Yunji Inc. (YJ) Earnings Call Transcript & Summary

Good morning, and good evening, ladies and gentlemen. Thank you, and welcome to Yunji's Second Quarter 2021 Earnings Conference Call. With us today are Mr. Shanglue Xiao, Chairman and Chief Executive Officer; Chengqi Zhang, Vice President of Finance; and Ms. Kaye Liu, Investor Relations Director of the company. Now I would like to hand the conference over to first speaker today, Ms. Kaye Liu, IRB of Yunji. Please go ahead, ma'am.

Hello, everyone. Welcome to our second quarter 2021 earnings call. Before we start, please note that is 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 marketing operation conditions and related to events that involve known or unknown risk, uncertainties and other factors of Yunji and its industry. These forward-looking statements can be identified by terminology 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 entirely by cautionary statements, risk factors and details of the company's filing with the SEC. Yunji do not undertake any obligation to update this statement, expect as required on applicable law. With that, I will now turn over to Shanglue Xiao, Chairman and CEO of Yunji.

[Interpreted] Hello, everyone. Welcome to Yunji's Second Quarter 2021 Earnings Call. Based on production selection and social sharing, Yunji's marketing model has established a complete and healthy life cycle. The cycle starts with the production selection, promotion by our service managers and a purchase facilitation. And while our service managers benefit from promotional incentives, our members have a better understanding of the product through the service managers introduction, receive cost-effective products that satisfy their needs, establish trust with Yunji's platform and our sharing based model and conduct repeat purchases. Meanwhile, our service managers will earn and combine delivery services. Common prosperity has also been Yunji's unlimiting vision since its establishment. To create more user value and offer products with better quality, we remain focused on 3 core strategies, highly curated product selection, differentiated supply chain and a specialized retail system. In May 2021, we launched the Yunji 99 Special Sales Portal on our Yunji app as one of the core products for our curated product selection strategy, aiming to become the portal for active products across all of the Internet. Our Yunji 99 portal funnels our platform's core traffic to a refined selection of demand related products across all categories. The addition of the section reinforces our refining supply chain strategy as well as the correlation of the market product sales by connecting Yunji members to fully items with viral appeal by focusing on highly cost effective products, will help millions of members assess quality products from all over the world. The Yunji 99 Special Sales model features a curated selection of up to 99 products each day. These 99 products are rigorously screened and selected through strict criteria and a basic product pool selection projects. Of the 99 products, the top 10 bestsellers will be highly recommended and providing with more resources support. Providing such high-quality brands at affordable prices enhances Yunji shopping experience and encourages purchases. We will continue to optimize our product selection and using our data-driven insights to enhance the Yunji shopping experience and provide our users with a true one-stop shopping solution. As for our differentiated supply chain strategy, we recently celebrated the 11th anniversary of our private label skincare brand, Solo Life by utilizing our social sharing capabilities. We have helped Solo Life to better express its brand value and accumulate a large group of value users over the years. By the end of 2020, Solo Life had become a skin care brand with annual sales of more than RMB 1 billion on the Yunji platform and cultivated multiple megahit products with hundreds of millions in unit sales. Within our differentiated supply chain metrics, we also introduced a number of unique products in various categories. For example, the first batch was in our newly developed line of beauty creams, which included 85 selling products, were sold out within just in 57 seconds of its launch. We are currently optimizing production capacity and the shaping speed and look forward to these product lines performance after our production capacity has improved. We chose to differentiate our strategic focus on the health industry for a number of reasons. First, we believe that the tailwind generated by the health industry brings tremendous value to not only us, but also our members. More importantly, we want to provide our service managers and members with methods to improve their physical strength and beauty. It is also our sincere hope that our service managers will develop a lifelong career on our platform that benefits not only themselves, but also their families. Let me share the initiatives we have taken to utilize a specialized retail system and online traffic. These have helped millions of the service managers discover and develop life-changing career opportunities. Most of our service managers are women. We train our service managers to deliver professional services to our members and hope that they can gradually earn a decent monthly salary of tens of thousands RMB. They are not only service managers, but also experts in various fields. There are entrepreneurs who hope for a change in their life. We offer them many training programs in areas such as health management and marketing, so that they can become expert in the field of cosmetics, health and sales. These trainings enable them to reach customers with a more professional attitude and improve the marketing skills. The professional marketing skills are practical in use and also boost our sustainable development. Going forward, we hope that more leaders will emerge from within our service manager group, and we will focus on supporting these leaders while making our specialized retail system more complete and efficient. During the second quarter, we maintained the entrepreneurial spirit and continue to conduct innovative initiatives. In terms of user retention, we set up a special group to better reach users, engage inactive users and strengthen users' consumption frequency. In addition to developing new traffic channels, this group works hard on content marketing can create their own original short-form video content. Meanwhile, we have also been preparing for our online streaming sessions on third-party-wise streaming platforms, where I will host these session myself. With that, I will turn the floor over to Mr. Chengqi Zhang, our Vice President of Finance, to go through the financial results.

