Q2 2026 RLX Technology Inc Earnings Call

August 14, 2026

Speaker #1: Hello, ladies and gentlemen. Thank you for standing by for RLX Technology Inc.'s second quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode.

Operator: Hello, ladies and gentlemen. Thank you for standing by for RLX Technology Inc.'s Q2 2026 earnings conference call. At this time, all participants are in a listen-only mode. After management's remarks, there will be a question and answer session. Today's conference call is being recorded and is expected to last for about 40 minutes. I will now turn the call over to your host, Mr. Sam Tsang, Head of Capital Markets for the company. Please go ahead, Sam.

Operator: Hello, ladies and gentlemen. Thank you for standing by for RLX Technology Inc.'s Q2 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management's remarks, there will be a question and answer session.

Speaker #1: After management's remarks, there will be a question-and-answer session. Today's conference call is being recorded and is expected to last for about 40 minutes. I will now turn the call over to your host, Mr. Sam Tsang, Head of Capital Markets for the company.

Operator: Today's conference call is being recorded and is expected to last for about 40 minutes. I will now turn the call over to your host, Mr. Sam Tsang, Head of Capital Markets for the company. Please go ahead, Sam.

Speaker #1: Please go ahead, Sam.

Speaker #2: Thank you very much. Hello, everyone, and welcome to RLX Technology's second quarter 2026 earnings conference call. The company's financial and operational results were released through PR on the wire services earlier today and have been made available online.

Sam Tsang: Thank you very much. Hello, everyone, and welcome to RLX Technology's Q2 2026 earnings conference call. The company's financial and operational results were released through PR Newswire services earlier today and have been made available online. You can also view the earnings press release by visiting our IR website at ir.relxtech.com. Participants on today's call include our Chief Executive Officer, Ms. Kate Wang, our Chief Financial Officer, Mr. Chao Lu, and me, Sam Tsang, Head of Capital Markets. Before we continue, please note that today's discussions will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements typically contain words such as may, will, expect, anticipate, aim, estimate, intend, plan, believe, potential, continue, or other similar expressions. Forward-looking statements involve inherent risks and uncertainties.

Speaker #2: You can also view the earnings press release by visiting our IR website at ir.relextech.com. Participants on today's call will include our Chief Executive Officer, Ms. Kate Wang, our Chief Financial Officer, Mr. Chao Lu, and me, Sam Tsang, Head of Capital Markets.

Sam Tsang: Participants on today's call include our Chief Executive Officer, Ms. Kate Wang, our Chief Financial Officer, Mr. Chao Lu, and me, Sam Tsang, Head of Capital Markets. Before we continue, please note that today's discussions will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements typically contain words such as may, will, expect, anticipate, aim, estimate, intend, plan, believe, potential, continue, or other similar expressions. Forward-looking statements involve inherent risks and uncertainties.

Speaker #2: Before we continue, please note that today’s discussions will contain forward-looking statements made under the Safe Harbor Provisions of the U.S. Private Securities Litigation Reform Act of 1995.

Speaker #2: These statements typically contain words such as "may," "will," "expect," "anticipate," "aim," "estimate," "intend," "plan," "believe," "potential," "continue," or other similar expressions. Forward-looking statements involve inherent risks and uncertainties.

Speaker #2: The accuracy of these statements may be impacted by a number of business risks and uncertainties that could cause actual results to differ materially from those projected or anticipated.

Sam Tsang: The accuracy of these statements may be impacted by a number of business risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, many of which are factors that are beyond our control. The companies and affiliates, advisors, and representatives do not undertake any obligation to update this forward-looking information, except as required under the applicable law. Please note that RLX Technology's earnings press release and this conference call include discussions of unaudited GAAP financial measures, as well as unaudited non-GAAP financial measures. RLX press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited GAAP measures. For today's call, management will use English as the main language. We will also provide simultaneous interpretation on the Chinese line. Please note that the Chinese line is in listen-only mode, and Chinese interpretation is for convenience purposes only.

