Ladies and gentlemen, good day and welcome to the Yatsen third 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 the reconciliation of GAAP to non-GAAP financial results, please see the earnings release issued earlier today. Joining us today on the conference call from Yatsen senior management are Mr. Jinfeng Huang, our Founder, Chairman, and CEO, and Mr. Donghao Yang, our Director and CFO. 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.
Thank you, Irene, and thank you everyone for joining today's conference call. Our net revenue grew by 6% year-over-year to RMB 1.3 billion in the third quarter, in line with our guidance. We made significant progress with our skincare brands in the quarter, which increased to approximately 15% of total gross sales, compared to around 14% during the prior quarter and around 5% during the same period last year. Thanks to the premiumization of the Perfect Diary brand and an increase in skincare sales, our gross margin increased by 2.2 percentage points year-over-year to almost 58%. We saw a significant deceleration in general consumer and color cosmetic spending in China this quarter.
According to the National Bureau of Statistics of China, in general consumer retail spending and beauty retail spending, each recorded year-over-year growth of approximately 5% in the third quarter, with even slower sales growth in Tmall's color cosmetics category. The industry-wide slowdown extended into the Singles' Day promotion period between November 1st and November 11th, 2021, during which color cosmetics sales on Tmall fell by low single-digit compared to the prior year. This industry trend is cyclical in nature, driven by macroeconomic uncertainties and the unusual seasonality pattern caused by the COVID-19 pandemic last year. Our business is likewise undergoing significant changes. Gross sales from our color cosmetic brands, which make up approximately 84% of total gross sales, decreased by mid-single-digit year-over-year in the third quarter.
These results were mainly due to our continued realignment of Little Ondine, partially offset by the steady performance of Perfect Diary and Pink Bear. Gross sales from our skincare brands, which include Abby's Choice, Dr. Wu, Galénic, and Eve Lom, grew by around 257% on a year-over-year basis. Since the majority of this quarter's sales come from color cosmetics, these factors inevitably slow the group's overall growth. Despite these changes, we remain one of the largest publicly listed pure-play beauty companies in China by revenue size during the third quarter. Perfect Diary was once again the largest color cosmetic brand on Tmall channels in terms of sales. Tmall ranked Pink Bear as number one new domestic brand, domestic color cosmetic brand during November's Singles' Day event. Eve Lom and Dr.
Wu sales on Tmall grew by 100% and 1400% respectively. While Galénic's VC Serum hero product was the top-selling imported facial serum during the Singles' Day period. The overall sales growth from our skincare brand grew by around 477% compared to the prior year's Singles' Day period, underscoring the strength of our skincare business this year. As we look to the near future, we are committed to sharpen our growth model, which is underpinned by three pillars, continued investments in our brand equities, commitment to developing world-class R&D capabilities, and a focus on sustainable growth. We expect the implementation of these growth initiatives to take multiple quarters to produce results, but we believe we are on the right path to future success. We have already seen positive results from our efforts to upgrade and refine the Perfect Diary brand.
At the China Cosmetic Conference, known as the Davos Forum of the beauty industry, the 2021 ROSE Awards named Perfect Diary as the most influential brand for the second consecutive year, a strong endorsement of our continued innovation. We introduced several effective new products in the third quarter, such as the Silver Wing Slim Hue lipstick with hair color and unique microsphere wrapping technology, and the Rhythm Lip Stain with the ever stain technology for bolstering our leading position in the color cosmetic arena. We also unveiled a series of new products through IP crossovers and collaboration with well-known brands in other fields such as Honor of Kings Eyeshadow Palette and Kid Yoga Gift Box. Furthermore, well-known Chinese celebrities, Liu Haoran joined with internationally acclaimed Chinese actress Zhou Xun to serve as the joint spokesperson for Perfect Diary, further strengthening our brand recognition.
