Yunji Inc. Q4 FY2023 Earnings Call

Hello, everyone. Welcome to our fourth 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’s 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 document 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 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 2023 earnings call. During 2023, and in particularly in the fourth quarter's peak e-commerce promotion season, the prevailing trend relative to the market was intense price competition. Major e-commerce and live streaming platforms adopted low-price strategies, fostering a bargain hunting mindset among consumers. However, Yunji is not really an e-commerce platform. We are also a brand-building and sales service provider. We understand the long-term repercussions of relying on low pricing strategies, which can lower brand identity over time. The value we deliver to users lies in our cost-effective products with low return rates, as well as in minimizing decision-making and wait times for our users. Our commitment to a heavily curated product selection ensures that Yunji maintains a stable average order value even amidst the market focus on low prices. The stability of our average order value is intrinsically linked to our highly developed product capabilities, centered around the principles of love for food, beauty, and health. We have developed a range of cost-effective private label products. We have not only expanded the existing categories but also successfully upgraded our lineup of medicinal products. Over the span of many years of product development and sales, we have identified key ingredients that resonate strongly with our user base, such as collagen and probiotics. Building on successful trials and increased active user feedback, we have introduced a variety of new products across multiple categories that innovatively incorporate these popular ingredients while performing in different ways to harness these ingredients and enhance product functionality, leveraging their existing popularity. Our new offerings have been warmly embraced by our users. We aim to cultivate loyal users of individual products who appreciate our carefully selected ingredients. In doing so, we will develop a user base that is loyal to the entire Yunji brand ecosystem, fostering a deeper trust in our brand. At Yunji, we are committed to supplementing our offerings in terms of ingredients. We generally use feedback and draw upon the niche average user offering over 5,000 years of Chinese history to sell high-quality natural ingredients such as dendrobium and other traditional herbs. These renowned Chinese medicinal herbs are carefully processed using advanced technology to produce healthier foods that are easier to digest and absorb. Over the past year, we have worked to authenticate the quality of our ingredients and products, ensuring that our users can consume them with confidence and peace of mind. In terms of marketing, we recognize the powerful link between exceptional service and strong sales performance to enhance customer service and drive sales. We are committed to the continued improvement of our service managers through comprehensive professional training and technical support. Furthermore, we have invited a number of our sales managers to explore and trace product origins. This first-hand experience allows them to generate more product-related material, which they can then share with users in our communities. During March, we rolled out a range of new products as part of our healthcare brand upgrade. Alongside these products, we also unveiled a novel product cost service integrated sales model. Upon purchasing a product, a user can gain access to Yunji's 28-day body image management program, which includes personalized one-on-one services and convenient online tracking via a mini-program. Our new healthcare products were well-received, with sales surpassing RMB 80 million upon launching. When it comes to basic daily customer service, we focus on our third-party merchant management, internal customer service training, and service policy optimization. We also conduct regular customer follow-ups and online services to improve and ensure overall customer satisfaction. AI was a significant trend in 2023, and we are exploring new ways to apply it in our operations. During the year, our capabilities evolved significantly, and we now integrate AI into a range of functions, from basic customer service chatbots and handling routine call center tasks to more advanced support for service managers. For example, users of our 28-day body image management program can now consult with service managers regarding their daily nutritional needs and calorie intake. Our AI health consultants similarly support service managers by rapidly and accurately calculating personalized recommended calorie intake in real time and provide informed and insightful advice. That concludes our strategic summary, our reflection for 2023. Moving forward, we remain committed to our strategy of curative product selection, ensuring product cost-effectiveness, enhancing brand image, and actively exploring diverse marketing avenues to further elevate the Yunji brand. With that, I will go over to Yeqing Cui, our senior financial director, to go through the financial results.

Okay. 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 calculations and the percentage changes are year-over-year unless otherwise noted. During the fourth quarter of 2023, our operations remained relatively stable, and we continued to reinforce our core operational processes. Our requirement for inventory management practices allowed us to generate a stable gross profit. We maintain a strategic focus on inventory management, actively monitoring various product categories on a weekly or monthly basis to ensure optimal stock levels. This approach should not only optimize our asset utilization but also effectively manage our cash flow. Meanwhile, we are actively pursuing more efficient cash flow management. Now let's take a close look at our financials. Total revenues were RMB 149 million compared to RMB 289 million a year ago. Revenues from sales of merchandise were RMB 112 million, and the revenues from our marketplace business were RMB 34 million. These changes were primarily driven by ongoing refinement of our product range across all categories. This, coupled with the optimization of our supplier and merchant network, resulted in a short-term impact on sales. Despite these changes, our gross margin remained relatively solid at 46.6%. This was due to sustained customer loyalty towards our private labels and our effective product creation strategy. Now let's take a look at our operating expenses. Fulfillment expenses were RMB 25 million compared to RMB 32 million a year ago. This was primarily driven by a decrease in warehousing and logistics expenses, stemming from lower merchandise sales, reduced personnel costs due to staffing structure optimization, and a decrease in service fees charged by third-party payment settlement platforms. Sales and marketing expenses were RMB 29 million compared to RMB 59 million a year ago. This was primarily a result of a decline in member management fees and a decrease in business promotion expenses. Technology and content expenses were RMB 12 million compared to RMB 17 million a year ago. The decrease was mainly due to a reduction in personnel costs as a result of staffing structure optimization and reduced server costs. General and administrative expenses were RMB 44.5 million compared to RMB 44.9 million a year ago. This was mainly due to the reduction in personnel costs as a result of staffing structure refinement and the share-based compensation expense, partly offset by an increase in allowance for credit loss. Total operating expenses in the fourth quarter decreased to RMB 110 million from RMB 153 million in the same period of 2022. Loss from operations was RMB 40 million compared to RMB 33 million a year ago. Net loss was RMB 66 million compared to RMB 68 million a year ago, while adjusted net loss was RMB 65 million compared with RMB 31 million a year ago. Basic and diluted net loss per share attributable to ordinary shareholders was about RMB 0.03 compared with RMB 0.02 in the same period of 2022. Turning to liquidity, as of December 2023, we had a total of RMB 552 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 debt on our balance sheet. In addition, we are dedicated to making the most of our working capital and smart managing of our assets to better support our operations. In summary, the fourth quarter saw us taking significant strides towards our long-term strategic objectives. Our ongoing effort to refine our inventory management system, coupled with our commitment to sustainable and effective asset management, were key to this progress. Looking ahead, our focus will remain on continuously enhancing our efficiencies, thereby ensuring our company's resilience and adaptability. Our strategies equip us to effectively control future challenges and capitalize on opportunities in the evolving economic environment. This concludes our prepared remarks for today. Operator, we are now ready to take questions.

I just heard you mention customer service. We have observed that in recent months, major e-commerce platforms have launched a series of policies such as 7-day no user returns, free shipping in remote areas, etc. What do you think of these new policies which are biased towards consumers? Will all this strategy have any impact on our performance?

This issue involves the nature of our products and user consumption habits. First of all, we believe that to be a good platform, the selling point of your products cannot be for RMB 9.9 with free shipping. And the user's consumption behavior cannot be based on imposed consumption. Yunji's merchandise sales and private label products have always maintained a customer-specific policy. However, our quality refund rate is very low compared to other platforms, which is inseparable from our sufficient user education. We believe that loose sales are important, but what ultimately attracts consumers to repurchase is unique product offerings and cost-effectiveness. Our average order value is enough to cover our customer management expenses, and we also have many loyal users in remote areas.

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

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