Earnings Call: Q1 2021

May 18, 2021

Ladies and gentlemen, good day and welcome to the Yatson 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 Liu, Head of Strategic Investments and Capital Markets. Please go ahead. Thank you, operator. Please note that discussion today will contain forward looking statements Relating to the company's future performance and our intent 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 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 Yatin'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 Yatin's senior management are Mr. Junzheng Huang, our Founder, Chairman I'm CEO and Mr. Zonghao Yang, our CFO and Director. Management will begin with prepared remarks and the call will conclude with a Q and A session. As a reminder, this conference is being recorded. In addition, a webcast replay of this conference call will be available on Yatin's Investor Relations website at ir. Yasenglobal.com. I'll now turn the call over to Mr. Junfeng Fang. Please go ahead, sir. Thank you, Iris, and thank you everyone for participating in Yaxan's Q1 2021 earnings conference call today. Starting off the year on a solid note, Yasen achieved 42.7% Year over year growth in total net revenues in the Q1 supported by a healthy growth of our Perfect Diary brand and the robust performance of LiDao Holdings, Avis Choice and other brands in Yat sen's portfolio. So during the quarter, the number of DTC customers increased 11.6% year over year to RMB9.6 million, while revenue per DTC customer Also increased by 24.5 percent from approximately RMB989 to RMB123 per customer. So We ended the quarter with gross margin of 68.6 percent, an improvement of approximately 7 percentage points compared to 61.7 percent in the Q1 last year. So we went into the year with plan to optimize our brand's performance, expand our core portfolio and enhance our core capabilities. A key focus has been on the flagship proprietary brands, particularly to upgrade its positioning and the price point from mass to higher end mass market in order to further extend its growth potential. So we have set out to achieve this through more disciplined pricing and discount policies, which successfully raised proprietary's average selling price, Average order value and gross profit margin during the quarter. At the same time, we continued to introduce new products They excite and delight our customers such as the new Britney Velvet Lip Growth line as well as the Flyn Hill lipsticks gift sets, 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 PerkoDiary skincare products in our offline stores in early May represent refinement and premiumization of the proprietary product line this year. So going forward, we have further plans to launch new products in existing and new categories, capture higher body share from our customers. Overall, we see further room for ASP and AOV improvement. New product rollouts and the category expansions to drive operating results of Private Diary's brand throughout this year. We are also making continued With the 3rd largest brand trading up, we see the need to attract And to capture new engines in color cosmetics market, especially Gen Z and the Gen A, who are more price sensitive. Hence, we launched the PingBear 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 this leap growth product, Pin Bear has achieved encouraging results during its 1st month of launch. Our MasTeche color cosmetic brand Little Aounding Auto experienced robust year over year growth in the quarter, powered by several well received product launches, such as the crossover with Pop Mart Chinese pop star Huang Zutao as well as the new Vinyl Records eyeshadow palette, which was introduced in the late March. Given Little Onion's unique street fashion brand positioning, its further upside is expected to be lower than that of we aim to develop further as a super brand within the group. As Little Omni has already become a top selling color cosmetic brand 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 trend we saw was the increasing diversity and the balance of our channel mix Compared to the Q1 of 2020, which boosted the sales contribution from non traditional e commerce channels, such as various short video and 2B platforms, as well as from our experienced stores. We have adopted an omni channel strategy to serve our customers at every touch point. As of end of March 2021, we had a total of 245 experienced stores, Already having achieved significant scale covering key cities and regions, we aim to open approximately 100 stores throughout In addition to our color cosmetics portfolio, we are excited about the expansion of our range of skincare brands, which saw the addition of Bocobu's Mainland China business and Yiflau in the Q1. Along with Galenic and Abby's Choice, we now have 4 skincare brands with different positionings and consumer basis. As part of our efforts to ensure smooth transition and integrations of the Gallantix and Sotougu Mainland China Business in the Q1, 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 key products That resonates with the new generation of consumers and witnessed some early success for these relaunches, such as Galenic's new VC serum and Doctor. Wu's Mandelic ethnic series. Since the Yibron transition was completed at the end of the Q1, We remain in the early stage of integration process, which we will spend over the Q2. We believe that over time we will have significant as we help them to realize their full potential. With 4 brand acquisitions since mid-twenty 19, our strategy Investment and Capital Markets teams have developed its core capabilities of sourcing, executing and integrating new brands. Through these experiences, and has continued to improve and operate. We have since 2020 started to see a number of high quality brands emerge and available globally, and we are continually seeking to identify potential attractive additions to our portfolio. We believe our success in acquiring Yiflon is a testament to our rising reputation as a serious high quality consolidator of global beauty 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 and A, Continued investments in our core infrastructure and capabilities are also our