Operator: Ladies and gentlemen, good day, and welcome to the Yatsen Second Quarter 20 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Irene Lyu. Vice President, Head of Strategic Investment and Capital Markets. Please go ahead.

Irene Lyu: Please note the discussion today will contain forward-looking statements relating to the company's future performance and are intended to qualify for the safe harbor from liability that is established by the US Private Securities Litigation Reform Act. Such statements are not guarantees of future performance and are subject to certain risks, and uncertainties, assumptions, and other factors. Some of these risks are beyond the company's control and could cause actual results to differ materially from those mentioned in today's press release. and this discussion. A general discussion of the risk factor that could affect Yatsen's business and financial results is included in certain filings of the company with the Securities and Exchange Commission. The company does not undertake any obligation to update this forward looking information except as required by law. During today's call, management will also discuss certain non GAAP financial measures. For comparison purposes only. Please see the earnings release issued earlier today for a definition of non GAAP financial measures. And a reconciliation of GAAP to non GAAP financial results. Joining us today on the call from Yatsen's senior management are Mr. Jinfeng Huang, our founder, chairman, CEO, and Mr. Donghao Yang, our CFO and director. Management will begin with prepared remarks, and the call will conclude with a Q&A session. As a reminder, this conference is being recorded. In addition, a webcast replay of this conference call will be available on Yatsen's Investor Relations website. at ir.yatsenglobal.com. I will now turn the call over to Mr. Jinfeng Huang. Please go ahead, sir.

Jinfeng Huang: Thank you, Irene. Hello, everyone. And thank you for joining our second quarter earnings conference call. We delivered a quarter of continued strategic progress, With total net revenue growing 5.1% year over year. Against the challenging industry backdrop. While overall growth was more moderate than our prior expectations, Our India portfolio delivered exceptional performance. Reinforcing the effectiveness of our strategic transformation. Turning to the market environment, according to the National Bureau of Statistics, beauty retail sales rose 6.6% year over year in the second quarter of 26. Outperforming overall retail sales of consumer goods. While the impact of the June 18 shopping festival has become more moderate amid increasing promotional and more rational consumer behavior. The category continued to demonstrate strong consumption resilience. That said, the competitive landscape remained challenging. With many leading participants in the domestic beauty industry also reporting growth deceleration or revenue declines during the quarter. Underscoring the broad based headwinds facing the industry. Against this resilient market backdrop, our total net revenues remained on a steady growth strategy, increasing 5.1% year over year in the second quarter. More importantly, this growth was primarily driven by the sustained momentum of our skincare portfolio. Which delivered another strong quarter. With revenues increasing 40.4% year over year. And now representing 71.5% of our total net revenues. The continued strength of our skincare brands further reinforces skincare as a core pillar of our business. And a key driver of our overall growth. While underperforming the effectiveness of our ongoing investment in brand building, product innovation, and channel development. With skincare now representing over 70% of total revenues, our revenue mix has fundamentally shifted toward higher quality, more sustainable growth. At the heart of our strategy is the deep understanding of consumer needs, and a strong commitment to delivering superior consumer experience. We remain focused on creating meaningful long term value through both the products we offer and the emotional connections we build with consumers. Let me now walk you through the progress we made in these areas during the quarter. Our first strategic priority is to continue strengthening our R&D capabilities and advancing innovation on a strong scientific foundation. We remain firmly committed to the R&D investment. With R&D expenses maintained at 3.2% of total net revenues in the second quarter We also continued to make meaningful progress in strengthening our scientific capabilities and external recognition. In May, Yatsen's Global Innovation R&D Center was recognized as the national high-tech enterprise and received the specialized, sophisticated, distinctive, and innovative design designation in Shanghai. More recently, in July, Dr. Wu once again demonstrated the depth of his scientific capabilities with 3 research studies published in international SCI-indexed journals. Powering innovative approach to oily and acne-prone skin, new insights into the mechanism underlying post-acne marks. The clinical evidence supporting the combination of our metallic acid serum with adapalene These studies further validated the depth and the breadth of our scientific research capabilities. On the product front, we continue to build off the strength of our existing franchise. While deepening our expertise. In targeted skincare solutions. Galenic further extended its culture renovation cellular line with the launch of the dividing eye cream. Expanding the front franchise into the dedicated eye care category and Dr. Wu also expanded its skincare portfolio with 3 new essence masks for all the oil control, hydration, and the soothing care. At Eve Lom, we further expanded the second generation Vital Dew collection with the Vital Dew Fresh Hydration Cream and skin infusion serum. These launches reflect our continued focus on leveraging established product franchise. And the scientific expertise to address evolving consumer needs. And create sustainable growth opportunities. Our second strategic priority is to further strengthening brand equity across our portfolio through high impact consumer engagement. And differentiated brand experiences in late May, Dr. Wu partnered with cctv.com for a dedicated live streaming event. Which attracted a cumulative audience of 178 million viewers. And generated a significant uplift. in sales, further expanding the brand's reach and consumer engagement. In Galenic brought its Brightening your summer campaign to consumers. Through a pop up experience on Wuzhou Island in Sanya in July. Eve Lom participated in the British beauty festival further elevating its heritage and a premium positioning. While these initiatives helped to broaden our brand reach and deepen consumer engagement, across key markets and touch points. Our third strategic priority is to enhance the quality and sustainability of our profitability. In the second quarter, gross margin was impacted by higher inventory provision. In the color cosmetics business associated with the company's proactive brand portfolio optimization and SKU rationalization. Excluding the impact of these 1-time inventory provisions, the underlying gross margin would have remained roughly stable year over year. Selling and marketing expenses as a percentage of net revenues rose primarily driven by strategic investment in high growth channels. Particularly, Douyin. At the same time, we remain focused on adjusting structural profitability challenges in color cosmetics. Where fast changing consumer trends, high SKU, complexity, and ongoing promotion intensity require disciplined management and a more focused approach to resource allocation. We are actively streamlining our color cosmetic portfolio to improve profitability and refocus our resources on the higher growth skin care business. Looking ahead, we will continue to optimize our cost structure, refine resource allocation across channels, and unlock greater operating leverage from our fixed overhead. Furthermore, we are accelerating integration of AI across our operational workflow to drive continuous productivity gains. Together, these initiatives will further elevate our earnings quality and solidify the foundation for sustainable long term profitable growth.

