Yatsen Holding Ltd. Q4 FY2024 earnings call

• China's beauty industry was subdued in 2024 with beauty sales underperforming the overall retail market.
• In the fourth quarter, net revenues grew in line with guidance, gross margin improved, and profitability enhanced. For the full-year, net revenues were stable, skincare revenue占比 increased, and profitability also improved.
• Key initiatives: Balancing revenue mix to support skincare brand growth; refining product and channel mix for color cosmetic brands; investing in R&D with a promising pipeline of new products; implementing cost cutting measures and enhancing operating efficiencies.
• Skincare segment: Galénic delivered solid performance, maintained leading positions of its products and won beauty awards.
• Color cosmetic segment: Perfect Diary made progress in strategic transformation with refreshed product lineup, and achieved revenue growth on Douyin and offline channels.
• R&D: Expenses represented 3.2% of total net revenues for the full-year 2024, and had notable research highlights like appearing at IFSCC conference and research featured in world-leading journals.

In the fourth quarter of 2024, total net revenues grew by 7.1% year-over-year to RMB 1.15 billion. Color cosmetics revenues were up 16.4% for the quarter, and the combined revenues from three clinical and premium skincare brands (including Galénic, DR.WU and Eve Lom) achieved year-over-year growth of 3%. For the full-year 2024, total net revenues declined by only 0.6% year-over-year. Skincare revenues grew by 0.7%, accounting for 41.1% of the 2024 full-year total net revenues, a record high. The gross margin in the fourth quarter increased to 77.8% from 73.7% in the prior year period, and for the full-year, gross margin increased from 73.6% to 77.1%. On a non-GAAP basis, the fourth quarter achieved a net income margin of 9.3% compared to a prior year period non-GAAP net loss margin of 8.7%, and the full-year non-GAAP net loss margin improved to 3.8% from 8.7% in 2023.

• Expect total net revenues for the first quarter of 2025 to be between RMB 788.8 million and RMB 866.2 million, representing a year-over-year increase of approximately 2% to 12%.

• Discussion contains forward-looking statements subject to certain risks and uncertainties, assumptions and other factors. Some risks are beyond the company's control and could cause actual results to differ materially from those mentioned. Specific risk factors are included in certain filings with the Securities and Exchange Commission.

Q: With such a performance in Q4, how should we expect our profitability in 2025? And about our strategy for different categories as color cosmetic brands began to grow faster than skincare in Q4. How will we allocate our resources between Color Cosmetic and Skincare, and which category will be the more important growth driver in the future?

A: The beauty market looking forward the headwinds will persist, price competition will be intensified and consumer will be more rational. To balance growth and profitability, we need to maintain and even improve gross margin growth through brand equity strengthening and R&D investment. Skincare will be the key stable growth engine. For color cosmetic, transformation of Perfect Diary has gained outcomes and high growth, high repurchase and competitive products will contribute to sustainable growth. We will devote resources into the fast-growing category and with long-term sustainability by balancing skincare and makeup, focusing on competitive products in the market, expanding products and benefit spaces of brands like Galénic, Perfect Diary and Dr.Wu.