Yunji Inc. Q1 FY2023 Earnings Call

Good morning, and good evening, ladies and gentlemen. Thank you for standing by, and welcome to Yunji's First Quarter 2023 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, Investor Relations Director of Yunji. Please go ahead, ma'am.

Hello, everyone, welcome to our first quarter 2023 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 related to events that involve known and unknown risks, uncertainties, and other factors to Yunji and its industry. These forward-looking statements can be identified by terminologies such as will, expect, anticipate and continue or other similar expressions. For a detailed discussion of these risks and uncertainties, please refer to our latest document filed with the U.S. SEC. Any forward-looking statement that we'll make on this call is based on assumptions as of today and is expressly qualified entirely 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 first quarter 2023 earnings call. I'm delighted to announce that we celebrated our 8th corporate anniversary on May 16, 2023. It has now been three years since the outbreak of COVID. During the first half of this year, consumption has been gradually and steadily recovering. At the same time, consumers have been yearning for more fulfilling and enriching lives. During our anniversary celebration with employees, partners, and service managers in attendance, we took the opportunity to announce an exciting new initiative. Leveraging our brand and ready-for-community-service competitive advantages, we will embark on a comprehensive exploration of gourmet food, beauty, and healthcare. We will delve into the interconnectedness of these categories and their role in enhancing quality of life. In many years, local community services have emerged as a new growth trend in consumption. In line with these trends, during March, we integrated our existing food and neighborhood groups into our community e-commerce service super supply chain. This service offers exclusive products to users, with a particular focus on the gourmet food category. The super supply chain leverages super community leaders to bring a wide selection of affordable gourmet food from all over the country and around the world to doorsteps. Under this model, every super community leader is closely connected to users residing within a 500-meter radius, facilitating high-frequency interactions on a daily or even hourly basis. To encourage repeat purchases, the most popular products featured in the super supply chain will subsequently become available for regular purchase. Furthermore, we have set up an innovation department dedicated to expanding the reach of our community e-commerce service beyond our current community. This department will address for community e-commerce in untapped commercial networks and actively connect with new group leaders. Beyond expanding the scope of our services, we are implementing initiatives to build brand awareness, drive sales, and invest in delivering more comprehensive local community services. Due to recent offline events, I had the privilege of meeting service managers from all over the country. I was highly impressed by their professionalism, a roaring passion for beauty, and a zeal for life. To further enhance our support for them, we are committed to developing and expanding our range of private label products that address both external and internal beauty needs. At present, our diverse portfolio of private label products includes natural supplements, body management, hair loss prevention, skincare, personal care, and more. Going forward, we will actively explore further opportunities and possibilities in the realm of beauty, ensuring that we continue to meet the evolving needs of our users. In line with our strategy of developing mass-market private label products that cater to a broader range of families and their diverse needs, we’ve recently launched a brand new consumer product, Everyday Line Oil. The product is a next-generation healthy cooking oil with an additional resource content of over 50% and a well-balanced composition of fatty acids. We developed the oil with the intention of making it an indispensable ingredient in Chinese cooking, establishing a revolutionary change in the edible oil industry. Recognizing that healthy cooking oil is a relatively novel concept, we employ a number of strategies to promote it as a new and healthy lifestyle choice to our community and among our users. These strategies include live presentations, offline events, and a combination of demographics for massive articles and engaging short videos. Thanks to these efforts, Everyday Line Oil launched with resounding success, with sales exceeding 5 million units on its first launch. A recent phenomenon is people's increasing consciousness of the importance of boosting their own immune system. Capitalizing on this trend, we are intensifying our efforts to develop healthcare products for our private label portfolio. These products empower individuals to pivot from a reactive healthcare approach to actually nurturing their health and well-being. During the first quarter, we saw a significant surge in Yunji's demand for healthcare products, with Qingziyang probiotics and calcium tablets proving to be especially popular. We proactively responded to this growing demand by launching several new offerings, including the addition of a premium product lineup. On the marketing front, we energized community engagement in the first half of the year by holding a range of offline events, including product exhibitions and a new product launch ceremony. In March alone, our activities garnered the participation of more than 2,000 service managers. Since February, we have organized a variety of events, including the sales management plan kick-off meeting in Changsha, and the launch of our private label milk in Xinjiang. For our Everyday Line Oil, we held a 1,000-person event to introduce its use, giving participants a deeper understanding of the product. These events also foster mutual support and inspire individuals to embrace a healthy lifestyle cultivated by a strong sense of connectivity and pride among our sales managers. In line with our commitment to technological innovation, our research and development department is actively engaged in exploring and developing AI nutritionist, AI customer support, and AI community management. We aim to gradually roll out these initiatives during the second quarter, delivering a fresh experience and more efficient, round-the-clock service to our users and service managers. Upon their introduction, our AI nutritionist will provide personalized nutrition advice, ensuring that users receive tailored recommendations for their individual needs. By implementing AI customer service, we will deliver efficient and personalized customer support rapidly and accurately. Furthermore, AI community management will help us gain deeper insights into the needs and preferences of our community, allowing us to address emerging issues proactively. With tens of thousands of our service managers and a vast collection of graphical, textual, and short video content, we present an intensive set of resources that will serve as a robust training center for our AI-powered services. By fully leveraging these resources, we can apply AI more rapidly and effectively, delivering high-quality support and solutions to our users. For our service managers, we provide more than just a job. We present a pathway to achieving a harmonious work-life balance. We are also committed to providing products and services that enable our users to live healthier. Moreover, we are dedicated to offering opportunities to ordinary individuals while making it easier for people to lead better and more fulfilling lives. With that, I will turn the call over to Mr. Peng 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 RMB terms and all comparisons are on a year-over-year basis unless otherwise noted. After navigating the challenges of last year, we spent the first quarter of 2023 implementing several strategic upgrades to adapt to the post-COVID environment. Responding to shifting consumer trends, we have refocused our private label product development to capture growing interest in immunity enhancement, allocating more resources for the cultivation of healthcare and nutritional therapy products. This initiative, combined with other efforts such as online repurchase reminders, contributed to an 80.2% repurchase rate during the quarter. Meanwhile, our gross margin improved to 47.7% as we attempted to enhance user loyalty among consumers. Despite pressure on our top line from our ongoing product mix requirements and optimization efforts, our net loss narrowed by 37.8% from the same period last year, and we recorded operating profit for the quarter. We are confident that our emphasis on efficiency and our ability to respond to emerging consumer trends leave us well-positioned for the future. Now let's take a closer look at our financials. Total revenues were RMB 179 million compared to RMB 343 million a year ago. Revenues from sales of merchandise were RMB 143 million, and revenues from our marketplace business were RMB 33 million. This change was primarily due to our continued strategy to refine our product selection across all categories and optimize our selection of suppliers and merchants, which has a near-term impact on sales. Meanwhile, consumer confidence and spending power have yet to fully recover. Despite these challenges, we improved our gross margin to 47.7% compared to 44.2% a year ago. This was a result of sustained consumer loyalty to our private labels and our effective product curation strategy. Now let's take a look at our operating expenses. Fulfillment expenses were RMB 27 million compared to RMB 49 million a year ago. This was primarily due to reduced warehousing and logistic expenses attributed to lower merchandise sales, reduced personnel costs owing to staffing structure requirements, and a decrease in share-based compensation expenses. Sales and marketing expenses were RMB 30 million compared to RMB 51 million a year ago. This was primarily due to a reduction in personnel costs resulting from staffing structure refinement, a decrease in member management fees, and reduced promotional expenses for personnel. Technology and content expenses were RMB 13 million compared to RMB 24 million a year ago. The decrease was mainly due to reduced personnel costs as a result of staffing structure requirements and reduced cloud server costs. General and administrative expenses were RMB 15 million compared to RMB 31 million a year ago. This was mainly due to reduced personnel costs due to staffing structure requirements, lower professional service fees, and a decrease in share-based compensation expenses. Total operating expenses in the first quarter decreased to RMB 85 million from RMB 155 million in the same period of 2022. We recorded income from operations of RMB 1 million compared to RMB 2 million a year ago. Net loss was RMB 23 million compared to RMB 37 million a year ago, while adjusted net loss was RMB 27 million compared to RMB 31 million a year ago. Basic and diluted net loss per share attributable to ordinary shareholders were both RMB 0.01 compared to RMB 0.02 in the same period in 2022. Moving on to liquidity. As of March 31, 2023, we had a total of RMB 568 million in cash and cash equivalents, restricted cash, and short-term investments on our balance sheet compared to RMB 669 million as of December 31, 2022. Our liquid assets were sufficient to cover our payable obligations, and we did not hold any downturn loans or debt on our balance sheet. Looking ahead, we will take advantage of the post-COVID recovery trend by cultivating our private label products while continuing to exercise operational efficiency. We will foster synergistic collaboration between our online and offline initiatives with the goal of enhancing customer loyalty and attracting new users. This strategic approach will lay a strong foundation for our future development and will position us to deliver long-term value to our shareholders. This concludes our prepared remarks for today. Operator, we are now ready to take questions.

