Yatsen Holding Limited — FY2021 Form 20-F
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a quarterly filing; it does not provide a clear standalone Q4 financial-results breakdown. Financial statements are prepared under U.S. GAAP. Amounts below are in RMB unless otherwise noted.
Business context
Yatsen is a China-focused beauty group selling color cosmetics and skincare through direct-to-consumer online and offline channels, distributors, and e-commerce platforms. Its brands include Perfect Diary, Little Ondine, Abby’s Choice, Galénic, DR.WU, Eve Lom, Pink Bear and EANTiM. The company expanded its skincare portfolio through acquisitions and reported 294 experience stores at year-end, versus 241 a year earlier.
Key financial metrics
| Metric | FY2021 | Prior comparable period / change |
|---|---|---|
| Net revenue | RMB5.840 billion (US$916.4 million) | Up 11.6% from RMB5.233 billion in 2020 |
| Gross profit / margin | RMB3.899 billion / 66.8% | RMB3.364 billion / 64.3% in 2020 |
| Operating expenses | RMB5.523 billion; 94.5% of revenue | RMB6.047 billion; 115.5% of revenue in 2020 |
| Operating loss | RMB1.624 billion | RMB2.683 billion loss in 2020 |
| Net loss | RMB1.547 billion (US$242.8 million) | RMB2.688 billion loss in 2020 |
| Net cash used in operating activities | RMB1.020 billion (US$160.1 million) | RMB983.4 million used in 2020 |
| Net cash used in investing activities | RMB1.484 billion | RMB508.8 million used in 2020 |
| Cash and cash equivalents | RMB3.138 billion (US$492.4 million) | RMB5.727 billion at year-end 2020; restricted cash was nil at year-end 2021 |
| Current assets / current liabilities | RMB4.556 billion / RMB877.6 million | RMB7.089 billion / RMB1.131 billion in 2020 |
| Total assets / total liabilities | RMB7.272 billion / RMB1.265 billion | RMB8.308 billion / RMB1.444 billion in 2020 |
| Lease liabilities | RMB421.1 million | RMB527.2 million in 2020 |
Reported selling and marketing expense was RMB4.006 billion, or 68.6% of revenue, versus RMB3.412 billion, or 65.2%, in 2020. General and administrative expense declined to RMB941.3 million from RMB2.143 billion, largely reflecting lower share-based compensation; research and development expense rose to RMB142.1 million from RMB66.5 million. The 2021 net loss included RMB530.4 million of share-based compensation. The 2020 loss included RMB1.90 billion of share-based compensation, including a large IPO-related charge.
Skincare represented 14.6% of gross sales in 2021, up from 3.8% in 2020; skincare gross sales increased 332.2% to RMB995.5 million. Color cosmetics gross sales were RMB5.84 billion, or 85.4% of gross sales. DTC channels generated 83.5% of net revenue, down from 86.9% in 2020; distributor sales rose to 16.1% from 13.0%.
Material changes and unusual items
- Revenue growth slowed substantially from 72.6% in 2020 to 11.6% in 2021. Management attributed growth primarily to skincare brands, partly offset by weaker color cosmetics sales amid softer consumer demand and reduced discounting.
- Gross margin improved to 66.8%, attributed to a higher contribution from skincare and greater pricing and promotional discipline, partly offset by inventory provisions.
- The operating loss narrowed year over year, principally because 2020 included a large IPO-triggered share-based compensation expense. Marketing expense increased, including higher brand-promotion and experience-store costs.
- Inventory net of allowance was RMB695.8 million; the allowance for excess, slow-moving, expired and obsolete inventory was RMB108.0 million, versus RMB20.9 million in 2020.
- Investing cash outflow included RMB989.7 million for business acquisitions, primarily Eve Lom, and RMB322.8 million for equity investments. Acquisitions led to year-end goodwill of RMB869.4 million and acquired intangible assets of RMB622.2 million. No goodwill impairment was recorded in 2021.
- Capital, purchase and lease commitments at year-end totaled RMB1.135 billion: RMB480.0 million capital commitments, RMB208.9 million product and service purchase commitments, and RMB446.3 million operating lease obligations.
Outlook, risks and contingencies
- No quantified revenue or earnings guidance is provided. Management said it intends to pursue sustainable growth, improve channel ROI and gross margins, optimize marketing and store spending, and continue developing its brands and product mix. A Guangzhou manufacturing and R&D hub with Cosmax was under construction; production was expected to begin in 2023.
- Management stated existing cash was expected to cover current and anticipated working-capital needs and capital expenditures for at least 12 months from the report date. However, operating cash outflow continued, cash declined by RMB2.595 billion during 2021, and acquisitions and other investments increased investing outflows.
- COVID-19 restrictions and weaker consumer sentiment affected offline traffic and sales, particularly in the second half of 2021; renewed lockdowns in early 2022 could further affect operations. The business also depends heavily on third-party e-commerce platforms, KOL marketing, and a concentrated supplier base.
- The Cayman Islands parent has no material operations of its own. It consolidates the VIE through contractual arrangements, not equity ownership; the VIE contributed 8.9% of 2021 revenue and holds certain online-platform accounts and licenses. The filing warns that enforceability and PRC regulatory treatment of the VIE structure are uncertain.
- As of the report date, the company reported that it had not obtained an Audio-visual License that may be required for certain online video functions, and had not completed certain franchise filings. It warned that licensing requirements may change and that penalties or operational restrictions are possible.
- Management and the auditor identified one material weakness in financial-reporting controls: insufficient personnel with appropriate U.S. GAAP and SEC reporting expertise for period-end controls and complex accounting. Management described remediation steps but had not concluded the weakness was fully remediated. The auditor gave an unqualified opinion on the financial statements but concluded internal control over financial reporting was not effective.
- The auditor was identified as not fully inspectable by the PCAOB under the conditions described in the filing, creating potential U.S. trading and delisting risk under the HFCAA. The filing also disclosed an April 2022 NYSE notice regarding ADS trading-price compliance; the stated cure-period deadline was October 11, 2022.
- The company reported no material legal or administrative proceedings and no dividends paid. It intended to retain available funds and did not expect cash dividends in the foreseeable future. A share repurchase program authorized up to US$100 million over 24 months; approximately US$3.5 million had been repurchased in 2021.
Most important facts for investors to verify
- Whether the growth of skincare brands and improved gross margin can offset softer color cosmetics sales without persistently high marketing costs.
- Whether operating cash burn, working-capital needs, acquisition spending and the stated liquidity runway remain consistent with subsequent filings.
- Inventory aging, subsequent sell-through and the adequacy of the RMB108.0 million inventory allowance.
- Goodwill and acquired-brand valuations, particularly the DR.WU and Eve Lom reporting units, which depend on forecast growth, margins and discount-rate assumptions.
- Progress in remediating the material weakness and whether later auditor reports find controls effective.
- Current PCAOB inspection, HFCAA, PRC offshore-listing and VIE regulatory status, and any implications for ADS listing or access to cash held in China.
- Completion, cost and expected returns of the Cosmax facility and the company’s acquisition and store-expansion commitments.