Yunji - Q3 2023

Transcript

Operator (participant)

Good morning and good evening, ladies and gentlemen. Thank you for standing by, and welcome to Yunji's Third Quarter 2023 Earnings Conference Call. With us today are Mr. Shanglue Xiao, Chairman and Chief Executive Officer, Mr. Yeqing Cui, Senior Financial Director, and Miss 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, Miss Kaye Liu, Investor Relations Director of Yunji. Please go ahead, ma'am.

Kaye Liu (Investor Relations Director)

Hello, everyone. Welcome to our third quarter 2023 earnings call. Before we start, please note that the call will contain forward-looking statements within the meaning of the 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 of Yunji and its industry. These forward-looking statements can be identified by terminologies such as "will," "expect," "anticipates," "continue," or other similar expressions. For detailed discussion of these risks and uncertainties, please refer to our related document that filed with SEC. Any forward-looking statements 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's filing with SEC.

Yunji do not undertake any obligation to update this statement, except as required in the 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 third quarter 2023 earnings call. Hello, everyone. Welcome to Yunji third quarter 2023 earnings call. The third quarter is traditionally an off-peak season for e-commerce. We took this opportunity to further develop and strengthen our business foundations and continue to iterate on both the marketing and product fronts. We focused on a number of initiatives, including fine-tuning our market positioning, advancing development of new products, strategically adjusting the structure of our product offerings, and optimizing our supply chain capabilities. In addition, we ramped up our marketing and hosted events to highlight product regions and unveil new products, laying the groundwork for our promotional sales in the fourth quarter. Notably, during September, our private label team relocated to a new office building with enhanced product display and presentation areas, allowing us to more effectively showcase our private label brands to our partners.

Guided by our ongoing strategic development, we conducted a comprehensive evaluation of Yunji's market positioning. Both Yunji and our Private Label brands have consistently maintained high Repeat Purchase Rates. These positive trends has promoted us to reflect on how can we further enhance the value we deliver to our users and our service managers. Operating within a competitive market landscape, we remain firmly committed to offering high quality, competitively priced products that deliver outstanding value to our users. We believe that these commitment will generate higher revenues and strengthen our brand image, paving the way for our sustainable growth. During this year's Double Eleven shopping festival, major e-commerce platforms engaged in aggressive discounting and extended their promotions over the course of a month by using a variety of creative approaches. We chose to try a different course, opting for a more straightforward promotional approach over a shorter timeframe.

For example, we successfully attracted and engaged users by leveraging product same day, direct discounts, and multi-item offers. This strategic focus enabled us to coordinate our marketing efficiently and more precisely target dormant users, effectively drawing them back to our platform.

...上次季报会中，我们提出了增加应季供应的战略，我们在应季商品，尤其在美食品类取得了不错的结果。八月底，蟹、蟹卡、提货券和蟹礼盒成为大家中秋国庆送礼聚会的热门选择，在没有头部大促的情况下，保持了稳定的日销。截至季度末的仅一个月时间里，我们总计卖出了大闸蟹超过400,000只，销量超过CNY 13 million。

During our previous earnings call, we outlined our strategic initiative to enhance our supply chains and capitalize on consumers' growing appetite for seasonal purchases. Our approach has yielded impressive results, particularly in the food category. For example, by the end of August, our crab vouchers and crab gift boxes had emerged as go-to gifting choices for the Mid-Autumn Festival and National Day holiday. Importantly, we have successfully generated stable levels of daily sales without significant promotional spending. In the space of just one month, we sold out, we sold over 400,000 crabs, generating revenue in excess of CNY 30 million.

接下来我为大家分享一下云集自有品牌的进展。美丽是我们的根据地，健康超市是我们的第二曲线。拥有美丽和健康两个赛道，赛道的自有品牌的云集，正在尝试各品类之间的跨界的衔接，这样我们的单品更有独特性和难以复制。九月，我们的彩妆品牌PS推出了沙棘润唇膏，上市当天在一小时内就售罄，社群对于返厂销售的呼声强烈。沙棘在我们的健康滋补自有品牌百乐山的产阵中，一直是备受用户认可的成分。沙棘润唇膏在迎合秋季润唇应季需求的同时，还可以吸引已经受到丰富教育的沙棘忠实用户的购买。在润唇膏的成功试验之后，我们内部成立了中药调配工作室，迎合这几年中医文化的复兴，此后呢，将推出更加跨界的结合的产品，如中药的面膜。

Now I want to share some updates on Yunji's private label brands. While beauty remain our core focus, healthcare has emerged as a strong secondary area. This dual focus on beauty and health opens up exciting opportunities to explore cross-category collaboration, allowing us to create highly unique and differentiated products. For example, in September, our beauty brand Pianna launched a sea buckthorn lip balm that was an instant hit, selling out within an hour on its launch day. The lip balm's popularity sparked a strong demand within our community groups for a third round of sales. The sea buckthorn has proved to be a popular ingredient for our health brand, the Baiyue Shan.

