Here Group Ltd (HERE) 2026 Q1 法說會逐字稿

Good morning and good evening, ladies and gentlemen. Thank you for standing by, and welcome to Here’s earnings conference call. (Operator Instructions) Please note that today'sevent is being recorded.

I will now turn the conference over to Ms. Leah Guo, Investor Relations Associate Director of the company. Please go ahead, Ma’am.

Thank you. Hello, everyone, and welcome to Here’s earnings call for the first-quarter of fiscal year 2026. With us today are Mr. Peng Li, our Founder, Chairman and CEO; and Mr. Tim Xie, our CFO. Mr. Li will provide a business overview for the quarter, then Tim will discuss the financials in more details. Following their prepared remarks, Mr. Li and Tim will be available for the Q&A session.

I will translate for Mr. Li. You can refer to our quarterly financial results on our IR website at ir.heregroup.com. You can also access a replay of this call on our IR website when it becomes available a few hours after its conclusion.

Before we continue, I would like to refer you to our Safe Harbor statement in our earnings press release, which also applies to this call, as we will be making forward-looking statements. Please note that all numbers stated in the following management’s prepared remarks are in RMB terms, and we will discuss non-GAAP measures today, which are more thoroughly explained and reconciled to the most comparable measures reported in our earnings release and filings with the SEC.

I will now turn the call over to the CEO and founder of Here, Mr. Li

Good morning, everyone, and thank you for joining us today for our first quarter of FY26 earnings call. This is a historic moment -- our first earnings call as Here Group following our business restructuring, which positions us as a pure-play player in the global pop toy market. (technical difficulty)

Today, I am proud to report that our first quarter as a fully focused organization has been one of strong execution and accelerating momentum. We have completed the disposal of our non-pop toy businesses by September 30, 2025, allowing us to concentrate all our talent and resources on the immense global pop toy opportunity ahead.

In Q1 they deliver the total revenue of RMB127.1 million, with our pop toy business growing -- (technical difficulty) -- with our pop toy business growing 93.3% quarter-over-quarter from RMB65.8 million, exceeding the higher end of our previous guidance - RMB110 million.

Let me highlight our most impressive operational metric, which demonstrates the power of our focused strategy. Our total GMV across direct-to-customer -- (technical difficulty) reached RMB44.6 million this quarter. Fiscal year '26 Q1 has validated our capability to develop DTC operations, and our future DTC development strategy will align with our sales planning, new product launch schedules, and other operational activities.

This operational momentum, along with contributions from our diversified (technical difficulty) sales channels, translates directly to strong financial performance. Our sharpened focus is also driving improved profitability, with gross margins expanding to 41.2%, up from 34.7% in the (technical difficulty). We ended the quarter with a solid balance sheet and strong asset base, reflecting our financial stability and operational strength.

Now, let me walk you through how we're executing -- our two-pillar growth strategy and the tangible results (technical difficulty). Our first pillar focuses on strengthening our IP ecosystem with a balanced portfolio. This strategy is delivering results across original proprietary IP creation, strategic partnerships of licensed, and cross-industry (technical difficulty) branding.

A key element of this approach is concentrating resources on our flagship IP properties to maximize their market impact and cultural resonance. For WAKUKU - we launched WAKUKU On a Roll Series on November 29. This new series brings collectibles into real-life scenarios, building emotional connections with young consumers who view these pieces as daily companions and personal symbols rather than just toys.

By integrating lucky numbers into lifestyle contexts and offering versatile sizing, we transform youth interaction with collectibles into spontaneous social sharing moments. Every design element (technical difficulty) from trending colors to premium -- like interchangeable silky cat head hats -- makes luck a tangible daily experience.

The launch was further enhanced by an original song and music video, creating a multimedia experience that extends the IP's cultural reach beyond physical products. Our operational excellence demonstrates this strategy in action. WAKUKU Street became one of Shanghai's most popular photography destinations in November, attracting young people and social media creators who generate diverse content through street photography and collection showcases.

