YSG Q2 2025: Skincare Revenue Jumps 79% as R&D-Led Brands Outpace Market
YSG’s Q2 saw a decisive pivot toward high-margin skincare, with 79% segment growth and sustained R&D investment driving margin expansion despite anemic industry trends. Skincare’s outperformance is reshaping the business mix, while disciplined cost controls and product innovation signal a more durable profit trajectory. Management’s guidance and tone reflect confidence in leveraging R&D to defend share against intensifying global competition.
Summary
- Skincare Mix Shift: Rapid skincare growth is reshaping YSG’s revenue base and margin structure.
- Operating Leverage Emerges: Cost discipline and higher-margin products are driving profitability inflection.
- R&D as Competitive Moat: Sustained innovation focus is positioned as the key defense against global rivals.
Performance Analysis
YSG delivered a standout quarter with total net revenues up 36.8% year-over-year, a marked acceleration that decisively outpaced China’s muted beauty sector growth. The real driver was skincare, which surged 78.7% YoY and now anchors the company’s margin profile, fueled by flagship brands Kellanik, Dr. Wu, and Yves Long. Color cosmetics rebounded with 8.8% growth, led by renewed momentum in the direct-to-consumer Perfect Diary business.
Gross margin expanded to 78.3%, reflecting a richer product mix and the premiumization of core offerings. Operating expense leverage was evident across the board: selling and marketing, G&A, and fulfillment costs all declined as a percentage of revenue, even as absolute spend rose to support growth initiatives. The company achieved a non-GAAP net profit margin of 1.1%, a sharp reversal from last year’s loss, with net cash from operations swinging positive.
- Skincare Outperformance: Skincare’s 79% growth now dominates segment contribution and is the primary driver of margin expansion.
- Efficiency Gains: Operating expenses fell 10 percentage points as a share of revenue, with G&A headcount cuts and logistics improvements driving the shift.
- Cash Flow Inflection: Net cash from operations turned positive, reflecting improved working capital management and underlying business health.
YSG’s financials now reflect a business pivoting from top-line volatility to a more stable, margin-led model, with R&D-driven product launches sustaining category leadership.
Executive Commentary
"Despite the uncertain environment, we stayed focused on educating our R&D-driven strategy. Anchored in our vision of becoming a world-class pioneer in beauty innovation, we have continued expanding our international innovation network, attracting top global R&D talent, and deepening collaborations across industry, academia, and research institutions."
Zifeng Huang, Founder, Chairman and CEO
"We will continue to optimize our product mix by driving premiumization and hero products with stronger margins. We are enhancing supply chain and operational efficiency to reduce costs and improve scale leverage. Altogether, these initiatives give us confidence in steadily expanding profitability while maintaining growth."
Zonghao Yang, Chief Financial Officer and Director
Strategic Positioning
1. Skincare-Led Business Model Transformation
Skincare now anchors YSG’s revenue and profit outlook, with flagship brands like Kellanik and Dr. Wu delivering both scale and premium margin. The company’s focus on “hero products,” such as VC and VA serums and the Brightening Micro Mask, has enabled it to capture outsized share in both online and offline channels. This mix shift reduces reliance on more volatile color cosmetics and moves the business upmarket.
2. R&D as Differentiator and Growth Engine
YSG’s R&D-centric strategy is not just narrative; it is now a structural advantage. The company’s international innovation network and Shanghai R&D hub have accelerated new product cycles, supporting both brand equity and defensible pricing. Participation in global scientific forums and partnerships with research institutions further embed YSG in the global beauty innovation ecosystem.
3. Cost Structure Recalibration and Operating Leverage
Disciplined cost management is yielding tangible results: G&A expenses as a share of revenue were halved, and fulfillment and marketing spend are increasingly data-driven. Scale benefits are flowing through to the bottom line, and the company is actively reallocating resources toward higher-ROI channels and products.
4. Multi-Channel and Social Responsibility Initiatives
Offline expansion via experience stores in major Chinese cities is strengthening brand presence and increasing consumer engagement. Social responsibility programs, like professional training for low-income women and campus skincare education, reinforce brand loyalty and societal positioning.
Key Considerations
This quarter marks a structural shift in YSG’s business mix and operating model, with several factors shaping the investment case:
Key Considerations:
- Premiumization Trajectory: Hero products in skincare are driving margin expansion and insulating revenue from discounting pressures.
- Channel Optimization: Data-driven marketing and offline store rollout are diversifying customer acquisition and deepening engagement.
- R&D Pipeline Depth: Sustained investment is yielding a robust innovation pipeline, supporting both new launches and brand refreshes.
- Competitive Intensity: Management acknowledges rising competition from global brands, but frames R&D and local market agility as core defenses.
Risks
Intensifying competition from international premium brands poses a material threat, especially as YSG’s skincare segment grows. Macroeconomic softness in China’s beauty market and potential over-reliance on a handful of hero products could pressure future growth and margin resilience. Execution risk remains around scaling offline channels and sustaining cost discipline as the company expands.
Forward Outlook
For Q3 2025, YSG guided to:
- Total net revenues between RMB 778.6 million and RMB 880.1 million (15% to 30% YoY growth)
For full-year 2025, management maintained a constructive outlook, citing:
- Continued momentum in skincare brand development and premiumization
- Gradual, not immediate, profitability improvements as investments in brand equity persist
Management highlighted that growth will be balanced with profitability, and that R&D-driven product launches and channel optimization will remain core strategic priorities.
Takeaways
YSG’s Q2 signals a turning point, with skincare-led growth and cost leverage enabling a return to profitability despite sector headwinds.
- Business Model Reinvention: Skincare’s dominance and margin profile are transforming YSG into a premium, innovation-led beauty company.
- Execution Discipline: Sustained R&D and cost management are driving both top-line and bottom-line resilience, even as the market softens.
- Watch for Competitive Response: As global brands intensify, YSG’s ability to sustain innovation and defend share will be the critical test in coming quarters.
Conclusion
YSG’s Q2 2025 results reflect a business in strategic transition, with skincare premiumization, R&D leadership, and disciplined execution setting the foundation for sustainable growth. Ongoing innovation and cost control will be key to navigating rising global competition and market volatility.
Industry Read-Through
YSG’s results highlight a clear divergence in China’s beauty landscape: local brands with deep R&D and premiumization strategies are outpacing both the overall sector and less differentiated competitors. The pivot to skincare and hero product innovation is now a playbook for margin defense as industry growth slows and foreign entrants raise the bar. For the broader C-beauty and Asia beauty sector, scale R&D and channel agility are increasingly necessary to compete for share and profitability in a crowded field.