The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this annual report. This report contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Item 3. Key Information—D. Risk Factors” and elsewhere in this annual report. See “Forward-Looking Information.” A.Operating Results Founded in 2016, we have launched and acquired several color cosmetics brands and skincare brands, including Perfect Diary, Little Ondine, Pink Bear, Galénic, DR.WU (its mainland China business), and Eve Lom, among others. Our brands are strategically positioned to capture a wide spectrum of consumer demographics and price points, ranging from the mass market to the prestige and clinical segments. We thrive on the synergy of brand power, product strength and operational agility, anchored by a steadfast and enduring commitment to R&D and consumer insights. We generate substantially all of our net revenues from the sale of beauty products under our own brands. We have developed a number of successful brands and products. Our most iconic, best-selling products include Galénic’s No. 1 Brightening Radiance Energy Concentrated Care, DR.WU’s Intensive Renewal Serum with Mandelic Acid and Purifying Renewal Essence Toner, Eve Lom’s Cleanser, and Perfect Diary’s Biolip Essense Lipstick (including the first, second and third generations). Leveraging our omni-channel ecosystem, we gain insights through direct engagement with customers, which drives product development, content creation, and further improvement of our customer experience. We have built core technology and data capabilities that power our business operations, including our marketing strategies, product development, supply chain management and customer service. Our total net revenues decreased from RMB3.41 billion in 2023 to RMB3.39 billion in 2024, and increased from RMB3.39 billion in 2024 to RMB4.30 billion (US$614.6 million) in 2025. We incurred a net loss of RMB750.2 million in 2023, RMB710.2 million in 2024 and RMB92.4 million (US$13.2 million) in 2025. Our net loss position in 2025 was mainly due to (i) strategic investments in advertising and marketing to support our brand portfolio, particularly for brands in their early development stages or those undergoing strategic transformation, (ii) personnel and administrative expenses, and (iii) share-based compensation expenses recorded in accordance with U.S. GAAP. Key Factors Affecting Our Results of Operations Our results of operations and financial conditions are affected by the general factors influencing China’s beauty and retail industries, including China’s overall economic growth, the increase in per capita disposable income, the continued growth of the e-commerce industry, and the growth in the willingness of consumers to spend on beauty products in China. While our business is influenced by general factors affecting our industry, our results of operations are more directly affected by certain company specific factors, including: Our Ability to Develop and Launch New Products and Grow Our Brands Our ability to successfully develop and launch new products and grow our new and existing brands is pivotal to our success. We have a track record of successfully launching new and iconic products for our Perfect Diary brand, which were well received by consumers. Following the strategic acquisitions of Galénic, the mainland China business of DR.WU, and Eve Lom between late 2020 and early 2021, we have re-engineered these brands for the China market. This shift toward Skincare Brands, which typically feature higher gross margin and greater customer loyalty, has significantly diversified our revenue mix and reinforced our competitive edge. Leveraging our strengthened R&D capabilities and insights gained through our direct engagement with customers, we are able to develop new popular products more efficiently. Having a broad, attractive and updated 119 product portfolio is essential to sustaining brand popularity, increasing customer retention, and encouraging repeat purchases. We intend to continue launching new products to proactively respond to evolving industry trends and customer feedback. The success of these launches is a key determinant of our business growth and our overall financial performance. As a result, our skincare segment has demonstrated a transformative growth trajectory over the past three years. In 2023, our net revenues from Skincare Brands reached RMB1.38 billion, a 11.4% year-over-year increase, accounting for 40.5% of total net revenues. In 2024, our net revenues from Skincare Brands remained stable at RMB1.39 billion, contributing 41.1% of total net revenues. In 2025, our net revenues from Skincare Brands experienced a significant surge, reaching RMB2.28 billion (US$325.7 million), representing a year-over-year increase of 63.5%. This performance was primarily driven by the strong growth momentum of Galénic and DR.WU, fueled by the successful scaling of their flagship product lines and the successful launch of new products. Consequently, our Skincare Brands accounted for 53.0% of total net revenues in 2025. Our Ability to Attract and Retain Customers and Expand Coverage Among Various Sales Channels Our success relies on our ability to continually attract new customers, retain existing customers and maintain broad coverage among various e-commerce and distribution channels, while maintaining sustainable profit margins. We strive to grow the popularity of our products with recognition of our brands, increased selection of innovative beauty products at attractive price points, our engaging shopping experience and quality customer service, and the effectiveness of our marketing initiatives. As China’s beauty e-commerce and retailing landscape evolve, we will seek to balance the need to reach a broader consumer base while improving the sales through the channels where we have business presence. We generate net revenues through sales (i) directly to end customers through various DTC online channels as well as offline stores, and (ii) to e-commerce platform distributors and offline distributors who then sell to end customers. For the years ended December 31, 2023, 2024 and 2025, our net revenues generated through DTC channels as a percentage of total net revenues were 84.6%, 82.9% and 84.9%, respectively. Going forward, we will continue to diversify our sales channels, including content and livestreaming platforms such as Douyin, shelf-based e-commerce platforms such as Tmall and third-party distributors as well as beauty-focused offline retail stores. Our Pricing Strategy and Ability to Maintain Optimal Gross Margins Our results of operations depend on our ability to design our pricing strategy to both maintain attractiveness to customers and to gradually improve our gross margins as we