Yatsen Holding Limited (YSG) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Yatsen First Quarter 2021 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Irene Lyu, Head of Strategic Investments and Capital Markets. Please go ahead.

Thank you, operator. Please note the discussion today will contain forward-looking statements relating to the company's future performance and are intended to qualify for the safe harbor from liability as established by the U.S. Private Securities Litigation Reform Act. Such statements are not guarantees of the future performance and are subject to certain risks and uncertainties, assumptions and other factors. Some of these risks are beyond the company's control and could cause actual results to differ materially from those mentioned in today's press release and this discussion. A general discussion of the risk factors that could affect Yatsen's business and financial results is included in certain filings of the company with the Securities and Exchange Commission. The company does not undertake any obligation to update this forward-looking information, except as required by law. During today's call, management will also discuss certain non-GAAP financial measures for comparison purposes only. For a definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results, please see the earnings release issued earlier today. Joining us today on the call from Yatsen's senior management are Mr. Jinfeng Huang, our Founder, Chairman and CEO; and Mr. Donghao Yang, our CFO and Director. Management will begin with prepared remarks, and the call will conclude with a Q&A session. As a reminder, this conference is being recorded. In addition, a webcast replay of this conference call will be available on Yatsen's Investor Relations website at ir.yatsenglobal.com. I will now turn the call over to Mr. Jinfeng Huang. Please go ahead, sir.

