Yunji Inc. Q3 FY2023 Earnings Call

Good morning, and good evening, ladies and gentlemen. Thank you for standing by, and welcome to Yunji's Third Quarter 2023 Earnings Conference Call. With us today are Mr. Shanglue Xiao, Chairman and Chief Executive Officer; Mr. Yeqing Cui, Senior Financial Director; 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 third 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 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 latest documents that filed with 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 in the applicable law. With that, I will now turn it over to Shanglue Xiao, Chairman and CEO of Yunji.

Hello, everyone. Welcome to Yunji's Third Quarter 2023 Earnings Call. The third quarter is typically a slow season for e-commerce. We used this time to further develop and strengthen our business foundations, continuing to advance in both marketing and product areas. We are focused on various initiatives, such as refining our market positioning, advancing the development of new products, strategically adjusting our product offerings, and optimizing our supply chain capabilities. Additionally, we increased our marketing efforts and hosted events to showcase product regions and introduce new products, setting the stage for our promotional sales in the fourth quarter. Importantly, in September, our private label team moved to a new office building with improved product display and presentation areas, allowing us to better highlight our private label brands to our partners. With our strategic development in mind, we conducted a thorough evaluation of Yunji's market positioning. Both Yunji and our private label brands have consistently maintained high repeat purchase rates. This positive trend has led us to think about how we can significantly enhance the value we provide to our users and service managers. Operating in a competitive market, we are committed to offering high-quality, competitively priced products that deliver great value to our users. We believe these commitments will drive higher revenues and strengthen our brand image, setting the stage for sustainable growth. This year, major e-commerce platforms engaged in aggressive discounting and expanded their promotions creatively over a month. We opted for a different approach, choosing a more direct promotional strategy over a shorter period. For instance, we successfully attracted and engaged users through product basics, direct discounts, and multi-item offers. This focused strategy allows us to coordinate our marketing effectively and precisely with our installment users, bringing them back to our platform. In our previous earnings call, we highlighted our strategic initiatives to enhance our supply chain and meet the growing consumer demand for seasonal purchases. This has yielded impressive results, especially in the food category. For example, by the end of August, our craft vouchers and gift boxes became popular gifting options for the Mid-Autumn Festival and National Day Holiday. Notably, we have managed to maintain stable levels of dairy sales with minimal promotional spending, selling over 400,000 carts within a month and generating revenue exceeding RMB 13 million. Now, I'd like to provide updates on Yunji's private label brands. While beauty remains our primary focus, healthcare has emerged as a significant secondary area. This dual focus opens exciting opportunities for category collaboration, enabling us to create distinct and unique products. For instance, in September, our beauty brands launched a new lip balm that sold out within an hour on its launch day. The lip balm's popularity created strong demand in our community groups for additional sales. Its ingredients have gained attention within our health brand, showcasing the potential for collaboration between beauty and health categories. Building on the success of the lip balm and aligning with the resurgence of traditional Chinese medicine culture, we have reintroduced a herbal skincare line and plan to launch more cross-category products such as DTC and facemasks to meet evolving user preferences. Finally, I'd like to highlight the crucial role of our dedicated service managers. They choose Yunji because we offer a unique chance to balance their professional and family lives. Our innovative sales strategy enables service managers to market products or brands in a short amount of time, often within an hour. This allows them to quickly generate sales and return to their personal lives, creating time for self-improvement and family. In terms of personal development, we prioritize the continuous learning and growth of our service managers. As part of this commitment, we launched a new education and training program in the third quarter, which will enhance their sales skills, broaden their perspectives, and cultivate diverse interests, ultimately contributing to a more fulfilling family life. With that, I will turn the call over to Mr. Cui, our Senior Financial Director, 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 of 2023, our operations remained relatively stable as we used the opportunity to reinforce our core operational projects. Key to this effort has been the enhancement of our inventory management practices. We now have a robust comprehensive strategy that covers our private label product development, sales scheduling and management of stock in growth and off-growth. At the same time, we actively monitor different product cash growth on a weekly or monthly basis to ensure inventory stays at an optimal level. The strategic focus on inventory management has been instrumental in optimizing our use of assets and effectively managing cash flow. We believe this new approach lays a solid foundation for our tangible development within a constantly shifting dynamic market. Now let's take a close look at our financials. Total revenues were RMB 145 million compared to RMB 239 million a year ago. Revenues from sales of merchandise were RMB 140 million and the revenue from our marketplace business was RMB 29 million. The changes were primarily driven by ongoing refinements to our product range across all categories. This, coupled with the optimization of our supplier network, resulted in a short-term impact on sales. Despite these challenges, our gross margin remained relatively solid at 45.7%. This was due to sustained customer loyalty towards our private labels and our effective product curation strategy. Now let's take a look at our operating expenses. Procurement expenses were RMB 26 million compared to RMB 37 million a year ago. This was primarily driven by a decrease in warehousing and logistics expenses stemming from lower merchandise sales and reduced personnel costs due to staffing structure optimization. Sales and marketing expenses were RMB 30 million compared to RMB 47 million a year ago. This was primarily a result of a decline in management fees and decreased business promotion expenses. Technology and content expenses were RMB 14 million compared to RMB 17 million a year ago. The decrease was mainly due to a reduction in personnel costs resulting from staffing structure optimization. General and administrative expenses were RMB 28 million compared to RMB 38 million a year ago. This was mainly due to a decline in share-based compensation expenses. Total operating expenses in the third quarter decreased to RMB 98 million from RMB 139 million in the same period of 2022. The loss from operations was RMB 30 million compared to RMB 18 million a year ago. Net loss was RMB 35 million compared to RMB 38 million a year ago, while adjusted net loss was RMB 34 million compared with RMB 30 million a year ago. Basic and diluted net loss per share attributable to ordinary shareholders were both RMB 0.02 compared with RMB 0.02 in the same period of 2022. Turning to liquidity, as of September 30, 2023, we had a total of RMB 555 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 do not hold any long-term bank loans or debtors on our balance sheet. Looking ahead, we will continue to proactively explore investment opportunities with the aim to enhance our supply chain capabilities. To summarize, we took crucial steps towards achieving our long-term growth strategy during the third quarter. Our diligent efforts to enhance our inventory management mechanism and our decision to prioritize sustainable and effective asset management were integral to this process. Going forward, we will continue to drive ongoing effective improvements, ensuring that our company remains resilient and adaptable. This approach positions us to effectively meet future challenges and seize opportunities as we navigate the ever-changing economic landscape. 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. The first question today comes from Ethan Yu with First Trust. Please go ahead.

Thanks for taking my question. Could you shed more color on the specific plans and the next positioning for our Health business segment? Thank you.

Thank you for your question. Yunji Health is part of Yunji's long-term strategy for the next 10 to 20 years. In that time frame, we expect to see 620 million people in China aged 50 and older. This demographic is our secondary target. 95% of our consumers are women, with 86% being mothers. This group is particularly focused on health, as they are the primary caretakers of both older family members and children. In China's automotive market, there are many SUV models available, but we lack six-seat SUVs. Similarly, the health industry in China has various supermarkets, yet we will lack a comprehensive health supermarket in the coming 20 years. Yunji Health aims to be like a Sam's Club for health, offering healthy foods and functional products that address household health needs. We gather a range of health products from different brands to meet the health requirements of various family members. While many link health solely to diet, we promote a healthy lifestyle that includes sun protection, skincare, hair care, and cleanliness. Yunji's goal is to provide a comprehensive health solution for all aspects of life. Thank you for your question.

I have no more questions. Thank you.

As there are no further questions at this time, I'd like to hand the conference back over to 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. You may now disconnect.