continue to grow our business. Our product pricing strategy is driven by the introduction of new products, promotional events on e-commerce platforms, adoption of new ways of engaging and selling to consumers such as livestreaming, and the broader competitive landscape. In general, we strive to gradually improve our gross margin by introducing higher-margin new products and stricter discounts and promotions, despite facing heavy price competition in the market place. As a result of our integrated approach, our gross margin was 73.6%, 77.1% and 78.2% for the years ended December 31, 2023, 2024 and 2025, respectively. The continual improvement of our gross margin for the past three years is also the result of higher revenue contribution from our skincare products, which generally have higher gross margins compared to our color cosmetic products. We also intend to incrementally introduce products with higher gross margin under our Perfect Diary brand. We expect to gradually improve our gross margin over time as we continue to focus on optimizing our product mix, implementing more disciplined pricing and discount policies, and further enhancing supply chain efficiencies. Effectiveness of Our Marketing Strategies Our results of operations also depend on our ability to attract and retain customers while maintaining reasonable marketing expenses. Our marketing strategy is digitally native and tailored to the unique positioning of each brand within our portfolio. We rely on our ability to cultivate consumer trust through marketing campaigns that resonate with the specific target audiences of each brand. By generating digital content across leading online platforms, such as Douyin and RedNote, and leveraging our expansive network of KOLs, we amplify our brand narratives to reach a broader consumer base. Our approach aligns promotional initiatives with the distinct ethos and value propositions of each brand, aiming to convert social influence into sustained consumer demand while fostering long-term brand equity and customer loyalty. 120 We have also leveraged our offline experience store network to increase our presence and to reach and serve our customers at different touchpoints. As of December 31, 2025, we operated 77 experience stores, compared with 88 stores as of December 31, 2024. The reduction was due to the strategic closure of Perfect Diary experience stores, partially offset by the expansion of our Galénic offline network. We believe that maintaining a certain number of experience stores enables us to drive stronger engagement with our customers by providing a physical space to sample our products and engage with our brands. Our selling and marketing expenses have been and will continue to be affected by the number of new product launches, spending on performance-based marketing on our e-commerce channels, branding and promotional activities to support the growth of our new and existing brands, and expenses related to our offline stores. Through our data insights, we also monitor our return on investment across our various marketing and distribution channels and adjust our marketing spending and strategy accordingly. Our selling and marketing expenses as a percentage of total net revenues remained relatively stable at 66.9% in 2024 and 66.3% in 2025. With our focus on growing our sustainability and achieving profitability, we plan to further optimize our channel mix and expenses for performance-based marketing on our e-commerce channels while allocating resources to strengthen the brand equities for our existing brands. We also plan to optimize our expenses related to our experience stores by increasing productivity among our beauty advisors and optimizing utilization of our experience stores’ space. Our Ability to Manage Operating Costs and Expenses Our results of operations are significantly influenced by our ability to manage our selling and marketing expenses, general and administrative expenses and fulfilment expenses. From 2021 to 2023, we selectively closed underperforming offline stores, reduced marketing event-related expenses and streamlined our online marketing activities. In 2024, we increased our investments in the Douyin platform in response to its increasing contribution to our revenues, which was partially offset by more targeted marketing and content spending. In 2025, we further optimized our resource allocation by strategically prioritizing investments in our core Skincare Brands to capitalize on their strong market momentum. As a result, our selling and marketing expenses as a percentage of total net revenues increased from 65.3% in 2023 to 66.9% in 2024, and decreased to 66.3% in 2025. We intend to continue optimizing this ratio by reallocating marketing spending toward higher-return channels, intensifying our return on investment discipline, and capturing operating leverage across our fixed expenses. In addition, we took measures to improve our general and administrative efficiency. Our general and administrative expenses as a percentage of total net revenues decreased from 14.7% in 2023 to 13.1% in 2024, and further decreased to 7.1% in 2025. This substantial improvement in 2025 was primarily driven by lower payroll expenses and share-based compensation expenses, coupled with the leveraging effect of higher total net revenues. We have also developed an efficient supply chain involving manufacturing, warehousing and logistics. We leverage technology and data to manage supplier partners, ODM/OEM and packaging supply partners and other service partners, and adjust such partners’ operations to maintain optimal inventory levels as well as ensure smooth product launches. We cooperate with leading manufacturers with strong capabilities, as well as physical proximity to our customers, enabling us to further shorten the production and fulfilment process, thereby improving customer experience. Fulfilment expenses as a percentage of total net revenues decreased from 6.7% in 2023 to 6.4% in 2024, and further decreased to 5.9% in 2025. We expect to further optimize our operating expenses by leveraging our technology- and data-driven supply chain management systems. 