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Yatsen (NYSE: YSG)
Q4 2024 Earnings Call
Feb 25, 2025, 7:30 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Ladies and gentlemen, good day, and welcome to the Yatsen fourth quarter and full-year 2024earnings conference call Today's conference call 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.
Irene Lyu -- Vice President, Head of Strategic Investments and Capital Markets
Thank you, operator. 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 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 purposes only.
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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's senior management team are Mr. Jinfeng Huang, our founder, chairman, and 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. In addition, a webcast replay of this conference call will be available on Yatsen's investor relations website at ir.yatsenglobal.com. I will now turn the call over to Mr.
Jinfeng Huang. Please go ahead, sir.
Jinfeng Huang -- Founder, Chairman, and Chief Executive Officer
Thank you, Irene, and thank you, everyone, for participating in Yatsen's fourth quarter and full-year 2024earnings conference calltoday. I will start with a macro overview and our key financial performance, followed by insights into our key strategic initiatives and updates on our brands and products. China's beauty industry remained subdued over 2024 with beauty sales underperforming the overall retail market. According to the adjusted data published by the National Bureau of Statistics of China, total retail sales of consumer goods grew by 3.8% and 3.5% year over year in the fourth quarter and full year, respectively.
In contrast, total beauty retail sales declined 1.5% year over year for the quarter and 1.1% for the full year. Despite these challenges, our total net revenues in the fourth quarter grew by 7.1% year over year, in line with our guidance. The combined revenues from our three clinical and premium skincare brands, including Galenic, DR. WU, Eve Lom, achieved year-over-year growth of 3%.
Color cosmetics revenues were up 16.4% for the quarter, primarily driven by the recovery of Perfect Diary. Looking at our profitability in the fourth quarter, our gross margin increased to 77.8% from 73.7% in the prior-year period, driven by a higher contribution from higher gross margin products. Our net loss margin improved to 33%, representing a significant decrease from 46% -- 46.1% for the prior-year period. On a non-GAAP basis, we achieved a net income margin of 9.3%, compared to a non-GAAP net loss margin of 8.7% in the prior-year period.
For the full-year 2024, total net revenues declined by only 0.6% year over year, indicating stability. Color cosmetics revenues saw a modest decline of 0.3% year over year, meanwhile skincare revenues grew by 0.7%, largely driven by a 5.4% year-over-year increase from our three clinical and premium skincare brands. Revenues from our skincare brands accounted for 41.1% of our 2024 full-year total net revenues, reaching a record high. Reflecting our revenue growth, our profitability also improved for the full year with gross margin increasing from 73.6% to 77.1%.
We also achieved our lowest full-year net loss and non-GAAP net loss since 2020. Net loss margin decreased to 20.9% from 22%, while non-GAAP net loss margin improved to 3.8%, down from 8.7% in 2023. Although there is still work ahead, these positive outcomes demonstrated that our strategic transformation is on the right path. Our key initiatives under this plan were designed to bolster our brand portfolio and strengthen each brand to holistically drive sustainable growth.
Over the past three years, we have successfully balanced our revenue mix to support the growth of our skincare brands, fine-tuned product and channel mix for our color cosmetic brands, and invested in R&D to develop a promising pipeline of new products. In addition, we have implemented effective cost-cutting measures and enhanced operating efficiencies. Now I would like to delve a little deeper into our key initiatives. First, we are balancing our revenue mix to support the growth of skincare brands.
In the skincare segment, Galenic continued to deliver solid performance throughout the year, driven by its strong brand equity, effective products, and scientific communication. The brand maintained a leading market position of its iconic number one VC serum while launching the number two VA serum. Additionally, we boosted sales of the essence snow algae series and the micro mask series. These initiatives received broad industry and consumer acclaim as evidenced by Galenic winning the beauty of the year award from Vogue and Elle for its remarkable contributions to skincare innovation.
