Yatsen Holding Ltd - ADR Aktie

Ladies and gentlemen, good day and welcome to the Yatsen's second quarter 2026 earnings conference call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Irene Lyu, Vice President, Head of Strategic Investment and Capital Markets. Please go ahead.

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. 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 are Mr. Jinfeng Huang, our Founder, Chairman, 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'll now turn the call over to Mr. Jinfeng Huang. Please go ahead, sir.

Thank you, Irene. Hello, everyone. And thank you for joining our second quarter 2026 earnings conference call. We delivered a quarter of continued strategy progress with total net revenue growing 5.1% year-over-year against a challenging industry backdrop. While overall growth was more moderate than our prior expectations, our Skincare portfolio delivered exceptional performance, reinforcing the effectiveness of our strategy transformation.

Turning to the macro environment, according to the National Bureau of Statistics, beauty retail sales grew 6.6% year-over-year in the second quarter of 2026, outperforming overall retail sales of consumer goods. While the impact of the June 18 shopping festival has become more moderate amid increasing promotional favor and more rational consumer behavior, the category continued to demonstrate strong consumption resilience.

That said, the competitive landscape remained challenging with many leading participants in the domestic beauty industry also reporting growth deceleration or revenue declines during the quarter, underscoring the broad-based headwinds facing the industry.

Against this resilient market backdrop, our total net revenues remained on a steady growth trajectory, increasing 5.1% year-over-year in the second quarter. More importantly, this growth was primarily driven by the sustained momentum of our Skincare portfolio, which delivered another strong quarter with revenues increasing 40.4% year-over-year and now representing 71.5% of our total net revenues.

The continued strength of our skincare brands further reinforced skincare as a core pillar of our business and a key driver of our overall growth, while underscoring the effectiveness of our ongoing investment in brand building, product innovation and channel development.

With Skincare now representing over 70% of the total revenues, our revenue mix has fundamentally shifted toward higher quality, more sustainable growth. At the heart of our strategy is a deep understanding of consumer needs and a strong commitment to delivering superior consumer experience. We remain focused on creating meaningful long-term value through both the products we offer and the emotional connections we build with consumers.

Let me now walk you through the progress we made in these areas during the quarter. Our first strategy priority is to continue strengthening our R&D capabilities and advancing innovation on a strong scientific foundation. We remain firmly committed to R&D investment with the R&D expenses maintained at 3.3% of total net revenues in the second quarter. We also continue to make meaningful progress in strengthening our scientific capabilities and external recognition.

In May, Yatsen's Global Innovation R&D Center was recognized as a national high-tech enterprise and received the Specialized, Sophisticated, Distinctive and Innovative designation in Shanghai. More recently, in July, DR.WU once again demonstrated the depth of its scientific capabilities, with 3 research studies published in international SCI-indexed journals, covering innovative approach to oily and acne-prone skin, new insights into the mechanism underlying post-acne marks, the clinical evidence supporting the combination of our mandelic acid serum with adapalene. These studies further validated the depth and breadth of our scientific research capabilities.

On the product front, we continue to build on the strengths of our existing franchise while deepening our expertise in targeted skincare solutions. Galénic further extended its Couture Révélation Cellulaire line with the launch of the Reviving Eye Cream, expanding the franchise into the delicate eye care category.

DR.WU also expanded its skincare portfolio with 3 new essence masks for oil control, hydration and soothing care. At Eve Lom, we further expanded the second-generation Vital Dew collection with the Vital Dew Fresh Hydration Cream and Skin Infusion Serum. These launches reflect our continued focus on leveraging established product franchises and scientific expertise to address evolving consumer needs and create sustainable growth opportunities.

Our second strategy priority is to further strengthen brand equity across our portfolio through high-impact consumer engagement and differentiated brand experiences. In late May, DR.WU partnered with CCTV.com for a dedicated live streaming event, which attracted a cumulative audience of 178 million viewers and generated a significant uplift in sales, further expanding the brand's reach and consumer engagement.

Galénic brought its Brightening Your Summer campaign to consumers through a pop-up experience on Wuzhizhou Island in Sanya in July. Eve Lom participated in the British Beauty Festival, further elevating its heritage and premium positioning. While these initiatives help to broadening our brand's reach and deepen consumer engagement across key markets and touch points, our third strategy priority is to enhance the quality and sustainability of our profitability.

In the second quarter, our gross margin was impacted by higher inventory provision in the Color Cosmetic business associated with the company's proactive brand portfolio optimization and SKU rationalization. Excluding the impact of this one-time inventory provisions, the underlying gross margin would have remained broadly stable year-over-year. Selling and marketing expenses as a percentage of net revenues rose, primarily driven by strategic investment in high-growth channels, particularly the Douyin.

At the same time, we remained focused on addressing structural profitability challenges in Color Cosmetics, where fast-changing consumer trends, high SKU complexity and ongoing promotion intensity require disciplined management and a more focused approach to resource allocation. We are actively streamlining our Color Cosmetics portfolio to improve profitability and refocus our resources on the higher growth skincare business.

Looking ahead, we will continue to optimize our cost structure, refine resource allocation across channels and unlock greater operating leverage from our fixed overhead. Furthermore, we are accelerating integration of AI across our operational workflow to drive continuous productivity gains. Together, these initiatives will further elevate our earnings quality and solidify the foundation of more sustainable long-term profitable growth.

Ladies and gentlemen, please hold while we reconnect with our speakers.

Yes. Yes, just reconnected. So finally, I am delighted to share a leadership update. Effective today, Ms. Wang, Li has been appointed as Co-Chief Financial Officer. Ms. Wang comes with a proven track record of over 15 years in the consumer and beauty industry, most recently serving as CFO of Proya Cosmetics. Her experience and financial expertise will further support our ongoing efforts to optimize our cost structure, improve resource allocation and drive sustainable profitable growth.

With that, I will now turn the call over to our CFO, Donghao Yang, to discuss our financial details.

Thank you, David, and hello, everyone. I am also very delighted to welcome Ms. Wang, as she joins the company. I look forward to working closely with her to ensure a smooth transition.

