Yatsen Holding Ltd (YSG) 2025 Q3 法說會逐字稿

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

At this time, I would like to turn the conference over to Ms. 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 of the company with the Securities and Exchange Commission. The company does not undertake any obligation to update this forward-looking information, except 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 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 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 Yatsen's Investor Relations website at ir.yatsenglobal.com.

I will now turn the call over to Mr. Jinfeng Huang. Please Go ahead, sir.

Hello, everyone. Thank you for joining our third quarter 2025 earnings call. The beauty market in China continues to show signs of recovery in the third quarter, particularly in the skincare category, which remains robust and the supported overall industry growth.

Amidst this improving backdrop, we remain focused on executing our long-term strategy to build a competitive and resilient brand portfolio anchored in R&D and innovation. Through disciplined execution, we delivered our fourth consecutive quarter of revenue growth with total net revenues increasing by 47.5% year-over-year and exiting the high end of our guidance.

Our momentum continues to be driven by strong growth from skincare and sustained performance of our hero product engine rather than short-term promotions. Our skincare brands grew by 83.2% year-over-year and reached 49.2% of total revenue, making another step forward in our category upgrade strategy and reinforcing our transformation toward a more sustainable margin-accretive portfolio.

Meanwhile, our net loss narrowed meaningfully as a result of the improved gross margin, optimize operating efficiency and more disciplined resources allocation. Net loss margin improved significantly from 17.9% in the prior year period to 7% this quarter, demonstrating the continued progress in our profitability trajectory. These results reflect the strength of our brands as well as our commitment to disciplined execution.

Looking ahead, our priority is to continue progressing toward profitability in a disciplined and a sustainable way. We expect further improvement to be driven by a higher income mix, ongoing gross margin optimization and greater marketing efficiency. While we will continue to invest in innovation and hero products, we remain disciplined in balancing growth with profitability.

Now let me share some brand and further highlights during this quarter. Galenic delivered strong momentum and remained one of the fastest growing premium skincare brand. The brand hero serum series continued to perform well, is the number one VC serum and number two [AVA] serum ranking among the top selling serum across major e-commerce platforms.

The newly introduced number three VB serum launched in the mid-September to further build up the brands; ABC cellular level skincare framework quickly became one of the brand's best-selling items on Douyin. We are also seeing encouraging signs of regimen adoption with more consumers purchasing multiple products within the series, supporting stronger customer lifetime value.

DR. WU recorded healthy growth during the quarter, supported by strong performance from its core categories. In September, DR. WU unveiled its first anti-aging product in the UK leveraging decades of the clinical expertise in skin renewal.

The newly launched PDRN serum gained strong traction across e-commerce platforms given by its innovative formulary featuring the high concentration of active ingredients and patterned penetration technology, underscoring the brand's ability to build up through clinically validated innovation.

In China, DR. WU continues to lead the Mandelic Acid category across online platforms. In addition, DR. WU presented its research at the ninth annual academic conferences of the Dermatology Committee of the Chinese Nongovernment Medical Institution Association, further demonstrating the brand's commitment to clinically grounded innovation and strengthening its leadership in renewable focused skin care.

Our flagship brand Perfect Diary also continued to make progress. Following the success for launch of the Translucent Blurring Setting Powder and BioFace Essence Foundation, the brand focused on streamlining its core product performance, improving hero product quality and enhancing overall product experience under the makeup signification concept. Several of these hero products delivered the performance above expectations, driving Perfect Diary space makeup category to exceed 40% of the total sales and supporting a more sustainable and disciplined recovery.

In the third quarter, Perfect Diary also excelled in new channel performance and achieved the number one ranking among makeup brands on WeChat video channel, reflecting the brands strengthened competitiveness and growing consumer revenue.

R&D and innovation have consistently serve as the cornerstone of our product development and brand building. We are committed to advancing scientific research to strengthen our long-term competitiveness.

During the quarter, we participated in the IFCC Congress for the fourth consecutive year, this time in (inaudible). 11 of our papers were shortlisted by the IFCC, covering topics from more cellular mechanism and a clinical translation to AI algorithms and emotion skin care. So this work highlights our full chain capabilities from fundamental science to technology translation and clinical validation and directly supports future hero highlights across our brands.

As we finished the third quarter, we are pleased to see continued progress in both growth and operational improvements. We remain confident that our strategic focus on R&D, together with disciplined execution and a sharper resource allocation, will enable us to deliver sustainable long-term growth. At the same time, we will remain highly disciplined in capital allocation, prioritizing investments that strengthen our core brands and innovation capability while creating long-term value for shareholders.

Thank you. I will now turn the call to Donghao.

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 third quarter of 2025 increased by 47.5% to RMB998.4 million from RMB677 million for the prior year period. The increase was primarily due to an 83.2% year-over-year increase in net revenues from skin care brands, combined with a 25.2% year-over-year increase in the revenue from color cosmetics brands.

