Yunji Inc (YJ) Q1 2023 Earnings Call Transcript

Yunji Inc (NASDAQ: YJ) Q1 2023 earnings call dated Jun. 02, 2023

Corporate Participants:

Kaye Liu — Investor Relations Director

Shanglue Xiao — Chairman of the Board of Directors and Chief Executive Officer

Peng Zhang — Vice President of Finance

Analysts:

Ethan Yu — First Trust China — Analyst

Presentation:

Operator

Good morning and good evening, ladies and gentlemen. Thank you for standing by, and welcome to Yunji’s First Quarter 2023 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, Investor Relations Director of Yunji. Please go ahead, ma’am.

Kaye Liu — Investor Relations Director

Hello, everyone, welcome to our first quarter 2023 earnings call. Before we start, please note that this call will contain forward-looking statements within the meaning of 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 to Yunji and its 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 U.S. SEC. Any forward-looking statements that we make on this call are based on assumptions as of today and are expressly qualified in its entirety by cautionary statements, risk factors and details of the company’s filing 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.

Shanglue Xiao — Chairman of the Board of Directors and Chief Executive Officer

[Foreign Speech] Welcome to Yunji’s first quarter 2023 earnings calls.

[Foreign Speech] I’m delighted to announce that we celebrated our eighth corporate anniversary on May 16, 2023. It has now been three years since the outbreak of COVID and during the first half of this year, consumption has been gradually and steadily recovering. At the same time, consumers have been yearning for more fulfilling and enriching lives. During our anniversary celebration with employees and service managers in attendance, we took the opportunity to announce an exciting new initiative. Leveraging our brand and ready-for-community service competitive advantages, we will embark on a comprehensive exploration of gourmet food, beauty and healthcare. We will delve into inter-connectiveness of these categories and their role enhancing quality of life.

[Foreign Speech] In recent [Phonetic] years, local community services have emerged as a newer trend in consumption. In line with this trend, during March we integrated our existing food and neighborhood groups into our community e-commerce service, Super [Phonetic] Supply Chain. This consisted of exclusive products to users with a particular focus on gourmet food category. Super Supply Chain leverages the super-community leaders to bring a wide selection of affordable gourmet food from all over the country and around the world to users of the platform. Under this model, every super-community leader is closely connected to users residing within a 500-meter radius, facilitating high-frequency interactions on a daily or even hourly basis. To encourage repeat purchases, the most popular products featured in Super Supply Chain will subsequently become available for regular purchase. Furthermore, we have set up an innovation department directed to expanding the reach of our community e-commerce, that is beyond our current community. This department will explore community e-commerce in untapped commercial scenarios and actively connect with new group leaders. We are expanding the scope of our services initiatives through viewed brand awareness, drive sales and invest to deliver more comprehensive community services.

[Foreign Speech] Pirouetting to offline events, I had the privilege of meeting service managers from all over the country. I was highly impressed by their professionalism, unwavering passion for beauty and a zeal for life. To further enhance our support for them, we are developing and expanding our range of private-label products that address those external and internal beauty needs. At present, our diverse portfolio offer private-label products in composite natural supplements, body management, oral care, hair loss prevention, skin care, personal care and more. Going forward, we will actively explore further opportunities and possibilities around beauty, ensuring that we continue to meet the evolving needs of our users.

[Foreign Speech] In line with our strategy of developing mass market private-label products and to cater to a broader range of families and their diverse needs, we recently launched a brand new consumer product, Everyday Life Oil [Phonetic]. The product is a next-generation healthy cooking oil with an antioxidant [Phonetic] content of over 50% and a well [Indecipherable] composition of fatty acids. We developed the oil with the intention of making it an indispensable ingredient in Chinese cuisine, starting a revolutionary change in the edible oil industry. Recognizing that healthy cooking oil is a relatively novel concept, we employed a number of strategies to promote new and healthy lifestyle choice to our community and among our users. These strategies include live presentations, offline events and a combination of film and graphics, aimed for mass platforms and engaging short videos. Thanks to these efforts, Everyday Life Oil’s launch was a resounding success with sales exceeding 5 million units on its first launch.

