Yunji Inc. (NASDAQ:YJ) Q1 2024 Earnings Call Transcript June 11, 2024

Operator: Good morning, and good evening ladies and gentlemen. Thank you for standing by and welcome to Yunji's First Quarter 2024 Earnings Conference Call. With us today are Mr. Shanglue Xiao, Chairman and Chief Executive Officer; Mr. Yeqing Cui, Senior Financial Director; and Ms. Kaye Liu, Investor Relations Director of the company. As a reminder, this conference call is being recorded. Now I would like to hand the conference over to our first speaker today, Ms. Kaye Liu, Investor Relations Director of Yunji. Please go ahead, ma'am.

Kaye Liu : Hello everyone. Welcome to our first quarter 2024 earnings call. Before we start, please note that this call will contain forward-looking statements within the meaning of the Private Security Litigation Reform Act of 1995 that are based on our current expectations and current market operating conditions and relate to events that involve known and unknown risks, uncertainties and other factors of Yunji’s industry. These forward-looking statements can be identified by terminologies such as will, expect, anticipate, continue or other similar expressions. For a detailed discussion of these risks and uncertainties, please refer to our latest document filed with the U.S. SEC. Any forward-looking statements that we make on this call are based on assumptions as of today and are expressly qualified entirely by cautionary statements, risk factors and details of the company filing with the SEC.

Yunji do not undertake any obligation to update these statements expect as required under applicable law. With that, I will now turn over to Shanglue Xiao, Chairman and CEO of Yunji.

Shanglue Xiao : [Interpreted] Hello everyone, welcome to Yunji's first quarter 2024 earnings call. The first quarter is in traditionally an off-peak season for e-commerce. We seize the opportunity to further refine our operations, allow us to maintain a solid growth margin. As consumers' appetite for pursuing a better life intensifies, we are laser-focused on driving high-quality growth by centralizing average order values and gaining deeper insights into our core users' consumption preferences. In May, I celebrated Yunji's 9th Anniversary alongside our service managers, partners and employees. During the festivities, we unveiled several exciting new initiatives. One such initiative is our plan to provide our users with a holistic healthcare solution.

To realize this, we will extend our presence into offline communities and establish wellness spaces, bringing our healthcare products directly to consumers. These initiatives are set to generate both part-time and full-time employment opportunities, nurturing individual entrepreneurship through our top-tier retail services. Our private label beauty brands SUYE and P&S continued to roll out new products that have proven main heads [ph]. These products are specially formulated with ingredients that are tailored for mature skin, mirroring the effectiveness of the leading Western beauty brands. In terms of marketing, we are actively extending our partnerships across a variety of external channels this year. Our approach includes creating engaging content on diverse content platforms, leveraging the power of short video platforms, and harnessing the influence of marketing on live streaming platforms.

In the healthcare sector, we will continue to streamline cutting-edge manufacturing technology and natural ingredients with medicinal properties to create products that further enrich our health supermarket metrics. Our goal is to transition Chinese families from a reactive approach to healthcare to a proactive one that emphasizes daily dietary enhancements. At the same time, we will continue to innovate and enhance the vertical community service experience and deploy advanced AI applications. In addition, we will further evolve our training system to cultivate a professional health nutritionist who will provide value-added services beyond our products. Our mission is to ensure that every family has access to a professional health advisor. While apparel has historically been our last prominent sphere [inaudible], we have seen increasing demand from users and service managers for a broader range of products in this category.

With the emergency of the short video trend, we see a good opportunity for Yunji's apparel category to become an integral component of our beauty segment. This year, we have embraced the integration of short videos and live streaming, hosting weekly live streams on Yunji's official channel. While our primary focus is on apparel, we also feature our beauty and food categories to bolster Yunji's image as a beauty brand. This approach allows us to infuse a sense of fashion into our offerings, while ensuring they remain practical. Every industry is currently grappling with changes and challenges, and the new consumption industry in which we operate is no exception. However, we firmly believe that where challenges exist, opportunities also thrive.

