Yunji Inc. (YJ) Q2 2022 Earnings Call Transcript

Yunji Inc.  (NASDAQ: YJ) Q2 2022 earnings call dated Aug. 25, 2022

Corporate Participants:

Kaye Liu — Investor Relations Director

Shanglue Xiao — Chairman and Chief Executive Officer

Peng Zhang — Vice President of Finance

Analysts:

Ethan Yu — First Trust — Analyst

Presentation:

Operator

Good morning and good evening, ladies and gentlemen. Thank you, and welcome to Yunji’s Second 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.

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 — Investor Relations Director

Hello, everyone. Welcome to our Second 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 U.S. SEC. Any forward-looking statements that we make on this call will be based on assumptions as of today, and are expressly qualified in the entirety by the cautionary statements, risk factors and details of the company’s 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.

Shanglue Xiao — Chairman and Chief Executive Officer

[Foreign Speech]

Kaye Liu — Investor Relations Director

Hello, everyone. Welcome to Yunji’s second quarter 2022 earnings call.

Shanglue Xiao — Chairman and Chief Executive Officer

[Foreign Speech]

Kaye Liu — Investor Relations Director

During the second quarter, we successfully navigated through the uncertainties and the volatility brought about by the challenging macro backdrop, widespread resurgences of the pandemic and related control measures affecting a number of major cities across China. In the face of these headwinds, we retained our focus on optimizing our platform’s user experience, while upholding our social responsibility to ensure users received outstanding fulfillment services and timely delivery of the urgently needed [Phonetic] orders.

We nimbly and proactively deployed our logistic resources. For example, in some, we diversely reached [Phonetic] our express delivery service to those providers, such as for employees express [Phonetic], whose service rates remained unaffected by the pandemic. Furthermore, we optimized our inventory structure by transferring products between warehouses to ensure they’re ready — availability for delivery for users.

Shanglue Xiao — Chairman and Chief Executive Officer

[Foreign Speech]

Kaye Liu — Investor Relations Director

As in time [Phonetic], our supply side was also affected by the macro headwinds to a certain extent. And due to that, products could not be released from customs or shipped out from factories in those regions severely affected by the pandemic. Unfortunately, this meant that these products were not available for purchase on our platform during the originally planned promotional period. Since June this year, the situation has greatly improved and our supply and our cross-border logistics chain have both gradually recovered. Our private label product inventory has now been delivered, securing sufficient stock for merchandise sales during the last few quarters. Furthermore, we have taken preemptive measures to mitigate potential future COVID-related supply chain disruptions by increasing our inventories of private label products and cross-border merchandise.

Shanglue Xiao — Chairman and Chief Executive Officer

[Foreign Speech]

Kaye Liu — Investor Relations Director

During the first half of this year, we adhered to our strategy of developing exclusive private label products, actively increased [Phonetic] our products and offers, and developed a variety of fresh user-centric products. Our big health brands continues to contribute to the diversification and arrangement of the product category. During the first half of 2020 [Phonetic] [sic] [2022], we developed more than 10 original milk products for weight management, skincare and body revitalization under our private label. These innovative products are scheduled to be launched in succession on our platform. Meanwhile, we upgraded our product formulas with positive results. Our second-generation food and vegetables pressed candy reached the milestone of 5 million sales within one minute and 10 million sales within 20 minutes upon its launch on June 14, 2022.

Shanglue Xiao — Chairman and Chief Executive Officer

[Foreign Speech]

Kaye Liu — Investor Relations Director

On the cosmetics front, we carry out fresh content marketing, and brand development initiatives for our private label skincare brand, SUYE. As part of these efforts, we appointed our popular Chinese female celebrity as the brand’s spokesperson for our new product line containing ingredients used in mesotherapy treatments. In addition, SUYE’s marketing team produced a number of engaging short videos. These videos successfully boost the online and offline brand awareness and attracted beauty lovers from both our own and third-party platforms. We are confident that this augmented traffic flows will serve as a solid foundation for future product commercialization. During SUYE’s 12th anniversary celebration, we launched a number of the new skincare products that contain ingredients used in medical aesthetics under the SUYE brand, generating over RMB21 million sales during the anniversary celebration promotion.

