Yatsen Holding(YSG) - 2022 Q1 - Quarterly Report

Yatsen Fourth Quarter and Full Year 2021 Financial Results Financial & Operational Highlights For the full year 2021, Yatsen's total net revenues grew 11.6% to RMB 5.84 billion, with gross margin improving to 66.8%, however, the fourth quarter of 2021 showed significant weakness, with total net revenues declining 22.1% year-over-year to RMB 1.53 billion and gross margin slightly decreasing to 65.0% Q4 2021 Key Financial Metrics | Metric | Q4 2021 | Q4 2020 | Change | | :--- | :--- | :--- | :--- | | Total Net Revenues | RMB 1.53 billion | RMB 1.96 billion | -22.1% | | Gross Sales | RMB 1.88 billion | RMB 2.27 billion | -17.2% | | Gross Margin | 65.0% | 66.3% | -1.3 p.p. | Full Year 2021 Key Financial Metrics | Metric | FY 2021 | FY 2020 | Change | | :--- | :--- | :--- | :--- | | Total Net Revenues | RMB 5.84 billion | RMB 5.23 billion | +11.6% | | Gross Sales | RMB 6.84 billion | RMB 6.05 billion | +13.1% | | Gross Margin | 66.8% | 64.3% | +2.5 p.p. | Management Commentary Management acknowledged a challenging fourth quarter due to soft consumer demand and intense competition in color cosmetics, highlighting full-year revenue growth driven by skincare brands and a strategic focus for 2022 on brand-building, R&D investment, sustainable growth, improving operating margins, and optimizing cost structures, supported by a strong cash position of RMB 3.1 billion - The CEO, Jinfeng Huang, described Q4 as a challenging quarter marked by soft consumer demand and intense competition in the color cosmetics segment[3] - The company's strategic pillars for 2022 include brand-building, R&D investments, and pursuing sustainable growth[3] - The CFO, Donghao Yang, emphasized the focus on improving operating margin, optimizing cost structure, and investing in branding and R&D for long-term success[3] - The company began 2022 with a cash balance of approximately RMB 3.1 billion, providing sufficient liquidity for its strategic goals[3] Fourth Quarter 2021 Financial Results In Q4 2021, Yatsen experienced a 22.1% decrease in net revenues to RMB 1.53 billion, primarily due to declining sales from color cosmetics brands, with gross margin falling slightly to 65.0% because of an inventory provision, and while total operating expenses decreased by 47.3%, this was mainly due to a large one-time share-based compensation expense in the prior year; on a non-GAAP basis, the operating loss widened by 25.3% to RMB 360.9 million Net Revenues Q4 2021 Net Revenues | Period | Net Revenues (RMB) | Net Revenues (USD) | YoY Change | Reason for Decrease | | :--- | :--- | :--- | :--- | :--- | | Q4 2021 | 1.53 billion | 239.8 million | -22.1% | Decrease in sales from color cosmetics brands, partially offset by an increase in sales from skincare brands | | Q4 2020 | 1.96 billion | N/A | N/A | N/A | Gross Profit and Gross Margin Q4 2021 Gross Profit and Margin | Metric | Q4 2021 | Q4 2020 | YoY Change | | :--- | :--- | :--- | :--- | | Gross Profit | RMB 993.0 million | RMB 1.30 billion | -23.7% | | Gross Margin | 65.0% | 66.3% | -1.3 p.p. | - The decrease in gross margin was primarily due to an inventory provision charged at the end of the quarter[5][6] Operating Expenses Q4 2021 Operating Expenses Breakdown | Expense Category | Q4 2021 (RMB) | Q4 2020 (RMB) | % of Net Revenues (Q4 2021) | % of Net Revenues (Q4 2020) | | :--- | :--- | :--- | :--- | :--- | | Total Operating Expenses | 1.49 billion | 2.83 billion | 97.8% | 144.5% | | Fulfillment Expenses | 123.1 million | 144.7 million | 8.1% | 7.4% | | Selling and Marketing | 1.08 billion | 1.38 billion | 70.7% | 70.3% | | General and Administrative | 248.7 million | 1.29 billion | 16.3% | 65.6% | | Research and Development | 43.3 million | 25.6 million | 2.8% | 1.3% | - The significant decrease in General and Administrative expenses was primarily due to a large share-based compensation expense related to the IPO in the prior year period[9] Loss from Operations Q4 2021 Loss from Operations (GAAP vs. Non-GAAP) | Metric | Q4 2021 (RMB) | Q4 2020 (RMB) | Change | | :--- | :--- | :--- | :--- | | GAAP Loss from Operations | 501.8 million | 1.53 billion | -67.3% | | GAAP Operating Loss Margin | 32.8% | 78.2% | N/A | | Non-GAAP Loss from Operations | 360.9 million | 288.0 million | +25.3% | | Non-GAAP Operating Loss Margin | 23.6% | 14.7% | N/A | Net Loss Q4 2021 Net Loss (GAAP vs. Non-GAAP) | Metric | Q4 2021 | Q4 2020 | | :--- | :--- | :--- | | GAAP Net Loss | RMB 475.1 million | RMB 1.53 billion | | GAAP Net Loss per diluted ADS | RMB 0.75 | RMB 4.04 | | Non-GAAP Net Loss | RMB 336.3 million | RMB 285.4 million | | Non-GAAP Net Loss per diluted ADS | RMB 0.53 | RMB 0.72 | Full Year 2021 Financial Results For the full year 2021, Yatsen's net revenues increased by 11.6% to RMB 5.84 billion, driven by skincare brand sales