Before I discuss our financial details, 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 second quarter of 2026 increased by 5.1% to RMB 1.14 billion from RMB 1.09 billion for the prior year period. The increase was primarily due to a 40.4% year-over-year increase in net revenues from skincare brands, partially offset by a 35.8% year-over-year decrease in net revenues from our Color Cosmetics brands, which reflected the company's proactive brand portfolio optimization and deliberate SKU rationalization as part of its strategic transformation.

Gross profits for the second quarter of 2026 decreased by 0.8% to RMB 843.8 million from RMB 850.4 million for the prior year period. Gross margin for the second quarter of 2026 decreased to 73.9% from 78.3% for the prior year period, primarily due to higher inventory provisions in the Color Cosmetics business associated with brand portfolio optimization and SKU rationalization efforts.

Total operating expenses for the second quarter of 2026 increased by 7.7% to RMB 975.7 million from RMB 905.9 million for the prior year period. As a percentage of total net revenues, total operating expenses for the second quarter of 2026 were 85.4% as compared with 83.4% for the prior year period. Fulfillment expenses for the second quarter of 2026 were RMB 56.1 million as compared with RMB 63.3 million for the prior year period.

As a percentage of total net revenues, fulfillment expenses for the second quarter of 2026 decreased to 4.9% from 5.8% for the prior year period. The decrease was primarily attributable to further improvements in logistics efficiency.

Selling and marketing expenses for the second quarter of 2026 were RMB 807.6 million as compared with RMB 722.4 million for the prior year period. As a percentage of total net revenues, selling and marketing expenses for the second quarter of 2026 increased to 70.7% from 66.5% for the prior year period. The increase was primarily driven by strategic investments in broadening consumer awareness and building long-term brand equity of our core skincare brand, coupled with higher traffic acquisition costs on the Douyin platform as the company capitalized on the channel's strong growth momentum.

General and administrative expenses for the second quarter of 2026 were RMB 74.8 million as compared with RMB 84.1 million for the prior year period. As a percentage of total net revenues, general and administrative expenses for the second quarter of 2026 were 6.6% as compared with 7.7% for the prior year period. The decrease was primarily driven by lower share-based compensation expenses.

Research and development expenses for the second quarter of 2026 were RMB 37.3 million, as compared with RMB 36.1 million for the prior year period. As a percentage of total net revenues, research and development expenses for the second quarter of 2026 were 3.3%, consistent with the prior year period.

Loss from operations for the second quarter of 2026 was RMB 131.9 million as compared with RMB 55.5 million for the prior year period. Operating loss margin was 11.5% as compared with 5.1% for the prior year period. Non-GAAP loss from operations for the second quarter of 2026 was RMB 112.1 million as compared with RMB 20.4 million for the prior year period. The non-GAAP operating loss margin was 9.8% as compared with 1.9% for the prior year period. Net loss for the second quarter of 2026 was RMB 90.8 million as compared with RMB 19.5 million for the prior year period. Net loss margin was 8% as compared with 1.8% for the prior year period.

Net loss attributable to Yatsen's ordinary shareholders per diluted ADS for the second quarter of 2026 was RMB 0.97 as compared with RMB 0.19 for the prior year period. Non-GAAP net loss for the second quarter of 2026 was RMB 99.4 million as compared with non-GAAP net income of RMB 11.5 million for the prior year period. Non-GAAP net loss margin was 8.7% as compared with non-GAAP net income margin of 1.1% for the prior year period. Non-GAAP net loss attributable to Yatsen's ordinary shareholders per diluted ADS for the second quarter of 2026 was RMB 1.06 as compared with non-GAAP net income attributable to Yatsen's ordinary shareholders per diluted ADS of RMB 0.13 for the prior year period.

As of June 30, 2026, the company had cash, restricted cash and short-term investments of RMB 1.06 billion as compared with RMB 1.05 billion as of December 31, 2025. Net cash used in operating activities for the second quarter of 2026 was RMB 78 million as compared with net cash generated from operating activities of RMB 77.7 million for the prior period.

Looking at our business outlook for the third quarter of 2026, we expect our total net revenues to be between RMB 898.6 million and RMB 998.4 million, representing a year-over-year decrease of approximately 0% to 10%. These forecasts reflect the company's 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?

[Operator Instructions] The first question today comes from Maggie Huang with CICC.

This is Maggie Huang from CICC. I have 2 questions. My first question is about our channel expansion strategy for our skincare brands going forward.

And my second question is that we are seeing online traffic costs rising, so how would the company respond to this trend? And what strategies will be adopted to further improve our marketing efficiency? That's my 2 questions.

Thank you, Maggie, for your question. So for the first question, yes, so channel expansion is very important for the next stage of growth for our skincare brand. As we widen our product offering, it will be natural and easier to diversify our channel. So right now, in addition to our core online platform, which is Tmall and Douyin, we will also increase B2B channels. For example, some of the online B2B channels are JD, Vipshop, [ TBD ]. And there will be some offline B2B channels that we'll be expanding, including offline distribution, duty-free and some professional channels.

So these channels generally carry lower traffic costs and support a healthier profitability profile. So to give you an example, DR.WU has already shown that a higher B2B mix can support both growth and profitability. So this is a model we will selectively apply to our other skincare brands. So we will also be adding some differentiated formats, such as Galénic, we have boutique stores in premium department stores and shopping malls. And also for DR.WU, we are also distributing in some OTC channels, the drugstores. So we believe this channel strategy can help us reduce reliance on some expensive online traffic and build a more balanced business and sustainable growth.

So then for your second question, in terms of the traffic cost, so yes, we are seeing rising traffic costs, which is an industry-wide trend right now. And we think we're responding in 3 ways. First, we're shifting more resources to the higher growth and higher return skincare brands, which now account for over 70% of our revenue. Secondly, we're expanding to B2B channels and professional channels, as mentioned earlier, right, to reduce reliance on very expensive online traffic. Thirdly, we're improving content creation, CRM retention and also budget allocation leveraging stronger financial discipline and AI agents. So the goal is not to cut investment blindly. Our goal is to support strong skincare growth with better efficiency and stronger profitability over time.

Okay. Got it. It's very clear. And I have no more questions.

This concludes our question and answer session. I would like to turn the conference back over to management for any additional or closing comments.

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, everyone, and have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Ladies and gentlemen, good day, and welcome to the Yatsen First Quarter 2026 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Irene Lyu, Vice President, Head of Strategic Investment and Capital Markets. Please go ahead.