Speaker #2: Many of which are factors that are beyond our control. The company's affiliates, advisors, and representatives do not undertake any obligation to update this forward-looking information.

Speaker #2: Except as required under the applicable law. Please note that RLX Technology’s earnings press release and this conference call include discussions of unaudited GAAP financial measures, as well as unaudited non-GAAP financial measures.

Speaker #2: The RLX press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited GAAP measures. For today's call, management will use English as the main language.

Speaker #2: We will also provide simultaneous interpretation on the Chinese line. Please note that the Chinese line is in listen-only mode, and the Chinese interpretation is for convenience purposes only.

Speaker #2: In case of any discrepancy, management statements in the original language will prevail. I will now turn the call over to Ms. Kate Wang. Please go ahead.

Sam Tsang: In case of any discrepancy, management statements in the original language will prevail. I will now turn the call over to Ms. Kate Wang. Please go ahead.

Speaker #3: Thank you, Sam, and thank you all for joining today's call. We delivered solid second-quarter financial and operational results, supported by our commitment to quality-driven resilience and compliant global growth.

Kate Wang: Thank you, Sam, and thank you all for joining today's call. We delivered solid Q2 financial and operational results, supported by our commitment to quality-driven resilience and compliant global growth. Our top line grew 14.8% year-over-year in Q2, mainly driven by our expanding international footprint. Gross profit increased 47.8% year-over-year to CNY 357.8 million. As expected, revenue and gross profit moderated sequentially, not due to any softening in demand, but rather reflecting a trade inventory normalization following the Q1 shipment forward, driven by regulatory export adjustments. Because our distribution partners manage multi-brand portfolios, Q1 pre-stocking temporarily obscured visibility into sell-out rates, leading to the shipment adjustments we saw this quarter. Underlying demand across our key international markets remains healthy and resilient. Against this backdrop, we focus on two strategic priorities: sharpening retail execution and optimizing our global operational infrastructure.

Speaker #3: Our top-line growth was 14.8% year-over-year in the second quarter, mainly driven by our expanding international footprint. Gross profit increased 47.8% year-over-year to RMB 357.8 million.

Speaker #3: As expected, revenue and gross profit moderated sequentially—not due to any softening in demand, but rather reflecting trade inventory normalization following the first quarter's shipments.

Speaker #3: Full forward driven by regulatory expert export adjustments. Because our distribution partners manage multi-brand portfolios, first quarter pre-stocking temporarily secured visibility into sell-out rates, leading to the shipment adjustments.

Speaker #3: We saw this quarter that underlying demand across our key international markets remains healthy and resilient. Against this backdrop, we focus on two strategic priorities: sharpening retail execution and optimizing our global operational infrastructure.

Kate Wang: These deliberate refinements are designed to lay the foundation for our next era of sustainable, profitable growth. Rather than chasing low-margin volume, we are directing our capital towards building an agile, compliant global platform that can absorb regulatory shifts and quickly adapt to evolving demand. Regulatory oversight across our international markets is becoming more detailed and more restrictive, from customs enforcement priorities to refined frameworks. The United Kingdom is a case in point. Proposed regulations cover plain packaging, standardized device authentic retail display bans, restricted flavor descriptions, and limits on dark store operations. As an industry leader, we welcome these regulatory shifts, which poses the operational agility required to address them proactively, engaging with stakeholders to foster high-standard, sustainable compliance frameworks. Over the long term, clearer and consistently enforced boundaries push out non-compliant, low-quality competition and raise barriers to entry.

Speaker #3: These deliberate requirements are designed to lay the foundation for our next era of sustainable, profitable growth. Rather than chasing low-margin volume, we are directing our capital toward building an agile, compliant global platform that can absorb regulatory shifts and quickly adapt to evolving demand.

Speaker #3: On the regulatory side, across our international markets, enforcement is becoming more detailed and more restrictive. From customers' enforcement priorities to refined frameworks, the United Kingdom is a case in point.

Speaker #3: Proposed regulations cover plain packaging, standardized device authentics, and retail display ban. Restricted flavor descriptions and limits on dark store operations. As an industry leader, we welcome these regulatory shifts.

