Yunji Inc. Q1 FY2022 Earnings Call

Good morning and good evening, ladies and gentlemen. Thank you, and welcome to Yunji's First Quarter 2022 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 first quarter 2022 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 entirely by cautionary statements, risk factors and details of the company's filings with the SEC. Yunji does not undertake any obligation to update these statements except as required by applicable law. With that, I will now turn over to Shanglue Xiao, Chairman and CEO of Yunji.

In light of these risks and uncertainties, please refer to our related documents filed with the U.S. SEC. Any forward-looking statements made on this call are based on assumptions as of today and are fully qualified by cautionary statements, risk factors, and details in the company's SEC filings. Yunji is not obligated to update these statements unless required by applicable law. Now, I will hand it over to Shanglue Xiao, Chairman and CEO of Yunji.

Hello, everyone. Welcome to Yunji's first quarter 2022 Earnings call. Two weeks ago, on May 16, we celebrated our seventh corporate anniversary. During 2022, we further refined our product curation strategy. We have been making continuous improvements since our inception. In the first quarter of 2022, we continued to focus on product quality along with our product certification progress. Under the program, we apply the most stringent quality adjustment criteria to our key production projects once a week, certify those products, enhance aspects of the Yunji product label, and ensure peace of mind for our members who choose to purchase certified products.

We have been making continuous improvements since our inception. In the first quarter of 2022, we continued to execute our product quality strategy along with our product certification progress. Each week, we apply the strictest quality adjustment criteria to our main production projects, certify those products, enhance aspects of the Yunji product label, and ensure peace of mind for our members who choose to purchase certified products.

Our Yunji product classification program utilizes detailed user feedback and data collected through our platform for review and verification. We integrate key performance metrics that focus on account volume, category recognition, repurchase rates, product quality, capability, and product recommendation strategies. We promote products during our weekly promotional events every Wednesday. Additionally, we assess account penetration to international managers through live training and licensing on leading a healthy lifestyle.

We conduct feedback and data collection through our platform for the review and verification process. We incorporate key performance metrics focused on account volume, category recognition, repurchase rates, product quality, and product recommendation strategies. We promote products during our weekly promotional events every Wednesday. Additionally, we assess account penetration to international managers through live training and licensing on leading a healthy lifestyle.

During the first half of the year, considering the macroeconomic uncertainty, we responded with agility by leveraging our diversified economic management capability and optimizing our business operations. Going forward, we will continue to capitalize on our core strengths while acquiring innovative strategies to grow all of our product segments sustainably.

During the first half of the year, taking into account the macroeconomic uncertainty, we responded with agility by leveraging our diversified economic management capability and optimizing our business operations. Going forward, we will continue to capitalize on our core strengths while acquiring innovative strategies to grow all of our product segments sustainably.

The content created in the third quarter of this year initiated the resourcing and production process for both our manufacturing partners and our own private label, aimed at relieving pressure and maintaining high standards. We have enhanced our private label regarding quality and sourcing. However, we experienced unavoidable delays in some of our new product development, production, and stocking.

The content created in the third quarter of this year started the resourcing and production process of both our manufacturing partners and our own private label, aiming to relieve pressure and maintain high standards. We have enhanced our private label regarding quality and sourcing. We encountered unavoidable delays in certain aspects of our new product development, production, and stocking.

The good news is that the progress we've made over the past few years in private label, especially in cosmetics and health supplements, has significantly improved our product efficiency. By utilizing our strong and plentiful product development channels, we successfully launched new products, even during the pandemic, creating fulfillment to serve both consumer discretionary and consumer staple categories. For instance, in our private label health supplement category, we reintroduced a range of new products, including multivitamin candy.

Our experience in private label, particularly in cosmetics and health supplements, has significantly improved our product efficiency. By utilizing our strong and extensive product development channels, we successfully launched new products even during the pandemic, ensuring fulfillment for both consumer discretionary and consumer staple categories. For instance, in our private label health supplement segment, we reintroduced several new products, including multivitamin candy.