121 Key Components of Results of Operations Net revenues Our net revenues are net of refunds and value-added tax. Our net revenues are primarily generated from selling our beauty products and comprise net revenues from Color Cosmetics Brands, Skincare Brands and others. The following table sets forth the breakdown of our net revenues by segment both in absolute amounts and as a proportion of our total net revenues for the years presented: For the Year Ended December 31, 2023 2024 2025 RMB % RMB % RMB US$ % (in thousands, except for percentages) Net revenues Segment -Color Cosmetics Brands 1,973,726 57.8 1,968,350 58.0 2,005,911 286,842 46.7 -Skincare Brands 1,383,578 40.5 1,393,259 41.1 2,277,334 325,654 53.0 -Others 57,470 1.7 31,805 0.9 14,879 2,128 0.3 Total net revenues 3,414,774 100.0 3,393,414 100.0 4,298,124 614,624 100.0 As we have been continually expanding our Skincare Brands business, we expect net revenues from the Skincare Brands segment to increase. Sales of product by channel. We generate net revenues primarily from selling our beauty products (i) directly to end customers through various DTC online channels as well as offline stores, and (ii) to e-commerce platform distributors and offline distributors who then sell to end customers. Our DTC channels include content and livestreaming platforms such as Douyin, shelf-based e-commerce platforms such as Tmall, and our offline stores. Our primary e-commerce platform distributors are JD.com and Vipshop. The following table sets forth the breakdown of our net revenues by channel both in absolute amounts and as a proportion of our total net revenues for the years presented: For the Year Ended December 31, 2023 2024 2025 RMB % RMB % RMB US$ % (in thousands, except for percentages) Net revenues Sales of product by channel -Sales to end customers 2,890,229 84.6 2,812,370 82.9 3,646,257 521,409 84.9 -Sales to distributor customers 514,781 15.1 572,541 16.9 641,332 91,709 14.9 -Others 9,764 0.3 8,503 0.2 10,535 1,506 0.2 Total net revenues 3,414,774 100.0 3,393,414 100.0 4,298,124 614,624 100.0 With the goal to achieve sustainable growth in 2026 and beyond, we intend to improve return on investment on all our key sales channels, improve gross margins of our products and diversify our sales channels, including e-commerce platforms besides Douyin and Tmall as well as third-party distributors. 122 Cost of revenues Our cost of revenues consists primarily of material costs, which include ingredient costs and costs associated with raw materials and packaging materials, manufacturing cost and other related costs that are directly attributable to the production of our products. For some of our products, we directly procure raw materials and packaging materials from third-party suppliers and pass on such materials to OEM/ODM partners for production and assembly. For the rest of our products, we procure finished goods from OEM/ODM partners. Our product costs fluctuate with the prices that we are able to negotiate with our OEM/ODM partners and our raw material and packaging material suppliers. We intend to leverage our economy of scale to limit any upward pressure on our procurement costs going forward. The following table sets forth our cost of revenues by amounts and percentages of our total net revenues for the years presented: For the Year Ended December 31, 2023 2024 2025 RMB % RMB % RMB US$ % (in thousands, except for percentages) Cost of revenues 901,455 26.4 776,236 22.9 936,780 133,958 21.8 The following table sets forth our gross profit in absolute amount and gross profit margin for the years presented. We aim to continue improving our gross profit margin by adjusting our product mix, channel mix while implementing our strategies in pricing and discounts. For the Year Ended December 31, 2023 2024 2025 RMB RMB RMB US$ (in thousands, except for percentages) Gross profit 2,513,319 2,617,178 3,361,344 480,666 Gross profit margin 73.6 % 77.1 % 78.2 % 78.2 % Operating expenses The following table sets forth the components of our operating expenses by amounts and percentages of our total net revenues for the years presented: For the Year Ended December 31, 2023 2024 2025 RMB % RMB % RMB US$ % (in thousands, except for percentages) Operating expenses Fulfilment expenses 229,021 6.7 216,540 6.4 253,926 36,311 5.9 Selling and marketing expenses 2,230,974 65.3 2,268,793 66.9 2,852,288 407,872 66.3 General and administrative expenses 500,942 14.7 444,373 13.1 303,628 43,418 7.1 Research and development expenses 111,698 3.3 109,287 3.2 137,296 19,633 3.2 Impairment of goodwill 354,039 10.3 403,076 11.9 — — — Total operating expenses 3,426,674 100.3 3,442,069 101.4 3,547,138 507,234 82.5 Fulfilment expenses. Fulfilment expenses are primarily expenses related to the warehousing, shipping and delivery of products to customers, which mainly include third-party costs for warehouses, third-party shipping costs and customer service-related expenses. 123 Selling and marketing expenses. Selling and marketing expenses primarily consist of (i) advertising and marketing promotion expenses, (ii) platform and other commissions, (iii) personnel costs for sales and marketing staff, (iv) rental, depreciation expenses, personnel and other costs for offline experience stores and (v) share-based compensation expenses. We typically allocate more selling and marketing budget during launches of our new products and introduction of new brands. General and administrative expenses. General and administrative expenses primarily consist of personnel costs including share-based compensation expenses and other expenses which are related to the general corporate functions, including accounting, finance, tax, legal and human resources, costs of facilities and equipment associated with use by these functions, such as depreciation expenses, rental and other general corporate related expenses. Research and development expenses. Research and development expenses primarily consist of personnel costs for research and development staff, which includes IT engineers and product development personnel, as well as general expenses and depreciation expenses associated with our research and development activities. Impairment of goodwill. Impairment of goodwill represents the amount by which the carrying value of the net assets exceeds its fair value in connection with certain reporting units. Taxation Cayman Islands The Cayman Islands currently levies no taxes on corporations based upon profits, income, gains or appreciations. There are no other taxes likely to be material to our company levied by the Government of the Cayman Islands save certain stamp duties which may be applicable, from time to time, on certain instruments executed in or brought within the jurisdiction of the Cayman Islands. In addition, the Cayman Islands does not impose withholding tax on dividend payments. Hong Kong Our subsidiaries incorporated in Hong Kong, including Yatsen (HK) Limited, Aoyan (HK) Limited, Yatsen Investment Limited, Galenic (HK) Limited, Dskin (HK) Limited, Space Brands (HK) Limited, and Watosa (HK) Limited are subject to 16.5% Hong Kong profit tax on their taxable income generated from operations in Hong Kong. Commencing on April 1, 2018, the two-tiered profits tax regime took effect, under which the tax rate is 8.25% for assessable profits on the first HK$2 million and 16.5% for any assessable profits in