What happened

Shares of Yatsen Holding (YSG 4.87%) took a dive today after the Chinese cosmetics company offered weak guidance in its second-quarter earnings report.

The stock closed down 17.6% on the news.

A woman putting on eye makeup in the mirror

Image source: Getty Images.

So what

Yatsen, which owns brands including Perfect Diary and Abby's Choice, said revenue jumped 53% in the quarter to $236.2 million as cosmetics sales have bounced back after a sluggish performance during the height of the pandemic. That result edged out estimates at $233 million.

Gross margin increased from 61.1% to 65.7%, and the company's direct-to-consumer (DTC) customers rose by 13% to 10.2 million. Average revenue per DTC user was up 17.6% as well. 

The company also said that its efforts to optimize its marketing spending paid off and its net loss per share improved from $0.20 a year ago to $0.05, which beat estimates of a loss of $0.06.

CEO Jinfeng Huang said, "We are pleased with our performance in the second quarter, driven by customer growth stemming from our flagship brand Perfect Diary and newly incubated and acquired brands such as Pink Bear, Galénic, DR. WU, and Eve Lom." 

Now what

While the second-quarter results were better than expected, what seemed to sink the stock was weak guidance for the third quarter as the company loses easy comparisons against the pandemic a year ago. For the third quarter, it expects revenue growth of just 5% to 10% to $210 million, which was well short of the consensus at $290 million.

Management noted that the pandemic had caused an unusual quarterly seasonality in its sales, but it's easy to see why investors would balk at an expected sequential decline in revenue based on the guidance.