Citing China’s National Bureau of Statistics, Yatsen reported that total beauty retail sales achieved year-over-year growth of 5.9% in the quarter.
“Movement in market sentiment and the gradual recovery of off-line consumption following the lifting of pandemic restrictions were major drivers of this upward trend,” said Huang Jinfeng, founder, chairman and CEO of Yatsen, which owns brands such as Perfect Diary and Galenic.
However, the company reported that its total net revenue for the first quarter (Q1) declined by 41% year-over-year to RMB765.4m (USD111.5m).
This was driven by continued sluggish performance of colour cosmetics, which declined 29.1% year on year. The decline was partially offset by a 34.2% year over year increase in skin care sales.
“While we are pleased to see signs of recovery in the retail environment, we expected a rebound in our revenue to take time as consumers gradually reengage in travel, social activities, and general consumption in the post-COVID era. Our sights remain focused on long-term sustainable growth as we continue to refine our business model,” said Huang.
CFO Yang Donghao added that the company was ‘cautiously optimistic’ about the near future.
“We’re cautiously optimistic, about our own business. The market has recovered due to the lifting of the pandemic control policies… We have been able to grow our skin care brands quite fast, but we have also met some challenges in our colour cosmetics business. But in general, I think we’re moving in the right direction, both in terms of sales growth and profitability.”
Yang added that the company was also facing stiffer competition in the market.
“From our perspective, I think the competition is intensifying. As far as we know, most of the international major brands are actually offering greater than ever discounts in order to drive their sales.
“The macro environment is improving, meaning the important function, the demand is going up. But in the meantime, the competition is intensifying. So that’s why we say we’re only cautiously optimistic about our business growth in the next couple of quarters.”
Net income for Q1 was RMB50.7m (USD7.4m) down from RMB291.4m from the previous year. Gross profit decreased by 7.5% to RMB568.7m (USD82.8m) from the previous year.
No expectation of recovery in Q2
The company is not expecting a major recovery in the next quarter.
“We think there is still going to be a decline,” said Irene Lyu, vice president and head of strategic Investment and capital markets.
Lyu elaborated that Perfect Dairy will no be back to its “growth stage” by the second quarter.
“Perfect Diary, which still contributes to a majority of our revenue still under the brand strategic transformation. And as mentioned, most of the new product launches are planned for the second half of this year.”
Furthermore, as of the end of March, the firm had 150 stores compared to almost 230 last year.
“The offline business, because of the large number of [store closures], there is going to be a decline,” said Lyu.
Lyu added that while the company has seen a boom in the skin care business, it was still relatively small compared to its makeup arm, and would not be able to offset the decline in skin care.