YJ 云集

Operator

Good morning and good evening, ladies and gentlemen. Thank you, and welcome to Yunji's First Quarter 2022 Earnings Conference Call. With us today are Mr. Shanglue Xiao, Chairman and Chief Executive Officer; Mr. Chengqi Zhang, Vice President of Finance; and Ms. Kaye Liu, Investor Relations Director of the company. Now I would like to hand the conference over to our first speaker today, Ms. Kaye Liu, IRD of Yunji. Please go ahead, ma'am.

Kaye Liu

Hello, everyone. Welcome to our first quarter 2022 earnings call. Before we start, please note that this call will contain forward-looking statements within the meaning of the Private Securities 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 and its 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 related documents filed with 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's filings with the SEC. Yunji do not undertake any obligation to update these statements except as required on applicable law. With that, I will now turn over to Shanglue Xiao, Chairman and CEO of Yunji.

Shanglue Xiao

[Foreign Language]

Kaye Liu

[Interpreted] Hello, everyone. Welcome to Yunji's first quarter 2022 Earnings call.

Shanglue Xiao

[Foreign Language]

Kaye Liu

[Interpreted] Two weeks ago, on May 16 we celebrated our seventh corporate anniversary. During 2022, we further refined the product curation strategy. We have been [indiscernible] since our impaction. In the first quarter of 2022, we continue to execute our product quality and along [indiscernible] product certification progress. Under the program once a week, we apply the most stringent quality adjustment criteria to our predominant production projects, certify those products, redeem aspect of [indiscernible] Yunji product label and ensure peace of mind for our members, who chose to purchase certified products.

Shanglue Xiao

[Foreign Language]

Kaye Liu

[Interpreted] Our Yunji product classification program is conducted using detailed user payback and [indiscernible] collected through our platform [indiscernible] for data review and verification process. We integrate key performance entity that specialize account volume, category aspect recognization, repurchase [indiscernible], product quality, ability and [indiscernible] product recommendation, [indiscernible], [indiscernible], product during [indiscernible] promotion every Wednesday. In addition, we potentially assess the account penetration to internationally [indiscernible] managers and [indiscernible] through a live training and a license on how to lead a healthy lifestyle.

Shanglue Xiao

[Foreign Language]

Kaye Liu

[Interpreted]During the first half of the year, taking [indiscernible] and microeconomic uncertainty, we responded with [indiscernible] and agility by leveraging our diversified [indiscernible] economy from [indiscernible management capability and optimize the business operations. Going forward, we will continue to capitalize on our core spends while acquiring innovative strategy to grow all of our product segments sustainably.

Shanglue Xiao

[Foreign Language]

Kaye Liu

[Interpreted] The content [indiscernible] in the third quarter of this year started resourcing and production process of both our manufacturing partners and then our own private label now [ willing to release pressure ] and high standards. We have [indiscernible] our private label in terms of [indiscernible] and sourcing of [indiscernible]. We suffer the unavoidable delay in some of our new product development, production and stocking.

Shanglue Xiao

[Foreign Language]

Kaye Liu

[Interpreted] The good news is that the progress we've made over the past few years in private label, especially in the categories of the cosmetics and health supplements have truly compensated our product efficiency in high purchase frequency [indiscernible] by our robust and abundant product development channel, we successfully launched new [indiscernible] products, even during the pandemic [indiscernible] establishing [indiscernible] fulfillment to hold in both consumer discretionary and consumer staple categories. For example, in our private label health supplement category, we reintroduced a [indiscernible] of new products, including multivitamin candy, [indiscernible]. Each of these convenient products addressing consumer desire to pose and duly from a different angle to synchronize with the demographic and profile of our member community in a great account vertical. So probably that they were able to easily achieve [indiscernible].

Shanglue Xiao

[Foreign Language]

Kaye Liu

[Interpreted] In the [indiscernible] food category, we have developed a novelty products such as specialty [ Italian breakfast ] and [indiscernible] Chinese pancakes to bring a greater variety of entry of [indiscernible] and the [indiscernible]. We have managed share at a health and nutrition line even to the most common place consumer table, such as [ new can happen ]. For example, we recommend you may [indiscernible] milk product, private label and [indiscernible] which offers high nutritional value and medicate [indiscernible] cow's milk and also under the Yunji's product certification program, we recommended [indiscernible], free open [indiscernible] and [indiscernible] for the entire family.

