Yunji Inc (YJ) Q4 2022 Earnings Call Transcript

Yunji Inc (NASDAQ: YJ) Q4 2022 earnings call dated Mar. 20, 2023

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 Fourth 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 fourth 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 will be 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. Yunji does not undertake any obligation to update these statements except as required under applicable law.

With that, I will now it 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 fourth quarter 2022 earnings call.

[Foreign Speech]

During the fourth quarter, we successfully weathered the challenges posed by COVID-related restrictions and the subsequent easing of these measures. In October and November, COVID controls has had a downward pressure on our order volume. Then in December, our order fulfillment capabilities were impacted as the country battled a surge in COVID cases. Although, we have observed the signs of a broader micro stabilization and recovery, there remains some lingering weaknesses in household income and private consumption. Nevertheless, we are confident that our optimized cost structure will enable us to navigate through the market downturn with agility and flexibility. At the same time, our enhanced capabilities and this [Indecipherable] leaves us well positioned to seize opportunities when the market recovers. Fortified by these solid foundations, we remain cautiously optimistic as we look to the future.

[Foreign Speech]

I’d like to summarize this year often ups and downs. During 2022, we continue to iterate our initiatives on both the product and the marketing side. For our healthcare brand, we introduced a wide array or fresh offerings covering weight management, skincare and body revitalization, allowing us to better meet diverse consumer end needs. The driving force behind our R&D and production processes was focused on creating high quality healthy and natural products. Our efforts were extremely well received by our users with several of the new products, each generating over RMB10 million in sales during a single sale event. Driven by these unique and innovative offerings, user mindset of Yunji Healthcare continues to gradually form.

[Foreign Speech]

Turning to our skin care brand, SUYE. By refreshing and refocusing our content marketing and private label brand promotion initiatives, we further developed and strengthened the brand’s public traffic. Leveraging social media and our own user community, we boosted user interaction by generating attention-grabbing helpful content, thereby further enhancing user engagement [Phonetic] [06:00] and our brand’s reach.

[Foreign Speech]

For our highly curated product selection, we successfully launched our upgraged Yunji [Indecipherable] policies recognition system, an integral component of our Gourmet Yunji strategy with its the main focus on gourmet food category, the stringent certification of [Indecipherable] of the highest quality. One year after the system’s launch, our platform as accumulated a wide range of well loved products that are valuing repurchase by our users. Powered by indeed the flagship Yunji [Indecipherable] certified products, our repurchase rate reached an impressive 81.8% in 2022.

[Foreign Speech]

Let’s take a closer look at our marketing. We continue to innovate on and refine our virtual community service experience. At the same time, we have launched additional value-added services. For example, we enhanced the members’ [Phonetic] perks by providing them with professional health information and a nutritional advice within their loyalty and satisfaction. Building on these, we upgraded our consumer marketing tool from graphical marketing content to a short video format, generating exponential growth in happily content. By integrating these two with our innovative features that will make channel more convenient, we created heightened brand exposure and allowed our service managers to promote products more efficiently and accurately.

[Foreign Speech]

Looking further into 2022, we have already engaged in strategic planning on both the product and marketing side. On the product side, we are re-meeting and improving consumption trend. We are increasing numbers of e-commerce sites, competing in a subsidy war, cultivating consumers’ mindset of purchasing low-price products. On the other hand, consumers are generally becoming more price-sensitive and spending more cautiously. In that, they demand higher quality products and take value-for-money experiences. Against this backdrop, we are confident that our private label strategy delivers a unique consumption experience that goes beyond low prices.

Following the easing of COVID-related restrictions in the fourth quarter, consumers became more health conscious and increased their spending in the health category accordingly. In line with these trends, this year, we are focusing on exploring the healthcare and the nutritional therapy categories to further enhance this segment of our private label products. Our efforts to date have yielded positive results with the proportion of our total sales accounted for by healthcare products increasing. Importantly, both our legacy and newly-launched products proved popular with users helping us maintain a healthy gross margin.

[Foreign Speech]

As previously mentioned, the recovery of consumption is a sloppy process and we haven’t seen the travel sector rebounded most rapidly. On the marketing channel side, our goal for this year is to expand channel penetration and build more people-to-people connections. Over the past three years, as you know, constraints prevented us from really holding offline promotional events, this coupled with the limited number of sales managers able to attend these events, impacted our consumer mindset and brand exposure. As the external situation has recovered, we have resumed our program of offline marketing events. For example, in February, we successfully held [Indecipherable] offline kick-off meeting in Changsha. During the meeting, we kicked and launched items from our new range of products. I also [Indecipherable] to have a number of a footfall one-to-one discussions with some of the service managers and models in attendance. At present, we are further energizing our offline marketing by running a [Indecipherable] offline promotion campaign. At the same time, we will attract public traffic and boost awareness of our private label brands by rolling out a more offline experience stores where consumers can afford and enjoy our projects.

[Foreign Speech]

The number of our service managers has now grown to 110,000. We continuously strive to improve the management of our service managers and provide them with more convenient and timely services. As such, we are developing more handy tools and features implementing efficiency, boosting technology and increasing the level of the support they receive internally.