Speaker #3: We pose the operational agility required to address them proactively. Engaging these stakeholders to foster high standards and attainable compliance frameworks. Over the long term, clearer and consistently enforced boundaries push out non-compliant, low-quality competition and raise barriers to entry.

Speaker #3: Our robust compliance infrastructure, R&D, and supply chain enable us to meet those standards early, enhancing our platform's operational predictability and long-term sustainability. Our hands-on operational experience spans international markets.

Kate Wang: Our robust compliance infrastructure, R&D, and supply chain enables us to meet those standards early, enhancing our platform's operational predictability and long-term sustainability. Our hands-on operational experience across the international markets has taught us valuable lessons. In mature environments, traditional wholesaling models are no longer sufficient to sustain high-quality margin growth. As hardware technology and product standards stabilize, competition is shifting from pure product development to route-to-market execution, direct retail proximity, and channel agility. As such, we are aggressively upgrading our distribution architecture through a targeted mix of direct channel investments, strategic distribution alliance, operational support, and channel innovation, and moving away from reliance on a single rigid distribution model. In Asia, where our brand equity and consumer trust remains exceptionally strong, we are selectively broadening our footprint through localized commercial entities and proprietary channel models.

Speaker #3: This has taught us valuable lessons in maturing environments. Traditional wholesaling models are no longer sufficient to sustain high-quality margin growth. As hardware technology and product standards have stabilized, competition is shifting from pure product development to route-to-market execution.

Speaker #3: Direct retail promised proximity and China agility. As such, we are aggressively upgrading our distribution architecture through a targeted mix of direct channel investments, strategic distribution alliances, operational support, and channel innovation.

Speaker #3: And moving away from reliance on a single, rigid distribution model in Asia, where our brand equity and consumer trust remain exceptionally strong. We are selectively broadening our footprint through localized commercial entities and proprietary channel models.

Speaker #3: In Europe, where barriers to entry are higher, we are expanding through capital-efficient strategic partnerships and equity investments. By combining our world-class supply chain with local distribution leaders, we empower the existing trade ecosystem while securing direct sell-out visibility and dedicated retail shelf space, establishing a durable competitive moat.

Kate Wang: In Europe, where barriers to entry are higher, we are expanding through capital-efficient strategic partnerships and equity investments. By combining our world-class supply chain with local distribution leaders, we empower existing trade ecosystems while securing direct sell-out visibility and dedicated retail shelf space, establishing a durable competitive mode. Europe is the cornerstone of our global growth strategy, where we are methodologically expanding our presence on the dual engine model with balanced, targeted M&A with organic growth across channels. in May 2025, we acquired a long-established European e-vapor company with an integrated local retail and online footprint, and have been supporting its expansion as a collaborative partner ever since. Over the past year, this integration has brought us deep localized market insights and demonstrated the immense commercial value of aligning our global supply chain with trusted local operators.

Speaker #3: Europe is a cornerstone of our global growth strategy, where we are methodically expanding our presence on the dual-engine model that balances targeted M&A with organic growth across channels.

Speaker #3: In May 2025, we acquired a long-established European e-vapor company with an integrated local retail and online footprint, and have been supporting its expansion as a collaborative partner ever since.

Speaker #3: Over the past year, this integration has brought us deep, localized market insights and demonstrates the immense commercial value of allying our global supply chain with trusted local operators.

Speaker #3: Building on that acquisition, in July 2026, we made a strategic controlling investment in a leading B2B and FMCG physical distribution leader in Western Europe.

Kate Wang: Building on that acquisition, in July 2026, we made a strategic controlling investment in a leading B2B and FMCG physical distribution leaders in Western Europe. This entity has a robust offline footprint, directly serving retail endpoints across the market. In B2B digital commerce, its proprietary ordering app connects with over 50% of independent retail points of sales in the country. Our integration philosophy centers on empowerment, not operational disruption. We do not intend to restructure their core operations or convert the platform into an exclusive outlet for our own products. They will remain an open multi-brand marketplace serving the broader retail ecosystem. By applying our global supply chain scale and portfolio brand relationships, we are confident that we can reduce this platform's distribution costs and optimize sourcing terms.

