Yatsen Announces Second Quarter 2023 Financial Results

Conference Call to Be Held at 7:30 A.M. U.S. Eastern Time on August 22, 2023

GUANGZHOU, China, Aug. 22, 2023 /PRNewswire/ -- Yatsen Holding Limited ("Yatsen" or the "Company") (NYSE: YSG), a leading China-based beauty group, today announced its unaudited financial results for the second quarter ended June 30, 2023.

Second Quarter 2023 Highlights 

• Total net revenues for the second quarter of 2023 decreased by 9.8% to RMB858.6 million (US$118.4 million) from RMB951.8 million for the prior year period. 
• Total net revenues from Skincare Brands^[1] for the second quarter of 2023 increased by 2.3% to RMB325.2 million (US$44.8 million) from RMB317.8 million for the prior year period. As a percentage of total net revenues, total net revenues from Skincare Brands for the second quarter of 2023 increased to 37.9% from 33.4% for the prior year period.
• Gross margin for the second quarter of 2023 was 74.7%, as compared with 62.9% for the prior year period.
• Net loss for the second quarter of 2023 decreased by 59.0% to RMB108.5 million (US$15.0 million) from RMB264.3 million for the prior year period. Non-GAAP net loss^[2] for the second quarter of 2023 decreased by 77.7% to RMB46.3 million (US$6.4 million) from RMB207.5 million for the prior year period.

Mr. Jinfeng Huang, Founder, Chairman and Chief Executive Officer of Yatsen, stated, "The beauty industry experienced a modest post-COVID recovery during the second quarter of 2023. While uncertainty in consumer demand persisted, we continued to focus on fine-tuning our business model and investing in brand building and R&D. Along with improvements in certain of our key financial and operating metrics, our strategic transformation plan remained largely on track. Furthermore, operations of the Guangzhou manufacturing hub we established with Cosmax officially commenced on August 11, enabling further optimization of our supply chain. Looking ahead to the remainder of the year, our team is devoting resources to new product launches with the goal of bringing exciting new beauty solutions to our customers."

Mr. Donghao Yang, Director and Chief Financial Officer of Yatsen, commented, "As a result of our business transformation strategy and the recovery trend in the beauty market, we again beat our previous guidance, with total net revenues declining by 9.8% year-over-year for the second quarter of 2023. Net revenues from our Skincare Brands grew by 2.3% year-over-year, benefiting from the solid performance of our clinical and premium brands, including Galénic, DR.WU and Eve Lom, which recorded year-over-year growth of 13.3% in combined net revenues. Furthermore, gross margin has demonstrated a clear upward trend over the past four quarters, rising to 74.7% in the second quarter of 2023. We also narrowed our net loss margin to 12.6% and non-GAAP net loss margin to 5.4%. Supported by ample cash, restricted cash and short-term investments balance of RMB2.57 billion, we are prepared to drive further progress in our business transformation in the second half of 2023."

Second Quarter 2023 Financial Results

Net Revenues

Total net revenues for the second quarter of 2023 decreased by 9.8% to RMB858.6 million (US$118.4 million) from RMB951.8 million for the prior year period. The decrease was primarily attributable to a 16.6% year-over-year decrease in net revenues from Color Cosmetics Brands^[3], partially offset by a 2.3% year-over-year increase in net revenues from Skincare Brands.

Gross Profit and Gross Margin

Gross profit for the second quarter of 2023 increased by 7.2% to RMB641.6 million (US$88.5 million) from RMB598.3 million for the prior year period. Gross margin for the second quarter of 2023 increased to 74.7% from 62.9% for the prior year period. The increase was driven by (i) increasing sales of higher-gross margin products from Skincare Brands, (ii) more disciplined pricing and discount policies and (iii) cost optimization across all of the Company's brand portfolios.

Operating Expenses 

Total operating expenses for the second quarter of 2023 decreased by 11.3% to RMB776.7 million (US$107.1 million) from RMB875.3 million for the prior year period. As a percentage of total net revenues, total operating expenses for the second quarter of 2023 were 90.5%, as compared with 92.0% for the prior year period.

