Ladies and gentlemen, good day, and welcome to the Yatsen Third Quarter 2024 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 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 liabilities 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 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, and CEO; and Mr. Donghao Yang, our CFO and Director. Management will begin with prepared remarks and the call will conclude with the 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.

Thank you, Irene, and thank you, everyone, for participating in Yatsen's third quarter 2024 earnings conference call today. I will start with a macro overview and our key financial metrics, followed by insights into our strategy and updates on our brands and products. China's beauty industry faced significant challenges in the third quarter with beauty sales significantly lagging the overall retail market. According to the adjusted data from China's National Bureau of Statistics, total retail sales of consumer goods grew by 2.7% year-over-year for the third quarter, while beauty retail sales declined sharply by 5.5%. Notably, September marked the fourth consecutive months of year-over-year declines in beauty retail sales since June. Online beauty sales were also sluggish in the third quarter. Tmall reported a year-over-year drop in both color cosmetics and skincare sales, while Douyin sustained modest double-digit growth. Despite a challenging market, we delivered results in line with our guidance. Total net revenues decreased by 5.7% year-over-year. However, net revenues from skincare brands rose by 3.6% year-over-year, driven by a 10.5% year-over-year increase in our clinical and premium skincare brands, including, Galenic, DR.WU, and Eve Lom. Conversely, net revenues from our revenue -- our color cosmetics brands fell by 10% year-over-year, largely due to decreased sales from the Perfect Diary brand, which is undergoing a strategic transformation to revamp its product line and optimize its channel mix. On the profitability front, our overall gross margin improved to 75.9% in the third quarter, up from 71.4% in the prior year period and driven by a higher contribution from high-margin products. We also reduced our net loss margin by 9.7 percentage points to 7.9% from 27.6% in the prior year, through strategic marketing spending and optimized general and administrative expenses. Next, I would like to provide more color on the progress…

Thank you, David, and hello, everyone. Before I get started, 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 third quarter of 2024 decreased by 5.7% to RMB677 million from RMB718.1 million for the prior year period. The decrease was primarily due to a 10% year-over-year decrease in net revenues from color cosmetics brands, partially offset by a 3.6% year-over-year increase in net revenues from skincare brands. Gross profit for the third quarter of 2024 increased by 0.2% to RMB513.8 million from RMB512.8 million for the prior year period. Gross margin for the third quarter of 2024 increased to 75.9% from 71.4% for the prior year period. The increase was primarily driven by an increase in sales of higher gross margin products. Total operating expenses for the third quarter of 2024 decreased by 12% to RMB655.2 million from RMB744.3 million for the prior year period. As a percentage of total net revenues, total operating expenses for the third quarter of 2024 were 96.8% as compared with 103.6% for the prior year period. Fulfillment expenses for the third quarter of 2024 were RMB50.4 million as compared with RMB56 million for the prior year period. As a percentage of total net revenues, fulfillment expenses for the third quarter of 2024 decreased to 7.4% from 7.8% for the prior year period. The decrease was primarily due to an increase in the overall average selling price of our products as well as further improvements in logistics efficiency. Selling and marketing expenses for the third quarter of 2024 were RMB494.4 million as compared with RMB511.7 million for the prior year period. As a percentage of total net revenues, selling and marketing expenses for…

[Operator Instructions] The first question comes from Maggie Huang with CICC. Please go ahead.

Well, thanks for taking my question. This is Maggie Huang from CICC. And I have two questions. The first one is about our performance during Double 11 festival and is that in line with our expectations? And the second question is about our plans for product development and channel expansion for the next year. That's my two questions. Thank you.

All right. Maggie, thank you very much for your question. Let me take your first question. I think we have done pretty well during the Double 11 festival, pretty much in line with our expectations. Most of our brands have performed in line with our expectations. For example, our Galenic brand, we sold pretty well through some very well-known KOLs in line with our expectations, and our Perfect Diary also performed pretty well. And your second question, what is the plan to -- for product development channel expansion next? Well, next year, I think we're -- we have made very good plan for our new product development for all of our brands. So we're now trying to put together new product development plans for next year as part of our annual budgeting process. Channel expansion, I think we will continue to work very hard to drive growth through our top channels like Tmall and Douyin. And also, we're going to try to develop more new channels, for example, with Galenic, we're going to open some new offline stores to explore the feasibility of our business opportunities in the offline channel.

Yeah. To build on -- sorry. Okay. So, to build on what Donghao was shared before, I think my overall evaluation about our performance in the Double 11s promotion is in line with our objective. And in some areas, we're exceeding our expectations. So, first of all, I think Double 11 is a very important sales event as we all know. But if we go deeper to our strategy goals for leveraging the Double 11 to improve our sales for our strategic brands and also to catch up with the momentum for new product launch. If we are judging based on the criterias before, I think we have made quite significant progress. Here are some examples. So during this year in often these live-streaming rooms, we have four brands joined the promotion event. And then the Perfect Diary has gained a pretty good momentum to have -- to achieve the sales target for the Biolip Lipstick and also our Loose Powder. As we all know, Loose Powder is a very important category to provide opportunity for Perfect Diary to expand our category from lip category to face makeup category. And then for our Galenic brands, so during the Double 11 promotion, I think the brand has pretty balanced sales on Tmall and also Douyin. So -- and also Galenic launched a new product, the Vitamin A serum, which did help the brand for future growth to expand the benefit space from purely widening category and to anti-aging category, which is much bigger than the widening category from the market size perspective. There is another thing I want to highlight is the optimizing the ROI on investments. I think in next quarter, we are going to release the gross margin for our Q4. But during this promotion, we are very disciplined…

And that concludes the question-and-answer session. I would like to turn the conference back over to Irene for any closing remarks.

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

The conference has now concluded. Thank you for attending. You may now disconnect.