Following its launch, the lip balm has garnered a devoted following across both beauty and health categories, demonstrating the potential of a cross-category collaboration. Building on the success of the lip balm and aligning with the resurgence of traditional Chinese medicine culture, we've established an herbal skincare studio and intend to introduce more cross-category products, such as the TCM Face Mask, to cater to the evolving preferences of users.

我们的服务商选择云集，很大的原因就在云集做服务商可以兼顾事业和家庭。我们经常采用整点单品特卖的形式，一小时内打包一个品或者一个品牌，让更多服务经理在快速达成销售后可以回归自己的生活，有更多时间做自我提升或者陪伴家人。在自我提升方面，我们关爱服务经理的学习和成长。今年三季度，我们开启了新的教育培训计划，我们希望他们不但掌握销售技巧，还能思维更开阔，兴趣更广泛，家庭更加的美满。

Finally, I'd like to turn to a critical component of our success: our dedicated service managers. They choose Yunji because we offer a unique opportunity to strike a balance between their professional and family lives. Our innovative flash sales strategy empowers service managers to build massive products or brands in a short time frame, often within an hour. This allows them to rapidly generate sales and then return to their personal lives, freeing up time for self-improvement and to spend with their families. In terms of their personal development, we continue to prioritize the continuous learning and growth of our service managers. As part of this commitment, we launched a new education and training program in the third quarter. This initiative will not only refine their sales skills, but also foster broader thinking and cultivate more diverse interests, ultimately helping to create a more fulfilling family life.

我的分享，我的分享就到这里。下面欢迎我们的财务高级总监崔叶青为大家分享财务的情况。

With that, I will turn the call over to Yeqing Cui, our Senior Financial Director, to go through the financial results.

Yeqing Cui (Senior Financial Director)

... 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 are all unaudited and the percentage changes are on a year-over-year basis, unless otherwise noted. During the third quarter of 2023, our operations remained relatively stable, and we used the opportunity to reinforce our core operational process. Key to this effort has been the enhancement of our inventory management practice. We now have a robust, comprehensive strategy that covers our private label product development, sales scheduling, and the management of stock inflows and outflows. At the same time, we actively monitor different product categories on a weekly or monthly basis to ensure inventory is kept at optimal levels. This strategy focused on inventory management has been instrumental in optimizing our use of assets and effectively managing cash flow.

We believe this new approach lays a solid foundation for our sustainable development within a constantly shifting dynamic market. Now, let's take a close look at our financials. Total revenues were CNY 145 million, compared to CNY 239 million a year ago. Revenues from sales of merchandise were CNY 140 million, and revenue from our marketplace business was CNY 29 million. The changes were primarily driven by ongoing refinements to our product range across all categories. This, coupled with the optimization of our suppliers and the merchant network, resulted in a short-term impact on sales. Despite these challenges, our gross margin remained relatively solid at 45.7%. This was due to the tremendous customer loyalty towards our private labels and our effective product costing strategy. Now, let's take a look at our operating expense.

Procurement expense was CNY 26 million compared to CNY 37 million a year ago. This was primarily driven by a decrease in warehousing and logistics expense, stemming from lower merchandise sales and a reduced personnel cost due to staffing structure optimization. Sales and marketing expense was CNY 13 million, compared to CNY 47 million a year ago. This was primarily a result of a decline in member management fee and a decreased business promotion expense. Technology and content expense were CNY 14 million, compared to CNY 17 million a year ago. The decrease was mainly due to a reduction in personnel costs resulting from staffing structure optimization. General and administrative expense were CNY 28 million, compared to CNY 38 million a year ago. This was mainly due to a decline in share-based compensation expense.

