Yatsen Holding Limited (NYSE:YSG) reported second-quarter 2026 total net revenues of RMB1.14 billion, up 5.1% year over year, as skincare net revenues increased 40.4%. Skincare represented 71.5% of total net revenues, confirming rapid progress in the portfolio shift. However, color-cosmetics net revenues declined 35.8%, while the GAAP operating loss widened to RMB131.9 million from RMB55.5 million.
The central question is whether Yatsen Holding Limited can convert the stronger skincare mix into profitable growth. Gross margin remained high at 73.9%, but sales and marketing expenses consumed 70.7% of total net revenues. Yatsen Holding Limited expects third-quarter total net revenues of RMB898.6 million to RMB998.4 million, representing an approximately 0% to 10% year-over-year decline.
Bull Case
The skincare transition is progressing quickly. Yatsen Holding Limited increased skincare net revenues by 40.4%, and the category now contributes more than 70% of total net revenues. The result gives Yatsen Holding Limited a substantially different revenue base from the earlier dependence on color cosmetics.
Skincare products can support durable customer relationships through replenishment and repeat purchasing. If Yatsen Holding Limited sustains skincare growth while strengthening retention and marketing efficiency, the changing portfolio mix could eventually produce better operating economics.
The 73.9% gross margin still provides room for operating improvement if expense growth moderates. Yatsen Holding Limited does not need gross-margin expansion to begin narrowing operating losses. Lower marketing intensity combined with continued skincare growth could provide the operating leverage currently missing from the business.
Bear Case
The latest results show that revenue-mix improvement has not translated into earnings improvement. Yatsen Holding Limited reported a GAAP operating loss of RMB131.9 million, more than double the RMB55.5 million loss recorded one year earlier. Sales and marketing expenses reached 70.7% of total net revenues, while total operating expenses consumed 85.4%.
Gross margin contracted 440 basis points from 78.3% to 73.9%, primarily because of higher inventory provisions in the color-cosmetics business associated with brand-portfolio optimization and SKU rationalization. The provisions indicate that the portfolio transition involves costs beyond weaker color-cosmetics sales. Inventory discipline must improve for the skincare shift to generate stronger overall economics.
Color cosmetics remains another drag. Category net revenues declined 35.8%, meaning skincare growth is partly replacing weakness elsewhere rather than lifting the entire portfolio at the same rate. The third-quarter outlook reinforces that concern. The RMB898.6 million to RMB998.4 million guidance range implies a year-over-year decline of approximately 0% to 10%.
The spending profile remains the decisive issue. Even strong skincare growth may have limited earnings impact if customer acquisition, traffic, and brand investments continue absorbing most of the gross profit generated.
Hedge Fund Sentiment
The filings available so far reflect positions held before Yatsen Holding Limited reported second-quarter 2026 financial results. Insider Monkey’s database showed 10 hedge funds holding Yatsen Holding Limited at the end of 2Q2026, down from 11 funds three months earlier.
Conclusion
Yatsen Holding Limited has made clear progress in reshaping the revenue mix, but the financial payoff remains unproven. Skincare growth and a high gross margin provide a foundation for improvement, while marketing intensity, color-cosmetics inventory provisions, and declining color-cosmetics net revenues continue to pressure earnings. The next proof point is whether skincare growth can persist while marketing intensity and GAAP operating losses decline.
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This article is originally published at Insider Monkey.
