Here Group Limited (HERE) Q2 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents a mixed picture. Financial performance shows revenue growth but declining margins and increased expenses. The Q&A highlights concerns about reliance on a single IP and supply chain risks. However, the partnership with Enlight Media and proactive IP strategies offer potential positives. The lack of specific guidance and expected revenue decline next quarter are negatives. Overall, these factors balance out to a neutral sentiment.
Key Financial Performance
Total Revenue RMB 177.3 million, representing a 39.4% increase from the previous quarter. This growth was primarily driven by offline channel sales.
Gross Profit RMB 55 million with a gross margin of 31%, compared to a gross margin of 41% in the previous quarter. The decline in margin reflects the strategic expansion of offline channels, which generated lower per unit margins than direct online sales.
Adjusted Net Loss from Continuing Operations RMB 16.1 million, down from RMB 17.1 million in the previous quarter. This reflects growing traction of pop toy products and operating leverage.
Sales and Marketing Expenses RMB 52.8 million, representing 29.6% of total revenue, up from 21.7% in the previous quarter. This increase was due to advertising, promotion expenses, and staff compensation to support brand building and customer acquisition.
Research and Development Expenses RMB 9.1 million, representing 5.1% of total revenue, down from 12.5% in the previous quarter. This decrease reflects reduced IP design and product development expenses.
General and Administrative Expenses RMB 31.3 million, representing 12.7% of total revenue, down from 23.2% in the previous quarter. This decrease reflects improved operational efficiency.
Net Loss from Continuing Operations RMB 25.4 million, compared to RMB 25.8 million in the previous quarter. This reflects a slight improvement in financial performance.
Accounts Receivable RMB 32.6 million as of December 31, 2025, decreased compared to September 30, 2025. This improvement reflects enhanced customer engagement management and strengthened collections discipline.
Inventories RMB 111.8 million as of December 31, 2025, representing a significant increase from the prior quarter. This was driven by enhanced supply chain capacity and inventory build in anticipation of Chinese New Year factory closures and new product launches.
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Operating Highlights
Revenue from flagship IP WAKUKU: Generated RMB 129.4 million, accounting for 73% of Q2 revenue.
Revenue from new IP SIINONO: Generated RMB 19.2 million in Q2, demonstrating successful conversion of consumers.
New product launches: WAKUKU On A Roll series achieved RMB 18 million in omnichannel sales within one week. SIINONO's Whispers of 'Ta' series achieved RMB 11 million in omnichannel sales within a week.
Offline channel expansion: Opened 5 D2C stores in Beijing, Shenzhen, and Chongqing, with 2 more in preparation. Shenzhen Upperhills flagship store generated RMB 250,000 in same-day sales.
International strategy: Promoting overseas export sales through domestic distribution partners and seeking local overseas partners for collaborations.
Operational system optimization: Refined core systems covering IP portfolio health, product appeal, supply chain efficiency, channel effectiveness, and user engagement.
Supply chain capacity: Production capacity increased to 50x compared to early 2025.
Cost structure improvement: Achieved a leaner and more focused team and cost structure compared to Q1.
IP ecosystem development: Expanded to 18 IPs, including proprietary and licensed IPs. Established end-to-end mechanisms for IP planning, production, and promotion.
Omnichannel strategy: Enhanced online visibility and offline user experiences to deepen IP-user connections.
AI and smart sales terminals: Innovating with intelligent sales robots for offline user interaction.
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Risk or Challenges
Gross Margin Decline: The gross margin decreased from 41% in the previous quarter to 31% this quarter. This decline is attributed to the strategic expansion of offline channels, which generate lower per-unit margins compared to direct online sales.
Increased Operating Expenses: Total operating expenses for the quarter were RMB 93.2 million, with sales and marketing expenses increasing to 29.6% of total revenue from 21.7% in the previous quarter. This rise reflects higher advertising, promotion, and staff compensation costs.
Inventory Build-Up: Inventories increased significantly to RMB 111.8 million, driven by enhanced supply chain capacity and proactive inventory build-up in anticipation of Chinese New Year factory closures and new product launches. This could lead to potential risks of overstocking or inventory obsolescence.
Accounts Receivable Management: Accounts receivable amounted to RMB 32.6 million, reflecting revenue from offline channel sales. While there was an improvement in collections discipline, the reliance on offline channels could pose risks related to delayed payments or bad debts.
