Wearable fitness tech company Zepp Health Corp. reported revenues fell to $40.6 million for the 2024 second quarter of 2024, a decrease of 56.0 percent from the second quarter of 2023. The decrease was said to be primarily due to the decrease in the sales of Xiaomi wearable and self-branded products, as the launch of new self-branded products is more heavily weighted towards the second half of 2024.

Still, compared with the first quarter of 2024, revenue increased sequentially by 1.7 percent quarter-over-quarter, primarily driven by the increase in self-branded product sales, which more than offset the decline in the sales of Xiaomi wearable products.

Total units shipped in the second quarter of 2024 decreased by 65.8 percent year-over-year to 1.3 million, compared with 3.8 million in the second quarter of 2023.

Starting in the second quarter of 2024, the company said it has changed its reporting currency from the Chinese renminbi (RMB ) to the U.S. dollar ($) to reduce the impact of increased exchange rate volatility on its reported operating results.

Zeepp said when reporting Q2 results that since the company’s self-branded product sales are more heavily exposed to U.S. dollar or quasi-U.S. dollar-denominated markets, changing the reporting currency to the U.S. dollar will more accurately reflect the company’s performance and underlying nature of its operations. Prior period numbers have been recast into the new reporting currency accordingly.

“Our second quarter performance aligned with our guidance, highlighted by a sequential increase in self-branded product sales and the achievement of a historically high gross margin. Despite a year-over-year decline in revenue, we are confident that the most challenging phase of our transformation has now been successfully navigated,” commented Wang ‘Wayne’ Huang, chairman and CEO of Zepp Health Corporation.

Income Statement Summary
Gross margin in the second quarter of 2024 was 40.3 percent of sales, compared to 22.0 percent in the 2023 Q2 period.

“We reached another record-high quarterly gross margin since the third quarter of 2023, supported by the strong performance of our self-branded products and a more favorable product mix, with a higher proportion of new products and a reduction in clearance sales, which typically have lower margins,” the company said in its report.

“In the second quarter, our self-branded product sales increased by 6 percent sequentially, while gross margin reached 40 percent, continuing the quarter-over-quarter expansion that began in the third quarter of 2023. This marks the highest gross margin in the company’s history,” noted Leon Deng, CFO of Zepp Health Corp.

“This improvement was largely driven by the higher gross margin of self-branded products, thanks to a greater proportion of new products and a more selective approach to inventory clearance. We expect this positive gross margin trend to persist into the second half of the year. It is important to reiterate our strategy of prioritizing profitability and leveraging self-branded revenue to sustain the overall performance of the company. Our net loss for the first half of 2024 narrowed year-over-year despite a decrease in sales. With the new product launches planned for the second half of 2024, we are confident in a recovery of profitability growth momentum. In addition, our cash balance remained steady at approximately USD129 million, with inventory levels reaching their lowest point since the first quarter of 2023. We will continue executing our share repurchase program to demonstrate our confidence in Zepp’s corporate strategy,” Deng continued.

Research & Development expenses in the second quarter were $10.8 million, a decrease of 15.3 percent year-over-year. This accounted for 26.6 percent of revenues, compared to 13.8 percent for the same period in 2023. The decrease in research and development expenses was said to be a result of the company’s “refined research and development approaches,” as it consistently evaluated resource efficiency to ensure maximum return on investment and productivity.

“We are committed to investing in new technologies, including AI, to maintain our competitive edge against our peers,” the company said.

Selling & Marketing expenses were $10.6 million in Q2, a slight 3.3 percent increase year-over-year. This accounted for 26.0 percent of revenues, compared to 11.0 percent for the same period in 2023. The increase was primarily due to the investment in marketing campaigns during the summer sports season to boost brand awareness. At the same time, the company said it consistently pushed on retail profitability and channel mix improvement, which included meticulous refinement of its retail channels and strategic staffing arrangements across sales regions.

General & Administrative expenses were $4.9 million in the second quarter of 2024, a decrease of 37.2 percent year-over-year. This accounted for 11.9 percent of revenues, compared with 8.3 percent in the comparable 2023 period. The decrease in absolute value was said to be mainly attributable to our personnel optimization initiative and strict administrative expense control.

Total operating expenses for the second quarter were $26.2 million, a decrease of 14.6 percent year-over-year. Adjusted operating expenses, which exclude share-based compensation, were $25.3 million.

“We will maintain our cost-conscious approach in the upcoming quarters. We expect our operating expenses to either remain at current levels or decrease further. Concurrently, we remain committed to investing in R&D and marketing activities to ensure our long-term competitiveness,” Zepp noted.

The company’s operating loss for the Q2 period amounted to $9.9 million, compared to $10.4 million for the second quarter of 2023. Adjusted operating loss for the second quarter of 2024 was $9.0 million, compared to $8.8 million for the second quarter of 2023. The operating loss was mainly due to the improved gross margin of self-branded products and reduced operating expenses.

Net loss attributable to Zepp Health Corporation for the second quarter of 2024 was $10.8 million, compared to $10.0 million in the second quarter of 2023.

Adjusted net loss attributable to Zepp Health Corporation, which excludes share-based compensation expenses attributable to Zepp Health Corporation, was $9.9 million, compared to $8.5 million in the second quarter of 2023.

Net loss and adjusted net loss attributable to Zepp Health Corporation for the first half of 2024 were $25.6 million and $22.4 million, respectively, which represent improvements over $30.0 million and $24.9 million in the first half of 2023.

Wang added, “We recently launched Zepp OS 4, a major leap in wearable tech by integrating OpenAI’s GPT-4, making Amazfit smartwatches more effective wellness companions. As we gear up for IFA in Berlin, we’re excited to unveil the T-Rex 3 outdoor smartwatch with our custom-designed chips and new Open Wearable Stereo (OWS) earbuds. This integration of smartwatches, rings, and OWS headphones has created a seamless user experience loop, giving us a competitive edge and positioning us for growth. Additionally, our R&D team has made significant AI breakthroughs, and we plan to release new AI hardware within six months, marking a new chapter in wearable technology.

“These efforts are part of our broader strategy to increase global visibility of our brand and products. By aligning with prominent athletes and sports events, we continue to build a strong, recognizable brand identity and create meaningful connections with consumers worldwide. Through these brand and market investments, we have solidified our presence in major populous countries such as China, India, and Brazil. Additionally, we achieved a breakthrough in Germany, deepened our partnership with Decathlon in France, and steadily improved our global gross margin. We believe our growth momentum will continue into the second half of the year,” continued Wang.

Outlook
For the third quarter of 2024, the company’s management currently expects net revenues to be between $45 million and $60 million, representing a growth of 18 percent to 59 percent for revenue of self-branded products compared with the second quarter of 2024.

Image courtesy Zepp, shown Zepp OS 4