Now let's look at other brands. Little Ondine is continually gaining traction among young consumers, specifically powered by a new product launch such as our new Disney villains crossover and the opening of our first offline physical stores in Shanghai TX Huaihai Mall in September. Building on our momentum from last quarter, we also continued to invest in our Pink Bear brand. In the third quarter, we developed a new lip gloss using pink touch technology as well as a new eyeshadow collection which resonates strongly with Pink Bear's diverse young community. Pink Bear also engaged a Chinese singer and actress Chen Zhuoxuan as its spokeswoman, reinforcing Pink Bear's positioning as the brand of choice for young girls. Now turning to our skincare category.
We completed several integration in the initiative for Galénic and Eve Lom during the first half of the year, and it began to ramp up both brands marketing and branding activities in the third quarter. In early September, we appointed Chinese supermodel Sui He and famous Chinese actor Yang Yang as Galénic and Eve Lom brand ambassadors, respectively, accompanied by high-profile publicity and media events. Given that prestige brand building takes patience and effort, we expect to continue investing in branding and marketing for these two brands while steadily adding new hero SKUs and product categories over time. On the R&D front, we increased R&D expenses to 2.7% of total net revenues in the third quarter, compared with 1.1% in the prior period.
We also established an innovative skincare laboratory with Ruijin Hospital's dermatological department, as well as the R&D collaboration platform with Sun Yat-sen University during the quarter. Ruijin Hospital, part of Shanghai Jiao Tong University School of Medicine, is a grade three level general hospital with an enormous 100-year history. Its dermatological department has a nationally renowned national-grade clinic specializing in the diagnosis and treatment of refractory skin disease. Our three-year joint R&D program with Sun Yat-sen University will focus on efficacious new ingredients and the formulas to address specific skin issues. Our collaborations with these two preeminent academic research institutions will significantly bolster our open lab R&D capabilities. Additionally, during the third quarter, we completed our investment in Hangzhou Meitai Shengwu, an innovative company focusing on R&D of micro-ecological skincare products.
Founded in 2018, Hangzhou Meitai Shengwu owns EANTiM, a micro-ecological skincare brand endorsed by dermatologists. By leveraging our online and offline resources as well as open lab R&D capabilities, we will further promote the development of EANTiM. The quarter also included an investment in MingMed Biotechnology, a cutting-edge company focusing on the development of industry-leading pharmaceutical products with a product pipeline covering medical assessments, innovative beauty drugs, cell therapy, and small molecule immunology. With this investment, we intended to stand at the front of developing cutting-edge biomedical technology for future potential applications in the field of beauty. Lastly, the final piece of our evolutionary strategy is our framework for sustainable growth, which encompass both sales growth and cost optimization elements.
In the near term, we plan to focus on increasing sales contribution from our mass and premium skincare brands such as Dr. Wu, Galénic and Eve Lom, which provide excellent growth margins and higher quality growth. Meanwhile, we will seek opportunities to increase sales contribution from non-traditional channels where we see room for sustainable growth and incremental sales penetration. In terms of cost optimization, we aim to continue to improve our performance-based marketing ROI and shift more resources to branding investments. While we may sacrifice certain low quality growth in the short term, we believe this optimization strategy will enable us to build brand equities across our portfolio and sustainably reduce sales and marketing spends over time. We also plan to optimize our fulfillment and G&A expenses in the near future to realign with our new growth strategy.
We expect that these initiatives will enable us to achieve sustainable growth with a near path to profitability in the medium to long run. In closing, before I hand it over to Donghao, I would like to reflect on the journey that has brought us here. Yatsen celebrated its fifth birthday in September. While I'm proud of our team's achievements since Yatsen's founding, I remain as determined as on day one to ensure Yatsen's continuous success in the next stage of its development. Our focus on sustainable growth will entail some short-term adjustments and may take time to produce results. We are confident that this is the right moment in Yatsen's development for this essential shift. As we navigated this period of unprecedented challenges, we are optimistic about Yatsen's future.
To further demonstrate our confidence in the company's prospects, our board of directors have authorized a $100 million share repurchase program to be completed over the next 24 months. 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 RMB amounts, and all percentage changes refer to year-over-year changes, unless otherwise noted. Total net revenues for the third quarter of 2021 grew by 6% to RMB 1.34 billion from RMB 1.27 billion in the prior period. The growth was primarily attributable to increased sales from our newly launched and acquired brands. Gross profit for the third quarter of 2021 increased by 9.6% to approximately RMB 911.8 million, from RMB 831.6 million in the prior period. Gross margin improved by 2.2 percentage points to 67.9% in the third quarter of 2021, as compared with 65.7% in the prior period, mainly due to increased sales from higher margin brands and products.