Speaker #3: This entity has a robust offline footprint, directly serving retail endpoints across the market. In B2B digital commerce, its proprietary ordering app connects with over 50% of independent retail points of sale in the country.

Speaker #3: Our integration philosophy centers on empowerment, not operational disruption. We do not intend to restructure their core operations or convert the platform into an exclusive outlet for our own products.

Speaker #3: They will remain an open, multi-brand marketplace serving the broader retail ecosystem. By applying our global supply chain scale and portfolio brand relationships, we are confident that we can reduce these platform distribution costs and optimize sourcing terms.

Speaker #3: While expanding our distribution reach, we are also accelerating our transformation into a multi-category, next-generation, smoke-free product platform, extending beyond our leadership in e-vapor into a broader smoke-free portfolio.

Kate Wang: While expanding our distribution reach, we are also accelerating our transformation into a multi-category, next-generation smoke-free product platform, extending beyond our leadership in e-vapor into a broader smoke-free portfolio. We have commercialized our modern oral nicotine pouch line and are steadily ramping up manufacturing capacity and the channel distribution. In the heat-not-burn category, we hold extensive proprietary technology and patent reserves, as well as a pipeline of market-ready products awaiting optimal market and regulatory conditions for commercial launch. To support this multi-category expansion and reduce our exposure to trade friction and macroeconomic and geopolitical uncertainties, we are currently constructing a state-of-the-art manufacturing hub in Southeast Asia. The facility will cover multi-product categories, improve our tariff position, and streamline logistics, supporting long-term sales resilience across our international markets. Our mandate is clear.

Speaker #3: We have commercialized our modern oral nicotine pouch line and established wrap-up manufacturing capacity in the channel distribution. In the heat-not-burn category, we hold extensive proprietary technology and patent reserves.

Speaker #3: As well as a pipeline of market-ready products awaiting optimal market and regulatory conditions for commercial launch. To support these multi-category expansions and reduce our exposure to trade friction amid macroeconomic and geopolitical uncertainties, we are currently constructing a state-of-the-art manufacturing hub in Southeast Asia.

Speaker #3: The facility will cover multi-product categories, improve our tariff position, and streamline logistics—supporting long-term sales resilience across our international markets. Our mandate is clear: leverage our R&D capabilities, regulatory infrastructure, and newly strengthened route-to-market networks to capture market share and establish a leading position across the global smoke-free ecosystem.

Kate Wang: Leverage our R&D capabilities, regulatory infrastructure, and newly strengthened go-to-market networks to capture market share and establish leading position across the global smoke-free ecosystem. To sum up, we made meaningful progress this quarter, executing from a position of balance sheet strength. Our solid capital position gives us flexibility and the patience to say no to suboptimal, marginal, diluted projects. We remain financially disciplined, ensuring capital is deployed exclusively towards high-quality, value-accretive assets. By pairing direct channel control with multi-category product innovation, we are building a more resilient, diversified global platform structured to deliver sustainable long-term growth as the industry matures. Now, I will hand the call over to Chao to review our financial results in detail.

Speaker #3: To sum up, we made meaningful progress this quarter. Executing from a position of balance sheet strength, a solid capital position gives us flexibility and the patience to say no to suboptimal, marginally dilutive projects.

Speaker #3: We remain financially disciplined, ensuring capital is deployed as closely toward high-quality, value-creative assets that, pairing direct channel control with multi-category product innovation, we are building a more resilient, diversified global platform structured to deliver sustainable long-term growth as the industry matures.

Speaker #3: Now I will hand the call over to Chao to review our financial results in detail.

Speaker #1: Thank you, Kate. And hello, everyone. We delivered solid second-quarter top-line results, with net revenues reaching RMB 1.01 billion, representing a 14.8% year-over-year increase from RMB 880 million in the prior year period.

