability for both skin care and color cosmetic categories? And how do we intend to like strike a balance between promoting new product lines and improving our profitability?

And my second question is about competition. So what's our view on the industry competition in Q3 and Q4, particularly the competition from foreign premium brands? That's my two questions.

Okay. Thank you very much for your question. Well, we are -- we've always been trying to strike a balance between our growth and profitability, and we don't believe that we have to sacrifice one for the other, and especially now our high-end skin care brands are growing even faster than our color cosmetics brands, which tend to have higher gross margin and bottom line.

So we're confident that as we grow our business, both in skin care and color cosmetics going forward and especially skin care is showing a much stronger growth momentum, we believe that we can achieve both growth and profitability.

And competition -- and I think you're right. I mean competition is going to be becoming more and more intense going forward, especially as our high-end skin care brand is growing faster, we do expect more competition from the international brands.

But in order to drive our growth and strengthen our competing position, we are adopting an R&D-driven growth strategy. So for the last four, five years, we've been one of the most aggressive players in the cosmetics industry to invest heavily in R&D. So now we built a very, I would say, best-in-class R&D team and R&D infrastructure. If you look at our lab, our R&D center in Shanghai is one of the world-class facilities.

So that's how we view where to drive our future growth and especially to win the competition against other players in the industry.

(Operator Instructions)

Lin Zhang, Citic Securities.

I'm Lin Zhang from CITIC Securities. And congratulations on the performance in the second quarter. My first question is for the skin care brands. So I want to ask what are the key drivers behind the rapid growth of skin care brands, especially for the Galénic and DR.WU in the first half of the year? And what is the outlook for the skin care business in the second half year and next year?

And my second question is, in which assets will the company make efforts to continuously improve the profitability?

Thank you for the question. So for the growth of our skin care brand, so we think there are a number of reasons primarily is because of our continued investment into R&D and our gradual systematic upgrade of our R&D capabilities. As a result, we have a very strong pipeline of the new product innovation.

So just to give you some examples, for example, for Galénic, for the past couple of quarters, we have introduced a series of new products, including on top of very successful VC, we introduced the VA serum and also the micro mask series has been very successful, and we also widened the offering of the micro mask in terms of different efficacy, and we also upgraded the micro mask recently.

And for DR.WU, the new essence toner has been very successful. So we think mainly from the R&D upgrade and also the new product pipeline. And then in terms of outlook, we have provided the guidance for Q3 of 15% to 30%, which we think reflects our future outlook in terms of continuous trend of our skin care brands in terms of the development.

And then on your second question is our efforts to how to improve the profitability. We are continuing to optimizing our channel and product mix and at the same time, streamline our operating expenses. But we think most of our brands, some of them given the high growth, we think there's still significant growth potential, and those brands are right now remain well below their respective ceiling. That's why we continue to plan to invest in the brand awareness and brand equity. So especially when there's a new product launch. So as a result, we think the profitability improvement will be gradual.

Okay. As well, just to add on to Irene's point, we do see clear opportunities to further improve profitability across several dimensions. First, we will continue to optimize our product mix, by driving premiumization and hero products with stronger margins. Second, we're improving marketing efficiency through data-driven CRM and better ROI discipline, shifting spending towards higher return channels.

Thirdly, we are enhancing supply chain and operational efficiency to reduce costs and improve scale leverage. And lastly, as top line growth continues, we expect to gain operating leverage across fixed expenses. So altogether, these initiatives give us confidence in steadily expanding profitability while maintaining growth.

This will conclude our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Thank you again for joining us today. If you have any further questions, please feel free to contact us at Yatsen directly. Our contact information for IR in both China and the US can be found in today's press release. Thank you and have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.