Yunji Inc. (YJ) Q3 2023 Earnings Call

Yunji Inc. (NASDAQ:YJ) Q3 2023 Earnings Conference Call December 14, 2023 6:30 AM ET

Company Participants

Kaye Liu - IR

Shanglue Xiao - Chairman, CEO

Yeqing Cui - Senior Financial Director

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 Third Quarter 2023 Earnings Conference Call.

With us today are Mr. Shanglue Xiao, Chairman and Chief Executive Officer; Mr. Yeqing Cui, Senior Financial Director; 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 third quarter 2023 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 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 documents that 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 entirely by cautionary statements, risk factors and details of the company's filings with the SEC. Yunji do not undertake any obligation to update these statement except as required in the applicable law.

With that, I will now turn it over to Shanglue Xiao, Chairman and CEO of Yunji.

Shanglue Xiao

[Foreign Language] [interpreted] Hello, everyone. Welcome to Yunji's Third Quarter 2023 Earnings Call.

The third quarter is traditionally an off-peak season for e-commerce. We took this opportunity to further develop and strengthen our business foundation and continue to accelerate on both the marketing and product fronts. We are focused on a number of initiatives, including fine-tuning our market positioning, advancing development of new products, strategically adjusting the structure of our product offering and optimizing our supply chain capabilities. In addition, we ramped up our marketing and host events to highlight [product regions] (ph) and unveil new products, laying the groundwork for our promotional sales in the fourth quarter. Notably, during September, our private label team relocated to a new office building with enhanced product display and presentation areas, allowing us to more effectively showcase our private label brands to our partners.

Guided by our ongoing strategic development, we conducted a comprehensive evaluation of Yunji's market positioning. Both Yunji and our private label brands have consistently maintained higher repeat purchase rates. This positive trend has promoted us to reflect on how can we firmly enhance the value we deliver to our users and service managers. Operating within a competitive market landscape. We remain firmly committed offering high-quality competitively priced products that deliver outstanding value to our users. We believe that these commitments will generate higher revenues and strengthen our brand image paving the way for our sustainable growth.

During this year, [indiscernible] Shopping Festival major e-commerce platforms engaged in aggressive discounting and expanded their promotions over the course of a month by using a variety of creative approaches. We chose to try a different approach, opting for a more straightforward promotional approach over a shorter time frame. For example, we successfully attracted and engaged users by leveraging product base, direct discounts and multi-item offers. This strategic focus enable us to coordinate our marketing efficiently and more precisely with our installment users effectively join them back to our platform.

During our previous earnings call, we outlined our strategic initiatives to enhance our supply chain and capitalize on consumers' growing appetite for seasonal purchases. Our approach has yielded impressive results particularly in the food category. For example, by the end of August, our craft vouchers and craft gift boxes have emerged as go-to gifting choices for the Mid-Autumn Festival and National Day Holiday. Importantly, we have successfully generated stable levels of dairy sales without significant promotional spending. In the span of just one month, we sold out -- we sold over 400,000 carts generating revenue in assets of RMB13 million.

Now I'd like to share some updates on Yunji's private label brands. While beauty remains our core focus, healthcare has emerged as a strong secondary area. This dual focus on beauty and health opens up exciting opportunities to explore category collaboration, allowing us to create highly unique and differentiated products. For example, in September, our beauty brands, [indiscernible] launched a [indiscernible] bond that was an instant heat, selling out within an hour on its launch date. The lip balms popularity despite strong demand within our community groups for a further round of sales. [indiscernible] has proved to be a popular ingredient for our health brand, the valuation following its launch, the lip balm has garnered devoid flowing across both beauty and health category, demonstrating their potential of a cross-category collaboration building on the success of the lip balm and align with the resurgence of a traditional Chinese medicine culture. We've reestablished a herbal skin care and intend to introduce more cross-category products such as DTC and facemask to cater to the evolving preferences of users.

Finally, I'd like to turn to a critical component of our success, our dedicated service managers. They choose Yunji because we offer a unique opportunity to strike a balance between their professional and family lives. Our innovative/sales strategy empowers service manager to build medicated products or brands in a short time frame, often within an hour. This allows them to rapidly generate sales and then return to their personal lives, freeing up time for self-improvement and to spend with their families.

In terms of personal development, we continue to prioritize the continuous learning and growth of our service managers. As part of this commitment, we launched a new education and training program in the third quarter. This initiative will not only refine their sales skills but also force the broader thinking and cultivate more diverse interest, ultimately helping to create a more fulfilling family life.

With that, I will turn the call over to Mr. Cui, our Senior Financial Director to go through the financial results.

