Yunji Inc. (YJ) Q1 2023 Earnings Call

Yunji Inc. (NASDAQ:YJ) Q1 2023 Results Conference Call June 2, 2023 7:30 AM ET

Company Participants

Kaye Liu - IR

Shanglue Xiao - Chairman, CEO

Peng Zhang - VP, Finance

Conference Call Participants

Ethan Yu - First Trust China

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

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 related to events that involves 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 and 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 statement that we'll make on this call are based on assumptions as of today and are expressly qualified entirely 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 turn over to Shanglue Xiao, Chairman and CEO of Yunji.

Shanglue Xiao

Hello, everyone. Welcome to Yunji's first quarter 2023 earnings call. I'm delighted to announce that we celebrated our 8th 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. And the same time, consumers have been yearning for more fulfilling and enriching lives.

During our anniversary celebration with employees, partners 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 the role enhancing quality of life.

In many years, local community services have emerged as a new growth trend in the consumption at the end. In line with these trends, during March, we integrated our existing food and neighborhood groups into our community e-commerce service super supply chain. This service offers exclusive products to use it with a particular focus on the gourmet food category. Super supply chain leverages super community leaders to bring a wide selection of affordable gourmet food from all over the country and around well to door steps.

Under this model, every super community leader is closely connected to users residing within of 500-meter radius, facilitating high-frequency interactions on a daily or even hourly basis. To encourage repeat purchases, the most popular and product featuring super supply chain will subsequently become available for regular purchase. Furthermore, we have set up an innovation department dedicated to expanding the rate of our community e-commerce service beyond our current community. This department will address for community e-commerce in untapped commercial networks and actually connect with new group leaders.

Beyond expanding the scope of our services, initiatives to build brand awareness, drive sales and invest to deliver more comprehensive local community villages.

Due to recent off-line events I had a privilege of meeting service managers from all over the country. I was highly impressed by their professionalism, a roaring passion for beauty and a zeal for life. To further enhance our support for them, we are committed to developing and expanding our range of private label products that address both external and internal beauty needs. At present, our diverse portfolio of private label products in composite natural supplements, body management, or hair loss prevention, skincare, personal care and more.

Going forward, we will actively explore further opportunities and possibilities in the realm of beauty, ensuring that we continue to meet the evolving needs of our users.

In line with our strategy of a developing mass market, private label products that are cater to a broader range of families and their diverse needs, we’ve recently launched a brand new consumer product, everyday line oil [ph]. The product is a next-generation healthy cooking oil with an additional of resource content of an over 50% and a well-based composition of fatty acids. We developed the oil with the intention of making it an indispensable ingredient in Chinese cooking, baffling a revolutionary change in the edible oil industry.

Recognizing that healthy cooking oil is a relatively novel concept, we employ a number of strategies to promote it as a new and healthy lifestyle choice to our community and among our users. These strategies include a live presentation, off-line events and a combination of demographics in for massive articles and engaging short video. Thanks to these efforts, Everyday Line Oil launched with resounding success, where sales exceeded 5 million units on its first launch.

A recent phenomenon is people's increasing consciousness of the importance of boosting their own immune system. Capitalizing on this trend, we are intensifying our efforts to develop healthcare products for our private label portfolio. These products empower individuals to pivot from a reactive healthcare approach to actually nurturing their health and well-being. During the first quarter, we saw a significant search in Yunji's demand for healthcare products within Qingziyang probiotics and calcium tablets proving to be especially popular. We proactively responded to this growing demand by launching a number of new offerings, including the addition of premium product lineup.

On the marketing front, we energized the community engagement in the first half of the year by holding a range of an off-line event, including the lowest production side and a new product launch ceremony. During the month of March alone our activities garnered the participation of more than 2,000 service managers. Since February, we have organized a variety of events including the milling sales management plan, offline kick-off meeting in Changsha, and this to Xinjiang, we own used on private label milk is sold.

For our Everyday Line Oil, we held a 1,000-person certainly to easy use, giving participants a deeper understanding of the product. These events also foster mutual support and inspire individuals to embrace a healthy lifestyle cultivated by strong sense of growing connectivity and cultivate pride among our sales managers.