This capability -- turning IP launches into cultural phenomena that drive organic community engagement proves our ability to create compelling characters that naturally embed into young people's lives, becoming authentic expressions of personality and catalysts for cultural moments that extend beyond traditional product boundaries.

Our flagship IPs, continue to be powerful growth engine.

Which recently launches achieving record-breaking promises.

Particular And, this market show our systematic development capability and our ability to create emotionally, resonant characters with compounding, narratives.

Looking ahead, we remain committed to adding value to ours and the newly launched.

Let me share our strategic partnerships that, extending our cultural influence.

To formally, establish a strategic partnership with Beijing radio and the television station.

The partnership, covers depends and the cultural project, cooperation, mechanism.

Including program co-creation, IP integration, and the core from.

Intense production, this deep integration with, mainstream media depends our from, gray ability and the late, the foundation of.

National and any partnerships.

Our pop par He participated in the official Golden Rooster Award, activities including the Starry Sea gift set, that, visual element, and, outside integra to creativity. It's only one of the samples of.

New culture at this year's, film.

This collaboration is achieved.

Connections with China's stream.

Entertainment industry.

Our industry co-branding strategy is elevating our branding to new customer segments through, develop partnerships across the entertainment media.

And proper development.

In the sports sector we achieved a long time milestone as the first official to from China in China Open history.

Creating value across, three key areas. From a media, perspective, we generated over 200 million, exposures and.

Become a car, Toyota 7.

In terms of, isolating engagements we secure actually as auto take integration and, organic endorsement from global.

Layers including the most number one translate.

All.

Celebrityal now demand on the commercial side our, some.

So generation of video is out.

With, multiple limited edition, patterns selling out immediately of our release this, success, demonstrates the effectiveness of our homecoming, premium, sports events model, creating, simulate, connection from.

On the awareness to capture sales conversions in the entertainment sector we will secure the highest profile, celebrates that expand our reach into mainstream, pop culture.

We need to, collaborated with the various show PD that the Google to me by.

Integrating our problem is China into landscape.

This, partnership demonstrates our ability to, similarly, seamlessly, blend, pop up, pop, culture with the live stream television programs reaching, diverse, demographics.

We also partnered with the local service government office to create IP of street featuring installation integralactive scenarios.

Immersive photo opportunities in the core Beijing landmark commercial district. This project increased the both, traffic and the help.

We very talent like the area for younger audience.

Providing us exact colors for our ability the renewal plus comp scenario operations and spread.

This this collaboration is, showcase our sci sci in, cross industry partnership from premium sports, tourism tournaments to domestic For reality shows that the urban commercial districts each, designed to introduce, IT to new audience, well, strengthening, threatening, from, that the.

Definition, across, different consumer this time piece that, creates the foundation of our second pillar our Channel approach which act like 5.

But this, compelling, browsing across multiple platforms to travel with efficient growth, both, domestically and, internationally.

In China I was electric speed.

Delivering ex ex exceptional.

Our combined powers, based across key platforms have reached 26.5 thousand we have generated. 679 and 171 million views on the week and 131 million views on red notes, demonstrating that to which this is working, directly without without the infection now they will be raising, 97.2% for.

Of that we are continuing to start our plan to see stock which so for us to believe and the groundle experiences to showcase our product and strengthen from uhre research in key markets.

Our, so far stores have, generated over every 3 minutes in, cumulative, self, and we have secured frame, locations.

We are, which are all high traffic, locations in top tier shopping districts including Shanghai, Beijing, and Shenzhen or more, direct to customer channel.

Our first Beijing C2C store and our first Chongqing T2C store will open in December.

Two additional B2C stores, in Beijing are set to open in early 2026. In addition, we have also, launched the business and the New Year, some pop-up stores after the, holiday shopping all the time in Shanghai the tradition.

