Q4 2023 Yatsen Holding Ltd Earnings Call
Participants
Irene Lyu; Head of Strategic Investments & Capital Markets; Yatsen Holding Limited
Jinfeng Huang; Founder, CEO & Chairman of the Board of Directors; Yatsen Holding Limited
Donghao Yang; CFO & Director; Yatsen Holding Limited
Maggie Huang; Analyst; CICC
Presentation
Operator
Ladies and gentlemen, good day, and welcome to the Yatsen's fourth quarter and full year 2023 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.
Irene Lyu
Thank you, operator. Please note the 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 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 as 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, non-GAAP financial results.
Joining us today on the call from Yatsen's senior management team are Mr. Jinfeng Huang, our Founder, Chairman and CEO; and Mr. Donghao Yang, our CFO and Director. (Operator Instructions) 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, sir.
Jinfeng Huang
Thank you, Irene and thank you, everyone, for participating in Yatsen's fourth quarter and full year 2023 earnings conference call today. I'd like to begin with a macro overview before diving into the details of our strategy and progress across our segments and brands.
China's beauty market experienced a modest recovery in 2023 according to the drafted data published by the National Bureau of Statistics of China, total retail sales of consumer goods grew by 8.3% year over year for the fourth quarter and the 7.2% for the full year. Against this patch of, total beauty retail sales were up 1% year over year for the fourth quarter and 5.1% for the full year.
Online beauty sales patterns were mixed in 2023. Sales on Tmall decreased while sales on Douyin increase year over year for both the fourth quarter and the full year. We made solid progress this quarter [amid a seal spot retail environment] returning to a growth statutory as we executed our strategy transformation plan.
Perfect Diary's brand repositioning is also proceeding as intended to pave the way for future growth. We remain focused on building strong brand equity through superior product and a consumer satisfaction while continued investment in brand building and R&D.
Our total net revenue for the fourth quarter beat our guidance up 6.7% year over year. Net revenues from our skincare brands for the fourth quarter grew by 17.6% year over year. Our clinical and the premium skincare brands, including Galenic, DR.WU and Eve Lom, delivered another solid performance. Recording a 23.4% year over year growth in combined net revenues and a further elevating their contribution to total net revenues.
Net revenues from color cosmetic brands declined slightly by 1.8% year over year for the fourth quarter. In terms of channel optimization, we continue to strategically close underperforming offline stores. As of the end of 2023, we operated 110 off-line experience stores for the Perfect Diary's brands as compared with 158 stores a year ago.
Our two other color cosmetic brands Little Ondine and Pink Bear continued to resonate with their customers and recorded year over year revenue growth. Our fourth quarter gross margin improved to 73.7% from 71.1% for the prior year period, benefiting from higher gross margin products and a more disciplined pricing and discount policies.
Our net loss margin expanded to 46.1% for the fourth quarter, primarily attributable to an impairment of goodwill as well as increased investments in our brands. The goodwill impairment recorded in the fourth quarter represents the amount by which the carrying value of Eve Lom reporting unit exceeded its fair value. Based on quantitative goodwill impairment test, due to weaker operating results than expected at the time of acquisition.
Despite challenges in the market environment and ongoing competition, we still see potential in the brands. For the full year 2023, our net loss margin was 22% as compared with 22.2% in 2022. Our non-GAAP net loss margin narrowed to 8.7% from 12.2% for the prior year period. A significant improvement that underscores our skill in balancing cost structure optimization is the need to grab market opportunities as we drive sustainable growth.
Moving on to the brands and products for our skincare brands, we maintained our focus on brand building and introduced efficient product to foster deeper connections with each brand's audience. Galenic recorded solid performance during the Double 11 shopping festival, ranking number one in the premium brightening serum category in terms of a retail sales value on both Tmall and Douyin, [with VC serum]
The brand is also making progress on it's courter line to align winning the Essence of the Year award at Bazar Beauty Awards 2023 for it's Couture Secret d'Excellence active serum. DR.WU acne research firm announced its first batch of pioneering research projects at the 2023 National Congress of Cosmetic Dermatology in Shanghai and DR.WU will continue to push boundaries in clinical acne research and the application of mandelic acid propelling the fields of long-term development.
Although Eve Lom opened its first off-line store in Southern China in January this year, bringing the brands have higher experience to a broader customer base. While with that with respect to color cosmetics on Perfect Diary's brand repositioning continues to gain traction among its target customers.
Biolip Essence Lipstick, the new hero product we launched in September 2023 has been gaining market share in the lipstick category on both on Tmall and Douyin. During the quarter, the newly launched the lipstick made Perfect Diary's number one lipstick brand in terms of retail sales value on Douyin.
Given these product lines potential we expanded, the third phase is to include piled, in essence, mixing intermittently three and apparel, in essence, matte lipstick in February 2024, in reaching offering for customers to experience is that the balance formulation. (inaudible)also recently launched it's multi(inaudible)the brands very first other integrating the WinCo cream with the makeup primers and the natural foundition.