In line with our commitment to technological innovation, our research and development department is actively engaged in exploring and developing AI nutritionist, 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 nutritionist will provide personalized nutrition advice, 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 promote and address issues as they rise.

With tens of thousands of our service managers and a vast collection of the graphical, textural and short video content, we present an intensive set of resources that will set as the robust training center for our AI-powered services. By fully leveraging these resources, we can apply AI more rapidly and effectively and deliver high-quality support and solutions to our users.

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 while making it easier for people to lead better and more fulfilling lives.

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

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 persisting 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 have refocused our private label product development to capture growing interest in immunity enhancement, allocating more resources for the cultivation of healthcare and the nutritional therapy product.

This initiative, combined with other efforts such as online repurchase reminders, contributed to 80.2% repurchase rate during the quarter. Meanwhile, our gross margin improved to 47.7% as our attempts to enhance user loyalty more food. Despite pressure on our top line from our ongoing product mix requirements and optimization efforts, our net loss narrowed by 37.8% from the same period last year, and we recorded 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 RMB 179 million compared to RMB 343 million a year ago. Revenues from sales of merchandise were RMB 143 million, and revenues from our marketplace business were RMB 33 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 has 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 RMB 27 million compared to RMB 49 million a year ago. This was primarily due to reduced warehousing and logistic expenses due to lower merchandise sales, reduced personal costs as a result of staffing structure requirements and a decrease in share-based compensation expenses.

Sales and marketing expenses were RMB 30 million compared to RMB 51 million a year ago. This was mainly due to a reduction in personnel costs as a result of staffing structure refinement, a decrease in member management fees and reduced personnel business promotion expenses.

Technology and content expenses were RMB 13 million compared to RMB 24 million a year ago. The decrease was mainly due to a reduction in personnel costs as a result of staffing structure requirements and reduced cloud server costs.

General and administrative expenses were RMB 15 million compared to RMB 31 million a year ago. This was mainly due to reduced personnel costs as a result of staffing structure requirements, lower professional service fees and a decrease in share-based compensation expenses.

Total operating expenses in the first quarter decreased to RMB 85 million from RMB 155 million in the same period of 2022. We recorded income from operations of RMB 1 million compared to RMB 2 million a year ago.

Net loss was RMB 23 million compared with RMB 37 million a year ago, while adjusted net loss was RMB 27 million compared with RMB 31 million a year ago. Basic and diluted net loss per share attributable to ordinary shareholders were both RMB 0.01 compared with RMB 0.02 in the same period in 2022.

Moving on to liquidity. As of March 31, 2023, we had a total RMB 568 million in cash and cash equivalents, restricted cash and short-term investments on our balance sheet compared to RMB 669 million as of December 31, 2022. Our liquid assets were sufficient to cover our payable obligations, and we did not hold any downturn back 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 exercise operational efficiency. We will foster synergistic collaboration between our online and off-line initiatives with the goal of enhancing customer loyalty and attracting new users. This 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.

Question-and-Answer Session

Operator

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

Ethan Yu

We have observed a rapid recovery in off-line economic service and interstate mobility. But overall, the consumer confidence remains unstable. How does it 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

Thank you for your question. Yunji's within their connection between people both online and off-line has its own advantages. Before the pandemic, Yunji operated with a marketing model, their combined online communities and offline alone. The off-line alone help bridge the gap between the company service managers and customers, fostering trust and providing a better experience with our products. This became even more important as we developed more private labels as cultivating customer trust and education becomes paramount.

Our private labels adhere to the principle of providing consumers with peace of mind and high-quality products. We insist on sourcing directly from the place of origin and have deep partnerships with leading companies and factories. This allows us to invest and trace the production and processing of our goods.

As the cities resume their flow, we have invited some public service managers to join us in exploring and lending, witnessing the birth of mainly Yunji manufacturing and sharing authentic experience with virtual community.

Furthermore, we are establishing a new brand center in Hangzhou, setting as a hub to display our private label capabilities. We hope to attract more partner brands and incubate more private label products. And therefore, it's a quite a mature joint to label products. We are going to make more education to our customers by the middle-level influencers from the top platforms. And we are going to take advantages of those 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 task them to the promotion of the joint 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 off-line media. Thank you for your questions.

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

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

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.