Gross profit for the third quarter of 2025 increased by 51.9% to RMB780.5 million from RMB513.8 million for the prior year period. Gross margin for the third quarter of 2025 increased to 78.2% from 75.9% 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 third quarter of 2025 increased by 31.9% to RMB864.1 million from RMB665.2 million for the prior year period. As a percentage of total net revenues, total operating expenses for the third quarter of 2025 were 86.5% as compared with 96.8% for the prior year period.

Fulfillment expenses for the third quarter of 2025 were RMB61.8 million as compared with RMB50.4 million for the prior year period. As a percentage of total net revenues, fulfillment expenses for the third quarter of 2025 decreased to 6.2% from 7.4% for the prior year period. The decrease was primarily driven by fulfillment cost optimization, coupled with the leveraging effect of higher total net revenues in the third quarter of 2025.

Selling and marketing expenses for the third quarter of 2025 were RMB682.3 million as compared with RMB494.4 million for the prior year period. As a percentage of total net revenues, selling and marketing expenses for the third quarter of 2025 decreased to 68.3% from 73% for the prior year period.

The third quarter included a portion of our planned upfront investments with the Double 11 shopping season. These investments typically elevate selling and marketing ratios in the short term but supports revenue acceleration and stronger brand equity in the fourth quarter and beyond. Excluding these seasonal effects, we continue to see improving marketing efficiency driven by a higher skin care mix and more disciplined spending across channels.

General and administrative expenses for the third quarter of 2025 were RMB80.2 million as compared with RMB85 million for the prior year period. As a percentage of total net revenues, general and administrative expenses for the third quarter of 2025 decreased to 8% from 12.6% for the prior year period. The decrease was primarily driven by lower share-based compensation expenses, coupled with the leveraging effect of higher total net revenues in the third quarter of 2025.

Research and development expenses for the third quarter of 2025 were RMB39.8 million as compared with RMB25.3 million for the prior year period. As a percentage of total net revenues, research and development expenses for the third quarter of 2025 increased to 4% from 3.7% for the prior year period. The increase was primarily driven by higher payroll expenses resulting from a rise in research and development headcount.

Loss from operations for the third quarter of 2025 was RMB83.6 million as compared with RMB141.3 million for the prior year period. Operating loss margin was 8.4% as compared with 20.9% for the prior year period. Non-GAAP loss from operations for the third quarter of 2025 was RMB60.6 million as compared with RMB98.5 million for the prior year period. Non-GAAP operating loss margin was 6.1% as compared with 14.5% for the prior year period.

Net loss for the third quarter of 2025 was RMB70.4 million as compared with RMB121.1 million for the prior year period. Net loss margin was 7% as compared with 17.9% from the prior year period. Net loss attributable to Yatsen's ordinary shareholders for diluted ADS for the third quarter of was RMB0.7 as compared with RMB1.22 for the prior year period.

Non-GAAP net loss for the third quarter of 2025 was RMB51.5 million as compared with RMB76.6 million for the prior year period. Non-GAAP net loss margin was 5.2% as compared with 11.3% for the prior year period. Non-GAAP net loss attributable to Yatsen's ordinary shareholders per diluted ADS for the third quarter of 2025 was RMB0.5 as compared with RMB0.77 for the prior year period.

As of September 30, 2025, the company had cash, restricted cash and short-term investments of RMB1.16 billion as compared with RMB1.36 billion as of December 31, 2024.

Net cash used in operating activities for the third quarter of 2025 was RMB126.8 million as compared with RMB175.9 million for the prior year period.

The operating cash flow was primarily due to working capital movements, including inventory, positioning and receivables timing ahead of Double 11. These are seasonal and planned effects. We expect operating cash flow to improve as these improved investments convert into revenue in the fourth quarter and as we continue to optimize inventory efficiency and marketing ROI.

Looking at our business outlook for the fourth quarter of 2025, we expect our total net revenues to be between RMB1.32 billion and RMB1.49 billion, representing a year-over-year increase of approximately 15% to 30%. These forecasts reflect our current and preliminary views 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) Maggie Huang, CICC.

Well, thanks for taking my question. This is Maggie Huang from CICC. Firstly, congratulations for beating our revenue guidance. And I have two questions. My first question is about our performance during Double 11 festival. Is that in line with our expectation? And have we observed any change in the competition from foreign high-end brands?

And my second question is that how do we expect the profitability of the fourth quarter and the next year? And that's my question.

Well, I think, first of all, the Double 11 performance for the whole company, generally, it's in line with our expectations. And of course, some of the brands are exceeding our expectations.

So having said that, I think we are very happy to observe some of -- not only the existing hero SKUs are doing well, but some of the newly launched products are gaining a very strong momentum during the Double 11 shopping festival, which will contribute for further growth potentials in coming quarters. Those products we already mentioned in the earnings call.