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. 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 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'll now turn the call over to Mr. Jinfeng Huang. Please go ahead, sir.

Thank you, Irene. Hello, everyone, and thank you for joining our first quarter 2026 earnings conference call. Going into this year, we delivered top line growth that met our previous guidance range and demonstrated ongoing resilience of our multi-brand strategy. Our financial and operational highlights this quarter further show that Yatsen is navigating the market with a clear strategic vision.

Looking at the macro environment, according to the National Bureau of Statistics, beauty retail sales grew by 5.9% year-over-year in the first quarter of 2026, reflecting a stable yet highly competitive domestic beauty market. Looking closely at the online channels, the combined sales across Tmall, Douyin and JD.com also recorded a single-digit year-over-year growth. Against this market backdrop, our strategic rebalancing has yielded highly encouraging results. Our total net revenues stayed on a steady growth trajectory, growing by 22.5% year-over-year for the first quarter.

More importantly, this growth was primarily propelled by the sustained upward momentum of our skincare brand, which experienced another substantial year-over-year growth of 58.5%. So driven by this favorable shift toward our skin care offering, our gross margin continued its year-over-year expansion and reached a historical milestone of 80.2%, reinforcing the structural health of our business model. Throughout the first quarter, we remained strictly committed to our core strategic initiatives. Specifically, we continued to drive R&D-led product innovation, strengthen brand equity across our multi-brand portfolio and position our business for long-term profitability optimization.

In the following section, I would like to share our key progress across each of these 3 strategic pillars. Our first pillar is driving R&D-led innovation, which remains the ultimate engine behind our sustainable growth. In the first quarter, we consistently stepped up our R&D investments with R&D expenses as a percentage of total net revenues increasing further to 3.9%. This ongoing commitment allowed us to broaden our scientific initiatives. For instance, Dr. WU launched the fourth Dr. WU Acne Research Fund project in March, bringing online and offline dermatological efforts to tackle a series of specialized research topics.

In April, the brand marked another milestone with the release of the white paper on Chinese dermatological research and skin renewal. Leveraging 48 years of clinical expertise and skin insights, this publication officially defines a multi-ingredient, multi-target and full layer skin renewal management framework, further solidifying the brand authority in dermatology. On the product front, our advanced R&D system has successfully powered a series of highly market-ready solutions.

During the first quarter, Galenic's Couture Revelation Cellulaire, The Reviving Cream was an instant hit, selling out soon after its debut. DR. WU expanded its successful PDRN series with the introduction of 2 new breakthrough products. the Ageversal Sodium DNA Hydro-Luminous Mask and the Ageversal Anti-Wrinkle Collagen Eye Cream. Meanwhile, Eve Lom also expanded its product portfolio by launching the Renewal Intensive Treatment, designed specifically for the delicate eye area.

These launches underscore our enhanced efficiency in expanding existing series into new categories and broader efficacy. Our second pillar is strengthening brand equity through our portfolio through expert-led communication and strategic brand activities. In March, Galenic made a high-profile appearance at AMWC, the Aesthetic and Anti-Aging Medicine World Congress in Monaco. This world-class presentation further reinforced Galanic's scientific credentials and solidified its core consumer mind share in cellular level anti-aging skin care.

Furthermore, in April, Galenic announced the appointment of Fan ChengCheng as a new brand ambassador, a move that has amplified its brand rapidly and consumer awareness. Our third pillar is improving overall profitability. So during the first quarter, our selling and marketing expenses as a percentage of total net revenues experienced an increase as a result of both the continued investment in building our core brands and the elevated industry-wide traffic acquisition costs on the Douyin platform.

However, our commitment to long-term profitability optimization remains unwavering. Moving forward, we will dynamically adjust our channel mix, streamline our operational expenses and unlock greater operational leverage for our fixed costs. These initiatives will ensure that our top line expansion efficiently translates into further margin improvement, paving the way of sustainable profit-centric growth. Finally, I would like to provide an important update regarding our recent financing transaction.

Following our announcement on March 11, we are pleased to note that we successfully completed the first tranche of the private placement of convertible notes and warrants on May 21, 2026. In addition to myself and Trustar Capital, we are delighted to welcome Hillhouse as a key participating investor in this offering. This successful closing serves as a powerful testament to our long-term investors' steadfast confidence in Yatsen's strategic direction and further value. Management shares this exact same confidence, and we are fully energized to deliver sustained value for our shareholders in the quarters to come. With that, I will now turn the call over to our CFO, Donghao Yang, to discuss our financial details.

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 first quarter of 2026 increased by 22.5% to RMB 1.02 billion from RMB 833.5 million for the prior year period. The increase was primarily due to a 58.5% year-over-year increase in net revenues from Skincare Brands, partially offset by a 5% year-over-year decrease in net revenues from Color Cosmetics Brands.

Gross profit for the first quarter of 2026 increased by 24.3% to RMB 819.2 million from RMB 659.1 million for the prior year period. Gross margin for the first quarter of 2026 increased to 80.2% from 79.1% for the prior year period. Total operating expenses for the first quarter of 2026 increased by 32.5% to RMB 918.1 million from RMB 693.2 million for the prior year period. As a percentage of total net revenues, total operating expenses for the first quarter of 2026 were 89.9% as compared with 83.2% for the prior year period. Fulfillment expenses for the first quarter of 2026 were RMB 61.1 million as compared with RMB 51.8 million for the prior year period.

As a percentage of total net revenues, fulfillment expenses for the first quarter of 2026 decreased to 6% from 6.2% for the prior year period. The decrease was primarily due to further improvements in logistics efficiency. Selling and marketing expenses for the first quarter of 2026 were RMB 737.2 million as compared with RMB 553.8 million for the prior year period. As a percentage of total net revenues, selling and marketing expenses for the first quarter of 2026 increased to 72.2% from 66.4% for the prior year period. The increase was primarily driven by investments in broadening consumer awareness and building long-term brand equity of our core brands, coupled with higher traffic acquisition costs on the Douyin platforms.

