Ladies and gentlemen, good day and welcome to the Yatsen fourth quarter and full year 2022 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Irene Lyu, Vice President, Head of Strategic Investments and Capital Markets. Please go ahead.
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 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 risks 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.
Please see the earnings release issued earlier today for 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 proceed with a Q and 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 fourth quarter and full year 2022 earnings conference call today. 2022 was a year of transformation for Yatsen. Early in the year, we launched our new five year strategy plan with an eye towards long-term sustainable growth and began refining our product category mix, channel mix, and business model accordingly. This roadmap guided our steps amid the myriad challenges in 2022, including the recurrent COVID-19 outbreak and related lockdowns. China's beauty industry continues to struggle with this macro headwind, and consumer sentiment remained weak overall. Nevertheless, o ur skincare brands remained a bright spot for 2022, recording solid growth in sales. We also achieved significant profitability improvement, both increasing gross margin and narrowing net loss margin, and turned profitable under non-GAAP measures for the fourth quarter of 2022.
According to the adjusted data published by the National Bureau of Statistics of China's total beauty retail sales in the fourth quarter of 2022 recorded a negative growth of 3.1% year-over-year. While for the full year 2022, China's beauty retail sales declined by 3.2% year-over-year. On Tmall, color cosmetic sales fell by double digits, and the sales of skincare products experienced a single-digit decline year-over-year in 2022. However, we have seen a light at the end of the tunnel. With the resumption of offline activities and the adjustment of COVID restrictions, the consumer market is well on its way to a recovery in 2023. Against this backdrop, our overall sales slowed down throughout the year.
Total net revenues declined by 34.2% year-over-year in the fourth quarter to RMB 1.01 billion. We need to look at our revenue mix in details to see the full picture. Net revenues for our skincare brands increased by 42.4% year-over-year to RMB 471.6 million, highlighted by outstanding performance among our fast-growing clinical and premium brands, including DR.WU, Galénic, and Eve Lom, which recorded a robust growth of 73% year-over-year, and a 99.3% year-over-year in combined net revenues for the fourth quarter and the full year of 2022, respectively.
In terms of revenue contribution, our skincare brands accounted for 46.9% of total net revenues in the fourth quarter and 33.5% for the full year of 2022, more than doubling compared with the prior year period in both cases. Our color cosmetic brands, on the other hand, saw a decline of 56.9% year-over-year in sales to RMB 513.4 million, reflecting the continued softness in the market demand for color cosmetics products, as well as intensified industry competition from both domestic and international brands. As we move into 2023, we will continue to build on our skincare portfolio's success while addressing the challenges in the color cosmetics landscape. Turning now to profitability.
Thanks to higher contribution from our skincare brands, more disciplined pricing and discount policies, and continued cost optimization across all our brands, our gross margin increased by 6.1 percentage points to 71.1% for the fourth quarter from 65% a year ago. Net loss margin for the fourth quarter narrowed to 5.5% from 31.1% for the prior year period. Most importantly, we recorded a non-GAAP net income margin for 3.4% for the fourth quarter as compared with the non-GAAP net loss margin of 14.7% for the third quarter and the non-GAAP net loss margin of 21.9% for the prior year period. We have been striving to achieve non-GAAP profitability by elevating operational efficiency and closing underperforming offline stores, among other cost optimization measures.
Next, let me share some of our operational highlights from the fourth quarter and the full year 2022. Throughout the year, we created and delivered products tailored to Chinese consumers' preferences. Laneige enjoyed broad success, including with two featured products at the China International Import Expo as its Anti-Oxygen No.1 VC Serum and its newly upgraded Platinum Snow Algae Serum. The latter also ranked among the top five imported serums on Tmall during the Double 11 shopping festival. At the same time, DR.WU's Mandelic Daily Renewal Serum took the No. 1 position in both Tmall's acne treatment and Douyin's domestic serum categories, while Eve Lom's iconic cleansing serum, the cleansing cream, ranked third among high-end cleanser products on Tmall.
For our color cosmetic brands, we focused on cost optimization, given the overall softening in the color cosmetics market, as well as our own strategy goals for the fourth quarter. Going forward, with a more sustainable business model in mind, we will continue to develop our color cosmetic products portfolio to capitalize on anticipated consumption re-rebound in 2023. In addition to product development, branding is another key pillar of our strategy transformation. We strive continually to enhance the brand image and the positioning of our various brands among our diverse consumer cohorts. For example, Eve Lom hosts its Eternal Gold-themed global luxury club in four cities globally, while also sharing its offline thermal wax therapy experience with Chinese audience at Eve Lom Spa China Wellness Summit in October 2022.