We have also seen an increase in sales from our skincare brands this quarter, enabling us to achieve higher average order value and better margins. Total operating expenses for the third quarter of 2021 decreased by 13.2% to RMB 1.28 billion from RMB 1.48 billion in the prior period. As a percentage of total net revenues, total operating expenses decreased to 95.4% from 116.6% in the prior period. Fulfillment expenses for the third quarter of 2021 were CNY 100.2 million as compared with CNY 91.5 million in the prior year period. As a percentage of net revenues, fulfillment expenses increased to 7.5% from 7.2% in the prior year period, primarily due to an increase in customer service expenses and share-based compensation expenses compared to the third quarter of 2020, partially offset by a slight decrease in fulfillment logistics expense.
Selling and marketing expenses for the third quarter of 2021 were CNY 911.3 million as compared with CNY 864.3 million in the prior period. As a percentage of total net revenue, selling and marketing expenses were 67.9% compared with 67.5% in the prior period. However, on a non-GAAP basis, which excludes expenses related to share-based compensation and amortization of intangible assets, selling and marketing expenses were 64.9% of total net revenue, compared to 67.5% in the prior period. This was a result of our focus on improving our selling and marketing expenses ROI. General and administrative expenses for the third quarter of 2021 were 233.9 million RMB as compared with 515.9 million in the prior period. As a percentage of total net revenues, general and administrative expenses for the third quarter of 2021 decreased to 17.4% from 40.7% in the prior period.
The decrease in percentage was primarily due to lower SBC expenses compared to the same period last year, partially offset by an increase in salaries. Research and development expenses for the third quarter of 2021 were RMB 35.8 million compared with RMB 14.4 million in the prior period. As a percentage of total net revenues, research and development expenses for the third quarter of 2021 increased to 2.7% from 1.1% in the prior year period. The increase was primarily due to higher personnel costs and share-based compensation expenses, reflecting our commitment to enhancing our R&D capabilities. Loss from operations for the third quarter of 2021 decreased by 42.7% to RMB 369.3 million from RMB 644.6 million in the prior year period. Operating loss margin was 27.5% as compared with 50.9% in the prior year period.
Non-GAAP loss from operations for the third quarter of 2021 increased by 11.9% to RMB 221.7 million, from RMB 198.1 million in the prior year period. Non-GAAP operating loss margin was 16.5% as compared with 15.6% in the prior year period. Net loss for the third quarter of 2021 decreased 43.8% to RMB 361.8 million from RMB 643.8 million in the prior year period. Net loss margin was 26.9% as compared with 50.8% in the prior year period. Non-GAAP net loss for the third quarter of 2021 increased by 9.6% to RMB 216.3 million from RMB 197.4 million. Non-GAAP net loss margin was 16.1% as compared with 15.6% in the prior year period. Net loss attributable to Yatsen's ordinary shareholders per diluted ADS for the third quarter of 2021 decreased to RMB 0.57 from RMB 6 in the prior year period.
Non-GAAP net loss attributable to Yatsen's ordinary shareholders per diluted ADS for the third quarter of 2021 decreased to RMB 0.34 from RMB 1.2 in the prior year period. Looking at our business outlook for the fourth quarter of 2021, we expect our total net revenues to be between RMB 1.57 billion and RMB 1.67 billion, representing a year-over-year decline of approximately 15%-20%. As David mentioned earlier in the call, we expect the high comparison base and our future emphasis on higher quality growth to factor into this projected performance. This forecast reflects our current and preliminary view on the market and operational conditions, which is subject to change. The company's board of directors has approved a share repurchase program whereby the company is authorized to repurchase up to $100 million worth of its ordinary shares over the next 24 months.
