Yunji - Q2 2023

Transcript

Operator (participant)

Good morning and good evening, ladies and gentlemen. Thank you for standing by, and Welcome to Yunji's Q2 2023 Earnings Conference Call. With us today are Mr. Shanglue Xiao, Chairman and Chief Executive Officer, Mr. Peng Zhang, Vice President of Finance, and Ms. Kaye Liu, Investor Relations Director of the Company. As a reminder, this conference call is being recorded. Now I would like to hand the conference over to our first speaker today, Ms. Kaye Liu, Investor Relations Director of Yunji. Please go ahead, ma'am.

Kaye Liu (Investor Relations Director)

Hello, everyone. Welcome to our Q2 2023 Earnings Call. Before we start, please note that this call will contain forward-looking statements within the meaning of Private Securities Litigation Reform Act of 1995, that are based on our current expectations and current market operating conditions, and relate to events that involve known or unknown risks, uncertainties and other factors affecting Yunji and its industry. These forward-looking statements can be identified by terminology such as will, expect, anticipate, continuing or other similar expressions. For a detailed discussion of these risks and uncertainties, please refer to our related documents filed with the U.S. SEC. Any of forward-looking statement that we make on this call are based on assumptions as of today, and expressly qualify the entirely by cautionary statement, risk factors, and details of the company filing with SEC.

Yunji do not undertake any obligation to update this statement, in fact, as required under applicable law. With that, I will now turn over to Shanglue Xiao, Chairman and CEO of Yunji.

Shanglue Xiao (Chairman and CEO)

Hello, everyone. Welcome to Yunji Q2 2023 earnings call. During the first half of this year, with consumption gradually and steadily recovering, a number of notable trends emerged. First, in terms of consumption habits, the post-pandemic surge in consumer mobility triggered by a transition away from stockpiling of goods towards a preference for seasonal purchases. To capitalize on this, we will further enhance our supply chains so that we are better equipped to address seasonal consumer demand. At the same time, we will optimize our marketing campaigns to sharpen their focus on holidays, seasonal transitions, and social trends. In addition to these shifts, we have also observed the resurgence of local community services in the consumption landscape and the substantial support these services have drawn from national policies. The convergence of these two trends presents exciting opportunities for our gourmet food strategy.

Over the course of the Q2, we steadily rolled out our gourmet food products in local neighborhood groups and online and offline communities in certain second- and third-tier cities. Our private label meat products proved especially popular, gradually generating notable levels of repeat purchases. During the Q2, we have noted a trend where an increasing number of companies have adopted a price war strategy as a way of stimulating consumption. It is crucial to highlight that Yunji adheres to a substantial, healthy, and value-oriented strategy, rather than merely burning money by resorting to subsidies or adopting a low-price strategy. Our prudent approach is centered around refining our operations, saving our funds for subsidies, and leveraging our highly curated product range and economies of scale to offer users unparalleled value.

The resounding success of our private label range underpins our confidence that we can offer users cost-effective products without even resorting to price wars.

的 美妆 自有 品牌 素野 刚刚 迎来 了 13 周 年 庆 ， 并 在 深圳 举行 了 以 中国 态 ， 新 姿态 为 主题 的 素野 品牌 13 周 年 庆 及 白 多 肽 3.0 的 发布会 ， 开启 素野 品牌 更 适合 中国 肌肤 的 新 纪 元 。 此 外 ， 素野 品牌 还 与 国内 领先 化妆 品 原料 供应商 举行 了 战略 签约 仪式 ， 并 发布 了 2023 抗 皱 白 皮 书 。 同时 ， 素野 线下 体验 店 也 迎来 了 第一 批 客人 。

Speaker 5

... Recently, Suye, our private label beauty brand, marked its thirteenth anniversary. We celebrated this milestone by holding an event in Shenzhen with the theme of China Peptide New Attitude. During the celebration, Suye unveiled its latest product, White Peptide 3.0, marking the dawn of a new era aimed at addressing the specific skincare needs of the Chinese people. Importantly, Suye has signed a strategic agreement with a leading domestic supplier of raw materials for cosmetics. Furthermore, Suye recently released its 2023 anti-aging white paper and welcomed the first groups of customers to its offline experience store.

Shanglue Xiao (Chairman and CEO)

为了迎接未来人口老龄化的趋势，抓住未来十年成倍增长的市场空间，云集的自有品牌在健康赛道继续拓展，为用户带来健康消费升级。我们鼓励用户成为家庭健康的第一责任人，培养健康生活习惯，主动维护全家老小的健康。大健康品牌亲子养保持了良好的势头，其中益生菌销售额累计突破了CNY 2.2亿。最近推出的辅酶Q10首次首发在31分钟内售罄。

Speaker 5

Recognizing the burgeoning market potential created by an aging population over the next decade, our private labels are continuously expanding their presence within the healthcare sector, delivering an enhanced consumption experience. In line with our commitment to promoting healthy lifestyles, we actively encourage users to show their responsibility for their family's health, nurturing good habits, and maintaining the well-being of every family member. As a result of these efforts, our healthcare brand, Qinziyang, maintained its strong momentum with cumulative probiotic sales exceeding RMB 200 million. In addition, our newly introduced the Coenzyme Q10 product sold out within the first 31 minutes of its launch.