Perfect Diary's ReadMe Liquid Lipstick was awarded the 2022 National Consumption Word of Mouth Product by People's Daily, a powerful commendation of its brand influence. In terms of channel optimization, we selectively closed offline stores and aggressively promoted our Douyin presence to diversify our online channels. As of December 31st, 2022, we operated 158 offline experience stores for the Perfect Diary brand as compared with 286 stores at the end of 2021. This strategy shift has enabled us to cut costs while still enjoying brand exposure across the country. Among our major online channels, Douyin stood out with its relatively high growth. Sales of our products on Douyin grew rapidly throughout 2022.
Next, I would like to share some highlights of the progress we have made with our continuous investment in R&D, which provides vital support to new product launches and long-term development of our brands. For the full year 2022, our R&D expenses increased to 3.4% of total net revenues from 2.4% for the prior year period. In November, we officially signed a joint laboratory cooperation agreement with Tsinghua University for skin health research. An exciting partnership that will enable us to further explore opportunities in both color cosmetics and skincare. We are also thrilled to announce the appointment of our new Chief Scientific Officer, Ms. Jing Chen . She has over 25 years experience in research and development in the beauty industry. Prior to joining Yatsen, Ms.
Chen worked at Estée Lauder for 17 years, serving in a number of senior management and research positions, including as Vice President of APAC R&D since July 2014. From July 20th, 2001 to January 2005, she worked at Revlon, leading technical, quality control, laboratory, and manufacturing organizations. With our CSO on board, we will remain focused on strengthening our R&D capabilities as our core strategy for future growth and product differentiation. Before I wrap up, I would like to mention our environmental, social, and governance performance in 2022. In the latest ESG rating published in December 2022 by the world largest index company, MSCI, we were upgraded to level A, leading China's cosmetic brands. This upgrade clearly reflects our endeavors to improve our product eco-design and carbon footprint, our employee wellness initiatives, and our corporate governance, among other ESG enhancements.
We also devoted more resources to multiple social welfare programs at both the company and brand level. Laneige, for instance, launched a new Pink October limited edition of its Aqua Infini-Infinity Treatment lotion in support of breast cancer research. As always, we remain deeply committed to upholding our corporate social responsibility, will continue to seek new ways to support people and communities in need. While we expect the retail environment to remain challenging for the first half of 2023, we remain confident about the progress of China's beauty industry. We made significant progress in our strategy transformation in 2022, have reserved sufficient resources to achieve our strategy objectives in 2023. With growing contributions from our skincare brands, improved gross margin, and streamlined operations, we are well-positioned to execute with agility and capitalize on rising opportunities as the consumer market recovers.
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 amounts, and all percentage changes are referred to year-over-year changes, unless otherwise noted. Total net revenues for the fourth quarter of 2022 decreased by 34.2% to RMB 1.01 billion from RMB 1.53 billion for the prior year period. The decrease was primarily attributable to a 56.9% year-over-year decrease in net revenues from color cosmetics brands, partially offset by a 42.4% year-over-year increase in net revenues from skincare brands. Gross profit for the fourth quarter of 2022 decreased by 28% to RMB 714.6 million from RMB 993 million for the prior year period.
Gross margin for the fourth quarter of 2022 increased to 71.1% from 65% for the prior year period. The increase was driven by increasing sales of higher gross margin products from our skincare brands, second, stricter pricing and discount policies, third, cost optimization across all of our brand portfolios. Total operating expenses for the fourth quarter of 2022 decreased by 47% to RMB 792.9 million, from RMB 1.49 billion for the prior year period. As a percentage of total net revenues, total operating expenses for the fourth quarter of 2022 were 78.9% as compared with 97.8% for the prior year period.
Fulfillment expenses for the fourth quarter of 2022 were RMB 62.5 million as compared with RMB 123.1 million for the prior year period. As a percentage of total net revenues, fulfillment expenses for the fourth quarter of 2022 decreased to 6.2% from 8.1% for the prior year period. The decrease was primarily attributable to a decrease in warehouse and logistics costs due to the outsourcing of most of our warehouse and handling operations. Selling and marketing expenses for the fourth quarter of 2022 were RMB 535.2 million as compared with RMB 1.08 billion for the prior year period.