Thank you, Irene, and thank you, everyone, for participating in Yatsen's first quarter 2021 earnings conference call today. Starting off the year on a solid note, Yatsen achieved 42.7% year-over-year growth in total net revenues in the first quarter, supported by a healthy growth of our Perfect Diary brand, and a robust performance of Little Ondine, Abby's Choice and other brands in Yatsen's portfolio. So during the quarter, the number of DTC customers increased 11.6% year-over-year to 9.6 million, while revenue per DTC customer also increased by 24.5% from approximately RMB 99 to RMB 123 per customer. So we ended the quarter with gross margin of 68.6%, an improvement of approximately 7 percentage points compared to 61.7% in the first quarter last year. So we went into the year with a clear execution plan to optimize our brand's performance, expand our product portfolio and enhance our core capabilities. A key focus has been on the flagship Perfect Diary brand, particularly to upgrade its positioning and price point from mass to higher-end mass market in order to further expand its growth potential. So we are set out to achieve this through more disciplined pricing and discount policies, which successfully raised Perfect Diary's average selling price, average order value and gross profit margin during the quarter. At the same time, we continued to introduce new products that excite and delight our customers, such as the new -- red new Perfect lip gloss line as well as the slim film lipstick gift packs, which were designed for the Chinese New Year holiday season and the Valentine's day. These new products, complemented by the launch of a number of Perfect Diary skincare products in our offline stores in early May, represents refinement and premiumization of the Perfect Diary product line this year. So going forward, we have further plans to launch new products in existing and new categories, including base makeup, color content men's and men's skincare in an effort we've done throughout the year to capture higher wallet share from our customers. Overall, we see further room for ASP and AOV improvement, new product rollout and category expansions to drive operating results of Perfect Diary brand throughout this year. We are also making continued progress towards our multi-brand strategy as we introduce new brands. With the Perfect Diary brand shaping up, we see the need to attract and capture new entrants in color cosmetics market, especially Gen Z and Gen A, who are more price sensitive. Hence, we launched the Pink Bear brand in mid-March, designed with the distinct young girl brand persona with an initial focus on providing high-value for money products in high-volume categories for Gen Z and Gen A consumers. With the introduction of the lip gloss products, Pink Bear has achieved encouraging results during its first month of launch. Our masstige color cosmetic brand, Little Ondine, also experienced robust year-over-year growth in the quarter, powered by several well received product launches, such as the crossover with Pop Mart and Chinese popstar, Huang Zitao, as well as the new vinyl record eyeshadow palette, which was introduced in the late March. Given Little Ondine's unique street fashion brand positioning, it's further upside is expected to be lower than that of Perfect Diary, which we aim to develop further as a super-brand within the group. As Little Ondine has already become a top-selling color cosmetic brands in China's online market, for its next stage of growth, we plan to optimize the investment level in this brand with increased focus on sustainable growth going forward. One notable change we saw was the increasing diversity and the balance of our channel mix compared to the first quarter of 2020, which boosted the sales contribution from nontraditional e-commerce channels, such as various short video and TV platforms as well as from our experience stores. We have adopted an omnichannel strategy to serve our customers at every touch point. As of end of March 2021, we had a total of 245 experience stores, already having achieved a significant scale, covering key cities and regions. We aim to open approximately 100 stores throughout rest of the year. In addition to our color cosmetics portfolio, we are excited about the expansion of our range of skincare brands, which saw the addition of DR.WU's Mainland China business and Eve Lom in the first quarter. Along with Galénic and Abby's Choice, we now have 4 skincare brands with different positioning and consumer bases. As part of our efforts to ensure smooth transition and integrations of the Galénic and DR.WU Mainland China business in the first quarter, our team was focused on putting in place the right management team and incentive structure to rejuvenate each brand's product and positioning, to accelerate e-commerce and to optimize supply chains. The team has identified few products that resonate with the new generation of consumers and witnessed some early success for these relaunches, such as Galénic new VC Serum and DR.WU's metallic ethnic series. Since the year long transition was completed at the end of the first quarter, we remain in the early stage of integration process, which will span over the second quarter. We believe that over time, we will have significant room to apply our disruptive DTC model and core platform capabilities to our newly acquired brands as we help them to realize their full potential. With 4 brands acquisitions since mid-2019, our strategy, investment and capital market teams has developed its core capabilities of sourcing, executing and integrating new brands through these experiences and has continued to improve and upgrade. We have since 2020 started to see a number of high-quality brands emerge and become available globally. And we are continually seeking to identify potential attractive additions to our portfolio. We believe our success in acquiring Eve Lom is a testament to our rising reputation as a serious high-quality consolidator of global beauty assets. We plan to leverage this unique window of opportunity to add to our portfolio in a prudent and cost-effective manner. Aside from operational improvements and M&A, continued investments in our core infrastructure and the capabilities are also our central focus. We have increased R&D spending during the quarter to almost 2% of total net revenues compared to 1.2% in the same period last year. So the build-out of our Guangzhou manufacturing hub and research center in the form of a joint venture with Cosmax is on track, with construction having started in late March. As of end of the first quarter, we held a total of 75 global registered patents, including 36 invention patents. Our open lab R&D architecture, which encompass our internal R&D division as well as collaboration with the network of outside OEM and R&D partners, such as Sensient Technologies, [ Peer Pop ], Huazhong University of Science and Technology and et cetera. We enhance our capabilities and abilities to develop unique active ingredients, formulations and innovative packaging and application solutions. Finally, we would like to provide an update on our international business, where our progress in certain markets, such as Southeast Asia, have exceeded our expectations. So even though overseas sales represent a relatively small part of our overall sales in the first quarter of 2021, it is worth noting that we have already become one of the top-selling brands in the online cosmetic categories in fast-growing consumer markets, such as Mainland Malaysia, Singapore and the Philippines. We are inspired by the success enjoyed by other Chinese DTC companies such as Shein and Anchor in overseas market. We have already started to learn from these leaders and may accelerate our overseas business in the future. Thank you, everyone. With that, I will now turn the call over to our CFO, Donghao Yang, to discuss our financial performance.