Shanglue Xiao (Chairman and CEO)

在营销端，我们深知在信息流爆炸的时代，我们每天能吸引用户注意力的时间是有限的。为了把握有限的时间，我们需要让我们与用户的连接更加高效，成为有效终端。打造有效终端，优质的内容和及时的分发缺一不可。

Speaker 5

Let's turn to our marketing initiatives. We are fully cognizant that in the age of information overload, we face a limited window for capturing users' attention. To optimize our use of this precious time, it is essential to maximize the impact and efficiency of our connection with users by establishing an effective terminal. Crafting such a terminal necessitates an effective blend of high-quality content and timely distribution.

Shanglue Xiao (Chairman and CEO)

优质的内容相对门槛较高，主要由公司配合AI大模型技术完成。我们将在内容方面加大投入，并做更多新鲜尝试，包括数字人直播、虚拟主播合作等。目前数字人直播已经投入运营，大大节约了人力和物力的成本。

Speaker 5

To meet the challenge of producing high-quality content, we harness the capabilities of our cutting-edge AI large-scale model technology. Going forward, we will intensify our content investment and explore innovative approaches, including AI, Digital Human Live Streaming, and collaborations with virtual presenters. We have already launched our Digital Human Live Streaming initiatives, significantly reducing labor and materials costs.

Shanglue Xiao (Chairman and CEO)

我们的自有品牌商品，尤其是大健康产品，能够获得宝妈群体自然的好感，并在产品性质上更适合服务商，而非大主播营销。在大健康产品营销上，我们比拼的是专业化的零售和更高效的信息分发，云集通过产品的合作研发，更理解产品，通过产品溯源，产出更丰富、更真、真实的内容，并将这些内容传播给上万服务经理。服务经理经过专业化的零售培训，能够与用户进行深度沟通和交流。同时，我们开发了AI健康顾问，为服务经理提供咨询。服务经理通过我们产出的优质内容和专业化培训，能够解答大部分用户的问题，而AI健康顾问帮助服务经理解决小部分更专业的问题。这种专业化零售叠加AI大模型的模式，更适合中国家庭和中国邻里社区。

Speaker 5

Our private label products, especially those in the healthcare sector, naturally resonate with young mothers. In our experience, these products are more effectively promoted by service managers than by influencers. For marketing of healthcare products, we compete through specialized retail and more efficient information dissemination. By engaging in collaborative product research and development processes, we cultivate a more thorough understanding of our products. Furthermore, by tracing product origins, we can generate richer and more authentic content. This high-quality content is then disseminated to thousands of service managers who, having undergone professional retail training, are able to engage in meaningful interaction with users. Service managers equipped with the high-quality content we produce and the specialized training we provide, are able to address the majority of the user inquiries. To further empower our service managers, we have developed an AI Health Advisor that they can consult to tackle more specialized inquiries.

This model of a specialized retail, combined with AI technology, is better aligned with the needs of the Chinese households and local communities.

Shanglue Xiao (Chairman and CEO)

With that, I will turn the call over to Mr. Zhang, our Vice President of Finance, to go through the financial results.

Peng Zhang (VP of Finance)

Thank you, Shanglue. Hello, everyone. Before I go through our financial results, please note that all numbers stated in the following remarks are in RMB terms, and all comparisons and percentage changes are on a year-over-year basis, unless otherwise noted. The microenvironment continues to present challenges that demand our careful attention and adaptability. Consumer sentiment and purchasing power still need additional momentum before they completely recover. Meanwhile, consumer preferences are evolving swiftly. Based on our existing marketing data, our strategic pivot towards healthcare and nutritional products has yielded promising results. This shift has not only aligned us changing consumer preference, but also fostered our financial performance. We are dedicated to expanding our product selection and nurturing our private label offerings, ensuring that we stay at the forefront of market trends and maintain a competitive edge.

We remain committed to optimizing our cost structure and enhancing efficiency. By doing so, we will fortify our resilience against economic fluctuations, reinforce our capacity to weather uncertainties, and prosper regardless of the economic cycle. Now, let's take a closer look at our financials. Total revenues were CNY 167 million, compared to CNY 284 million a year ago. Revenues from sales of merchandise were CNY 131 million, and revenues from our marketplace business were CNY 34 million. The main driver behind the changes were our consistent improvements to our product range across all categories, coupled with the optimization of supplier and merchant network, which lead to a short-term impact on sales. Despite these challenges, we improved our gross margin to 51.6%, compared to 40.6% a year ago.