Total operating expense in the third quarter decreased to $98 million from $139 million in the same period of 2022. Loss from operations was $13 million, compared to $18 million a year ago. Net loss was $35 million, compared to $38 million a year ago, while adjusted net loss was $34 million, compared with $30 million a year ago. Basic and diluted net loss per share attributed to ordinary shareholders was both $0.02, compared with $0.02 in the same period of 2022. Turning to liquidity, as of September 13, 2023, we had a total of $555 million in cash and cash equivalents, restricted cash, and short-term investments on our balance sheet, compared to $669 million as of December 31, 2022.

Our liquid assets were sufficient to cover our payable obligations, and we did not hold any long-term bank loans or debtors on our balance sheet. Looking ahead, we will continue to proactively explore investment opportunities with the aim of enhancing our supply chain capabilities. To summarize, we took crucial steps towards achieving our long-term strategy goals during the third quarter. Our diligent efforts to enhance our inventory management mechanism and our decision to prioritize a sustainable and effective asset management approach were integral to this process. Going forward, we will continue to drive ongoing effective improvements, ensuring that our company remains resilient and adaptable. This approach positions us to effectively meet the future challenges and seize opportunities as we navigate the ever-changing economic landscape. 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, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like 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. At this time, we will pause momentarily to assemble our roster. The first question today comes from Ethan Yu with First Trust. Please go ahead.

Ethan Yu (Analyst)

Oh, thanks for taking my question. 谢谢管理层接受我的提问，我是想请教一下，刚刚肖总提到的云集健康业务，公司有没有更具体的规划和，还有业务定位可以分享一下。Could you share more color on the specific plans and the business positioning for our health business segment? Thank you.

谢谢。云集健康是云集面向未来10年、20年的长远的战略，可以理解为是我们云集的第二曲线。未来的20年会有6.2亿的中国人会步入60岁以上，那云集的女性用户呢，占比95%，其中呢宝妈的占比达到了86%。这个群体的两大特质呢，是关注...

非常的关注健康，也非常关注家中老人、孩子的健康，他们也是家庭健康的守护者。

Shanglue Xiao (Chairman and CEO)

And thank you for your question. Yunji Health is Yunji's forward-looking strategy for the next 10-20 years. And in the next 10-20 years, we know that in China, we are going to have 620 million Chinese people over 60 years old and above, and you can take it as our second curve. And 95% of our consumers are women, among which 86% of them are mothers. A key characteristic of this group is their keen focus on health, particularly as the primary guardians of the well-being of both elderly family members and the children.

Ethan Yu (Analyst)

汽车的市场不缺SUV，但是汽车的市场缺六座的SUV。那中国呢，不缺...线上线下不缺超市，但是我们认为缺面向未来二十年缺健康的超市。

Shanglue Xiao (Chairman and CEO)

Actually, in China's car industry, and we do not lack different models of SUV, but we lack the SUV with six seats. Similarly, in China's health industry, we do not lack the online and offline supermarkets, but in the next 20 years in China, we lack the health supermarket.

Ethan Yu (Analyst)

云集健康类似于健康领域的Sam's Club，它既包含了健康食品，也包含了功能性的食品，那主打家庭健康的场景，汇聚不同品牌、不同品类的健康产品，以满足不同家庭成员对于健康的个性化需求。很多人理解健康是健康饮食，实际上我们推动的健康是健康的生活方式。比如说护肤领域的防晒、护发、清洁都涵盖在健康生活里面。云集希望成为全方位的健康服务管家。

Shanglue Xiao (Chairman and CEO)

Yunji Health can be likened to a Sam's Club for the health domain, including the healthy food, also those, you know, food that are focused on health and with a primary emphasis on household scenarios or like those functional food. It gathers diverse health products from various brands and categories to meet the personalized health needs of different family members. While many associate health with dietary choices, we advocate for a healthy lifestyle encompassing aspects like the sun protection, skincare, haircare, and cleanliness. Yunji advised to be a comprehensive health steward for all aspects of life.

Ethan Yu (Analyst)

谢谢您的提问。

Shanglue Xiao (Chairman and CEO)

Thank you for your question.

Ethan Yu (Analyst)

好，谢谢肖总的回答，谢谢肖总。 I have no more questions. Thank you.

Operator (participant)

As there are no further questions, at this time, I'd like to hand the conference back over to management for closing remarks.

Shanglue Xiao (Chairman and CEO)

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

Operator (participant)

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.