Thank you, David, and hello, everyone. Before I get started, I would like to clarify that all financial numbers presented today are in renminbi amounts and all percentage changes referred to year-over-year changes, unless otherwise noted. Total net revenues for the first quarter of 2021 increased by 42.7% to RMB 1.4 billion from RMB 1 billion for the first quarter of 2020, primarily attributable to the increases in the number of DTC customers as well as revenue per DTC customer during the period. Gross profit for the first quarter of 2021 increased by 58.8% to RMB 991.6 million from RMB 624.4 million for the first quarter of 2020. Gross margin improved by approximately 7 percentage points to 68.6% in the first quarter of 2021 compared to 61.7% in the same period of 2020 on the back of more disciplined pricing and discount policy. On the business end, we saw increased sales generated from higher-margin brands and through experience stores. We have also creatively premiumized our product offerings enabling us to achieve higher average order value and better margin outcomes. Total operating expenses for the first quarter of 2021 were RMB 1.3 billion compared to RMB 800.3 million for the first quarter of 2020. As a percentage of total net revenues, total operating expenses increased to 92.4% from 79.1% for the first quarter of 2020. Fulfillment expenses for the first quarter of 2021 were RMB 92.7 million compared to a RMB 107.1 million for the first quarter of 2020. As a percentage of net revenues, fulfillment expenses decreased from 10.6% in the first quarter of 2020 to 6.4% in the first quarter of 2021. The decrease in percentage was primarily due to the normalization of logistics expenses compared to the first quarter of 2020 during which logistics expenses were higher due to the impact from COVID-19. Selling and marketing expenses for the first quarter of 2021 were RMB 1 billion compared to RMB 556.9 million for the first quarter of 2020. As a percentage of total net revenues, selling and marketing expenses were 72.1% compared to 55% in the prior year period. The increase was primarily due to investments in promotions and consumer awareness building for the newer brands and testing of the effectiveness of new traffic acquisition channels. General and administrative expenses for the first quarter of 2021 were RMB 172.3 million compared to RMB 124.1 million for the first quarter of 2020. As a percentage of total net revenues, general and administrative expenses for the first quarter of 2021 decreased to 11.9% from 12.3% for the first quarter of 2020. The decrease in percentage was primarily due to increased economy of scale resulting from a higher level of revenue. Research and development expenses for the first quarter of 2021 were RMB 27.7 million compared to RMB 12.2 million for the first quarter of 2020. As a percentage of total net revenues, research and development expenses for the first quarter of 2021 increased to 1.9% from 1.2% for the first quarter of 2020. The increase was primarily due to an increase in personnel costs and share-based compensation expenses as a reflection of our commitment to enhance our R&D capabilities as a sustainable source of competitive advantage. Loss from operations for the first quarter of 2021 was RMB 343.3 million, representing operating loss margin of 23.8% compared to loss from operations of RMB 176 million or operating loss margin of 17.4% for the first quarter of 2020. Non-GAAP loss from operations for the first quarter of 2021 was RMB 258.3 million, representing non-GAAP operating loss margin of 17.9% compared to non-GAAP loss from operations of RMB 113.7 million or non-GAAP operating loss margin of 11.2% for the first quarter of 2020. Net loss for the first quarter of 2021 was RMB 319 million, representing net loss margin of 22.1% compared to net loss of RMB 191.7 million or net loss margin of 18.9% for the first quarter of 2020. Non-GAAP net loss for the first quarter '20 was RMB 234.3 million, representing a net loss margin of 16.2% compared to non-GAAP net loss of RMB 129.4 million or 12.8% of net loss margin for the first quarter of 2020. Net loss attributable to Yatsen's ordinary shareholders per diluted ADS for the first quarter of 2021 was RMB 0.5 compared to net losses attributable to Yatsen's ordinary shareholders per diluted ADS of RMB 4.6 for the first quarter of 2020. Non-GAAP net loss attributable to Yatsen's ordinary shareholders per diluted ADS for the first quarter of 2021 was RMB 0.37 compared to non-GAAP net loss attributable to Yatsen's ordinary shareholders per diluted ADS of RMB 0.92 for the first quarter of 2020. As of March 31, 2021, the company had cash and cash equivalents and restricted cash of RMB 4.3 billion compared to RMB 5.7 billion as of December 31, 2020. Looking at our business outlook for the first quarter of 2021, we expect -- looking at our business outlook for the second quarter of 2021, we expect our total net revenues to be between RMB 1.49 billion and RMB 1.54 billion, representing a year-over-year growth rate of approximately 50% to 55%. This forecast reflects our current and preliminary view on the market and operational conditions, which is subject to change. With that, I would now like to open the call to Q&A. Operator?

[Operator Instructions] Our first question today comes from Dustin Wei with Morgan Stanley.