As a percentage of total net revenues, selling and marketing expenses for the fourth quarter of 2022 decreased to 53.2% from 70.7% for the prior year period. The decrease was primarily attributable to the closure of underperforming offline stores, reduction in marketing event related expenses, and higher efficiency of online marketing activities. General and administrative expenses for the fourth quarter of 2022 were RMB 170 million as compared with RMB 248.7 million for the prior year period. As a percentage of total net revenue, general and administrative expenses for the fourth quarter of 2022 increased to 16.9% from 16.3% for the prior year period. The increase was primarily attributable to the deleveraging effect of lower total net revenues in the fourth quarter of 2022.
Research and development expenses for the fourth quarter of 2022 were RMB 25.1 million as compared with RMB 43.3 million for the prior year period. As a percentage of total net revenues, research and development expenses for the fourth quarter of 2022 decreased to 2.5% from 2.8% for the prior year period. The decrease was primarily attributable to the planning of research and development activities to maintain research and development expenses at a reasonable level relative to net revenues. Loss from operations for the fourth quarter of 2022 decreased by 84.4% to RMB 78.2 million from RMB 501.8 million for the prior year period. Operating loss margin was 7.8% as compared with 32.8% for the prior year period.
Non-GAAP income from operations for the fourth quarter of 2022 was RMB 11.5 million as compared with non-GAAP loss from operations of RMB 360.9 million for the prior year period. Non-GAAP operating income margin was 1.1% as compared with non-GAAP operating loss margin of 23.6% for the prior year period. Net loss for the fourth quarter of 2022 decreased by 88.4% to RMB 55 million from RMB 475.1 million for the prior year period. Net loss margin was 5.5% as compared with 31.1% for the prior year period.
Net loss attributable to Yatsen's ordinary shareholders per diluted ADS for the fourth quarter of 2022 was RMB 0.09 as compared with RMB 0.75 for the prior year period. Non-GAAP net income for the fourth quarter of 2022 was RMB 34.7 million as compared with non-GAAP net loss of RMB 335.1 million for the prior year period. Non-GAAP net income margin was 3.4% as compared with non-GAAP net loss margin of 21.9% for the prior year period. Non-GAAP net income attributable to Yatsen's ordinary shareholders per diluted ADS in the fourth quarter of 2022 was RMB 0.06, as compared with non-GAAP net loss attributable to Yatsen's ordinary shareholders per diluted ADS of RMB 0.53 for the prior year period.
Now, I'd like to briefly walk through the highlights of our full year results. Total net revenues for the full year of 2022 decreased by 36.5% to RMB 3.71 billion from RMB 5.84 billion for the prior year period, primarily attributable to the decline in net revenues from color cosmetics brands, partially offset by the increase in net revenues from skincare brands. Gross profit for the full year of 2022 decreased by 35.4% to RMB 2.52 billion from RMB 3.9 billion for the prior year period. Gross margin for the full year of 2022 was 68%, as compared with 66.8% for the prior year period.
The increase was primarily attributable to, first, the increasing sales of higher gross margin products from skincare brands. Second, stricter pricing and discount policy. Third, cost optimization across all of the company's brand portfolios. Loss from operations for the full year of 2022 was RMB 928.9 million as compared with loss from operations of RMB 1.62 billion for the prior year period. Non-GAAP loss from operations for the full year of 2022 was RMB 539.3 million as compared with non-GAAP loss from operations of RMB 1.05 billion for the prior year period. Net loss for the full year of 2022 was RMB 821.3 million as compared with net loss of RMB 1.55 billion for the prior year period.
Net loss attributable to Yatsen's ordinary shareholders for diluted EPS for the full year of 2022 was RMB 1.37 as compared with RMB 2.44 for the prior year period. Non-GAAP net loss for the full year of 2022 was RMB 462.9 million as compared with non-GAAP net loss of RMB 980.6 million for the prior year period. Non-GAAP net loss attributable to Yatsen's ordinary shareholders for diluted EPS for the full year of 2022 was RMB 0.76 as compared with RMB 1.54 for the prior year period.
As of December 31, 2022, the company had cash, restricted cash and short-term investments of RMB 2.63 billion as compared with RMB 3.14 billion as of December 31, 2021. Net cash generated from operating activities for the fourth quarter of 2022 was RMB 106.6 million, as compared with net cash used in operating activities of RMB 250 million for the prior year period. Net cash generated from operating activities for the full year of 2022 was RMB 136.2 million, as compared with net cash used in operating activities of RMB 1.02 billion for the prior year period.
