Earnings call transcript: Yatsen Q4 2024 shows revenue growth, stock up

Yatsen Holding (NASDAQ: YSG) reported a 7.1% increase in total net revenues for the fourth quarter of 2024, reaching RMB 1.15 billion. Despite a slight decline in full-year revenues, the company achieved a significant improvement in gross margin and a positive non-GAAP net income margin. In premarket trading, Yatsen’s stock rose 5.07%, reflecting investor optimism about its financial performance and strategic initiatives. According to InvestingPro data, the company maintains impressive gross profit margins of 75.79% and holds more cash than debt on its balance sheet, demonstrating strong financial management.

Key Takeaways

• Q4 2024 revenues increased by 7.1% to RMB 1.15 billion.
• Gross margin improved to 77.8%, up from 73.7% in the previous year.
• Yatsen’s stock rose 5.07% in premarket trading.
• Skincare brands contributed 41.1% of total revenues.
• Market conditions remain challenging with intense price competition.

Company Performance

Yatsen demonstrated resilience in a challenging market, driven by strong performance in its skincare and color cosmetics segments. The company’s strategic focus on product innovation and operational efficiency has helped it navigate a subdued beauty industry in China, where overall beauty retail sales declined by 1.5% in 2024. With a current ratio of 4.16, InvestingPro analysis shows the company’s liquid assets substantially exceed short-term obligations, providing a strong foundation for continued growth. Discover 10+ additional exclusive insights about Yatsen’s financial health with an InvestingPro subscription.

Financial Highlights

• Q4 2024 Revenue: RMB 1.15 billion, up 7.1% YoY.
• Full-year 2024 Revenue: RMB 3.39 billion, down 0.6% YoY.
• Gross Margin: Improved to 77.8% in Q4 from 73.7% YoY.
• Non-GAAP Net Income Margin: Achieved 9.3% in Q4.

Market Reaction

Yatsen’s stock experienced a 5.07% increase in premarket trading, with shares priced at $4.35. This movement positions the stock closer to its 52-week high of $5.223, signaling positive investor sentiment amidst improved financial metrics and strategic focus. InvestingPro analysis indicates the stock is currently undervalued, with a beta of -2.53 suggesting it often moves contrary to market trends. The stock has delivered an impressive 56.14% return over the past year, despite challenging market conditions. For comprehensive valuation insights and detailed analysis, check out the Pro Research Report available exclusively to InvestingPro subscribers.

Outlook & Guidance

For Q1 2025, Yatsen expects revenue between RMB 788.8 million and RMB 866.2 million. The company aims to balance growth and profitability by focusing on skincare and makeup categories, with an emphasis on maintaining and improving gross margins. Trading at a price-to-book ratio of 0.81 and with a market capitalization of $342 million, the company presents an interesting opportunity for value-focused investors. Access detailed financial forecasts and expert analysis through the comprehensive Pro Research Report on InvestingPro.

Executive Commentary

CEO Jinfeng Fang highlighted the company’s strategic direction, stating, "Skincare will be our key stable growth engine." He also noted the importance of balancing skincare and makeup investments for long-term sustainability amidst ongoing market challenges.

Risks and Challenges

• Intense price competition in the beauty industry could pressure margins.
• Consumer purchasing decisions are becoming more rational, potentially affecting sales.
• Macroeconomic factors in China may impact consumer spending in the beauty sector.

Yatsen’s Q4 2024 performance reflects its ability to adapt to market conditions through strategic product development and cost management, positioning it for continued growth in 2025.

Full transcript - Yatsen Holding (YSG) Q4 2024:

Conference Operator: Ladies and gentlemen, good day and welcome to the Yat sen Fourth Quarter and Full Year twenty twenty four Earnings Conference Call. Today’s conference call is being recorded. At this time, I would like to turn the conference over to Irene Liu, Vice President, Head of Strategic Investment and Capital Markets. Please go ahead.

Irene Liu, Vice President, Head of Strategic Investment and Capital Markets, Yat sen: Thank you, operator. Please note the discussion today will contain forward looking statements relating to the company’s future performance and are intended to qualify for the Safe Harbor from liability as established by The U. S. Private Securities Litigation Reform Act. Such statements are not guarantees of future performance and are subject to certain risks and uncertainties, assumptions and other factors.

