Here Group Limited (HERE) Q1 2026 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The company's earnings call highlights strong financial performance, with a 93.3% increase in revenue and improved gross margins. While there are concerns about the net loss increase, the narrowing adjusted net loss and strong cash position are positive. The Q&A indicates confidence in revenue targets and profitability, despite some unclear responses. The focus on IP operations and international market expansion also supports a positive outlook. Given these factors, the stock is likely to see a positive movement in the short term, potentially between 2% to 8%.

Key Financial Performance

Total Revenue RMB 127.1 million, with a 93.3% quarter-over-quarter increase from RMB 65.8 million. The increase is attributed to the disposal of non-pop toy businesses and a focus on the high-growth pop toy segment.

Gross Margin 41.2%, up from 34.7% in the previous quarter. The improvement reflects the strength of the pop toy business model.

Adjusted Net Loss from Continuing Operations RMB 17.1 million, narrowed from RMB 19.3 million in the previous quarter. This improvement is due to the strategic business restructuring and focus on the pop toy segment.

Gross Profit RMB 52.4 million, compared to RMB 22.8 million in the previous quarter. The increase is driven by higher revenue and improved gross margins.

Sales and Marketing Expenses RMB 27.6 million, decreased as a percentage of total revenue to 21.7% from 29% in the previous quarter. The reduction is due to efficient advertising and promotion costs.

Research and Development Expenses RMB 15.8 million, decreased as a percentage of total revenue to 12.5% from 13.5% in the previous quarter. The decrease is attributed to focused investments in new product design and infrastructure.

General and Administrative Expenses RMB 38.1 million, decreased as a percentage of total revenue to 23.2% from 26.3% in the previous quarter. The reduction is due to efficient operational management.

Net Loss from Continuing Operations RMB 25.8 million, compared with RMB 21.8 million in the previous quarter. The increase is due to operational expenses despite higher revenue.

Cash and Cash Equivalents RMB 789.4 million as of September 30, 2025, reflecting a strong balance sheet and financial stability.

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Operating Highlights

Revenue from pop toy business: Achieved RMB 127.1 million in Q1 FY26, growing 93.3% quarter-over-quarter from RMB 65.8 million.

New product launch: Introduced WAKUKU On a Roll Series on November 29th, integrating lifestyle elements and multimedia experiences to enhance cultural resonance.

International market expansion: Expanded distribution network to 20 countries, including North America, Europe, Southeast Asia, and the Middle East. Achieved strong performance on TikTok Shop in North America.

Domestic market growth: Opened pop-up stores in high-traffic locations in Shanghai, Beijing, and Shenzhen, generating over RMB 3 million in sales. Planned new DTC stores in Beijing and Chongqing.

Gross margin improvement: Increased gross margin to 41.2% in Q1 FY26 from 34.7% in the previous quarter.

Operational expenses: Sales and marketing expenses decreased to 21.7% of revenue, R&D expenses to 12.5%, and G&A expenses to 23.2%, reflecting improved cost efficiency.

Focus on pop toy business: Completed disposal of non-pop toy businesses, enabling a pure-play strategy in the global pop toy market.

IP ecosystem development: Strengthened IP portfolio through proprietary IP creation, strategic partnerships, and cross-industry co-branding, including collaborations with Beijing Radio and Television Station and the China Open.

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Risk or Challenges

Market Conditions: The company faces challenges in scaling its international operations, particularly in enhancing sales performance in overseas markets despite having an established distribution network in 20 countries.

Competitive Pressures: The company operates in a highly competitive global pop toy market, requiring continuous innovation and strategic partnerships to maintain its market position.

Regulatory Hurdles: No explicit regulatory challenges were mentioned in the transcript.

Supply Chain Disruptions: The company is focusing on improving supply chain capabilities to support international expansion, indicating potential risks if these improvements are not achieved.

Economic Uncertainties: No explicit mention of economic uncertainties impacting the company was made in the transcript.

Strategic Execution Risks: The company is heavily reliant on its two-pillar growth strategy and IP ecosystem development. Any failure in executing these strategies could adversely impact its operations and financial performance.

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Guidance & Outlook

Revenue Projections: The company expects revenues from its pop toy business to be in the range of RMB 150 million to RMB 160 million for the second quarter of fiscal year 2026, and in the range of RMB 750 million to RMB 800 million for the full fiscal year 2026.

Market Expansion: The company plans to enhance sales performance in international markets, leveraging its established distribution network across 20 countries, including North America, Europe, Southeast Asia, and the Middle East. The focus will be on scaling geographic footprint efficiently while minimizing fixed infrastructure investments.

New Store Openings: The company will open its first Beijing DTC store and first Chongqing DTC store in December 2025, with two additional DTC stores in Beijing set to open in early 2026.

Product Launches: The company will align its future DTC development strategy with sales planning, new product launch schedules, and other operational activities.

Operational Strategy: The company is in acceleration mode with a pure-play pop toy strategy, a formalized two-pillar execution plan, agile supply chain capability, and a strengthened balance sheet to capture the global pop toy market opportunity.

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Shareholder Return Plan

The selected topic was not discussed during the call.

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Key Q&A

Q:What is the breakdown of confidence in achieving the second half revenue target of RMB 500 million, and do you expect to turn profitable in the second half?

A:The revenue forecast is based on product launch timelines, production capacity arrangements, current inventory, and customer orders. Production capacity is expected to reach 400,000 sets per month by year-end, avoiding supply chain shortages. Losses are narrowing, and fixed costs are being optimized. Sales expenses are expected to fluctuate around 20% of revenue, with a focus on balancing profitability and growth.

Q:What is the impact on Labubu revenue momentum?

A:Labubu IP operations have shown strong performance and rapid growth. The pop toy market is growing at a CAGR of over 18% in the next 5 years. The company will prioritize IP operations, new product launches, and brand building. WAKUKU products have sold over 6 million units, and new launches are receiving positive feedback.

Q:What are the updates on DTC stores and the future opening pipeline in 2026?

A:The first batch of DTC stores will open between late December this year and early January 2026. These stores will serve as immersive brand experience centers and hubs for offline community engagement. Expansion will follow a prudent strategy, validating profitability and brand impact before replication.

Q:What is the strategy for the overseas market?

A:The overseas market is a focus, with efforts starting this quarter. The company is increasing production capacity and collaborating with key accounts and distribution partners. Online platforms like TikTok in North America and Southeast Asia are being developed. While domestic sales remain the majority, overseas growth is expected to accelerate.

Q:What is the revenue structure breakdown by IP this year, and what are the drivers from new IPs next year?

A:In this quarter, WAKUKU accounted for 71% of revenue, ZIYULI for 16%, and SIINONO for 10%. The company will focus on top IPs like WAKUKU, ZIYULI, and SIINONO while incubating new IPs. The strategy includes refreshing established IPs and testing new concepts to create a diversified IP ecosystem.

Q:Review of Unclear Management Responses

A:Management avoided providing specific details on the profitability timeline for the second half and the exact sales value expectations for DTC stores. Additionally, the response on overseas market strategy lacked clarity on specific growth targets or timelines.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

HERE Transcript

Here Group Limited (HERE) Q1 2026 Earnings Call Transcript

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