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Yunji Inc (YJ) Q1 2020 Earnings Call Transcript

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YJ earnings call for the period ending March 31, 2020.

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Yunji Inc (YJ -7.52%)
Q1 2020 Earnings Call
Jun 3, 2020, 7:30 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Good morning, and good evening ladies and gentlemen. Thank you, and welcome to Yunji's First Quarter 2020 Earnings Conference Call. 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.

Now I would like to hand the conference over to our first speaker for today, Ms. Kaye Liu, IRD of Yunji. Please go ahead, ma'am.

Kaye Lu -- Investor Relations Director

Hello everyone, welcome to our first quarter 2020 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's based on our current expectations and current market and operating conditions and related events that involve known or unknown risks, uncertainties and other factors affecting the industry. These forward-looking statements can be identified by terminologies such as will, expect, anticipate, continue or other similar expressions.

For a detailed discussion of these risks and uncertainties, please refer to our latest documents filed with U.S. SEC. Any forward-looking statements that we make on this call are based on assumptions as of today, and expressly qualified in entirety by cautionary statements, risk factors and details of the Company filing with SEC. Yunji do not undertake any obligation to update these statements expect as required under applicable law.

With that, I will now turn over to Shanglue Xiao, Chairman and CEO of Yunji.

Shanglue Xiao -- Chairman and Chief Executive Officer

[Foreign Speech]. Hello everyone, welcome to Yunji's first quarter 2020 earnings call. First, I would like to say thank you on behalf of the Company to all of the professionals and individuals fighting against the epidemic on the front-line. In the first quarter, and despite the impact of the epidemic, we increased our GMV by 2.9% year-over-year to RMB7 billion, and then generated a total of RMB1.65 billion in revenues.

Moreover, as a result of the updates to our membership enrollment system, we also grew the total number of the transacting members on our platforms to 11.8 million for the 12 months ended March 31st, 2020. These encouraging results continue to underscore the durability of our supply chain as well open our value proposition for members. And the progress we are making in actuating our growth initiatives.

[Foreign Speech].

While the epidemic did cause significant problems for all industry players in the market, we were able to endure those difficulties, which arose as a result of the relative prevention control measures through close cooperation with our partners. When the market began to experience a significant shortage of epidemic containment materials, our deep partnership with top emerging brands and then publicly traded companies in a fast-moving consumer goods industry enabled us to ensure a stable line of supply to our members.

In addition, some quality factories and emerging brands with a quality production capability made a temporary adjustment to their production lines and working hours during the period to ensure the production of the epidemic containment materials and other essential goods. Our partnership with these players enable us to secure priority in their supply of the goods during the period. Moreover, our close cooperation with leading logistics provided helped to ensure the delivery of our goods to members in a timely manner.

[Foreign Speech].

Despite the epidemic's impacts to our business and operations, we continue to grow our gross margin and make progress along the path to a stable level of profitability. Such results were largely due to our collaborations with emerging brands, which have further demonstrated the effectiveness of our supply chain refinement and a differentiation strategy.

[Foreign Speech].

On the supply chain side, we continue to work toward enhancing our partnerships with the top emerging brands to accelerate our supply chain differentiation and drive our long-term growth. To date we have established the partnership with over 30 top emerging brands in different industries. In forming this partnership, we are very focused on selecting quality players with all of our top emerging partners brands having annual sales in excess of RMB100 million and then some even being publicly listed on the domestic market.

Most of our partner brands sell different categories of the fast-moving consumer goods with high turnover and the repurchase rates. And while we do also need brand financial support, our backing is not only limited to financing. For example, we channel platform traffic to the product of the most emerging brands that we have developed with our incubation system as joint-venture brands.

Going forward, we believe that these partnership strategy will give higher quality Yunji exclusive products, generate a better platform sales, advance our platform's competitive advantages, and fuel the growth of our revenue streams over the long term. In addition, we're also planning on further differentiating our platform by remaining focused on exploration of more joint venture brands and a quality Yunji exclusive products.

[Foreign Speech].

Notably, as a result of years of investment and incubation systems, our private label [Indecipherable] and the P&L have expanding on to other online platforms including Tmall and JD, and we believe that this trend has same power and of that our other private label will also actively broaden their platform networks to deliver their products to more consumers and to grow their sales in China.

[Foreign Speech].

Beyond supply chain improvement, we also further devote our social sharing promotion systems or product. For example, during the first quarter, we continued to cultivate our local community services, which we had previously shared with everyone on the last call. It's location-based, online, offline integrated system, helps to increase neighborhood connection, while enabling users to access more products in a more convenient manner. When the activity of users became restricted, during the outbreak as a result, user section external locations, our product promotion target shifted to each community and the every labor [Phonetic] leveraging the stable supply of an epidemic prevention product and the daily essential products for our partners, along with our reliable logistic metric. We were able to continue to support our members to reach community users and provide community users with a consistent flow of critical goods throughout the period.