excess of HK$2 million. Under the Hong Kong tax laws, our subsidiary in Hong Kong is exempted from the Hong Kong income tax on our foreign-derived income. In addition, payments of dividends from our Hong Kong subsidiaries to us are not subject to any Hong Kong withholding tax. PRC Generally, our PRC subsidiaries, the VIE and its subsidiaries are subject to enterprise income tax on their taxable income in China at a statutory rate of 25%. The enterprise income tax is calculated based on the entity’s global income as determined under PRC tax laws and accounting standards. According to a policy promulgated by the State Administration of Taxation and effective from 2008 and onwards, enterprises engaged in research and development activities are entitled to claim an additional special tax deduction amounting to 50% of the qualified research and development expenses incurred in determining its tax assessable profits for that year. The deduction rate for qualified research and development expenses has been increased from 50% to 75% according to Notice by the Ministry of Finance, the State Administration of Taxation and the Ministry of Science and Technology of Raising the Proportion of Weighted Pre-tax Deduction of Research and Development Expenses, which was effective from 2018 to 2020 and was further extended to 2023. According to the Notice on Further Improving the Additional Pre-Tax Deduction Policy for Research and Development Expenses announced by the Ministry of Finance and the State Administration of Taxation on March 26, 2023, the additional special tax deduction rate for qualified research and development expenses increased from 75% to 100% as a long-term policy. Without further notice from the governmental authorities, such policy remains effective as of the date of this annual report. Shanghai Jiyan Cosmetics Technology Co., Ltd. is entitled to claim the special deduction referred above. 124 Dividends paid by our wholly foreign-owned subsidiaries in China to our intermediary holding company in Hong Kong will be subject to a withholding tax rate of 10%, unless the relevant Hong Kong entity satisfies all the requirements under the Arrangement between China and the Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income and Capital and receives approval from the tax authority. If our Hong Kong subsidiary satisfies all the requirements under the tax arrangement and receives approval from the tax authority, then the dividends paid to the Hong Kong subsidiary would be subject to withholding tax at the standard rate of 5%. Effective as of November 1, 2015, the above-mentioned approval requirement has been abolished, but a Hong Kong entity is still required to file an application package with the tax authority, and settle the overdue taxes if the preferential 5% tax rate is denied based on the subsequent review of the application package by the tax authority. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China—We may rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiaries to make payments to us could have a material and adverse effect on our ability to conduct our business.” If our holding company in the Cayman Islands or any of our subsidiaries outside of China were deemed to be a “resident enterprise” under the PRC Enterprise Income Tax Law, it would be subject to enterprise income tax on its worldwide income at a rate of 25%. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China—If we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders or ADS holders.” Results of Operations The following table sets forth a summary of our consolidated results of operations for the years presented, both in absolute amount and as a percentage of our net revenues for the years presented. This information should be read together with our consolidated financial statements and related notes included elsewhere in this annual report. The results of operations in any period are not necessarily indicative of our future trends. For the Year Ended December 31, 2023 2024 2025 RMB % RMB % RMB US$ % (in thousands, except for percentages) Total net revenues 3,414,774 100.0 3,393,414 100.0 4,298,124 614,624 100.0 Total cost of revenues (901,455 ) (26.4 ) (776,236 ) (22.9 ) (936,780 ) (133,958 ) (21.8 ) Gross profit 2,513,319 73.6 2,617,178 77.1 3,361,344 480,666 78.2 Operating expenses: Fulfilment expenses (229,021 ) (6.7 ) (216,540 ) (6.4 ) (253,926 ) (36,311 ) (5.9 ) Selling and marketing expenses (2,230,974 ) (65.3 ) (2,268,793 ) (66.9 ) (2,852,288 ) (407,872 ) (66.3 ) General and administrative expenses (500,942 ) (14.7 ) (444,373 ) (13.1 ) (303,628 ) (43,418 ) (7.1 ) Research and development expenses (111,698 ) (3.3 ) (109,287 ) (3.2 ) (137,296 ) (19,633 ) (3.2 ) Impairment of goodwill (354,039 ) (10.3 ) (403,076 ) (11.9 ) — — — Total operating expenses (3,426,674 ) (100.3 ) (3,442,069 ) (101.4 ) (3,547,138 ) (507,234 ) (82.5 ) Loss from operations (913,355 ) (26.7 ) (824,891 ) (24.3 ) (185,794 ) (26,568 ) (4.3 ) Financial income 89,020 2.6 86,136 2.5 40,721 5,823 0.9 Foreign currency exchange gain (loss) 7,218 0.2 (20,399 ) (0.6 ) 13,374 1,912 0.3 Income from equity method investments, net 10,122 0.3 1,386 0.0 5,940 849 0.1 Impairment of investments — — — — (13,453 ) (1,924 ) (0.3 ) Other income, net 53,558 1.6 44,461 1.3 46,690 6,677 1.1 Loss before income tax expenses (753,437 ) (22.1 ) (713,307 ) (21.0 ) (92,522 ) (13,231 ) (2.2 ) Income tax benefits 3,210 0.1 3,086 0.1 108 15 0.0 Net loss (750,227 ) (22.0 ) (710,221 ) (20.9 ) (92,414 ) (13,216 ) (2.2 ) 125 Segment Information The following table sets forth our segment operating results for the years ended December 31, 2023, 2024 and 2025. For the year ended December 31, 2025 Color Cosmetics Brands Skincare Brands Others Total segments RMB Total net revenues 2,005,911 2,277,334 14,879 4,298,124 Total cost of revenues (510,809 ) (418,434 ) (7,537 ) (936,780 ) Advertising, marketing and commission expenses(a) (1,004,529 ) (1,352,874 ) — (2,357,403 ) Other expenses(b) (549,950 ) (536,763 ) (1,262 ) (1,087,975 ) Segment (loss) income from operations (59,377 ) (30,737 ) 6,080 (84,034 ) For the year ended December 31, 2024 Color Cosmetics Brands Skincare Brands Others Total segments RMB Total net revenues 1,968,350 1,393,259 31,805 3,393,414 Total cost of revenues (488,394 ) (269,185 ) (18,657 ) (776,236 ) Advertising, marketing and commission expenses(a) (1,003,978 ) (743,423 ) — (1,747,401 ) Impairment of goodwill (5,266 ) (397,810 ) — (403,076 ) Other expenses(b) (656,131 ) (431,560 ) (6,342 ) (1,094,033 ) Segment (loss) income from operations (185,419 ) (448,719 ) 6,806 (627,332 ) For the year ended December 31, 2023 Color Cosmetics Brands Skincare Brands Others Total segments RMB Total net revenues 1,973,726 1,383,578 57,470 3,414,774 Total