We, participated in high profile events including the, 2025, China International Fair of, Trade in Services, significantly boosting ground, visibility and generating qua qualified leads for our wholesale.

Internationally, our momentum is, reaching across key markets.

Our performance on TikTok shop in North America and suggestions.

As a top player in A flexible factory, a standout success was serious.

Well, our overseas distribution network now, covers around 20 countries including North America, Europe, Southeast Asia, the Middle East, with the established the In the press.

Structure in place we are now beginning to focus on enhancing the sales performance in this market and our supply chain, capacities continue to improve and our partnerships to be overseas.

Distributor system, this foundation allows us to rapidly.

Geographic, points, while minimizing, fixed, infrastructure.

Infra fra structure investments and leverage our customers, establish the retail, relationship that.

My page is Expertise to achieve efficient market to.

Underpinning, our creative and, commercial success is our intebrated operational system, which represents the, true, competitive advantage.

Well, we are no longer in the final position we are in, accelebration mode, it's a pure play of our strategy, found that the two pillar, like description like, I do like, chain.

And the sentence balance sheet we are now positioned to capture the the massive global popularity and deliver.

Long-term value to our shareholders.

This result is quarter, validate our strategic choices our front.

Resonating with consumers, our channels are scaling efficiently and our officials.

It's shooting, flawless.

We have the momentum, the capabilities as a result is to become a, defending global player in the poop poo in industry.

I will now turn it over to you, for it's not review.

Thank you, everyone.

That's all.

Hello.

Thank you.

Before I go into the details of our financial results, please note that all amounts are in RMB terms, that the reporting period is the first quarter of our fiscal year 2026, ending on September 30, 2025, and that in addition to GAAP measures, we'll also be discussing non-GAAP measures to provide greater clarity on the trends in our actual operations.

We are pleased to report on solid financial performance this quarter, which demonstrates the successful execution of our strategic transformation into a product-driven pop toy company.

Total revenue reached RMB127.1 million with a gross margin of 41.2%, compared with total revenue of RMB65.8 million with a gross margin of 34.7% in the previous quarter.

Addresting net loss from continuing operations narrowed to RMB17.1 million, down from RMB19.3 million in the previous quarter.

These results reflect the success of our strategic business restructuring and the disposal of our non-pop toy businesses, allowing us to focus entirely on our high growth pop toy segment.

Revenues for the quarter were RMB127.1 million, entirely generated from the sales of pop toys and the related activities, compared to RMB65.8 million in the previous quarter.

Gross profit for the quarter was RMB52.4 million, compared to RMB22.8 million in the previous quarter.

Our gross margin increased to 41.2% this quarter from 34.7% in the previous quarter, reflecting the strengths of our pop toy business model.

On the operational front, total operating expenses were RMB81.6 million for this quarter. To break this down, sales and marketing expenses were RMB27.6 million. These expenses mainly included advertising and promotion costs aimed at enhancing product and brand visibility to accelerate growth and expand market share.

As a percentage of total revenue, non-GAAP sales and marketing expenses, which exclude share-based compensation, decreased to 21.7% this quarter from 29% in the previous quarter.

Research and development expenses were RMB15.8 million. These expenses were mainly focused on advancing our pop toy portfolio through new product design innovation and establishing our integrated sales platform and data center infrastructure.

These investments create a solid operational foundation to support future business expansion.

As a percentage of total revenue, non-GAAP research and development expenses, which exclude share-based compensation, decreased to 12.5% this quarter from 13.5% in the previous quarter.

General and administrative expenses were RMB38.1 million. This costs reflected our operational functions, including employee compensation, professional service fees, and other operational expenditures.

As a percentage of total revenue, non-GAAP general and administrative expenses, which exclude share-based compensation, decreased to 23.2% this quarter from 26.3% in the previous quarter.

Our net loss from continuing operations was RMB25.8 million, compared with RMB21.8 million in the previous quarter.