Some of these risks are beyond the company’s control and could cause actual results to differ materially from those mentioned in today’s press release and this discussion. A general discussion of the risk factors that could affect Yasheng’s business financial results is included in certain filings of the company with the Securities and Exchange Commission. The company does not undertake any obligation to update this forward looking information, except as required by law. During today’s call, management will also discuss certain non GAAP financial measures for comparison purposes only. Please see the earnings release issued earlier today for a definition of non GAAP financial measures and a reconciliation of GAAP to non GAAP financial results.

Joining us today on the call from Yat sen’s senior management team are Mr. Jinfeng Fang, our Founder, Chairman and CEO and Mr. Donghao Yang, our CFO and Director. Management will begin with prepared remarks and the call will conclude with a Q and A session. As a reminder, this conference is being recorded.

In addition, a webcast replay of this conference call will be available on Yat sen’s Investor Relations website at ir.yatenglobal.com. I will now turn the call over to Mr. Jifeng Huang. Please go ahead, sir.

Jinfeng Fang, Founder, Chairman and CEO, Yat sen: Thank you, Irene, and thank you, everyone, for participating in Yacen’s fourth quarter and full year twenty twenty four earnings conference call today. I will start with a macro overview and our key financial performance, followed by insights into our key strategic initiatives and updates on our brands and products. China’s beauty industry remained subdued over 2024, with beauty sales underperforming the overall retail market. According to the adjusted data published by the National Bureau of Statistics of China, total retail sales of consumer goods grew by 3.83.5% year over year in the fourth quarter and the full year, respectively. In contrast, total beauty retail sales declined 1.5% year over year for the quarter and 1.1% for the full year.

Despite these challenges, our total net revenues in the fourth quarter grew by 7.1% year over year, in line with our guidance. The combined revenues from our three clinical and premium skincare brands, including GLANIQ, Doctor. Wu and Yves Long, achieved year over year growth of 3%. Color cosmetics revenues were up 16.4% for the quarter, primarily driven by the recovery of Povedari. Looking at our profitability in the fourth quarter, our gross margin increased to 77.8% from 73.7% in the prior year period, driven by a higher contribution from higher gross margin products.

Our net loss margin improved to 33%, representing a significant decrease from 4646.1% for the prior year period. On a non GAAP basis, we achieved a net income margin of 9.3% compared to a non GAAP net loss margin of 8.7% in the prior year period. For the full year 2024, total net revenues declined by only 0.6% year over year, indicating stability. Color cosmetics revenues saw a modest decline of 0.3% year over year. Meanwhile, skincare revenues grew by 0.7%, largely driven by a 5.4% year over year increase from our three clinical and premium skincare brands.

Revenues from our skincare brands accounted for 41.1% of our 2024 full year total net revenues, reaching a record high. Reflecting our revenue growth, our profitability also improved for the full year with gross margin increasing from 73.6% to 77.1%. We also achieved our lowest full year net loss and a non GAAP net loss since 2020. Net loss margin decreased to 20.9% from twenty two percent, while non GAAP net loss margin improved to 3.8%, down from 8.7% in 2023. Although there is still work ahead, these positive outcomes demonstrated that our strategic transformation is on the right path.

Our key initiatives under this plan were designed to bolster our brand portfolio and strengthen each brand to holistically drive sustainable growth. Over the past three years, we have successfully balanced our revenue mix to support the growth of our skincare brands, fine tuned the product and channel mix for our color cosmetic brands and invested in R and D to develop a promising pipeline of new products. In addition, we have implemented effective cost cutting measures and enhanced operating efficiencies. Now, I would like to delve a little deeper into our key initiatives. First, we are balancing our revenue mix to support the growth of skincare brands.

In the skincare segment, Galanique continued to deliver solid performance throughout the year, driven by strong brand equity, effective products and soft scientific communication. The brand maintains leading market position of its iconic number one VC serum, while launching the number two VA serum. Additionally, we boosted sales of the Exelon (NASDAQ:EXC) Snow LG series and the Michaelmasque series. These initiatives received broad industry and consumer acclaim, as evidenced by GALENIC winning the Beauty of the Year Awards from Vogue and e. L.

