Yatsen set to close more Perfect Diary offline stores in second half of this year

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Since the start of the year, Yatsen had closed 58 Perfect Diary stores. As of June 2022, the company still operated a total of 228 physical stores.

Speaking at the company’s second quarter earnings conference on August 25, Huang Jinfeng said the company is not done closing more Perfect Diary outlets.

“Given the deteriorating retail environment in China, we expect to close additional underperforming stores in the second half of 2022,” said the founder, president and CEO of Yatsen.

The poor performance of offline stores was attributed to the resurgence of COVID-19 in China, which led to severe lockdowns for nearly two months in the first half.

Huang pointed to data from China’s National Bureau of Statistics, which indicated retail spending on beauty products fell 22.3% and 11% in April and May respectively, before recovering slightly in June.

“This is commensurate with the impact of offline retail spending nationwide, including our offline stores.”

At the same time, online competition was fierce, which further impacted sales of color cosmetics.

“In the online arena, competition intensified as our competitors engaged in aggressive promotions to drive sales amid sluggish market demand for color cosmetics,” Huang said.

Going forward, Huang said the company will continue to monitor the offline retail environment to determine if further store closures are necessary. At the same time, the company was exploring new offline channels to “serve offline customers profitably”.

“Pink Bear and Little Ondine, for example, expanded their distribution with KK Group to more than 300 KKV and The Colorist stores across the country in the second quarter, driving additional revenue and profit for both brands,” Huang said.

The company is open to collaborating with new partners to expand into new distribution channels.

“Going forward, we will look to replicate this success and further expand the collaboration with other distribution partners,” Huang said.

Decline for Q2

On the other hand, Yatsen’s total net revenue for the second quarter of 2022 decreased by 37.6% to 951.8 million RMB (142.1 million USD). The decline was mainly attributed to the 50.5% drop in color cosmetics net sales.

Gross profit decreased by 40.3% to 598.3 million RMB (89.3 million USD) while gross margin decreased to 62.9% from 65.7% the previous year.

The company said this was due to high levels of promotions during the 6.18 shopping festival and an inventory loss of 43.9 million RMB ($6.6 million).

On the other hand, the company’s skincare division has done remarkably well. Net revenues increased by 49.2% and now represent a third of the company’s profits.

The company highlighted the strong performance of its skincare acquisitions, DR. WU, Eve Lom and Galénic, which together achieved annual growth of 112%.

Huang said: “Supported by growing brand recognition, strong product highlights and successful upscaling across multiple e-commerce channels. Our skincare brands also posted higher gross margin and net profitability levels than our color cosmetics brands and proved to be very resilient during this period of economic uncertainty in China.

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