Looking at our business outlook for the first quarter of 2023, we expect our total net revenues to be between RMB 623.7 million and RMB 712.8 million, representing a year-over-year decline of approximately 20%-30%. These forecasts reflect our current and preliminary views on the market and operational conditions, which are subject to change. With that, I would now like to open the call to Q and A.
We will now begin the question- and-a nswer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you'd 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. My first question related to the balance between the sales and the profit. I think it's pretty encouraging to see the profitability for Q4 at a non-GAAP definition. But looking into 2023, how should we think about the growth, kind of, you know, for the business especially, I think Q1 seems to be remain a little challenging. I think partly because of the recovery is not very fast, but partly seems to be also company strategy continue to maybe lower the discount, the promotion in order to have still very high gross margin.
The result of down like 20%-30% for fourth quarter seems that we are still, you know, sort of want to hear from the management what's the process where, you know, where we are in terms of that balance between the growth and the profitability? The second question is also related to the first quarter. Wondering if you could provide some of the breakdown by, for instance, like the skincare brands or color makeup brands in that 20%-30% year-on-year decline? Standing at this point, compared to maybe December last year when the reopen just happened or early this year, do you think actually that trend is, you know, beat management's expectation or a little behind expectation?
What did you observe in terms of consumers behavior, the demand after the reopening? The third question is sort of it would be great if you can talk about some of the growth target or strategy for your major brands like including Perfect Diary, Pink Bear, DR.WU, Galénic. What would you like them to grow or you know, which channel? You know, you can quantify some of the numbers that would be very helpful. Thank you very much.
All right. Thank you very much, that's a real question. Your first question is the relationship between sales and profitability. We would strongly encourage you to actually look at our color makeup business separately from our skincare business. If you look at our skincare business, actually, our major skincare brands are actually growing with decent profitability, you know, with pretty high gross margin and, you know, decent operating profit. Our color makeup business is actually a different story. You know, If you look at Perfect Diary, for example, we're trying to turn around that brand.
Hopefully, you know, the open up of the lockdown policy, you know, will help us in our effort to turn around Perfect Diary this year. At some point in time down the road, you know, Perfect Diary brand can, you know, return to its growth trajectory. I'm sorry, you know, we're not providing that kind of detailed breakdown. As I said earlier, you know, for our skincare products brands, you know, we will continue to try to grow those brands and while at the same time maintaining a, you know, a decent profitability. For color makeup brands, you know, we're working very hard to try to turn around our biggest brand, Perfect Diary.
Hopefully, you know, we can show you guys some positive results, you know, in the next few quarters.
Yeah. Let me just add a little bit more on the guidance behind our Q1. We provide a guidance for first quarter top line of 20%-30% year-over-year decline. Even though it's still declining, but you can see the level of decline has been sequentially narrowing down since the second quarter of 2022 as our strategic transformation plan carries out. Specifically for the Q1, we think the guidance reflects three main drivers. First is, we see a stronger seasonality pattern due to the higher contribution from our skincare brands. First quarter usually is a low season for the skincare business after the Double 11, Double 12 shopping festivals in Q4. That is number one. Secondly, we're still continuing our cost optimization, especially for the color cosmetics business. And our primary...
Our major new product pipeline for the color cosmetics is expected in the second half this year. The third reason is still last quarter, first quarter, we still have a high base of comparison, which was the result of a larger scale of offline business. If you look at last year end, we still have 286 stores for Perfect Diary and versus last year, 2022 year end of only 158 stores. That's for guidance. I think, Dustin, you have the third question of the development of our brands. We still look at them by the two categories. The first one is our skincare brands.
Right now you can see for our three major skincare brands, which is the clinical and the premium brands, the growth rate has been really high consecutively over the past three quarters. If you look at the whole year, DR.WU, Galénic, plus Eve Lom in total, grew by 99% for the full year. Even though those three brands experienced high rates, we think all of these brands still have high growth potential given their market size and also market share of their core category is still relatively low. Currently for each brand, we only have one to two hero products. What we are planning to do for all these three brands are two things. First, continue to increase the current existing hero product market share and continue developing the brands with those focus.
Secondly, a healthy new product pipeline by introducing the second or third hero product, while also increasing cross-sales of adjacent products. That's for skincare. For our color cosmetics business, Perfect Diary is still the largest brand. What we are planning for Perfect Diary, as mentioned earlier, we do see a recovery of consumption in the makeup business. We think the recovery will be more prominent in the second half of this year. For that, we have a healthy new product pipeline, and we're still adjusting the product mix and channel mix for this brand. For product mix, we would like to increase the contribution from the facial makeup. We do have some new products on that area in later half this year.
