Ladies and gentlemen, good day, welcome to the Yatsen third quarter 2022 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 Investment 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 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 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 purpose only.
Please see the earnings release issued earlier today for a definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results. Joining us today on the call from Yatsen senior management are Mr. Jinfeng Huang, our Founder, Chairman, CEO, and Mr. Donghao Yang, our CFO and Director. Management will begin with prepared remarks and the call will conclude with a Q&A session. As a reminder, this conference is being recorded. A webcast replay of this conference call will be available on Yatsen's investor relations website at ir.yatsenglobal.com. I'll now turn the call over to Mr. Jinfeng Huang. Please go ahead, sir.
Thank you, Irene, and thank you everyone for participating in Yatsen's third quarter 2022 earnings conference call today. We started the year by launching a five-year strategy, outlining our plans to evolve our business and drive long-term and sustainable growth. With this strategy target as our roadmap, the management team continued to fine-tune our business model. Although negatively impacted by the softened beauty market and the resurgence of COVID-19, our skincare brands recorded solid growth in the third quarter of 2022. We have also seen improvements in gross margin, net loss and non-GAAP net loss on account of our cost optimization plan. Overall, our sales in the third quarter of 2022 continued to experience slowdowns as a result of challenging macro headings and the lower levels of consumer spending, which have been exacerbated by resurgence of COVID-19.
Beauty retail sales in the third quarter of 2022 went down by 3.2% year-over-year according to the adjusted data published by China National Bureau of Statistics. Sales of both color cosmetics and skincare products on Tmall fell by double digits year-over-year in the third quarter of 2022, extending the downward trend in the second quarter of 2022. Our total net revenues for the third quarter of 2022 declined by 36.1% year-over-year to RMB 857.9 million, meeting the high end of our revenue guidance. Let's look at our revenue mix in detail. Net revenues from skincare brands increased by 33% year-over-year to RMB 259.4 million. As a highlight, total net revenues of our fast-growing clinic and premium brands, Dr. WU, Eve Lom and Galénic, delivered solid growth of 59% year-over-year this quarter.
In terms of revenue contribution, our skincare brands contributed 31.4% of total net revenues for the third quarter of 2022, which has exceeded 30% of total net revenues for two consecutive quarters, compared with 15.1% of total net revenues for the third quarter of 2021. Our color cosmetic brands, on the other hand, saw a 48.8% decline year-over-year in total net revenues to RMB 569.3 million, reflecting the continued softness in market demand for our color cosmetics, as well as intensified industry competition from both domestic and international brands.
Gross margin for the third quarter of 2022 increased by 1 percent points to 68.9% from 67.9% for the third quarter of 2021 due to increased sales of higher growth margin products from our skincare brands, cost optimization and stricter pricing and discount policies across all our brand portfolios. Our net loss margin was 24.6% in the third quarter of 2022, representing an improvement of 3.2 percentage points from the second quarter of 2022, or 2.4 percentage points from the previous year period. Our non-GAAP net loss margin was 14.7% in the third quarter of 2022, representing an improvement of 7.1 percentage points from the second quarter of 2022, or 1.4 percentage points from the prior year period.
The improvement is attributable to our continued cost optimization. Now I will share some of the quarter's major initiatives and the developments. In the third quarter of 2022, our business teams were active in developing and strengthening our portfolio of high-performing brands tailored to Chinese consumers evolving needs and tastes. DR. WU recently launched new products infused with Triple Action Repair technology, which was proven efficacious on the iconic repair serum. We celebrated the brand's 19th anniversary with its loyal customers across China, especially those with sensitive or eczema-prone skin who seek efficient products designed for their Eve Lom achieved a robust growth despite the challenging industry environments. While the brand remained strong in premium cleanser category, we expanded to serum category by launching a Radiance Repair Retinol Serum.
