Yunji - Q3 2022

Transcript

Operator (participant)

Good morning and good evening, ladies and gentlemen. Thank you for standing by. Welcome to Yunji's third quarter 2022 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. I would like to hand the conference over to our first speaker today, Ms. Kaye Liu, IRD of Yunji. Please go ahead, ma'am.

Kaye Liu (Director of Investor Relations)

Hello, everyone. Welcome to our third quarter 2022 earnings call. Before we start, please note that this call will contain forward-looking statement within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on our current expectations and current market operation conditions or later events that involve known or unknown risk, uncertainties and other factors of Yunji and its industry. These forward-looking statement can be identified by the terminology such as will, expect, anticipate, continue, or other similar expressions. For the detailed discussion of these risks and uncertainties, please refer to our related document filed with U.S. SEC. Any forward-looking statement that we make on this call are based on assumptions as of today and are expressly qualified in entirely by cautionary statements, 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)

[Foreign language]

Speaker 5

Hello, everyone. Welcome to Yunji's 3rd quarter 2022 earnings this morning. We once again faced a volatile and uncertain microenvironment during the 3rd quarter. Against this backdrop, we dedicated ourselves to improving our capabilities while reinforcing our business' sustainability. We launched a variety of initiatives, including enhancing our service provision, augmenting our private label product development process, and optimizing our inventory structures. This timely and agile response has elevated our resilience and put us on a path to sustainable high-quality growth. In addition, we took advantage of the e-commerce sector's usual 3rd quarter off-season to further evolve our innovative technology and upgrade our services.

Shanglue Xiao (Chairman and CEO)

At the same time, we deepened our exploration of e-commerce potential by focusing on our market products and driving the use of short videos as our main consumer marketing tool. Let's take a look at our product selection strategy. Consumers are switching away from well-known global labels and are purchasing a more diverse range of brands. We responded to these emerging trends by realigning our product selection strategy to focus on high quality domestic brands at competitive prices and marketed products in live streaming channels. Through continual analysis of our core users' consumption habits and pricing preferences, we have maintained a relatively high repeat purchase rate despite the current micro headwinds. Furthermore, by refining the details and accuracy of our product descriptions, we foster the mindset of carefully considered purchase decisions, allowing us to successfully maintain a low product return rate.

[Foreign language]

Speaker 5

On the marketing side, entrepreneur oriented has always been one of our core values, especially when it comes to empowering women to launch businesses and enhance their lives through self-improvement. In the current environment where employment prospects are uncertain, we further invest in our service managers by developing innovative features that make sharing increasingly convenient, efficient, and fun. We reinforce their confidence in their chosen career by encouraging them to work hard and earn more. As a result of these initiatives, our service managers' sales conversion rates have steadily increased.

Shanglue Xiao (Chairman and CEO)

[Foreign language]

Speaker 5

Turning to our marketing promotions. Following the in-depth preparation during the third quarter, we officially launched our Yunji Dynamic Showcase for service managers. The showcase blends traditional graphical marketing content and live streaming, creating short promotional videos for featured products. By integrating these innovative marketing tool with our platform service guarantee, we deliver affordably priced, high quality products to customers while providing brands with a low-cost solution to promote their products more efficiently and accurately.

Shanglue Xiao (Chairman and CEO)

[Foreign language]

Speaker 5

Yunji Dynamic Showcase plays a key role in helping our service managers to sharpen their focus on serving our users. The showcase features a wide product selection selected from our private labels, our range of gourmet food and trending market products from the top 100 live streaming channels. Our service managers can explore the showcase products, choose those they are interested in, and synchronize them with My Showcase function. Our innovative one-click function allows service managers to effortlessly generate product related content to share with users or on social media. Our technological innovation improves service managers efficiency by saving them time and energy. It makes easier for them to generate sales, allowing service managers and young mothers to boost their incomes through our platform.

Shanglue Xiao (Chairman and CEO)

We are confident that Yunji Dynamic Showcase leveraging of short video marketing will foster users sharing behavior and increase user engagement time.