Each of these convenient products meets consumer needs from different perspectives to connect with the demographics and profiles of our member community in a key market, making it easy to achieve customer satisfaction.

Each of these convenient products addresses consumer desire from different angles to align with the demographics and profiles of our member community in a great account vertical, allowing for easy achievement of customer satisfaction.

In the food category, we have developed new products like specialty Italian breakfast items and Chinese pancakes to enhance our variety. We have also expanded our health and nutrition line to include common consumer staples, such as innovative milk products that provide high nutritional value.

In the food category, we have developed novel products such as specialty Italian breakfast items and Chinese pancakes to bring a greater variety to our offerings. We have managed to share our health and nutrition line even with the most commonplace consumer staples, such as new milk products, offering high nutritional value.

Taking into account our social responsibility, we are addressing complaints from our suppliers in Shanghai and encouraging our service managers to initiate a positive purchasing campaign. For field orders nearing RMB 1 million, we stand with our local supply network. Our collaboration has led to sales records of RMB 10 million in just one day.

Taking into account our social responsibility, we are responding to complaints from our suppliers in Shanghai and encouraging our service managers to embark on a good purchase campaign. For field orders covering close to RMB 1 million, we express solidarity with our local supply network. Our partnership has helped achieve sales records of RMB 10 million within a single day.

While we confirm our offline promotional activities, we have proactively explored alternatives, such as expanding our online marketing events to third-party platforms. We utilize short video marketing to enhance visibility and user loyalty for our private label cosmetic products.

Our partnership has helped achieve sales records of RMB 10 million within a single day. While we confirm our offline promotional activities, we have proactively explored alternatives, such as expanding our online marketing events to third-party platforms. We utilize short video marketing to enhance visibility and user loyalty for our private label cosmetic products.

As of now, our private label products have secured the majority of their public sales through third-party payment platforms and have experienced consistent sales growth.

As of now, our private label products have achieved the majority of their public sales through third-party payment platforms and maintained consistent sales growth.

Our development of project management during the pandemic has allowed us to effectively comply with restrictions. We have conducted several online training and asset interaction sessions to enhance the skills of our product management team, which has led to improved sales performance.

Our development of project management during the pandemic has enabled us to comply with restrictions effectively. We have produced multiple online training and asset interaction sessions to upskill our product management team, improving sales performance.

