Yatsen Holding (YSG) Q2 Earnings call transcript Aug 20, 2024

In the latest earnings call, Yatsen, a leading player in China's beauty industry, provided insights into its financial performance and strategic direction for the second quarter of 2024. Despite the challenging macro environment, Yatsen showcased resilience and strategic foresight, highlighting a mix of challenges and opportunities for its future growth.

Macro Environment and Financial Metrics

China's beauty industry experienced a mixed performance in the second quarter of 2024, with retail sales rebounding in May but declining significantly in June. Yatsen reported a 7.5% year-over-year decline in total net revenues, reflecting a 11.4% decrease in Color Cosmetics segment revenues. However, the company's gross margin improved to 76.7%, up from 74.7% in the previous year, thanks to increased sales of high-margin products. Despite the decrease in net loss margin from 12.6% to 10.8%, Yatsen's non-GAAP net loss margin increased to 9.4% due to higher channel trapping expenses and marketing investments.

Strategy, Brand, and Quarter Update

Yatsen remains focused on channel optimization and cost reduction to mitigate losses. The company's Skincare brand delivered a steady performance, with Galénic's renewable shipment oil gaining significant visibility on the Douyin platform. DR.WU's participation in the Asia Dermatological Congress demonstrated the brand's commitment to innovation and scientific research. The Yatsen Global Innovation R&D Center was officially inaugurated in Shanghai, marking the first global R&D hub for a national beauty brand, indicating a strong focus on product development and technological advancement.

Product Development and Channel Expansion

For the second half of the year, Yatsen has a robust new product pipeline for both Color and Skincare brands, with Galénic and DR.WU expected to launch new functional skincare products. The company also plans to expand its channel mix by increasing the concentration on TV channels, aiming for better profitability and growth.

Promotion Strategy and Balancing Revenue Growth and Profitability

Yatsen's promotion strategy for the second half of the year remains focused on optimizing the channel and product mix, with a balance between revenue growth and profitability. The company plans to recover losses and achieve positive profitability while growing revenue aggressively.

Conclusion

Yatsen's second quarter earnings call revealed a company navigating a challenging macro environment with a strategic focus on product development, channel expansion, and cost optimization. Despite the decline in net revenues, the company's gross margin improvement and strategic investments in R&D and innovation position it for sustainable growth. Yatsen's commitment to product innovation and brand building, along with its strategic focus on TV channels, sets the stage for a promising future in the competitive Chinese beauty market.