Yunji Inc. Q1 FY2024 Earnings Call

Good morning, and good evening ladies and gentlemen. Thank you for standing by and welcome to Yunji's First Quarter 2024 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 first quarter 2024 earnings call. Before we start, please note that this call will contain forward-looking statements within the meaning of the Private Security 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 first quarter 2024 earnings call. The first quarter is traditionally an off-peak season for e-commerce. We took the opportunity to refine our operations, allowing us to maintain a solid growth margin. As consumers become increasingly driven to enhance their lives, we are focused on achieving high-quality growth by optimizing average order values and gaining deeper insights into our core users' consumption preferences. In May, I celebrated Yunji's 9th Anniversary with our service managers, partners, and employees. During the festivities, we introduced several exciting new initiatives. One initiative involves providing our users with a comprehensive healthcare solution. To achieve this, we will expand our reach into offline communities and create wellness spaces, bringing our healthcare products directly to consumers. These plans aim to generate both part-time and full-time job opportunities, fostering individual entrepreneurship through our top-tier retail services. Our private label beauty brands, SUYE and P&S, continued to launch new products that have gained significant popularity. These products are specially designed with ingredients suited for mature skin, matching the effectiveness of leading Western beauty brands. In marketing, we are actively solidifying partnerships across various external channels this year. Our strategy includes producing engaging content on diverse platforms, utilizing the power of short video platforms, and leveraging the influence of live streaming marketing. In the healthcare sector, we will continue to merge advanced manufacturing technology with natural ingredients possessing medicinal properties to create products that enhance our health supermarket metrics. Our aim is to shift Chinese families from a reactive approach to healthcare to a proactive one that focuses on daily dietary improvements. Simultaneously, we will keep innovating and refining the vertical community service experience while deploying advanced AI applications. Additionally, we will evolve our training system to develop professional health nutritionists who can provide added value beyond our products. Our mission is to ensure that every family has access to a professional health advisor. While apparel has been our lesser category historically, we have noticed increasing demand from users and service managers for a wider array of products in this area. With the rise of short video trends, we see a significant opportunity for Yunji's apparel category to become an essential part of our beauty segment. This year, we have embraced the combination of short videos and live streaming, hosting weekly live streams on Yunji's official channel. While apparel is our primary focus, we also showcase our beauty and food categories to enhance Yunji's image as a beauty brand. This strategy allows us to integrate fashion into our offerings while ensuring practicality. Every industry is currently facing changes and challenges, and the new consumption sector we operate in is no different. However, we strongly believe that challenges present opportunities. At Yunji, we leverage our entrepreneurial spirit, draw on our nine-year experience in social e-commerce within the WeChat ecosystem, and remain attuned to trends in video channels. Over the past six months, we have explored content creation and live streaming on video channels, gradually developing a business model that aligns with Yunji's entrepreneurial essence. Our focus is on cultivating leaders in video channels who can create and share high-quality content on a larger scale. To facilitate product promotion and enhance communication, we provide our service managers with new skills, enabling them to commence business using just a mobile phone. We recruit everyday individuals to become video channel leaders, equipping them with training in creating promotional short videos and live streaming, and helping them stay informed about new capabilities. Our video channel leader incubation program, which was piloted in the first quarter, is poised for a broader launch in the second quarter. The WeChat Community event initiated Yunji, and now the rise of short video events promises to bring more vibrancy and efficiency to Yunji. We aim to be the trusted partner that empowers our users to lead a healthy and beautiful 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 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 first quarter of 2024, our operations remained relatively stable as we continued to bolster the core process underpinning our operations. Refinements to our inventory management protocols enabled us to sustain a consistent level of gross profit. Inventory management remains a strategic focal point. We are vigilant in monitoring our assorted product categories on a weekly or monthly cadence to optimize stock levels. By doing so, we enhance utilization of our assets while more effectively managing our cash flows. At the same time, we are actively making our cash flow management more efficient. Now, let's take a close look at our financials. Total revenues were RMB 128 million compared to RMB 179 million a year ago. Revenues from sales of merchandise were RMB 102 million and the revenue from our marketplace business was RMB 24 million. The changes were primarily driven by ongoing refinements to our product range across all categories. This, coupled with the optimization of our supplier and merchant network, resulted in a shorter impact on sales. Despite these changes, our gross margin remained relatively solid at 49.4%. This was due to sustained customer loyalty towards our product labels and our effective product creation strategy. Now, let's take a look at our operations expense. Fulfillment expenses were RMB 22 million compared to RMB 27 million a year ago. This was primarily driven by a decrease in warehousing and logistic expenses which lowered merchandise sales, and reduced personnel costs resulting from staffing structure optimization. Sales and marketing expenses decreased to RMB 26 million from RMB 30 million a year ago. This was primarily a result of a decline in member management fees, partially offset by an increase in business promotion expenses. Technology and content expenses were RMB 13.3 million, compared to RMB 13.4 million a year ago. The decrease was mainly due to reduced personnel costs. General and administrative expenses were RMB 14.9 million compared to RMB 15.2 million a year ago. This was mainly due to the reduction in personnel costs resulting from staffing structure refinements, partially offset by an increase in the allowance for credit losses. Total operating expenses in the first quarter decreased to RMB 76 million from RMB 85 million in the same period of 2023. Loss from operations was RMB 9 million compared to income from operations of RMB 1 million a year ago. Net income was RMB 4 million compared with net loss of RMB 23 million a year ago, while adjusted net income was RMB 3 million compared with adjusted net loss of RMB 27 million a year ago. Basic and diluted net income per share attributed to ordinary shareholders were both nil compared with basic and diluted net loss per share of RMB 0.01 in the same period of 2023. Turning to liquidity, as of March 31, 2024, we had a total of RMB 505 million in cash and cash equivalents, restricted cash and short-term investments on our balance sheet compared to RMB 552 million on December 31, 2023. Our liquidity assets were insufficient 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 smartly managing our assets to better support our operations. To sum up, the first quarter made important progress on the road to realizing our long-term strategy goals. Our ongoing improvements in inventory management, along with our dedication to sustainable and effective asset management, are pivotal to this advancement. Moving forward, we will focus on further enhancing our efficiency and strengthening our company's resilience and adaptability. Our strategy positions us to effectively address future challenges and seize emerging opportunities in the evolving 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. At this time, we will pause momentarily to assemble our roster. Our first question is from the line of Ethan Yu from First Trust Group. Please go ahead.

Hi, good evening. Thank you for taking my question. The management just mentioned our progress in short video and live streaming. Could you share more details about how we differ from other platforms in this area? Thank you.

Thank you for your question. Firstly, we will select every commodity in our category and ensure they are cost-effective. We do not resort to selling low-priced, low-quality clearance items to draw traffic. Secondly, we are not only content creators but also developers of numerous commodities. Our team engages from the inception of the product development project, actively participating in the traceability of the origin, production, and selection of packaging materials. This hands-on approach creates a deeper understanding of the commodities and a more tangible grasp of the entire commodity chain compared to other content producers. At the most critical human level, Yunji's short video strategy, comprising both content production and distribution, is rooted in an ordinary people-centric approach, facilitating individual entrepreneurship and rendering our content more accessible. Additionally, all these factors have differentiated us from our competitors. Thank you for your question.

Okay, got it. Thank you.

Thank you. Ladies and gentlemen, as there are no further questions at this time, I would 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 are looking forward to talking with you next quarter. Bye.

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