[Foreign Speech] A recent phenomenon is people’s increasing consciousness of the importance of a boost in their own immunity settings. Capitalizing on this trend, we are intensifying our efforts to develop healthcare products for our private-label portfolio. These product empower individuals to pivot from a reacting healthcare approach to accurately measuring their health and well-being. During the first-quarter, we saw a significant surge in user demand for healthcare products, within two [Phonetic] premium probiotics and in calcium tablets proving to be very popular. We proactively responded to this growing demand by launching a number of new offerings, including the addition of a tree oil [Phonetic] to our product lineup.

[Foreign Speech] On the marketing front, we energized in community engagement in the first half of the year by holding a range of offline events including the launch production site visit and a new product launch ceremony. During the month of March alone, our activities garnered differentiation of more than [Indecipherable] service managers. Since February, we have organized a variety of events, including the Million sales legend Plan offline kick-off meeting in Changsha, and event in Xinjiang [Phonetic] where our private-label milk is sold. For our Everyday Life Oil, we held a [Indecipherable] giving private labels a deeper understanding of the product. These events also foster mutual support and inspire individuals to embrace a healthy lifestyle cultivating a strong sense of belonging and a comfortable pride among our service managers.

[Foreign Speech] In line with our commitment to technological innovation, our research and development department is actively engaged in exploring and developing AI nutritionists, AI customer support and AI community management. We aim to gradually roll out these initiatives during the second quarter, delivering a fresh experience and a more efficient round-the-clock service to our users and service managers. Upon their introduction, our AI nutritionists will provide personalized nutrition, ensuring that users receive tailored recommendations for their individual needs. By implementing AI customer service, we will rapidly and accurately deliver more efficient and personalized customer support. Furthermore, AI community management will help us to gain deeper insights into the needs and preferences of our community, allowing us to remotely address issues as they arise. With tens of thousands of service managers and a large collection of graphical, text draw, and video content, we present an intensive set of resources that will serve as a real-time training center for our AI-powered initiatives. By fully leveraging these resources, we can apply AI more rapidly and effectively and deliver high-quality support and solutions to our users.

[Foreign Speech] For our service managers, we provide more than just a job. We present a pathway to achieving a harmonious work-life balance. We are also committed to providing products and services that enable our users to live more healthily. Moreover, we are dedicated to offering opportunities to ordinary individuals as well, making it easier for people to lead better and more fulfilling lives.

With that I will return the call over to Mr. Peng Zhang, our Vice President of Finance, to go through the financial results.

Peng Zhang — Vice President of Finance

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.

After navigating the challenges of last year, we spent the first quarter of 2023 implementing a number of strategic upgrades to adapt to the post-COVID environment. Responding to shifting consumer trends, we refocused our private-label product developments to capture growing interest in immunity [Indecipherable], allocating more resources for the cultivation of healthcare and in nutritional therapy products. This initiative, combined with other efforts such as online repurchase reminders, contributed to 80.2% repurchase rates during the quarter.

Meanwhile, our gross margin improved to 47.7% as our attempts to enhance user loyalty bore fruit. Despite pressure on our top line from our ongoing product mix refinements and optimization efforts, our net loss narrowed by 37.8% from the same period last year. And we recorded a operating profit for the quarter. We are confident that our emphasis on efficiency and our ability to respond to emerging consumer trends leave us well-positioned for the future.

Now, let’s take a closer look at our financials. Total revenues were RMB179 million compared to RMB343 million a year ago. Revenues from sales of merchandise were RMB143 million and revenues from our marketplace business were RMB33 million. This change was primarily due to our continued strategy to refine our product selection across all categories and optimize our selection of suppliers and merchants, which had a near-term impact on sales.

Meanwhile, consumer confidence and spending power still have yet to fully recover. Despite these challenges, we improved our gross margin to 47.7% compared to 44.2% a year ago. This was a result of sustained consumer loyalty to our private-labels and our effective product curation strategy.