My first question regarding the guidance for the second quarter. It seems like it suggests that 3% to 7% quarter-on-quarter growth versus the first quarter. And I feel it seems weaker than normal seasonality for cosmetics. So is there sort of adjustment going on with like some strategy change or so management intends to be conservative? So first question regarding the guidance. Second question is that given the competition on color cosmetics seems to become more intense, so is there any strategy change for the management sort of in terms of allocating more marketing resources to the skincare rather than color cosmetics? And is that kind of part of the reason that our sales growth is slightly sort of lower than previously? And third question is regarding the net losses in the second -- in the first quarter. So that net loss sort of the ratio is slightly higher than fourth quarter last year. I think that's mainly because of higher selling and marketing. So is there any further elaboration of that? And how should we look at that ratio for the full year?

So for the quarter-over-quarter growth, I think the first thing we want to clarify is, right now, our brand portfolio has been changing dramatically. So we had 3 brands last year, but now we have 7 brands, and then skincare now we have 4. So you're right, so when we are thinking about the resource allocation for the coming quarters, we may allocate more resources into the skincare growth. And the skincare growth might not be as dramatic as color cosmetic. However, we think the growth of skincare, especially the luxury sectors of the skincare category is more sustainable. And this might influence the bottom line as well. So for the second thing about the competitiveness of the color cosmetic market, so if we look at the Euromonitor data, so last year, Yatsen as a company was ranked as #5, and then so -- in 2019. In 2020, the company was ranking at #4. But if you look at the growth rate, the 2020 over 2019 growth rate as the -- based on the same database and Yatsen was growing at over 30%, while the #1, #2 was declining and the #3 was just growing at digit. So if we look at the overall color cosmetics, we think we still have a high growth potential, and we will work to continuously to expanding our brand in color cosmetics. And we will continue to invest to grow our existing brands, including Perfect Diary, until we become the #1 company in terms of value share in color cosmetics market. So your third question is about the increase in sales and marketing. So in the first quarter this year, because we newly acquired a couple of the skincare brands, at the early integration stage, the investment on brand building and also cleaning the inventory for the distributor will be the 2 core things that we need to do. So the investment for some of our newly acquired brand, for example, we just announced the brand ambassador for Galénic in the first quarter. And then we believe the investment in strengthening the brand equity and then improving the brand awareness will be reflected in the growth in the coming quarters for our skincare brands.

Yes. And one other thing I want to add is, in Q1, we spent some money testing the effectiveness of new traffic acquisition channels, such as Douyin, Kuaishou and some others to figure out the best most efficient cost-effective ways to acquire traffic and market a product. And on top of that, we are trying to put in place a more disciplined approach to ROI optimization. So now we're allocating our resources to maximize our ROI to allocate resources across different brands, and now we have 7 of them to make sure that we have the highest return on our investment. So going forward -- you just mentioned in Q1, our non-GAAP net loss is like 16%. Going forward, we do expect our net loss to come down. And we are actually more confident about our future prospects of profitability going forward, as now we're building a sizable and sustainable skincare business.

So if I can just have a follow-up on that? So are we still sort of aiming for like breakeven or even better profitability for 2022, given the change of the focus towards more like skincare?

Well, now we are actually not in a position to give guidance, right, on profitability or 2 years from now. But as I said earlier, we're now even more confident about our future prospect of turning this business profitable.

[Operator Instructions] The next question comes from Luzi Li with Bank of America.

So my first question is also on the guidance for Q2. So I recognize that Q2 basically is the easiest base -- has easiest pace, if you look at the last year. So is it fair to say in Q2, maybe it's likely the best quarter in terms of the run rate -- gross run rate? This is my first question. And second question is, if you look at the DTC growth, DTC channel growth, so in the past, we actually see the number of DTC customers grow faster than the up value. So -- but in this quarter, in Q1 of this year, we actually see the higher ASP growth than the number of customers. So are we going to see the similar trend in the future? Or it's just like one-off? And if this is the case, so how can we achieve the higher ASP in future, particularly for the Perfect Diary? So you just mentioned that we achieved some brand upgrade for Perfect Diary brand. So are we seeing the discount rate -- lower discount rates or we have a higher ASP for the newly launched products and then we give the similar level of discount? So this is my second question. And my third question is also on the margin side. So for the Q1, we do see the higher selling and distribution ratio. But my question is, like, whether this is more about the newly acquired brands or new brands? Or we actually see quite similar ratio for different brands? So if we purely look at Perfect Diary, how is the trend versus last year same time?

