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Yunji Inc. (YJ 7.30%)
Q4 2019 Earnings Call
Mar 24, 2020, 7:30 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good morning and good evening ladies and gentlemen, thank you and welcome to Yunji's Fourth Quarter and Full Year 2019 Earnings Conference Call. [Operator Instructions]. With us today are Mr. Shanglue Xiao, Chairman and Chief Executive Officer; Mr. Chen Chen, Chief Financial Officer; Mr. Hui Ma, Chief Strategy Officer and Chief People Officer; and Ms. Kaye Liu, Investor Relations Director of the Company.
I would now like to hand the conference over to our first speaker for today, Ms. Kaye Liu, IRD of Yunji. Please go ahead ma'am.
Kaye Liu -- Director of Investor Relations
Hello everyone. Welcome to our fourth quarter and full year 2019 earnings call. Before we start, please note that this call will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, that are based on our current expectations and current market and operating conditions and related events that involve known or unknown risks, uncertainties and other factors of the [Indecipherable] industry. These forward-looking statements can be identified by terminologies such as will, expects, anticipate, continue or other similar expressions. For a detailed discussion of the risks and uncertainties, please refer to our related documents filed with U.S. SEC. Any forward-looking statements we make on this call are based on assumptions as of today, and are expressly qualified in their entirety by cautionary statements, risk factors and details of the company filing with SEC. Yunji does not undertake any obligation to update these statements and events, as required under applicable law.
With that, I will now turn over to Shanglue Xiao, Chairman and CEO of Yunji.
Shanglue Xiao -- Chairman of the Board of Directors and Chief Executive Officer
[Foreign Speech]
Good morning and good evening everyone. Welcome to our fourth quarter 2019 earnings conference call. During this time of growing turbulence and uncertainty, it is worthwhile for us to survey the changing landscape, as what strategy has served us well in the past and what strategy we should implement in the future. Since the beginning of 2019, we are firming up merchandising optimization strategy of being inclusive, focused and differentiated when it comes to brand selection and product curation. We apply a set of stringent evaluation criteria, by screening brands and curating products to be sold on our platforms. Consequently, we're able to control the number of SPUs and make available on our platform and manage them very effectively.
In addition, we select those brands that stands above the quality in terms of use, innovation, product quality and logistical advancements and form a much more extensive and deeper collaborative relationship with them. We provide them with marketing support and operation at the center, so that we can streamline their entire operation and capitalize their brand recognition and product appeal into the mega-hit exports. In turn, the ultimate success feedback from travel work, enable us to supercharge our own e-commerce business.
[Foreign Speech]
For the tailored individual segment, we seek to satisfy each individual members' unique demand through in-depth collaboration with innovative brands and product categories with high profit margin and high repeat purchase, such as skincare, beauty and cosmetics, and recommend apparel, foods tea and daily household products. We are again a leading incubator of innovative brands in China through our combination of private labeling through internal development, joint venture with leading brands in their respective product categories, and strategic partnership with product manufacturers. Developing those innovative brands has allowed us to provide our members with premium products of comparably quality to mainstream megabrands, but priced at much more affordable levels. It has also enabled us to generate above industry average growth margin and derive long-term benefits from those brand's continuous growth.
[Foreign Speech]
Secondly, in order to provide our members with better shopping experience, we have been upgrading our logistics and distribution capabilities. We are striking a balance between maximizing logistical efficiency and controlling operating costs. We're able to optimizing our product time to market and replenishment fee, for those product categories, for the market based models such as apparel and other asset light brand suppliers. We have need for them on to our marketplace business platform. Within a year of launch, our marketplace business platform has been a crucial contributor of our company's overall GMV growth and profit generation.
[Foreign Speech]
For [Indecipherable], we tried to accommodate our members to pursue a wide range of product selection and get inspiration from watching how other people model their apparel items. As such, majority of our apparel items have sold through our market based business platform. By leveraging our service megamarket, [Indecipherable] in live streaming their own experience of trying on those products, we achieved a breakthrough in the fashion category during the fourth quarter 2019. As apparel has been one of the higher GMV generating categories on our platform, after successfully increasing apparel's percentage contribution to our overall merchandising mix. We believe that we can further improve its take rate in 2020 and drive higher gross profit for our market based business platform.