For its remarkable contributions to skincare innovation. Second, we are refining the product and the channel mix for our color cosmetic brands. Pervitari made significant progress in its strategic transformation in 2024, primarily driven by its refreshed product lineup. The Bio Lip Essence lipstick and its second generation version were top performers, achieving leading positions in the double eleven festival sales rankings across multiple platforms. The product’s innovative design and the formulation received international recognitions, including the Muse Design Award and the French Design Award.

We are very encouraged by Lipstick’s success and we leverage the consumer insights and professional expertise gained during its development to create more exceptional products. In terms of channel mix, Private Diary achieved revenue growth on the Douyin channel, while increasing its revenue contribution from offline distribution channels. Scientific innovation remains a key driver in the growth of both our skincare and color cosmetics brands. Our R and D expenses represented 3.2% of total net revenues for the full year 2024, underscoring our commitment to innovation and the product development. Notable highlights from 2024 include our third appearance at the IFSCC conference, known as the Nobel Prize for Cosmetics, where we unveil an exclusive patent for active mychoecological ingredients in collaboration with Sun Yat sen University.

In addition, Fabrydiary’s pioneering anti aging research and its applications were featured in world leading scientific journals, including Nature Medicine and Science Bulletin. Doctor. Wu’s team also worked alongside leading experts to present his research at the National Acne Academic Conference, showcasing five patents, four specialized ingredients and 11 clinical collaborations. We are confident that these new ingredients and research initiatives will drive deeper product innovation, contributing to our brand’s sustainable growth. Finally, we remained committed to improve profitability.

As mentioned earlier, we have made significant progress in this area. The continuous improvement in gross margin reflects our expertise in product development and the strength of our brand equity. We optimized marketing expenses and streamlined general and administrative expenses. Additionally, our expansion into offline distribution channels, which typically require fewer traffic expenses, contributed to improved profitability. Moving forward, we will continue to enhance operational efficiencies and strategically allocate resources to position the company for long term growth.

In summary, 2024 was a year of progress, marked by tangible results of our strategic transformation plan. As we move into 2025, we will stay focused on implementing targeted strategies to further enhance our brands and drive sustainable growth. With that, I will now turn the call over to our CFO, Donghao Yang, to discuss our financial performance. Thank you, everyone.

Donghao Yang, CFO and Director, Yat sen: Thank you, David, and hello, everyone. Before I get started, I would like to clarify that all financial numbers presented today are in renminbi amounts and all percentage changes refer to year over year changes unless otherwise noted. Total (EPA:TTEF) net revenues for the fourth quarter of twenty twenty four increased by 7.1% to RMB1.15 billion from RMB1.07 billion for the prior year period. The increase was primarily due to a 16.4 year over year increase in net revenues from color cosmetics brands. Gross profit for the fourth quarter of twenty twenty four increased by 13% to RMB893 million from RMB790.1 million for the prior year period.

Gross margin for the fourth quarter of twenty twenty four increased to 77.8% from 73.7% for the prior year period. The increase was primarily driven by an increase in sales of higher gross margin products. Total operating expenses for the fourth quarter of twenty twenty four decreased by 3.5% to RMB1.28 billion from RMB1.33 billion for the prior year period. As a percentage of total net revenues, total operating expenses for the fourth quarter of twenty twenty four were 111.8% as compared with 124% for the prior year period. Fulfillment expenses for the fourth quarter of twenty twenty four were $63,500,000 as compared with $62,700,000 for the prior year period.

As a percentage of total net revenues, fulfillment expenses for the fourth quarter of twenty twenty four decreased to 5.5 from 5.8% for the prior year period. The decrease was primarily due to an increase in the overall average selling price of our product as well as further improvement in logistics efficiency. Selling and marketing expenses for the fourth quarter of twenty twenty four were $690,600,000 as compared with $717,400,000 for the prior year period. As a percentage of total net revenues, selling and marketing expenses for the fourth quarter of twenty twenty four decreased to 60.1% from 66.9% for the prior year period. The decrease was primarily due to our more strategic marketing spending combined with lower payroll expenses related to selling and marketing personnel.