Our adjusted net loss from continuing operations was RMB17.1 million compared with RMB19.3 million in this previous quarter.

Basic and diluted net loss from continuing operations per share was RMB0.16 during this quarter. Basic and diluted adjusted net loss from continuing operations per share was RMB0.11 during this quarter.

Regarding our balance sheet position, as of September 30, 2025, we held RMB789.4 million in cash and cash equivalents, restrict cash and short-term investments. Looking ahead, we're excited about the growth prospects for our pop-tal business. Based on currently available information.

We expect revenues from our pop toy business to be in the range of RMB150 million to RMB160 million for the second quarter of fiscal year 2026, and in the range of RMB750 million to RMB800 million for the full fiscal year 2026.

These forecasts reflect our confidence in the pop toy market opportunity and our ability to scale our IP portfolio and expand internationally. That concludes my prepared remarks. Operator, let's open up the call for questions.

Thank you.

Thank you. We will now begin the question-and-answer session.

(Operator Instructions)

And when asking your question, when asking a question in Chinese, please translate your question in English for the convenience of everyone on the call. Please ask one question at a time.

And our first question today will come from Alice Kaay with city. Please go ahead.

Good evening management team, and thanks for taking my question. I have two questions, and the first one, based on the second quarter guidance implied that the first half revenue is around, RMB280 million, right? So to hit the full year target of, RMB800 million, second half revenue needs to reach at least, RMB500 million. Which is nearly double first half. What is the specific breakdown of this confidence, and is this, cost driven by capacity, secure orders from retailers, or is it based on projected sales through of new launches, new IP launches, I mean, and do we expect to turn profitable in the second half, given the strong revenue guidance?

My second question It's about the implication on on the la momentum. Do we expect is there any impact.

On our revenue momentum thanks.

Okay, thank you for your question, Alice. For the first one, regarding the guidance, the revenue forecast is primarily based on the following points, the timeline and pace of the product launches for different IPs.

And corresponding production cap capacity arrangements as well as the current production capacity and the inventory situation.

It also takes into account the order, from our customers' allocation and arrangements for the channel partners and self-operated online platform and DTC channels.

Currently our production capacity is expected to reach approximately 400,000 sets per month, equivalent to 2.4 million units. In the near future, I think maybe by the end of this year, which will help avoid severe supply chain shortages such as, the first half year, from recurring. At the same time, based on the order situation for new products in the latest months, the subsequent product launch plans, and the order placements from various channel partners. Our projections can generally support the overall revenue guidance range for the fiscal year ending June 2026.

I think the core of our business lies in balancing IP operations and sales scale with the focus and priority on continuously extending and enriching the emotional value that the IP products bring to our users while achieving sales growth.

We are striving to continuously realize and optimize this objective.

Regarding the bottom line, I think the losses, especially the adjusted losses excluding the share base payment expenses, is, it's narrowing, and also the losses incurred in the fourth quarter were primarily due to the short-term, business adjustment, for the business restructuring, because the existing fees, cost structure and ex cost and expenses, structure.

Including the fixed cost remained relatively high compared to our current revenue scale, of which many items are appropriate, with the legacy business.

Such as fixed expenses related to maintaining the listing, listed company status, the audit fees, and the list of office spaces based on the previous business model, all of which are currently being optimized. We are actively refining our cost and expense structure in accordance with the needs of the new business development.

In the upcoming quarters, the proportion of, similar fixed costs and expenses are expected to continue decreasing.

Regarding sales expenses, I think, one of the major expenses, we anticipate that the adjusted ratio will fluctuate around 20% of the revenue.

The specific amount and proportion will depend on market conditions and the schedule of new product launches. During this rapid growth phase, we plan to allocate slightly more resources to branding and marketing to enhance the IP operation activities. However, consistent with our long-standing business strategy, we will not pursue growth through excessive spending. In the early stages, we aim to strike a balance between profitability and growth, and we are confident that this profitable growth will be achieved in the coming quarters.