[Foreign Speech]
We have made a number of innovations in our membership program, as the adaptors have varying consumption habits of different geography. For example, by granting full membership benefits to those users, surpassing certain spending threshold. We are able to unleash the full spending potential of those users. In addition, beginning in the second half of 2019, we have started to cultivate localized user community to assess [Indecipherable] in 2020. Those local communities will help increase our unit business, and user engagement on our platform.
[Foreign Speech]
2019 marks the first year of Yunji to achieve positive adjusted net income both in the fourth quarter and for the full year. Such milestone achievement, especially momentum during the current time of great economic uncertainties, as it validates our business model and demonstrate our success in generating steady and healthy growth. In the fourth quarter of 2019, our GMV increased by 36.1 year-over-year to RMB -- and our total revenue reached RMB2.55 billion as of December 31, 2019 our cumulative members come to 13.8 million. Moreover, the member of our transaction member in the 12 months ended December 31, 2019 increased by 57.4 year-over-year.
[Foreign Speech]
During the COVID 2019 outbreak in 2020, our business strategies and corporate values have enabled us to provide quick service to our employees, service managers, members, partners and the society at large. They have always given top priorities to protecting our employee here and well-being. Consequently, we have provided advanced online technical support to enable majority of our employees to work from home efficiently. Ahead of our office reopening, we have secured ample supplies of disinfectant materials and protective gear for employees who were able to return to work. We were the first company in our office contact Hangzhou based information to resume operations.
[Foreign Speech]
In addition, we have leveraged our membership-based e-commerce platform to promote the economic well-being of our members and service managers. During the past state lockdowns, our platform has enabled them to earn some extra income on the side of fusion [Phonetic] and impact of general economic downturn, because hundreds of thousands of our service members and tens of millions of our members can share product information mostly with their friends and acquaintance. Through their social networks, they're able to provide remote member service support, conduct guided virtual shopping tours, and engage in time productive promotions conversations through our platform. When doing something they love to do as a hobby, they're completing a part time retail feat, that could gain some much needed extra income.
[Foreign Speech]
At the same time, our extensive enterprise and business know-how in merchandising supply chain management has insulated us from the supply disruptions of essentials goods such as rice, grains, salt, cooking oil, foods, veggies, produced independent and safe [Indecipherable]. When those foods become the most sought after items and were in short supply, we are able to maintain their constant availability on our platform. The combination of our private labels, joint venture brands and product partnerships have worked beautifully to ensure a steady supply of those much needed product in our platform. Not only we can stay away from pioneering in essential products and having complement materials, we also maintain their price stability and prevent price rise by establishing purchase limitation policies and providing [Indecipherable] for residents of Hubei province. In addition, we have established close cooperation with leading logistics providers such as SF Express and EMF. As a result both our order fulfillment rate and delivery completion rates remain under industry leading level, even though the deliveries of orders on our merchandise sales platform closed during epidemic.
[Foreign Speech]
All those aforementioned initiative has improved our user attraction, user engagement and user quality of the long run. However during the first quarter of 2020, our GMV may suffer temporarily as a result our endeavor to ensure supply availability, maintain price stability and prevent price rise for daily essential items and outbreak containment era. Nevertheless, our strategies in merchandise optimization, operational improvements, and efficiency enhancements have all started to generate positive results. Thus limiting the duration and extent of the epidemic massive impact on our profitability.
[Foreign Speech]
2019 was a year of transformation for Yunji franchisees a year of opportunity in the guide of challenges upholding our firm commitment to present acceleration which together our usual manufacturer partners should able to see synergies achieve steady growth and extend market footprint going forward.
With that, I will turn the call over to our CFO, Chen Chen, to go through the details of our financial results.
Chen Chen -- Chief Financial Officer
Thank you, Shanglue. Hello, everyone. Before I go through our financial results, please note that all numbers stated in the following remarks are in RMBterms, and our percentage changes are on a year-over-year basis unless otherwise noted.
