Earnings Call: Q1 2021

May 27, 2021

Earnings release

Good morning and good evening, ladies and gentlemen. Thank you and welcome to Yunge's First Quarter 2021 Earnings Conference Call. With us today are Mr. Sheng Liu Shao, Chairman and Chief Executive Officer Shengki Zhang, Vice President of Finance and Ms. Kay Liu, Investor Relations Director of the company. Now, I would like to hand the conference over to first speaker today, Ms. Kay Liu, IRD of Yunji. Please go ahead, ma'am. Hello, everyone. Welcome to our Q1 2021 earnings call. Before we start, please note that this call will contain forward looking statements within the meaning of the Private Securities and Liquorations Reform Act of 1995 that are based on our current expectations and current market operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors of Lianxuan, 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 related documents filed with the US SEC. Any forward looking statements that we will make on this call are based on assumptions as of today and are especially qualified entirely by cautionary statements, risk factors and details of the company filing with the SEC. Yunxi does not undertake any obligation to update these statements except as required on the applicable rule. With that, I will now turn over to Shanghui Zhao, Chairman and CEO of Hello, everyone, and welcome to Yunji's Q1 2021 earnings call. We celebrated our We celebrated our 6th corporate anniversary on May 16, 2021. During this year's celebration featuring the theme, trying to perform and turn over a new leaf through enhanced strategies, introduced our newly elevated business strategy to our employees and service managers. In today's fiercely competitive e commerce industry in China, the top players have already established certain advantages through economies of scale, with values focusing on more, faster, better and more cost effective. As a leading membership based e commerce platform, we continued to strengthen our focus on product selection and refinement to better implement our supply chain differentiation strategy and provide customers with a more convenient e commerce experience. We don't pursue undisciplined short term sales growth. Instead, we focus on cultivating a mega hit product pool by introducing quality products with greater appeal and better product market fit for our members. To execute this new component of our strategy, we established a special working group for our mega feed product supply chain, Led by our Executive President Eric Ye, this working group was formed to leverage the team's exceptional capabilities in business development, content creation and product presentation to curate popular products, optimally present them to consumers and produce and distribute associated content to customers for a comprehensive targeted sales approach. By the end of 2021, we aim to develop a portfolio of mega key products covering a variety of categories featuring economical premium quality products. In terms of our differentiated supply chain, we believe the potential for our primary vertical markets in health, cosmetics and food products presents the greatest opportunities. These three categories strongly align with the demand from our user base and provide them with additional membership value. We treat our service managers to ensure they are knowledgeable and experienced with products in these three verticals, empowering them to attract more customers through professional in-depth service. Meanwhile, we will also continue to develop new products that accurately target our key markets via our private label brand and joint venture brand initiatives. Several of our private labels include our cosmetic brands, Solo Life and P&S, our food brands, Li Baqian and Marshaft and our health supplement brands, including Smart Life and Uni Beauty. As of March 31, 2021, our weight loss supplement Smart Life achieved RMB975 1,000,000 in total sales. It took only a year from its launch for us to grow the Smart Life brand to RMB1 1,000,000,000 in sales. In the past few years, our private label brands successfully developed many popular products that are highly praised and endorsed by our members. Through these mega hit products, we will be able to provide members with a more innovative and enhanced e commerce experience. Furthermore, we are able to extend the commercial life cycle for successful products in health, cosmetics and food verticals by releasing additional product versions with new or enhanced features. In addition to our long standing categories of strength, we will also increase efforts in product review and development for categories where user needs are relatively large, such as maternal and infant care as well as household products. Our household products brand the medium home provides users with daily necessities such as paper towels, toiletries and cleaning products. We also host periodic promotions for this fast moving Regardless of the product category, product quality and safety are non negotiable when selecting products to introduce on our platform. A significant number of our users are mothers who take care of their whole family. So we will continue to provide products that the whole family can safely consume. We are also acutely aware that today's consumers are dealing with significant information overload. Much of the information they are bombarded with daily is complex and lengthy. This shifts our approach to content development, so that we can present concise and valuable product content that stands out and easily captures the attention of consumers. Our next step is to help our service managers optimize product content production and share e commerce experiences by leveraging multiple content forms, including images and short form videos. This will ensure that a steady content stream is accessible on external platforms to promote our differentiated supply chain and products, broadening our brand influence. We believe that our service managers are some of our most valuable assets. We execute training with the intent to provide service managers with the means to enhance their marketing skills, establish their own brand influence and live a better life through improving their financial means. We will also continue to diversify offline and online educational content offerings to provide service managers with additional opportunities to improve. We envision a future where our service managers are a multi talented group that can push sales, attract new users and professionally serve and manage customer groups. With that, I will turn the call With that, I will turn the call over to our CFO, Rex Chen to go through our financial results in the Q1. Thank you, Shanghue. Hello, everyone. Before I go through our financial results, please note that all numbers stated in the following remarks are in renminbi terms. And for the Q1 of 2021, while all comparisons and percentage change are on a year over year basis, unless otherwise noted. Starting in 2021, we committed to enhancing our supply chain depreciation strategy to include our new mega market product curation strategy and further development of our private label products. We are focusing on the life time value of our customers and no longer emphasize GMV. We also remain committed to effective cost control and we further refined our membership management system and enhanced our employee structure. While our decision to focus short term sales gain in favor of more sustainable growth caused fluctuations in our quarterly sales. We believe these efforts will further drive our progress towards healthy profitability in the long run. Now, let's take a closer look at our financials for this quarter. In the Q1 of 2021, our