Yatsen Holding Ltd. Q3 FY2024 earnings call

• Macro overview: China's beauty industry faced challenges in Q3 2024 with beauty sales lagging the overall retail market. Total retail sales of consumer goods grew 2.7% y-o-y, while beauty retail sales declined 5.5% y-o-y, with online beauty sales also sluggish except for Douyin's modest double-digit growth.
• Financial performance: Total net revenues decreased 5.7% y-o-y; skincare brands grew 3.6% y-o-y, color cosmetics brands declined 10% y-o-y; gross margin improved to 75.9%.
• Strategic transformation: Optimizing revenue mix by prioritizing higher-margin products, investing in R&D (R&D expenses RMB25.3 million, 3.7% of net revenues), product launches like Perfect Diary's second generation Biolip Essence Lipstick and Galenic's new products, cost structure optimization with general and administrative expenses reduced to 12.6% of net revenues.
• ESG initiatives: Released 2023 ESG report, maintained MSCI ESG rating of A.

Total net revenues decreased by 5.7% year-over-year to RMB677 million. Net revenues from skincare brands rose by 3.6% year-over-year, with clinical and premium skincare brands like Galenic, DR.WU, and Eve Lom seeing a 10.5% year-over-year increase. Net revenues from color cosmetics brands fell by 10% year-over-year, mainly due to the Perfect Diary brand undergoing strategic transformation. Gross profit for the third quarter of 2024 increased to RMB513.8 million from RMB512.8 million in the prior year period, and gross margin improved to 75.9% from 71.4%, driven by higher contribution from high-margin products.

Expects total net revenues for the fourth quarter of 2024 to be between RMB1.07 billion and RMB1.18 billion, representing a year-over-year increase of approximately 0% to 10%.

Discussions of forward-looking statements relating to the company's future performance 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. 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.

Q: The first question is about our performance during Double 11 festival and is that in line with our expectations? And the second question is about our plans for product development and channel expansion for the next year.

A: For the first question, we have done pretty well during the Double 11 festival, pretty much in line with our expectations. Most of our brands have performed in line with our expectations. For the second question, next year, we have made very good plan for our new product development for all of our brands. Channel expansion, we will continue to work very hard to drive growth through our top channels like Tmall and Douyin. And also, we're going to try to develop more new channels, for example, with Galenic, we're going to open some new offline stores to explore the feasibility of our business opportunities in the offline channel. Additionally, to build on that, my overall evaluation about our performance in the Double 11s promotion is in line with our objective. And in some areas, we're exceeding our expectations. For new product offerings, we have been investing in R&D and launching new products based on that, and we are happy to see early indicators on the products we launched in the market. Also, we are very disciplined in controlling the price - selling price for our hero products during the promotion to maintain sales momentum while keeping a balance on the gross margin improvement.