The company's proposed repurchase may be made from time to time through open market transactions at prevailing market prices, in privately negotiated transactions, in block trades and/or through other legally permissible means, depending on the market conditions and in accordance with applicable rules and regulations. The company's board of directors will review the share repurchase program periodically and may authorize adjustments of its terms and size. The company expects to fund the repurchase with its existing cash balance. As of September thirtieth, 2021, the company had cash and cash equivalents and restricted cash of RMB 3.63 billion, as compared with RMB 5.73 billion as of December thirty-first, 2020. With that, I would now like to open the call to Q&A. Operator?
Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. For the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English. At this time, we will pause momentarily to assemble our roster. The first question comes from Dustin Wei with Morgan Stanley. Please go ahead.
Thanks for taking my questions. First question regarding guidance for fourth quarter. This 15%-20% year-on-year decline, is there any net one-off adjustment in terms of, for example, the store closure for Perfect Diary brand or further sort of reduction of SKU regarding Little Ondine or Abby's Choice? Question number two regarding the outlook for next year. Based on the current assessment for the macro or industry dynamics, I remember last call, we kind of talked about like 20%-30% year-on-year growth without considering the acquisition could be sort of the range to look at for next year. You know, what's the refreshed view for the next year? The third question regarding competition. It seems like the global brands, especially the prestige color cosmetics, are coming back in terms of the ranking and the growth rate. What's management's view on that? Thanks a lot.
Thanks, Dustin, for your questions. Well, in our guidance, of course, there will be some, you know, one-off expenses regarding, you know, closure of some of our, you know, non-performing stores. That's not gonna be a major item factored in our guidance. I mean, our guidance, as we said in our statement, you know, reflects our current view on, you know, our business performance for the next quarter. I don't think there is any particularly large one-off items included in that guidance. Your second question about next year's projections. Well, actually, we do not give guidance for the full year next year. The only guidance we give is for the following quarter.
Again, you know, as we said earlier in the call, you know, the market environment is changing rapidly, and you know, including the competition, as you mentioned, you know, in question number three, you know, from overseas brands is intensifying. Also, you know, there has been dramatic change in the retail sales channels that we have to you know, deal with. I don't think we're in a position to give any specific guidance for the full year next year. Competition, well, I think the competition from those overseas brands, you know, is intensifying, especially during the Double Eleven shopping festival.
Well, what we've seen is, you know, a lot of the prestige foreign color cosmetics brands have, you know, offered deep discounts, really deep discounts, you know, for their products. Part of the reason is probably, you know, there's a lot of them are global, you know, companies, and their sales are declining, you know, anywhere else outside of China. China is probably the only place where they can generate some meaningful, you know, sales. For example, there is one brand, I'm not giving you the name here, but that one brand used to be prestige in the prestige segment. During the Double Eleven shopping festival, you know, they offered, you know, deep discount, like, you know, buy one get one free type of deal. They're trying to, you know, generate more meaningful sales through deep discounts. David, do you wanna add to that answer?
Sure. Thank you. The first thing is about the competition. In the Singles' Day, we saw this year very aggressive promotion and discount tactics adopted by global brands. Those global brands has booked a lot of the slots with the top KOLs like Austin Li and Viya, who dominated the remaining traffic in the Tmall. The combination of the both factors significantly impacted our sales during the Singles' Day. If you look at the top 20 beauty brands in the Tmall's Singles' Day promotion, there is no color cosmetic brands in that top 20 brands. Last year, Perfect Diary was ranked 11.
I think that's a very important factor reflecting the very deep promotion on skincare brands and also the traffic mainly gained by Li Jiaqi and Viya. Looking forward to what we see about the competition, I think this is not going to be a sustainable tactic by the global brands 'cause it will significantly hurt their premium brand image. After Q4, during the past one or two weeks, we see the global brand sales is kind of like returning to normal. We are right now for our brands trying to gain more shares after the Singles' Day promotion. Looking forward about next year's growth guidance, for sure we are not going to be able to provide an exact number here. But one thing I want to call out is that right now the whole company is taking a transition strategy, which means we are improving our sales in skincare brands.
