Yunji Inc. (NASDAQ:YJ) Q3 2022 Earnings Call Transcript

Yunji Inc. (NASDAQ:YJ) Q3 2022 Earnings Call Transcript November 29, 2022

Operator: Good morning and good evening, ladies and gentlemen. Thank you for standing by and welcome to Yunji’s Third Quarter 2022 Earnings Conference Call. With us today are Mr. Shanglue Xiao, Chairman and Chief Executive Officer; Mr. Peng Zhang, Vice President of Finance; 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, IRD of Yunji. Please, go ahead, ma’am.

Kaye Liu: Hello, everyone. Welcome to our third quarter 2022 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 or unknown risks, uncertainties and other factors of Yunji and its industry. These forward-looking statements can be identified by the terminologies such as will, expect, anticipate, continue or other similar expressions. For a detailed discussion of these risks and uncertainties, please refer to our related documents filed with US SEC. Any forward-looking statements that we make on this call are based on assumptions as of today, and are expressly qualified in the entirety by cautionary statements, risk factors and details of the company’s filing with the SEC.

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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.

Shanglue Xiao: Hello, everyone. Welcome to Yunji’s third quarter 2022 earnings this morning. We, once again, faced a volatile and uncertain macro environment during the third quarter. Against this backdrop, we dedicated ourselves to improving our capabilities while reinforcing our business sustainability. We launched a variety of initiatives, including enhancing our service provision, augmenting our private label product development process and optimizing our inventory structure. This timely and agile response has elevated our resilience and product on the path to sustainable high-quality growth. In addition, we took advantage of the e-commerce sector’s usual third quarter off season to further evolve our innovative technology and upgrade our services.

As in time, we deepen our exploration of e-commerce potential by focusing on our products and driving the use of short videos as our main consumer marketing tool. Let’s take a look at our product selection strategy. Consumers are switching away from well-known global labels and are purchasing a more diverse range of trends. We responded to these emerging trends by realigning our product selection strategy to focus on high-quality domestic brands at a competitive prices and marketed products in video streaming channels. Through continued analysis of our core user’s consumption habits and pricing preferences, we have maintained a relatively high repurchase rate despite the current macro headwinds. Furthermore, by refining the details and accuracy of our product descriptions, we fostered the mindset of a carefully considered purchase decisions, allowing us to successfully maintain a low product return rate.

On the marketing side, entrepreneur oriented has always been one of our core values, especially when it comes to empowering women to launch businesses and enhance their lives through self improvement. In the current environment where employment prospects are uncertain, we are further investing in our service managers by developing innovative features that make sharing increasingly convenient efficient and easy. Furthermore, we reinforced their confidence in their chosen career by encouraging them to work hard and earn more. As a result of these initiatives our service managers’ sales conversion rates have steadily increased. Turning to our marketing promotion, following the in-depth preparation during the third quarter, we officially launched our Yunji Dynamic Showcase for service managers.

The showcase blend traditional graphical marketing content and live streaming, creating short promotional videos for featured products. By integrating this innovative marketing tool with our platform service guarantee, we deliver affordably priced high-quality products to customers, while providing brands with a low-cost solution to promote their products more efficiently and accurately. Yunji Dynamic Showcase plays a key role in helping our service managers to sharpen their focus on serving our users. The showcase features a wide product selection that would reflect our private labels, our range of Gourmet food and trending market products from the top 100 live streaming channels. Our service managers can ask for the showcase products, choose those they are interested in and synchronize them with My Showcase function.

Our innovative One Create function allows service managers to often locally generate product related content to share with users or on social media. On the other hand, our technological innovation improves service managers’ efficiency by giving them time and energy. On the other hand, it makes it easier for them to generate sales, allowing service managers and the young marketers to boost their incomes through our platform. We are confident about Yunji Dynamic Showcase leveraging of the short video marketing will force the users’ sharing behavior and increase user engagement time. This year the impact of the COVID-19 will probably be the most severe we have seen since the pandemic began. This is especially true when it comes to our fulfillment services.

