Yatsen Announces Third Quarter 2021 Financial Results and US$100 Million Share Repurchase Program

GUANGZHOU, China, Nov. 18, 2021 /PRNewswire/ -- Yatsen Holding Limited ("Yatsen" or the "Company") (NYSE: YSG), a leading Chinese beauty company, today announced its unaudited financial results for the third quarter ended September 30, 2021 and the authorization by its board of directors of a US$100 million share repurchase program.

Third Quarter 2021 Highlights

• Total net revenues for the third quarter of 2021 increased by 6.0% to RMB1.34 billion (US$208.4 million) from RMB1.27 billion in the prior year period.
• Gross margin for the third quarter of 2021 was 67.9% compared to 65.7% in the prior year period.
• Gross sales^[1] for the third quarter of 2021 increased by 8.3% to RMB1.56 billion (US$241.9 million) from RMB1.44 billion in the prior year period.

"Despite a challenging macroeconomic backdrop and soft industry environment for color cosmetics, our topline continued to grow in the third quarter, supported by a significant growth of our skincare brands^[2]," stated Mr. Jinfeng Huang, Founder, Chairman and Chief Executive Officer of Yatsen. "Looking ahead, as we embark upon the next phase of our development, we expect to continue shifting our revenue mix towards higher-quality and more profitable growth, underpinned by sustained investments in our brand's brand equities and R&D. We are confident that despite some short-term pain, our strategic initiatives will allow us to emerge stronger with a clear path to long-term sustainable growth."

"We managed to grow the business in the face of strong industry headwinds," commented Mr. Donghao Yang, Director and Chief Financial Officer of Yatsen. "Total net revenues reached RMB1.34 billion in the third quarter, representing an increase of 6.0% year over year. Our gross margin continued its upward trend and reached 67.9% in the quarter compared to 65.7% in the same period last year. With ample cash reserves and our sights set on charting a sustainable path to long-term growth, we will continue to build a world-class multi-brand beauty group in China."

Third Quarter 2021 Financial Results

Net Revenues. Total net revenues for the third quarter of 2021 increased by 6.0% to RMB1.34 billion (US$208.4 million) from RMB1.27 billion in the prior year period. The increase was primarily attributable to sales from our newly launched and acquired brands.

Gross Profit and Gross Margin. Gross profit for the third quarter of 2021 increased by 9.6% to RMB911.8 million (US$141.5million) from RMB831.6 million in the prior year period. Gross margin for the third quarter of 2021 increased to 67.9% from 65.7% in the prior year period. The increase was primarily attributable to (i) premiumization of our Perfect Diary brand, and (ii) increased sales from skincare brands with higher margins in the sales mix.

Operating Expenses. Total operating expenses for the third quarter of 2021 decreased by 13.2% to RMB1.28 billion (US$198.8million) from RMB1.48 billion in the prior year period. As a percentage of total net revenues, total operating expenses for the third quarter of 2021 were 95.4%, as compared with 116.6% in the prior year period.

• Fulfillment Expenses. Fulfillment expenses for the third quarter of 2021 were RMB100.2 million (US$15.5 million), as compared with RMB91.5 million in the prior year period. As a percentage of total net revenues, fulfillment expenses for the third quarter of 2021 increased to 7.5% from 7.2% in the prior year period. The increase was primarily attributable to an increase in customer service expenses and share-based compensation expenses compared to the third quarter of 2020, partially offset by a slight decrease in fulfillment logistics expenses.
• Selling and Marketing Expenses. Selling and marketing expenses for the third quarter of 2021 were RMB911.3million (US$141.4 million), as compared with RMB854.3 million in the prior year period. As a percentage of total net revenues, selling and marketing expenses for the third quarter of 2021 increased to 67.9% from 67.5% in the prior year period. The increase was primarily attributable to an increase in salaries, store-related expenses and share-based compensation expenses compared to the third quarter of 2020, partially offset by a decrease in advertising expenses and platform commissions.
• General and Administrative Expenses. General and administrative expenses for the third quarter of 2021 were RMB233.9 million (US$36.3 million), as compared with RMB515.9 million in the prior year period. As a percentage of total net revenues, general and administrative expenses for the third quarter of 2021 decreased to 17.4% from 40.7% in the prior year period. The decrease was primarily attributable to a decrease in share-based compensation expenses compared to the third quarter of 2020, partially offset by an increase in salaries.
• Research and Development Expenses. Research and development expenses for the third quarter of 2021 were RMB35.8 million (US$5.6 million), as compared with RMB14.4 million in the prior year period. As a percentage of total net revenues, research and development expenses for the third quarter of 2021 increased to 2.7% from 1.1% in the prior year period. The increase was primarily attributable to an increase in personnel costs and share-based compensation expenses reflecting our commitment to enhancing our research and development capabilities.

