Yunji Inc. Q4 FY2021 Earnings Call

Good morning and good evening, ladies and gentlemen. Thank you, and welcome to Yunji's Fourth Quarter 2021 Earnings Conference Call. With us today are Mr. Shanglue Xiao, Chairman and Chief Executive Officer; Mr. Chengqi Zhang, Vice President of Finance; and Ms. Kaye Liu, Investor Relations Director of the company. Now I would like to hand the conference over to our first speaker today, Ms. Kaye Liu, IRD of Yunji. Please go ahead, ma'am.

Hello, everyone. Welcome to our fourth 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 and 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 related 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's filing with the SEC. Yunji does not undertake any obligation to update these statements except as required under applicable law. With that, I will now turn over to Shanglue Xiao, Chairman and CEO of Yunji.

Hello, everyone. Welcome to Yunji's Fourth Quarter 2021 Earnings Call. Today, I will review our strategic efforts over the past year and discuss our plans for the upcoming year. We recognize the importance of effectively targeting and segmenting consumers while providing them with reassurance. Simultaneously, we understand that our service managers must focus more on serving our users. Consequently, we have introduced our carefully curated product selection, Yunji 99 special sales portal. Yunji 99 features a maximum of 99 cost-effective products each day, all of which meet current trends, address user needs, and comply with our high selection standards. Moreover, our curation model enhances the efficiency of our platform and community groups. In 2021, we grew our user base by primarily gathering at Yunji. Looking ahead, we aspire for our platform to be recognized for quality products collected at Yunji. By successfully implementing our product curation strategy, we ensure that only products meeting our stringent criteria are introduced on our platform. We consistently prioritize quality and thoughtfully select exceptional products for our customers, saving them time and improving their shopping experience. In doing so, we are expanding our user base with quality offerings from Yunji. Our private label strategy is essential for achieving healthy profitability. We have made significant progress in developing our private labels and successfully executing our food-focused strategy. Additionally, we have strengthened and broadened our cosmetics and healthcare categories. Focused on food, our goal is for our members to enjoy delicious dishes from around the globe from the comfort of their homes. To facilitate a joyful and safe eating experience, we have launched several new private labels, including Purely Mix, positioned Li Ba Tian, and nutritious Baiyueshan. Our private label foods cater to various user groups but share a common philosophy: to offer users safe food options fit for their entire family. The popularity of our branded products is reflected in their high purchase rates. To build on this momentum, we will intensify our development of new branded food products this year. In our cosmetics segment, we have launched several new product lines under the SUYE brand. Some SUYE products have been certified as medical devices by the National Medical Products Administration, making them suitable for cosmetic surgery applications. These new products will meet a wider range of consumer needs and provide increased assurance. Under the SUYE brand, we have created multiple new products by harnessing advanced technologies from Switzerland and the USA. Notably, our hyaluronic-acid facemask quickly generated RMB 10 million in sales within 15 minutes of its launch. Furthermore, we have various new skincare and cosmetic items slated for release in the coming months. Turning to our healthcare category, we have built upon our previous success with waste management products by broadening our health product offerings and enhancing our healthcare brand, which generates billions in annual sales. We have further improved our product metrics to better address the healthcare needs of our female customers in three key areas: waste management, skincare, and body revitalization. Several products have garnered tens of millions in sales within just a few months of their introduction. We have always envisioned making our private label products available through external retail channels. In 2021, we explored how our new and traditional private labels could be marketed on other platforms. This year, we will expedite this effort and take necessary steps to integrate our supply chain with major platforms, including streaming and e-commerce platforms. Our goal is to channel external traffic to our private community groups, enhancing our brand visibility and competitiveness, ultimately leading to increased profits. The success of our private label brands relies on our service managers and their specialized expertise in retail. We have long been committed to empowering women and improving their lives. Over the past few years, we have been pleased to observe meaningful improvements in the lives of our service managers, many of whom are mothers. We regard our service managers as entrepreneurs and aim to nurture even more outstanding entrepreneurs by fostering their capabilities in their areas of expertise. While we focus on generating income for our service managers, we also offer professional training to these mothers. Additionally, we encourage a healthy and beautiful lifestyle that meets both their material and psychological needs. The growth of our specialized areas, particularly food, cosmetics, and healthcare, allows us to segment our community groups further. Importantly, our increasingly tailored user segments and focus on quality products from Yunji will enhance the promotional effectiveness of our service managers. Now, I will hand over the call to Mr. Chengqi Zhang, our Vice President of Finance, to review 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. During the fourth quarter, we