General and administrative expenses for the first quarter of 2026 were RMB 80.3 million as compared with RMB 64.9 million for the prior year period. As a percentage of total net revenues, general and administrative expenses for the first quarter of 2026 were 7.9% as compared with 7.8% for the prior year period, remaining largely flat. Research and development expenses for the first quarter of 2026 were RMB 39.4 million as compared with RMB 22.6 million for the prior year period. As a percentage of total net revenues, research and development expenses for the first quarter of 2026 increased to 3.9% from 2.7% for the prior year period.

The increase was primarily driven by higher payroll expenses resulting from a rise in research and development headcount. Loss from operations for the first quarter of 2026 was RMB 99 million as compared with RMB 34.1 million for the prior year period. Operating loss margin was 9.7%as compared with 4.1% for the prior year period. Non-GAAP loss from operations for the first quarter of 2026 was RMB 84.6 million as compared with RMB 14.9 million for the prior year period. Non-GAAP operating loss margin was 8.3% as compared with 1.8% for the prior year period.

Net loss for the first quarter of 2026 was RMB 61.9 million as compared with RMB 5.6 million for the prior year period. Net loss margin was 6.1% as compared with 0.7% for the prior year period. Net loss attributable to Yatsen's ordinary shareholders per diluted ADS for the first quarter of 2026 was RMB 0.64 as compared with RMB 0.06 for the prior year period. Non-GAAP net loss for the first quarter of 2026 was RMB 57.3 million as compared with non-GAAP net income of RMB 7.1 million for the prior year period.

Non-GAAP net loss margin was 5.6% as compared with non-GAAP net income margin of 0.9% for the prior year period. Non-GAAP net loss attributable to Yatsen's ordinary shareholders per diluted ADS for the first quarter of 2026 was RMB 0.6 as compared with non-GAAP net income attributable to Yatsen's ordinary shareholders per diluted ADS of RMB 0.07 for the prior year period. As of March 31, 2026, the company had cash, restricted cash and short-term investments of RMB 934.2 million as compared with RMB 1.05 billion as of December 31, 2025.

Net cash used in operating activities for the first quarter of 2026 was RMB 90 million as compared with net cash generated from operating activities of RMB 23.8 million for the prior year period. Looking at our business outlook for the second quarter of 2026, we expect our total net revenues to be between RMB 1.2 billion and RMB 1.3 billion, representing a year-over-year increase of approximately 10% to 20%. These forecasts reflect the company's 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?

[Operator Instructions] And our first question today comes from Maggie Huang with CICC.

This is Maggie Huang from CICC. I have 2 questions. About my first question, we've seen a rapid growth of our skincare brands in this quarter. So could management share with us how to expand our product portfolio of skincare brands going forward? And my second question is that how do we view the competition from foreign brands, especially in high-end skin care market? That's my 2 questions.

Thank you, Maggie. We will continue to expand around proven hero product families. So in quarter 1, Galenic's new anti-aging cream was a great success and sold out shortly after launch. We also saw significant growth from Galenic Snow Algae facial moisturizer cream. So these results give us more confidence that Galenic can expand from [ hero serums ] into a broader anti-aging skin care routine. For Dr. WU and Eve Lom, we will follow the same logic, build complete routines around proven science, strong efficacy and a clear consumer demand.

For your second question regarding the competition from high-end foreign brands, competition is very intense, but we believe we have a differentiated position. So our skin care brands combine global heritage, strong scientific credibility, local consumer insights and very fast execution. Galenic is a very good example. We are building the brand around cellular level anti-aging supported by successful product launches and stronger brand communication. We are also using AI and data tools to improve consumer insights, content production, CIM and marketing ROI. So this help us to compete more efficiently, not just spend more.

[Operator Instructions] Our next question today comes from Lin Zhang with Citic Securities.

I'm Lin Zhang from Citic Securities. My question is that we have noticed DR. WU is growing really fast. So could you please share with us the key drivers of the growth?

Well, DR. WU is a very important case for us. So the brand has delivered strong growth while maintaining a healthier profitability profile. So one reason is higher B2B channel mix, including professional and offline channels, so which give us the brand a better balance between growth, traffic cost and profitability. So this is a model we want to learn from and selectively apply to other skincare brands, stronger science, more professional credibility, more balanced channel mix and better marketing efficiency. Those are some of the key drivers we summarized for DR. WU.

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.

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.

Thank you. That concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.

Ladies and gentlemen, good day, and welcome to the Yatsen Fourth Quarter and Full Year 2025 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Sophia Peng, Investor Relations Manager. Please go ahead.

Thank you, operator. Please note that 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. 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 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. David, please go ahead, sir.

Hello, everyone. Thank you for joining Yatsen's fourth quarter and full year 2025 earnings call. I will start with a macro overview and our key financial performance, followed by an overview of our operational highlights under our key strategy initiatives over the past year.

China's beauty industry maintained an upward trajectory throughout 2025. According to the adjusted data from the National Bureau of Statistics, beauty retail sales grew by 8.2% in the fourth quarter, the highest quarterly growth rate of the year. For the full year 2025, beauty retail sales grew by 5.1%, rebounding from the decline in 2024. While the market demonstrated robust recovery, the landscape was also marked by intensified competition, particularly during major shopping festivals. Against this backdrop of growing yet highly competitive market, we successfully executed our strategy initiatives to capitalize on the industry's upward momentum.

Our total net revenue grew by 20.1% year-over-year for the fourth quarter, performing in line with our previous guidance and significantly outpacing the industry average. More importantly, this growth was driven by our Skincare brands, which accounted for 61.1% of our total net revenues in the fourth quarter. Our profitability also marked an improvement, recording net income under both GAAP and the non-GAAP measures for the fourth quarter.

For the full year 2025, we also achieved a solid recovery in both revenue and profitability. Total net revenue returned to a growth trajectory increasing by 26.7% year-over-year to RMB 4.3 billion. Both our Color Cosmetics and Skincare brands delivered year-over-year growth with Dr. Wu and Galenic, serving as the primary drivers of this robust performance. For the full year, Skincare brands contributed 53% of our total net revenues. On the bottom line, we narrowed our full year net loss margin to 2.2% from 20.9% in the prior year while delivering a non-GAAP net income margin of 0.2%. This non-GAAP profitability turnaround is the direct result of our enhanced gross margin, optimized operational efficiencies and positive operating leverage from our top line growth.