Second, we are refining the product and channel mix for our color cosmetic brands. Perfect Diary made significant progress in its strategic transformation in 2024, primarily driven by its refreshed product lineup. The Biolip Essence Lipstick and its second-generation version were top performers, achieving leading positions in the 11.11 festival sales rankings across multiple platforms. The product's innovative design and formulation received international recognitions, including the MUSE Design Award and the French Design Award.
We are very encouraged by lipstick's success, and we leveraged the consumer insights and professional expertise gained during its development to create more exceptional products. In terms of channel mix, Perfect Diary achieved revenue growth on the Douyin channel while increasing its revenue contribution from off-line distribution channels. Scientific innovation remains a key driver in the growth of both our skincare and color cosmetics brands. Our R&D expenses represented 3.2% of total net revenues for the full-year 2024, underscoring our commitment to innovation and product development.
Notable highlights from 2024 include our third appearance at the IFSCC Congress, known as the Nobel Prize for cosmetics, where we unveil an exclusive patent for active microecological ingredients in collaboration with Sun Yat-sen University. In addition, Perfect Diary's pioneering anti-aging research and its applications were featured in world-leading scientific journals, including Nature Medicine and Science Bulletin. DR. WU's team also worked alongside leading experts to present its research at the National Acne Academic Conference, showcasing five patents, four specialized ingredients, and 11 clinical collaborations.
We are confident that these new ingredients and research initiatives will drive deeper product innovation, contributing to our brand's sustainable growth. Finally, we remained committed to improve profitability. As mentioned earlier, we have made significant progress in this area. The continuous improvement in gross margin reflects our expertise in product development and the strength of our brand equity.
We optimized marketing expenditures and streamlined general and administrative expenses. Additionally, our expansion into off-line distribution channels which typically require fewer travel expenses contributed to improved profitability. Moving forward, we will continue to enhance operational efficiencies and strategically allocate resources to position the company for long-term growth. In summary, 2024 was a year of progress, marked by tangible results of our strategic transformation plan.
As we move into 2025, we will stay focused on implementing targeted strategies to further enhance our brands and drive sustainable growth. With that, I will now turn the call over to our CFO, Donghao Yang, to discuss our financial performance. Thank you, everyone.
Donghao Yang -- Chief Financial Officer and Director
Thank you, David, and hello, everyone. Before I get started, I would like to clarify that all financial numbers presented today are in renminbi amounts, and all percentage changes refer to year-over-year changes, unless otherwise noted. Total net revenues for the fourth quarter of 2024 increased by 7.1% to RMB 1.15 billion from RMB 1.07 billion for the prior-year period. The increase was primarily due to a 16.4% year-over-year increase in net revenues from color cosmetics brands.
Gross profit for the fourth quarter of 2024 increased by 13% to RMB 893 million from RMB 790.1 million for the prior-year period. Gross margin for the fourth quarter of 2024 increased to 77.8% from 73.7% for the prior-year period. The increase was primarily driven by an increase in sales of higher gross margin products. Total operating expenses for the fourth quarter of 2024 decreased by 3.5% and to RMB 1.28 billion from RMB 1.33 billion for the prior-year period.
As a percentage of total net revenue, total operating expenses for the fourth quarter of 2024 were 111.8% as compared with 124% for the prior-year period. Fulfillment expenses for the fourth quarter of were RMB 63.5 million as compared with RMB 62.7 million for the prior-year period. As a percentage of total net revenues, fulfillment expenses for the fourth quarter of 2024 decreased to 5.5% from 5.8% for the prior-year period. The decrease was primarily due to an increase in the overall average selling price of our products, as well as further improvement in logistics efficiency.
Selling and marketing expenses for the fourth quarter of 2024 was RMB 690.6 million as compared with RMB 717.4 million for the prior-year period. As a percentage of total net revenues, selling and marketing expenses for the fourth quarter of 2024 decreased to 60.1% from 66.9% for the prior-year period. The decrease was primarily due to a more strategic marketing spending, combined with lower payroll expenses related to selling and marketing personnel. General and administrative expenses for the fourth quarter of 2024 were RMB 100.1 million as compared with RMB 158.7 million for the prior-year period.
