YJ 云集

Operator

Good morning and good evening, ladies and gentlemen. Thank you, and welcome to Yunji's Second Quarter 2022 Earnings Conference Call. With us today are Mr. Shanglue Xiao, Chairman and Chief Executive Officer; Mr. Peng 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 second quarter 2022 earnings call. Before we start, please note that this call will contain forward-looking statements within the meaning of 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 the 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 in the entirety by the cautionary statements, risk factors and details of the company's filing with the SEC. Yunji does not undertake any obligation to update these statements except as required under applicable law. With that, I will now turn over to Shanglue Xiao, Chairman and CEO of Yunji.

Shanglue Xiao

[Foreign Language] Hello, everyone. Welcome to Yunji's second quarter 2022 earnings call. [Foreign Language] During the second quarter, we successfully navigated through the uncertainties and the volatility for about by the challenging macro backdrop, widespread resurgences of the pandemic and related control measures affected a number of major cities across China. In the face of these headwinds, we retained our focus on optimizing our platform’s user experience while upholding our social responsibility to ensure users received outstanding fulfillment services and timely delivery often the urgent free media orders. We nimbly and proactively deployed our logistic resources. For example, in some [indiscernible] reach our extra delivery service to those providers, such as [indiscernible] Express who service remained unaffected by the pandemic. Furthermore, we optimize our inventory structure by transferring products between warehouses to ensure they’re ready availability for delivery to use it. [Foreign Language] As in time our supply side was also affected by the macro headwinds to certain effect including down product could not be released from customers or shipped out from factories in those regions severely affected by the pandemic. Unfortunately, this means that these products were not available for projects on our platform during the originally expand promotional period. Since during this year, the situation is going to be improved and our supply and our cross-border logistics change have both gradually recumbent. Our private label product inventory has now been delivered, securing sufficient stock for merchandise sales during the last two quarters. Furthermore, we have taken pre-emptive measures to mitigate potential future COVID-related supply chain disruptions by increasing our inventories of a private label product and cross-border merchandise. [Foreign Language] During the first half of this year, we adhere to our strategy often developing inclusive private label products, actively enriched our productive offerings and developed a variety of fresh user centric product. Our retail brand continues to contribute to the diversification and arrangement of the productive categories. During the first half of 2020, we developed more than 10 original new products for weight management, skincare and body revitalization under our private label. These innovative products are scheduled to be launched in profession [ph] platform. Meanwhile, we upgraded our product formulas with the positive results. Our second-generation fruit and vegetable pressed candy reaching the milestone of five million sales within one minute and 10 million sales within 20 minutes upon it launch on June the 14, 2022. [Foreign Language] On the cosmetics front, we carry out fresh content marketing and brand development initiative for our private label skincare brand SUYE. As part of these efforts, we appointed our popular Chinese female celebrity as a brand spokesperson for our new product line campaign ingredients used in mesotherapy treatments. In addition SUYE marketing campaign produced a number of engaging short videos. These videos successfully boost the online and offline brand awareness and attracted beauty lovers from both our own third-party platforms. We are confident that these augmented traffic flows will serve as a solid foundation for future product commercialization. During SUYE’s 12th anniversary celebrations we will launch a number of the new skincare products that campaign ingredients used in medical aesthetics under the SUYE brand generating over RMB21 million sales during the anniversary celebration promotion. [Foreign Language] Food is another strategic focus within our private label brand metrics. Our original brand concept for Gourmet Yunji was to enable our users to enjoy delicious food all over the world without even having to leave their home. This concept, which is also visually illustrated and amplified in our food category short video marketing content. China is a vast country with abandon resources and each region presents its own unique cuisine. We update our social media account on a weekly basis with video stream around sharing a dish from my hometown. This thing is designed to involved viewers’ Nostalgia with hometown tastes well stimulating their interest in delicious food from diverse location. Currently each short video on our Gourmet Yunji official account on third-party platform receives around 1 million views constantly. We will continue to invest in content developments on our own and third-party platform. So confident that our compelling marketing content will substantially improved brand awareness and create business value in the near and long-term. [Foreign Language] Meanwhile, the pandemic has brought about certain changes in consumer behavior and mindset faced with uncertain micro environment. Consumers are increasing cautious with personal expenditures. As a result, market demand for discretionary products have declined. As a social e-commerce platform that maintains growth relationships with its users. We aim to provide a valuable and trustworthy sellers. That it is the expectation.. As in time, we constantly try to provide more authority services to inspire customers as such, we have enhanced our own service system while launching more value-added services. [Foreign Language] We are great instead it’s provision in our healthcare categories, community groups by piloting a nutritional consulting service where users are provided with professional advice and feedback for these pilot service, we designated professional nutrition to cover each community group and organized in my live streaming group classes with a team of professionals and sports experts. During this period, 90.6% of the 12 users were successfully retained and they engaged with nutritionist on a daily basis. [Foreign Language] Looking ahead, in order to deliver every higher level of service to our users, we’ll increase investment in the development of service managers. During the second half of this year, having implemented very strategic initiative to reduce costs, improve operating efficiency, and develop private label brand product over the past year, our gross margin has improved significantly. This improved gross margin enables us to increase service managers’ income as an incentive to reward outstanding performance. [Foreign Language] With that, I will turn the call over to Mr. Peng Zhang, our Vice President of Finance, to go through the financial results.