Okay. So for your first question, let's discuss about the Q2 guidance about the growth. So if we look at the brand portfolio we're having right now and then also we just launched a new skincare brand, so this brand, so there's like -- it has a price point that's lower than Perfect Diary. But this brand, it has a very young growth of brand equity to attract the new category engines. So the brand is targeting the young and Gen Z and Gen A consumers, who are newly adopting the color cosmetic products. So the reason we do that is that we are right now upgrading the Perfect Diary product portfolios with 2 things. One thing is for existing products, we will have more distinct discount and promotion. And then for our newly launched products, we are trying to catch up the upgrade and the premiumization share of the consumers. So that's why we can see an increase in gross margin of the -- in the first quarter. So having said that, so Little Ondine in the quarter 2 last year had a very dramatic growth. So this year, we are also thinking about adjusting the investment level for Little Ondine as well. So for the second quarter, we believe the growth reflects our change in the resource allocation with more focus on skincare brands, with more focus on adjusting the investment model for Little Ondine and Abby's Choice, with more focus on price up and also the premiumization of Perfect Diary. So that's why we think the growth will have some impact on the bottom line for the second quarter. And we believe the shift of the growth model will be more sustainable and more -- will become more robust in the coming quarters. So that's my answer for the first question about the Q2 guidance. For the second one, the DTC customer growth versus the ARPU growth. You're right, if you look at the absolute percentage, we can see in the Q1 that the average revenue per customer, the growth, is higher than the DTC customer growth. So if you look at the brand portfolios right now, and then so Galénic and Eve Lom, they are -- the price point of both brands are in the premium skincare sectors. And then even for DR.WU, the brand is on masstige skincare price tier. And for Perfect Diary, the brand is moving up to the high end of the mass market. Having said that, which means the ARPU, the average revenue per customer growth will be continue to -- because of the resource allocated and invest in both masstige and premium skincare brands and also the masstige color cosmetic Little Ondine and also Perfect Diary. So -- but we think it's also very important to capture a significant share of the new engines in color cosmetics. So we believe the launch of Pink Bear is a very important strategy move to capture the new engines with higher value-for-money products. And then -- so right now, based on the monthly run rate of Pink Bear, we are quite happy to see the early stage results, which the Pink Bear is playing a very important strategy role to take the empty space when Perfect Diary is moving up. So looking forward, we think that both the DTC customer and also the ARPU will continue to grow. But each of the brands will play different roles in driving the growth of these 2 figures. So about -- your third question about the margin growth. So right now, the gross margin in the first quarter over last year was -- is over -- is like 7%. So -- because right now, the growth mainly -- the gross margin mainly coming from 2 things. One thing, as I mentioned before, is the improvement -- the increase of the skincare brands. So the skincare brands' revenue as a percentage of Yatsen's revenue has been increasing. And then because of those skincare brands, the gross margin is higher. So that's why we see the gross margin incremental here. And then for Perfect Diary, our flagship brand, in the first quarter, we launched some new quarters with higher gross margin. For example, the slim lipstick is capturing like higher market share in the first quarter. And therefore, that product is becoming the top-selling product in lipstick category, but the gross margin of that product is higher than the other products of Perfect Diary. So we think the launch is not a direct price up of existing products. It's coming from more disciplined promotion and also new products to capture -- new product new innovation, providing more value to consumers. And then -- another thing I want to add up here. So private -- what we call the premiumization strategy for brands, we need to have some reason for consumers. So that's why we are consistently improving our R&D expenses. As long as we have better products, better innovation and consumers, they are -- they have very high willingness to pay for those better products and the new products. So that, we think how we can adjust the risk of the premiumization of the brand.

Just one follow-up. So in terms -- so you just mentioned that in the rest of the year, maybe we will see a better margin profile, given our strategy shift. So in this case, so are we looking for non-GAAP net profit narrowed versus last year or we're still seeing a similar level?