cost of revenues (574,995 ) (292,305 ) (34,155 ) (901,455 ) Advertising, marketing and commission expenses(a) (993,920 ) (683,229 ) — (1,677,149 ) Impairment of goodwill — (354,039 ) — (354,039 ) Other expenses(b) (756,958 ) (485,273 ) (21,456 ) (1,263,687 ) Segment (loss) income from operations (352,147 ) (431,268 ) 1,859 (781,556 ) 126 The following table presents the reconciliation from the segment loss from operations to the consolidated loss before income tax expenses for the years ended December 31, 2023, 2024 and 2025: For the year ended December 31, 2023 2024 2025 RMB RMB RMB Segment loss from operations (781,556 ) (627,332 ) (84,034 ) Unallocated expenses (c) (131,799 ) (197,559 ) (101,760 ) Financial income 89,020 86,136 40,721 Foreign currency exchange gain (loss) 7,218 (20,399 ) 13,374 Income from equity method investments, net 10,122 1,386 5,940 Impairment of investments — — (13,453 ) Other income, net 53,558 44,461 46,690 Loss before income tax expenses (753,437 ) (713,307 ) (92,522 ) Notes: (a) Advertising, marketing and commission expenses mainly represent (i) advertising and marketing promotion expenses, (ii) platform and other commissions. (b) Other expenses represent (i) fulfilment expenses related to warehousing, shipping and delivery of products to customers include third-party costs for warehouses, third-party shipping costs and customer service-related expenses, (ii) other selling and marketing expenses related to personnel costs for sales and marketing staff and rental, depreciation expenses, personnel and other costs for offline experience stores, (iii) general and administrative expenses and research and development expenses which consist of personnel costs and other expenses which are related to general corporate functions and research and development activities. (c) Unallocated expenses represent share-based compensation and amortization of intangible assets resulting from assets and business acquisitions, which are not allocated to segments. Depreciation of property and equipment, net (included in the measurement of segment profit or loss): For the year ended December 31, 2023 2024 2025 RMB RMB RMB Total depreciation of property and equipment, net Color Cosmetics 31,588 18,199 14,607 Skincare 21,509 19,542 22,204 Others 586 253 61 53,683 37,994 36,872 No asset information is provided for reportable segments as no such information is provided to the chief operating decision-maker to evaluate the segment performance and most assets are managed at the group level. Substantially all our revenues and long-lived assets are derived from and located in the PRC. Year ended December 31, 2025 compared to year ended December 31, 2024 Total net revenues Our net revenues increased by 26.7% from RMB3.39 billion in 2024 to RMB4.30 billion (US$614.6 million) in 2025, primarily attributable to a 63.5% year-over-year increase in net revenues from Skincare Brands, as well as a 1.9% year-over-year increase in net revenues from Color Cosmetics Brands. Our net revenues generated through Skincare Brands as a percentage of total net revenues increased from 41.1% in 2024 to 53.0% in 2025. Total cost of revenues Our cost of revenues increased by 20.7% from RMB776.2 million in 2024 to RMB936.8 million (US$134.0 million) in 2025, primarily due to the increase in overall sales volume of our beauty products in 2025. 127 Gross profit and gross margin As a result of the foregoing, our gross profit increased by 28.4% from RMB2.62 billion in 2024 to RMB3.36 billion (US$480.7 million) in 2025, and our gross margins increased from 77.1% in 2024 to 78.2% in 2025. The increase was primarily attributable to the increase in sales of higher-gross margin products. Fulfilment expenses Our fulfilment expenses increased from RMB216.5 million in 2024 to RMB253.9 million (US$36.3 million) in 2025, which was primarily attributable to an increase in warehouse and logistics cost from RMB169.2 million in 2024 to RMB198.6 million (US$28.4 million) in 2025, mainly due to the higher sales volume of our beauty products in 2025. Our fulfilment expenses as a percentage of net revenues decreased from 6.4% in 2024 to 5.9% in 2025, primarily driven by optimization of fulfilment costs and further improvements in logistics efficiency, as well as the leveraging effect of higher total net revenues in 2025. Selling and marketing expenses Our selling and marketing expenses increased from RMB2.27 billion in 2024 to RMB2.85 billion (US$407.9 million) in 2025, which was primarily attributable to (i) an increase in advertising, marketing and brand promotion costs from RMB1.37 billion in 2024 to RMB1.83 billion (US$261.6 million) in 2025, primarily due to the investments in new product launches across our brands as well as the higher traffic acquisition costs amid intensified competition, and (ii) an increase in platform commissions from RMB357.1 million in 2024 to RMB512.6 million (US$73.3 million) in 2025, partially offset by a decrease in amortization of intangible assets resulting from assets and business acquisitions from RMB106.4 million in 2024 to RMB42.7 million (US$6.1 million) in 2025. General and administrative expenses Our general and administrative expenses decreased from RMB444.4 million in 2024 to RMB303.6 million (US$43.4 million) in 2025, primarily due to (i) a decrease in personnel costs from RMB143.3 million in 2024 to RMB97.3 million (US$13.9 million) in 2025, and (ii) a decrease in share-based compensation expenses from RMB89.9 million in 2024 to RMB48.6 million (US$7.0 million) in 2025 resulting from a reduction in general and administrative headcount. Research and development expenses Our research and development expenses increased from RMB109.3 million in 2024 to RMB137.3 million (US$19.6 million) in 2025, primarily due to (i) an increase in personnel costs from RMB55.6 million in 2024 to RMB72.1 million (US$10.3 million) in 2025, as a result of the increased resources and personnel we deployed to support our research and development, and (ii) an increase in product development expenses from RMB10.1 million in 2024 to RMB23.8 million (US$3.4 million) in 2025. Impairment of goodwill We recorded no impairment of goodwill in 2025, as compared with an impairment of goodwill of RMB403.1 million in 2024. Loss from operations We generated net loss from operations of RMB824.9 million in 2024 and RMB185.8 million (US$26.6 million) in 2025 as a result of the foregoing. The decrease in net loss from operations is primarily attributable to our higher gross profit and record of no impairment of goodwill in 2025. 