Both (inaudible) and the Pink Bear introduced new products during the quarter deeper on the little white i-line pan on the I color award in the color cosmetics category at a bulk of Beauty Awards, some chemistry. While compares very keen eye shadow (inaudible) Beauty Awards, color Development Award.
Moving now to the R&D. R&D expenses as a percentage of revenues were 3.4% for the fourth quarter and 3.3% for the full year 2023. Over the past year, we have significantly enhanced our R&D capabilities under the leadership of our Chief Scientist pipeline City officers, establishing a comprehensive R&D framework and a clear strategy direction.
The R&D team has developed its iconic products, including Perfect Diary's lipstick essence, Biolip essence lipstick, Galenic's Vivifiant invigorating Micro Mask. We also strengthened our R&D infrastructure by setting up our Shanghai R&D centers. Along with these efforts, we promoted innovation through industry academia collaboration, including leading initiative, but in initiatives such as pop-up with acne research firm ended Galenic dermatology research firm. Going forward, we remain committed to R&D investments to drive innovation and growth.
Before I conclude a brief update on our 2023 ESG performance. Dedication to environmental and social responsibility and employee welfare is integral to our brand and a future development. We published our second ESG report in 2023, highlighting our alignment with prevailing green development initiatives.
Furthermore, we were honored to be recognized at the China's 2033 DEI employer awards for our deep commitment to inclusion and employee welfare. To summarize, we are pleased with our return to growth in the fourth quarter, and I will remain focused on pursuing sustainable growth with innovation across our brands.
With that, I will now turn the call over to our CFO, Donghao Yang, to discuss our financial performance. Thank you, everyone.
Donghao Yang
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 fourth quarter of 2023 increased by 6.7% to RMB1.07 billion from RMB1.01 billion for the prior-year period. The increase was primarily attributable to a 17.6% year-over-year increase in net revenues from skincare brands, partially offset by 1.8% year-over-year decrease in net revenues from color cosmetics brands. Gross profit for the fourth quarter of 2023 increased by 10.6% to $719.1 million from $714.6 million for the prior year period.
Gross margin for the fourth quarter of 2023 increased to 73.7% from 71.1% for the prior year period. The increase was driven by increasing sales of higher gross margin products and more disciplined pricing and discount policies across all of our brand portfolios.
Total operating expenses for the fourth quarter of 2023 increased by 67.7% to RMB1.33 billion from RMB792.9 million for the prior year period. As a percentage of total net revenues, total operating expenses for the fourth quarter of 2023 were 124% as compared with 78.9% for the prior period. Fulfillment expenses for the fourth quarter of 2023 were RMB62.7 million as compared with RBM62.5 million for the prior year period. As a percentage of total net revenues, fulfillment expenses for the fourth quarter of 2023 decreased to 5.8% from 6.2% for the prior year period. The decrease was primarily attributable to further improvements in logistics efficiency.
Selling and marketing expenses for the fourth quarter of 2023 were RMB717.4 million as compared with RBM535.2 million for the prior period. As a percentage of total net revenues, selling and marketing expenses for the fourth quarter of 2023 increased to 66.9% from 53.2% for the prior period. The increase was primarily due to the Perfect Diary brand upgrade, as well as our investments in new product launches across our brands.
General and administrative expenses for the fourth quarter of 2023 for RBM158.7 million as compared with RBM169.9 million for the prior year period. As a percentage of total net revenue, general and administrative expenses for the fourth quarter of 2023 decreased to 14.8% from 16.9% for the prior year period. The decrease was primarily attributable to a reduction in share-based compensation.
Research and development expenses for the fourth quarter of 2023 were RBM36.9 million as compared with RBM25.1 million for the prior year period. As a percentage of total net revenues, research and development expenses for the fourth quarter of 2023 increased to 3.4% from 2.5% for the prior year period. The increase was primarily attributable to an increase in personnel costs, reflecting our commitment in enhancing our research and development capabilities.
Impairment of goodwill for the fourth quarter of 2023 was RMB354 million as compared with nil in the prior year period. Impairment recorded in the quarter represents the amount by which the carrying value of the eLong reporting unit exceeded its fair value based on quantitative had goodwill impairment tests primarily due to weaker operating results than expected at the time of acquisition. Loss from operations for the fourth quarter of 2023 to RMB539.6 million as compared with RMB78.2 million for the prior year period.
Operating loss margin was 50.3% as compared with 7.8% for the prior year period. Non-GAAP loss from operations for the fourth quarter of 2023 was RBM125.9 million as compared with non-GAAP income from operations of RBM11.5 million for the prior year period. Non-GAAP operating loss margin was 11.7% as compared with non-GAAP operating income margin of 1.1% for the prior year period.
Net loss for the fourth quarter of 2023 was RMB494.5 million as compared with RMB55 million for the prior year period. Net loss margin was 46.1% as compared with 5.5% for the prior year period. Net loss attributable to Yatsen's ordinary shareholders per diluted ADS for the fourth quarter of 2023 was RMB0.91 as compared with RMB0.09 as of prior period.