• Fulfillment Expenses. Fulfillment expenses for the second quarter of 2023 were RMB58.3 million (US$8.0 million), as compared with RMB69.7 million for the prior year period. As a percentage of total net revenues, fulfillment expenses for the second quarter of 2023 decreased to 6.8% from 7.3% for the prior year period. The decrease was primarily attributable to a decrease in warehouse and logistics costs due to the outsourcing of most of the Company's warehousing and handling operations.
• Selling and Marketing Expenses. Selling and marketing expenses for the second quarter of 2023 were RMB542.8 million (US$74.9 million), as compared with RMB625.7 million for the prior year period. As a percentage of total net revenues, selling and marketing expenses for the second quarter of 2023 decreased to 63.2% from 65.7% for the prior year period. The decrease was primarily attributable to the closure of underperforming offline stores and a reduction in share-based compensation related to the decrease in selling and marketing headcount, partially offset by an increase in online advertising expenses.
• General and Administrative Expenses. General and administrative expenses for the second quarter of 2023 were RMB149.7 million (US$20.6 million), as compared with RMB147.8 million for the prior year period. As a percentage of total net revenues, general and administrative expenses for the second quarter of 2023 increased to 17.4% from 15.5% for the prior year period. The increase was primarily attributable to an increase in share-based compensation, combined with the deleveraging effect of lower total net revenues in the second quarter of 2023.
• Research and Development Expenses. Research and development expenses for the second quarter of 2023 were RMB25.9 million (US$3.6 million), as compared with RMB32.0 million for the prior year period. As a percentage of total net revenues, research and development expenses for the second quarter of 2023 decreased to 3.0% from 3.4% for the prior year period. The decrease was primarily attributable to the Company's efforts to maintain research and development expenses at a reasonable level relative to total net revenues.

Loss from Operations

Loss from operations for the second quarter of 2023 decreased by 51.2% to RMB135.1 million (US$18.6 million) from RMB277.0 million for the prior year period. Operating loss margin was 15.7%, as compared with 29.1% for the prior year period.

Non-GAAP loss from operations^[4] for the second quarter of 2023 decreased by 65.8% to RMB74.6 million (US$10.3 million) from RMB218.2 million for the prior year period. Non-GAAP operating loss margin was 8.7%, as compared with 22.9% for the prior year period.

Net Loss 

Net loss for the second quarter of 2023 decreased by 59.0% to RMB108.5 million (US$15.0 million) from RMB264.3 million for the prior year period. Net loss margin was 12.6%, as compared with 27.8% for the prior year period. Net loss attributable to Yatsen's ordinary shareholders per diluted ADS^[5] for the second quarter of 2023 was RMB0.20 (US$0.03), as compared with RMB0.43 for the prior year period.

Non-GAAP net loss for the second quarter of 2023 decreased by 77.7% to RMB46.3 million (US$6.4 million) from RMB207.5 million for the prior year period. Non-GAAP net loss margin was 5.4%, as compared with 21.8% for the prior year period. Non-GAAP net loss attributable to Yatsen's ordinary shareholders per diluted ADS^[6] for the second quarter of 2023 was RMB0.08 (US$0.01), as compared with RMB0.34 for the prior year period.

Balance Sheet and Cash Flow

As of June 30, 2023, the Company had cash, restricted cash and short-term investments of RMB2.57 billion (US$354.6 million), as compared with RMB2.63 billion as of December 31, 2022.

Net cash used in operating activities for the second quarter of 2023 was RMB14.4 million (US$2.0 million), compared with net cash generated from operating activities of RMB111.9 million for the prior year period.

Business Outlook

For the third quarter of 2023, the Company expects its total net revenues to be between RMB686.3 million and RMB772.1 million, representing a year-over-year decline of approximately 10% to 20%. These forecasts reflect the Company's current and preliminary views on the market and operational conditions, which are subject to change.

Exchange Rate 

This announcement contains translations of certain Renminbi ("RMB") amounts into U.S. dollars ("US$") at specified rates solely for the convenience of the reader. Unless otherwise noted, all translations from RMB to US$ were made at a rate of RMB7.2513 to US$1.00, the exchange rate in effect as of June 30, 2023, as set forth in the H.10 statistical release of The Board of Governors of the Federal Reserve System. The Company makes no representation that any RMB or US$ amounts could have been, or could be, converted into US$ or RMB, as the case may be, at any particular rate, or at all.

Conference Call Information

The Company's management will hold a conference call on Tuesday, August 22, 2023, at 7:30 A.M. U.S. Eastern Time or 7:30 P.M. Beijing Time to discuss its financial results and operating performance for the second quarter 2023.

The replay will be accessible through August 29, 2023, by dialing the following numbers:

A live and archived webcast of the conference call will also be available on the Company's investor relations website at http://ir.yatsenglobal.com/.