Sorry, as I said earlier, we're not in a position to give guidance on profitability for the rest of the year. But I said earlier, as we are trading out of our existing brands and introducing more luxury skincare brands with higher margins, we are more confident on the profitability of our business going forward.

Maybe I can just add one thing here is the change reflects our resource allocation -- reallocation among the brands, among our portfolios. So our resources, we'll invest in the skin care category and also continuously invest in the new brands of the color cosmetics. So that's why we think this will impact our bottom line. But sorry about that, we are not going to give you any guidance on this one.

The next question comes from Christine Cho with Goldman Sachs.

So 2 questions. So one, could you -- is it possible to give us a rough sense of the sales contributions from your own organic brands versus the newly acquired brands, both in terms of this quarter as well as the implied in your second quarter guidance? And then secondly, David, you mentioned that -- in your remarks that nontraditional channel sales contributions have increased this quarter, including the short videos and TV in experience stores, should we expect this trend to continue going forward? And also, would it be possible for you to elaborate on your strategy in these new channels? And then lastly, a quick one is, is there any update on the repurchase rate that you can share with us?

Okay. So first one, about the organic brands. So if you -- I cannot clarity here. So even with the brands we acquired, in terms of the growth, we still invest a lot in the new acquired brands. So if you're talking about the revenue split between existing brands, no matter if it's incubated or the brands that come from last year or the newly acquired brands, the percentage-wise of the newly acquired brands was still relatively small in the total percentage of the revenue. But what we do is, we invest in the new brands and we capture the growth. So until now, I would say that the main growth driver of this company still comes from the organic growth, no matter if it's existing brands, incubated brands or even the acquired brands. So that's about the first -- your first question. And we're quite happy about even our flagship brands like Perfect Diary's growth in the first quarter because we see we had growth of Perfect Diary mainly coming from the newly launched masstige lipstick products or the category expansion into like the color contact lens and also the skincare products as well. So your first question -- the second question is about the nontraditional channels, for example, the TV or the short video or -- you're right, we see the trend will continue because right now, in the first quarter, as mentioned by Donghao before, we spent some resources in testing the new platforms. For example, as we all know, for some of the short video and also the live broadcasting, the apps as they are devoting a lot of resources in building up their e-commerce part of the business, which means in terms of GMV, we see a significant growth potential for those apps and newly emerged platforms. So this is something that we spent a lot of time in the first quarter to study, to see what will be the impact for brands in the future. So in the traditional business model, we have brand building platforms, social media platform, and we have the transactional-based e-commerce platforms, like mainly Alibaba and et cetera. But now we see some of the newly emerging players in this market, they capture both part of the -- of it. So they can help you to build brands and that they can help you to complete the transaction. So it means a lot for brands. So that's why we had some test in the first quarter by working together with the top level management of those platforms. And we are very happy to see some early-stage results coming from the test. So looking forward, we think our resource -- our growth outside of the traditional e-commerce platform will continue to lead -- to play as the growth driver for Yatsen as well. So for your third question about repurchase rate, Irene, do you want to share?

Yes. So for repurchase rate, we have been seeing similar levels in the past. So previously, I think in both -- when we were IPO-ing and also in the annual report, we mentioned the repurchase rate over a 12-month period has been -- they seeing around 40%. And then recently, in this quarter, we didn't disclose the actual number, but the level has been in the similar level.

The next question comes from [ Jenny Zhu ] with CICC.

Hello? Can you hear me? Yes, this is Jennin from CICC. I've got 2 questions. The first one is what's our specific plan on the skincare business this year? And how will we allocate the resources, say, the marketing and the labor, the team, the talent? The second question is, as we're testing the new traffic acquisition channels, such as Douyin you mentioned, could you further elaborate what we did? And how was the performance so far?