As a percentage of total net revenues, general and administrative expenses for the fourth quarter of 2024 decreased to 8.7% from 14.8% for the prior-year period. The decrease was primarily attributable to lower payroll expenses resulting from a reduction in general and administrative headcount and lower share-based compensation expenses. Research and development expenses for the fourth quarter of 2024 were RMB 26.3 million as compared with RMB 36.9 million for the prior-year period. As a percentage of total net revenues, research and development expenses for the fourth quarter of 2024 decreased to 2.3% from 3.4% for the prior-year period.
The decrease was primarily attributable to our efforts to maintain research and development expenses at a reasonable level relative to total net revenue. Impairment of goodwill for the fourth quarter of 2024 was RMB 403.1 million as compared with RMB 354 million in the prior-year period. Impairments recorded in this quarter mainly represents the amount by which the carrying value of the Eve Lom reporting unit exceeded its fair value based on the quantitative goodwill impairment test, primarily due to weaker operating results than expected. Loss from operations for the fourth quarter of 2024 was RMB 390.7 million as compared with RMB 539.6 million for the prior-year period.
Operating loss margin was 34% as compared with 50.3% for the prior-year period. Non-GAAP income from operations for the fourth quarter of 2024 was RMB 93.2 million as compared with non-GAAP loss from operations of RMB 125.9 million for the prior-year period. Non-GAAP operating income margin was 8.1% as compared with non-GAAP operating loss margin of 11.7% for the prior-year period. Net loss for the fourth quarter of 2024 was RMB 378.8 million as compared with RMB 494.5 million for the prior-year period.
Net loss margin was 33% as compared with 46.1% for the prior-year period. Net loss attributable to Yatsen's ordinary shareholders per diluted ADS for the fourth quarter of 2024 was RMB 3.98 as compared with RMB 4.57 for the prior-year period. Non-GAAP net income for the fourth quarter of 2024 was RMB 107 million as compared with non-GAAP net loss of RMB 93.7 million for the prior-year period. Non-GAAP net income margin was 9.3% as compared with non-GAAP net loss margin of 8.7% for the prior-year period.
Non-GAAP net income attributable to Yatsen's ordinary shareholders per diluted ADS for the fourth quarter of 2024 was RMB 0.99 as compared with non-GAAP loss attributable to Yatsen's ordinary shareholders per diluted ADS of RMB 0.84 for the prior-year period. Now I would like to briefly walk you through the highlights of our full-year results. Total net revenues for the full year of 2024 decreased by 0.6% to RMB 3.39 billion from RMB 3.41 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 2024 increased by 4.1% to RMB 2.62 billion from RMB 2.51 billion for the prior-year period.
Gross margin for the full year of 2024 increased to 77.1% from 73.6% for the prior-year period. The increase was primarily attributable the increasing sales of higher gross margin products. Loss from operations for the full year of 2024 was RMB 824.9 million as compared with RMB 913.4 million for the prior-year period. Operating loss margin decreased to 24.3% from 26.7% for the prior-year period.
Non-GAAP loss from operations for the full year of 2024 was RMB 224.3 million as compared with RMB 427.5 million for the prior-year period. Non-GAAP operating loss margin decreased to 6.6% from 12.5% for the prior-year period. Net loss for the full year of 2024 was RMB 710.2 million as compared with RMB 750.2 million for the prior-year period. Net loss margin decreased to 20.9% in from 22% for the prior-year period.
Net loss attributable to Yatsen's ordinary shareholders per diluted ADS for the full year of 2024 was RMB 6.99 as compared with RMB 6.81 for the prior-year period. Non-GAAP net loss for the full year of 2024 was RMB 128.2 million as compared with RMB 296.1 million for the prior-year period. Non-GAAP net loss margin decreased to 3.8% in from 8.7% for the prior-year period. Non-GAAP net loss attributable to Yatsen's ordinary shareholders for diluted EPS for the full year of 2024 was RMB 1.26 as compared with RMB 2.66 for the prior-year period.