Eve Lom partnered with The Harrods Tea Rooms in Shanghai to cultivate a worldly and luxurious experience for the celebrated brand. Galénic also recorded very strong online growth in the third quarter of 2022. We have gained more market share and stayed number one for two consecutive quarters in the premium serum category on Douyin. While our hero VC serum maintained its leading position, the Secret D'Excellence active serum also experienced steady growth in the third quarter of 2022. The launch of the Secret D'Excellence active serum in the third quarter of 2022 was attended by industry experts and thought leaders, and raised awareness of the brand, amplifying its leadership in the premium dermatological skincare sphere. While our color cosmetics business experienced a year-over-year decline of 48.8%, we saw improved growth margin in aggregate.
Our color brands went through channel optimization and promotion control to develop sustainable business model. Perfect Diary sales on Douyin achieved strong year-over-year growth of 97%, and it ranked number two among all color cosmetics brands. Another improvement from number three ranking it achieved last year. We have also closed underperforming offline stores throughout 2022. As a result, as of September 30th, 2022, we operated a total of 198 experience stores of the Perfect Diary brand, representing a net reduction of 88 stores since the beginning of the year. In the fourth quarter, this offline store optimization program will continue, and we are constantly monitoring the market situation of the offline retail space to best support our brand strategies moving forward. In addition to channel optimization, we are also adjusting the category mix to increase our market share in facial makeup and complexion products.
Perfect Diary's Translucent Blurring Loose Powder, an upgrade that adds antioxidant efficacy in addition to the original Smart Lock technology, gained more market share in the loose powder category on Tmall compared to last quarter. We also applied this patent technology to the newly launched Clear Cover 3-Color Concealer Palette as an attempt to expand it to other facial categories. Our robust new product launch and healthy pipeline are backed by continuous investments in R&D. R&D expenses increased to 3.9% from 2.7% of net revenues in the prior year period. We debuted at the International Federation of Societies of Cosmetic Chemists Congress with two cutting-edge technologies in September. We will continue our efforts to build a strong R&D capability as our core strategy for future growth.
We are also constantly reminded of the importance of our commitment to our environmental, social, and governance program. In the third quarter of 2022, Yatsen donated computers and projection equipment to the government of Zhongshan town, located in Guangdong Province, to help improve the township's information technology infrastructure. We are actively involved in elevating the quality of life of those in more challenging circumstances, and we will continue to take the initiative to assume corporate social responsibility and contribute our support in the future. While we expect the retail environment to remain challenging for the rest of 2022 and for the first half of 2023, we have sufficient resources to meet our strategy objectives. During the 11.11 Shopping Festival this year, we saw outstanding performance in our skincare brands. Galénic achieved high triple digits year-over-year sales growth.
Eve Lom and DR. WU got the first place in premium cleanser category and acne control category with their hero products, cleanser and Mandelik Gentle Renewal Serum, respectively, on Tmall. In summary, we have already made significant progress in our strategy evolutionary journey. With higher contribution from our skincare brands, improved gross margin, and significantly narrowed net loss in the third quarter of 2022. With the cash, restricted cash, and short-term investment balance of RMB 2.6 billion at the end of this quarter, we have sufficient resources and flexibility in pursuit of our long-term strategy goals. With that, I will now turn the call over to our CFO, Donghao Yang, to discuss our financial performance. Thank you, everyone.
Thank you, David, hello, everyone. Before I get started, I would like to clarify that all financial numbers presented today are in RMB amount, all percentage changes refer to year-over-year changes unless otherwise noted. Total net revenues for the third quarter of 2022 decreased by 36.1% to RMB 857.9 million, from RMB 1.34 billion in the prior year period. The decrease was primarily attributable to a 48.8% decrease in net revenues from our color cosmetics brand, partially offset by a 33% increase in net revenues from our skincare brand.
Gross profit for the third quarter of 2022 decreased by 35.2% to RMB 591.3 million from RMB 911.8 million in the prior year period. Gross margin for the third quarter of 2022 increased to 68.9% from 67.9% in the prior year period. The increase was primarily driven by increased sales of higher gross margin products from our skincare brands, cost optimization, and stricter pricing and discount policies across all of our brand portfolios. Total operating expenses for the third quarter of 2022 decreased by 33.1% to RMB 857 million from RMB 1.28 billion in the prior year period.