Our robust performance demonstrated the long-term value of our strategy transformation. Throughout the year, we remained steadfast in our commitment to 3 core initiatives: driving R&D-led product innovation, strengthening brand equities across our multi-brand portfolio and improving our overall profitability. I would now like to dive in deeper into these key focus areas.

First, we leveraged our established R&D infrastructure to fuel a pipeline of innovative products, driven by proprietary ingredients development, open collaboration and application of AI in areas such as molecular structure prediction, our system efficiently translates cutting-edge technology into market-ready solutions. Our high-growth brands have all benefited from this refined R&D ecosystem with Galenic as a prime example. In September, Galenic launched the VB serum, further strengthening the brand's ABC cellular level skin care framework. The product saw a rapid surge in sales, becoming one of Galenic's top sellers and winning the breakthrough repairing serum of the year at the 2025 Cosmo Beauty Awards.

In December, Galenic introduced another flagship innovation, the Couture Revelation Cellulaire reviving cream. Utilizing the brand's active anchor penetration technology, it delivers our exclusive patent anti-aging ingredient, Lumiskin deep into the skin to achieve significant firming and lifting effects. With these launches, Galenic has established a comprehensive presence across key skin care categories, including serums, creams and masks.

We believe that our expanded product portfolio could not only optimize our channel mix by providing more offerings across different platforms, but also increase customer lifetime value by encouraging broader regime adoption.

Second, we continue to focus on deepening the value and the market positioning of our brands. With a portfolio that spans from mass to premium and from color cosmetics to skin care, we possess a unique comprehensive view of the beauty industry. This allowed us to precisely address the evolving needs of diverse consumer segments. For example, by leveraging Dr. Wu's decades of expertise in clinical skin renewing treatments and capturing the latest trends in medical aesthetics, the brand launched the PDRN serum. This product is designed to meet growing consumer demand for clinic-inspired results from the comfort of home. Driven by these deep consumer insights, Dr. Wu experienced robust growth over the past year and was recognized as the annual growth breakthrough brand from Douyin. This success has further solidified Dr. Wu's brand authority and awareness in the skin renewing segment, effectively translating market momentum into long-term brand equity.

Third, we remain dedicated to enhancing our profitability and operational excellence. We see clear opportunities to further improve profitability across several dimensions. To begin with, we are optimizing our product mix by prioritizing products with higher gross margins. Channel-wise, we plan to maximize marketing efficiencies through data-driven customer relationship management and a more stringent return on investment discipline while we are allocating spend toward higher return platforms. Beyond our front-end operations, we are also optimizing operational workflows to drive cost optimization.

Lastly, as our top line continues to grow, we expect to gain operational leverage across our fixed expenses. So collectively, these initiatives bolster our confidence in delivering steady margin expansion while sustaining our growth momentum.

In summary, 2025 was a pivotal year. Our R&D breakthroughs, deep consumer insights and enhanced operational efficiency have returned us to growth and optimize our profitability.

Moving forward, we will stay committed to long term driving brand equity through innovation and delivering a quality profit-centric growth. Thank you. I will now turn the call to Donghao.

Thank you, David, and hello, everyone. Before I get started, I would like to clarify that all financial numbers presented today are in renminbi amount and all percentage changes refer to year-over-year changes unless otherwise noted.

The total net revenues for the fourth quarter of 2025 increased by 20.1% to RMB 1.38 billion from RMB 1.15 billion for the prior year period. The increase was primarily due to a 51.9% year-over-year increase in net revenues from Skincare brands partially offset by a 9.1% year-over-year decrease in net revenues from Color Cosmetics brands.

Gross profit for the fourth quarter of 2025 increased by 20% to RMB 1.07 billion from RMB 893 million for the prior year period. Gross margin for the fourth quarter of 2025 was 77.7%, remaining largely flat as compared with 77.8% for the prior year period. Total operating expenses for the fourth quarter of 2025 decreased by 15.6% to RMB 1.08 billion from RMB 1.28 billion for the prior year period. As a percentage of total net revenues, total operating expenses for the fourth quarter of 2025 were 78.6% as compared with 111.8% for the prior year period.

Fulfillment expenses for the fourth quarter of 2025 were RMB 77 million as compared with RMB 63.5 million for the prior year period. As a percentage of total net revenues, fulfillment expenses for the fourth quarter of 2025 were 5.6% as compared with 5.5% for the prior year period, remaining largely flat.

Selling and marketing expenses for the fourth quarter of 2025 were RMB 893.8 million as compared with RMB 690.6 million for the prior year period. As a percentage of total net revenue, selling and marketing expenses for the fourth quarter of 2025 increased to 64.8% from 60.1% for the prior year period. The increase was primarily driven by higher traffic acquisition costs amid intensified competition during the Double 11 shopping festival.

General and administrative expenses for the fourth quarter of 2025 were RMB 74.4 million as compared with RMB 100.1 million for the prior year period. As a percentage of total net revenues, general and administrative expenses for the fourth quarter of 2025 decreased to 5.4% from 8.7% in the prior year period. The decrease was primarily driven by lower payroll expenses and share-based compensation expenses, coupled with the leveraging effect of higher total net revenues in the fourth quarter of 2025.

Research and development expenses for the fourth quarter of 2025 were RMB 38.8 million as compared with RMB 26.3 million for the prior year period. As a percentage of total net revenues, research and development expenses for the fourth quarter of 2025 increased to 2.8% from 2.3% for the prior year period. The increase was primarily driven by higher payroll expenses resulting from rise in research and development headcount.

There was no impairment of goodwill for the fourth quarter of 2025 as compared with an impairment of goodwill of RMB 403.1 million for the prior year period. Based on our assessment, no impairment indicators were identified as of December 31, 2025.

Loss from operations for the fourth quarter of 2025 was RMB 12.7 million as compared with RMB 390.7 million for the prior year period. Operating loss margin was 0.9% as compared with 34% for the prior year period. Non-GAAP income from operations for the fourth quarter of 2025 was RMB 11.8 million as compared with RMB 93.2 million for the prior year period. Non-GAAP operating income margin was 0.9% as compared with 8.1% for the prior year period.