128 Income tax benefits We recorded income tax benefits of RMB3.1 million in 2024 and income tax benefits of RMB0.1 million (US$15 thousand) in 2025. The decrease was primarily due to a lower tax effect of amortization of intangible assets resulting from assets and business acquisitions. Net loss We generated a net loss of RMB710.2 million in 2024 and RMB92.4 million (US$13.2 million) in 2025 as a result of the foregoing. Year ended December 31, 2024 compared to year ended December 31, 2023 Total net revenues Our net revenues slightly decreased by 0.6% from RMB3.41 billion in 2023 to RMB3.39 billion in 2024, primarily attributable to the decline in net revenues from Color Cosmetics Brands, partially offset by the increase in net revenues from Skincare Brands. The decline in net revenues from Color Cosmetics Brands was primarily because Perfect Diary was still undergoing its strategic transformation. While the Biolip Essence series has performed well, the brand needs to further build its product lineup. Our Skincare Brands experienced continued growth primarily due to the solid performance of our premium brands and our continued development of these brands during the year. Our net revenues generated through Skincare Brands as a percentage of total net revenues increased from 40.5% in 2023 to 41.1% in 2024. Total cost of revenues Our cost of revenues decreased by 13.9% from RMB901.5 million in 2023 to RMB776.2 million in 2024, primarily due to cost optimization across all of our brand portfolio. Gross profit and gross margin As a result of the foregoing, our gross profit increased by 4.1% from RMB2.51 billion in 2023 to RMB2.62 billion in 2024, and our gross margins increased from 73.6% in 2023 to 77.1% in 2024. The increase was primarily attributable to increasing sales of higher-gross margin products. Fulfilment expenses Our fulfilment expenses decreased from RMB229.0 million in 2023 to RMB216.5 million in 2024, which was primarily attributable to a decrease in warehouse and logistics cost from RMB181.7 million in 2023 to RMB169.2 million in 2024, mainly due to lower sales volume of our beauty products, and a decrease in customer service cost from RMB29.4 million in 2023 to RMB25.0 million in 2024. Our fulfilment expenses as a percentage of net revenues decreased from 6.7% in 2023 to 6.4% in 2024 due to our further improvements in logistics efficiency. Selling and marketing expenses Our selling and marketing expenses increased from RMB2.23 billion in 2023 to RMB2.27 billion in 2024, which was relatively stable. General and administrative expenses Our general and administrative expenses decreased from RMB500.9 million in 2023 to RMB444.4 million in 2024, primarily due to lower payroll expenses and depreciation expenses resulting from a reduction in general and administrative headcount. Research and development expenses 129 Our research and development expenses decreased from RMB111.7 million in 2023 to RMB109.3 million in 2024, primarily due to a decrease in share-based compensation expenses from RMB5.0 million in 2023 to RMB0.9 million in 2024. Impairment of goodwill We recorded impairment of goodwill of RMB354.0 million in 2023 and RMB403.1 million in 2024. The impairment mainly represents the amount by which the carrying value of the Eve Lom reporting unit exceeded its fair value, based on quantitative goodwill impairment test, primarily due to weaker operating results than expected. Loss from operations We generated net loss from operations of RMB913.4 million in 2023 and net loss from operations of RMB824.9 million in 2024 as a result of the foregoing. The decrease in net loss from operations is primarily attributable to our higher gross profit mainly as a result of the increased sales of higher-gross-margin products and enhanced operating efficiencies. Income tax benefits Our income tax benefits remained relatively stable at RMB3.2 million in 2023 and RMB3.1 million in 2024. Net loss We generated a net loss of RMB750.2 million in 2023 and a net loss of RMB710.2 million in 2024 as a result of the foregoing. Recently Issued Accounting Pronouncements A list of recently issued accounting pronouncements that are relevant to us is included in Note 2 to our audited consolidated financial statements included elsewhere in this annual report. Impact of Foreign Currency Fluctuation See “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and Industry—Fluctuations in exchange rates could have a material and adverse effect on the value of your investment and our results of operations.” and “Item 11. Quantitative and Qualitative Disclosures About Market Risk—Foreign exchange risk.” Impact of Governmental Policies See “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China” and “Item 4. Information on the Company—B. Business Overview—Regulations.” 130 B.Liquidity and Capital Resources The following table sets forth a summary of our cash flows for the years presented: For the Year Ended December 31, 2023 2024 2025 RMB RMB RMB US$ (in thousands) Summary Consolidated Cash Flow Data Net cash used in operating activities (107,442 ) (243,666 ) (94,663 ) (13,537 ) Net cash (used in)/provided by investing activities (260,487 ) 592,123 246,794 35,291 Net cash used in financing activities (342,455 ) (394,226 ) (151,445 ) (21,656 ) Effect of exchange rate changes on cash and cash equivalents and restricted cash 14,192 5,028 (10,585 ) (1,513 ) Net decrease in cash and cash equivalents and restricted cash (696,192 ) (40,741 ) (9,899 ) (1,415 ) Cash and cash equivalents and restricted cash at the beginning of the year 1,554,328 858,136 817,395 116,886 Cash and cash equivalents and restricted cash at the end of the year 858,136 817,395 807,496 115,471 To date, we have financed our operating and investing activities primarily through cash generated by historical equity financing activities. As of December 31, 2023, 2024 and 2025, respectively, our cash, cash equivalents and restricted cash were RMB858.1 million, RMB817.4 million and RMB807.5 million (US$115.5 million). We had short-term investments with an aggregate outstanding amount of RMB246.0 million (US$35.2 million) as of December 31, 2025. Our cash and cash equivalents primarily consist of currency on hand, deposits held by financial institutions that can be added to or withdrawn without limitation, short-term and highly liquid investments placed with banks, and all highly liquid investments with original maturities of three months or less. Short-term investments consist primarily of financial products offered by commercial banks in the PRC with fixed maturity dates ranging from three months to one year. We believe that our current cash and cash equivalents will be sufficient to meet our current and anticipated working capital requirements and capital expenditures for at least the next 12 months from the date of this annual report. We may decide to enhance our liquidity position or increase our cash reserve for future investments through additional capital and finance funding. The issuance and sale of additional equity would result in further dilution to our shareholders. The incurrence of indebtedness would result in increased fixed obligations and could result in operating covenants that would restrict our operations. