Yatsen Holding(YSG) - 2023 Q2 - Quarterly Report

Q1 2023 Financial Performance Overview Yatsen's Q1 2023 results show a revenue decline but significant profitability improvement driven by skincare growth and cost optimization Q1 2023 Key Financial Highlights Yatsen's Q1 2023 net revenue declined 14.1% to RMB 765.4 million, with Skincare Brands growing 34.2% and gross margin improving to 74.3%, resulting in a net income of RMB 50.7 million, primarily due to a share-based compensation reversal Key Financial Highlights | Financial Metric | Q1 2023 (RMB million) | Q1 2022 (RMB million) | Change | | :--- | :--- | :--- | :--- | | Total Net Revenues | 765.4 | 891.0 | -14.1% | | Skincare Brands Net Revenues | 245.1 | 182.7 | +34.2% | | Skincare as % of Total Revenue | 32.0% | 20.5% | +11.5 p.p. | | Gross Margin | 74.3% | 69.0% | +5.3 p.p. | | Net Income (Loss) | 50.7 | (291.4) | Turnaround to Profit | | Non-GAAP Net Loss | (25.8) | (153.6) | -83.2% | - The significant net income in Q1 2023 was primarily driven by a RMB 109.4 million reversal of share-based compensation expenses related to the resignation of the former CTO[2][3] Management Commentary Management affirmed progress on the five-year strategic transformation, with the CEO emphasizing brand portfolio health and R&D, and the CFO noting Q1 results exceeded guidance with improved gross margin - CEO Jinfeng Huang stated the company's strategic focus includes increasing brand awareness for Skincare Brands, developing new products, building a sustainable model for Color Cosmetics Brands, and strengthening R&D capabilities[4] - CFO Donghao Yang highlighted that Q1 results beat previous guidance, with Skincare Brands' revenue contribution growing to 32.0% and gross margin improving by 5.3 percentage points to 74.3%[5] Detailed Financial Analysis A detailed analysis of Q1 2023 revenues, profitability, and operating expenses reveals key drivers of financial performance Revenue Analysis Total net revenues for Q1 2023 decreased by 14.1% to RMB 765.4 million, primarily due to a 29.1% decline in Color Cosmetics Brands, partially offset by a 34.2% increase in Skincare Brands Revenue Segment Performance | Revenue Segment | Change (YoY) | Note | | :--- | :--- | :--- | | Total Net Revenues | -14.1% | Decreased to RMB 765.4 million | | Color Cosmetics Brands | -29.1% | Primary driver of the overall decline | | Skincare Brands | +34.2% | Partially offset the decline in cosmetics | Profitability Analysis Gross margin improved to 74.3% due to product mix and cost optimization, leading to a net income of RMB 50.7 million, a significant turnaround from a prior-year net loss of RMB 291.4 million - Gross margin increased due to: (i) higher sales of skincare products, (ii) disciplined pricing and discount policies, and (iii) cost optimization across all brands[7] Profitability Metrics | Profitability Metric | Q1 2023 (RMB million) | Q1 2022 (RMB million) | | :--- | :--- | :--- | | Gross Profit | 568.7 | 614.5 | | Gross Margin | 74.3% | 69.0% | | Net Income (Loss) | 50.7 | (291.4) | | Diluted EPS (ADS) | 0.08 | (0.46) | - The company's loss from operations narrowed by 97.7% to RMB 7.2 million from RMB 308.0 million in the prior year period[12] Operating Expenses Analysis Total operating expenses for Q1 2023 decreased significantly by 37.6% to RMB 575.9 million, representing 75.2% of total net revenues, driven by cost reductions across all categories Fulfillment Expenses Fulfillment expenses decreased to RMB 51.9 million (6.8% of revenue) from RMB 73.9 million, primarily due to reduced warehouse and logistics costs from outsourcing Fulfillment Expenses | Expense Category | Q1 2023 (RMB million) | Q1 2022 (RMB million) | Change | | :--- | :--- | :--- | :--- | | Fulfillment Expenses | 51.9 | 73.9 | -29.8% | | As % of Net Revenues | 6.8% | 8.3% | -1.5 p.p. | Selling and Marketing Expenses Selling and marketing expenses decreased to RMB 459.0 million (60.0% of revenue) from RMB 604.7 million, mainly due to offline store closures and reduced share-based compensation Selling and Marketing Expenses | Expense Category | Q1 2023 (RMB million) | Q1 2022 (RMB million) | Change | | :--- | :--- | :--- | :--- | | Selling & Marketing | 459.0 | 604.7 | -24.1% | | As % of Net Revenues | 60.0% | 67.9% | -7.9 p.p. | General and Administrative Expenses General and administrative expenses dramatically decreased to RMB 40.7 million (5.3% of revenue) from RMB 208.1 million, primarily due to a RMB 109.4 million share-based compensation reversal General and Administrative Expenses | Expense Category | Q1 2023 (RMB million) | Q1 2022 (RMB million) | Change | | :--- | :--- | :--- | :--- | | General & Admin | 40.7 | 208.1 | -80.4% | | As % of Net Revenues | 5.3% | 23.4% | -18.1 p.p. | Research and Development Expenses Research and development expenses decreased to RMB 24.2 million (3.2% of revenue) from RMB 35.8 million, managed in line with revenue levels Research and Development Expenses | Expense Category | Q1 2023 (RMB million) | Q1 2022 (RMB million) | Change | | :--- | :--- | :--- | :--- | | R&D Expenses | 24.2 | 35.8 | -32.4% | | As % of Net Revenues | 3.2% | 4.0% | -0.8 p.p. | Financial Position and Cash Flow Yatsen's Q1 2023 financial position remains solid with substantial cash reserves and improved operating cash flow management Balance Sheet Summary As of March 31, 2023, Yatsen maintained a solid financial position with cash, restricted cash, and short-term investments totaling RMB 2.54 billion Balance Sheet Summary | Balance Sheet Item | As of Mar 31, 2023 (RMB billion) | As of Dec 31, 2022 (RMB billion) | | :--- | :--- | :--- | | Cash, Restricted Cash & Short-term Investments | 2.54 | 2.63 | Cash Flow Summary Net cash used in operating activities significantly decreased by 80.6% to RMB 20.2 million in Q1 2023, reflecting improved cash management - Net cash used in operating activities for Q1 2023 was RMB 20.2 million, an 80.6% decrease from RMB 104.1 million in Q1 2022[15] Outlook The company provides its revenue forecast for Q2 2023, anticipating a continued year-over-year decline Q2 2023 Business Outlook For Q2 2023, Yatsen forecasts total net revenues to decline year-over-year, ranging between RMB 761.4 million and RMB 856.6 million - The company expects total net revenues for Q2 2023 to be between RMB 761.4 million and RMB 856.6 million, representing a year-over-year decline of approximately 10% to 20%[16] Supplementary Information This section provides non-GAAP financial measure definitions and unaudited consolidated financial statements for Q1 2023 Non-GAAP Financial Measures The company uses non-GAAP measures, excluding items like share-based compensation and amortization, to evaluate operating performance and identify underlying business trends - Non-GAAP net loss is defined as net loss excluding share-based compensation expenses, amortization of intangible assets from acquisitions, revaluation of investments, and related tax effects[3][22] Financial Statements This section presents unaudited condensed consolidated financial statements for Q1 2023, including Balance Sheets, Statements of Operations, and GAAP to Non-GAAP reconciliations Unaudited Condensed Consolidated Balance Sheets As of March 31, 2023, the balance sheet shows total assets of RMB 5.76 billion and total liabilities of RMB 717.7 million Unaudited Condensed Consolidated Balance Sheets | (All amounts in thousands RMB) | March 31, 2023 (RMB thousands) | December 31, 2022 (RMB thousands) | | :--- | :--- | :--- | | Total current assets | 3,396,482 | 3,508,421 | | Total non-current assets | 2,368,272 | 2,354,235 | | Total assets | 5,764,754 | 5,862,656 | | Total current liabilities | 526,412 | 588,412 | | Total non-current liabilities | 191,240 | 211,718 | | Total liabilities | 717,652 | 800,130 | | Total shareholders' equity | 4,707,178 | 4,722,602 | Unaudited Condensed Consolidated Statements of Operations For Q1 2023, the company reported total net revenues of RMB 765.4 million and a net income of RMB 50.7 million, a significant improvement from the prior-year net loss of RMB 291.4 million Unaudited Condensed Consolidated Statements of Operations | (All amounts in thousands RMB) | Q1 2023 (RMB thousands) | Q1 2022 (RMB thousands) | | :--- | :--- | :--- | | Total net revenues | 765,396 | 890,954 | | Gross profit | 568,729 | 614,546 | | Loss from operations | (7,154) | (307,982) | | Net (loss) income | 50,676 | (291,380) | | Net (loss) income attributable to Yatsen's shareholders | 50,058 | (290,915) | Unaudited Reconciliations of GAAP and Non-GAAP Results After adjustments for share-based compensation and amortization, Non-GAAP loss from operations was RMB 62.4 million, and Non-GAAP net loss was RMB 25.8 million, a significant reduction from the prior year Unaudited Reconciliations of GAAP and Non-GAAP Results | (All amounts in thousands RMB) | Q1 2023 (RMB thousands) | Q1 2022 (RMB thousands) | | :--- | :--- | :--- | | Loss from operations (GAAP) | (7,154) | (307,982) | | Share-based compensation (income) expenses | (67,398) | 125,818 | | Amortization of intangible assets | 12,176 | 12,083 | | Non-GAAP loss from operations | (62,376) | (170,081) | | Net (loss) income (GAAP) | 50,676 | (291,380) | | Adjustments (net) | (76,448) | 137,803 | | Non-GAAP net loss | (25,772) | (153,577) |