Net income for the fourth quarter of 2025 was RMB 3 million as compared with net loss of RMB 378.8 million for the prior year period. Net income margin was 0.2% as compared with net loss margin of 33% for the prior year period. Net income attributable to Yatsen's ordinary shareholders per diluted ADS for the fourth quarter of 2025 was RMB 0.08 as compared with net loss attributable to Yatsen's ordinary shareholders per diluted ADS of RMB 3.98 for the prior year period.

Non-GAAP net income for the fourth quarter of 2025 was RMB 41.2 million as compared with RMB 107 million for the prior year period. Non-GAAP net income margin was 3% as compared with 9.3% for the prior year period. Non-GAAP net income attributable to Yatsen's ordinary shareholders per diluted ADS for the fourth quarter of 2025 was RMB 0.46 as compared with RMB 0.99 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 2025 increased by 26.7% of RMB 4.3 billion from RMB 3.39 billion for the prior year period, primarily attributable to a 63.5% year-over-year increase in net revenues from Skincare brands, combined with a 1.9% year-over-year increase in net revenues from Color Cosmetics brands.

Gross profit for the full year of 2025 increased by 28.4% to RMB 3.36 billion from RMB 2.62 billion for the prior period. Gross margin for the full year of 2025 increased to 78.2% from 77.1% for the prior year period. The increase was primarily attributable to increasing sales of higher-gross margin products.

Loss from operations for the full year of 2025 was RMB 185.8 million as compared with RMB 824.9 million for the prior year period. Operating loss margin decreased to 4.3% from 24.3% for the prior year period, primarily because there was no impairment of goodwill for the full year of 2025.

Non-GAAP loss from operations for the full year of 2025 was RMB 84 million as compared with RMB 224.3 million for the prior year period. Non-GAAP operating loss margin decreased to 2% from 6.6% for the prior year period.

Net loss for the full year of 2025 was RMB 92.4 million as compared with RMB 710.2 million for the prior year period. Net loss margin decreased to 2.2% from 20.9% for the prior year period. Net loss attributable to Yatsen's ordinary shareholders per diluted ADS with the full year -- for the full year of 2025 was RMB 0.87 as compared with RMB 6.99 for the prior year period.

Non-GAAP net income for the full year of 2025 was RMB 8.4 million as compared with non-GAAP net loss of RMB 128.2 million for the prior year period. Non-GAAP net income margin was 0.2% as compared with non-GAAP net loss margin of 3.8% for the prior year period. Non-GAAP net income was attributable to Yatsen's ordinary shareholders per diluted ADS for the full year of 2025 was RMB 0.19 as compared with non-GAAP net loss attributable to Yatsen's ordinary shareholders per diluted ADS of RMB 1.26 for the prior year period.

As of December 31, 2025, we had cash, restricted cash and short-term investments of RMB 1.05 billion as compared with RMB 1.36 billion as of December 31, 2024.

Net cash used in operating activities for the fourth quarter of 2025 was RMB 69.4 million as compared with net cash generated from operating activities RMB 202.2 million for the prior year period. Net cash used in operating activities for the full year of 2025 was RMB 94.7 million as compared with RMB 243.7 million for the prior year period.

Looking at our business outlook for the first quarter of 2026, we expect our total net revenues to be between RMB 958.6 million and RMB 1.08 billion, representing a year-over-year increase of approximately 15% to 30%. 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 Instructions] And today's first question comes from Maggie Huang with CICC.

This is Maggie Huang from CICC. Firstly, congratulations for achieving a non-GAAP net income turnaround for the whole year. And I have 2 questions. My first question is that how do we plan to improve our net profit margin in this year? And my second question is about our plan to expand our profit portfolio for Skincare brands in this year. That's my 2 questions.

Well, thank you very much for your question. Regarding your first question, I think this year, we're going to continue to grow our Skincare business much faster than our Color Cosmetics business. And with Skincare business, the gross margin, net margin are typically much higher than Color Cosmetics brands. So by doing that, we're going to be able to improve our margin profile. And secondly, our top line will continue to grow this year. And as a leveraging effect, we do believe that our net margin will improve accordingly.

And your second question regarding the growth of our Skincare business. I think the most important thing that we're going to do to grow our Skincare business is R&D. In the last 5, 6 years, we've been investing aggressively in our R&D capabilities. And if you look at the past -- especially the past 1 or 2 years, the phenomenal top line growth of our Skincare business has largely been due to the contribution of our R&D team in terms of better products which meet our consumers' demand.

Ladies and gentlemen, that does conclude the question-and-answer session. I'd like to turn the conference back over to management for any additional or closing comments.

Thank you all 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. Have a great day, everyone.

Thank you. That does conclude our conference for today. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.

Ladies and gentlemen, good day, and welcome to the Yatsen Third Quarter 2025 Earnings Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Ms. Irene Lyu, Vice President, Head of Strategic Investment and Capital Markets. Please go ahead.

Thank you, operator. Please note that 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 required by law.

During today's call, management will also discuss certain non-GAAP financial measures for comparison purposes only. 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 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.

Hello, everyone. Thank you for joining our third quarter 2025 earnings call. The beauty market in China continues to show signs of recovery in the third quarter, particularly in the Skincare category, which remains robust and the supported overall industry growth.

Amidst this improving backdrop, we remain focused on executing our long-term strategy to build a competitive and resilient brand portfolio anchored in R&D and innovation. Through this plan execution, we delivered our fourth consecutive quarter of revenue growth with total net revenues increasing by 47.5% year-over-year and exiting the high end of our guidance.

Our momentum continues to be driven by strong growth from Skincare and sustained performance of our product engine rather than short-term promotions. Our skincare brands grew by 83.2% year-over-year and reached 49.2% of total revenue, making another step forward in our category upgrade strategy and reinforcing our transformation toward a more sustainable margin-accretive portfolio.

Meanwhile, our net loss narrowed meaningfully as a result of the improved gross margin, optimize operating efficiency and more disciplined resources allocation.

Net gross margin improved significantly from 17.9% in the prior year period to 7% this quarter, demonstrating the continued progress in our profitability trajectory. These results reflect the strength of our brands as well as our commitment to disciplined execution.

Looking ahead, our priority is to continue progressing toward profitability in a disciplined and a sustainable way. We expect further improvement to be driven by a higher income mix, ongoing gross margin optimization and greater marketing efficiency.

While we will continue to invest in innovation and hero products, we remain different in balancing growth with profitability.

