[Management View]
Yatsen reported a 36.8% YoY increase in total net revenues to RMB1.09 billion, driven by a 78.7% surge in skincare brand revenues and an 8.8% rise in color cosmetics revenues. Management emphasized its R&D-driven strategy, which has bolstered product innovation and brand equity. Strategic priorities include expanding proprietary R&D capabilities, optimizing operational efficiency, and driving premiumization across product lines.

[Outlook]
Management provided guidance for total net revenues between RMB778.6 million and RMB880.1 million for 2025, representing a YoY growth of 15%-30%. Future plans include continued investment in R&D, enhancing marketing efficiency, and expanding offline presence through experience stores in major cities.

[Financial Performance]
Yatsen achieved significant margin improvements, with gross margin rising to 78.3% from 76.7% YoY. Operating expenses fell as a percentage of revenues to 83.4% from 93.7%, reflecting scale efficiencies. The company reported a GAAP net loss margin of 1.8%, a substantial improvement from 10.8% in the prior year. Non-GAAP profitability was achieved with a net income margin of 1.1%, compared to a non-GAAP net loss margin of 9.4% YoY.

[Q&A Highlights]

Question 1: As we enter the second half of the year, how should we expect the change in profitability for skincare and color cosmetics categories? How do you balance promoting new product lines and improving profitability?
Answer: Management stated that high-end skincare brands are growing faster than color cosmetics, which tend to have higher gross margins. This growth momentum allows the company to achieve both growth and profitability. They emphasized their R&D-driven strategy as a competitive advantage, citing their world-class R&D center in Shanghai.

Question 2: What is your view on industry competition in Q3 and Q4, particularly from foreign premium brands?
Answer: Management acknowledged increasing competition, especially in high-end skincare. To counter this, Yatsen is leveraging its R&D capabilities, which have been systematically upgraded over the past five years. They highlighted their aggressive investment in R&D and proprietary technologies as key differentiators against international brands.

Question 3: What are the key drivers behind the rapid growth of skincare brands like Calanique and Doctor Wu in the first half of the year? What is the outlook for the skincare business in the second half and next year?
Answer: The growth was attributed to continued R&D investment and a strong pipeline of product innovations, such as Calanique’s VA Serum and MicroMask series, and Doctor Wu’s essence toner. Management expects sustained growth momentum, supported by new product launches and operational efficiencies.

Question 4: In which areas will the company focus to continuously improve profitability?
Answer: Management outlined several initiatives: optimizing product mix by driving premiumization, improving marketing efficiency through data-driven CRM, enhancing supply chain and operational efficiency, and leveraging fixed expenses as top-line growth continues. These measures are expected to steadily expand profitability while maintaining growth.

[Sentiment Analysis]
Analysts expressed optimism about Yatsen’s performance, particularly its ability to achieve profitability while maintaining growth. Management maintained a confident tone, emphasizing their strategic focus on R&D and operational efficiency as competitive advantages.

[Quarterly Comparison]
| Metric | Q2 2025 | Q2 2024 | YoY Change (%) |
|----------------------------|-----------------|-----------------|----------------|
| Total Net Revenues | RMB1.09 billion | RMB796 million | +36.8% |
| Gross Margin | 78.3% | 76.7% | +1.6% |
| Operating Expenses (% Rev) | 83.4% | 93.7% | -10.3% |
| GAAP Net Loss Margin | 1.8% | 10.8% | -9.0% |
| Non-GAAP Net Income Margin | 1.1% | -9.4% | +10.5% |

[Risks and Concerns]
1. Intensifying competition from international premium brands in the high-end skincare segment.
2. Declining cash position, which fell to $350 million from $1.36 billion as of December 2024, may limit flexibility for future investments.
3. Macroeconomic uncertainties in China’s beauty industry, with modest growth in retail beauty sales.

[Final Takeaway]
Yatsen’s Q2 2025 results reflect strong execution of its R&D-driven strategy, with significant revenue growth and margin improvements. The company’s focus on premiumization, product innovation, and operational efficiency positions it well to compete against international brands. However, risks such as intensifying competition and a declining cash position warrant close monitoring. Investors should view Yatsen as a company with strong growth potential, supported by its strategic investments in R&D and brand equity.