I think, the other questions, related to the product, especially for the IP, I think our peers, for example, thebubo IP, operations have achieved outstanding business performance and rapid growth, and we believe the market is closely following the latest developments of the pioneer companies and other IPs. But, as a pop toy company, we believe there is plenty of room for the growth in our industry, and according to a recent research report, the data from a research firm, the market of these IP pop toys is still growing very fast at a of over 18% in the next 5 years. So, moving forward, we will continue to prioritize our IP operations, new product launches, and brand building. The market has validated Wauku's unique, appeal to the users. Let me, share some, sales numbers. The first generation of Wauu and was launched at the end of last year. And the second generation was launched in the first half of this year, in May. All of the previous version Wauu products, the cumulative sales, accumulated sales up to now have now exceeded 6 million individual units, and we launched our new generation mini version on just now, on November 29.

The offline debut received very positive feedback, and the online launch is scheduled for December 4.

So the pop toy market has moved beyond its nicheche origins and now reaches a much broader audience. Going forward, we will continue to build our IP portfolio, creating distinctive and resonant IPs for different consumer segments. In product development, we will continue exploring the unique characteristics of each IP to develop new products that align with market demand.

For marketing and promotions, we will integrate our operations with strategic marketing campaigns to continuously strengthen our IPs and maintain their long-term.

Vitality, yeah.

Thank you, very helpful.

Yeah.

The next question will come from Liing Zhao with CICC. Please go ahead.

Good evening, Lion team.

Congrats on your strong quarter. And thanks for taking my questions. As Lizong just said that you guys are going to launch the DTC stores offline, could you please share the latest updates on these, stores and your future opening pipeline in 2026 and how should we, expect the sales value of these DTC stores?

Thank you.

Thank you. I've answered, our key progress with offline DTT stores, centers on building strategy of brand experience centers. The first batch of the stores are expected to open between late December this year and early 2026 in very early of January. Current preparations focus on decoration and operational systems, and I think we are getting ready.

Our goal is to transform our DTC stores into immersive and interactive offline narrative spaces.

They will serve as physical hubs for our brand culture and core bases for offline community engagement.

In terms of channel synergy, our DTC stores represent a strategic investment in brand building and deepening user relationships.

The goal is not only direct sales competition.

Instead, we enhance overall brand momentum by providing unique immersive experiences.

The approach reinforces and empowers the online DTC and KA channels.

We are creating a positive cycle of offline experience, online engagement, and omni-channel conversion.

This ultimately strengthens our brand's omni-channel competitiveness.

I think future expansion will strictly follow a prudent phased strategy. We begin by validating the profitability of a single store and brand impact model using operational data from our initial stores. Once we successfully validate the business model, we will consider.

To speed the Process of replication.

This way ensures very, every new store becomes a valuable brand asset that keeps generating value over time.

That's my answer.

Thank you.

The next question will.

Come from Yukon Zheng with Citi. Please go ahead.

Good evening, Benjamin.

Thank you for taking my question. And my question is regarding our overseas market because we know that Popmart, Popmart's overseas business almost contributes 50% of its revenue. But, for now, our current overseas revenue proportion is rather low. So, will the overseas market be our focus for the next year? And what is our strategy on the overseas market?

Thank you.

Thank you for your question. Regarding the overseas market, I think that definitely is one of our focuses, especially starting from recently in this quarter. I think because of the supply chain shortage in the first half year, our major resources are put into the domestic market because we are still at an early stage and also we are.

We should supply all of the demand order demand from the existing clients in the domestic markets, especially the KAs first, but as At the same time, we are increasing our capacity, the production capacity, especially recently, as I just mentioned, we have increased the monthly capacity almost 40 times recently of the compared to that early this year. So we started to Make our efforts in terms of the overseas channel and sales. So, starting from this quarter, we We will adopt such a strategy that first we will cooperate closely with our KAs, with our distribution partners, especially with that who has very solid overseas chain stores and distribution network, and then at the same time we are building our Overseas online platforms such as TikTok in North America and Southeast Asia, at the same time.