General and administrative expenses for the fourth quarter of twenty twenty four were $100,100,000 as compared with $158,700,000 for the prior year period. As a percentage of total net revenues, general and administrative expenses for the fourth quarter of twenty twenty four decreased to 8.7% from 14.8% for the prior year period. The decrease was primarily attributable to lower payroll expenses resulting from a reduction in general and administrative headcount and lower share based compensation expenses. Research and development expenses for the fourth quarter of twenty twenty four were RMB26.3 million as compared with RMB36.9 million for the prior year period. As a percentage of total net revenues, research and development expenses for the fourth quarter of twenty twenty four decreased to 2.3% from 3.4% for the prior year period.

The decrease was primarily attributable to our efforts to maintain research and development expenses at a reasonable level relative to total net revenues. Impairment of goodwill for the fourth quarter of twenty twenty four was $403,100,000 as compared with $354,000,000 in the prior year period. Impairment recorded in this quarter mainly represents the amount by which the carrying value of the Yifelong reporting unit exceeded its fair value based on the quantitative goodwill impairment test, primarily due to weaker operating results than expected. Loss from operations for the fourth quarter of twenty twenty four was $390,700,000 as compared with $539,600,000 for the prior year period. Operating loss margin was 34% as compared with 50.3% for the prior year period.

Non GAAP income from operations for the fourth quarter of twenty twenty four was RMB93.2 million as compared with non GAAP loss from operations of $125,900,000 for the prior year period. Non GAAP operating income margin was 8.1% as compared with non GAAP operating loss margin of 11.7% for the prior year period. Net loss for the fourth quarter of twenty twenty four was $378,800,000 as compared with $494,500,000 for the prior year period. Net loss margin was 33% as compared with 46.1% for the prior year period. Net loss attributable to Yesen’s ordinary shareholders for diluted ADS for the fourth quarter of twenty twenty four was RMB3.98 as compared with RMB4.57 for the prior year period.

Non GAAP net income for the fourth quarter of twenty twenty four was RMB107 million as compared with non GAAP net loss of RMB93.7 million for the prior year period. Non GAAP net income margin was 9.3% as compared with non GAAP net loss margin of 8.7% for the prior year period. Non GAAP net income attributable to Yesen’s ordinary shareholders for diluted ADS for the fourth quarter of twenty twenty four was RMB0.99 as compared with non GAAP net loss attributable to Yesen’s ordinary shareholders for diluted ADS of RMB0.84 for the prior year period. Now I would like to briefly walk you through the highlights of our full year results. Total net revenues for the full year of 2024 decreased by 0.6% to RMB3.39 billion from RMB3.41 billion for the prior year period, primarily attributable to the decline in net revenues from color cosmetics brands, partially offset by the increase in net revenues from skincare brands.

Gross profit for the full year of 2024 increased by 4.1% to RMB2.62 billion from RMB2.51 billion for the prior year period. Gross margin for the full year of 2024 increased to 77.1 from 73.6% for the prior year period. The increase was primarily attributable to increasing sales of higher gross margin products. Loss from operations for the full year of 2024 was $824,900,000 as compared with $913,400,000 for the prior year period. Operating loss margin decreased to 24.3% from 26.7% for the prior year period.

Non GAAP loss from operations for the full year of 2024 was $224,300,000 as compared with 427,500,000.0 for the prior year period. Non GAAP operating loss margin decreased to 6.6% from 12.5% for the prior year period. Net loss for the full year of 2024 was RMB710.2 million as compared with RMB750.2 million for the prior year period. Net loss margin decreased to 20.9% from 22% for the prior year period. Net loss attributable to Yesen’s ordinary shareholders for diluted ABS for the full year of 2024 was was RMB6.99 as compared with RMB6.81 for the prior year period.