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all. As of December 31, 2025, 28.5% of our cash, cash equivalents and restricted cash were held in China, and 28.7% were denominated in Renminbi. Although we consolidate the results of the VIE and its subsidiaries, we only have access to the assets or earnings of the VIE and its subsidiaries through our contractual arrangements with the VIE and its shareholders. See “Item 4. Information on the Company—C. Organizational Structure—Contractual Arrangements with the VIE and Its Shareholders.” For restrictions and limitations on liquidity and capital resources as a result of our corporate structure, see “—Holding Company Structure.” A significant majority of our net revenues have been, and we expect will likely continue to be, denominated in Renminbi. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior SAFE’s approval as long as certain routine procedural requirements are fulfilled. Therefore, our PRC subsidiaries are allowed to pay dividends in foreign currencies to us without prior SAFE’s approval by following certain routine procedural requirements. However, approval from or registration with competent government authorities is required where the Renminbi is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may at its discretion restrict access to foreign currencies for current account transactions in the future. 131 Operating activities Net cash used in operating activities in 2025 was RMB94.7 million (US$13.5 million). The difference between our net cash used in operating activities in 2025 of RMB94.7 million (US$13.5 million) and net loss of RMB92.4 million (US$13.2 million) in the same period was primarily due to certain non-cash items, primarily consisting of (i) amortization of right-of-use assets of RMB63.9 million (US$9.1 million), (ii) share-based compensation of RMB59.0 million (US$8.4 million), (iii) amortization of intangible assets of RMB49.3 million (US$7.0 million), and (iv) depreciation of property and equipment of RMB36.9 million (US$5.3 million). The adjustment for changes in operating assets and liabilities primarily consisted of (i) an increase of RMB125.1 million (US$17.9 million) in inventories, (ii) an increase of RMB89.1 million (US$12.7 million) in prepayments and other current assets, (iii) an increase of accounts payable of RMB77.3 million (US$11.1 million), and (iv) a decrease of RMB62.7 million (US$9.0 million) in lease liabilities. Net cash used in operating activities in 2024 was RMB243.7 million. The difference between our net cash used in operating activities in 2024 of RMB243.7 million and net loss of RMB710.2 million in the same period was primarily due to certain non-cash items, primarily consisting of (i) impairment of goodwill of RMB403.1 million mainly due to impairment of Eve Lom reporting unit, (ii) amortization of intangible assets of RMB112.6 million, (iii) share-based compensation of RMB91.2 million, (iv) amortization of right-of-use assets of RMB69.4 million and (v) depreciation of property and equipment of RMB38.0 million. The adjustment for changes in operating assets and liabilities primarily consisted of (i) an increase of RMB65.3 million in prepayments and other current assets, (ii) a decrease of RMB66.9 million in lease liabilities, and (iii) a decrease in accounts payable of RMB33.6 million. Net cash used in operating activities in 2023 was RMB107.4 million. The difference between our net cash used in operating activities in 2023 of RMB107.4 million and net loss of RMB750.2 million in the same period was primarily due to certain non-cash items, primarily consisting of (i) impairment of goodwill of RMB354.0 million due to impairment of Eve Lom reporting unit, (ii) amortization of right-of-use assets of RMB88.6 million, (iii) share-based compensation of RMB77.5 million, (iv) amortization of intangible assets of RMB61.0 million and (v) depreciation of property and equipment of RMB53.7 million. The adjustment for changes in operating assets and liabilities primarily consisted of (i) a decrease of RMB109.4 million in inventories, (ii) a decrease of RMB89.3 million in lease liabilities, and (iii) an increase in accrued expenses and other liabilities of RMB65.3 million. Investing activities Net cash generated from investing activities in 2025 was RMB246.8 million (US$35.3 million), primarily due to sales of short-term investments of RMB888.4 million (US$127.0 million), which was partially offset by (i) purchases of short-term investments of RMB601.9 million (US$86.1 million), and (ii) purchase of property and equipment of RMB42.1 million (US$6.0 million). Net cash generated from investing activities in 2024 was RMB592.1 million, primarily due to sales of short-term investments of RMB2.01 billion, which was partially offset by (i) purchases of short-term investments of RMB1.32 billion, (ii) purchase of property and equipment of RMB52.7 million, and (iii) investments on equity investments of RMB42.0 million mainly related to our participation as a limited partner in a venture capital fund. Net cash used in investing activities in 2023 was RMB260.5 million, primarily due to (i) purchase of short-term investments of RMB2.34 billion, (ii) investments on equity investments of RMB121.5 million mainly related to our participation as a limited partner in a venture capital fund, and (iii) purchase of property and equipment of RMB43.6 million, which was partially offset by sales of short-term investments of RMB2.22 billion. Financing activities Net cash used by financing activities in 2025 was RMB151.4 million (US$21.7 million), primarily attributable to (i) repurchase of ordinary shares of RMB111.0 million (US$15.9 million), and (ii) repurchase of redeemable non-controlling interests of RMB45.7 million (US$6.5 million). 