Right now, skincare brands taking almost 14% of the revenue in Q3. That number will be almost increased to 20% in Q4. Looking forward, we believe the percentage of the sales of skincare brands will continue to increase in next year and the high growth rate of the skincare brands will also help to bring the company's growth to a normalized stage. However, I think this might take a few quarters to reach that. I think investors need to be patient about what we are doing right now, because we believe that's the right path to go.
Okay. Thanks a lot for the sharing. Indeed, that's a quite challenging environment, so best of luck. Thank you very much.
Thank you so much.
The next question comes from Steven Yang with Goldman Sachs. Please go ahead.
Yeah, thanks for the sharing of the management. I have two questions. One is on buyback. Would you mind sharing a more color regarding the rationale behind the buybacks and the timing, and also what does the management think about, in the forward-looking basis, the cash usage, whether it's going to be used more on buybacks or more M&As, et cetera. The second question is regarding the efficacy regulation. Has the management seen an impact from the new efficacy regulation to, for example, product launch or any change to the competitive dynamics? Thank you.
Yeah. For the first question regarding buyback, currently the management believe our current market cap is undervalued. You know, given what we're seeing with our transition, though it may take several quarters to show the results, but we're very confident of the company's long-term prospects. We think it's a great time to start a buyback growth program with the existing cash balance, given we still have ample cash reserves. Timing-wise, as mentioned earlier, you know, the board has authorized a buyback of up to $100 million for the next two years. Plan to, you know, do that, you know, as time comes and when we see fit. For second question on regulation, I think, David, do you want to take that question on the product regulation?
Sure. Overall, we have been discussing with the regulators and related government department and leaders in the past few months. I think overall, if you're looking at the regulation trend, there will be more and more regulation coming out in the coming quarters. I guess the key reason behind is the government is trying to regulate the industry and also to guide the development for the future product launch and brand development. The new efficacy regulation you just mentioned about, right now, I guess, because of our very close relationship with the government officials and also our OEM ODMs, right now we are satisfying the new regulation development. However, in order to lead in this part, we are taking a few new initiatives to strengthen our product efficacy test. As I mentioned before, right now we are devoting more and more resources to R&D.
One of a few initiatives we are going to take is that we are going to strengthen the clinical test for our product test before we launch to market. The collaboration with the Ruijin Hospital will strongly help us to establish the R&D capability and also the product design capability in the dermatological skincare area. For those products, we believe we'll be very strongly relying on the efficacy test and also the relationship we set up with the top dermatologist hospital in China. Right now we think this trend is going to give more impact on the industry. Yatsen is taking enough initiative to be leading this trend in the future.
Thanks, management. If I may have a follow-up question on the ROI, regarding so we see a quite improvement Y-o-Y on the sales expenses. Just want to get a sense of what do you think about the color cosmetics industry-wide ROI trend going forward? Is it going upwards or downwards? Thank you.
The ROI of skincare is overall higher than the color cosmetics. If we look at the non-GAAP sales and marketing expenses in the Q3, we can see a decline over there. One of the key reason is that we keep optimizing the ROI for our existing brands. Looking forward with our continuously investment in the skincare brands, and also we are optimizing the sales channel for our brand portfolios, we will see an improvement of that part as well.
The next question comes from Louise Li with Bank of America. Please go ahead.
Hi. Hi, management. Thank you for taking my questions. My first question is, do we have a breakdown for Q3 or for Q4 to date about any by channel? You mentioned that we might invest into more on the unconditional channels. Just, I would like to get a sense about the latest breakdown. My second question is you just mentioned that we may take several quarters time to see some transition results. How do we understand the transition result? Will it be like so in terms of the earning side, so would it be like sales return to positive growth? Or what kind of levels of sales growth? We're looking for bottom line breakeven. Which one is our priority? What is the timetable? Is it in next year or even longer time? My third question is also about the SG&A ratio or particularly the selling and marketing expense.
What is the fixed cost apart? Thank you.
The first question about the sales channel split. Right now, I think Tmall is taking around like 40% of the sales for the total company. We see the percentage is declining and our percentage of in the live streaming, especially in Douyin, is increasing. Looking forward, we think this trend will continue as well. The things like in the past few months, I guess the company has been taking some initiative to optimize our sales in Douyin. Douyin right now is becoming a very important factor for brand's growth. We see the first stage of the Douyin's sales is mainly coming from the discount.