which offset a slight decline in color cosmetics, with gross margin improving by 2.5 percentage points to 66.8%, however, both GAAP and Non-GAAP net losses widened compared to the prior year, with Non-GAAP net loss increasing to RMB 981.8 million from RMB 785.4 million in 2020 Full Year 2021 Financial Summary | Metric | FY 2021 (RMB) | FY 2020 (RMB) | Change | | :--- | :--- | :--- | :--- | | Total Net Revenues | 5.84 billion | 5.23 billion | +11.6% | | Gross Profit | 3.90 billion | 3.36 billion | +15.9% | | Gross Margin | 66.8% | 64.3% | +2.5 p.p. | | Loss from Operations | 1.62 billion | 2.68 billion | -39.6% | | Non-GAAP Loss from Operations | 1.05 billion | 779.5 million | +34.7% | | Net Loss | 1.55 billion | 2.69 billion | -42.4% | | Non-GAAP Net Loss | 981.8 million | 785.4 million | +25.0% | | Net Loss per diluted ADS | 2.44 | 19.12 | N/A | | Non-GAAP Net Loss per diluted ADS | 1.55 | 3.77 | N/A | - The full-year revenue growth was primarily driven by increased sales from newly acquired and launched skincare brands, which compensated for a slight decline in sales from color cosmetics brands[13] Balance Sheet and Cash Flow As of December 31, 2021, Yatsen's cash position decreased significantly to RMB 3.14 billion from RMB 5.73 billion a year prior, with the company experiencing negative operating cash flow for both the fourth quarter and the full year, amounting to RMB 1.02 billion for the full year 2021 Cash Position and Operating Cash Flow | Metric | As of Dec 31, 2021 | As of Dec 31, 2020 | | :--- | :--- | :--- | | Cash, Cash Equivalents & Restricted Cash | RMB 3.14 billion | RMB 5.73 billion | | Metric | For the period ended Dec 31, 2021 | | | Net Cash Used in Operating Activities (Q4) | RMB 250.0 million | | | Net Cash Used in Operating Activities (FY) | RMB 1.02 billion | | Business Outlook The company projects a significant year-over-year decline in total net revenues for the first quarter of 2022, expecting them to be between RMB 866.7 million and RMB 938.9 million, a decrease of approximately 35% to 40%, attributed to a high base of comparison, softer sales in the color cosmetics industry, and a strategic focus on improving operating margins by limiting discounts - For Q1 2022, the company expects total net revenues to be between RMB 866.7 million and RMB 938.9 million, representing a year-over-year decline of approximately 35% to 40%[16] - Reasons for the expected Q1 2022 revenue decline include: - A high base of comparison from the prior year's post-COVID recovery - Softer-than-expected industry-wide sales of color cosmetics - Continued focus on improving operating margin and limiting discounts[16] Financial Statements The unaudited financial statements provide a detailed view of Yatsen's financial position and performance, with the balance sheet showing total assets of RMB 7.27 billion and total liabilities of RMB 1.26 billion as of December 31, 2021, and the statement of operations detailing revenue decline and net loss for Q4 and the full year 2021, while reconciliation tables clarify adjustments to GAAP figures for non-GAAP metrics Unaudited Condensed Consolidated Balance Sheets Key Balance Sheet Items (as of Dec 31) | Account | 2021 (RMB '000) | 2020 (RMB '000) | | :--- | :--- | :--- | | Cash and cash equivalents | 3,138,008 | 5,727,029 | | Total current assets | 4,555,857 | 7,088,528 | | Goodwill | 869,421 | 20,596 | | Total assets | 7,272,009 | 8,307,738 | | Total current liabilities | 877,583 | 1,130,677 | | Total liabilities | 1,264,516 | 1,444,144 | | Total shareholders' equity | 5,668,906 | 6,863,594 | Unaudited Condensed Consolidated Statements of Operations Full Year Statement of Operations Summary | Account (RMB '000) | Full Year 2021 | Full Year 2020 | | :--- | :--- | :--- | | Total net revenues | 5,839,973 | 5,233,170 | | Gross profit | 3,898,796 | 3,364,025 | | Total operating expenses | (5,523,040) | (6,046,696) | | Loss from operations | (1,624,244) | (2,682,671) | | Net loss | (1,547,038) | (2,688,415) | | Net loss attributable to ordinary shareholders | (1,540,734) | (3,984,236) | Unaudited Reconciliations of GAAP and Non-GAAP Results - The primary adjustments to reconcile GAAP to Non-GAAP results are the exclusion of share-based compensation expenses and the amortization of intangible assets from business acquisitions[35] Full Year 2021 GAAP to Non-GAAP Reconciliation (RMB '000) | Metric | Amount | | :--- | :--- | | Loss from operations (GAAP) | (1,624,244) | | Add: Share-based compensation expenses | 530,440 | | Add: Amortization of intangible assets | 41,573 | | Non-GAAP loss from operations | (1,052,231) | | Net loss (GAAP) | (1,547,038) | | Add: Share-based compensation expenses | 530,440 | | Add: Amortization of intangible assets | 41,573 | | Add: Tax effects on non-GAAP adjustments | (6,749) | | Non-GAAP net loss | (981,774) |