Going back to your question about the challenges and also competition coming from the foreign high-end brands. We did observe a very big challenge and also competition for the [past] Double 11 shopping festival. And some of the high-end brands are struggling with very big and also deep price cut for their hero products. We did see that with our R&D supporting some of our new product launch. Those products are still gaining a very strong momentum.

Looking forward, I think the competition during the Double 11 shopping festival will load some of the pantries for some of the foreign high-end brands, so which means you hurt their long-term growth.

So having said that, I'm happy to see that our high-end brand, we're still keeping a very strong momentum by balancing the price promotion and also we're focusing on promoting some of the new SKUs.

So going back to the Q4, I think we are on our right track to reach the profitability. And then that's our long-term goal. And then we are seeing the balance of the growth and also the right track for the profitability. Thank you.

Okay, got it. It's very clear. Thank you very much, and I have no more questions.

[Lucia Zhang], CITIC Securities.

I also have two questions. The first one is we can see that the skin care business of the company has achieved rapid growth this year. So from which assets should we make efforts to sustain the growth maybe in the last quarter and next year?

And the second question is about the profitability. So in which assets will the company, we will make efforts to continuously improve their profitability?

Well, so going back to the fundamental drivers for our skin care business, I think the number one thing is about the R&D. Beauty market has always driven by further and better product innovation. So we are very happy to see that with our R&D growth engine and then we can launch a very strong pipeline this year and then -- and also for the coming years as well.

The second thing we can think is with our expansion for our skin care portfolio, including the benefit expansion and also product line expansion, we see further linked sales for our product portfolios, which can help us to drive further marketing online.

The third thing is for our skin care brands, I think the overall for the three major skin care brands, we still have a pretty far potential to reach their optimized revenue level. So during this process, as we continue to drive the brand awareness and also continuously drive the customer base, we still have the potential to grow our existing skin care brands.

And then last but not least, I think for us, we focus on launching some new products on some of the key channels. And in the future, we will expand into other channels and also drive further better channel mix. So with that, I think that will contribute to the sustainable driver for the our skin care brand.

Going back to your questions about how can we continue to improve the profitability. I think as we said many times before, I think the product mix optimization and the channel mix optimization can help us drive the gross margin and also the further ROI on the marketing expenses.

The second one is as we focus more on the customer CRM and also the product link sales, this will help us to further drive better ROI on the marketing expenses. The third thing is very important. For some of our brands, those brands are reaching to what we call the optimized threshold. In the future, as the brands like-- the revenue scale grow up, we will see further leverage on the true branding expenses ROI.

So those are the things -- some of the things we think are very important to drive the continuous improvement for the profitability. Thank you.

Okay, thank you. Thank you. That's really helpful and clear.

Jennifer Wan, Hightower Security.

Hi, this is Jennifer Wan from Hightower Security. So, congratulate on company's great performances. And could you please introduce -- just give us some color on the expected expenses of the company in the future?

And maybe could you please share how do you view the increasingly fierce competition in the online channel?

Well, can you help me to clarify what the mean by expenses?

Like, general expenses, operating expenses, etc. Just general speaking

Okay. Well, if you look at our financial statements, I see-- we see a pretty stable G&A expenses in the past quarters.

So having said that, I think moving forward, as the scale of our total revenue grow, and then we will see some operational leverage on the general and administrative expenses. We will continuously to invest in some of the -- what we think, short-term-wise, you clarify -- categorized as expenses, but we see it more like the investment, including R&D and also for branding dollars to really build up the brand equity. Those are the -- some of the areas that we focus on.

And sorry, what was your second question?

That’s how do you view the like ongoing sales competition on the online channel? How do you think our company is going to face such kind of situation?

I think, as we said before, when we are looking at the beauty market, there are so many players and then one of the reasons that we can continuously and also accelerating our growth, it's mainly driven for some of the investments we have devoted in R&D in the past few years. And also, to our continuously commitment on brand building. So we did something right before. That's why we are getting the growth today.

So if we are looking at the competition, as long as we continue to focus on what we have done right, and then we will see more and more robust product lineup and then a better innovation is coming. And we will see the higher brand awareness so that we can get some more operational and also brand building like optimization. And also, we will see some of the operational efficiency improving by our product mix and the channel mix optimization. And we will see some organization growth, by we focus on the cornerstones of our product innovation, customer focus, CRM and et cetera. So as also we focus on doing the right things, we think, in the future, we will achieve the long-term and sustainable growth result.

Thank you.

Thank you for your kind response. We're very looking forward to see the company's rapid growth.

Appreciate it thank you.

And this concludes our question-and-answer session. I would like to turn the conference back over to management for any additional or closing comments. Please go ahead.

Thank you once 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.