Shanglue Xiao — Chairman and Chief Executive Officer

[Foreign Speech]

Kaye Liu — Investor Relations Director

Food is another strategic focus within our private label brand metrics. Our original brand concept for Gourmet Yunji was to enable our users to enjoy delicious food from all over the world without having to leave their home. This concept was also visually illustrated and amplified in our food category short-video marketing content. China is a vast country with abundant resources, and each region possess its own unique cuisine. We update our social media accounts on a weekly basis, with videos being around sharing a dish from my hometown. This thing is designed to involve viewers’ nostalgia with hometown taste, while emulating their interest in delicious food from diverse locations.

Currently, each short video on our Gourmet Yunji official account and on third-party platforms receives around 1 million views constantly. We will continue to invest in content development on our own and on third-party platforms. We’re confident that our compelling marketing content will substantially improve brand awareness and create an intrinsic [Phonetic] value in the near and long term.

Shanglue Xiao — Chairman and Chief Executive Officer

[Foreign Speech]

Kaye Liu — Investor Relations Director

Meanwhile, the pandemic has brought about certain changes in consumer behavior and mindset. Faced with an uncertain micro environment, consumers are increasingly cautious with personal expenditures. As a result, market demand for discretionary products have declined. As the social e-commerce platforms that maintains close relationships with its users, we aim to provide a valuable and trustworthy sellers that increases the expectations. As in time, we constantly strive to provide more attractive services to inspire customers. As such, we have enhanced our own seller system while launching more value-added services.

Shanglue Xiao — Chairman and Chief Executive Officer

[Foreign Speech]

Kaye Liu — Investor Relations Director

We upgraded service provision in our healthcare category’s community groups by piloting our nutritional consulting service, where users are provided with professional advice and feedback. For this pilot service, we designated professional nutritionist to cover each community group and organize online live streaming group classes with a team of professionals and sports experts. During this period, 90.6% of the trial users were successfully retained and they engaged with nutritionists on a daily basis.

Shanglue Xiao — Chairman and Chief Executive Officer

[Foreign Speech]

Kaye Liu — Investor Relations Director

Looking ahead, in order to deliver ever higher levels of service to our users, we will increase investment in the development of service managers during the second half of this year. Having implemented various strategic initiatives to reduce costs, improve operating efficiency and then develop private label brand products over the past year, our gross margin has improved significantly. These improved gross margin enables us to increase service managers’ income as an incentive to reward outstanding performance.

Shanglue Xiao — Chairman and Chief Executive Officer

[Foreign Speech]

Kaye Liu — Investor Relations Director

With that, I will turn the floor over to Mr. Zhang Peng, 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. During the quarter, we were once again faced with the resurgence of COVID-19 and the associated lockdown measures in Shanghai and across the country.

Compared to the same period last year, our repurchase rate remained relatively stable at 79% and our gross margin improved even in the face of these headwinds. We intensified our focus on optimizing cost structures and developing our private label brand, enabling our business to navigate safely through the present macro uncertainties. Furthermore, we invested in our fulfillment partner base to ensure the delivery of products even within areas under strict pandemic control measures. Our cash position remains strong enough for us to successfully steer through the current market downturn and adverse economic environment. We will continue to reward our shareholders through share buybacks.

Now let’s take a closer look at our financials. Total revenues were RMB284 million compared to RMB571 million a year ago. Revenues from sales of merchandise were RMB237 million, and revenues from our marketplace of business were RMB42 million. This declined revenue was primarily the result of continued COVID outbreaks, particularly during April and May. The pandemic-related lockdowns disrupted our supply chain with our third-party suppliers, merchants and logistics service providers being particularly affected.

Consumers’ willingness to spend was also impacted with uncertain macroconditions, fostering desire among consumers to save rather than spend. These factors combined to create merchandise shortages, logistical delays and stagnating consumer demand, all of which negatively affected our operations during the first half of 2022. The continued impact depends upon the future direction of the pandemic. And though we are seeing signs that the worst of the pandemic is behind us, we will remain vigilant and respond nimbly to further developments. Despite these challenges, we improved our gross margin to 40.6% compared to 35.1% a year ago, as a result of customer loyalty to our private labels and effective product curation strategy.

Now, let’s take a look at our operating expenses. Fulfillment expenses were RMB43 million compared to RMB50 million a year ago. This was primarily due to lower warehousing and logistics costs, resulting from a reduction in the quantity of merchandise sales, as well as reduced service fees from third-party payment settlement platforms. This savings offset the heightened logistic costs resulted from us maintaining our supply chain flexibility during the pandemic lockdown period.

