Yatsen's Skincare Pivot Hits a Speed Bump as Traffic Costs Climb and Losses Widen
Yatsen's latest quarter reveals just how costly its transformation into a skincare-led house has become. Total net revenue rose 5.1% year on year to RMB 1.14 billion, but the growth engine is now squarely the skincare portfolio, which jumped 40.4% while color cosmetics shrank 35.8%. That deliberate shift has not yet cushioned the bottom line: gross margin fell to 73.9%, net loss widened to RMB 90.8 million from RMB 19.5 million a year earlier, and management guided third-quarter revenue to decline 0% to 10%. “Net loss for the second quarter of 26 was 90.8 million ... as compared with 19.5 million for the prior year period.” — Donghao Yang, CFO · 2026-09-02
Perhaps nothing signals the pressure more clearly than the company's own keyword leaderboard this quarter: traffic cost. Selling and marketing expenses climbed to 70.7% of revenue from 66.5% a year earlier, with management attributing the rise to launching skincare brands on Douyin, where customer acquisition has become expensive. “So, yes, we are seeing rising traffic cost which is an industry wide trend right now.” — Irene Lyu, Vice President, Head of Strategic Investment and Capital Markets · 2026-09-02
A Shift in Tone
The tone marks a departure from a few months ago. Speaking in March, CFO Donghao Yang argued that a rising skincare mix would naturally lift margins.
we're going to continue to grow our Skincare business much faster than our Color Cosmetics business.
That confidence has since given way to careful cost discipline and a confession that “overall growth was more moderate than our prior expectations” — Jinfeng Huang, CEO · 2026-09-02. The company is now streamlining its color-cosmetics portfolio through SKU rationalization and aggressive inventory provisions, while hoping to preserve momentum in skin care segments such as Galenic and Dr. Wu. It is also shifting more spend to B2B, offline and professional channels, aiming to reduce the reliance on expensive online traffic. This aligns with brand portfolio optimization, the phrase describing both the culling of weak SKUs and the relocation of marketing budget toward profitable franchises.
What Lies Ahead
The transition is not a quick fix. Net loss nearly quintupled year over year, and management has already guided for a revenue decline in the next quarter. On the call, CEO Jinfeng Huang also announced a new CFO, Ms. Wang, formerly of Poya Cosmetics, suggesting cost containment ranks high on the board's agenda. “Ms. Wang comes with a proven track record ... will further support our ongoing efforts to optimize our cost structure.” — Jinfeng Huang, CEO · 2026-09-02
Still, prior-quarter optimism has not fully vanished. In May, CEO Huang framed the core engine clearly: “We will continue to expand around proven hero product families.” — Jinfeng Huang, CEO · 2026-05-26 And in the same March conversation, he underscored R&D as the foundation of skincare growth: “I think the most important thing that we're going to do to grow our Skincare business is R&D.” — Donghao Yang, CFO · 2026-03-02 Those levers may eventually pay off, but they will not make the next few quarters pleasant.
For now, investors are being asked to digest a deliberate pullback in revenue alongside a widening net loss. There may be sound long-term logic in playing the long game—skincare now represents over 70% of sales—but until customer-acquisition economics and channel mix stabilize, the equity remains a high-variance turnaround story rather than a compounding one.