If you look at some of the skincare brands, they benefit from the first stage of the Douyin's live streaming development with a very deep discount for their skincare products. However, if you look at some of the recent development of Perfect Diary's ranking in Douyin, Perfect Diary's ranking is growing, increasing really fast. Right now, if I remember correctly, Perfect Diary is ranking around number three or number four in Douyin color cosmetics, but the group's higher growth rate than other brands. I think with our commitment to continue like investing in that channel, the percentage of Douyin will increase in the future as well.
Going back to your second question about the brand focus. I think we share with the public that we are going to make some changes to our strategy, which is devoting more resources into skincare development. Looking at the past Singles' Day, our skincare growth is very robust with almost 500% growth versus last year. Looking forward, we believe the skincare brands will take a higher percentage of the total company's revenue. Right now, what we are focusing on is the premium brands including Galénic, Eve Lom, and also the prestige brand Dr. Wu. The three brands are on track.
For each of the brand position is we believe there's some good potential to monetize the brand's positioning. For example, like Dr. Wu, right now, the brand has grown really fast, mainly because of two hero products. We plan to launch another two or three hero products in the coming year. With the product and the category expansion of Dr. Wu, the brands will growth, we believe we are confident about the brands growth in the next year. For Galénic, there is some impact because of the supply chain. Right now the brand has been, the hero product, the VC Serum, has been sold out in the past few months.
In the coming one or two months, as we think, the supply chain challenge will remain. However, we took an initiative to resolve the supply chain problem. Then with the supply chain ramping up, I guess, we believe the sales of Galénic will significantly improve in the coming quarters as well. After the first stage success of the VC Serum of Galénic, we are going to launch other skincare products and also serums in Q1 and Q2. With the product lines expanding, we think the growth for Galénic will also benefit from that. Talking about Eve Lom, the cleanser has been remaining very strong in the Singles' Day promotion. It's the most premium cleanser in Tmall Singles' Day promotion. Also the sales is ranking top for the cleanser category for the premium cleanser category.
We didn't see any other competitors in the premium price tier launching or competing with Eve Lom for the cleanser. I think the key next step for Eve Lom is to expand product category on top of the cleanser. In the past quarter we launched a Rescue Mask, and we had initial success. In the coming quarters, we have sufficient product launch pipeline for Eve Lom as well. With that, we think the three skincare brands will benefit from what we designed for the growth strategy.
The next question comes from Qing Yuan with CICC. Please go ahead.
Thanks for taking my question. The first regarding the profitability. It seems that the promotion of Perfect Diary increased during the Singles' Day. I wonder if there is any pressure on the company's fourth quarter's gross margin and operating margin. The second regarding the industry outlook. As we've seen the subdued industry environment for color cosmetics, how do the management see the color cosmetics market in the next three years and the future of the domestic color cosmetics brands? Thanks a lot.
Thanks for the question. Go ahead, David. Go ahead.
I heard the first one. What is the second question? Sorry about that. Hello? Okay, I will go with the first one. For the Q4, if you look at the percentage in just these live streaming, the percentage of Perfect Diary is low for the total revenue. If you look at the AOV of Perfect Diary, it's actually increasing in the past Singles' Day. We didn't see a challenge coming from the gross margin. That's my answer to your first question. I missed your second one. Sorry about that.
Well, I think the second question is about the outlook of color cosmetics business or market in China for the next three years. I mean, it's a really long-term perspective. David, do you have anything to say on that? The trend, color cosmetics, Chinese market for the next three years, if I got that one correctly.
I cannot hear very clearly about that part. Talking about the color cosmetics industry, if you look at the past Singles' Day promotion, as I mentioned before, there's no color cosmetics brands ranking in the top 20 brands. I guess looking forward, we still are confident about the color cosmetics growth, mainly driven by two things. One thing is the penetration increase. The second one is about the premiumization. I guess the challenge for our existing brand portfolios is that because of the Singles' Day, the global brands has very deep price cuts for their color cosmetic products. We see a very clear premiumization for the makeup industry.