This was a result of sustained customer loyalty to our private labels and our effective product curation strategies. Now, let's take a look at our operating expenses. Fulfillment expenses were RMB 30 million, compared to RMB 43 million a year ago. This was primarily due to decreased warehousing and logistics expenses because of lower merchandise sales and lower personnel costs due to staffing structural refinements. Sales and marketing expenses were RMB 33 million, compared to RMB 58 million a year ago. This was primarily a result of streamlining staffing structures, leading to reduced personnel costs, aligned with a decline in member management fees and decreased business promotion expenses. Technology and content expenses were RMB 14 million, compared to RMB 24 million a year ago. The decrease was mainly due to a reduction in personnel costs as a result of staffing structural refinements.

General and administrative expenses were CNY 33 million, compared to CNY 32 million a year ago. This was mainly due to a higher allowance for credit losses, partially mitigated by lower personnel costs resulting from staffing structural refinements, as well as decrease in share-based compensation expenses. Total operating expenses in the Q2 decreased to CNY 111 million from CNY 157 million in the same period of 2022. Loss from operations was CNY 12 million, compared to CNY 30 million a year ago. Net loss was CNY 42 million, compared with CNY 25 million a year ago, while adjusted net loss was 40 million, compared with CNY 17 million a year ago. Basic and diluted net loss per share attributable to ordinary shareholders were both $0.02, compared with $0.01 in the same period of 2022. Moving on to liquidity.

As of June thirtieth, 2023, we had a total of CNY 583 million in cash and cash equivalents, restricted cash and short-term investments on our balance sheet, compared to CNY 669 million as of December thirty-first, 2022. Our liquid assets were sufficient to cover our payable obligations, and we did not hold any long-term bank loans or debts on our balance sheet. In the near future, we are proactively exploring investment opportunities and enhancing our supply chain capabilities. To conclude, amid mixed microenvironment dynamics, we are pleased to witness the growing synergies between offline and online retail opportunities during the post-COVID era, which we believe provide an excellent opportunity for us to develop our private labels.

As we continue to optimize our cost structure, we are confident in our ability to thrive amidst a variety of economic cycles. I would also like to let you know that I have submitted my resignation, and my last working day will be August 26, 2023. I have chosen to step down due to personal reasons, and my responsibilities will be transitioned to Ding, our Senior Financial Director. My journey with Yunji has spent five years, during which I have experienced significant personal growth. I have full confidence in Ding's exceptional abilities in managing complex financial operations and strategic planning. To ensure a seamless transition, I will continue to serve as a consultant.

...This concludes our prepared remarks for today. Operator, we are now ready to take questions.

Operator (participant)

We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. When asking a question, please state your question in Chinese first, then repeat your question in English for the convenience of everyone on the call. Once again, that was star then one to ask a question, and at this time we will pause momentarily to assemble our roster. Our first question comes from Ethan Yu of First Trust. Please go ahead.

Ethan Yu (Investment Analyst)

谢谢管理层接受我的提问。我关心的是在国家多次发文刺激线下消费的大背景下，管理层对此有什么看法吗？对云集的业务是否有什么影响？谢谢管理层。Thanks for taking my question. The Chinese government has repeatedly issued some policies to stimulate offline consumption. I'm wondering what's the management perspective on this issue, and does it have any impact on our business? Thank you.

Shanglue Xiao (Chairman and CEO)

谢谢您的提问，我们很高兴看到消费者逐渐恢复活力，追求美好生活。我们坚决拥护国家的政策，希望能够为线下的消费复苏出一份力。目前我们的销售排期和选品顺应着消费趋势，做了些相应的调整，比如增加应季新品的供给和强化场景化销售，并在服务上提升履约能力。

Speaker 5

Thank you for your question. We are delighted to see consumers gradually regaining their vitality and pursuing a better life. We firmly support national policy and hope to contribute to the recovery of offline consumption. Currently, we have made adjustments in line with consumer trends, such as increasing the supply of seasonal new products, enhancing sales tailored to the specific scenarios, and improving our ability to fulfill services.

Shanglue Xiao (Chairman and CEO)

我们还举办了多场线下原产地溯源活动和线下沙龙活动，让服务经理能够更理解商品，让我们的商品描述和消费体验更真实，更有说服力。同时，云集不只是在线上销售平台，还拥有许多自有品牌，这让我们灵活度更高。我们的销售不会局限于线上，云集的10万服务经理遍布全国各线城市，这相当于拥有一个强大的本地销售团队。我们期待未来能在线上线下探索新的可能性。

Speaker 5

Furthermore, we have hosted various offline events, including origin tracing activities and salon gatherings, allowing our Service Managers to gain a deeper understanding of the products. This in turn makes our product descriptions more authentic, persuasive, and enhances the consumer experience. Yunji is more than just an online sales platform. We have many Private Labels which provide us with greater flexibility. Our sales reach extends beyond the online market as we manage the network of 100,000 Service Managers across cities nationwide, which corresponds to a robust local sales team. We look forward to exploring new possibilities in the offline realm in the future. Thank you.

Ethan Yu (Investment Analyst)

谢谢小鹏. Oh, I have no more questions. Thank you.

Operator (participant)

This concludes our question and answer session. I'd like to hand the conference back to management for closing remarks.

Speaker 5

Thank you for joining us today. Please do not hesitate to contact-