Operator: Ladies and gentlemen, please hold while we reconnect with our speakers.

Jinfeng Huang: Yep. Just reconnected. So finally, I am delighted to share a leadership update. Effective today, Ms. Wang has been appointed as our Chief financial officer. Ms. Wang comes with a proven track record. Of over 15 years. In the consumer and beauty industry. Most recently serving as CFO of Poya Cosmetics. Her experience and the financial expertise will further support our ongoing efforts to optimize our cost structure, improve resource allocation, and drive sustainable profitable growth. With that, I will now turn the call over to our CFO, Donghao Yang. To discuss our financial details.

Donghao Yang: Thank you, David, and hello, everyone. I am also very delighted to welcome Ms. Wang as she joins the company. I look forward to working closely with her to ensure a smooth transition. Before I discuss our financial details, I would like to clarify that all financial numbers presented today are in renminbi amounts. And all percentage changes refer to year over year changes unless otherwise noted. Total net revenues for the second quarter of 2026 increased by 5.1% to RMB 1.14 billion from RMB 1.09 billion for the prior year period. The increase was primarily due to a 40.4% year-over-year increase in net revenues from skincare brands partially offset by a 35.8% year-over-year decrease in net revenues from our color cosmetics brands, which reflected the company's proactive brand portfolio optimization and deliberate SKU rationalization as part of its strategic transformation. Gross profit for the second quarter of 2026 decreased by 0.8% to 843.8 million from 850.4 million for the prior year period. Gross margin for the second quarter of 2026 decreased to 73.9% from 78.3% for the prior year period. Primarily due to higher inventory provision in the color cosmetics business associated with brand portfolio optimization and SKU rationalization efforts. Total operating expenses for the second quarter of 2026 increased by 7.7%. To 975.7 million from 905.9 million for the prior year period. As a percentage of total net revenues, total operating expenses for the second quarter of 26 was 85.4%. As compared with 83.4% for the prior year period. Fulfillment expenses for the second quarter of 26 were 56.1 million as compared with 63.3 million for the prior year period. As a percentage of total net revenues, fulfillment expenses for the second quarter of 2026 decreased to 4.9% from 5.8% for the prior year period. The decrease was primarily attributable to further improvement in logistics efficiency. Selling and marketing expenses for the second quarter of 26 were 807.6 million as compared with 722.4 million for the prior year period. As a percentage of total net revenues, selling and marketing expenses for the second quarter of 2026 increased to 70.7%. from 66.5% for the prior year period. The increase was primarily driven by strategic investments in broadening consumer awareness and building long term brand equity of our core skincare brands, Coupled with higher traffic acquisition costs, on the Douyin platform as the company capitalize on the channel's strong growth momentum. General and administrative expenses for the second quarter of 26 were 74.8 million as compared with 84.1 million for the prior year period. As a percentage of total net revenues, general and administrative expenses for the second quarter of 26 was 6.6%. As compared with 7.7% for the prior year period. The decrease was primarily driven by lower share based compensation expenses. Research and development expenses for the second quarter of 26 were 37.3 million as compared with 36.1 million for the prior year period. As a percentage of total net revenues, research and development expenses for the second quarter of 26 was 3.3%. Consistent with the prior year period. Loss from operations for the second quarter of 26 was 131.9 million as compared with 55.5 million for the prior year period. Operating loss margin was 11.5% as compared with 5.1% for the prior year period. Non GAAP loss from operations for the second quarter of 26 was 112.1 million as compared with 20.4 million for the prior year period. Non GAAP operating loss margin was 9.8%. As compared with 1.9% for the prior year period. Net loss for the second quarter of 26 was 90.8 million as compared with 19.5 million for the prior year period. Net loss margin was 8%. As compared with 1.8%. For the prior year period. Net loss attributable to Yatsen's ordinary shareholders per diluted ADS for the second quarter of 26 was 0.97. RMB as compared with 0.19 RMB for the prior year period. Non GAAP net loss for the second quarter of 26 was 99.4 million as compared with non GAAP net income of 11.5 million for the prior year period. Non GAAP net loss margin was 8.7%. As compared with non GAAP net income margin of 1.1% for the prior year period. Non GAAP net loss attributable to Yatsen's ordinary shareholders per diluted ADS for the second quarter of 26 was 1.06 RMB. As compared with non GAAP net income attributable to Yatsen's ordinary shareholders per diluted ADS of 0.13 for the prior year period. As of June 30, 2026, the company had cash, restricted cash and short-term investments of RMB 1.06 billion as compared with RMB 1.05 billion as of December 31, 2025. Net cash used in operating activities for the second quarter of 26 was 78 million as compared with net cash generated from operating activities of 77.7 million for the prior year period. Looking at our business outlook for the third quarter of 26, we expect our total net revenues to be between 898.6 million and 998.4 million, representing a year over year decrease of approximately 0% to 10%. These forecasts reflect the company's current and preliminary views on the market and operational conditions. Which are subject to change. With that, I would now like to open the call to Q&A. Operator?