Non-gAAP net loss for the fourth quarter of 2023 was RMB93.7 million as compared with non-GAAP net income of RMB34.7 million for the prior year period. Non-GAAP net loss margin was 8.7% as compared with non-GAAP net income margin of 3.4% for the prior year period.
Non-GAAP net loss attributable to Yatsen's ordinary shareholders per diluted ADS for the fourth quarter of 2023 was RMB0.17 as compared with non-GAAP net income attributable to ordinary shareholders per diluted ADS of RMB0.06 for the prior-year period.
Now I would like to briefly walk you through the highlights of our full year results. Total net revenues for the full year of 2023 decreased by 7.9% to RMB3.41 billion from RMB3.71 billion for the prior year period, primarily attributable to the decline in net revenue from color cosmetic brands, partially offset by the increase in net revenues from skincare brands.
Gross profit for full year of 2023 decreased by 0.2% to RMB2.51 billion from RMB2.52 billion for the prior year period. Gross margin for the full year of 2023 was 73.6% as compared with 68% for the prior year period, primarily attributable to first increasing sales of higher gross margin products from skincare brands and certain more disciplined pricing and to some policies and Board have cost optimization across all of our brand portfolio.
Loss from operations for full year 2023 was RBM913.4 million as compared with RBM928.9 million for the prior year period. Non-GAAP loss from operations for the full year of 2023 was RBM427.5 million as compared with RBM539.3 million for the prior year period. Net loss for full year of 2023 was RBM750.2 million as compared with RBM821.3 million for the prior-year period.
Net loss attributable to Yatsen's ordinary shareholders per diluted ADS for the full year of 2023 was RBM1.6 compared with RBM1.37 for the prior-year period. Non-GAAP net loss for the full year of 2023 was RMB296.1 million compared with RBM452.9 million for the prior-year period. Non-GAAP net loss attributable to Yatsen's ordinary shareholders per diluted ADS for the full year of 2003 was RMB0.53 as compared with RMB0.76 for the prior period.
As of December 31, 2023, the company had cash, restricted cash and short-term investments of RMB2.08 billion as compared with RMB2.63 billion as of December 31, 2022. Net cash generated from operating activities for the fourth quarter of 2023 of RBM90.5 million of compared with net cash generated from operating activities of RMB106.6 million for the prior period. Net cash used in operating activities for the full year of 2023 was RMB107.4 million as compared with net cash generated from operating activities of RBM136.2 million for the prior year period.
Looking at our business outlook for the first quarter of 2024, we expect our total net revenues to be between RBM765.4 million and RMB803.7 million, representing a year-over-year increase of approximately 0% to 5%. These forecasts reflect our current and preliminary views on the market and operational conditions, which are subject to change.
With that, I would like to open the call to Q&A.
Question and Answer Session
Operator
We will now begin the question and answer session to ask a question.
(Operator Instructions)
Maggie Huang, CICC.
Maggie Huang
Well, thanks for taking my question. This is Michael Huang from CICC. I am firstly congratulation on our revenue, returning to growth and beating our guidance. And I have two questions and the first one is regarding Perfect Diary. And we about to see the good performance of our new products, like Essence, lipstick in Q4.
So, for this year, do you have a target revenue contribution from the new products? And how should we expect on the revenue growth and net margin of the brand Perfect Diary? And that's my first question.
And my second question is regarding the Women's day shopping festival. So, how is the performance of our brands so far? And is that in line with our expectations? And that's my question. Thank you.
Irene Lyu
Thank you, Maggie. For your first question on the performance of Perfect Diary. Since our launch of the Biolip Essence Lipstick is performance has been trending up. So, for example, last year December, the new lipstick is ranking number two on both Tmall and (inaudible) is performing well. And in terms of new product contributions for the brand. Last quarter, so Q4 2023 a little below 40%. And we believe this year, it will trend up to above 50%. So, that's for the new products.
And you also asked for margin. So, basically for this new product launch and also the Perfect Diary's brand upgrade, we are seeing some good feedback and results so far. First of all, the gross margin is much higher for this new product compared to the old product. And also the brand average selling price also increased a lot to around 140 to 150 on both(inaudible) And also in terms of consumer, profile will also attract more customers from a higher with higher affordability and beauty spending in general. So, that's for your question number one.
And then for question number two, regarding to the women's sales performance. So, far, I would say shopping has already started looking at overall market performance, relatively modest. So, as a result for our brands were also through a relatively steady growth. So, we are more putting more resources effort for the bigger shopping festival, both for example, 618 and (inaudible)
Maggie Huang
Yes. Got it. That's very helpful. Thank you very much. And I have no more questions.
Irene Lyu
Thank you.
Operator
This concludes our question and answer session. I would like to turn the conference back over to management for any closing remark.
Irene Lyu
Thank you once again for joining us today. If you have have any further questions, please feel free to contact us at Yansten directly or at Piacente Financial Communication. Our contact information for both IR in China and the US can be found in today's press release. Thank you and have a great day.
Operator
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