Shanglue Xiao

[Foreign Language]

Kaye Liu

[Interpreted] Taking the [indiscernible] we emphasize [indiscernible] Shanghai, upheld our social responsibility and are responding to complaint [indiscernible] supplier of ours with local solidarity in Shanghai, planning our service managers to embark on a good purchase campaign and for field orders paying close to RMB 1 million [indiscernible] [indiscernible] completely expressed opening [indiscernible] yield to this climate plan through [ laboring force ] to Yunji and Shanghai base unit. [indiscernible] supply has been collaborating with us through the [indiscernible] for years. The [indiscernible] has gone our sales record of RMB 10 million within a single day.

Shanglue Xiao

[Foreign Language]

Kaye Liu

[Interpreted] While we confirm [indiscernible] offline promotional activity, we have proactively exclude alternatives, such as defending our online marketing events to third-party platforms, having [indiscernible] and new cosmetics at our [indiscernible]. We utilize the short video market base to successfully enhance the [indiscernible] and then public has visibility of our private label cosmetic products. We need to [ repack ] only high quality content and then [indiscernible] channel of competition and increase user loyalty. Our [indiscernible] evaluated by the percentage of [indiscernible] through the [indiscernible] of private label cosmetic unit [indiscernible] marketing video produced by our large streaming team [indiscernible] online risk and [indiscernible] about [indiscernible] new customers from various [indiscernible]. As of now, our private label products have achieved the majority of their public sales through third-party payment settlement platform and maintained [indiscernible] sales growth.

Shanglue Xiao

[Foreign Language]

Kaye Liu

[Interpreted] Our [indiscernible] with the development of our project manager during [indiscernible] to comply with pandemic restriction [indiscernible] impact to the training sessions online. We have produced the [indiscernible] sharing and asset interaction sessions through online training, so that our product management team obtain online education, improve [indiscernible] improve their sales and grow with [indiscernible].

Shanglue Xiao

[Foreign Language]

Kaye Liu

[Interpreted] With that, I will turn the call over to Mr. Chengqi Zhang, our Vice President of Finance, to go through the financial results.

Chengqi Zhang

Thank you, Shanglue. Hello, everyone. Before I go through our financial results, please note that all numbers stated in the following remarks are in RMB terms. And all comparisons and percentage changes are on a year-over-year basis unless otherwise noted. It has been a difficult start to 2022 with the recurrence of COVID, closing lockdowns in Shanghai and stricter pandemic prevention and control measures in many other regions. Despite challenging market conditions, our repurchase rate remained stable at 80.2% and our gross margin improved both on a quarter-over-quarter and a year-over-year basis. We managed our cost efficiently by diligently optimizing the cost structure of our self-operated private label products, thus demonstrating our business resilience in the face of macro headwinds and supply interruption. As a result of this resilience, we were able to achieve positive operating margin of 0.6% for this quarter compared to a negative operating margin of 2.9% a year ago. In addition to achieving revenue to positive operating margins for 4 consecutive quarters, our cash position is strong enough to allow us to navigate through the market downturn and uncertain macro environment. Now let's take a closer look at our financials. Total revenues were RMB 343 million compared to RMB 675 million a year ago. Revenue from sales of merchandise were RMB 291 million and revenues from our marketplace business were RMB 47 million. This decrease was primarily due to outbreak of COVID during early 2022. This COVID outbreaks lead to temporary lockdowns and delays in production and operations of our suppliers, especially private label suppliers, third-party merchants, third-party logistics service providers and other business partners. This created temporary strategies of certain merchandise and delays in logistics service as well as related to our private label suppliers, research and development and new product launch processes. This has negatively affected and may continue to negatively affect our revenues and operations during 2022, depending on the future direction of the pandemic. Nevertheless, we improved our gross margin to 44% compared to 35% a year ago as a result of successful execution of our product curation strategy and the excellent performance of our private label products. Now let's take a look at our operating expenses. Fulfillment expenses were RMB 49 million compared to RMB 65 million a year ago. This was primarily due to reduced personnel cost as we refine our staffing structure and lower service fees charged by third-party payment settlement platform. Sales and marketing expenses were RMB 51 million compared to RMB 96 million a year ago, mainly due to the decrease in member management fees. Technology and content expenses were RMB 24 million compared to RMB 38 million a year ago. The decrease was mainly due to reduced server costs and lower personnel costs as we optimize our staffing structure. General and administrative expenses were RMB 31 million compared to RMB 74 million a year ago. This was primarily due to a decrease in share-based compensation expenses and reduced the personnel costs as we refine our starting structure. Total operating expenses in the first quarter decreased to RMB 155 million from RMB 273 million in the same period of 2021. We recorded an income from operation of RMB 2 million compared to a loss of RMB 20 million a year ago. Net loss was RMB 37 million compared with net loss of RMB 4 million a year ago and adjusted net loss of RMB 31 million compared with adjusted net income of RMB 17 million a year ago. This was due to financial loss, which was mark-to-market investment loss rather than our cash loss. Basic and diluted net loss per share attributable to ordinary shareholders were both RMB 0.02 compared with 0 in the same period of 2021. Moving on to liquidity. As of March 31, 2022, with a total of RMB 743 million in cash and cash equivalents, restricted cash and short-term investments on our balance sheet. Our account payable reduced to RMB 203 million as of March 31, 2022, compared with RMB 255 million as of December 31, 2021. Our liquid assets were sufficient to cover our payable obligations, and we did not post any long-term bank loans or debt on our balance sheet. Despite [indiscernible] and macro uncertainties, we are confident that our resilient business model and our new product curation and supply chain depreciation strategies will allow us to optimize our entire business cost structure and help us to navigate the current challenges through agile and flexible operations. This concludes our prepared remarks for today. Operator, we are now ready to take questions.