Operator: Thank you. We will now begin the question-and-answer session. To ask a question, you may press star 1 on your touch tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed, For the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English. First question today comes from Manqi Huang with CICC. Please go ahead.

Maggie Huang: Thanks for taking my question. This is Manqi Huang from CICC. I have 2 questions. My first question is about our channel expansion strategy for our skincare brands going forward. And my second question is that we are seeing online traffic costs rising, So how would the company respond to this change and what strategies will be adopted to further improve our marketing efficiency? that is my 2 questions. Thank you.

Irene Lyu: Thank you, Manqi, for your questions. So for the first question, yes. So channel expansion is very important for the next stage of growth for our skincare brands. As we widen our product offering, it will be natural and easier to diversify our channel. So right now, in addition to our core online platform, which is Tmall and Douyin, will also increase B2B channels. For example, some of the online 2B channels are JD, Vipshop, PDD, there will be some offline 2B channels that we will be expanding, including offline distribution, duty free, and some professional channels. So these channels generally carry lower traffic cost and supports a healthier profitability profile. For example, Doctor Wu has already shown that a higher 2B mix can support both growth and profitability. So this is a model we will selectively apply to our other skincare brands. So we will also be adding some differentiated format. Such as, Galenic. We have boutique stores in premium department stores and shopping mall. And also for doctor Wu we are also distributing in some OTC channels, the drug stores. So we believe this channel strategy can help us reduce reliance on some expensive online traffic and build a more balanced business and sustainable growth. So then for your second question, in terms of the traffic cost, so, yes, we are seeing rising traffic cost which is an industry wide trend right now. And we think we are responding in 2 ways. First, we are shifting more resource to the higher growth and higher return skincare brands. Which now account for over 70% of our revenue. And secondly, we are expanding into channels and professional channels as mentioned earlier, right, to reduce reliance on those expensive online traffic. Thirdly, we are improving content creation CRM retention, and also budget allocation, leveraging stronger financial discipline and our AI agent. So the goal is not to cut investment blindly, Our goal is to support strong skincare growth. With better efficiency and stronger profitability over time.

Maggie Huang: Okay. Got it. it is very clear. Thank you. And I have no more questions.

Operator: Thank you. This concludes our question and answer session. I would like to turn the conference back over to management for any additional or closing comments.

Irene Lyu: Thank you once again for joining us today. If you have any further questions, please feel free to contact us at Yatsen directly. Our company information for IR in both China and The US can be found through today's press release. Thank you, everyone, and have a great day.

Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.