This article first appeared on GuruFocus .
-
Total Net Revenue:RMB1.14 billion for Q2 2026, up 5.1% year-over-year.
-
Skincare Brand Revenue:Increased 40.4% year-over-year, representing 71.5% of total net revenues.
-
Color Cosmetics Brand Revenue:Decreased 35.8% year-over-year due to proactive brand portfolio optimization and SKU rationalization.
-
Gross Profit:RMB843.8 million, down 0.8% year-over-year.
-
Gross Margin:Decreased to 73.9% from 78.3% in the prior year period, impacted by higher inventory provisions in the color cosmetics business.
-
Total Operating Expenses:RMB975.7 million, up 7.7% year-over-year; as a percentage of net revenues, increased to 85.4% from 83.4%.
-
Selling and Marketing Expenses:RMB807 million, up from RMB722.4 million; as a percentage of net revenues, increased to 70.7% from 66.5%.
-
Fulfillment Expenses:RMB56.1 million, down from RMB63.3 million; as a percentage of net revenues, decreased to 4.9% from 5.8%.
-
General and Administrative Expenses:RMB74.8 million, down from RMB84.1 million; as a percentage of net revenues, decreased to 6.6% from 7.7%.
-
Research and Development Expenses:RMB37.3 million, up from RMB36.1 million; maintained at 3.3% of total net revenues.
-
Loss from Operations:RMB131.9 million, compared with a loss of RMB65.5 million in the prior year period; operating loss margin was 11.5%.
-
Non-GAAP Loss from Operations:RMB112.1 million, compared with a loss of RMB20.4 million in the prior year period; non-GAAP operating loss margin was 9.8%.
-
Net Loss:RMB90.8 million, compared with a net loss of RMB19.5 million in the prior year period; net loss margin was 8%.
-
Non-GAAP Net Loss:RMB99.4 million, compared with non-GAAP net income of RMB11.5 million in the prior year period.
-
Net Loss per Diluted ADS:RMB0.97, compared with RMB0.19 in the prior year period.
-
Non-GAAP Net Loss per Diluted ADS:RMB1.06, compared with non-GAAP net income per diluted ADS of RMB0.13 in the prior year period.
-
Cash and Investments:RMB1.06 billion as of June 30, 2026, compared with RMB1.05 billion as of December 31, 2025.
-
Net Cash Used in Operating Activities:RMB78 million in Q2 2026, compared with net cash generated from operating activities of RMB77.7 million in the prior year period.
-
Q3 2026 Revenue Outlook:Expected between RMB898.6 million and RMB998.4 million, representing a year-over-year decrease of approximately 0% to 10%.
Release Date: September 02, 2026
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
Positive Points
-
Skincare portfolio delivered exceptional performance, with revenues increasing 40.4% year-over-year and now representing 71.5% of total net revenues.
-
Total net revenues grew 5.1% year-over-year despite a challenging industry backdrop, demonstrating resilience.
-
R&D investment remained consistent at 3.3% of total net revenues, with continued scientific achievements including publications in international journals and recognition as a national high-tech enterprise.
-
Strategic channel expansion into lower-cost B2B, offline distribution, duty-free, and professional channels is expected to support healthier profitability and reduce reliance on expensive online traffic.
-
New CFO appointment brings over 15 years of experience in the consumer and beauty industry, expected to support cost optimization and sustainable profitable growth.
Negative Points
-
Color cosmetics net revenues decreased 35.8% year-over-year due to proactive brand portfolio optimization and SKU rationalization.
-
Gross margin decreased to 73.9% from 78.3% year-over-year, impacted by higher inventory provisions in the color cosmetics business.
-
Operating loss widened significantly to RMB131.9 million from RMB65.5 million, with operating loss margin expanding to 11.5% from 5.1%.
-
Selling and marketing expenses increased to 70.7% of net revenues from 66.5%, driven by rising traffic acquisition costs and strategic investments in high-growth channels like Douyin.
-
The company expects total net revenues for Q3 2026 to decline by 0% to 10% year-over-year, indicating a potential slowdown in growth.