Loss from Operations and Non-GAAP Loss from Operations^[3]. Loss from operations for the third quarter of 2021 decreased by 42.7% to RMB369.3million (US$57.3million) from RMB 644.6 million in the prior year period. Operating loss margin was 27.5%, as compared with 50.9% in the prior year period.

Non-GAAP loss from operations for the third quarter of 2021 increased by 11.9% to RMB221.7 million (US$34.4 million) from RMB198.1 million in the prior year period. Non-GAAP operating loss margin was 16.5%, as compared with 15.6% in the prior year period.

Net Loss and Non-GAAP Net Loss^[4]. Net loss for the third quarter of 2021 decreased by 43.8% to RMB361.8 million (US$56.1 million) from RMB643.8 million in the prior year period. Net loss margin was 26.9%, as compared with 50.8% in the prior year period.

Non-GAAP net loss for the third quarter of 2021 increased by 9.6% to RMB216.3 million (US$33.6 million) from RMB197.4 million in the prior year period. Non-GAAP net loss margin was 16.1%, as compared with 15.6% in the prior year period.

Net Loss attributable to Ordinary Shareholders per Diluted ADS^[5] and Non-GAAP Net Loss attributable to Ordinary Shareholders per Diluted ADS^[6]. Net loss attributable to Yatsen's ordinary shareholders per diluted ADS for the third quarter of 2021 was RMB0.57 (US$0.09), as compared with RMB6.00 in the prior year period.

Non-GAAP net loss attributable to Yatsen's ordinary shareholders per diluted ADS for the third quarter of 2021 was RMB0.34 (US$0.05), as compared with RMB1.20 in the prior year period.

Balance Sheet and Cash Flow

As of September 30, 2021, the Company had cash and cash equivalents and restricted cash of RMB3.63 billion (US$563.8 million), as compared with RMB5.73 billion as of December 31, 2020.

For the quarter ended September 30, 2021, net cash used in operating activities was RMB225.3 million (US$35.0 million).

Business Outlook

For the fourth quarter of 2021, the Company expects its total net revenues to be between RMB1.57 billion and RMB1.67 billion, representing a year-over-year decline of approximately 15% to 20%, primarily due to the prior year period's high comparison basis and softer-than-expected industry-wide color cosmetics sales. These forecasts reflect the Company's current and preliminary views on the market and operational conditions, which are subject to change.

Share Repurchase Program

The Company's board of directors has approved a share repurchase program whereby the Company is authorized to repurchase up to US$100 million worth of its ordinary shares (including in the form of American depositary shares) over the next 24 months. The Company's proposed repurchases may be made from time to time through open market transactions at prevailing market prices, in privately negotiated transactions, in block trades and/or through other legally permissible means, depending on the market conditions and in accordance with applicable rules and regulations. The Company's board of directors will review the share repurchase program periodically, and may authorize adjustment of its terms and size. The Company expects to fund the repurchases with its existing cash balance.

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 RMB6.4434 to US$1.00, the exchange rate in effect as of September 30, 2021 as set forth in the H.10 statistical release of The Board of Governors of the Federal Reserve System. The Company makes no representation that any RMB or US$ 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 Thursday, November 18, 2021 at 7:30 A.M. U.S. Eastern Time or 8:30 P.M. Beijing Time to discuss its financial results and operating performance for the third quarter 2021.

The replay will be accessible through November 25, 2021 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 player in China's beauty market with a mission to create an exciting new journey of beauty discovery for consumers in China and around the world. Founded in 2016, the Company has launched and acquired multiple color cosmetics and skincare brands including Perfect Diary, Little Ondine, Abby's Choice, Galénic, DR.WU (its mainland China business), Eve Lom, and Pink Bear. The Company's flagship brand, Perfect Diary, is one of the top color cosmetics brands in China in terms of online retail sales value. Leveraging its digitally native direct-to-customer business model, the Company has built core capabilities which enable it to launch and scale multiple brands quickly while offering a wide selection of products to a growing variety of customers. The Company 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 and (iii) 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) tax effects on non-GAAP adjustments, (iv) accretion to preferred shares, and (v) deemed dividends to preferred shareholders due to modification of preferred shares. 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 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

The Piacente Group, Inc.
Emilie Wu
Tel: +86-21-6039-8363
E-mail: yatsen@thepiacentegroup.com

In the United States:

The Piacente Group, Inc.
Brandi Piacente
Tel: +1-212-481-2050
E-mail: yatsen@thepiacentegroup.com

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