Yunji Inc. Q2 FY2021 Earnings Call

Hello, everyone. Welcome to our second quarter 2021 earnings call. Before we start, please note that this 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, anticipate, continue, or other similar expressions. For a detailed discussion of these risks and uncertainties, please refer to our latest documents filed with the U.S. SEC. Any forward-looking statements that we make on this call are based on assumptions as of today and are expressly qualified in their entirety by cautionary statements, risk factors, and details of the company filing with the SEC. Yunji does not undertake any obligation to update this statement except as required by applicable law. With that, I will now turn over to Shanglue Xiao, Chairman and CEO of Yunji.

Hello everyone. Welcome to Yunji’s second quarter 2021 earnings call. Based on product selection and social sharing, Yunji’s marketing model has established a complete and healthy lifecycle. The cycle starts with the product selection promotion by our service managers and a precious facilitation. While our service managers benefit from promotional incentives, our members have a better understanding of the product through the service managers’ introductions. We see core effective products that satisfy their needs, establish trust with Yunji’s platform, and our sharing-based model, encouraging repeat purchases. Meanwhile, our service managers earn income by delivering services. Common prosperity has been Yunji’s only vision since its establishment. To create more user value and offer products of better quality, we remain focused on three core strategies: highly curated product selection, differentiated supply chain, and special lines of retail systems. In May 2021, we launched the Yunji 99 Special Sales Portal on our Yunji app as one of the core products for our curated product selection strategy, aiming to become the portal for megahit products across all parts of the Internet. Our Yunji 99 Portal funnels our platform's core traffic to a refined introduction of megahit products across all categories. The addition of this section reinforces our refined supply chain strategy and the collaboration of megahit product sales by connecting Yunji members to create ideas with viral appeal by focusing on highly cost-effective products. We have millions of members accessing quality products from all over the world. The Yunji 99 Special Sales Portal, featuring a curated selection, has up to 99 products each day. These 99 products are vigorously screened and selected through strict criteria and a basic product selection process. Of the 99 products, the top 10 best retailers will be highly recommended and provided with more resources to support them. Providing such high-quality brands at affordable prices enhances the Yunji shopping experience and encourages purchases. We will continue to optimize our product selection and utilize data-driven insights to enhance the Yunji shopping experience and provide our users with a true one-stop shopping solution. Regarding our differentiated supply chain strategy, we recently celebrated the 11th anniversary of our private label skincare brand, Solo Life. By utilizing our social sharing capability, we have helped Solo Life to better express its brand value, and we have built a large group of loyal users over the years. By 2020, Solo Life had become a skincare brand with annual sales of more than RMB1 billion on the Yunji platform and cultivated multiple megahit products with hundreds of millions in unit sales. Within our differentiated supply chain metrics, we have also introduced a number of unique products in various categories. For instance, the first batch of our newly developed line of beauty creams, which included 85,000 products, sold out within just 57 seconds of its launch. We are currently optimizing our production capacity and will focus on these product line performances after our production capacity has improved. We chose to differentiate our strategic focus on the health industry for several reasons. First, we believe that the tailwind generated by the health industry brings tremendous value not only to us, but also to our members. More importantly, we want to provide our service managers and members with methods to improve their physical strength in beauty. It is also our sincere hope that our sales managers will develop lifelong careers and have a platform that benefits not only themselves, but also their families. Now let me share the initiatives we have taken to utilize our specialized retail system and online traffic. These have helped millions of our service managers discover and develop life-changing career opportunities. Most of these service managers are women. We train our service managers to deliver professional services to our members and hope that they can gradually earn a decent monthly salary of tens of thousands of RMB. They are not only service managers but also assets in various fields. They are entrepreneurs who help initiate changes in daily life. We offer them many training programs in areas such as health management and marketing so that they can become experts in cosmetics, health, and sales. This training enables them to reach customers with a more professional attitude and improve their marketing skills. The professional marketing skills are practical and also boost our sustainable development. Going forward, we hope that more leaders will emerge from within our service manager group, and we will focus on supporting these leaders while making our specialized retail system more complete and efficient. During the second quarter, we maintained our entrepreneurial spirit and continued to conduct innovative initiatives. In terms of user retention, we set up a special group to better reach users, engage active users, and strengthen user consumption frequency. In addition to developing new traffic channels, this group worked hard on content marketing and created their own original short-form video content. Meanwhile, we have also been preparing for our online streaming sessions on third-party live streaming platforms, where I will host the sessions myself. With that, I will turn the call over to Mr. Chengqi Zhang, our Vice President of Finance to go through the financial results.