As a percentage of total net revenue, total operating expenses for the third quarter of 2022 were 99.9% as compared with 95.4% in the prior year period. Fulfillment expenses for the third quarter of 2022 were RMB 63.8 million as compared with RMB 102 million in the prior year period. As a percentage of total net revenues, fulfillment expenses for the third quarter of 2022 decreased to 7.4% from 7.5% in the prior year period. The decrease was primarily attributable to a decrease in warehouse and logistics co-cost due to optimization of our fulfillment capacity.
Selling and marketing expenses for the third quarter of 2022 were RMB 564.8 million as compared with RMB 911.3 million in the prior year period. As a percentage of total net revenues, selling and marketing expenses for the third quarter of 2022 decreased to 65.8% from 67.9% in the prior year period. The decrease was primarily attributable to the higher efficiency of online marketing activities, partially offset by store closure related expenses and provisions. General and administrative expenses for the third quarter of 2022 were RMB 194.5 million as compared with RMB 233.9 million in the prior year period.
As a percentage of total net revenues, general and administrative expenses for the third quarter of 2022 increased to 22.7% from 17.4% in the prior year period. The increase was primarily attributable to the lower total net revenues in the third quarter of 2022, creating a low base effect. Research and development expenses for the third quarter of 2022 were RMB 33.9 million as compared with RMB 35.8 million in the prior year period. As a percentage of total net revenues, research and development expenses for the third quarter of 2022 increased to 3.9% from 2.7% in the prior year period.
The increase was primarily attributable to the lower total net revenues in the third quarter of 2022, creating a low base effect. Loss from operations for the third quarter of 2022 decreased by 28.1% to RMB 265.7 million from RMB 369.3 million in the prior period. Operating loss margin was 31% as compared with 27.5% in the prior period. Non-GAAP loss from operations for the third quarter of 2022 decreased by 26.6% to RMB 162.6 million from RMB 221.7 million in the prior period. Non-GAAP operating loss margin was 19% as compared with 16.5% in the prior period.
Net loss for the third quarter of 2022 decreased by 41.7% to RMB 210.7 million from RMB 361.8 million in the prior period. Net loss margin was 24.6% as compared with 26.9% in the prior period. Net loss attributable to Yatsen's ordinary shareholders for diluted ADS for the third quarter of 2022 was RMB 0.37 as compared with RMB 0.57 in the prior period. non-GAAP net loss for the third quarter of 2022 decreased by 41.5% to RMB 126.5 million from RMB 216.3 million in the prior period.
Non-GAAP net loss margin was 14.7% as compared with 16.1% in the prior period. Non-GAAP net loss attributable to Yatsen's ordinary shareholders for diluted ADS for the third quarter of 2022 was RMB 0.22 as compared with RMB 0.34 in the prior period. As of September 30th, 2022, the company had cash, restricted cash and short-term investments of RMB 2.6 billion as compared with RMB 3.14 billion as of December 31st, 2021. Net cash generated from operating activities for the third quarter of 2022 was RMB 21.8 million compared with net cash used in operating activities of RMB 225.3 million in the prior period.
Looking at our business outlook for the fourth quarter of 2022, we expect our total net revenues to be between RMB 916.7 million and RMB 1.07 billion, representing a year-over-year decline of approximately 30%-40%. This forecast reflects our current and the preliminary views of the market and operational conditions, which are subject to change. With that, I would now like to open the call to Q&A.
Yes, thank you. At this time, we will begin the question and answer session. To ask a question, you may press star then one on your touch tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. 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. With these instructions in mind, we will pause momentarily to assemble the roster. Today's first question comes from Dustin Wei with Morgan Stanley.
Thanks for taking my questions. First question is related to the 11.11 performance. I'm wondering if management can comment in terms of the performance by brand or by, you know, skincare brands and the color brands. Do we expect that the GP margin in fourth quarter could be sequentially lower versus third quarter because of the promotion for 11.11? The second question related to the performance for the skincare brands in third quarter. It sounds like excluding Abby's Choice, the other three major skincare brands perform pretty strongly. Could you sort of elaborate a little more in terms of, you know, maybe provide a range of the performance or, you know, some of the different strategy and their progress?