So I think combining both of these efforts, we will make, progress in terms of the overseas. Sales in this in the coming quarters, but I think as we, even though we definitely think that the overseas market is growing very fast compared in terms of the speed, the growth rate with the domestic market, but as we overly we are still at an early stage and our absolute sales volume is still growing very fast, I think. To the majority of our sales will still come from the domestic market in the short-term.

Definitely we will replicate the strengths and experiences built in the domestic market to the overseas market. So everything is at the beginning and on a trajectory, trend so that we can make big progress in the coming quarters, yeah.

Thank you.

The next question will come from Daifi with Hightow Securities.

Please go ahead.

Thank you, man, for this opportunity to raise my question. I'm.

Tushu.

From Hute Securities.

And my question is about.

Our IP structure.

So I wonder what is the.

Revenue structure breakdown by IP this year and how do we foresee the drivers from new IPs in the next year.

Thank you.

Thank you. Based on this quarter data, our total business shows a healthy and well-structured IP portfolio. We ranked our IPs according to the. To the popularity and also the IP strengths, first, in this quarter, the total revenue for the, for the, for the quarter was RMB127 million. Our super hit product and IP cuckoo alone accounted for 71% of our total revenue.

And this makes it the key driver for our growth. Our classic IP. The yearly as a stable pillar contributed 16% of the total revenue, approximately, and the new IP, which we launched in July.

And it is the third-party licensed exclusively licensed IP called Sinono made a solid debut, accounting for, approximately 10% of our revenue this quarter, demonstrating a remarkable performance, and the remaining, coming from, came from other IPs because we currently have, 70 IPs.

So, for this, result, I will, give you some basic principles. First is that, we will focus our efforts, all of our efforts, the majority of our efforts and resources on our, S class IPs, that is, Bakuu, Julie, and Sinono. Currently, I think in the short-term, maybe in the coming, quarter and. And maybe, 3, around 3 years, we will focus on the top IPs because we think the IPs should, we should put efforts to to make the top IP IP to last their popularity. Looking ahead to the next year, our new IP strategy, will be driven by a dual approach. Deep in the core and systematic, incubation.

So our core engine Bakuku will transition from that explosive launch momentum to deeper operations and extending its product life cycle.

We'll consolidate our market, leading positions through strategic product line expansion and enhanced user experience.

And also we will systematically replicate Sinono's proven incubation model to cultivate 1 to 2 additional flagship IPs, creating a more balanced and diversified growth portfolio.

So overall, our company will drive future growth through an IP matrix operating model. This breaks down into two main areas, and we first we will refresh our established IPs to keep them fresh and engaging for our audiences. Second, we will set up a flexible incubation mechanism. That allows us to continually test new concepts and strategically allocate resources to the most promising emerging IPs. Over time, this approach will help us create a healthy IP ecosystem, one that appeals to diverse audiences, protect us from single product risk, and also deliver long-term growth potential. But quarter by quarter, I think the IP, revenue, fluctuation will be based on the, product launches and the pace of the product, each IP. So I think, in a sum we will focus on 3 to 5 key IPs such as Wauu, Sinono, Z, and other IPs maybe in the future. And also we will incubate some new IPs so that we can, not only diversify the revenue, concentration risks but also to grow the whole IP portfolio.

Thank you.

As there are no further questions, I'd like to hand the conference back over to management for closing remarks. Please go ahead.

Thank you again for joining our call today. If you have any further questions, please feel free to contact us or submit a request through our IR website. We look forward to speaking with everyone in our next call. Have a good day.

The conference is now concluded.

Thank you for your participation. You may now have a good day.