Chao Lu: Thank you, Kate, and hello, everyone. We delivered solid Q2 top-line results, with net revenues reaching RMB 1.01 billion, representing a 14.8% year-over-year increase from RMB 880 million in the prior year period. Our top-line growth was primarily driven by organic volume expansion in international markets, alongside incremental contributions from our acquisition completed in May 2025. For the quarter, international revenues remained our principal growth engine, accounting for approximately 70% of total net revenues. As anticipated, Q2 net revenues moderated sequentially from Q1 2026, which benefited from a one-time policy adjustment boost. Turning to profitability, gross profit rose 47.8% year-over-year to RMB 357.8 million in Q2. Gross margin expanded sequentially to 35.4%, up 790 basis points year-over-year, and up 360 basis points sequentially, mainly due to supply chain optimization, manufacturing yield improvement, and favorable geographic and product mix shifts.

Speaker #1: Our top-line growth was primarily driven by organic volume expansion and international markets, alongside incremental contributions from our acquisition completed in May 2025. For the quarter, international revenues remained our principal growth engine, accounting for approximately 70% of total net revenues.

Speaker #1: As anticipated, second-quarter net revenues moderated sequentially from first quarter 2026, which benefited from a one-time policy adjustment boost. Turning to profitability, gross profit rose 47.8% year-over-year to RMB 357.8 million in the second quarter.

Speaker #1: Gross margin expanded sequentially to 35.4%, up 790 basis points year-over-year and up 360 basis points sequentially, mainly due to supply chain optimization, manufacturing yield improvement, and favorable geographic and product mix shifts.

Speaker #1: We delivered our 11th consecutive quarter of positive non-GAAP operating profit, driven by top-line expansion, favorable product mix, and disciplined operating cost control. Non-GAAP income from operations reached RMB 149.6 million, up 28.8% year-over-year.

Chao Lu: We delivered our 11th consecutive quarter of positive non-GAAP operating profit, driven by top-line expansion, favorable product mix, and disciplined operating cost control. Non-GAAP income from operations reached RMB 149.6 million, up 28.8% year-over-year. Non-GAAP net income for the quarter stood at RMB 238.8 million. Now, let me provide additional financial and strategic context regarding the Western European transaction Kate highlighted earlier. In July 2026, we made a controlling investment in one of Western Europe's leading distributors of next-generation smoke-free products and FMCG goods. This entity brings two strategic assets to us. An extensive offline network directly serving over 30,000 retail endpoints across key national accounts and specialized retail, and a proprietary B2B digital commerce platform, connecting over 20,000 independent merchants. We expect to unlock significant operational and supply chain synergies from this transaction.

Speaker #1: Non-GAAP net income for the quarter stood at RMB 238.8 million. Now, let me provide additional financial and strategic context regarding the Western European transaction Kate highlighted earlier.

Speaker #1: In July 2026, we made a controlling investment in one of Western Europe's leading distributors of next-generation smoke-free products and FMCG goods. This entity brings two strategic assets to us: an extensive offline network directly serving over 30,000 retail endpoints across key national accounts and specialized retail, and a proprietary B2B digital commerce platform connecting over 20,000 independent merchants.

Speaker #1: We expect to unlock significant operational and supply chain synergies from this transaction. Furthermore, we are confident we can enhance this platform's margin profile over time by integrating our access to global supply chain scale and brand portfolio.

Chao Lu: Furthermore, we are confident we can enhance this platform's margin profile over time by integrating our access, global supply chain scale, and brand portfolio. The entity's financial and operational results will be fully consolidated into RLX Technology's financial statements starting in Q3 2026. Behind our financial and operational progress is a deep commitment to corporate sustainability and long-term value creation. We published our 2025 ESG report this quarter, highlighting our advancements across corporate governance, product quality and safety, youth access prevention protocols, supply chain labor ethics, and environmental stewardship. From expanding employee welfare initiatives to enforcing ESG compliance across our supplier base, we continue to elevate our standards. Furthermore, by embedding eco-friendly materials and adhering to responsible marketing practices, we ensure our expansion in both ethical and sustainable.

Speaker #1: The entity's financial and operational results will be fully consolidated into RLX Technology's financial statements, starting in the third quarter of 2026. Behind our financial and operational progress is a deep commitment to corporate sustainability and long-term value creation.