At Yunji, we harness our entrepreneurial spirit, leverage our nine-year experience in the realm of social e-commerce within the WeChat ecosystem, and keep our finger on the pulse of the video channel trends. Over the past six months, often exploring content creation and live streaming on video channels, we have gradually developed a business model that fully aligns with Yunji's entrepreneurial DNA. Our focus is on nurturing leaders in video channels who can produce and distribute high-quality content on a larger scale. To streamline product promotion and make communication more efficient, we equip our service managers with new skills, enabling them to kick-start business with nothing more than a mobile phone. We recruit aspiring ordinary people to become video channel leaders, providing them with training in creating product promotional short videos and live streaming, and helping them stay updated with new capabilities.

Our video channel leader incubation program, which was piloted in the first quarter, is set for a more extensive rollout in the second quarter. The WeChat Community event created Yunji, and now the advent of short video events promises to enrich Yunji with greater vibrancy and efficiency. We aspire to be the trusted partner that empowers our users to lead a healthy and a beautiful life. With that, I will turn the call over to Mr. Cui, our Senior Financial Director, to go through the financial results.

Yeqing Cui : Thank you, Shanglue. Hello, everyone. Before I go through our financial results, please note that all numbers in the following remarks are in RMB terms, and all comparisons and percentage changes are on a year-over-year basis, unless otherwise noted. During the first quarter of 2024, our operations remained relatively stable, as we continued to bolster the core process underpinning our operations. Refinements to our inventory management protocols enabled us to sustain a consistent level of gross profit. Inventory management remains a strategic focal point. We are vigilant in monitoring our assorted product categories on a weekly or monthly cadence to optimize stock levels. By doing so, we enhance utilization of our assets while more effectively managing our cash flows.

At the same time, we are actively making our cash flow management more efficient. Now, let's take a close look at our financials. Total revenues were RMB 128 million compared to RMB 179 million a year ago. Revenues from sales of merchandise were RMB 102 million, and the revenue from our marketplace business was RMB 24 million. The changes were primarily driven by ongoing refinements to our product range across all categories. This, coupled with the optimization of our supplier and merchant network resulted in a shorter impact on sales. Despite these changes, our gross margin remained relatively solid at 49.4%. This was due to sustained customer loyalty towards our product labels and our effective product creation strategy. Now, let's take a look at our operations expense.

Fulfillment expenses were RMB 22 million compared to RMB 27 million a year ago. This was primarily driven by a decrease in warehousing and logistic expenses which lowered merchandise sales, and reduced personnel costs resulting from staffing structure optimization. Sales and marketing expenses decreased to RMB 26 million from RMB 30 million a year ago. This was primarily a result of a decline in member management fees, partially offset by an increase in business promotion expenses. Technology and content expenses were RMB 13.3 million, compared to RMB 13.4 million a year ago. The decrease was mainly due to reduced personnel cost. General and administrative expenses were RMB 14.9 million compared to RMB 15.2 million a year ago. This was mainly due to the reduction in personnel costs resulting of staffing structure refinements, partially offset by an increase in the allowance for credit losses Total operating expenses in the first quarter decreased to RMB 76 million from RMB 85 million in the same period of 2023.

Loss from operation to RMB 9 million compared to income from operations of RMB 1 million a year ago. Net income was RMB 4 million compared with net loss of RMB 23 million a year ago, while adjusted net income was RMB 3 million compared with adjusted net loss of RMB 27 million a year ago. Basic and diluted net income per share attributed to ordinary shareholders were both nil compared with basic and diluted net loss per share of RMB 0.01 in the same period of 2023. Turning to liquidity, as of March 31, 2024, we had a total of RMB 505 million in cash and cash equivalent, restricted cash and short-term investments on our balance sheet compared to RMB 552 million on December 31, 2023. Our liquidity assets were insufficient to cover our payable obligations and we do not hold any long-term bank loans or debits on our balance sheet.

In addition, we are dedicated to making the most of our working capital and smartly managing our assets to better support our operations. To sum up, the first quarter made important progress on the road to realizing our long-term strategy goals. Our ongoing improvements in inventory management, along with our dedication to sustainable and effective asset management. We are pivotal to this advancement. Moving forward, we will focus on further enhancing our efficiency and to strengthen our company's resilience and adaptability. Our strategy positions us to effectively address future challenges and seize emerging opportunities in the evolving economic landscape. This concludes our prepared remarks for today. Operator, we are now ready to take questions.

Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions]. At this time, we will pause momentarily to assemble our roster. Our first question is from the line of Ethan Yu from First Trust Group. Please go ahead.

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