In the fourth quarter, our continuous efforts to unleash the profitability of both our merchandise sales and market-based business models have been shown in our better than expected moments in our financial results. GMV in the fourth quarter of 2019 grew by 36.1% to RMB11 billion from RMB8.0 billion in the same period of 2018. Revenues in the fourth quarter of 2019 was RMB2.4 billion compared to RMB4.5 billion in the same period of 2018. In addition, we achieved indefinite profit for the full year of 2019 and we increased our indefinite profit in the quarter by 174.1% year-over-year since establishing our marketplace vintage platform in the first quarter of 2019 and increasing number of merchants have shown just in addressing our policy as a result of our merchandise platform transitioning to our marketplace finished platform undertaking responsibility for the above mentioned management a portion of our revenues previously generated on our merchandise sales platform and recognized our cost basis was recorded on our marketplace business platform, which recognized sales on our net base.
Revenues from net sales of merchandise for the fourth quarter of 2019 were [RMB2.7 billion] accounting for 86.7% of our total revenues in the period. Revenues from our marketplace business in the fourth quarter of 2019 increased to RMB169.2 million as we continue to attract more quality brands and the merchants through our platform as well as increased our take rate by strengthening our partnerships with existing brands. Notably in the second quarter of 2019, the takeaway rate of our marketplace been keep growing over the past three quarters. Revenues from our membership program in the fourth quarter of 2019 was RMB145.9 million as compared RMB132 million in the period of 2018. We will optimize membership program optimization adjustments needed to diversify our member base and increase transactions.
Gross profit margin in the fourth quarter in 2019 expanded to 24.3% from 18.1% in the same period of 2018, which was mainly attributable to our increased sales of high margin products, development of products from emerging brands and open brands, and the shifting percentage of sales from a cost basis to a net basis as a result of the increasing number of brands moving our merchandise sales to our marketplace business.
Let's now move to our operating expenses, operating expenses in the fourth quarter decreased by 48% year-over-year, which was mainly attributable to our movements in logistics, efficiency and reservation of our logistic expenses as a result of our optimized merchandise strategies. Sales and marketing expenses decreased by 10.9% year-over-year to RMB306.5 million which was attributable to the decrease in member management fee resulting from our adherence to target commission fee allocations and a distribution of bonuses to service managers. We will also continue to invest in research and development talent during the quarter, while further optimizing our staffing structure to enhance employee performance through essential bonuses and the improved employee working efficiency.
Also in the fourth quarter, technology and the content expenses increased to RMB74.9 million while general and administrative expenses were RMB86.5 million or 3.5% of total revenues compared to RMB33.2 million in the same period of 2018. Overall total operating expenses in the fourth quarter of 2019 decreased by 17.7% to RMB662.4 million from RMB804.4 million in the same period of 2018. This reduction was a result of our ongoing improvements to operational efficiency accomplished through the improvement of our subsidy allocation in support of those brands and the suppliers meeting our criteria.
Loss from operations in the fourth quarter of 2019, were RMB54.4 million compared with and income from operations of RMB2.5 million in the same period of 2018. Net loss in the fourth quarter of 2019 decreased by 42.6% to RMB4.9 million from MB8.6 million in the same period of 2018. Adjusted net income in the fourth quarter of 2019 increased by 174.1% to RMB25.3 million from RMB9.2 million in the same period of 2018. Basic and diluted net loss per share attributable to ordinary shareholders in the fourth quarter of 2019 were RMB0.2 cents compared with RMB0.16 in the period of 2018.
Now let's also take a look at our cash and liquidity positions. As of December 31, 2019, a total of RMB1.7 billion in cash and cash equivalents, restricted cash and short-term investments on our balance sheet. Looking to 2020, we will continue to improve the operating efficiency of our marketplace business model, while leveraging our merchandise sales offerings to bolster the productivity of our user value proposition and connect our expensive pool of users to quality surprise.
Importantly, these efforts should also help us to make progress toward healthy profitability. In addition to these measures, we also plan to utilize our strong cash position for we will make prudent use of these resources and create a more desirable brands and products investing and inform our leading manufacturers boost the quality and efficiency of transactions in our platform and implement additional marketing campaigns to grow our user base.
This concludes our prepared remarks for today. So operator, we are now ready to take questions.