central focus. We have increased R and 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 Cosmet is on track. This construction having started in late March. As of the end of the Q1, we held a total of 75 Global registered patents, including 36 invention patents our open lab R and D architecture, which encompass our internal R and D division as well as collaboration with the network of outside OEM and R and D partners such as Samsung Technology, Dear Bob, Huazhu University of Science and Technology, and its sector, 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 OCA sales represent a relative Small part of our overall sales in the Q1 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 Vietnam, Malaysia, Singapore and Philippines, We are inspired by the success enjoyed by other Chinese B2C companies such as Xiyin 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 Our RMB amounts and all percentage changes refer to year over year changes unless otherwise noted. Total net revenues for the Q1 of 2021 increased by 42.7 percent to RMB1.4 billion from RMB1 1,000,000,000 for the Q1 of 2020 are primarily attributable to the increases in the number of D2C customers as well as revenue per D2C customer during the period. Gross profit for the Q1 of 2021 increased by 58.8 percent to RMB991.6 million from RMB624.4 million the Q1 of 2020, gross margin improved by approximately 7 percentage points compared to 68 6% in the Q1 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 experienced 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 Q1 of 2021 were RMB1.3 billion compared to RMB800.3 million for the Q1 of 2020. As a percentage of total net revenues, Total operating expenses increased to 92.4% from 79.1% for the Q1 of 2020. Fulfillment expenses for the Q1 of 2021 were RMB92.7 million compared to RMB107.1 million for the Q1 of 2020. As a percentage of net revenues, fulfillment expenses decreased from 10.6% in the Q1 of 2020 to 6 point 4% in the Q1 of 2021. The decrease in percentage was primarily due to the normalization of Logistics expenses compared to the Q1 of 2020, during which logistics expenses were higher due to the impact from COVID-nineteen. Selling and marketing expenses for the Q1 of 2021 were RMB1 1,000,000,000 compared to RMB556.9 million for the Q1 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 Q1 of 2021 were RMB172.3 million compared to RMB124.1 million for the Q1 of 2020. As a percentage of total net revenues, General and administrative expenses for the Q1 of 2021 decreased to 11.9% from 12.3% for the Q1 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 Q1 of 2021 were RMB27.7 million compared to RMB12.2 million for the Q1 of 2020. As a percentage of total net revenues, research and development expenses for the Q1 of 2021 increased to 1.9% from 1.2% in the Q1 of 2020. The increase was primarily due to an increase In personnel costs and share based compensation expenses, it is a reflection of our commitment to enhance our R and D capabilities As a sustainable source of competitive advantage, loss from operations for the Q1 of 2021 RMB343.3 million, representing operating loss margin of 23.8 percent Compared to loss from operations of RMB176 1,000,000 or operating loss margin of 17.4% The Q1 of 2020. Non GAAP loss from operations for the Q1 of 2021 was RMB258,300,000, representing non GAAP operating loss margin of 17.9% Compared to non GAAP loss from operations of RMB113.7 million or non GAAP operating loss margin of 11.2% for the Q1 of 2020. Net loss for the Q1 of 2021 was RMB19 1,000,000 representing net loss margin of 22.1 percent compared to net loss of RMB191.7 million or net loss margin of 18.9 percent for the Q1 of 2020. Non GAAP net loss for the Q1 of 2021 was RMB234.3 million, representing net loss margin of 16.2% compared to non GAAP net loss of RMB129.4 million or 12.8 percent of net loss margin for the Q1 of 2020. Net loss attributable to YaSM's ordinary shareholder per diluted EPS for the Q1 of 2021 was RMB0.5 compared to net losses attributable to Yatin's ordinary shareholders per diluted ADS of RMB4.6 for the Q1 of 2020. Non GAAP net loss attributable to Yatin's Ordinary shareholders per diluted EPS for the Q1 of 2021 was RMB0.37 Compared to non GAAP net loss attributable to Yat sen's ordinary shareholders per diluted ADS of RMB92 for the Q1 of 2020. As of March 31, 2021, the company had cash And cash equivalents and restricted cash of RMB4.3 billion compared to RMB5.7 RMB7 1,000,000,000 as of December 31, 2020. Looking at our business outlook for the Q1 of 2021, we expect looking at our business outlook for the Q2 of 20 We expect our total net revenues to be between RMB1.49 billion and RMB1 point RMB54 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 and A. Operator? Thank you. Thank For the benefit of all participants on today's call, if you wish to ask management your question in Chinese, Please immediately report your question repeat your question in English. Our first question today comes from Justin Lai with Morgan Stanley. Please go ahead. Thanks for taking my questions. And my first question regarding the guidance for the 2nd quarter, It seems like it suggests that 3% to 7% quarter on quarter growth versus the Q1. And I feel it seems weaker than normal seasonality for cosmetics. So is there sort of adjustment Going on with the like some of the strategy change, your so management intends to be conservative. So first question regarding the guidance. Second question is that, given the competition on color cosmetics seems to be become more intense. So is there strategy change for the management sort of in terms of allocating more marketing resources to the Skincare rather than color cosmetics, is that kind of part of reason that our sales growth 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 on sort of the ratio is slightly higher than Q4 last year. I think that's mainly because of higher selling and marketing. Is there any further elaboration of that? And how should we look at that ratio for the full year? Thank you very much. 