Thank you, Charlie. Hello, everyone. Before I go through our financial results, please note that all numbers stated in the following remarks are in Renminbi terms and all comparisons and percentage changes are on a year-over-year basis, unless otherwise noted. Starting this year, we're committed to enhancing our supply chain differentiation strategy, upgrading our product selection with our new Medicare product curation strategy and refining our membership management system. We have also shifted our mindset to focus on sustainable long-term growth as we further improved our efficiency and employee structure. After several quarters of adjustments, our refined operations have resulted in significant improvements in our profitability despite some fluctuations in our quarterly sales. During this quarter, we recorded an operating income of CNY 16 million and a net income of CNY 17 million compared with an operating loss of CNY 45 million and a net loss of CNY 17 million in a year ago. Now let's take a closer look at our financials. Total revenue was CNY 571 million compared to CNY 1,487 million a year ago. Revenue from sales of merchandise was CNY 472 million and revenue from our marketplace business was CNY 88 million. In line with our renewed long-term growth strategy, we further optimized our selection of suppliers and the merchants, which caused the revenue decrease in both our marketplace business and the merchandise sales during this quarter. As a result, gross margin improved to CNY 75 million -- 75 percentage compared to [ 29 percentage ] a year ago. During this quarter, we improved our operating efficiency at carefully selecting content suppliers and products, removed certain products to a more included to base pricing and subsidiary competition and focus on our depreciation supply chain and Medicare product offerings. As a result, gross margin improved accordingly. Turning to our operating expenses. Fulfillment expenses were CNY 50 million or 8.8 percentage of total revenues compared to CNY 129 million or a 8.7 percentage of total revenue a year ago. Sales and the marketing expense were CNY 61 million compared to CNY 228 million a year ago as a percentage of total revenues. Sales and marketing expenses were reduced to 10.8 percentage from 15.4 percentage in the same period last year. This decline was due to the decreased business promotion expenses and reduced management fees resulting from the improvement of our member management efficiency. Technology and content expenses were CNY 32 million or 5.7% of total revenues compared to CNY 59 million or 3.9% of total revenue a year ago. General and administrative expenses were CNY 43 or 7.5% of total revenues compared to CNY 71 million or 4.8% of total revenue a year ago. This decrease was mainly due to a decrease in share-based compensation expenses. Total operating expenses in the second quarter decreased to CNY 187 million. We recorded an income from operation of CNY 16 million as compared to a loss of CNY 45 million a year ago. Net income was CNY 17 million compared to a net loss of CNY 70 million a year ago. Adjusted net income was CNY 24 million compared with CNY 20 million a year ago. Basic and diluted net income per share attributable to ordinary shareholders for both CNY 0.01 compared to basic and diluted net loss per share attributable to ordinary shareholders of CNY 0.01 in the same period of 2020. Moving on to liquidity. As of June 13, 2021, we had a total of CNY 1.1 billion in cash and cash equivalents, distributed cash and short-term investments on our balance sheet. Our liquid assets was sufficient enough to cover our payable obligations and though we did not hold any long-term bank loans or debt on our balance sheet. As we continue to execute our supply chain depreciation and the product curation strategy, we remain focused on our long-term growth objectives and the profitability. We are confident that our innovation strategy and the refined operation capability will continue to drive our sustainable development going forward. This concludes our prepared remarks for today. Operator, we are now ready to take your questions.

[Operator Instructions] It seems we don't have any questions from the line yet. Presenters, please continue. [Operator Instructions] I don't see any questions from the line yet. Presenters or management, please continue.

Thank you for joining us today. Please do not hesitate to contact us if you have further questions, and we look forward to talking with you next quarter. Thanks.

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may now all disconnect. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]