In the near term, the situation remains severe and the turbulence will weigh on consumption and the macro economy. Amid these challenges, there are also reasons for optimism and opportunities for growth. We still hear many positive voices and our users continue to value their health, they love to eat delicious and a nutritious food, and will always enjoy cultivating hobbies. The driving force behind the development of our private label brands has always been our users design for a healthy and a beautiful life. We have made substantial progress in developing our private labels and their popularity continues to grow. During a recent Double 11 shopping festival they were the most in-demand brands in the cosmetics and health care categories on our platform.

Our health care brand introduced a slew of new offerings including liver and kidney care products, augmenting our product matrix to rather satisfy the healthcare needs of our users. For example, our friends garnered over RMB10 million sales in a single day during the initial and follow-up around of the sales. We have continued to innovate and integrate in our Gourmet food category by introducing more flavors and a wider choice of products. These unique offerings range from family staples such as rice to Chinese equipped business banquets, allowing us to capture the full spectrum of user demand. To better satisfy users’ diverse food preferences, we have expanded our Gourmet food private label product matrix. Our offerings now include well-known products such as European-style bread and novel items that are our service managers promote and introduce to our users.

For example, foam powder with an originally niche healthy food largely unknown to our users. Thanks to our promotional efforts it became a sensation generating over RMB5 million in sales during the launch day. During the third quarter, our tech empowered private label, SUYE celebrated its 12th anniversary. Since 2018, SUYE has partnered with a Dutch company to research peptide and then develop a wide variety of anti-aging products that better meet people’s skincare needs. Notably, these products contain professional ingredients, particularly found in medical aesthetics. We were delighted to see SUYE generated over RMB 21 million in sales during its anniversary month, showing high user demand for quality products and deliver innovative and effective anti-aging solutions.

SUYE has become the go-to choice for women’s anti-aging products and is a cornerstone of our private label beauty brand strategy. Looking ahead, we are confident that the current challenges will be translatory. As I just mentioned, we see clear reasons for optimism and we were encouraged by raising and optimize COVID-19 controls. People will always want a better life and we stand ready to serve more and more families going forward. With that, I will turn the call to — over to Mr. Chengqi Zhang, our Vice President of Finance to go through the financial results.

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Peng Zhang: 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, we faced a volatile macro environment and ongoing pandemic controls, both of which presented challenges to our business. In response, we further refined our product selection and optimized our relationships with suppliers, sacrificing near-term sales, while building a solid foundation for our company’s long-term success. Our repeat purchase rate remained stable at 79%, and we once again improved our gross margin. Beyond this, operating expenses and total cost of revenues, both declined, as we continue to optimize the cost structure of our business.

We finished the quarter in a healthy cash position. And this combined with our persistent focus on efficient operations will allow us to continue to weather an unpredictable market. Going forward, we will continue to reward our shareholders through share buybacks. Now, let’s take a closer look at our financials. Total revenue were RMB 239 million, compared to RMB 438 million a year ago. Revenues from sales of merchandise were RMB 197 million, as revenues from our marketplace business were RMB 38 million. This decrease was primarily due to the company’s continued strategy to refine product selection across all categories and optimize this selection of suppliers and merchants, causing near-term decrease in sales. Consumers’ willingness to spend on discretionary products in 2022 has also declined, compared with that in the same period of 2021.

Despite these challenges, we improved our gross margin to 49.4% compared to 43.2% a year ago as a result of sustained customer loyalty to our private labels and the effective product curation strategy. Now, let’s take a look at our operating expenses. Fulfillment expenses were RMB 37 million, compared to RMB 41 million a year ago. This was primarily due to reduced warehousing and logistics expenses due to lower merchandise sales and decreased service fees charged by third-party payment settlement platforms. Sales and marketing expenses were RMB 47 million, compared to RMB 60 million a year ago. This was mainly due to the reduction in personnel costs as a result of staffing structure refinements and the decrease in member management fees. These reductions were partially offset by increase in private label promotion expenses.