Just, you know, from management's perspective, the key skincare brands performance is kind of a little ahead of the expectation or there's something more to do?
Thank you. First question for the 11.11 results. For skincare brands, right now our Galénic, Eve Lom and Dr. Wu achieved robust sales growth in 11.11 with GMV higher than RMB 100 million for each of the brands. Some of the hero products of each of the brand are performing quite well. I think Galénic has high triple digit year-on-year sales growth and also achieved as the top of the new brands for Tmall 11.11s. For the VC serum is also a high triple digit year-on-year sales growth. We also launched a new product, the Secret Essence Serum, and that becomes the imported essence top-selling for the top five.
Eve Lom still continue to taking the number one premium cleansing cleanser category. Also for DR. WU, right now, the Renewal Serum is already pretty strong in the acne control category. Some of the new products of DR. WU are performing really well, especially the Triple Action Repairing Serum is ranking as a top four repair serum on Tmall. Looking forward, I think the some of the hero products of the skin care brands will help to contribute the growth of the brands and in aggregate improving the percentage of the revenue of our total revenue in the future. For color cosmetics, well, I think right now, our color brands are still facing a pretty big challenge.
Also, Perfect Diary has been undergoing a turnaround. We prioritize profitability, and we applied a very strict pricing and discount policies across all those color brands, in order to improve the growth margin and also improve the profitability, as well as protecting the brand image. Looking forward for Q4, I think we are on the right trend to continue optimizing the growth margin and also the bottom line.
Well, on your second question, gross margin. Well, gross margin has a lot to do with the category mix and inventory provision, a lot of things. We're not in position to make comment on the gross margin in Q4. What I can tell you is, over the long term, as our skincare business grows stronger and take a higher percentage in the total product mix, we believe in the long term, you know, our gross margin will see an upward trend.
Got it. Thank you. Can I ask one more question related to sort of the expenses and the restructuring? Understanding that company has been focused on like, you know, store closure, organization optimization, et cetera. Sort of can we have an update on the status now? Like, do we expect that those exercise will be pretty much done in the fourth quarter this year? You know, some of those will continue into the 2023, depending on the macro environment.
Is there some number that you can share in terms of the sort of one-off costs, like for the full year this year to date, you know, including the human resource, like, you know, severance costs or, you know, one-off store closure costs, you know, kind of one-off expenses that we likely won't see in 2023?
All right. We have been pretty aggressive in closing the non-performing stores, due to mostly the challenges in our macroeconomic situation, especially caused by COVID-19. At the beginning of this year, we have, you know, more than close to 300 stores. According to our current plan, by the end of this year, you know, we're gonna have, you know, about 100 stores, including, you know, self-operated stores and the franchise stores. Well, in terms of the expenses that we've incurred in the during the process. Well, it has been quite substantial. We can provide you with the breakdown if you want, you know, after this call.
Going into next year, I don't think we're gonna incur, you know, substantial loss or, you know, substantial expenses, due to store closure related, you know, provision expenses. Now I think we have reduced the total number of stores to a very manageable level.
Got it. Thanks a lot for answering my questions.
Sure. Thank you.
Thank you. The next question comes from Huanyi Lin with CICC.
Hi. Thanks for taking my questions. I've got two questions. The first one regarding color cosmetics. It seems that sales of color cosmetics keep decreasing each quarter. However, we still believe in the company's competitive edge in color cosmetics, as well as the brand asset of PD. At what time or what sales size do management expect the color cosmetics will return to growth? This is the first question. My second question is related to guidance for the fourth quarter. The total net revenue is expected to decrease by 30%-40% in the fourth quarter. Could you elaborate more about the trend of color cosmetics and the skincare with just break down by category? Thanks.