Operator

[Operator Instructions] The first question today comes from [indiscernible], a private investor. Please go ahead.

Unknown Analyst

[Foreign Language] Let me quickly translate myself. Can management comment about the impact of pandemic to our business performance in second quarter. And can you share your views on the recovery of consumption after the pandemic.

Shanglue Xiao

[Foreign Language]

Kaye Liu

[Interpreted] There is a great uncertainty about the impact of the epidemic on the second quarter. The company operates efficiently [ with certified ] saving offerings. We value business [indiscernible] and enhance. Also, we have a solid financial combination to these risks.

Shanglue Xiao

[Foreign Language]

Kaye Liu

[Interpreted] In the end half of May, the recovery of [indiscernible] aspiration is still to in pay growth attention to the epidemic situation. And then with just the warehousing and cooperated logistic company according to [indiscernible]

Shanglue Xiao

[Foreign Language]

Kaye Liu

[Interpreted] During the end of the first quarter and the second quarter, the development of stocking on some new products [indiscernible]. The development of Yunji new products [indiscernible] undergone multiple processes here of the company and [indiscernible]. Each new product will go through on-time [indiscernible], multi-party evaluation and multiple proofing [indiscernible] and logistic [indiscernible] has affected development and production of some of our new products and in some shipments involving [indiscernible] merchants and also being delayed. Fortunately, after nearly 2 years of hard work, Yunji has multiple teams operating in [indiscernible] brands of different categories. [indiscernible] pressure and new product development, in the first half of the year, we do have many new products [indiscernible]

Shanglue Xiao

[Foreign Language]

Kaye Liu

[Interpreted] Regarding the recovery of the consumption of the epidemic, we think it may have an impact on the commodity structure in the short term. According to the [indiscernible] of static, [indiscernible] demand has not recovered yet. After the epidemic, the impact on users' demand and growth over time of the [indiscernible] product will increase and into private labels and for suppliers are able to meet the demand for healthy food. We look forward to delivering Yunji's [indiscernible] to consumers all over the country after the [indiscernible].

Operator

There appears to be no further questions at this time. I'd like to hand the conference back management for any closing remarks.

Kaye Liu

Thank you for joining us today. Please do not hesitate to contact us if you have any further questions, and we're looking forward to talking with you next quarter.

Operator

This conference has now concluded. Thank you for attending today's presentation. You may now disconnect. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]