Yunji Inc. Q3 FY2024 Earnings Call

Good evening, ladies and gentlemen. Thank you for standing by, and welcome to Yunji's Third Quarter 2024 Earnings Conference Call. With us today are Ms. 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 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 2024 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 related 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 terminologies such as will, expects, anticipates, continue or other similar expressions. For a detailed discussion of these risks and uncertainties, please refer to our latest document 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 entirely by cautionary statements, risk factors and details of the company's filings with 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, and welcome to Yunji's third quarter 2024 earnings call. Let me start with a significant milestone in our company's growth. On November 8, we broke ground on our new headquarters, the Yunji Innovation Center. This new campus, strategically located in the heart of the economic and technology development zone, represents more than just a new office space; it is designed to be an integrated facility that brings together our marketing, training, R&D, and operational teams under one roof. The center will serve as an incubator for our expanding health and beauty brands while embodying our corporate culture and vision for the future. We secured this property at an attractive valuation in the second quarter this year, which aligns with our strategy of strategic asset diversification to strengthen our market position and optimize returns in today's dynamic environment. In line with the global wellness trend, we are reinforcing our decision to prioritize health and wellness as a key pillar of our 10-year strategy. Our vision is to democratize access to healthy living, particularly in the organic food space. While organic products traditionally come with a premium price tag, we've leveraged our procurement expertise to make these products more affordable without compromising on quality. Our team has traveled nationwide to discover and connect with top-notch health practices to supply chain, acting as eyes for our consumers by ensuring true traceability, authentic experience, and genuine assurance. Additionally, we've established a robust quality control process through our proprietary Yunji health certification system, which includes random inspections of certified products even after they receive certification. These initiatives have garnered positive feedback from our users. For example, our Autumn Moon pears have become an annual favorite for many parents who eagerly return each October to make their family purchases. We've also made significant progress in our offline expansion. In July, we launched our first wellness store, featuring traditional Chinese medicine practices. This initiative has helped us tap into the growth demographic for customers aged 41 to 55 through word-of-mouth referrals in our standardized offline system. We've successfully replicated this business model with our second location opening in October. Our private label brand, SUYE, has celebrated the 14th successful year in the beauty arena. In November, our accumulated sales on the platform have exceeded RMB100 million for the year. We are particularly excited about our expansion in the premium anti-aging segment, where we align ourselves with top global brands and consistently launch outstanding products within our age recovery series. The upcoming release of a specialized eye care product marks another significant advancement in our high-end eye care lineup. On the technology front, digitalization is vital for accounting in the fast-moving consumer goods industry. Building a modern marketing infrastructure requires an effective big data strategy. We are pushing forward with the development of an innovative digital platform powered by AI tools that support the integration and sharing of public resources on trading platforms. Our AI applications focus on improving customer service, generating content, sharing materials, and delivering educational training, which helps lower costs while enhancing operational efficiency and service reliability. So, looking ahead, we will continue to drive innovation, enhance our core competence, and strive to create greater social value for Chinese families. With that, I will hand it over to Mr. Cui, our Senior Financial Director, 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 and percentage changes are on a year-over-year basis unless otherwise noted. During the third quarter of 2024, we faced market dynamics that impacted our operations. Nevertheless, our financial position enabled us to support our strategic initiatives. We continuously evaluated the profitability of both new and existing business lines, making informed adjustments in response to evolving market conditions. This strategy enabled us to uphold a solid financial foundation amidst a challenging business environment. During the quarter, we observed a notable improvement in our comparables, underscoring our dedication to effective cash management. Additionally, we successfully narrowed our operating and net losses, reflecting our commitment to fast and sustainable growth. At the same time, we refined our product offerings and optimized our supply network to better meet customer demand. Looking ahead, we will continue to carefully seek growth opportunities while prioritizing our financial stability. Now, let's take a close look at our financials. Total revenue was RMB86.6 million compared to RMB145.1 million a year ago. Revenue from sales of merchandise was RMB70 million, and revenues from our marketplace business were RMB14.8 million. Changes were mainly due to softer consumer confidence and ongoing refinements to our product range across all categories. Furthermore, the optimization of our supplier and merchant network also had a short-term effect on sales. Despite these changes, our gross margin remained relatively strong at 54.1%, mainly due to continued customer loyalty towards our product labels and our effective product curation strategy. Now, let's take a look at our operating expenses. Fulfillment expenses were RMB17.2 million compared to RMB25.6 million a year ago. The decrease was mainly due to lower warehousing and logistics costs resulting from decreased merchandise sales as well as reduced personnel costs from staffing optimization. Sales and marketing expenses decreased to RMB19.3 million from RMB29.6 million a year ago. This was primarily a result of a decline in member management fees. Technology and content expenses were RMB11.6 million compared to RMB13.9 million a year ago. This was largely due to lower personnel costs from staffing optimizations. General and administrative expenses were RMB25.8 million compared to RMB28.1 million a year ago. This was mainly due to a reduction in professional service expenses. Total operational expenses in the third quarter decreased to RMB73.9 million from RMB97.2 million in the same period of 2023. Loss from operations was RMB26.2 million compared to RMB30.3 million a year ago. Net loss was RMB30 million compared to RMB34.8 million a year ago, while adjusted net loss was RMB29.5 million compared to RMB34 million a year ago. Basic and diluted net loss per share attributable to ordinary shareholders was both RMB0.02 compared to RMB0.02 in the same period of 2023. Turning to liquidity, as of September 30, 2024, we had a total of RMB268.4 million in cash and cash equivalents, restricted cash, and short-term investments on our balance sheet. Our liquid assets are 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 smartly managing our assets to better support our operations. Looking forward, we are dedicated to improving our operational efficiencies and adjusting our strategies to effectively navigate the changing market landscape. We are confident that our continuous enhancement of inventory management and cost optimization leaves us well-positioned for further growth by continuously innovating and refining our product offerings. We believe that we can boost our momentum and create long-term shareholder value. This concludes our prepared remarks for today. Operator, we are now ready to take questions.

Thank you. Our first question today will come from Ethan Yu of First Trust. Please go ahead.

Let me translate it myself. Thank you for taking my question. My question is about expanding our offline activities at this point of time. What is the main difference between offline stores and online e-commerce business? And how would these two businesses be combined in the future? Could you share more details on this? Thank you.

Thank you for your question. Firstly, regarding market demand and target customers, offline wellness stores are an extension of Yunji's existing customer base. Over the past nine years, since Yunji's establishment, some of our earliest customers, such as young mothers, have now transitioned into the key demographics for offline wellness services, which is the 40 to 55 age group. By continuously addressing user needs, we aim to align with the development of the aging economy, broadening Yunji's customer base and truly providing services for the entire family. The offline wellness business differs significantly from online marketing. We focus on offline communities within a 500-meter radius, combining ground promotion with online campaigns. This approach allows us to receive user feedback more directly and promptly during the service process. In the future, after establishing loyalty and trust among offline wellness users, we plan to integrate online sales and services, especially for the promotion of our own brands and organic food products. The synergy between our people network and lab network will deliver exciting opportunities for our curated and health-focused business lines. Thank you for your question.

There are no further questions at this time. This will conclude the question-and-answer session, and I'd like to turn the conference back over to management for any 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.