[Foreign Speech].

We have also started to invest in e-commerce, live streaming to increase sales during the period. We on-boarded a group of service managers with the appropriate sales skills and performance capability reserve as premet [Phonetic] in the different streaming rooms of our platform. After establishing these streaming rooms, we direct to the other service management, if clearance in social sharing to introduce the rooms to members.

Importantly, if a member has completed an order through one of those streaming rooms, both the streamer and the service room manager will refer to member to the streaming rooms, receive a sale commission to further develop these social sharing and community-based live streaming system going forward. I plan on hosting my online streaming session once a month with other streamers on our platform.

In fact, on the night before the Yunji's May, the 16th Annual celebration, I made my live streaming debut on Yunji platform, accumulating a total transaction volume of more than RMB15 million for the session.

[Foreign Speech].

In summary, 2020, marked Yunji's fifth year of business operations. We are quite pleased to see that the Company remains committed to achieving its goals, and continues to advance to -- its establishment of a fully mature membership-based social sharing e-commerce platform. As we enter into our sixth year of business, we will remain committed to addressing market demands by exploring new initiatives, while also avoiding those reckless investments that are not in line with our long-term growth plan. Finally as we advance beyond these important Company milestone, we also plan to leverage our momentum to further improve our inclusive, differentiated and quality focused platform offering.

These asset should allow us to not only refine the Yunji's limit -- experience that we provide to tens of millions of members on a consistent basis. But also enabling us to unleash the growth potential of our community to increase shareholder value over the long term.

[Foreign Speech].

With that, I will turn the call over to our CFO, Rex Chen, to go through 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 RMB terms, and our comparisons and percentage changes are on a year-over-year basis unless otherwise noted.

In the first quarter, we experienced a major challenges from the COVID-19 pandemic along with the rest of the world. This was particularly true in our operations networks, which includes our suppliers, third-party merchants, third-party logistics service providers, and other business partners. As a result of the temporary shutdowns, delays in operations and other challenges, our GMV growth was negatively impacted in this quarter. Such impact was partially offset by the higher transaction volume of our marketplace business, which recognized revenue on a net basis.

During the first quarter of 2020, our GMV increased by 2.9% to RMB7 billion from RMB6.8 billion. Revenues in the first quarter of 2020 were RMB1.6 billion compared to RMB3.4 billion. Gross margin improved to 30.4% from 19.3%. Our non-GAAP net income in the first quarter of 2020 was RMB26.1 million compared to RMB43.1 million. These first quarter results are the product of the operational refinements we made for different suppliers and customers as well as our improved operational efficiency.

Notably, we improved our operational efficiency by first concentrating our merchandise platform resources on to products, capable of enhancing our competitive differentiations, such as Yunji exclusive products. And second, channeling quality supplies to our marketplace platform to boost their product exposure.

Let's now take a closer look at our financials. Revenue from net sales of merchandise in the first quarter of 2020 were RMB1.45 billion, accounting for 87.7% of our total revenues in the period compared to RMB3.22 billion. This decrease was due to the transfer of our business to our marketplace business model, which was in line with our continuous efforts to improve our operating efficiency.

Revenue from our marketplace business in the first quarter of 2020 increased to RMB158.1 million from RMB3.4 million. The increase was driven by an increase in the number of quality brands and merchants on our platform, as well as higher take rates, which was secured with existing brands to strengthen the partnerships. Notably, since the second quarter of 2019, the take rates of our marketplace business have continued to grow for the past four consecutive quarters.

Revenues from our membership program in the first quarter of 2020 were RMB25.1 million compared to RMB156.6 million. The decrease was due to the refinement of our membership enrollment system, which allowed users to register on our Yunji app as a member, free of charge and enjoy membership benefits for one year.

Gross margin in the first quarter of 2020 expanded to 30.4% from 19.3%. This expansion was mainly attributable to the increase in the sales of higher margin products, the development of products from emerging brands and our own private labels. And shifting the proportion of sales from a gross basis to a net basis, which was due to the increasing number of brands, moving from merchandise sales to our marketplace business.

Let's now move to our operation expenses. Fulfillment expenses in the first quarter of 2020 decreased by 49% to RMB138.1 million. The decrease was mainly attributable to decreased warehousing and the logistics expenses, resulting from our improved logistic efficiency. And the shift in brands from merchandise sales to our marketplace business.