Questions and Answers:
Operator
[Operator Instructions] Your first question comes from the line of Andre Chang of JP Morgan. Please ask your question.
Andre Chang -- JP Morgan -- Analyst
[Foreign Speech]
So let me repeat my question. The company has rolled out free membership starting about January 1st to January this year. So I like to ask whether this will mean the membership program revenue will drop to zero this year in exchange for faster sale of merchandise revenue growth and also membership growth. And also whether that will mean some impact on the gross margin as the membership revenue generally usually have a higher margin? Thank you.
Chen Chen -- Chief Financial Officer
Thank you, Andre. So, I will take this question. So I can give you some background information first, because as a first membership based social e-commerce company history in U.S. so we need to take the responsibility together with local government to continue to refine the standards of this industry and make the new ecosystem better. This new measure we've just published has been widely pushed by local government and are followed by our competitors. So, for this new member recruitment method either for our existing members to invite and build the offline communities based on location. We still believe this kind of connection based on location will be more solid and active since the connection through Internet, but the nature of our finished model has not changed. So our business growth are still based on the supply chain upgrades as our CEO just stated in his remarks. And second, the social interaction between members.
So for your questions, so, first of all the revenue of membership revenue yes because we changed the recruitment method. So the membership of revenue will decrease of course. And a second for the margin, because although the membership revenue decreased, but as we mentioned in both CEO and CFO, scripts remarks, because we will -- our supply chain, core value of our supply chain to develop to cooperate with the best emerging brands and factories in China and to find their best SKUs. So our margin will come from the emerging brands and our own brands. So we believe the gross margin and operating margin in 2020 will not be negatively impacted by the cancellation of the member fee.
Operator
Your next question comes from the line of Ivy Liu of Credit Suisse. Please ask your question.
Ivy Liu -- Credit Suisse -- Analyst
[Foreign Speech]
I'll quickly translate myself so thanks management for taking my question. My question is on membership as well so can management elaborate a bit more on the existing and strategies or tactics to acquire new members and the channels that Yunji invest and how that will impact the sales and marketing line in 2020. And also there are specific growth targets for the membership in 2020? Thank you.
Chen Chen -- Chief Financial Officer
Thank you, Ivy. So for this question, the first is from 2020 we will not only around the Internet-based membership member recruitment, we will also use the offline measures to promote our members. So based on the location and based on the different living communities all around China, we will encourage our members to get to do the offline promotions. So and for the cost of each new members, we do not change the incentive program. So for the each new members invited by the existing members, we'll provide the new members for RMB5 coupons. So that's our cost to have one new members so this policy not change. And so, we believe the sales and marketing expense will not increase significantly. And but we will continue to monitor the quality of the members from the new member of equipment approach. So we can -- we'll monitor that and we can discuss this with you after one quarter, we will see that better.
And for the total member forecasts, because we did not provide the guidance, so we cannot disclose the detail numbers, but we can foresee the total new members joining Yunji through the new policies will increase compared to the previously qualities. But as we said, our focus is -- always on how to get the quality transacting members, but not only the members. So, we will through the -- so for our members how we can increase the transaction members will encourage through the supply chain either -- which will keep creating the public skills of the new brands with the competitive prices. And we are also developing better skills from the emerging brands to compete with this mainstream brands with lower price and higher margins.
So, through this deeply cooperating with the emerging brands and factories we'll provide our members more values to make the new members to become quality transaction members. So, our focus is still is not only on the number of members, but on the number of the quality transaction members. So we will -- spend more efforts to transfer the member to the transaction member quarter-by-quarter.
Operator
There are no more questions at this time. I would now like to hand the conference back to the management team for the closing remarks. Please go ahead.
Kaye Liu -- Director of Investor Relations
Thank you everyone for joining us today. I'll see you next quarter. Thanks.
Operator
[Operator Closing Remarks].
Duration: 35 minutes
Call participants:
Kaye Liu -- Director of Investor Relations
Shanglue Xiao -- Chairman of the Board of Directors and Chief Executive Officer
Chen Chen -- Chief Financial Officer
Andre Chang -- JP Morgan -- Analyst
Ivy Liu -- Credit Suisse -- Analyst