[Foreign Speech]

2023 is a year of transition, but also a year full of opportunity. We will be with our customers every step of life to help them smoothly navigate the post-pandemic era. At the same time, we will support and help our service managers to receive fresh opportunities in a specialty product industry.

With that, I will turn the call 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.

We faced the volatile macro environment during the fourth quarter with pandemic-related restrictions in October and November and COVID spread following the relaxation in December. Navigating through the pandemic, we gained valuable experience as we continue to refine our product selections, develop our private label, optimize our product mix and explore new business opportunities. Importantly, our repeat purchase rate increased to 81.8% and our gross margin increased to 40.9% during the quarter. At the same time, we adapted to the micro environment by further optimizing our cost structures and adhering to our prudent cost control strategy. Thanks to these efforts, we delivered significant efficiency improvements with our operating expenses decreased by — decreasing by 22% year-over-year. Our strong cash position and healthy financial condition provides a foundation for the further development of our business.

Now let’s take a closer look at our financials. Total revenues were RMB289 million compared to RMB471 million a year ago. Revenues from sales of merchandise was RMB241 million and revenues from our marketplace business were RMB43 million. This decrease was primarily due to our continuous strategy of refining our product selections across all categories and optimizing our selection of suppliers and merchants causing near-term decrease in sales. Changes in consumers’ consumption confidence and habits during the COVID-19 pandemic also contributed to the decrease. Despite these challenges, we maintained a stable gross margin at 40.9% compared to 39.6% a year ago. This was a result of the standard customer loyalty to our private label and effective product curation strategy.

Now let’s take a look at our operating expenses. Fulfillment expenses were RMB32 million compared to RMB47 million a year ago. This was primarily due to reduced warehousing and logistics expenses due to lower merchandise sales. Sales and marketing expenses were RMB59 million compared to RMB78 million a year ago. This was mainly due to the reduction in personnel costs as a result of staffing structure refinements, the decrease in member management fees and the decrease in marketplace business platform promotion expenses.

Technology and content expenses were RMB17 million compared to RMB26 million a year ago. The decrease was mainly due to the reduction in personnel costs as a result of staffing structure refinements and the reduced cloud service costs. General and administrative expenses were RMB45 million compared to RMB44 million a year ago.

Total operating expenses in the fourth quarter decreased to RMB153 million from RMB196 million in the same period of 2021. We recorded a loss from operations of RMB33 million compared to income from operations of RMB4 million a year ago. Net loss was RMB38 million compared with net income of RMB58 million a year ago, while adjusted net loss was RMB31 million compared with adjusted net income of RMB71 million a year ago. Basic and diluted net loss per share attributable to ordinary shareholders were about 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 December 31, 2022, we had a total of RMB669 million in cash and cash equivalents, restricted cash and short-term investments on our balance sheet compared with RMB571 million as of September 30, 2022. During the fourth quarter, we refined our operations and optimized our working capital cash flow. 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.

Looking ahead, we will continue to cultivate our range of private label products and execute more novel offerings with strong repurchase potential and customer appeal. As we navigate through the current macro challenges, we will further refine our cost structure, while exploring new opportunities driven by consumption recovery in 2023. We are confident that our resilient business model and innovative strategies will 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

Thank you. [Operator Instructions] And our first question today comes from Ethan Yu at First Trust China. Please go ahead.

Ethan Yu — First Trust China — Analyst

Thank you for taking my question. We see that there are several competitors in the market starting to engage in subsidy work. I’m just curious about what’s Yunji’s view on this? And would you consider entering the $1 billion subsidy campaign like Jingdong [Indecipherable] in the future? Thank you.

Kaye Liu — Investor Relations Director

Let me quickly translate these questions.

[Foreign Speech]

Shanglue Xiao — Chairman and Chief Executive Officer

[Foreign Speech]

Firstly, the consumer purchasing power is still growing recovery. And the RMB10 billion subsidy program indeed bring tangible benefits to consumers. We acknowledged the value of the subsidies to consumer market, especially in some standard product categories such as mobile phones and electronics and in some in impulsive consumptions.

[Foreign Speech]

And the price is of course very important element in consumption decisions, but the demand for product quality, customized service and product features still is quite important.

[Foreign Speech]

We don’t believe in blindly subsidising prizes. Our goal is to establish a mindset among our consumers that our products are not only affordable, but also unique with high quality. Rather than offering clients subsidies, we focus on providing value-added services and maintaining the quality of our products so that our customers feel that their purchases are worth it.

[Foreign Speech]

And actually, we believe the initiative of the government is more important, that is to have differentiation from high-speed development to high quality development.

[Foreign Speech]

We have a variety of private label and healthy food, beauty and gourmet food categories managed by professional vertical communities for one-stop shopping and marketing. This gives us strong cost control and operational capability over product quality, pricing and services. We provide users with a high value experience without relying on RMB10 billion subsidies.

[Foreign Speech]

Thank you for your question.

Ethan Yu — First Trust China — Analyst

Thank you for your answer, Shanglue.

Operator

And ladies and gentlemen, this concludes our question and answer session. I’d would like to turn the conference back over to management for any 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.

Operator

[Operator Closing Remarks]