Sales and marketing expense in the first quarter of 2020 decreased by 4.4% to RMB251.7 million, which was attributable to the decrease in member management fees, as we continue to improve the efficiency of our member management operations. The decrease was partially offset by the increase in business promotion expense to attract more popular brands and the merchants to our marketplace business.

Technology and content expenses in the first quarter of 2020 decreased to RMB57.9 million from RMB58.7 million. The decrease was mainly due to our realization of better contract terms with our server providers, which helped to reduce our server costs and were partially offset by increased personnel costs.

We also continue to invest in research and development talent, while further optimizing our staffing structure to enhancing employee performance through share-based awards in the period. We expect the personnel costs to decrease in the second quarter. General and administrative expenses in the first quarter of 2020 increased by 21.5% to RMB75.2 million, or 4.6% of our total revenues from RMB61.9 million, which was mainly due to the increased share-based compensation expenses resulting from new grants of share-based awards.

After excluding the impact of share-based compensation expenses, general and administrative expenses in the first quarter of 2020 increased by 8.6% to RMB46.1 million from RMB42.5 million. Overall, our total operating expenses in the first quarter of 2020 decreased by 20.1% to RMB522.9 million from RMB654.4 million. This reduction was a result of our ongoing improvements to logistics efficiency and operating efficiency, which we achieved by improving our service manager relationships and subsidy allocations in support of those brands and suppliers, meeting our criteria as well as our ability to secure better terms with our partners. Loss from operations in the first quarter of 2020 was RMB6.1 million, including share-based compensation expense of RMB39.3 million compared with an income from operation of RMB10.7 million.

Net loss in the first quarter of 2020 was RMB13.2 million compared with a net income of RMB16.9 million. And then GAAP net income in the first quarter of 2020 was RMB26.1 million compared with RMB43.1 million. Basic and the diluted net loss per share attributable to ordinary shareholders in the first quarter of 2020 were both RMB0.01 compared with RMB0.95 in the same period of 2019.

Now let's also take a look at our cash and liquidity positions. In light of the COVID-19 outbreak, we continue to focus on maintaining a healthy level of working capital to meet our operational liquidity demands. As of March 31st, 2020, we had a total of RMB2 billion in cash and cash equivalents, restricted cash and short-term investments on our balance sheet. Looking ahead, we will continue to improve our platform operating efficiency. We'll leverage our strong cash position and differentiated merchandised sales offerings to bolster the competitiveness of our value proposition for users and connect our massive user base to quality supplies.

During this period of uncertainty in the market, these efforts will help us to sustain our competitive advantage both as the quantity and the efficiency of transactions on our platforms, enhance our brand value to grow our user base and the supply network and continue to advance along the path toward healthy profitability.

This concludes our prepared remarks for today. Operator, we are now ready to take the questions.

Questions and Answers:


Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions]. Our first question comes from the line of Andre Chang from J.P. Morgan. Please go ahead.

Andre Chang -- JPMorgan -- Analyst

[Foreign Speech]. Thank you, management, for taking my question. My question is about the second quarter progress so far. After the COVID-19 pandemic has gradually eased, I'd like to know the business recovery trajectory in terms like GMV, revenue growth as well as the membership progress? Thank you.

Chen Chen -- Chief Financial Officer

Thank you, Andre. I will take this question. And by the end of May, we see the trend of the recovery of both the GMV and the revenue, but the gross rate is still not as fast as we -- our prior forecast. This is because our focus in this year to provide a more differentiated SKUs and the products to our members. So we are more focused on the profitability and the differentiated items we can provide to our members. Because as you can see, all the other platforms, they offer a lot of products with a low price and to compete with faster delivery. But for a while our members will come to Yunji, because we can provide them our private label products with better quality, but with a reasonable price and also, as our CEO just stated, we are focused on the deeply cooperating -- cooperation with the best emerging brands all over China.

And most of these brands are in the faster moving consumer categories. So we see in Q2 -- by the end of May, we see a recovery of the both GMV and revenue and our profitability continued to grow in Q2. So I think this is -- I think this matched our CEO's statement that we will pursue the healthy growth in the future.


All right. Thank you. [Operator Instructions] As there are no further questions, I would like to hand the conference back to the management team for the closing remarks.

Kaye Lu -- Investor Relations Director

Thank you for joining us today. Please do not hesitate to contact us if you have further questions and we look forward to talking with you next quarter. Thanks.


[Operator Closing Remarks].

Duration: 27 minutes

Call participants:

Kaye Lu -- Investor Relations Director

Shanglue Xiao -- Chairman and Chief Executive Officer

Chen Chen -- Chief Financial Officer

Andre Chang -- JPMorgan -- Analyst

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Motley Fool Transcribers has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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