Well, for the skincare growth, so we think the acquisition of Eve Lom is a very important milestone of the company. So we -- so when we are entering into the skincare category, we -- it takes some time for us to improve our understanding of the category and also the -- to test whether the company's core capability can be able to applied into the skincare category. So based on the early stage in the results in the past few months, we are very glad and confident that the -- so our business model is working in both color cosmetics and skincare. So going back to some of the brands we are like investing in, and then we see a very clear growth path for those brands. For example, DR.WU, so we repositioned the brand and focused on very specific benefit categories -- or benefit space for the brand. And then we strengthened the brand equity and then focused on a couple of the few SKUs. So if we look at the growth of DR.WU in Tmall, it's actually very consistent and a remarkable growth. So this brand has been selling in payers live broadcasting in March and April, and we see the result was quite impressive. And then this month, we are continuing to invest in the brands, in Douyin, with the top KOLs -- actually tonight. And so in June, this brand is going to have a big promotion working with the top KOLs focusing on the June 18 promotion event, we will see continuous progress on the DR.WU sales in masstige skincare category. So we think marketing-wise, we -- our team has been devoting a lot of resources in understanding the market landscape, understanding the heritage of the brand equity and also while we position the brand to be better communicating to our core customer base. And then in terms of the team integration, we are also very happy to see that when we acquired those brands, no matter it's Eve Lom or Galénic, and we see the new talents of those teams has been play an important -- playing increasing role in Yatsen. So they have been large fold and also very experienced in this skincare sector, so we are very happy to work with them on R&D, on formulary development and also on some new channels globally. So we see the integration is going on quite well. And we think the deposition of the assets is not the brand, but also the talent we get from the assets. So going back to your second question about the new traffic acquisition. We are testing in a few of the nontraditional platforms. In the first quarter, if you look at the live broadcasting of Douyin, we see -- we think they are very interesting models of that. For example, we know for live broadcasting there are, let's say, 2 types. One type is leveraging the KOLs, another type is you will have the live broadcasting in your own flagship stores. And we think the growth of the -- your own broadcasting is a very good methodology to communicate with your core consumers, your brand story, your R&D story, your formulary priority and also the knowledge in skincare and also makeup. So this is the newly emerged channel. And then we think the growth of live broadcasting in Douyin will play an increasing role in the sales. And we also think Kuaishou is a very interesting platform. So with the IPO of Kuaishou, we see the GMV growth was quite remarkable. And there are a few top KOLs emerging in Kuaishou as well. And then we are working basically with all of them to explore the growth of the live broadcasting Kuaishou. And then -- so there are also other interesting, well, change happened in the first quarter. So we think behind -- so we are very excited about the change. And we are very happy that we tested in the first quarter. So even with some -- we made some mistakes in the testing, but somehow, while we made those mistakes early. So now with the model like the finalized, we are ready to move on, and then with the new emerging channels. And then we think they will play a bigger -- they will be taking a bigger share of the total e-commerce landscape.

The next question comes from Ingrid Zhang with UBS.

I have 2 questions. The first is, Yatsen has been very strong in terms of faster product launch, leveraging our strong consumer insights. With the new cosmetics regulation coming into effect this -- in May, could you share with us the potential impact on our business? The second question is, we start out as a very strong company in mass masstige segment and particularly in color category. Now we acquired new 2 premium, 2 prestigious skincare brands. Could you share a bit with us our plan to grow these new skincare brands?