I will now hand the call over to Mr. Chengqi Zhang, our Vice President of Finance, to discuss 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 RMB terms. And all comparisons and percentage changes are on a year-over-year basis unless otherwise noted. It has been a difficult start to 2022 with the recurrence of COVID, closing lockdowns in Shanghai, and stricter pandemic prevention and control measures in many other regions. Despite challenging market conditions, our repurchase rate remained stable at 80.2% and our gross margin improved both on a quarter-over-quarter and year-over-year basis. We managed our costs efficiently by diligently optimizing the cost structure of our self-operated private label products, thus demonstrating our business resilience in the face of macro headwinds and supply interruptions. As a result of this resilience, we were able to achieve a positive operating margin of 0.6% for this quarter compared to a negative operating margin of 2.9% a year ago. In addition to achieving positive operating margins for four consecutive quarters, our cash position is strong enough to allow us to navigate through the market downturn and uncertain macro environment. Now let's take a closer look at our financials. Total revenues were RMB 343 million compared to RMB 675 million a year ago. Revenue from sales of merchandise were RMB 291 million and revenues from our marketplace business were RMB 47 million. This decrease was primarily due to the outbreak of COVID during early 2022. This COVID outbreak led to temporary lockdowns and delays in production and operations of our suppliers, especially private label suppliers, third-party merchants, third-party logistics service providers, and other business partners. This created temporary shortages of certain merchandise and delays in logistics services as it relates to our private label suppliers, research and development, and new product launch processes. This has negatively affected and may continue to negatively affect our revenues and operations during 2022, depending on the future direction of the pandemic. Nevertheless, we improved our gross margin to 44% compared to 35% a year ago as a result of successful execution of our product curation strategy and the excellent performance of our private label products. Now let's take a look at our operating expenses. Fulfillment expenses were RMB 49 million compared to RMB 65 million a year ago. This was primarily due to reduced personnel costs as we refine our staffing structure and lower service fees charged by third-party payment settlement platform. Sales and marketing expenses were RMB 51 million compared to RMB 96 million a year ago, mainly due to the decrease in member management fees. Technology and content expenses were RMB 24 million compared to RMB 38 million a year ago. The decrease was mainly due to reduced server costs and lower personnel costs as we optimize our staffing structure. General and administrative expenses were RMB 31 million compared to RMB 74 million a year ago. This was primarily due to a decrease in share-based compensation expenses and reduced personnel costs as we refine our structure. Total operating expenses in the first quarter decreased to RMB 155 million from RMB 273 million in the same period of 2021. We recorded an income from operations of RMB 2 million compared to a loss of RMB 20 million a year ago. Net loss was RMB 37 million compared with a net loss of RMB 4 million a year ago and adjusted net loss of RMB 31 million compared with adjusted net income of RMB 17 million a year ago. This was due to financial loss, which is mark-to-market investment loss rather than our cash loss. Basic and diluted net loss per share attributable to ordinary shareholders were both RMB 0.02 compared with 0 in the same period of 2021. Moving on to liquidity. As of March 31, 2022, we had a total of RMB 743 million in cash and cash equivalents, restricted cash and short-term investments on our balance sheet. Our accounts payable reduced to RMB 203 million as of March 31, 2022, compared with RMB 255 million as of December 31, 2021. Our liquid assets were sufficient to cover our payable obligations, and we did not post any long-term bank loans or debts on our balance sheet. Despite macro uncertainties, we are confident that our resilient business model and our new product curation and supply chain strategies will allow us to optimize our entire business cost structure and help us navigate the current challenges through agile and flexible operations. This concludes our prepared remarks for today. Operator, we are now ready to take questions.

The first question today comes from an unknown private investor. Please go ahead.

Can management comment on the impact of the pandemic on our business performance in the second quarter? Also, can you share your thoughts on the recovery of consumption after the pandemic?

Let me quickly translate myself. Can management comment about the impact of the pandemic on our business performance in the second quarter? And can you share your views on the recovery of consumption after the pandemic?

There is significant uncertainty regarding how the epidemic will affect the second quarter. The company operates effectively with certified offerings. We prioritize business resilience and improvement. Additionally, we have a strong financial foundation to manage these risks.

There is great uncertainty about the impact of the epidemic on the second quarter. The company operates efficiently with certified offerings. We value business resilience and enhancement. Also, we have a solid financial foundation to address these risks.

By the end of May, we need to closely monitor the epidemic situation as market recovery progresses. We will adjust our warehousing and work with logistics companies based on market needs.

In the end of May, the recovery of market aspirations still needs to pay attention to the epidemic situation. We must adjust our warehousing and collaborate with logistics companies according to market demands.

During the end of the first quarter and the second quarter, we encountered challenges in the development and stocking of some new products. The development of Yunji's new products went through multiple evaluations, and logistics delays have impacted both the development and production of certain new products and their shipments.

During the end of the first quarter and the second quarter, the development and stocking of some new products have faced challenges. The development of Yunji's new products has undergone multiple evaluations, and logistics delays have affected development and production of some of our new products and shipments.

Fortunately, after nearly two years of hard work, Yunji has multiple teams operating efficiently across different categories. The pressure on new product development has eased, and in the first half of the year, we will have many new products launched.

Fortunately, after nearly two years of hard work, Yunji has multiple teams operating efficiently across different categories. The pressure on new product development has eased, and in the first half of the year, we will have many new products launched.

Regarding the recovery of consumption after the epidemic, we believe it may affect the commodity structure in the short term. Demand has not fully returned yet. Following the epidemic, we anticipate that the impact on user demand and the growth of private labels will increase as suppliers adjust to fulfill the demand for healthier food. We are excited to provide Yunji's products to consumers nationwide as recovery progresses.

There appears to be no further questions at this time. I'd like to hand the conference back to management for any closing remarks.

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

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