Now let me share some brand and further highlights during this quarter. Galenic delivered strong momentum and remained 1 of the fastest growing premium skincare. The brand [indiscernible] continued to perform well, is the #1 VC serum and the #2 VA serum ranking among the top selling serum across major e-commerce platforms. The newly introduced #3 VB serum launched in the mid-September to further build out brands, ABC cellular level skincare framework quickly became 1 of the brand's best-selling items on Douyin. We are also seeing encouraging signs of regimen adoption with more consumers purchasing multiple products within the series, supporting stronger customer lifetime value.

DR. WU recorded healthy growth during the quarter, supported by strong performance from its core categories. In September, DR. WU unveiled its first anti-aging product in the U.K. leveraging decades of the clinical expertise in skin renewables. The newly launched PDRN serum gained strong traction across e-commerce platforms given by its innovative formulary featuring the high concentration of active ingredients and patterned penetration technology, underscoring the brand's ability to build up through clinically validated innovation.

In China, DR. WU continues to lead the [indiscernible] category across online platforms. In addition, DR. WU presented its research at a nice annual academic conferences of the Dermatology Committee of the Chinese Nongovernment Medical Institution Association, further demonstrating the brand's commitment to clinically grounded innovation and strengthening its leadership in renewable focused skin care.

Our flagship brand Perfect Diary also continued to make progress. Following the success for launch of The translucent blurring setting powder and bioface Essence Foundation, the brand focused on streamlining its core product performance, improving hero product quality and enhancing overall product experience under the makeup signification concept. Several of these hero products delivered the performance above expectations, driving Perfect Diary space makeup category to exceed 40% of the total sales and supporting a more sustainable and disciplined recovery.

In the third quarter, Perfect Diary also excels in new channel performance and achieved the #1 ranking among makeup brands on WeChat video channel. We planted the brands strengthened competitiveness and growing consumer revenue.

R&D and innovation have consistently serve as the cornerstone of our product development and brand building. We are committed to advancing scientific research to strengthen our long-term competitiveness.

During the quarter, we participated in the IFCC Congress for the fourth consecutive year, this time in [indiscernible]. 11 of our papers were shortlisted by the IFCC, covering topics from more cellular mechanism and clinical translation to AI algorithms and emotion skin care. So this work highlights our full chain capabilities from fundamental science to technology translation and clinical validation, and directly supports future hero highlights across our brands.

As we finished the third quarter, we are pleased to see continued progress in both growth and operational improvements. We remain confident that our strategic focus on R&D, together with disciplined execution and a sharper resource allocation will enable us to deliver sustainable long-term growth. At the same time, we will remain highly disciplined in capital allocation, prioritizing investments that strengthen our core brands and innovation capability while creating long-term value for shareholders.

Thank you. I will now turn the call to Donghao.

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 third quarter of 2025 increased by 47.5% to RMB 998.4 million from RMB 677 million for the prior year period. The increase was primarily due to an 83.2% year-over-year increase in net revenues from skin care brands, combined with a 25.2% year-over-year increase in the revenue from color cosmetics brands.

Gross profit for the third quarter of 2025 increased by 51.9% to RMB 780.5 million from RMB 513.8 million for the prior year period.

Gross margin for the third quarter of 2025 increased to 78.2% from 75.9% 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 third quarter of 2025 increased by 31.9% to RMB 864.1 million from RMB 665.2 million for the prior year period. As a percentage of total net revenues, total operating expenses for the third quarter of 2025 were 86.5% as compared with 96.8% for the prior year period.

Fulfillment expenses for the third quarter of 2025 were RMB 61.8 million as compared with RMB 50.4 million for the prior year period. As a percentage of total net revenues, fulfillment expenses for the third quarter of 2025 decreased to 6.2% from 7.4% for the prior year period. The decrease was primarily driven by fulfillment cost optimization, coupled with the leveraging effect of higher total net revenues in the third quarter of 2025.

Selling and marketing expenses for the third quarter of 2025 were RMB 682.3 million as compared with RMB 494.4 million for the prior year period. As a percentage of total net revenues, selling and marketing expenses for the third quarter of 2025 decreased to 68.3% from 73% for the prior year period.

The third quarter included a portion of our planned upfront investments with the Double 11 shopping season. These investments typically elevate selling and marketing ratios in the short term, but supports revenue acceleration and stronger brand equity in the fourth quarter and beyond. Excluding these seasonal effects, we continue to see improving marketing efficiency driven by a higher skin care mix and more disciplined spending across channels.

General and administrative expenses for the third quarter of 2025 were RMB 80.2 million as compared with RMB 85 million for the prior year period. As a percentage of total net revenues, general and administrative expenses for the third quarter of 2025 decreased to 8% from 12.6% for the prior year period. The decrease was primarily driven by lower share-based compensation expenses, coupled with the leveraging effect of higher total net revenues in the third quarter of 2025.

Research and development expenses for the third quarter of 2025 were RMB 39.8 million as compared with RMB 25.3 million for the prior year period. As a percentage of total net revenues, research and development expenses for the third quarter of 2025 increased to 4% from 3.7% for the prior year period. The increase was primarily driven by higher payroll expenses resulting from a rise in research and development headcount.

Loss from operations for the third quarter of 2025 was RMB 83.6 million as compared with RMB 141.3 million for the prior year period. Operating loss margin was 8.4% as compared with 20.9% for the prior year period. Non-GAAP loss from operations for the third quarter of 2025 was RMB 60.6 million as compared with RMB 98.5 million for the prior year period. Non-GAAP operating loss margin was 6.1% as compared with 14.5% for the prior year period.

Net loss for the third quarter of 2025 was RMB 70.4 million as compared with RMB 121.1 million for the prior year period. Net loss margin was 7% as compared with 17.9% from the prior year period. Net loss attributable to Yatsen's ordinary shareholders for diluted ADS for the third quarter of was RMB 0.7 as compared with RMB 1.22 for the prior year period.

Non-GAAP net loss for the third quarter of 2025 was RMB 51.5 million as compared with RMB 76.6 million for the prior year period. Non-GAAP net loss margin was 5.2% as compared with 11.3% for the prior year period. Non-GAAP net loss attributable to Yatsen's ordinary shareholders per diluted ADS for the third quarter of 2025 was RMB 0.5 as compared with RMB 0.77 for the prior year period.

