Not so perfect: Yatsen’s skin care investments offset make-up decline

The Chinese beauty company announced that total net revenues for 2021 increased by 11.6% to RMB5.84bn (U$916.4m), while gross profit increased by 15.9% to RMB3.90bn (U$611.8m).

This was despite declines in net revenue and gross profit it experienced in the fourth quarter (Q4).

Total net revenues for the fourth quarter of 2021 decreased by 22.1% to RMB1.53bn (U$239.8m) and gross profit decreased by 23.7% to RMB993m (US$155.8m).

The decrease was attributable primarily to the decrease in sales from its colour cosmetics brands, including Perfect Diary and Little Ondine. The challenges in the fourth quarter resulted in net revenue dip of 2.3% in 2021.

"The fourth quarter was a challenging quarter, marked by soft consumer demand and intense competition in the colour cosmetics segment,”​ said Huang Jinfeng, the founder, chairman and CEO of Yatsen.

However, it was partially offset by the 327.7% increase in total net revenue from its skin care brands, which include Abby's Choice, Galénic, DR.WU, and Eve Lom​.

"Despite the challenges, we increased our topline and gross margin on a full-year basis, driven by the significant growth of our skin care brands,” ​said Huang.

In the past couple of years, Yatsen has been growing its skin care portfolio in anticipation​ of the softening of the colour cosmetics category in China.

The company made its debut in skin care with the launch of Abby's Choice in June 2020. The brand was developed with data and insights gleaned from its exisiting consumer base.

The company followed up with the acquisition of French skin care brand Galénic in October the same year.

It also took over the Chinese arm of Taiwanese derma beauty brand DR.WU in January 2021 and acquired prestige skin care brand Eve Lom from Manzanita Capital in March 2021.

First-quarter outlook

For the first quarter of 2022, the company said it was expecting its total net revenues to decline approximately 35% to 40% year on year to around RMB866.7m (U$137m) and RMB938.9m (U$148.4m).

The company is expecting the decline as the previous year’s ‘revenge spending’​ phenomenon has set a high base of comparison. At the same time, it was expecting colour cosmetics demand to soften.

Furthermore, the company said it would be limiting promotional discounts on its products and will be focusing on operating margin improvements.

Huang concluded: “Looking forward, we will remain highly focused on improving operating margin, optimising our cost structure and investing in branding and R&D to ensure our long-term success.”​