Yatsen Holding Limited Q2 FY2026 earnings call

• Strategic Shift to Skincare: The company has fundamentally shifted its revenue mix toward skincare, which now accounts for over 70% of total revenues, driving sustainable growth despite broader industry headwinds.
• R&D and Innovation: R&D expenses remained stable at 3.3% of total net revenues. The Global Innovation R&D Center received national high-tech enterprise recognition, and Dr. Wu published three studies in international SCI journals validating scientific capabilities.
• Product Portfolio Expansion: New product launches included Galanique’s reviving eye cream, Dr. Wu’s essence masks for oil control and hydration, and Yves Long’s second-generation VITAL-DU collection.
• Brand Engagement: High-impact campaigns included Dr. Wu’s CCTV.com live stream (178 million viewers), Galanique’s pop-up in Sanya, and Yves Long’s participation in the British Beauty Festival.
• Profitability Optimization: Growth margin was impacted by one-time inventory provisions in color cosmetics; underlying margins were stable. Selling and marketing expense ratios rose due to strategic investments in Douyin and brand building.
• Operational Efficiency: Fulfillment expenses decreased as a percentage of revenue (to 4.9%) due to logistics improvements. AI integration is being accelerated across operational workflows to drive productivity.
• Leadership Update: Ms. Wang Li appointed as Chief Financial Officer, bringing extensive experience in the consumer beauty industry to support cost structure optimization.

Total net revenues increased 5.1% year-over-year to RMB 1.14 billion. Skincare brands delivered exceptional performance, with revenues growing 40.4% year-over-year and now representing 71.5% of total net revenues. Conversely, color cosmetics brands saw a significant decline, with revenues dropping 35.8% year-over-year due to proactive portfolio optimization and SKU rationalization.

• Third Quarter 2026 Total Net Revenues: Expected between RMB 898.6 million and RMB 998.4 million.
• This represents a year-over-year decrease of approximately 0% to 10%.
• Management noted these forecasts are preliminary and subject to change based on market conditions.

• Industry Headwinds: Broad-based challenges in the domestic beauty industry, including growth deceleration among competitors.
• Consumer Behavior: Increasing promotional fatigue and more rational consumer behavior impacting sales effectiveness during major shopping festivals.
• Competitive Landscape: Intense competition leading to higher traffic acquisition costs, particularly on key digital platforms like Douyin.
• Inventory Risk: Proactive SKU rationalization in color cosmetics led to higher inventory provisions, impacting short-term margins.

Q: Analyst asked about channel expansion strategies for skincare brands and how management plans to address rising online traffic costs and improve marketing efficiency. / A: Management outlined a shift toward diversified channels beyond core online platforms (Tmall/Douyin) to include B2B, offline distribution, duty-free, and professional/OTC channels, which offer lower traffic costs and healthier profitability. To combat rising digital traffic costs, the company is reallocating resources to high-growth skincare brands (now >70% of revenue), expanding into lower-cost B2B/professional channels, and leveraging AI and improved CRM/content strategies to enhance budget efficiency without cutting essential investment.