total revenue was RMB675 1,000,000 compared to RMB1,649,000,000 a year ago. Revenues from sales merchandize were RMB572 1,000,000 and revenue from marketplace business were RMB95 1,000,000. As previously mentioned, the decline in total revenue was mainly due to our decision to improve our product curation strategy by implementing our Mapped Hit Product Pro initiative. The initiative focused on introducing products with stronger repurchase potential and great customer appeal. Gross margin in the Q1 of 2021 were 35% compared to 30% a year ago. The improvement in gross margin was due to our supply chain depreciation strategy. Turning to our operating expense. Fulfillment expense in the Q1 of 2021 was RMB65 1,000,000 compared to RMB178 1,000,000 a year ago. The decrease was mainly attributable to reduced warehouse and logistics expenses, which resulted from our improved logistic efficiency, lower merchandise sales and reduced personnel costs from start being structural refinement. Sales and marketing expense in the Q1 of 2021 were RMB96 1,000,000 compared to RMB251 1,000,000 a year ago. As a percentage of total revenue, sales and marketing expense in the quarter decreased to 14% from 15% a year ago. This decrease was in line with our long term growth strategy and was mainly due to our reduction in membership management fee as we improved our member management efficiency and decrease promotion expenses. Technology and content expense in the Q1 of 2021 was RMB38 1,000,000 or 5.6 percent of total revenue compared to RMB58 1,000,000 or 3.5 percent of total revenue a year ago. The decrease was mainly due to the decrease in personnel costs as we further refined our staff structure. General and administrative expense in the Q1 of 2021 were RMB74 1,000,000 compared to RMB75 $1,000,000 a year ago, mainly due to the decrease in share based compensation expenses. Overall, in the Q1 of 2021, total operating expense decreased to RMB273 $3,000,000 and the loss from operations was $20,000,000 Net loss was $4,000,000 compared to $13,000,000 a year ago. Adjusted net income in the Q1 of 2021 was RMB17 1,000,000 compared with RMB26 1,000,000 a year ago. Basic and diluted net loss per share attributable to ordinary share in the Q1 of 2021 were both 0.002 compared with 0.01 dollars in the same period of 2020. Finally, let's take a look at our cash and liquidity position. As of March 30, 2021, we had a total of RMB1.2 billion in cash, cash equivalents, restricted cash and short term investments on our balance sheet. We will actively explore further investment opportunities in high potential emerging brands. Looking ahead, we will commit to executing our supply chain depreciation strategy by upgrading our massive product curation system and developing private label products to widen our economic mode and improve our profitability. At the same time, we will remain disciplined in our cost control and allocate resources to areas where which are in line with our long term growth objectives. While we recognize the intense level of competition in the industry, we also believe that the strategies we now have in place will serve as a solid bedrock for our sustainable growth and expansion going forward. This concludes our prepared remarks for today. Operator, we are now ready to take questions. Your first question comes from the line of Ethan Yu of First Trust Group Incorporated. Please ask your question. Hi, good evening. Thanks for taking my question. I will translate quickly translate for myself. I have two questions. The first question is about our private label business. In connection with the rapid growth of our marketplace business, what's the distinct market strategy for our private label products? In addition, could you please give us some comments on the differentiation between us and other private label e commerce brands like NetEase, LiteEast, etcetera? And my second question is about the membership system. We have noted that the membership fee has been adjusted from RMB398 to RMB199 in the recent days. Beyond that, the company also has a series of enrollment incentives and a new metric of our membership system. We are wondering about the company's explorations or innovations on the membership enrollment system and what's our strategy to improve the quality of our members? Thank you. Thank you for your questions. I'm Mr. Xiaoxiang Liu, the CEO of Yuinji, and I will take your questions. For your first question, for our private labels, we will be more focused on these 2 categories that is health products and cosmetics, because these 2 categories of products need more sharing and representation of users. If people want to buy some health products, if there are no shopping curators, perhaps they don't know what to buy. And for cosmetics, most of the cosmetics are offline and people go buy these cosmetic products at department stores. And all these products have shopping curators, even if it is a very luxury brand. So we can see that shopping curators are very necessary. So in this sense, we'd like to leverage our advantage of service managers of our community. This is very different from Yixuan or Jingzhou. What they sell the most are selling necessities And their net profit is very low. And in this area, the competition is more fierce. So we hope that we can further leverage our advantage in community and we can combine our advantage and further enhance the professional knowledge of our service managers. In the future, we also hope to make further use of our strength in our own platforms. And we also want to be settled in some major e commerce platforms such as Tianmall and other video e commerce platforms. So after we have more traffic on our own platform, we will make further moves to other major e commerce platforms. And thank you for your second question. It is very good question. We believe that we still have much room to explore to further enhance the value of our members. After our evaluation, we found that we decided to lower the benchmark of becoming a member of Yunxi, because we want to attract more target users. And based on that, we will devote more time and energy to ensure that our users can get the recommendations of the best products and so that they can repeat purchase. Compared with to enhance the quality of members, we believe that to further enhance the value of our members is more important. We have reflected on the value of our members. In the past, we regarded Costco and Sam as our examples. We also tried to select over 5,000 SKO products to recommend to our members. But after 2 to 3 years of practice, we found that this our consumers need more selected, more refined recommendations. Selected, more refined recommendations. So from this year, we plan that in the next 5 years, we will recommend products to our consumers in a more targeted and more refined way, we will recommend Mega Hit products to them. In the future, we will launch daily recommendations and we will select the top one product from 1,000 products, so that our consumers and users can get a more refined recommendation. We will also learn from the good practices from other platforms such as live streaming. We hope that we will quickly recommend and introduce the products introduced by the top streamers, top 100 streamers and to share them to our members. In doing so, we will help our members to save time and they will have more choices of economical and quality products. So I believe in this way, we will further enhance the value of our members and attract more quality members. That's all. Okay. If you have any further questions and we look forward to talking with you next quarter. Bye. This concludes today's conference call. Thank you for participating.