Okay. So first one about the regulation change of the -- in the beauty industry. So this is nothing new because we have been discussing this like in the past 1 year. And then so ever since maybe May or June last year and then -- so we were invited by the government to discuss the potential impact of the law. So we knew that it's going to happen, and we had a very solid plan together with our external partners and then we consistently communicate with the officials in the related government departments. So right now, we didn't anticipate challenges from the implement of the new rule. So going back to your first question about the speed to the market. Well, speed to the market is what we believe is still the core capability of the company. But it doesn't mean we are jumping ahead of any like necessary or lower reinforced necessary step of the product launch. So we have a very strict quality control. And also, we have very strict benefit test for our partners as well. So we believe our existing the SOP and our existing companies like Sensient is helping us to benefit from the launch of the new law. So we believe the main purpose of the law is actually to have a better regulated market, but mainly targeting on some what we call the low end or the niche brands, who are not that -- having a strict compliance with the law reinforcement. So that's about the first question. Well, so premium skin care brands, very interesting. When we launched the VC Serum, this product is really like a very high price, with health -- and then the label price was RMB 750. And we -- at the very beginning, we were quite concerned about the price point. But when we sell this product and now it's basically stock count for maybe in the coming 2 months or something, and then we attract a new set of consumers, who are not that price-sensitive, but more focused on the benefit and instant effect of the skincare products. So this gives us some confidence when we are targeting into the premium skincare sector. And this product, so a lot of my friends, they use it. And it's -- the benefit is amazing. And then basically, you've got a very shiny skin over 1 night like a dose usage. So this reinforce our belief that we need to consistently and heavily invest in R&D. As long as we have better technology and superior products, price point is not something the consumers -- for some set of the consumers, the key concern is your benefit instead of the price. So if we -- going back to the fundamental for us to win in premium or win in skincare, we strongly believe that R&D is the core of the winning formula. While on top of that, and then because of our large consumer base, it's easy for us to get a subset of the consumer base, who have the high willingness to pay for premium skincare products. So that gives us some leverage when we are expanding -- when we are launching new products or new brands at early stage. But that's just for the early stage. Looking forward, we believe it's the product benefit or the product quality will play that definitionally role in whether you can win in this market. So that's how we think about the premium skincare brand growth.

The next question comes from Kevin Xiang with 86Research.

I have 2 quick questions. The first 1 is about the offline business. So could you please give us more color on the progress and the recovery of our offline experience stores in the first quarter and second quarter? And then my second question is also about the offline, but it's about the distributor model because we've noticed that while some brands, such as Perfect Diary, Little Ondine and Abby's Choice have collaborated with popular offline cosmetic chain stores Hit in Chinese region, so how should we think about the role of this offline distributor model in the long run?

All right. Okay. Thanks for the question. I'll take your first one. Well, currently, we have about 245 offline stores. And we do have a plan to open another 100 stores during the rest of the year. And the stores are doing quite well. And from a standalone business perspective, it is already profitable. So that's about our offline business. And the second question?

To build on the first question, so the reason we are driving like a higher revenue per square meters for the -- for our offline stores, so we drive this mainly leveraging our category expansion into skincare and also some like foundations. So we launched some interesting products purely for offline. For example, the essence and also the pre-makeup lotion and also the moisturizer as well. And then also -- so we also have some like sunshine protectors for our like foundations for offline stores as well. So we see the very specific set of the product, which is more fit with the -- meets with the needs of our offline consumers. It's playing like -- it's taking a higher percentage of the revenue in our offline stores. And for those subset of the products, they have higher repeat purchase rate, higher gross margin and a better net profit. So that's why we were very happy to see that our offline stores are making money for now. So for the second question, the reason why we -- as a DTC company, why do we need to work with Hit? So if you look at Perfect Diary, so Perfect Diary has still a very strong infrastructure, as we can see, for the offline like stores network. But if you look at our newly acquired brands, economy -- economically, it's not making sense for each of the brand to expand offline stores similar to Perfect Diary. So for example, for Little Ondine, we have planned to open a one offline store in [ 10 Weihai ] in Shanghai. So it's a place for the fashion people, adults, so very cool people. But when we are thinking that whether Little Ondine should expand like another 200, 300 stores in China? We think the economy model might not work. So that's why we need to work with 1 distinctive partner, which can capture some of our brands and listed them in the offline stores environment. We choose it because the channel can help brands to enhance the brand equity and they mainly focus on driving the consumers, like the service experience, and they can deliver the brand message to consumer quite well. And then -- and also for our brand portfolio, the expansion in the -- based on the retailers model is helping us to reach more to be -- to reaching more consumers with lower costs. So that's the reason we are working with one partner right now. But having said that, it's the early stage experience, experimental. So we will see what the results come back and then we'll have like more knowledge or to decide whether it should be a good move or not.

And that concludes the question-and-answer session. I would like to turn the conference back over to management for any additional or closing comments.

Thank you once again for joining us today. If you have any further questions, please feel free to contact us at Yatsen directly or TPG Investor Relations. Our company information for IR in both China and the U.S. can be found on today's press release. Have a great day. Thank you.

This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.