Yeqing Cui

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 change are on year-over-year basis unless otherwise noted.

During the third quarter of 2023, our operations remained relatively stable as we use the opportunity to reinforce our core operational projects. Key to this effort has been the enhancement of our inventory management practice. We now have a robust comprehensive strategy that covers our private label product development, sales scheduling and management of stock in growth and off growth.

At the same time, we actively monitor different product cash growth on a weekly or a monthly business to ensure inventory keeps at an optimal level. The strategic focus on inventory management has been [indiscernible] in optimizing our use of assets and effectively managing cash flow. We believe this new approach laid a solid foundation for our tangible development within a constantly shifting dynamic market.

Now let's take a close look at our financials. Total revenues were RMB145 million compared to RMB239 million a year ago. Revenues from sales of merchandise were RMB140 million and the revenue from our marketplace business was RMB29 million. The changes were primarily driven by ongoing refinements to our product range across all categories. This coupled with the optimization of our supplier and the merger network resulted in a short-term impact on sales. Despite these challenges, our gross margin remained relatively solid at 45.7%. This was due to sustained customer loyalty towards our private labels and our effective product curation strategy.

Now let's take a look at our operating expense. Procurement expense were RMB26 million compared to RMB37 million a year ago. This was primarily driven by a decrease in warehousing and logistics expense stemming from lower merchandise sales and reduced personnel costs due to staffing structure optimization.

Sales and marketing expense were RMB30 million compared to RMB47 million a year ago, this was primarily a result of a decline in management fee and the decreased business promotion expense, technology and content expense were RMB14 million compared to RMB17 million a year ago. The decrease was mainly due to a reduction in personnel costs resulting from staffing structure optimization.

General and administrative expense were RMB28 million compared to RMB38 million a year ago. This was mainly due to a decline in share-based compensation expense. Total operating expense in the third quarter decreased to RMB98 million from RMB139 million in the same period of 2022. Loss from operations were RMB30 million compared to RMB18 million a year ago.

Net loss was RMB35 million compared to RMB38 million a year ago, while adjusted net loss was RMB34 million compared with RMB30 million a year ago. Basic and diluted net loss per share attributable to ordinary shareholders were both RMB0.02 compared with RMB0.02 in the same period of 2022.

Turning to liquidity as of September 30, 2023, we had a total of RMB555 million in cash and cash equivalents, restricted cash and short-term investments on our balance sheet compared to RMB669 million as of December 31, 2022. Our liquid assets were sufficient to cover our payable obligations, and we do not quote any long-term bank loans or debtors on our balance sheet. Looking ahead, we will continue to proactively explore investment opportunities with the aim to enhance our supply chain capabilities.

To summarize, we took crucial steps towards achieving our long-term strategy growth during the third quarter, our diligent efforts to enhance our inventory management mechanism and our decision to priority to sustainable and effective asset management approach were integral to this process.

Going forward, we will continue to drive ongoing effective improvements, ensuring that our company remains resilient and adaptable. This approach positions us to effectively meet the future challenges and seize opportunities as we navigate the ever-changing economic landscape.

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

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question today comes from Ethan Yu with First Trust. Please go ahead.

Ethan Yu

Thanks for taking my question. [Foreign Language] Could you shed more color on the specific plans and the next positioning for our Health business segment. Thank you.

Shanglue Xiao

[Foreign Language] [interpreted] Thank you for your question. Yunji Health is Yunji's forward-looking strategy for the later 10 to 20 years. And in the later 10 to 20 years, and we know that in China, we are going to have a 620 million Chinese people over 50 years old and above. And you can take it as our secondary curve. And 95% of our consumers are women, among which 86% of them are mothers. A key characteristic of this group is their key focus on health, particularly as the primary guardian of the well-being of the both elderly family members and children.

Actually, in China's car industry, and we do not lack different models of the SUV, but we lack the SUV with six seats. Similarly, in China's health industry, we do not lack the online and off-line supermarkets. But in the next 20 years in China, we lack the health supermarket.

Yunji Health can be likened to a Sam's Club for the health domain, including the healthy food, also those food again focused on health and with a primary emphasis on household scenarios or like those functional food, and it gathers diverse health products from various brands and categories to meet the personalized health needs of different family members. While many associate health with dietary choices, we advocate for a healthy lifestyle encompassing access like the sun protection, skincare, hair care and cleanliness. Yunji aspires to be a comprehensive health [indiscernible] for all aspects of life. Thank you for your question.

Ethan Yu

[Foreign Language] I have no more question. Thank you.

Operator

As there are no further questions at this time, I'd like to hand the conference back over to 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. You may now disconnect.