Net Loss: The company reported a net loss from continuing operations of RMB 25.4 million, indicating ongoing financial challenges despite revenue growth.
Dependence on Flagship IPs: A significant portion of revenue (73%) is derived from the flagship IP WAKUKU. Over-reliance on a single IP could pose risks if its popularity declines or if competitors introduce more appealing alternatives.
Supply Chain Risks: While production capacity has increased significantly, there is a risk of over-reliance on supply chain efficiency. Any disruptions could impact the company's ability to meet demand.
International Expansion Challenges: The company is actively seeking overseas partners and promoting export sales. However, entering international markets involves risks such as regulatory compliance, cultural differences, and competition.
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Guidance & Outlook
Revenue Projections: The company expects revenue from its pop toy business to be in the range of RMB 140 million to RMB 150 million for the third quarter of fiscal year 2026 and in the range of RMB 750 million to RMB 800 million for the full fiscal year of 2026.
Market Expansion: The company is actively seeking local overseas partners for IP and product sales collaborations, with a focus on promoting overseas export sales as supply chain capabilities improve.
Operational Efficiency: The company is building an integrated operational system and refining its cost structure to maintain a leaner and more focused team, which is expected to be a crucial competitive advantage.
Capital Allocation: The company plans to continue investing in high-potential IP development, strategic market expansion, and live content initiatives to systematically build cultural assets based on IP.
Supply Chain Capacity: Production capacity has increased to approximately 50 times what it was at the beginning of 2025, providing a solid foundation for creating new products in 2026.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:The revenue guidance for the third quarter suggests a quarter-over-quarter decline of about 15% to 20%. Is it primarily due to seasonality or adjustments due to the IP launch schedule?
A:The decline is attributed to seasonality and proactive management for future growth. Seasonal factors include distributors slowing operations during the spring festival holiday. The IP launch schedule is part of an annual plan with products planned 3-6 months in advance. Major new products are expected to launch starting from the end of March, marking a proactive approach to optimize inventory and channel pace.
Q:What does the partnership with Enlight Media entail, and will it involve content creation and IP development?
A:The partnership with Enlight Media is part of the company's IP strategy to enhance IPs through content forms. The joint venture aims to explore possibilities in film, television content, and derivative development. The company focuses on creating cultural meaning and emotional connections for its IPs. Specific future plans will be disclosed when substantial progress is made.
Q:Are there any new strategies for IP operation and marketing this year?
A:The company is upgrading its IP operations and marketing strategy to a systematic IP factory. This includes building a replicable assembly line for IPs, developing an omnichannel marketing methodology, and empowering IPs with light content. The goal is to create enduring evergreen IPs by integrating product excellence, operations, content, and branding.
Q:How is the performance of the recent offline stores, and what is the channel expansion plan for 2026?
A:The newly opened offline stores have met or slightly exceeded expectations, achieving nearly breakeven results in their initial phase. The stores serve as brand landmarks and user touchpoints, with a focus on fostering deep interaction between IPs and users. A user operation center has been established to integrate online and offline data. The channel expansion plan for 2026 was not detailed.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details about the channel expansion plan for 2026, stating only general strategic goals without concrete data or timelines.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI era
Beijing Gulou
Chongqing date
DC stall
DC store
Eve exhibition
Gulou Tianjin
IP connection
IP consumer
IP efficiency
IP influence
IP journey
IP model
IP momentum
IP planning
IP user
IPs brand
IPs product
IPs success
IPs user
Lukfook jewelry
Manager Investor
Ms Manager
New Eve
Pillar
brand user
connection IP
culture tourism
distributor channel
ground
hand
health
interaction experience
omnichannel sale
peak user
product appeal
sale week
success IP
user interaction
HERE Transcript
Here Group Limited (HERE) Q2 2026 Earnings Call Transcript
Unknown3-12
The earnings call presents a mixed picture. Financial performance shows revenue growth but declining margins and increased expenses. The Q&A highlights concerns about reliance on a single IP and supply chain risks. However, the partnership with Enlight Media and proactive IP strategies offer potential positives. The lack of specific guidance and expected revenue decline next quarter are negatives. Overall, these factors balance out to a neutral sentiment.
Here Group Limited (HERE) Q1 2026 Earnings Call Transcript
Positive12-3
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%.
Frequently Asked Questions
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Who creates the AI Summary and Key Q&A highlights shown above the transcript?
They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