I don't think that is going to sustain in the coming quarters. Looking forward, there's only a few domestic brands playing in the makeup industry. I guess right now there are only three main companies still trying to gain shares in the color cosmetic area. I guess there will be a consolidation trend in the coming year. Yes, and because we take a multi-brand strategy, we have a prestige brand, we have mass brand, and also we have a new brand to get more of the new entrants into the category. I guess with the multi-brand strategy, we are in a very good position if we can take the consolidation period in the coming quarters in the color cosmetic area.
The next question comes from Helen Sh u with CITIC Securities. Please go ahead. Helena, your line is open, and you may ask your question to management.
[audio distortion]
The next question comes from Helen Shu with CITIC Securities. Please go ahead.
Good evening. Helen Shu from CITIC. I have three questions. The first one.
Helena, your line is open and you may ask your question to management.
Can you hear me? Hello, can you hear me?
Sorry, we can't hear you. We cannot. Can you repeat your question?
Sorry. Can you hear me?
It's much better now.
Okay. Helen Shu from CITIC. I have three questions. First one, if we broaden our view outside the brands of what Yatsen, that's to say if we broaden our views towards all the DTC internet new brands, what are the reasons that DTC brands are bearing through weak growth, even shrink? The third, and the second question is how to improve customers' loyalty towards our brand, especially makeup. The third question is how long can the cash support our business considering the operating cash flow and the potential M&A? Thank you.
I think the first one about the DTC makeup brands, the key reason is not just the DTC makeup brands, essentially the whole China makeup market being slowed down in the Q3 and also the Singles' Day promotion. I guess one of the big part of the reason of the slowdown was due to the seasonality caused by the COVID-19. This is also why we are giving a conservative guidance in Q4 as well. Looking forward, when we are thinking about the channel strategy of our flagship brand, Perfect Diary, we believe at this stage is also an initiative and necessary step to optimize the sales channel for that brand as well. The second one, talking about the customers' loyalty. I guess there are a few things we can do. The first one is the R&D.
In the past quarters, we launched the pearl loose powder, supported by the SmartLock technology, which we developed with the. The second thing mainly because of the technology and also the product's performance. Right now we see the product growth is pretty remarkable. The second thing, talking about the loyalty is about the category expansion into the foundations, to the base makeups.
Mm-hmm.
Previously, for Perfect Diary, the brand mainly focused on the lip category and also the eye category. For those categories, mainly, color and fashion-driven. If you look at the whole makeup industry, the growth of the foundations and also the base makeup is leading the growth versus lip category and also eye category. The expansion into the base makeup for Perfect Diary is very important. That's why we launched the pearl loose powder. We launched a new BB cream. We launched a new cream foundation. Those are the new initiatives we launched in the past quarters. Right now we are seeing a pickup trend for those new initiatives. With that, I believe you will be the right path to improve the customers' loyalty. Talking about the cash question, I guess how about Irene on how to address that?
Sure. Yeah, regarding your third question on the cash, and also M&A, potential M&A. Currently we have RMB 3.6 billion cash at the end of Q3, which I think we think is sufficient to meet our operating needs for the near future, including the, you know, the potential buyback plans. As for our medium-term goal is to continue to improve our profitability and eventually, you know, break even and start profit-making, so we don't foresee the company to be losing cash for long term. Regarding M&A, we have been continuing looking at opportunities. Actually, as David mentioned, we have also recently acquired a very small skincare brand focusing primarily on microbiome or microecological brands endorsed by dermatologists. So given the
There are a lot of uncertainties right now in the global and in the China economy and also the beauty industry. For our M&A right now, we're primarily looking at small- to medium-sized transactions or brands that can, you know, prove to have high potential in future rather than looking at large transactions. Given that's our strategy right now, we think we still, you know, with our current cash level is ample for us to continue pursue new M&A opportunities in the future.
Okay. Thank you. Thank you, David and Irene.
Thank you.
Thank you.
This concludes our question and answer session. I would like to turn the call back over to management for any closing remarks.
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 contact information for IR in both China and the U.S. can be found on today's press release. Thank you again, and have a great day.
Thank you.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.