Yunji Inc. Q3 FY2022 Earnings Call

Good morning and good evening, ladies and gentlemen. Thank you for standing by and welcome to Yunji's Third Quarter 2022 Earnings Conference Call. With us today are Mr. Shanglue Xiao, Chairman and Chief Executive Officer; Mr. Peng Zhang, Vice President of Finance; and Ms. Kaye Liu, Investor Relations Director of the company. As a reminder, this conference call is being recorded. 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 third 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 or unknown risks, uncertainties and other factors of Yunji and its industry. These forward-looking statements can be identified by the 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 US 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 filings 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 third quarter 2022 earnings presentation. Once again, we encountered a volatile and uncertain macro environment during this quarter. In response, we focused on enhancing our capabilities and reinforcing our business sustainability. We initiated several initiatives, such as improving our service offerings, developing our private label products, and optimizing our inventory structure. This timely and flexible approach has strengthened our resilience and product strategies as we work towards sustainable and high-quality growth. Additionally, we leveraged the typical third quarter slowdown in the e-commerce sector to further advance our innovative technology and upgrade our services. As time goes on, we are expanding our exploration of e-commerce potential by concentrating on our core products and utilizing short videos as our primary marketing tool for consumers. Regarding our product selection approach, consumers are increasingly moving away from well-known global brands and opting for a wider variety of trends. We adapted to these shifts by refining our product selection to focus on high-quality domestic brands at competitive prices and marketing through video streaming channels. By continuously analyzing our core users' buying habits and pricing expectations, we have maintained a relatively high repurchase rate despite current macroeconomic challenges. Moreover, by improving the specificity and clarity of our product descriptions, we encourage well-considered purchasing decisions, which has helped us keep our product return rate low. In terms of marketing, our entrepreneurial spirit has always been fundamental to our values, particularly in empowering women to start businesses and improve their lives through self-development. Given the current uncertain job market, we are further investing in our service managers by creating innovative features that enhance sharing convenience, efficiency, and ease. We are also bolstering their confidence in their careers by motivating them to work diligently and increase their earnings. Consequently, our service managers' sales conversion rates have been steadily rising. Looking at our marketing efforts, following extensive preparations in the third quarter, we officially introduced our Yunji Dynamic Showcase for service managers. This showcase combines traditional graphic marketing with live streaming to create short promotional videos for selected products. By integrating this innovative marketing tool with our service guarantees, we provide customers with affordable, high-quality products while offering brands a cost-effective way to promote their products more accurately and effectively. The Yunji Dynamic Showcase is pivotal in enabling our service managers to focus on serving our users better. It features an extensive selection of products from our private labels, gourmet goods, and trending items from the top live streaming channels. Service managers can request showcase products, select their preferences, and synchronize them with the My Showcase feature. Our unique One Create function allows service managers to create product-related content for users or share on social media. Additionally, our technological advancements enhance the efficiency of our service managers by saving time and effort, leading to increased sales and income for them and the young marketers on our platform. We are confident that the Yunji Dynamic Showcase will promote user sharing behaviors and boost engagement through short video marketing. This year, the impact of COVID-19 has been the most severe we have encountered since the pandemic started, particularly concerning our fulfillment services. In the short term, the situation remains critical, and the turbulence is expected to affect consumption and the macro economy. Nonetheless, there are positive signs and growth opportunities. We continue to receive uplifting feedback, and our users are prioritizing their health; they enjoy good food and cherish exploring new hobbies. The motivation behind developing our private label brands is driven by our users' aspirations for a healthy and beautiful life. We have made significant advancements in our private labels, which are becoming increasingly popular. In a recent shopping festival, our private labels topped demand in the cosmetics and health care categories on our platform. Our health care brand rolled out new products, including liver and kidney care items, expanding our product range to meet our users' health care needs more effectively. For example, one of our products achieved over RMB10 million in sales in a single day during initial and follow-up sales. We have also continued to innovate within our gourmet food segment by introducing more flavors and a broader product assortment. These unique offerings cater to a wide range of consumer demands, from family staples to business banquet options. To accommodate varying food preferences, we have expanded our gourmet food private label product range, which now includes well-known items like European-style bread as well as new offerings promoted by our service managers. Thanks to our marketing efforts, a previously niche healthy food item has become popular, generating over RMB5 million in sales during its launch day. During the third quarter, our tech-driven private label, SUYE, celebrated its 12th anniversary. Since 2018, SUYE has collaborated with a Dutch partner to research peptides and create various anti-aging products that cater to skincare needs. Notably, these products feature professional ingredients often found in medical aesthetics. We were pleased to see SUYE generate over RMB 21 million in sales during its anniversary month, indicating a strong demand for quality products and innovative anti-aging solutions. SUYE has established itself as the preferred choice for women's anti-aging products and is a key element in our private label beauty brand strategy. Looking forward, we believe that the current challenges will be temporary. We see clear reasons for optimism as we receive encouraging feedback regarding the easing and optimization of COVID-19 measures. People will always seek a better life, and we are prepared to serve more families in the future. Now, I will turn the call over 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 RMB terms and all comparisons and percentage changes are on a year-over-year basis, unless otherwise noted. During the third quarter, we faced a volatile macro environment and ongoing pandemic controls, both of which presented challenges to our business. In response, we further refined our product selection and optimized our relationships with suppliers, sacrificing near-term sales while building a solid foundation for our company's long-term success. Our repeat purchase rate remained stable at 79%, and we once again improved our gross margin. Beyond this, operating expenses and total costs of revenues both declined, as we continue to optimize the cost structure of our business. We finished the quarter in a healthy cash position. This, combined with our persistent focus on efficient operations, will allow us to continue to weather an unpredictable market. Going forward, we will continue to reward our shareholders through share buybacks. Now, let's take a closer look at our financials. Total revenue was RMB 239 million, compared to RMB 438 million a year ago. Revenues from sales of merchandise were RMB 197 million, as revenues from our marketplace business were RMB 38 million. This decrease was primarily due to the company's continued strategy to refine product selection across all categories and optimize this selection of suppliers and merchants, causing a near-term decrease in sales. Consumers' willingness to spend on discretionary products in 2022 has also declined compared with that in the same period of 2021. Despite these challenges, we improved our gross margin to 49.4% compared to 43.2% a year ago as a result of sustained customer loyalty to our private labels and the effective product curation strategy. Now, let's take a look at our operating expenses. Fulfillment expenses were RMB 37 million, compared to RMB 41 million a year ago. This was primarily due to reduced warehousing and logistics expenses due to lower merchandise sales and decreased service fees charged by third-party payment settlement platforms. Sales and marketing expenses were RMB 47 million, compared to RMB 60 million a year ago. This was mainly due to the reduction in personnel costs as a result of staffing structure refinements and the decrease in member management fees. These reductions were partially offset by an increase in private label promotion expenses. Technology and content expenses were RMB 17 million, compared to RMB 29 million a year ago. The decrease was mainly due to the reduction in personnel costs as a result of staffing structure refinements and reduced cloud server costs. General and administrative expenses were RMB 38 million, compared to RMB 65 million a year ago. This was primarily due to reduced personnel costs as a result of refinements to our staffing structure, lower professional service fees and a decrease in share-based compensation expenses. Total operating expenses in the third quarter decreased to RMB 139 million from RMB 194 million in the same period of 2021. We recorded a loss from operations of RMB 18 million compared to income from operations of RMB 80 million a year ago. Net loss was RMB 38 million compared with net income of RMB 61 million a year ago, while adjusted net loss was RMB 30 million compared with adjusted net income of RMB 76 million a year ago. Basic and diluted net loss per share attributable to ordinary shareholders were both RMB 0.02, compared with basic and diluted net earnings per share attributable to ordinary shareholders of RMB 0.03 in the same period of 2021. Moving on to liquidity. As of September 30, 2022, we had total RMB 571 million in cash and cash equivalents, restricted cash and short-term investments on our balance sheet compared to RMB 645 million as of June 30, 2022. Our liquid assets were sufficient to cover our payable obligations and we did not hold any long-term backlogs or debt on our balance sheet. Despite the persistent challenges of today's macro environment, we are confident that our efforts to optimize costs refine our business model, improve product curation and ensure high quality service for our users will serve us well now and into the future. We have made steady progress in our quest for long-term stable growth and we will continue to adjust our business strategies to offer maximum value to our shareholders. This concludes our prepared remarks for today. Operator, we are now ready to take questions.