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 have 3 years we have 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 It's more sustainable and this might influence the bottom line as well. So for the second thing about the competitive So if we look at the Euromonitor data, so last year, Yes. As a company, we're ranking as the number 5. And then so in 2019 In 2020, the company was ranking at number 4. But if you look at the growth rate, the 2020 over 2019 growth rate At the we based on the same database and the estimate was growing at over 30%, while the number 1, number 2 was And that the number 3 was just growing at the single 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 Poker Diary until we become the number one Company in terms of value share in color cosmetic market. So your third question is about the increasing sales and marketing. So in the Q1 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 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 Gallantica in the Q1. And then we believe the investment in the 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, channels such as Zhou Yun, Kuaizhou and some others, To figure out the best, most efficient, cost effective way to acquire traffic and market our products. 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 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. Thanks a lot, David and Donghao. 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 on profitability over 2 years from now. But as I said earlier, we're now even more confident about our future prospect of in turning this business profitable. Thank you very much. The next question comes from Louise Lee with Bank of America. Please go ahead. Hi. Thank you, management, for taking my question. So my first question is also on the guidance for Q2. So I recognize that that's Q2 basically is the easiest to pay It has eased the base 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 channel growth, so in the past, We actually see the number of DTC customer grow faster than the upper value. So But in this quarter, in Q1 of this year, we actually see the higher ASP growth than the number of customer. 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 Dairy, so you just mentioned that we achieved some brand upgrade for Perfect Dairy brand. So are we seeing the discount rate lower discount rate or we have a higher ASP for the newly launched products and then we get a 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 whether this is more about the newly acquired brands or newly new brands or We actually see quite similar ratio for different brands. So if we purely look at the perfect dairy, how is the trend versus the last year same time? Thank you. Okay. So for your first question, let's discuss about the Q2 guidance about the growth. So if we look at the brand portfolios we're having right now So we just launched a new Pindeer brand. So this brand service like It's just price point is lower than proprietary, but this brand has a very young growth brand activity to attract the new category engines. So the brand targeting the young and the Gen Z and Gen A consumers who are newly adapting the color cosmetics products. So the reason we do that is we are right now upgrading the Epidiary product for Bordeaux With 2 things, one thing is for existing products, we will have this more distinct discount and promotion. And then for our newly launched products, we are trying to catch up the upgrade and the premiumization churn of the consumers. So that's why we can see an increase in gross margin in the Q1. So having said that, So, little on demand in the quarter 2 last year had a very dramatic growth. So this year, we are also thinking about adjusting the investment level for the Ondi as well. So for the Q2, 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 on Demand and AB Choice, With more focus on price up and also the premiumization of proprietary. So that's why we think the growth We will have some impact on the bottom line for the Q2 and we believe that 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. 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 Galenic and If long, they are the price point of both brands are in the premium skincare sectors. And then even for BotoWoo, The brand is a mass peach skincare pricier. 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 continued to because of the results allocated and investing in both Mastige and the premium skincare brands and also the Mastige color cosmetic, beta hunting and also the 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 PingBear is a very important strategy move to capture the new entrants With higher value for money products. And then so right now based on the monthly run rate of Pin Bear, We are quite happy to see the early stage results, which the Pinberry is playing a very important strategic role To take the empty space, we're focused on moving up. So looking forward, we think that both the DTC TC customer and also ARPU will continue to grow. But each of the brand will play different roles In driving the growth of these two figures. So about the your third question about the margin Growth. So right now, the gross margin in the Q1 over last year was is over is around like 7%. So because right now the gross margin mainly coming from 2 things. One thing as I mentioned before The increase of the skincare brands. So the skincare brands revenue as a Percentage of Yatin's revenue has been increasing. And then because of those skincare brands, And then for Public Diary, our flagship brand, in the Q1, we launched some new products with higher gross margin. For example, the Sling Livestics is capturing like a higher market share in the Q1 and that product is becoming the top selling product in lipstick category, but the gross margin of that product Higher than the other products of PuxDiary. So we think the launch is not Direct price up of existing products is coming from more disciplined promotion and also new products To capture new product, new innovation, providing more value to consumers. And another thing I want to add up here, So 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 and D expenses. As long as we have better products, better innovation and the consumers, 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 Thank you. 