Sales and marketing expense were RMB58 million compared to RMB61 million a year ago, mainly due to the decrease in member management fees, which was partially mitigated by an increase in private label promotion expenses. Technology and content expenses were RMB24 million compared to RMB32 million a year ago. The decrease was mainly due to the reduction in personnel costs as a result of staffing structure refinements and reduced server costs.

General and administrative expenses was RMB32 million compared to RMB43 million a year ago. This was primarily due to reduced personnel costs as a result of refinements to our staffing structure and professional service fees. Total operating expenses in the second quarter decreased to RMB157 million from RMB187 million in the same period of 2021.

We recorded a loss from operations of RMB30 million compared to an income of RMB16 million a year ago. Net loss was RMB25 million compared with net income of RMB17 million a year ago, while adjusted net loss was RMB17 million compared with adjusted net income of RMB24 million a year ago. Basic and diluted net loss per share attributable to ordinary shareholders were both RMB0.01, compared with basic and diluted net earnings per share attributable to ordinary shareholders of RMB0.01 in the same period of 2021.

Moving on to liquidity. As of June 30 2022, we had a total of RMB645 million in cash and cash equivalents, restricted cash and short-term investments on our balance sheet, compared to RMB743 million as of March 31,2022. The decrease was partially caused by cash used in our share repurchase program. Our liquid assets was sufficient to cover our payable obligations, and we do not hold any long-term bank loans or debt on our balance sheet.

On March 17, 2022, we announced our 2022 share repurchase program. As of June 30, 2022, we have repurchased over 6 million American Depository shares, representing over 60 million Class A ordinary shares from the open market with cash flow and aggregate amount of approximately $7 million. Furthermore, our Board of Directors has approved an extension of the repurchase program for another six months. We intend to continue to be opportunistic in repurchasing shares when we view our stock price has disconnected from the underlying fundamentals of the business.

While we faced the significant macro challenges in the first half of 2022, we are confident that our resilience and flexible business models, updated supply chain, improved product curation and optimized cost structure will power growth regardless of future uncertainties. We have achieved solid progress and we expect to carry the — optimize the cost structure into the post-pandemic years, which we believe will bring 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

Thank you. [Operator Instructions] Our first question comes from Ethan Yu [Phonetic] from First Trust China. Please go ahead.

Ethan Yu — First Trust — Analyst

[Foreign Speech]

Thanks for taking my question. At present, including the past June 18 promotion, GMVs via short videos and live streaming are growing rapidly. Could you share some colors or views on these trends? Thank you.

Shanglue Xiao — Chairman and Chief Executive Officer

[Foreign Speech]

Kaye Liu — Investor Relations Director

Thank you for your question.

Shanglue Xiao — Chairman and Chief Executive Officer

[Foreign Speech]

Kaye Liu — Investor Relations Director

Live streaming is not a new format and we have done a lot of enhancement [Phonetic]. For us, live streaming is more like a content marketing than direct sales, especially for private label promotions. Marketing comes in many forms and we believe that high-value groups and the supply chains are the cornerstones of sales.

Shanglue Xiao — Chairman and Chief Executive Officer

[Foreign Speech]

Kaye Liu — Investor Relations Director

In content marketing, it’s what is Yunji has been doing in establishment and we have focused on this area a lot. Actually, either the photos or articles, they are the important channels for us to deliver the information. We have a group of large users and established managers who love to share shopping experience. That is also a kind of content sharing. Live streaming and short videos makes sharing more vivid. We are more than welcome to explore live streaming and short videos as a sharing method to ring fence the content and shopping experience to users.

Shanglue Xiao — Chairman and Chief Executive Officer

[Foreign Speech]

Kaye Liu — Investor Relations Director

Previously in May, Yunji official accounts on third-party platforms has grown rapidly. The account offers interesting content every week and has many short videos and received around 1 million views constantly. Later, we will also try to organize live streaming sales on these accounts to promote private label products and the Yunji selected high-quality supply chain.

Shanglue Xiao — Chairman and Chief Executive Officer

[Foreign Speech]

Kaye Liu — Investor Relations Director

So, we hope that the high-quality content and efficient live streaming could actually bring more value to our platform and users.

Ethan Yu — First Trust — Analyst

Thank you.

Kaye Liu — Investor Relations Director

Thanks. Thank you.

Ethan Yu — First Trust — Analyst

[Foreign Speech]

Operator

[Operator Instructions] There are no further questions at this time. I’d like to hand the conference back to 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]