sustained our strategy of enhancing our product range and carefully curating our products as we continue executing our market product food program, which focuses on expanding our offering of exclusive products and private labels. It's worth mentioning that as we accelerate the development of our new products and improve productivity, our private labels have made substantial progress, enabling us to realize profitability. In addition, our private labels received an excellent reception from the market and prove to be a great success. This success is reflected in our high repeat purchase rate, which reached 80% in the 12 months ended December 31, 2021. As a result, we recorded operating income of CNY 4 million and a net income of CNY 58 million during the fourth quarter compared with an operating loss of CNY 20 million and a net loss of CNY 77 million a year ago. This is our fourth consecutive quarter of non-GAAP measure profit and the first year turning growth to profit. Now let's take a closer look at our financials. Total revenue was CNY 471 million compared to CNY 1,327 million a year ago. Revenue from sales of merchandise was CNY 389 million and revenue from our marketplace business was CNY 74 million. Adhering to our long-term growth strategy focused on profitability, we refined our selection of merchants and suppliers, resulting in a near-term decrease in both our marketplace business and merchandise sales. Importantly, our gross margin improved significantly to 40% compared to 26% a year ago. This increase was due to our continued success in executing our long-term growth strategy and the introduction of more private label products with higher gross margins on the platform, enhancing operating efficiency. Turning to our operating expenses, fulfillment expenses were CNY 47 million compared to CNY 93 million in the same period of last year. This decrease was mainly attributable to reduced warehousing and logistic expenses resulting from lower merchandise sales, reduced personnel costs due to staff restructuring and the decreased service fee charged by third-party payment settlement platforms. Sales and marketing expenses decreased to CNY 78 million from CNY 167 million in the same period of last year. The decrease was due to reduced business promotion expenses and member management fees. Technology and content expenses were CNY 26 million compared to CNY 44 million in the same period of last year. The decrease was mainly due to a reduction in server costs and personnel costs as we refined our staffing structure. General and administrative expenses were CNY 44 million compared to CNY 64 million a year ago. This decrease was primarily due to reduced personnel costs as a result of headcount optimization. Total operating expenses in the fourth quarter decreased by 47% to CNY 196 million from CNY 368 million in the same period of last year. We recorded an operating income of CNY 4 million as compared to a loss of CNY 20 million a year ago. Net income was CNY 58 million compared with a net loss of CNY 77 million a year ago. Adjusted net income was CNY 71 million compared with an adjusted net loss of CNY 63 million a year ago. Basic and diluted net income per share attributable to ordinary shares were both CNY 0.03 compared with basic and diluted net loss per share attributable to ordinary shares of CNY 0.04 in the same period of 2020. Moving on to liquidity, as of December 31, 2021, we had a total of CNY 1 billion in cash and cash equivalents, restricted cash, and short-term investments on our balance sheet. Our accounts payable reduced to CNY 255 million as of December 31, 2021, compared with CNY 402 million as of December 31, 2020. Our liquid assets were sufficient to cover our payable obligations, and we did not hold any long-term bank loans or debt on our balance sheet. As you have probably noticed, the capital market has underperformed recently. However, we remain confident in the company's further growth perspectives. We have received a proposal from the Board announcing a share repurchase program under which the company may repurchase up to USD 20 million of its shares over the next 6 months. Looking ahead, we will continue to execute our strategic upgrade by carefully curating products through our product pool initiatives, introducing more products with strong repurchase potential and focusing on private labels and exclusive products. We remain confident that our strategy to focus on profitability will drive and sustain our business growth over the long term. This concludes our prepared remarks for today. Operator, we are now ready to take questions.

Your first question comes from the line of an individual investor.

Let me quickly translate myself. We have observed a downturn in the consumer market and intense competition in the second half of the year and would like to ask whether Yunji is also affected by the economic downturn. Could you share some updates and future strategies?

In 2021, we have started to work with many advanced manufacturers in China to explore more new quality products. Our products are mainly in such areas as food, healthcare, and cosmetics. We have explored more quality products that have a large market in China and that are also cost-effective. With all these products, we have further tackled the influence of the downturn of the economy. We believe that in the next 10 years, Chinese consumers will have a greater demand to further upgrade their consumption. For Yunji, on our supply chain, we will continue to explore more quality products that are also cost-effective. We believe that this will meet the demand of nearly one-third of Chinese families. At the same time, we will also make 10 years as a cycle to further explore more quality and cost-effective products and to contribute to meeting consumers' needs.

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

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

This concludes today's conference call. Thank you for participating. You may now disconnect.