Ladies and gentlemen, good day and welcome to the Yatsen's second quarter 2026 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.

Thank you, operator. Please note that discussion today will contain four looking statements relating to the company's future performance. and are intended to qualify for the safe harbor from liability as 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 factors that could affect Yasten'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 forelooking 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 Yasen's senior management are Mr. Jinfeng Huang, our founder, chairman, CEO, and Mr. Donghao Yang, our CF1 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 Yasen's investor relations website at ir.yasenglobal.com. I'll now turn the call over to Mr. Jinfeng Huang. Please go ahead, sir.

Thank you, Irene.

Hello, everyone, and thank you for joining our second quarter conference.

and this is Earnings Conference Core. We delivered a quarter of a continued strategy 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 skincare portfolio delivered exceptional performance, reinforcing the effectiveness of our strategy transformation. And into the Markov environment, According to the National Bureau of Statistics, utility retail sales rose 6.6% year-over-year in the second quarter of 2026, outperforming overall retail sales of consumer goods. While the impact of the June 18 shopping festival has become more moderate amid increasing promotional fatigue 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 Tragedy 3, 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 brand further reinforced skincare as a core pillar of our business and a key driver of our overall growth, while underscoring the effectiveness of our ongoing investment in brand building, product innovation, and channel development. With skincare now representing over 70% of the 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 strategy priority is to continue strengthening our R&D capabilities and advancing innovation on a strong scientific foundation. We remain firmly committed to R&D investment with R&D expenses maintained at 3.3% 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, Yasen's Global Innovation R&D Center was recognized as a national high-tech enterprise and received the specialized, sophisticated, distinctive, and innovative designation in Shanghai. More recently, in July, Dr. Wu once again demonstrated the depth of his scientific capabilities with three research studies published in international SCI index journals. Covering 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 a dappling. These studies further validated the depth and breadth of our scientific research capabilities. On the portal front, we continue to build on the strength of our existing franchise while deepening our expertise in targeted skincare solutions. Galanique further extended its Couture Renaviation Cellular line with the launch of the reviving eye cream, expanding the franchise into the delicate eye care category. Dr. Wu also expanded its skincare portfolio with three new essence marks for oil control, hydration, and soothing care. At Yves Long, we further expanded the second-generation VITAL-DU collection with the VITAL-DU Fresh Hydration Cream and Skin Infusion Serum. These launches reflect our continued focus on leveraging established product franchise and scientific expertise to adjust evolving consumer needs and create sustainable growth opportunities. Our second priority is to further strengthen 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. Glanique brought its Brightening Your Summer campaign to consumers through a pop-up experience on Wuzhizhou Island in Sanya in July. Yiflong participated in the British Beauty Festival, further elevating its heritage and premium positioning. While this initiative helped to broaden our brand's reach and deepen consumer engagement across key markets and touchpoints. Our third strategy priority is to enhance the quality and sustainability of our profitability. In the second quarter, growth margin was impacted by higher inventory provision in the color cosmetic business associated with the company's proactive brand portfolio optimization and SKU rationalization. Excluding the impact of this one-time inventory provisions, the underlying growth margin would have remained were all pretty 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 remained 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 we focus our resources on the higher growth skincare blues. 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.

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

So finally, I am delighted to share a leadership update. Effective today, Ms. Wang Li has been appointed as COBE's chief financial officer. Ms. Wang comes with a proven child record of over 50 years in the consumer and the beauty industry, most recently serving as CFO of Porya Cosmetics. Her experience and 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.

Thank you, David, and hello, everyone. I'm also very delighted to welcome Ms. Huang 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 RMB 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 and Xiaofei Wang. 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 Hsieh-Hsieh-Hsieh-H. for the prior year period, primarily due to higher inventory provisions in the color cosmetics business associated with grant portfolio optimization and FKU rationalization efforts. Total operating expenses for the second quarter of 2026 increased by 7.7% to $975.7 million from $900 and 5.9 million for the prior year period. As a percentage of total net revenues, total operating expenses for the second quarter of 2026 were 85.4% as compared with 83.4% for the prior year period. Fulfillment expenses for the second quarter of 2026 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 improvements in logistics efficiency. Selling and marketing expenses for the second quarter of 2026 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 brand. coupled with higher traffic acquisition costs on the Douyin platform as the company capitalized on the channel's strong growth momentum. General and administrative expenses for the second quarter of 2026 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 2026 were 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 2026 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 2026 were 3.3%, consistent with the prior year period. Loss from operations for the second quarter of 2026 was $131.9 million as compared with $55.5 million for the prior year period. Optional loss margin was 11.5% as compared with for the prior year period. Non-GAAP loss from operations for the second quarter of 2026 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 2026 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 Yesen's ordinary shareholders for diluted EDS for the second quarter of 2026 was 0.97. as compared with 0.19 RMB for the prior period. Non-GAAP net loss for the second quarter of 2026 was 99.4 million as compared with non-GAAP net income of 11.5 million for the prior period. Non-GAAP net loss margin was 8.7% as compared with non-GAAP net income margin of 1.1% for the prior period. Non-GAAP net loss attributable to Yesen's ordinary shareholders for diluted ADS for the second quarter of 2026 was 1.06 RMB as compared with non-GAAP net income attributable to Yesen's ordinary shareholders for 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 1.06 billion RMB as compared with 1.05 billion as of December 31st, 2025. Net cash used in operating activities for the second quarter of 2026 was 78 million as compared with net cash generated from operating activities of 77.7 million for the prior period. Looking at our business outlook for the third quarter of 2026, 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?

Thank you. We will now begin the question and answer session. To ask a question, you may press star then 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 and you would like to withdraw your question, Please press star then 2. 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. The first question today comes from Maggie Huang with CICC. Please go ahead.

Well, thanks for taking my question. This is Maggie Huang from CICC. I have two questions. My first question is about our channel expansion strategy for our skincare brands going forward. And my second question is that we're seeing online traffic costs rising, so how would the company respond to this trend, and what strategies will be adopted to further improve our marketing efficiency? That's my two questions. Thank you.

Thank you, Maggie, for your question. 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 offerings, it will be natural and easier to diversify our channels. So right now, in addition to our core online platform, which is Tmall and Douyin, we'll also increase B2B channels. For example, some of the online B2B channels are JB, Vibe Shop, TBD, and there will be some offline 2B channels that we'll be extending including offline distribution, duty-free and some professional channels. So these channels generally carry lower traffic costs and support a healthier profitability profile. So to give you an example, Dr. 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'll also be adding some differentiated formats, such as Galenic. We have boutique stores in premium department stores and shopping malls. And also for Dr. 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 extensive 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 costs, which is an industry-wide trend right now. And we think we're responding in three ways. First, we're shifting more resources to the higher growth and higher return skincare brands. which now account for over 70% of our revenue. And secondly, we're expanding to lead channels and professional channels, as mentioned earlier, to reduce reliance on expensive online traffic. Thirdly, we're improving content creation, CRM retention, and also budget allocation, leveraging stronger financial discipline and AI agents. 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.

Okay, got it. It's very clear. Thank you, and I have no more questions.

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.

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

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