Technology and content expenses were RMB17 million, compared to RMB29 million a year ago. The decrease was mainly due to the reduction in personnel costs as a result of staffing structure refinements and reduced cloud server costs. General and administrative expenses were RMB38 million, compared to RMB65 million a year ago. This was primarily due to reduced personnel costs as a result of refinement to our staffing structure, lower professional service fees and a decrease in share-based compensation expenses. Total operating expenses in the third quarter decreased to RMB139 million from RMB194 million in the same period of 2021. We recorded a loss from operations of RMB18 million compared to income from operations of RMB80 million a year ago.

Net loss was RMB38 million compared with net income of RMB61 million a year ago, while adjusted net loss was RMB30 million compared with adjusted net income of RMB76 million a year ago. Basic and diluted net loss per share attributable to ordinary shareholders were both RMB0.02, compared with basic and diluted net earnings per share attributable to ordinary shareholders of RMB0.03 in the same period of 2021. Moving on to liquidity. As of September 30, 2022, we had total RMB571 million in cash and cash equivalents, restricted cash and short-term investments on our balance sheet compared to RMB645 million as of June 30, 2022. Our liquid assets were sufficient to cover our payable obligations and we did not hold any long-term backlogs or debt on our balance sheet.

Despite the persistent challenges of today’s macro environment, we are confident that our efforts to optimize costs refine our business model, improve product curation and ensure high quality service for our users will serve us well now and into the future. We have made steady progress in our quest for long-term stable growth and we will continue to adjust our business strategies to offer maximum value to our shareholders. This concludes our prepared remarks for today. Operator, we are now ready to take questions.

Q&A Session

Operator: Thank you. We will now begin the question-and-answer session. Today’s first question comes from Ethan Yu at First Trust China. Please go ahead.

Ethan Yu: Let me make a quick translation. Thanks for taking my questions. Recently there has been a lot of good news about China easing the COVID policies. Could you comment on this trend and tell us more about a lot what measures will the company do to grab this opportunity of a possible recovery in consumer — in private consumption? Thank you.

Shanglue Xiao: Thank you for your question. The recovery of the epidemic has an uncertainty, and a certainty. First of all, in terms of certainty, we believe that the most difficult time of the epidemic is about to pop. In terms of the uncertainty, as a comprehensive e-commerce platform Yunji has a wide customer base from the first tier cities, such as Beijing, Shanghai and Guangzhou to remote areas such as Xinjiang and Inner Mongolia. We believe that, the recovery of consumption will not be explosive, but an oddly slow uneven recovery based on regions and product categories.

Shanglue Xiao:

Kaye Liu: From the supply chain side, the supply chain of our private label is relatively easy to grasp. And we will flexibly adjust the production and marketing strategies of various categories, according to the recovery situation. For the third-party supply chain, as a highly curated platform our fully bestseller pool can quickly adapt to the market changes.

Shanglue Xiao:

Kaye Liu: From the perspective of the market habits, I think that, after three years of the epidemic consumers plans will not fade away so quickly and restocking demand for the necessities may still exceed demand for the discretionary products in the short term. In addition global economic depression this year are not only affected by the epidemic, but also factors such as climate change and international relations. In the long run, we still believe in users yearning for a better life, we will enhance our business and management capabilities, and maintain a healthy financial position to cope with the challenges and opportunities ruled by the microenvironment.

Shanglue Xiao: Thank you.

Ethan Yu: Thank you, Shanglue. Thank you. I have no more questions. Thank you.

Operator: Thank you. And ladies and gentlemen, as there are no further questions at this time, I’d like to hand the conference back to the management for closing remarks.

Kaye Liu: 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. Thanks. Bye.

Operator: This conference has now concluded. Thank you for attending. You may now disconnect.