Now, let’s take a look at our operating expenses. Fulfillment expenses were RMB27 million compared to RMB49 million a year ago. This was primarily due to reduced warehousing and logistic incentives due to lower merchandise sales, reduced personnel costs as a result of staffing structure refinements, and a decrease in share-based compensation expenses.

Sales and marketing expenses were RMB30 million compared to RMB51 million a year ago. This was mainly due to a reduction in personnel costs as a result of staffing structure refinements, a decrease in member management fees and a reduced business promotion expenses.

Technology and content expenses were RMB13 million compared to RMB24 million a year ago. The decrease was mainly due to a reduction in personnel costs as a result of staffing structure refinements and reduced cloud server costs.

General and administrative expenses were RMB15 million compared to RMB31 million a year ago. This was mainly due to reduced personnel costs as a result of staffing structure refinements, lower professional service fees and a decrease in share-based compensation expenses.

Total operating expenses in the first quarter decreased to RMB85 million from RMB155 million in same period of 2022. We recorded a income from operation of RMB1 million compared to RMB2 million a year ago.

Net loss was RMB23 million compared with RMB37 million a year ago, while adjusted net loss was RMB27 million compared with RMB31 million a year ago.

Basic and diluted net loss per share attributable to ordinary shareholders were both RMB0.01 compared with RMB0.02 in the same period of 2022.

Moving on to liquidity. As of March 31st, 2023, we had a total of RMB568 million in cash and cash equivalents, restricted cash and short-term investments on our balance sheet, compared to RMB669 million as of December 31st, 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.

Looking ahead, we will take advantage of the post-COVID recovery trend by cultivating our private-label products, while continuing to emphasize operational efficiency through a faster synergistic collaboration between our online and offline initiative with the goal of enhancing customer loyalty and attracting new users. These strategic approaches will lay a strong foundation for our future development and will position us to deliver long-term value to our shareholders.

This concludes our prepared remarks for today. Operator, we are now ready to take questions.

Questions and Answers:

Operator

[Operator Instructions] And our first question will come from Ethan Yu of First Trust China. Please go ahead.

Ethan Yu — First Trust China — Analyst

[Foreign Speech] We have observed rapid recovery in offline economic tourism and inter-city mobility. But overall, the consumer confidence remains unstable. How does this impact your business and what specific measures has the company taken? Additionally, what specific initiatives have your company implemented or plan to implement to enhance our brand awareness of Yunji and our private-label products? Thank you.

Shanglue Xiao — Chairman of the Board of Directors and Chief Executive Officer

[Foreign Speech] Thank you for your question. Yunji believe in the connection between people, both online and offline, has its own advantages. Before the pandemic, Yunji operated with a marketing model that combined online communities and offline [Indecipherable]. The offline [Indecipherable] helped bridge the gap between the company service managers and customers, fostering trust and providing a better experience with our products. These became even more important as we developed more private-labels as cultivating customer trust and education becomes paramount.

[Foreign Speech] Our private-labels adhere to the principle of providing customers with peace of mind and high-quality products. We insist on sourcing directly from the place of origin and have a deep partnerships with the leading companies and factories. This allows us to impact and trace the production and presenting of our goods. After a series of receiving deal flows, we have invited some public service managers to join us in exploring and learning, witnessing the first of many [Indecipherable] manufacturing and sharing authentic experiences with virtual communities.

[Foreign Speech] Furthermore, we are establishing a new brand center in Hangzhou setting us up to display our private-label capabilities. We hope to attract more private brands and incubate more private-label products.

[Foreign Speech] And therefore, it’s quite a mature drawing to labeled products, we are going to make more education to our customers by the middle-level influencers to find the top platforms. And we are going to take a variety [Phonetic] of vendors offline media through the advertising and publicity of the products based on our existing customers and intensity of our customers. From city to city, we’re going to do the test and do the promotion of the drawn label products. And so for our publicity, we mainly will use four channels: the existing online channels and the self-made content and the mid-level influencers online and also the offline media.

[Foreign Speech] Thank you for your question.

Ethan Yu — First Trust China — Analyst

Thank you for detailed answer, Thank you.

Operator

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 — Investor Relations Director

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.

Operator

[Operator Closing Remarks]