Yunji (NASDAQ:YJ) reported quarterly financial results on Thursday. The transcript from the company's quarterly earnings call has been provided below.

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Summary

YJ reported first-half 2026 revenues of 96.3 million RMB, down from 158.3 million RMB year-over-year, due to strategic restructuring and alignment with organic health standards.

The company's gross margin remained stable at 41%, and net loss narrowed to 72.4 million RMB from 100.7 million RMB, demonstrating effective cost management and operational efficiency.

Private label products now account for 56% of total sales, emphasizing a shift towards high-margin offerings and supporting improved profitability.

YJ's dual-engine strategy focuses on product and experience, with significant progress in organic health and food and medicine homology segments, driving growth through flagship products like Polygonatanti.

Operational highlights include a 38.8% reduction in operating expenses and successful supply chain traceability events, enhancing customer engagement and sales conversion.

Future outlook is positive, with plans to refine product offerings, enhance user experience, and continue cost management in pursuit of long-term sustainability and profitability.

Full Transcript

OPERATOR

Good morning and good evening, ladies and gentlemen. Thank you for standing by and welcome to YJ's first half 2026 earnings conference call. With us today are Mr. Shang Lu Xiao, Chairman and Chief Executive Officer, and Ms. Nan Song, Senior Financial Director. As a reminder, this conference call is being recorded. Before we start, please note that this call will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on the company's current expectations and current market operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors of YJ and its industry. These forward-looking statements can be identified by terminologies such as will, expect, anticipate, continue, or other similar expressions. For a detailed discussion of these risks and uncertainties, please refer to the company's related documents filed with the U.S. SEC. Any forward-looking statements that the company makes on this call are based on assumptions as of today and are expressly qualified in their entirety by cautionary statements, risk factors and details of its filings with the SEC.

The company does not undertake any obligation to update these statements except as required under applicable law. With that, I will now turn the call over to Mr. Shang Lu Xiao, Chairman and CEO of YJ. Please go ahead, sir.

Shang Lu Xiao, Chairman and CEO

Okay. Hello everyone. Welcome to YJ's earnings call. Thank you for your continued interest and support. The market environment remained challenging in the first half of 2026, but we stayed firmly committed to our strategic positioning as a leader in organic living, advancing our products and experience dual-engine strategy. As we continue to deepen our presence in the organic healthy living market, I will now walk you through the company's financial performance and strategic execution.

Let me begin by sharing some financial highlights which reflect our proactive approach to optimizing our structure and improving quality and efficiency. Total revenue for the first half was 96.3 million RMB, compared with 158.3 million RMB in the first period last year. This reflects the structural adjustment from our proactive efforts to optimize the merchandise mix, including discontinuing relationships with certain third-party merchants whose offerings did not meet our enhanced product standards.

While this affected our near-term revenue, we believe it has strengthened our merchandise mix in support of our long-term strategy. Self-operating merchandise now accounts for approximately 70% of the total sales, of which private label products accounted for 56%. Private label products with higher margins are increasingly becoming the core support of our revenue, while our experiential initiatives such as supply chain traceability continue to strengthen customer engagement and maintain stable customer retention, supporting improved profitability, stability and long-term development.

At the same time, our gross margin remained resilient and our losses narrowed significantly. Gross margin for the period held steadily at approximately 41% and the net loss for the first half narrowed to 72.4 million RMB, a substantial improvement compared with the same period last year. This reflects our continued discipline in cost management and operational efficiency as we directed toward high-retention, high-margin private label products and toward enhancing the user experience.

We remain confident in our path to improved profitability. Next, let me walk you through our business progress in the first half. Our strategy rests on two engines: product and experience. On the product side, we continue to build out our organic health, organic food and beauty and skin care matrix, with food and medicine homology products as a growing focus within organic health. Together, our products and experience dual-engine approach powers YJ's organic health ecosystem.

In our organic health segment, we continue to deepen our presence in the broader health and wellness market with a particular focus on food and medicine homology products that address the health needs of modern families in China. Our first flagship product in this category is Polygonatanti, which launched in the fourth quarter of 2025. Supported by premium origin sourcing, genuine quality and refined processing techniques, the product received market feedback that exceeded our expectations.

It quickly became a key growth driver of our food and medicine homology product line in the first half of 2026, delivering rapid sales growth and successfully validating a complete growth model. This demonstrates that our prior strategy for entering the Chinese wellness and health market has long-term market potential. In our organic food segment, we have integrated our organic philosophy into consumers' daily meal occasions, particularly breakfast, the most important meal of the day.

By capturing a high-frequency daily consumption occasion, we have established an effective customer acquisition channel. Together with our organic health products, these form a complementary product portfolio that balances high- and low-frequency consumption patterns and short- and long-term consumption cycles. In our beauty segment, we remain focused on offering customers high-quality, high-value skincare and beauty products. In the current market environment, increasingly rational consumers favor products that deliver high value with affordable prices, and the brand's long-standing positioning aligns closely with this trend.

As a result, this brand has continued to earn consumer recognition and maintain a stable market position, with segment sales broadly stable compared with the same period last year. At the same time, certain products have stood out. Skincare Condensing Essence Oil, launched in the second half of 2020, has continued to receive positive feedback from consumers and achieved 29% sequential sales growth in the first half of this year. End-to-end supply chain traceability experience is a core competitive advantage that sets YJ apart from traditional e-commerce platforms.