Our channel mix adjustments for offline business, we think we have already done most of the adjustments. Depending on development of the offline market this year, we'll continue to do some adjustments to accommodate the new trends and for online to continue capitalize on the new channels to attract new customers.
That's all very helpful. Thank you very much.
Again, if you have a question, please press star then one. The next question comes from Jian Yi with CICC. Please go ahead.
Thanks for taking my questions. This is Jian Yi from CICC. I've got two questions. The first one regarding skincare. We have seen a continuous increase in sales contribution from our skincare brands. What are our expectations for future sales contribution and a normalized profitability in the skincare category? The second question regarding offline channels. As of December 31, 2022, the company operates over 150 offline stores. How well have these stores performed in terms of top-line revenue and profitability this year? Furthermore, what is the company's outlook and plans for developing our offline channels? Thank you very much.
All right. Well, thanks for your question. Your first question, we do expect our revenue contribution from our skincare brands, to exceed at least 50% or maybe even higher in the longer term. The profitability, and for our clinical and premium skincare brands, I believe in over the long term, operating margin can be, you know, in the mid-teens or if not higher, I mean, operating margin. Offline channel, you know, we've downsized our offline stores significantly last year from close to 300 to about 150. Obviously the stores we're still running are those that are relatively with relatively better profitability.
For when we look at the offline store performance for January and February this year, thanks to the recovery of offline consumption due to the opening up of the lockdown policies, you know, most of our offline stores have actually come back in terms of same-store sales. Most of the stores, at least for the first two months of this year, you know, were profitable. We do hope that this trend will continue well into the latter part of the year. You know, we continue to see profitability from our offline channel. Going forward, I think in the future, it really depends on, you know, whether we can now...
We can find a appropriate growth strategy for our offline store and the, you know, appropriate product mix in order to drive the, you know, the growth of the offline business. we will make adjustments or changes to our growth strategy for the offline channel as we see fit or as the market situation continues to evolve.
Oh, that's very helpful. Can I just add one more question? What do you see the operating margin for the color cosmetics in the long run?
Well, for color makeup business, generally the margin profile is lower compared to that of skincare brands. If you look at those, you know, major International Color Makeup brands, and then typically the operating margin could be in the low to mid teens and net margin, mid to high single digits as a reference point.
Okay. Thanks a lot for your insight for sharing. I have no more questions. Thanks.
Thank you.
The next question comes from Olivia Tong with Raymond James. Please go ahead.
Hi, good evening. This is Devan Weinstein on for Olivia, and I appreciate you taking our questions. I wanted to start out asking you perhaps a bit more broadly what you're seeing on the consumer front as China continues to reopen, what you're seeing across the beauty category, across the different subcategories, makeup, skincare, and perhaps how the consumer is shifting their spending behavior between channels. Second question would be your view on promotion as travel continues to recover and consumer mobility improves, and perhaps how your expectations for promotion across e-commerce and brick-and-mortar channels would vary. Thank you.
Sure. The first question on, I know the outlook of the beauty market in China. We're currently cautiously optimistic about the outlook in 2023 and probably more confident in long-term growth of China beauty market. The recent lift of the quarantine travel restrictions definitely frame more social activities, which is a positive factor for both the makeup and skincare category. However, there's still uncertainty on the path to full recovery. As it reopens in last December, followed by an outburst of the pandemic and the rebound of the consumption beauty hasn't really been very clear in the first quarter of 2023. We do see a rebound of traffic in offline, the consumption level and the spending is still tracked with the COVID situation.
We think as, you know, the reopen continue and people's disposable income continues to recover, we do expect a rebound of the beauty market probably happen in the later half this year. That's why we plan to allocate more marketing resources, also new product launches in the second half of this year. Regarding your second question on promotions, we think we talked about this a couple times in the past earnings call. We still expect the international players to continue their heavy promotion, which began during the pandemic, because we think it's still one of the key drivers for their growth in China, and China growth is the key driver for their global growth. If they don't continue with the heavy promotion, they may lose the pricing competitiveness and as a result, losing market share.
As the travel retail channel is likely to accelerate, the international players may adjust their price policy to balance the travel retail and e-commerce in the China market. That's our current thought on the beauty outlook and the current competitive landscape in China.
Thank you. I appreciate your time.
Thank you.
That concludes the question and answer session. 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 Yatsen directly or at Yatsen Investor Relations. Our contact information for IR in both China and the U.S. can be found in today's press release. Thank you and have a great day.
The conference has concluded. You may disconnect your line.