Non GAAP net loss for the full year of 2024 was RMB128.2 million as compared with $296,100,000 for the prior year period. Non GAAP net loss margin decreased to 3.8% from 8.7% for the prior year period. Non GAAP net loss attributable to less than ordinary shareholders for diluted EDS for the full year of 2024 was RMB1.26 as compared with RMB2.66 for the prior year period. As of 12/31/2024, we had cash, restricted cash and short term investments of RMB1.36 billion as compared with RMB2. Billion as of 12/31/2023.

Net cash generated from operating activities for the fourth quarter of twenty twenty four was RMB202.2 million as compared with $90,500,000 for the prior year period. Net cash used in operating activities for the full year of 2024 was $243,700,000 as compared with $107,400,000 for the prior year period. Looking at our business outlook for the first quarter of twenty twenty five, we expect our total net revenues to be between RMB 788,800,000.0 and RMB 866,200,000.0, representing a year over year increase of approximately 2% to 12%. These forecasts reflect our current and preliminary views on the market and operational conditions, which are subject to change. With that, I would now like to open the call up to Q and A.

Operator?

Conference Operator: We will now begin the question and answer session. The first question comes from Maggie Huang with CICC. Please go ahead.

Maggie Huang, Analyst, CICC: Well, thanks for taking my question. This is Maggie Huang from CICC. Firstly, I would like to congratulate the management for the non GAAP turnaround in Q4 with a quite good non GAAP net profit margin. So my first question is that with such a performance in Q4, how should we expect our profitability in 2025? And my second question is about our strategy for different categories, because we’ve seen that in Q4, our color cosmetic brands began to grow faster than skincare.

So in the future, how will we allocate our resources between color cosmetic and skincare? And which category will be the more important growth driver in the future? That’s my two questions. Thank you.

Jinfeng Fang, Founder, Chairman and CEO, Yat sen: Okay. Thanks for the question about the our I think the first question is about our profitability guideline. And also, I think one there are a couple of things I can share with you is how we view about the market landscape and also what is our competitive edge. So I think the beauty market looking forward, the headwinds will persist, which means the price competition will be intensified and the consumer will be more rational in purchase decisions. So looking forward in order to balance the growth and also the profitability, I think it would be very important for us to maintain and even improve the gross margin growth through the brand equity strengthening and also the R and D investment.

And then on the other hand, we think the skincare will be our key stable growth engine. We already contributed over 40% last year and also we have a very robust growth for our key brands including Galanit, Doctor. Wen Yifelong. So for Color Cosmetic, right now, I think we already demonstrated the transformation for Perpetari has gained a tremendous outcome. And then looking forward, the high growth, high repurchase and also the very competitive products will contribute to a more sustainable growth for our makeup category.

So looking forward, so we are going to deliver and also balance the growth and the profitability by enhancing the skincare and makeup growth on the at the same time we are also to improve our operation efficiency. So the second question talking about the focus on the category and also the brands, we think at this stage it’s super important to focus on the competitive products in the market. So in the past few years, mainly driven our very strong and also consistent R and D investments, we have some very high performing products in the market. We will continue to drive those products growth. On the other hand, we are launching some new products, which has gained pretty good momentum in the market.

For example, we are expanding the GALENIX portfolio from vitamin C to vitamin A and also the facial mask launched by GALENIC has very good growing trend. For Perpet Diary, our lipstick Bio Lipstick has gained pretty leading positions in multi platforms and now we are expanding the category from lip to base makeup and also we are when we’re looking at Doctor. Wu, it’s a clinical brand and then we’re expanding the benefit space from acne, we’re moving and then to early age anti aging and also brightening benefit space. So by balancing the skincare and also makeup, so we are going to devote our resources into the fast growing category and also with long term sustainability. So that’s our strategy behind on the investment.

Maggie Huang, Analyst, CICC: It’s very clear. Thank you very much. And I have no more questions.

Jinfeng Fang, Founder, Chairman and CEO, Yat sen: Thank you.

Conference Operator: And that concludes the question and answer session. I would like to turn the conference back over to management for any additional or closing comments.

Irene Liu, Vice President, Head of Strategic Investment and Capital Markets, Yat sen: Thank you once again for joining us today. If you have any further questions, please feel free to contact us at Yaxim directly. Our contact information for IR in both China and The U. S. Can be found in today’s press release.

Thank you and have a great day.

Conference Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

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