This is also a key method in building our customer loyalty. Our traceability experience turns product quality from an abstract concept into something users can see and verify for themselves. In the first half of 2026, we continued to increase our investment in supply chain traceability experience, with all of our initiatives focused on strengthening user trust and improving repurchase conversion. In total, we conducted approximately 30 traceability events during the period, and these events collectively delivered a strong sales conversion.

For example, a traceability event for our Bai Yueshan birch set product held on April 13 drove the product's first-half sales up 128% year over year and 146% compared with the second half of 2025. Similarly, a traceability event for Bai Yuexiang wolfberry held on June 17 drove the product's first-half sales up 13% year over year and 366% compared with the second half of 2025. These results confirm that our traceability experience strategy is effective in strengthening user engagement, reinforcing our confidence in pursuing this approach over the long term.

Looking ahead, we will continue to refine our product matrix, expand our food and medicine homology offerings and channel more resources into high-margin, high-repurchase items to support continual margin improvement. At the same time, we will continue to strengthen our differentiated experiential offerings to build user trust and a durable brand moat. We will also maintain our discipline in cost management, carefully evaluating our asset and expense structure to ensure resources are allocated in support of our long-term strategic priorities.

Ultimately, our goal is to provide better organic healthy living solutions for families across China and to create greater social value. Thank you for your continued interest and support. Despite a complex market environment, we remain confident in our strategic direction, and we will continue to put user value at the center of our approach as we balance growth and profitability to drive the company's long-term sustainable development. This concludes my prepared remarks for today.

I will now hand it over to Ms. Nan Song, our Senior Financial Director, to walk you through the financial details.

Nan Song, Senior Financial Director

Thank you. Hello everyone. Before I go through our financial results, please note that all numbers stated in the following remarks are in RMB terms, and all comparisons and percentage changes are on a year-over-year basis unless otherwise noted. In the first half of 2026, the market environment remained challenged. As Shang outlined, we stayed firmly committed to our strategic positioning as a leader in organic living, advancing our products and experience dual-engine strategy.

Supported by our relevant financial position, we remained disciplined in cost management and made timely adjustments to adapt to these conditions. Now let's take a closer look at our financials. Total revenues were 96.3 million RMB compared to 158.3 million RMB in the same period a year ago. Revenues from sales of merchandise were 82.4 million RMB, and revenues from our marketplace business were 13.7 million RMB. The change in our total revenues for the period was primarily driven by softer consumer spending amid a broader macro environment in China, together with our choice to stay aligned with the organic health philosophy guiding our business.

As part of the effort, we also proactively accelerated certain adjustments to our standards, sharpening our merchandise mix in support of our private label and organic health qualities. Given this strategic direction, we had anticipated this effect on our revenue drop for the period, and we continue to believe it represents the right long-term path for the business. On the cost side, total cost of revenues decreased by 31.9% to RMB 56.8 million, primarily due to lower merchandise sales which are reported on a gross basis, excluding the impact of incentives to members which carry no cost of revenue.

Our gross margin remained resilient at 41% during the period. This is supported by our continued focus on selecting premium, high-retention categories together with our private label products. Now let's take a look at our operating expenses. Fulfillment expense decreased to 10.3 million from 20.6 million in the same period a year ago. The decrease was primarily driven by lower warehousing and logistical expenses resulting from reduced merchandise sales, together with lower personnel costs from staffing structural refinement.

Sales and marketing expenses were 39.5 million compared to 50.1 million in the same period a year ago. The change is primarily due to lower member management fees and reduced business promotion expenses. Technology and content expenses were lower compared to 15.3 million in the same period a year ago. This was mainly due to the reduction in personnel costs resulting from continued staffing structural reform. General and administrative expenses decreased to 47.5 million from 93.4 million in the same period a year ago.

The decrease was mainly driven by a reduction in allowance for credit losses on third-party loan receivables and partially offset by an increase in impairment for property and equipment. Our expense discipline extended across nearly every category this period, with the year-over-year reduction reflecting both a smaller merchandise base and our ongoing staffing and cost-efficiency measures. As a result, total operating expenses in the first half of 2026 decreased to 109.7 million from 139.4 million in the same period of 2025, a 38.8% reduction.

Loss from operations narrowed significantly to 39.4 million from 100.4 million in the same period a year ago. This expense discipline supports our continued progress towards profitability even as revenue faces pressure from the soft environment described earlier. Net loss was 72.4 million compared with 100.7 million a year ago, while adjusted net loss was 72.3 million compared with 100.5 million a year ago. The year-over-year level of both net loss and adjusted net loss reflects our expected trend together with our continued focus on strengthening customer engagement and maintaining stable customer retention.

Basic and diluted net loss per share attributable to ordinary shareholders were both 0.04, compared to 0.05 in the same period of 2025. Turning to liquidity, as of June 30, 2026 we had a total of 242.1 million in cash and cash equivalents, restricted cash and short-term investments on our balance sheet, compared to 216.1 million as of December 31, 2025. We maintained sufficient liquidity to meet our payable obligations. We will continue to optimize working capital and manage our assets efficiently in support of our operations.

Looking at the first half as a whole, even against a challenging macro environment, we made further progress on cost discipline and narrowed our loss on a year-over-year basis. This reflects our continued execution of the objectives our leadership outlined, our discipline in cost management, and our focus on organic health and private label products. Our financial position continues to support these priorities, and we will remain disciplined and long-term oriented in support of our strategic positioning as a leader in organic healthy living.

Looking forward, we will remain focused on improving our operating margin as we balance growth and profitability in support of the company's long-term sustainable development. This concludes our prepared remarks for today. Thank you.

OPERATOR

That brings us to an end of today's call. Thank you for attending. You may now disconnect.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.