About Yatsen Holding Limited

Yatsen Holding Limited (NYSE: YSG) is a leading China-based beauty group with the mission of creating an exciting new journey of beauty discovery for consumers around the world. Founded in 2016, the Company has launched and acquired numerous color cosmetics and skincare brands including Perfect Diary, Little Ondine, Abby's Choice, Galénic, DR.WU (its mainland China business), Eve Lom, Pink Bear and EANTiM. The Company's flagship brand, Perfect Diary, is one of the leading color cosmetics brands in China in terms of retail sales value. The Company primarily reaches and engages with customers directly both online and offline, with expansive presence across all major e-commerce, social and content platforms in China.

For more information, please visit http://ir.yatsenglobal.com/.

Use of Non-GAAP Financial Measures

The Company uses non-GAAP income (loss) from operations, non-GAAP net income (loss), non-GAAP net income (loss) attributable to ordinary shareholders and non-GAAP net income (loss) attributable to ordinary shareholders per diluted ADS, each a non-GAAP financial measure, in reviewing and assessing its operating performance. The presentation of these non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with U.S. GAAP. The Company presents these non-GAAP financial measures because they are used by the management to evaluate operating performance and formulate business plans. Non-GAAP financial measures help identify underlying trends in its business, provide further information about its results of operations, and enhance the overall understanding of its past performance and future prospects. The Company defines non-GAAP income (loss) from operations as income (loss) from operations excluding share-based compensation expenses and amortization of intangible assets resulting from assets and business acquisitions. The Company defines non-GAAP net income (loss) as net income (loss) excluding (i) share-based compensation expenses, (ii) amortization of intangible assets resulting from assets and business acquisitions, (iii) revaluation of investments on the share of equity method investments, and (iv) tax effects on non-GAAP adjustments. The Company defines non-GAAP net income (loss) attributable to ordinary shareholders as net income (loss) attributable to ordinary shareholders excluding (i) share-based compensation expenses, (ii) amortization of intangible assets resulting from assets and business acquisitions, (iii) revaluation of investments on the share of equity method investments, (iv) tax effects on non-GAAP adjustments and (v) accretion to redeemable non-controlling interests. Non-GAAP net income (loss) attributable to ordinary shareholders per diluted ADS is computed using non-GAAP net income (loss) attributable to ordinary shareholders divided by weighted average number of diluted ADS outstanding for computing diluted earnings per ADS.

However, the non-GAAP financial measures have limitations as analytical tools as the non-GAAP financial measures are not presented in accordance with U.S. GAAP and may differ from the non-GAAP information used by other companies, including peer companies, and therefore their comparability may be limited. The Company compensates for these limitations by reconciling the non-GAAP financial measures to the nearest U.S. GAAP performance measure, all of which should be considered when evaluating performance. The Company encourages investors and others to review its financial information in its entirety and not rely on a single financial measure. Reconciliations of Yatsen's non-GAAP financial measure to the most comparable U.S. GAAP measure are included at the end of this press release.

Safe Harbor Statement 

This announcement contains statements that may constitute "forward-looking" statements which are made pursuant to the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "aims," "future," "intends," "plans," "believes," "estimates," "likely to," and similar statements. The Company may also make written or oral forward-looking statements in its periodic reports to the Securities and Exchange Commission ("SEC"), in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including statements about the Company's beliefs, plans, outlook and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, which include but not limited to the following: the Company's growth strategies; its future business development, results of operations and financial condition; its ability to continue to roll out popular products and maintain popularity of existing products; its ability to anticipate and respond to changes in industry trends and consumer preferences and behavior in a timely manner; its ability to attract and retain new customers and to increase revenues generated from repeat customers; its expectations regarding demand for and market acceptance of its products and services; its ability to integrate newly-acquired businesses and brands; trends and competition in and relevant government policies and regulations relating to China's beauty market; changes in its revenues and certain cost or expense items; and general economic conditions globally and in China. Further information regarding these and other risks is included in the Company's filings with the SEC. All information provided in this press release is as of the date of this press release, and the Company does not undertake any obligation to update any forward-looking statement, except as required under applicable law.

For investor and media inquiries, please contact:

In China:

Yatsen Holding Limited
Investor Relations
E-mail: ir@yatsenglobal.com

Piacente Financial Communications
Hui Fan
Tel: +86-10-6508-0677
E-mail: yatsen@thepiacentegroup.com

In the United States:

Piacente Financial Communications
Brandi Piacente
Tel: +1-212-481-2050
E-mail: yatsen@thepiacentegroup.com