Its gross profit margin has shown an upward trend over the past four quarters, reaching 74.7% in the second quarter, a year-on-year increase of 11.9% and the highest single-quarter gross profit margin since going public.
On August 22nd, Yatsen Holding Limited (Yatsen) (NYSE: YSG) released its financial results for the second quarter of 2023. The announcement revealed that Yatsen achieved a revenue of 859 million yuan ($117.89 million) in the second quarter, surpassing the upper limit of the company’s revenue guidance. Among them, the skincare business generated a revenue of 325 million yuan ($44.6 million), accounting for 37.9% of the total revenue and maintaining a level above 30% of the total revenue for five consecutive quarters.
Notably, its gross profit margin has shown an upward trend over the past four quarters, reaching 74.7% in the second quarter, a year-on-year increase of 11.9% and the highest single-quarter gross profit margin since going public.
Huang Jinfeng, Chairman and CEO of Yatsen, stated, “Since the second quarter, the company has continued to focus on adjusting its business model, increasing investment in research and development and brand building, and the strategic transformation is in operation. Recently, our Asia-leading factory, Yatsen Biotech, established in partnership with COSMAX, has officially commenced operations, further optimizing our supply chain. Looking ahead to the second half of the year, the company will concentrate its resources on launching new products that will surprise consumers.”
Focusing on product improvement to drive gross margin improvement
Leveraging its differentiated product competitiveness, Yatsen’s skincare segment has seen a continuous stream of popular products. For instance, French brand Galenic No 1 Lotion, which focuses on anti-oxidation and whitening, ranked as the top-selling high-end brightening essence during Chinese 618 Shopping Festival on Chinese e-commerce platform Tmall and the top-selling essence on Douyin (Chinese version of TikTok) during the same event. EVE LOM’s star product, the Cleanser Balm, maintained its position as the top-selling high-end makeup remover on Tmall for the second quarter. DR.WU’s bestselling product, the gentle exfoliating powerhouse Almond Acid, achieved a 58% growth in Q2 through the Douyin channel and secured the top spot on the oil control essence list.
As a result, the revenue contribution from the skincare business increased from 33.4% in the same period last year to 37.9%, maintaining a level above 30% of total revenue for five consecutive quarters.
Meanwhile, the makeup business has continued to deepen its transformation by enhancing quality and efficiency, gaining brand strength by deeply understanding consumer needs and innovating in a contextualized manner. Perfect Diary, for example, dedicated research and customization efforts to create the “Denim Holiday” lip gloss series for summer travel scenarios, selling 459,000 units across all channels and ranking as the No. 1 lip gloss category on Douyin. Xiaoting’s “3D” Dual-Effect Eyelid Pencil and Highlighter Serum, among other star products, made it to the top-selling list on Tmall during the 618 Shopping Festival. Pinkbear’s Bubble Lip Gloss, a star product, topped the Douyin trendy lip makeup list and the best-selling moisturizing lip gloss list.
Yatsen CFO, Yang Donghao, stated, “The company’s gross profit margin has shown a clear upward trend over the past four quarters, reaching 74.7% in the second quarter of 2023. Non-GAAP net losses have significantly narrowed by 77.7% compared to the same period last year.”
Emphasis on long-term investment in research and development to expand brand growth opportunities
According to the financial report, Yatsen invested 25.93 million yuan ($3.56 million) in research and development in the second quarter of 2023, accounting for 3.0% of its expenses. This places the company’s R&D expenditure in the upper range of international brand average rates and maintains its position among the top tier globally.
With the strong support of the Open Lab research and development system, Yatsen has continued to deepen its research and development efforts in the academia-industry-research-application ecosystem. In June, the “Ruijin Hospital-Yatsen Group Medical Skincare Joint Laboratory” was established, enabling both parties to collaborate on mechanism research of skin diseases and the development of effective skincare products. The laboratory is equipped with advanced facilities such as cell culture facilities, flow cytometers, and real-time fluorescence quantitative PCR instruments, allowing for innovative medical skincare research in molecular biology, cell biology, fluorescence imaging, immunology, and other fields.
Furthermore, Yatsen has achieved a self-developed supply chain layout. With the official opening of Yatsen Biotech, an Asia-leading beauty and cosmetics factory jointly built with COSMAX. The company will enhance its control over quality and process, while also improving supply chain management and operational efficiency.
Looking ahead, industry analysts believe that the cosmetics industry has promising development prospects due to favorable industry policies and economic recovery. With the gradual realization of future positive factors, leading domestic beauty and cosmetics companies, represented by Yatsen E-commerce, will further unleash their development potential through strengthening product competitiveness, enhancing brand strength, and refining research and development capabilities.
