Yunji Inc. (YJ) Q3 2022 Earnings Call Transcript

Yunji Inc. (NASDAQ: YJ) Q3 2022 earnings call dated Nov. 29, 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, China — Analyst

Presentation:

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. [Operator Instructions]

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 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 and 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 are 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]

Hello, everyone. Welcome to Yunji’s third quarter 2022 update this morning.

[Foreign Speech]

We once again faced a volatile and uncertain micro 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 put us on a path to sustainable high quality growth. In addition, we took advantage of the e-commerce sectors usual third quarter off-season to further evolve our innovative technology and upgrade our services. As in time, we deepen our aspiration of e-commerce potential by focusing on our megahit product and driving the use of short videos as our main consumer marketing tool.

[Foreign Speech]

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 brands. We responded to these emerging trends by realigning our product selection strategy to focus on high quality domestic brands at competitive prices and the megahit products in live streaming channels. Through continued analysis of our corrugated 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.

[Foreign Speech]

On the marketing side, entrepreneur orientation 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 fun. Furthermore, we reinforced their confidence in their chosen career by encouraging them to work hard and earn more. As a result of this initiative, our service managers’ sales conversion rates have steadily increased.

[Foreign Speech]

Turning to our marketing promotions. Following the in-depth preparation during the third quarter, we officially launched our Yunji Dynamic Showcase for service managers. The showcase launched 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.

[Foreign Speech]

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 on 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 to those they are interest in and synchronize them with my showcase function. Our innovative one-click function allows service managers to often 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 easier for them to generate the sales, allowing service managers and the young models to boost their incomes through our platform. We’re confident about Yunji Dynamic Showcase, leveraging of the short video marketing will foster users’ sharing behavior and increase user engagement time.

[Foreign Speech]

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 micro 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 nutritious food and will always enjoy cultivating hobbies.

[Foreign Speech]

The driving force behind the development of our private label brands has always been our users’ desire for a healthy and beautiful life. We have made a 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 healthcare categories on our platform. Our healthcare brand introduced a slew of new offerings, including liver and kidney care products, augmenting our product metrics to rather satisfying the healthcare needs of our users. For example, our friends [Indecipherable] garnered over RMB10 million sales in a single day during the initial and a follow-up rounds of the sales.

[Foreign Speech]

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 [Indecipherable] equipped business banquets, allowing us to capture the full spectrum of the user demand. To better satisfy users’ diverse food preferences, we have expanded our gourmet food private label product metrics. Our offerings now include well-known products such as European-style bread and other novel items that our service managers promote and introduce to our users. For example, [Indecipherable] box form 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.

[Foreign Speech]

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 [Phonetic] and then develop a wider variety of anti-aging products that better meets people’s skin care needs. Notably, these products contain professional ingredients typically found in medical aesthetics. We were delighted to see that SUYE generated over RMB21 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.

[Foreign Speech]

Looking ahead, we are confident that the current challenges will be transitory. As I just mentioned, we see clear reasons for optimism and we were encouraged by China’s raising and optimized 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. 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.

During the third quarter, we faced the volatile macro environment and ongoing pandemic control, 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 the 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 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 revenues were RMB239 million compared to RMB438 million a year ago. Revenues from sales and merchandise were RMB197 million as revenues from our marketplace business were RMB78 million. This decrease was primarily due to the company’s continued strategy to refine its product selection across all categories and optimize its selection of suppliers and merchants, causing near-term decrease in sales. Consumers’ willingness to spending — 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 an effective product curation strategy.

Now let’s take a look at our operating expenses. Fulfillment expenses were RMB37 million compared to RMB41 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 platform. Sales and marketing expenses were RMB47 million compared to RMB60 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 the cloud service — server cost. 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 refinements 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 RMB18 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 a total of 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 bank loans or debt on our balance sheet.

Despite the persistent challenges of today’s macro environment, we are confident that our efforts to optimize cost, 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’re now ready to take questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Today’s first question comes from Ethan Yu at First Trust, China. Please go ahead.

Ethan Yu — First Trust, China — Analyst

[Foreign Speech]

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

Shanglue Xiao — Chairman and Chief Executive Officer

[Foreign Speech]

Thank you for your question. The recovery of the epidemic has some 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.

[Foreign Speech]

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.

[Foreign Speech]

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 micro environment. Thank you.

Ethan Yu — First Trust, China — Analyst

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 — 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. Thanks. Bye.

Operator

[Operator Closing Remarks]