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 narrow versus last year or we're still seeing a similar level? Thank you. 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 that the change reflects our resource allocation, reallocation Among the brands, among our portfolios. So, our resources will invest in the skincare category And also continue to invest in the new brands of the telecosmetics. So that's why we think Next question comes from Christine Cho with Goldman Sachs. Please go ahead. Thank you, David and Donghao. So two 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 Q2 guidance? And then secondly, David, you mentioned that in your remarks that nontraditional channel sales contributions have increased this quarter, including the short videos in 2B and 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. Thank you. Okay. So first one, about the organic brand. So if I can clarify here, so even with the brand we acquired, in terms of The growth, we still invest a lot in the new acquired brand. So if you're talking about the revenue split Between existing brands, no matter if the incubated or the brands that comes out last year or the newly acquired brand, The percentage wise of the newly acquired brand was still relatively small in the total percentage of the revenue. But what we do is we invest in the new brands and then 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 existing brand, Incubated brands or even the acquired brands? So that's about the first your first question. And we are quite happy about Even our flagship brand like Pepsadares grows in the Q1, because we see the growth of Pepsadares Many coming from the newly launched NOMADIS Lipstick products or the category expansion to like the color content lens and also the skincare products as So your first question the second question is about the non traditional channels. For example, the TV or the short video or You're right. We see the trend will continue, because right now in the Q1, as mentioned by Donghao before, We spent some resources in testing the new platforms. For example, as we all know, Some of the short video and also the live broadcasting, but 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 maybe emerge platforms. So this is something that we spent a lot of time in the Q1 to study to see what will be the impact for brands In the future, so in the transitional business model, we have brand building platforms, Social media platform and we have the transactional based e commerce platforms like the many Alibaba and etcetera. But now we see some of the newly emerging players in this market. They capture both part of the Perfect. So they can help you to view brands and that they can help you to complete the transaction. So it means a lot for brands. So that's why we have we had some tests In the Q1, 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 results are growth Outside of the traditional e commerce platform, we will continue to lead to play as the growth driver for Yes and S revenue. So for your 3rd 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 during the annual report, we mentioned the repeat purchase rate over a 12 month period has They are 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. Next question comes from Jenny Vu with CICC. Please go ahead. Jenny, your line is open. Hello. Can you hear me? Hello, Jenny? Yes. This is Yes. This is Chanye from CICC. Thanks for taking my questions. I've got two 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 of talent. The second question is as we test in the new traffic acquisition channels Such as Douyin you mentioned, could you further elaborate what we did and how was the performance so far? Thanks. Well, for the skincare growth, so we think the acquisition of Ypsilon It's a very important milestone of the company. So you know we Well, when so when we are entering into the skincare category, it takes some time for us to Our understanding of the category and also to test whether the company's core capability can be 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 car cosmetic and skincare. So going back to some of the brands that we are like investing in and then we see a very clear growth path for those brands. For example, Doctor. Wu. So we repositioned the brand and focused on very specific benefit category Okay. Benefits base for the brand and then we strengthened the brand equity and then focused on a couple of the SKUs. So if we look at the growth of Doctor. Wu Yim Kimo, it's actually a very consistent and remarkable growth. So this brand has been selling in various live broadcasting in March April. We see the result was quite impressive. And then this month, we are continuing to invest in the brand in Douyin It's the top KOLs actually tonight. And so in June, this brand is going to have a big promotion I'm working with the top tier sales and working on the June 18 promotion event. We will see continuous progress of the top of the sales In the prestige 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 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 acquire those brands, no matter it's long or Atlantic And we see the new talents of those teams has been playing important, playing increasing role in that sense. So they have been multiple and also very experienced in this skincare sector. We are very happy to work with them on R and D, on formula development and also on some new trends So we see the integration is going on quite well and we think the acquisition The asset 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 non traditional e commerce platforms. In the Q1, if you look at the live broadcasting of ZouYin, we think There are very interesting models of that. For example, We know for live broadcasting there are 2, let's say, 2 types. One type is leverage to the KOLs. Another type is you will have the live broadcasting in your own flagship stores. And we think the growth of your own broadcasting It's a very good methodology to communicate with your core consumers, your brand story, your R and D story, your So this is the newly emerged channel and then we think the growth Of the self broadcasting in Douyin will play an increasing role in the sales. And we also think