Yatsen's Q1 2025 Results: Navigating Challenges with Cost Discipline and Strategic Focus

Yatsen Holdings (NYSE: YSG) is set to report its first-quarter 2025 financial results on May 16, 2025, marking a critical juncture for the beauty conglomerate as it seeks to solidify its recovery amid a challenging market environment. The company’s Q4 2024 results provided a glimpse of progress, but persistent headwinds—such as skincare brand volatility and lingering goodwill impairments—highlight the need for sustained execution. Here’s what investors should watch for in the upcoming earnings and the broader implications for Yatsen’s trajectory.

Q4 2024: A Mixed Bag of Progress and Persistent Challenges

Yatsen’s Q4 2024 results underscored a delicate balance between operational improvements and unresolved risks. Total revenue rose 7.1% year-over-year to RMB1.15 billion, driven by a 16.4% surge in color cosmetics sales, with key brands like Perfect Diary and Little Ondine leading the charge. Meanwhile, skincare revenue stagnated at RMB554.8 million, reflecting softer demand for brands like Galénic and Eve Lom. This divergence highlights Yatsen’s dual mandate: leveraging its color cosmetics momentum while addressing skincare’s underperformance.

Profitability showed meaningful gains. Gross margin expanded to 77.8%, while operating expenses fell 3.5% YoY, thanks to cost-cutting in marketing, logistics, and administrative functions. Non-GAAP net income turned positive at RMB107 million—a stark improvement from a loss of RMB93.7 million in Q4 2023—signaling that Yatsen’s focus on trimming costs is paying off. However, the RMB403.1 million goodwill impairment tied to the struggling Eve Lom brand underscored the risks of overexposure to certain brands.

Q1 2025 Outlook: Modest Growth Amid Uncertainty

Management’s Q1 2025 revenue guidance of RMB788.8 million to RMB866.2 million (2%-12% YoY growth) reflects cautious optimism. The low end of the range suggests lingering macroeconomic pressures, particularly in China’s beauty market, where Yatsen derives most of its revenue. However, the high end hints at potential upside from continued recovery in Perfect Diary and skincare brand stabilization. Investors will scrutinize whether skincare revenue resumes growth after its flat Q4 performance, which saw its share of total revenue dip to 48.3% from 51.7% in 2023.

Key Risks and Opportunities

1. Brand Revival or Retreat?
   The fate of skincare brands like Eve Lom and DR.WU remains pivotal. A sustained skincare decline could offset color cosmetics gains and reignite goodwill impairment concerns. Conversely, a turnaround in these brands would bolster revenue diversification and margins.

2. Cost Discipline Meets Innovation
   Yatsen’s operational efficiency—evident in reduced marketing spend as a percentage of revenue (60.1% in Q4 2024 vs. 66.9% in 2023)—must align with product innovation. New launches, such as Galénic’s advanced serums, could drive premiumization and higher margins.

3. Balance Sheet and Liquidity
   While cash reserves dipped to RMB1.36 billion at year-end 2024, operating cash flow improved to RMB202.2 million in Q4. Sustaining positive cash flow is critical to fund R&D and marketing without diluting equity.

Conclusion: A Turning Point, but Fragile

Yatsen’s Q1 results will test whether its strategic transformation—from rapid expansion to cost-conscious growth—is bearing fruit. The non-GAAP profitability turnaround in Q4 (net income margin of 9.3%) suggests that Yatsen is moving toward sustainability, but GAAP losses (RMB378.8 million in Q4) and the Eve Lom impairment remind investors of lingering risks.

If Q1 revenue growth hits the midpoint of guidance (7% YoY), and skincare revenue rebounds, Yatsen could validate its path to sustained profitability. However, a miss on skincare or a resurgence in operating losses could reignite investor skepticism. With a market cap of roughly US$1.2 billion as of late April 2025, Yatsen’s valuation hinges on proving that its operational discipline can outpace industry headwinds. The next quarter is a critical step toward that goal.