Our first question will come from Ethan Yu of First Trust China. Please go ahead.

We have observed a rapid recovery in offline economic service and interstate mobility. But overall, consumer confidence remains unstable. How does it impact your business? And what specific measures has the company taken? Additionally, what specific initiatives has your company implemented or plans to implement to enhance brand awareness of Yunji and our private label products? Thank you.

Thank you for your question. Yunji's connection between people both online and offline has its own advantages. Before the pandemic, Yunji operated with a marketing model that combined online communities and offline engagement. The offline approach helps bridge the gap between our service managers and customers, fostering trust and providing a better experience with our products. This has become even more important as we developed more private labels, as cultivating customer trust and education has become paramount. Our private labels adhere to the principle of providing consumers with peace of mind and high-quality products. We insist on sourcing directly from the place of origin and have established deep partnerships with leading companies and factories. This allows us to invest in and trace the production and processing of our goods. As the cities resume their flow, we have invited public service managers to join us in exploring and lending, witnessing the birth of our manufacturing capabilities, and sharing authentic experiences with the virtual community. Furthermore, we are establishing a new brand center in Hangzhou, which will serve as a hub to display our private label capabilities. We hope to attract more partner brands and incubate more private label products. Therefore, this will help us develop more mature joint label products. We are going to educate our customers through mid-level influencers from top platforms, and we will leverage offline media through advertising and publicity of the products, based on our existing customers and intensifying engagement with them. From city to city, we will carry out promotion initiatives for our joint label products. For our publicity, we will primarily use four channels: the existing online channels, self-made content, mid-level influencers online, and also offline media. Thank you for your questions.

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. Bye.

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.