Kuaishou is a very interesting platform. So with the idea of Kuaishou, we see the GMP growth was quite remarkable. And there are a few top KOLs emerging in Kuaishou as And then we are working basically all of them to explore the growth of the live broadcasting question. And then so there are also other interesting, well, change happened in the Q1. So we think behind Sohu, so we are very excited about the change and we are very happy that we tested In the Q1, 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 with the new emerging channels And we think they will play a bigger part they will take in a bigger share of the total e commerce landscape. Thank you. Next question comes from Ingrid Zhang with UBS. Please go ahead. Hi. Thanks management for taking my question. I have two questions. The first is, Yes, it has been very strong in terms of faster product launch, leveraging our strong consumer insights. With the new cosmetic regulation coming to effect 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 mass stage segment and particularly in color category. Now we acquired a new On 2 premium to prestigious skincare brands, can you share a bit with us our plan to grow these new Okay. So first one about the regulation change in the beauty Industry. So this is nothing new because we have been discussing this slightly in the past 1 year. And then So everything maybe May or June last year and then so we were invited by the government to discuss the potential impact of the board. 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 department, so right now we didn't anticipate Challenges from the implement of the new book. So going back to your first question about the Speak to the market. Well, speech 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 resource necessary step of the product launch. So we have a very strict Quality control and also we have very strict benefit test for our products as well. So we believe our existing The SOP and our existing company like Ascendor is helping us to benefit from the Launch of the new law. So we believe the main purpose of the new law is actually to That's 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 Compliance with the loan reimbursement. So that's about the first question. Well, Well, premium skincare brands are very interesting. When we launched the BC Serum, this product is really like a very high price With Telkocache 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 out 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 focus on the benefit and instant effect of the skincare products. So this gives us some confidence When we are targeting into the premium skincare center and this product So a lot of my friends use it and it's the benefit is amazing and basically you've got a very shiny feet over one night like So this reinforce our belief that we need to consistently and Heavily investing in R and D. As long as we have better technology and a superior product, price point is not something the Consumers, from the side of the consumers, the key concern is your benefit instead of the price. So if you're going back to the fundamental For us to win in premium or win in skincare, we strongly believe that R and D is the core of the winning formula. Well, on top of that and that 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 and so that give us some leverage Well, we are expanding when we are launching new products of New Bright 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 The definition is role in whether you can win in this market. So that's how we think about the premium skincare brand growth. Thank you. The next question comes from Kevin Zhang with 86 Research. Please go ahead. Hi. Thank you for taking my questions. I have two quick questions. The first one is about the offline business. So could you please Give us more color on the progress and recovery of our offline experience stores In the Q1 and Q2. And then my second question is also about the offline, but it's about the distributor model because we've noted that So how should we think about the role of this offline distributor model All right. Okay. Thanks for the question. I'll take Shahriar, your first one. Well, currently we have about 245 offline stores And we do have a plan to open another Warner stores during the rest of the year and the stores are doing quite well. And from a standalone business perspective, it is already profitable. That's about our offline business. Any 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 Meaning, leveraging our category expansion into skincare and also some like foundations. 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 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 Which is more fit with the meet with the needs of our offline consumers. It's playing like it's taking a higher High percentage of the revenue in our offline stores. And for those subset of the products, they have higher repurchase 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 Thank you, Martin. So for the second question, the reason why we as a B2C company, why do we need to work with Heat? 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, Economically, it's not making sense for each of the brand to expand offline stores similar to Percadilly. So for example, for Lidrondi, we have planned to open a one offline store in Tianqi High In Shanghai, so it's a place for the fashion people and also very cool people. But Well, we are thinking that whether the company 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 one distinctive partner, which can capture some of our brands And listed them in the offline stores environment. We chose it because the channel can help brands To enhance the brand equity and they mainly focus on driving the consumers like service experience And they can deliver the brand message to consumer quite well. And then and also for our brand 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 early stage 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. 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 CSN directly or TPG Have a great day. Thank you. This conference has now concluded. Thank you for attending today's presentation. You may now