[Foreign language]

Speaker 5

This year, the impact of the COVID-19 will probably be the most severe we have seen since the pandemic began. This is especially true when it comes to our fulfillment services. In the near term, the situation remains severe and the turbulence will weigh on consumption and microeconomy. Amid these challenges, there are also reasons for optimism and opportunities for growth. We still hear many positive voices and our users continue to value their health, still love to eat delicious and nutritious food, and will always enjoy cultivating hobbies.

Shanglue Xiao (Chairman and CEO)

[Foreign language]

Speaker 5

The driving force behind the development of our private label brands has always been our users desire for a healthy and a beautiful life. We have made substantial progress in developing our private labels, their popularity continued to grow. During the recent Double 11 Shopping Festival, they were the most in-demand brands in the cosmetics and healthcare categories on our platform. Our healthcare brand introduced a slew of new offerings, including liver and kidney care products, augmenting our product matrix to better satisfy the healthcare needs of our users. For example, our brand's Damiana Leaf tablets garnered over RMB 10 million sales in a single day during their initial and follow-up rounds of the sales.

Shanglue Xiao (Chairman and CEO)

[Foreign language]

Speaker 5

We have continued to innovate and iterate in our gourmet food category by introducing more flavors and a wider choice of products. These unique offerings range from family staples such as rice to Chinese liquor for business banquets, allowing us to capture the full spectrum of the user demand to better satisfy users' diverse food preferences. We have expanded our gourmet food private label product matrix. Our offerings now include well-known products such as European style bread and novel items that our service managers promote and introduce to our users. For example, Baiyueshan freeze-dried sea buckthorn powder was originally a niche health food, largely unknown to our users. Thanks to our promotional efforts, it became a sensation, generating over 5 million RMB in sales during the launch day. During the third quarter, our tech-empowered private label, SUYE, celebrated its 12th anniversary.

Since 2016, SUYE has partnered with a Dutch company to research peptides and develop a wide variety of anti-aging products that better meet people's skincare needs. Notably, these products contain professional ingredients typically found in medical aesthetics. We were delighted to see that SUYE generated over 21 million RMB in sales during its anniversary month, showing high user demand for quality products that deliver innovative and effective anti-aging solutions. SUYE has become the go-to choice for women's anti-aging products and the cornerstone of our private label beauty brand strategy.

Looking ahead, we are confident that the current challenges will be transitory. As I just mentioned, we see clear reasons for optimism, we were encouraged by China's recently optimized COVID-19 controls. People will always want a better life, we stand ready to serve more and more families going forward.

Shanglue Xiao (Chairman and CEO)

With that, I will turn the call over to Mr. Peng 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. During the third quarter, we faced a volatile macro environment and ongoing pandemic controls, both of which presented challenges to our business. In response, we further refined our product selection and optimized our relationships with suppliers, sacrificing near-term sales while building a solid foundation for our company's long-term success. Our repeat purchase rate remains stable at 79%, and we once again improve our gross margin. Beyond this, operating expenses and total cost of revenues both declined as we continue to optimize the cost structure of our business.

We finished the quarter in a healthy cash position, and this combined with our persistent focus on efficient operations will allow us to continue to weather an unpredictable market. Going forward, we will continue to reward our shareholders through share buybacks. Now let's take a closer look at our financials. Total revenue was RMB 239 million, compared to RMB 438 million a year ago. Revenues from sales of merchandise were RMB 197 million, and revenues from our marketplace business were RMB 38 million. This decrease was primarily due to the company's continued strategy to refine its product selection across all categories and optimize its selection of suppliers and merchants, causing near-term decrease in sales. Consumers' willingness to spend on discretionary products in 2022 has also declined compared with that in the same period of 2021.

Despite these challenges, we improved our gross margin to 49.4% compared to 43.2% a year ago as a result of sustained customer loyalty to our private labels and the effective product curation strategy. Let's take a look at our operating expenses. Fulfillment expenses were RMB 37 million, compared to RMB 41 million a year ago. This was primarily due to reduced warehousing and logistics expenses due to lower merchandise sales and decreased service fees charged by third-party payment settlement platforms. Sales and marketing expenses were RMB 47 million, compared to RMB 60 million a year ago. This was mainly due to the reduction in personnel costs as a result of staffing structure refinements and a decrease in member management fees. These reductions were partially offset by increase in private label promotion expenses.