Thank you. We will now begin the question-and-answer session. Today's first question comes from Ethan Yu at First Trust China. Please go ahead.

Thank you for taking my questions. Recently, there has been a lot of good news about China easing the COVID policies. Could you comment on this trend and share more about the measures the company will take to seize the opportunity for a possible recovery in private consumption? Thank you.

Thank you for your question. The recovery from the epidemic presents both uncertainties and certainties. On the positive side, we believe that the most challenging phase of the epidemic is nearing its end. However, there are uncertainties as well. As a comprehensive e-commerce platform, Yunji services a broad customer base, reaching from major cities like Beijing, Shanghai, and Guangzhou to remote regions like Xinjiang and Inner Mongolia. We anticipate that the recovery in consumer spending will not be sharp but rather a gradual and uneven process, influenced by various regions and product categories. In terms of certainty, we believe that the most challenging phase of the epidemic is nearly behind us. However, as a broad e-commerce platform, Yunji serves a diverse customer base ranging from major cities like Beijing, Shanghai, and Guangzhou to more remote locations such as Xinjiang and Inner Mongolia. We anticipate that the recovery in consumer spending will be gradual rather than rapid, varying by region and product categories.

From the supply chain side, the supply chain of our private label is relatively easy to manage. We will flexibly adjust the production and marketing strategies of various categories according to the recovery situation. For the third-party supply chain, as a highly curated platform, our bestseller pool can quickly adapt to market changes.

Our private label's supply chain is relatively easy to manage. We will flexibly adjust the production and marketing strategies of various categories according to the recovery situation. For the third-party supply chain, as a highly curated platform, our bestseller pool can quickly adapt to market changes.

From the perspective of market habits, I think that after three years of the epidemic, consumers' plans will not fade away so quickly and the restocking demand for necessities may still exceed demand for discretionary products in the short term. In addition, the global economic depression this year is not only affected by the epidemic but also by factors such as climate change and international relations. In the long run, we still believe in our users' yearning for a better life. We will enhance our business and management capabilities and maintain a healthy financial position to cope with the challenges and opportunities posed by the macro environment.

Thank you.

Thank you, Shanglue. Thank you. I have no more questions. Thank you.

Thank you. And ladies and gentlemen, 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're looking forward to talking with you next quarter. Thanks. Bye.

This conference has now concluded. Thank you for attending. You may now disconnect.