Peng 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. During the quarter, we were once again faced with the resurgence of COVID-19 and associated lockdown measures in Shanghai and across the country. Compared to the same period last year, our repurchase rate remained relatively stable at 79% and our gross margin improved even in the face of this headwind. We intensify our focus on optimizing cost structures and developing our private label brands, enabling our business to navigate safely through the present macro uncertainties. Furthermore, we invested in our fulfillment partner base to ensure the delivery of product even within areas on the strict pandemic control measures. Our cash position remains strong enough for us to successfully still through the current market downturn and adverse economic environment. We will continue to reward our shareholders through share buybacks. Now let's take a closer look at our financials. Total revenue were 284 million compared to 571 million a year ago. Revenues from sales of merchandise were 237 million and revenues from our marketplace business were 42 million. This decline revenues was primarily the result of continued COVID outbreaks particularly during April and May. The pandemic related lockdowns disrupted our supply chain with our third-party suppliers, merchants and logistics service providers being particularly effective. Consumers’ willingness to spend was also impacted with uncertain macro conditions, fostering desire among consumers to save rather than spend. These factors combined to create merchandise strategies, logistical delays, and stagnating consumer demand of which negatively affected our operations during the first half of 2022. Their continued impact depends upon the future direction of the pandemic. And though we are seeing signs that the worst of the pandemic is behind us. We will remain vigilant and the response nimbly to further development. Despite these challenges, we improve our gross margin to 40.6% compared to 35.1% a year ago as a result of sustain customer loyalty to our private labels and effective product curation strategy. Now let's take a look at our operating expenses. Fulfillment expenses were 43 million compared to 50 million a year ago. This was primarily due to lower warehousing and logistics costs resulting from a reduction in the quantity of merchandise sales as well as reduced service fees from third-party payment settlement platforms. These savings offset that heightened logistic costs that resulted from us maintaining our supply chain flexibility during the pandemic lockdown period. Sales and marketing expense were 58 million compared to 61 million a year ago, mainly due to the decrease in member management fee, which was partially mitigated by increased in private label promotion expenses. Technology and content expenses were 24 million compared to 32 million a year ago. The decrease was mainly due to the reduction in personal costs as a result of staffing structure refinements and reduced server costs. General and administrative expenses was 32 million compared to 43 million a year ago. This was primarily due to reduced personnel costs as a result of refinements to our staffing structure and professional service fees. Total operating expenses in the second quarter decreased to 157 million from 187 million in the same period of 2021. We recorded a loss from operations of 30 million compared to an income of 16 million a year ago. Net loss was 25 million compared with net income of 17 million a year ago. While adjusting net loss was 17 million compared with adjusted net income of 24 million a year ago. Basic and diluted net loss per share attributable to ordinary shareholders were both RMB0.01 compared with basic and diluted net earnings per share attributable to ordinary shareholders of RMB0.01 in the same period of 2021. Moving on to liquidity. As of June 30, 2022, we had a total 645 million in cash and cash equivalents, restricted cash and short-term investments on our balance sheet. Compared to 743 million as of March 31, 2022, the decrease was partially caused by cash using our share repurchase program. Our liquid assets were sufficient to cover our payable obligations and we did not hold any long-term bank loans or debt or our balance sheet. On March 17, 2022, we announced our 2022 share repurchase program. As of June 30, 2022, we have repurchased over 6 million American depository shares representing over 60 million Class A ordinary shares from the open market with cash flow and aggregate amount of approximately 7 million. Furthermore, our Board of Directors has approved extension of the repurchase program for another six months. We intend to continue to be opportunistic in repurchasing share when we view our stock price has disconnected from the underlying fundamentals of the business. While we face the significant macro challenges in the first half of 2022, we are confident that our resilience and flexible business model, updated supply chain improved product curation and optimized cost structure will power growth regardless of future uncertainties. We have achieved solid progress and we expect to carry the – optimize the cost structure into the post pandemic year, which we believe we will bring long-term value to our shareholders. 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] Our first question comes from Ethan Yu from First Trust, China. Please go ahead.

Ethan Yu

[Foreign Language]

Shanglue Xiao

Hi.

Ethan Yu

[Foreign Language] Thanks for taking my question. At present, including the past June 18 promotions GMVs via short videos and the live gaming are growing rapidly. Could you share us some color or views on this trend? Thank you.

Shanglue Xiao

[Foreign Language] Thank you for your question. [Foreign Language] Live streaming is not a new format and we have done a lot of it in the past. For us live streaming is more like a content marketing than direct sales, especially for private label promotions. Marketing comes in many forms and we believe that highest value group and supply chain are the cornerstones of sales. [Foreign Language] In fact content marketing, it is what Yunji has been doing since establishment. And we have focused on this area a lot. Actually either the photos or articles, they are the important channels for us to deliver the information. We have a group of loyal [ph] users and the service managers who love to share shopping experience. That is also a kind of content sharing, live streaming and short videos make sharing more vivid. We are more than welcome to as for live streaming and short videos as a sharing method to bring fancy content and shopping experience to users. [Foreign Language] We were pleased to remain in the official account of third-party platform has grown rapidly. The account offers in three [ph] interesting content every week and has many short videos and received around 1 million views confidently. Later, we will also try to organize live streaming sales on these accounts to promote private label products and Yunji belongs to the high quality supply chain. [Foreign Language] So we hope that these high-quality contents and efficient live streaming could actually bring more value to our platform and users. Thank you.

Ethan Yu

[Foreign Language]

Operator

Thank you. [Operator Instructions] There are no further questions at this time, I'd like to hand the conference back to management for 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 are looking forward to talking with you next quarter. Bye.

Operator

Conference is now concluded. Thank you for attending today's presentation. You may now disconnect.