132 Net cash used by financing activities in 2024 was RMB394.2 million, primarily attributable to repurchase of ordinary shares of RMB405.8 million. Net cash used by financing activities in 2023 was RMB342.5 million, primarily attributable to repurchase of ordinary shares of RMB212.7 million and repurchase of redeemable non-controlling interests of RMB134.7 million. Material Cash Requirements Our material cash requirements as of December 31, 2025 and any subsequent interim period primarily include our capital expenditures, capital commitment, products and services purchase commitment and operating lease commitments. Our capital expenditures are primarily incurred for purchases of property and equipment, as well as intangible assets. Our capital expenditures were RMB44.0 million in 2023, RMB57.0 million in 2024 and RMB43.8 million (US$6.3 million) in 2025. We intend to strategically deploy our capital expenditures, prioritizing investments that reinforce our core competitive advantages and support the long-term sustainable growth of our business as we execute our strategic transformation. Commitments and Obligations The following table sets forth our products and services purchase commitment and operating lease obligations as of December 31, 2025: Payment due by December 31, Total 1 Year 1-3 Years 3-5 Years Over 5 Years (RMB in thousands) Products and services purchase commitment 227,509 227,509 - - - Operating lease obligations(1) 434 434 - - - Total 227,943 227,943 - - - Note: (1)Operating lease obligations consist of the obligations under the lease agreements covering our stores and office spaces. We intend to fund our existing and future material cash requirements with our existing cash balance and proceeds and debt financing. We will continue to make cash commitments prudently, including capital expenditures, to meet the expected growth of our business. We provided financial guarantees to a joint venture for the purpose of enabling it to obtain bank loans. As of December 31, 2025, the total amount of financial guarantees provided to the joint venture was RMB97.6 million (US$14.0 million). The guarantees are typically secured by the assets of the joint venture, and we believe that the probability of having to make payments under the guarantees is remote. Nevertheless, we have assessed the associated risks and potential liabilities. We will continue to monitor the performance of the joint venture and assess the risks associated with the guarantees. Except for the guarantees provided to a joint venture, we have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. In addition, we have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or product development services with us. 133 Other than as shown above, we did not have any significant capital and other commitments, long-term obligations or guarantees as of December 31, 2025. While the above indicates our material cash requirements as of December 31, 2025, the actual amounts we are eventually required to pay may be different in the event that any agreements are renegotiated, cancelled or terminated. Holding Company Structure Yatsen Holding Limited is a holding company with no material operations of its own. We conduct our operations primarily through our PRC subsidiaries, the VIE and its subsidiaries in China. As a result, Yatsen Holding Limited’s ability to pay dividends depends upon dividends paid by our PRC subsidiaries. If our existing PRC subsidiaries or any newly formed ones incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us. In addition, our wholly foreign-owned subsidiaries in China are permitted to pay dividends to us only out of its retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Under PRC law, each of our subsidiaries and the VIE in China is required to set aside at least 10% of its after-tax profits each year, if any, to fund certain statutory reserve funds until such reserve funds reach 50% of their registered capital. The statutory reserve funds and the discretionary funds are not distributable as cash dividends. Remittance of dividends by a wholly foreign-owned company out of China is subject to examination by the banks designated by the SAFE. Our PRC subsidiaries have not paid dividends and will not be able to pay dividends until they generate accumulated profits and meet the requirements for statutory reserve funds. C.Research and Development, Patents and Licenses, etc. See “Item 4. Information On the Company—B. Business Overview—Data and Technology,” “—Data Security and Privacy” and “—Trademark and Intellectual Property.” D.Trend Information Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the period from January 1, 2026 that are reasonably likely to have a material effect on our revenues, income from continuing operations, profitability, liquidity or capital resources, or that would cause reported financial information not necessarily to be indicative of future operating results or financial condition. E.Critical Accounting Estimates Our discussion and analysis of our financial condition and results of operations relates to our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. On an on-going basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Since our financial reporting process inherently relies on the use of estimates and assumptions, our actual results could differ from what we expect. We consider an accounting estimate to be critical if: (i) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (ii) changes in the estimate that are reasonably likely to occur from period to period or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations. There are other items within our financial statements that require estimation but are not deemed critical, as defined above. Changes in estimates used in these and other items could have a material impact on our financial statements. For a detailed discussion of our significant accounting policies and related judgments, see Note 2 of the Notes to the Consolidated Financial Statements. Inventory Valuation We carry inventory on our balance sheet at the estimated lower of cost or market. Cost is determined by the weighted average method for our inventories. We carry obsolete, damaged and excess inventory at the net realizable value, which we determine by assessing historical recovery rates, current market conditions and our future marketing and sales plans. Because our assessment of net realizable value is made at a point in time, there are inherent 134 uncertainties related to our value determination. Market factors and other conditions underlying the net realizable value may change, resulting in further reserve requirements. A reduction in the carrying amount of an inventory item from cost to market value creates a new cost basis for the item that cannot be reversed at a later period. While we believe that adequate write-downs for inventory obsolescence have been provided in the consolidated financial statements, consumer tastes and preferences will continue to change and we could experience additional inventory write-downs in the future. Rebates, discounts and other cash consideration received from a vendor related to inventory purchases are reflected as reductions in the cost of the related inventory item, and are therefore reflected in the “Cost of Revenues” line in our Consolidated Statements of Operations when the related inventory item is sold. See Note 6 of the Notes to the Consolidated Financial Statements for information regarding inventory. 135