Technology and content expenses were RMB 17 million, compared to RMB 29 million a year ago. The decrease was mainly due to the reduction in personnel costs as a result of staffing structure refinements and reduced cloud service server costs. General administrative expenses were RMB 38 million compared to RMB 65 million a year ago. This was primarily due to reduced personnel costs as a result of refinements to our staffing structure, lower professional service fees and a decrease in share-based compensation expenses. Total operating expenses in the third quarter decreased to RMB 139 million from RMB 194 million in the same period of 2021. We recorded a loss from operations of RMB 18 million compared to income from operations of RMB 18 million a year ago.

Net loss was RMB 38 million compared with net income of RMB 61 million a year ago, while Adjusted Net Loss was RMB 30 million compared with Adjusted Net Income of RMB 76 million a year ago. Basic and diluted net loss per share attributable to ordinary shareholders were both $0.02 compared with basic and diluted net earnings per share attributable to ordinary shareholders of $0.03 in the same period of 2021. Moving on to liquidity. As of September 30th, 2022, we had a total of RMB 571 million in cash and cash equivalents, restricted cash and short term investments on our balance sheet, compared to RMB 645 million as of June 30th, 2022. Our liquid assets were sufficient to cover our payable obligations. We did not hold any long term bank loans or debts on our balance sheet.

Despite the persistent challenges of today's macro environment, we are confident that our efforts to optimize costs, refine our business model, improve product curation and ensure high quality service for our users will serve us well now and into the future. We have made steady progress in our quest for long term stable growth, and we will continue to adjust our business strategies to offer maximum value to our shareholders. This concludes our prepared remarks for today. Operator, we are now ready to take questions.

Operator (participant)

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, we ask that you 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 and then repeat your question in English for the convenience of everyone on the call. Today's first question comes from Ethan Yu at First Trust China. Please go ahead.

Ethan Yu (Analyst)

Let me make a quick translation. Thanks for taking my question. Recently, there has been a lot of good news about China, easing the COVID policies. Could you comment on this trend and tell us more about what measures will the company do to grab this opportunity of a possible recovery in consumer in private consumption? Thank you.

Shanglue Xiao (Chairman and CEO)

Thank you for your question. The recovery of the epidemic has an uncertainty and a certainty. First of all, in terms of certainty, we believe that the most difficult time of the epidemic is about to pass. In terms of the uncertainty, as a comprehensive e-commerce platform, Yunji has a wide customer base from the first-tier cities such as Beijing, Shanghai, and Guangzhou to remote areas such as Xinjiang and Inner Mongolia. We believe that the recovery of certain consumption will not be explosive, but an orderly, slow, uneven recovery based on regions and product categories. From the supply chain side, the supply chain of our private label is relatively easy to grasp, and we will flexibly adjust the production and marketing strategies of various categories according to the recovery situation.

For the third party supply chain, as a highly curated platform, our high quality best seller pool can quickly adapt to the market changes. From the perspective of the market habits, I think that after three years of the epidemic, consumer panic will not fade away so quickly, and the stocking demand for the necessities may still exceed the demand for the discretionary products in the short term. Global economic depression this year are not only affected by the epidemic, but also factors such as climate change and international relations. In the long run, we still believe in users yearning for a better life. We will enhance our business and management capabilities and maintain a healthy financial position to cope with the challenges and opportunities brought by the microenvironment.

Ethan Yu (Analyst)

Thank you. Thank you, Shanglue. Thank you. I have no more questions. Thank you.

Operator (participant)

Thank you. Ladies and gentlemen, as there are no further questions at this time, I'd like to hand the conference back to the management for closing remarks.

Kaye Liu (Director of Investor Relations)

Thank you for joining us today. Please do not hesitate to contact us if you have any further questions and we looking forward to talking with you next quarter. Thanks. Bye.

Operator (participant)

This conference is now concluded. Thank you for attending.