Q & A Highlights
Q: What is the company's channel expansion strategy for its skincare brands, and how will it respond to rising online traffic costs to improve marketing efficiency? A: Irene Liu, Vice President, Head of Strategic Investment, explained that channel expansion is crucial for the next stage of skincare growth. Beyond core platforms like Tmall and Douyin, the company will increase B2B channels (e.g., JB, variety shops, TBD) and offline channels (distribution, duty-free, professional channels) that carry lower traffic costs and support healthier profitability. Dr. Wu's success with a higher B2B mix serves as a model for other brands. To address rising traffic costs, the company is shifting resources to high-return skincare brands (now over 70% of revenue), expanding to lower-cost channels, and improving content creation, CRM retention, and budget allocation using AI agentsaiming for better efficiency and profitability without blindly cutting investment.
Q: Can you provide details on the company's financial performance for the second quarter of 2026, including revenue, margins, and profitability? A: Donghao Yang, CFO, reported total net revenues grew 5.1% year-over-year to RMB1.14 billion, driven by a 40.4% increase in skincare revenues, partially offset by a 35.8% decline in color cosmetics due to proactive portfolio optimization. Gross margin decreased to 73.9% from 78.3%, impacted by higher inventory provisions in color cosmetics. Operating loss was RMB131.9 million (11.5% margin), and net loss was RMB90.8 million (8% margin). Non-GAAP net loss was RMB99.4 million, compared to non-GAAP net income of RMB11.5 million in the prior year. The company had RMB1.06 billion in cash and short-term investments as of June 30, 2026.
Q: What is the company's business outlook for the third quarter of 2026? A: Donghao Yang, CFO, guided that total net revenues for Q3 2026 are expected to be between RMB898.6 million and RMB998.4 million, representing a year-over-year decrease of approximately 0% to 10%. This forecast reflects the company's current preliminary views on market and operational conditions, which are subject to change.
Q: What were the key drivers behind the increase in selling and marketing expenses during the quarter? A: Donghao Yang, CFO, noted that selling and marketing expenses increased to 70.7% of net revenues from 66.5% in the prior year. This was primarily driven by strategic investments in broadening consumer awareness and building long-term brand equity for core skincare brands, coupled with higher traffic acquisition costs on the Douyin platform as the company capitalized on the channel's strong growth momentum.
Q: How is the company addressing the structural profitability challenges in its color cosmetics business? A: Jinfeng Huang, CEO, stated that the company is actively streamlining its color cosmetics portfolio to improve profitability, focusing resources on higher-growth skincare brands. The color cosmetics segment faces fast-changing consumer trends, high SKU complexity, and ongoing promotion intensity, requiring disciplined management and focused resource allocation. The company is also optimizing cost structures and refining resource allocation across channels to unlock operating leverage.
Q: What recent R&D achievements and product innovations has the company made? A: Jinfeng Huang, CEO, highlighted that R&D expenses remained at 3.3% of net revenues. In May, the Global Innovation R&D Center was recognized as a national high-tech enterprise in Shanghai. In July, Dr. Wu published three research studies in international STI journals covering innovative approaches to acne, post-acne marks, and clinical evidence for a metallic acid serum. Product launches included Galenic's revising eye cream, Dr. Wu's three new essence masks, and Evlon's VitalDew Fresh Hydration Cream and Skin Infusion Serum.
Q: How did the skincare portfolio perform in the second quarter, and what is its current contribution to total revenue? A: Jinfeng Huang, CEO, reported that skincare revenues increased 40.4% year-over-year, now representing 71.5% of total net revenues. This strong performance reinforces skincare as a core pillar of the business and a key driver of overall growth, validating the effectiveness of investments in brand building, product innovation, and channel development.
Q: What leadership changes were announced during the call? A: Jinfeng Huang, CEO, announced that Ms. Wang Li has been appointed as the company's Chief Financial Officer, effective today. Ms. Wang brings over 15 years of experience in the consumer and beauty industry, most recently serving as CFO of QIR Cosmetics. Her expertise will support efforts to optimize cost structure, improve resource allocation, and drive sustainable profitable growth.
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