As of September 30, 2025, the company had cash, restricted cash and short-term investments of RMB 1.16 billion as compared with RMB 1.36 billion as of December 31, 2024.

Net cash used in operating activities for the third quarter of 2025 was RMB 126.6 million as compared with RMB 175.9 million for the prior year period.

The operating cash flow was primarily due to working capital movements, including inventory, positioning and receivables timing ahead of Double 11. These are seasonal and planned effects. We expect operating cash flow to improve as these improved investment into revenue in the fourth quarter and as we continue to optimize inventory efficiency and marketing ROI.

Looking at our business outlook for the fourth quarter of 2025, we expect our total net revenues to be between RMB 1.32 billion and RMB 1.49 billion, representing a year-over-year increase of approximately 15% to 30%. 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?

[Operator Instructions] And our first question will come from Maggie Huang with CICC.

This is Maggie Huang from CICC. Firstly, congratulations for beating our revenue guidance. And I have 2 questions. My first question is about our performance during Double 11 festival. Is that in line with our expectation? And have we observed any change in the competition from foreign high-end brands?

And my second question is that how do we expect the profitability of the fourth quarter and the next year? And that's my question.

Well, I think, first of all, the Double 11 performance for the whole company, generally, it's in line with our expectations. And of course, some of the brands are exceeding our expectations.

So having said that, I think we are very happy to observe some of -- not only the existing hero SKUs that are doing well, but some of the newly launched products are gaining a very strong momentum during the Double 11 shopping festival, which will contribute for further growth potentials in coming quarters. Those products we already mentioned in the earnings call.

Going back to your question about the challenges and also competition coming from the foreign high-end brands. We did observe a very big challenge and also competition for the half Double 11 shopping festival. And some of the high-end brands are struggling with very big and also deep price cut for their hero products. We did see that with our R&D supporting some of our new product launch. Those products are still gaining a very strong momentum.

Looking forward, I think the competition during the Double 11 shopping festival will load some of the pantries for some of the foreign high-end brands, so which means you hurt their long-term growth.

So having said that, I'm happy to see that our high-end brand, we're still keeping a very strong momentum by balancing the price promotion and also we're focusing on promoting some of the new SKUs.

So going back to the Q4, I think we are on our right track to reach the profitability. And then that's our long-term goal. And then we are seeing the balance of the growth and also the right track for the profitability. Thank you.

Your next question will come from Lucia Zhang with CP Securities.

Lucia Zhang from CP Securities. I also have 2 questions. The first 1 is we can see that the skin care business of the company has achieved rapid growth this year. So from which assets should we make efforts to sustain the growth maybe in the last quarter and next year?

And the second question is about the profitability. So in which assets will the company, we will make efforts to continuously improve their profitability?

Well, so going back to the fundamental drivers for our skin care business, I think the #1 thing is about the R&D. Beauty market has always driven by further and better order innovation. So we are very happy to see that with our R&D growth engine and then we can launch a very strong pipeline this year and then -- and also for the coming years as well.

The second thing we can think is with our expansion for our skin care portfolio, including the benefit expansion and also product line expansion, we see further linked sales for our product portfolios, which can help us to drive further marketing online.

The third thing is for our skin care brands, I think the overall for the 3 major skin care brands, we still have a pretty far potential to reach their optimized revenue level. So during this process, as we continue to drive the brand awareness and also continuously drive the customer base, we still have the potential to grow our existing skin care brands.

And the last but not I think for us, we focus on launching some new products on some of the key channels. And in the future, we will expand into other channels and also drive further better channel mix.

So with that, I think that will contribute to the sustainable driver for the other skin care brand.

Going back to your questions about how can we continue to improve the profitability. I think as we said many times before, I think the product mix optimization and the channel mix optimization can help us drive the gross margin and also the further ROI on the marketing expenses.

The second 1 is as we focus more on the customer CIM and also the product link sales, this will help us to further drive better ROI on the marketing expenses.

The third thing is very important. For some of our brands, those brands are reaching to what we call the optimized threshold. In the future, as the brands like the revenue scale go up, we will see further leverage on the true branding expenses ROI.

So those are the things -- some of the things we think are very important to drive the continuous improvement for the profitability. Thank you.

The next question will come from Jennifer Wan with [indiscernible] Securities.

This Jennifer Wan from [indiscernible] Securities. So congratulate on company's group performances. And could you please introduce -- just give us some color on the expected expenses of the company in the future? And maybe could you please share how do you view the increasingly fierce competition in the online channel? Thank you for your answers.

Well, can you help me to clarify what the main by expenses?

Like general expenses, operating expenses, et cetera, just general speaking.

Okay. Well, if you look at our financial statements, I see we see a pretty stable G&A expenses in the past quarters.

So having said that, I think moving forward, as the scale of our total revenue growth, and then we will see some operational leverage on the general and administrative expenses. We will continuously to invest in some of the -- what we think short-term-wise, you clarify -- categorized as expenses, but we see it more like the investment, including R&D and also for branding dollars to really build up the brand equity. Those are the -- some of the areas that we focus on.

And sorry, what was your second question?

That's, how do you view the like ongoing sales competition on the online channel? How do you think our company is going to face such kind of situation? Thank you for your answers.

I think, as we said before, when we are looking at the beauty market, there are so many players and then 1 of the reasons that we can continuously and also accelerating our growth, it's mainly driven for some of the investments we have devoted in R&D in the past few years. And also to our continuously commitment on brand building. So we did something right before. That's why we are getting the growth today.

So if we are looking at the competition, as long as we continue to focus on what we have done right, and then we will see more and more robust product lineup and then a better innovation is coming. And we will see the higher brand awareness so that we can get some more operational and also brand building like optimization. And also, we will see some of the operational efficiency improving by our product mix and the channel mix optimization. And we will see some organization growth, by we focus on the cornerstones of our product innovation, customer focus, CIM and et cetera. So as also we focus on doing the right things, we think, in the future, we will achieve the long-term and sustainable growth result. Thank you.

Thank you for your kind response. We are very looking forward to see the company's rapid growth.

Appreciate it. Thank you.

And this concludes our question-and-answer session. I would like to turn the conference back over to management for any additional or closing comments. Please go ahead.

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.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.