Yeah, sure. For Perfect Diary, actually, you can see for the past three quarter, the color cosmetics in total, the year-over-year decline is in a similar similar scale. We're not actually changing. It's more a stable trend by now. In terms of what we're doing for Perfect Diary right now, the key goal is to achieve profitability. How we're going to do that, we think there are two major p lans that we're undergoing right now.
One is in terms of channel optimization, and the second one is on the product category optimization. On the channel one, we have alluded earlier is that offline right now because of the challenging macro environment. We're closing down the, a number of stores that will, you know, contribute to the sales decline, but we think that will likely to stabilize by the end of this year. Secondly, in terms of channel mix, you can see all the online channel color cosmetics are also dropping except for Douyin. We're also investing heavily on Douyin to promote the growth and attracting customers. For this quarter, our Douyin has experienced a year-over-year increase of 97%.
That part we're pretty comfortable and continues to hope to do well on the Douyin part. That's about the channel optimization. On the product category optimization, Perfect Diary used to have very high market share on the lip and also eye category. In terms of complexion facial makeup, that's actually a larger market that we think we need to tap in and also increase our market share. As mentioned in our conference call, right, we are introducing a number of complexion products which are endorsed by our Smart Lock technology. We're seeing quarter-over-quarter increase of market share in the facial makeup.
That's another driver we think will help Perfect Diary's brands turn around and likely turn into a more healthy trend next year.
Well, regarding the second question about our guidance for Q4, you know, we're guiding the market that, you know, our total revenue is gonna decline by 40%. The decline will come, you know, primarily from our color cosmetics business, offset by our fast growth of our skincare business. The general trend of our business, and especially our category mix, in the future will be, you know, very fast and healthy growth in our skincare business. In the meantime, you know, we're working very hard to try to turn around our color cosmetics business.
Got it. Thanks a lot. I have no other questions.
Thank you.
Thank you. Once again, please press star then one if you would like to ask a question. Our next question comes from Olivia Tong with Raymond James.
Great. Thanks. Good morning. I wanted to ask you about your view on the competitive environment, local brands versus international brands, how they stack up, particularly with Eleven Eleven, and then also your thoughts as you go into next year. Specifically for you about fiscal 2023, the Q4 guide would suggest that on a two-year stack basis on revenue, that the sales deceleration starts to. It's a greater deceleration in sales. As you think about the go forward over the next 12 months, is your view that that's sort of the steady-state pace now, or is there something that changes materially as you go into fiscal 2023? Thank you.
I think the market, the growth for the total beauty market right now is already almost zero or sometimes even declining. Basically, the competition will be intense. That's I think it's normal in this market. If we're looking at the international players, they still invest a lot and also continue to give discounts basically for the whole year since 11.11 last year. For domestic brands, I think the new brands emerging has kept those challenge for the beauty industry in the past two or three years, especially on the fast-growing Douyin platform.
For us, I think, we will be more focused on our strategy instead of focused on the external competition. Right now we have a very clear strategy to grow our skincare brands in the portfolio and also to turn around our color business. Profitability will be the priority. Skincare brand will be the priority. When we look forward, I think, we are executing the strategy consistently. We will continue to move forward with that very clear strategy in the future as well.
Your second question about our next year's outlook. Well, first of all, we do not provide guidance for our, for any time horizon beyond the next quarter. Anyway, Well, for 2023, I think the decline in our growth rate, I don't think it will be as, you know, as deep as this year, for a number of reasons. One, you know, we've been working very hard to turn around our color cosmetics business, and we've seen some very good positive signs, in our efforts. Secondly, you know, we've got, you know, very strong growth in our skincare business, which we believe will continue into, you know, next, well into next year. If you consider these two trends together, I think overall our, you know, next year, I think our growth rate of our business will start to stabilize, if not turn positive, from a year-over-year standpoint.
Thank you so much.
Thank you.
Thank you. That concludes the question and answer session. I would like to turn the conference back over to management for any closing comments.
For joining us today. If you have any further questions, please feel free to contact us at Yatsen directly or through TPG Investors . Our company information for IR in both China and the U.S. can be found in today's press release. Have a good day. Thank you.
Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.