As of December 31, 2024, we had cash, restricted cash, and short-term investments of RMB 1.36 billion as compared with RMB 2.08 billion as of December 31, 2023. Net cash generated from operating activities for the fourth quarter of 2024 was RMB 202.2 million as compared with RMB 90.5 million for the prior-year period. Net cash used in operating activities for the full year of 2024 was RMB 243.7 million as compared with RMB 107.4 million for the prior-year period. Looking at our business outlook for the first quarter of 2025, we expect our total net revenues to be between RMB 788.8 million and RMB 866.2 million, representing a year-over-year increase of approximately 2% to 12%.
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&A. Operator?
Questions & Answers:
Operator
[Operator instructions] The first question comes from Maggie Wan with CICC. Please go ahead.
Maggie Wan -- CICC -- Analyst
Well, thanks for taking my question. This is Maggie Wan from CICC. Firstly, I would like to congratulate the management for the non-GAAP turnaround in Q4 with a quite good non-GAAP net profit margin. So my first question is that with such a performance in Q4, how should we expect our profitability in 2025? And my second question is about our strategy for different categories because we've seen that in Q4, our color cosmetic brands began to grow faster than skincare.
So in the future, how will we allocate our resources between color cosmetic and skincare? And which category will be the more important growth driver in the future? That's my two questions. Thank you.
Jinfeng Huang -- Founder, Chairman, and Chief Executive Officer
OK. Thanks for the question about the -- I think the first question is about our profitability guideline. And also, I think one -- a couple of things I can share with you is how we view about the market landscape and also what is our competitive edge. So I think the beauty market, looking forward, the headwinds will persist, which means the price competition will be intensified, and the consumer will be more rational in purchase decisions.
So looking forward, in order to balance the growth and also the profitability, I think it would be very important for us to maintain and even improve the gross margin growth through the brand equity strengthening and also the R&D investment. And then on the other hand, we think the skincare will be our key stable growth engine. It already contributed over 40% last year. And also, we have a very robust growth for our key brands, including Galenic, DR.
WU, and Eve Lom. So for color cosmetic, right now, I think we already demonstrated the transformation for Perfect Diary has gained a tremendous outcome. And then looking forward, the high growth, high repeat purchase, and also the very competitive products will contribute to a more sustainable growth for our makeup category. So looking forward, so we are going to deliver and also balance the growth and the profitability by enhancing the skincare and makeup growth on -- at the same time, we are also to improve our operational efficiency.
So the second question, talking about the focus on the category and also the brands, we think at this stage, it's super important to focus on the competitive products in the market. So in the past few years, mainly driven our very strong and also a consistent R&D investments, we have some very high-performing products in the market. We will continue to drive those products growth. On the other hand, we are launching some new products, which has gained a pretty good momentum in the market.
For example, we are expanding the Galenic portfolio from by vitamin C to Vitamin A. And also, the facial mask launched by Galenic has very good growing trend. For Perfect Diary, our lipstick has gained pretty leading positions in these multi platforms, and now we are expanding the category from lead to base makeup. And also, we -- when we're looking at DR.
WU is a clinical brand, and then we're expanding the benefit space from acne removing and then to early age -- anti-aging and also brightening benefit space, so by balancing the skincare and also makeup. So we are going to devote our resources into the fast-growing category and also with long-term sustainability. So that's our strategy behind on the investment.
Maggie Wan -- CICC -- Analyst
That's very clear. Thank you very much and I have no more questions. Thank you.
Operator
And that concludes the question-and-answer session. I would like to turn the conference back over to management for any additional or closing comments.
Irene Lyu -- Vice President, Head of Strategic Investments and Capital Markets
Thank you once again for joining us today. If you have any further questions, please feel free to contact us at Yatsen directly. 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.
Operator
[Operator signoff]
Duration: 0 minutes
Call participants:
Irene Lyu -- Vice President, Head of Strategic Investments and Capital Markets
Jinfeng Huang -- Founder, Chairman, and Chief Executive Officer
Donghao Yang -- Chief Financial Officer and Director
Maggie Wan -- CICC -- Analyst
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