Thank you, Shanglue. Hello everyone. Before I go through our financial results, please note that all numbers stated in the following remarks are in renminbi terms and all comparisons and percentage changes are on a year-over-year basis unless otherwise noted. Starting this year, we are committed to enhancing our supply chain differentiation strategy, upgrading our product selection with our new massive product curation strategy, and refining our membership management system. We have also shifted our mindset to focus on sustainable long-term growth as we further improve our efficiency and employee structure. After several quarters of adjustments, our final operations have resulted in significant improvements in our profitability despite sound fluctuations in our quarterly sales. During this quarter, we recorded our operating income of RMB16 million and our net income of RMB17 million, compared with our operating loss of RMB45 million and a net loss of RMB17 million in the year prior. Now let’s take a closer look at our financials. Total revenues were RMB571 million, compared to RMB1,487 million a year before. Revenue from sales of merchandise reached RMB472 million and revenue from our marketplace business amounted to RMB88 million. In line with our reviewed long-term growth strategies, we further optimized our financing of suppliers and merchants, which led to the revenue decrease in both our marketplace business and merchandise sales during this quarter. As a result, gross margins improved to 75% compared to 29% a year ago. During this quarter, we improved our operating efficiency by carefully selecting suppliers and products, removing certain products that were more prone to base pricing and subsidy competition, and focusing on our differentiated supply chain to offer good product offerings. Consequently, gross margins improved accordingly. Turning to our operating expenses, fulfillment expenses were RMB15 million or 8.8% of total revenues, compared to RMB129 million or 8.7% of total revenues a year ago. Sales and marketing expenses totaled RMB51 million, compared to RMB228 million the previous year. As a percentage of total revenues, sales and marketing expenses decreased to 10.8% from 15.4% in the same period last year. This decline was due to decreased business promotion expenses and reduced management fees resulting from improvements in our member management efficiency. Technology and content expenses totaled RMB32 million or 5.7% of total revenues, compared to RMB59 million or 3.9% of total revenues a year ago. General and administrative expenses were RMB43 million or 7.5% of total revenues, compared to RMB71 million or 4.8% of total revenues a year before. The decrease was mainly due to a reduction in share-based compensation expenses. Total operating expenses in the second quarter decreased to RMB187 million. We recorded our income from operations of RMB16 million, compared to a loss of RMB45 million a year ago. Net income was RMB17 million, compared to a net loss of RMB70 million last year. Adjusted net income was RMB24 million, compared with RMB20 million a year earlier. Basic and diluted net income per share attributable to ordinary shareholders were both RMB0.01, compared to basic and diluted net loss per share attributable to ordinary shareholders of RMB0.01 in the same period of 2020. Moving now to liquidity. As of June 30, 2021, we had a total of RMB1.1 billion in cash and cash equivalents, restricted cash, and short-term investments on our balance sheet. Our liquidity assets were sufficient to cover our payable obligations, and we did not hold any long-term bank loans or debts on our balance sheet. As we continue to execute our supply chain differentiation and product curation strategies, we will remain focused on our long-term growth objectives and profitability. We are confident that our innovation strategy and refined operational capabilities will continue to drive our sustainable development going forward. This concludes our prepared remarks for today. Operator, we are now ready to take any questions.

Thank you. It seems we don’t have any questions from the line yet. Presenters, please continue. I don’t see any questions from the line yet. Presenters or management, please continue.

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

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may now all disconnect.