Yatsen Holding Limited — FY2023 Form 20-F
Reporting period: Fiscal year ended December 31, 2023. This is an annual report, not a standalone 2023 fourth-quarter filing; the supplied filing text does not provide standalone Q4 financial results. Financial statements are prepared under U.S. GAAP. Amounts below are principally RMB unless noted.
Business context
Yatsen is a China-based beauty group selling color cosmetics and skincare products through direct-to-consumer channels, e-commerce platforms, distributors and physical stores. Its brands include Perfect Diary, Little Ondine, Pink Bear, Galénic, DR.WU and Eve Lom. The company’s five-year transformation plan emphasizes growing skincare, refreshing Perfect Diary, product development, stricter discounting and cost efficiency. Skincare’s share of revenue rose as color cosmetics contracted.
Financial performance
| Metric | FY2023 | FY2022 | Change / context |
|---|---|---|---|
| Net revenue | RMB3.415 billion (US$481.0 million) | RMB3.706 billion | Down 7.9% |
| Gross profit / margin | RMB2.513 billion / 73.6% | RMB2.519 billion / 68.0% | Profit roughly flat; margin up 5.6 percentage points |
| Operating loss | RMB913.4 million | RMB928.9 million | Improved slightly; included RMB354.0 million goodwill impairment in 2023 |
| Net loss | RMB750.2 million (US$105.7 million) | RMB821.3 million | Narrowed by 8.7%; net loss margin was 22.0%, versus 22.2% |
| Operating cash flow | Used RMB107.4 million | Provided RMB136.2 million | Cash generation turned negative |
| Cash, cash equivalents and restricted cash | RMB858.1 million | RMB1.554 billion | Down RMB696.2 million |
| Short-term investments | RMB1.218 billion | RMB1.073 billion | Primarily bank products with maturities of three months to one year |
| Total liabilities | RMB821.2 million | RMB800.1 million | Included RMB113.2 million operating lease liabilities |
Yatsen reported current assets of RMB2.952 billion and current liabilities of RMB611.3 million at year-end. Cash, restricted cash and short-term investments together were approximately RMB2.076 billion. The filing does not show material conventional borrowings on the consolidated balance sheet; it does disclose intercompany financing to the VIE and operating lease liabilities. Management said current cash and cash equivalents were expected to cover working capital and capital expenditure needs for at least 12 months from the report date.
Cash flow also reflected RMB260.5 million used in investing activities and RMB342.5 million used in financing activities. Investing cash flows included purchases and maturities of short-term investments, equity investments and capital spending. Financing outflows included RMB212.7 million of ordinary-share repurchases and RMB134.7 million to repurchase redeemable non-controlling interests.
Revenue mix and operating changes
- Color cosmetics revenue fell 18.3% to RMB1.974 billion, or 57.8% of revenue, amid competition, fewer stores and reduced promotions.
- Skincare revenue rose 11.4% to RMB1.384 billion, or 40.5% of revenue, led by Galénic, DR.WU and Eve Lom. Abby’s Choice was strategically phased out.
- DTC channels generated 84.6% of revenue, compared with 84.9% in 2022. The company no longer reports its DTC customer count, citing changes in data collection following China’s Personal Information Protection Law.
- Gross margin improved with a richer skincare mix, cost optimization and more disciplined pricing. Selling and marketing expense was RMB2.231 billion, or 65.3% of revenue, versus 62.9% in 2022; increased advertising and brand investment partly offset lower store and share-based compensation costs.
- General and administrative expense declined to RMB500.9 million, primarily reflecting lower share-based compensation and payroll costs. R&D expense was RMB111.7 million, or 3.3% of revenue.
- The company operated 114 experience stores at year-end, down from 164. Full-time headcount declined to 1,505 from 1,837.
Outlook, risks and unusual items
- Outlook: No numerical revenue, earnings or margin guidance is provided. Management plans to continue the transformation strategy, strengthen brand equity and R&D, improve channel returns and gross margins, optimize marketing and store costs, and pursue growth as consumer demand recovers. These are plans, not quantified guidance.
- Goodwill impairment: Yatsen recorded RMB354.0 million of goodwill impairment for Eve Lom after weaker-than-expected operating results and revised forecasts. Eve Lom goodwill remaining at December 31, 2023 was RMB393.0 million. The valuation relied on projected revenue growth, gross margins, discount rate and terminal value.
- Inventory: Net inventory was RMB352.1 million, with a RMB66.2 million impairment allowance. Demand forecasting and product obsolescence remain relevant risks; inventory impairment was identified as a critical audit matter.
- Profitability and cash: The company has a history of losses and operating cash flow was negative in 2023. Selling and marketing remained a substantial share of revenue, while sustained results depend on brand performance, cost control and demand.
- Contingencies and commitments: A U.S. putative securities class action concerning alleged disclosure misstatements remained at a preliminary stage; the motion to dismiss was pending, and the company could not estimate a loss. Yatsen guaranteed up to RMB98.0 million of an affiliated company’s bank loans, of which RMB85.4 million was utilized; management considered payment risk remote but recorded a contingent liability. Year-end commitments included RMB346.7 million of capital commitments and RMB149.7 million of product and service purchases.
- China structure and regulation: The Cayman holding company consolidates a PRC VIE through contracts rather than equity ownership. The VIE generated 5.4% of FY2023 revenue and holds certain online accounts and licenses. Enforceability of the arrangements and evolving PRC rules on data, cybersecurity, overseas listings and foreign investment are significant risks. The filing also notes that Yatsen had not obtained an online audiovisual transmission license, although counsel’s consultation indicated it was not required in practice.
- Other investor risks: Yatsen disclosed that it believed it was a PFIC for U.S. tax purposes in 2023 and likely would be in 2024. NYSE minimum-price deficiencies were cured by April 10, 2024; continued listing remains a risk. The PCAOB had regained inspection access at the report date, but future access could change. The company does not expect to pay dividends in the foreseeable future.
The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting; management also reported effective controls as of December 31, 2023. The auditor identified Eve Lom goodwill impairment and inventory valuation as critical audit matters.
Important facts for investors to verify
- Whether skincare growth and the improved gross margin can offset continued weakness in color cosmetics and support a path to profitability.
- Whether Eve Lom’s revised forecasts are achievable and whether further impairment is possible; review the key valuation assumptions and subsequent brand performance.
- Whether working-capital trends, inventory quality and operating cash flow improve, and how much reported liquidity is accessible across the group and jurisdictions.
- The status and potential financial impact of the securities class action, joint-venture guarantees and capital commitments.
- Whether the company maintains required PRC licenses and filings, and whether VIE contractual control, data compliance and overseas-listing requirements remain effective.
- The effect of the March 18, 2024 ADS ratio change: each ADS thereafter represented twenty Class A ordinary shares, compared with four previously.