Speaker #1: We published our 2025 ESG report this quarter, highlighting our advancements across corporate governance, product quality and safety, youth access prevention protocols, supply chain labor ethics, and environmental stewardship.

Speaker #1: From expanding employee welfare initiatives to enforcing ESG compliance across our supplier base, we continue to elevate our standards. Furthermore, by embedding eco-friendly materials and adhering to responsible marketing practices, we ensure our expansion is both ethical and sustainable.

Speaker #1: Integrating these ESG principles into our core operations strengthens trust among adult consumers, regulators, employees, and commercial partners, creating enduring value for all stakeholders. Our robust balance sheet continues to serve as the bedrock of our global expansion strategy.

Chao Lu: Integrating these ESG principles into our core operations strengthens trust amongst adult consumers, regulators, employees, and commercial partners, creating enduring value for all stakeholders. Our robust balance sheet continues to serve as the bedrock of our global expansion strategy. As of 30 June 2026, our total capital resources, comprising cash equivalent, restricted cash, short-term bank deposits, and liquid investment securities, stood at RMB 13.9 billion. In closing, our Q2 performance underscores our operational and financial strengths. Supported by this quarter's structural growth margin expansion, disciplined capital allocation, and a healthy balance sheet, we are well-positioned to strengthen our market leadership and deliver long-term value to our shareholders. Thank you. Operator, we are now ready to take questions.

Speaker #1: As of June 30, 2026, our total capital resources comprising cash, cash equivalents, restricted cash, short-term bank deposits, and liquid investment securities stood at RMB 13.9 billion.

Speaker #1: In closing, our second-quarter performance underscores our operational and financial strengths. Supported by this quarter's structural growth, margin expansion, disciplined capital allocation, and a healthy balance sheet, we are well positioned to strengthen our market leadership and deliver long-term value to our shareholders.

Speaker #1: Thank you, operator. We are now ready to take questions.

Speaker #2: Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1, on your touch-tone phone.

Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touch tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. For the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English. The first question today comes from Christine Peng with UBS. Please go ahead.

Speaker #2: If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then 2.

Speaker #2: For the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English.

Speaker #2: The first question today comes from Christine Peng with UBS. Please go ahead.

Speaker #3: Thank you, management, for the results summary as well as the strategy outlook. I have two questions for management. The first question is about the capital allocation strategy.

Christine Peng: Thank you, management, for the results summary, as well as the strategy outlook. I have two questions for the management. The first question is about the capital allocation strategy. Obviously, Mr. Lu just mentioned there is abundant cash resources on the balance sheet. I was just wondering what is going to be the capital allocation strategy going forward by leveraging on this very strong cash balance. The second question is about the acquisition strategy, which has become a very important driver of the company's development going forward. I was wondering what is the criteria in terms of valuation multiple as well as the revenue and profit contribution from the acquisition going forward? Thank you.

Speaker #3: Obviously, Mr. Lu just mentioned there are abundant cash resources on the balance sheet, so I was just wondering what’s going to be the capital allocation strategy going forward by leveraging this very strong cash balance.

Speaker #3: The second question is about the acquisition strategy, which has become a very important driver of the company's development going forward. So I was wondering, what are the criteria in terms of valuation multiple, as well as the revenue and profit contribution from the acquisition going forward?

Speaker #3: Thank you.

Speaker #1: Thank you, Christine, for her two questions. So, the first question is on the capital allocation strategy. Our capital allocation strategy is financially disciplined and designed to drive sustainable, long-term total shareholder returns.

Sam Tsang: Thank you, Christine, for your two questions. The first question is on the capital allocation strategy. Our capital allocation strategy is financially disciplined and designed to drive sustainable long-term total shareholder returns. We allocate capital across three core priorities. The first one is organic growth and high ROI core business initiatives. This includes funding multi-category R&D, supply chain localization, specifically our manufacturing hubs currently under construction in Southeast Asia, and strategic product launches. When regulations and power shifts in a given market, we take an ROI-gated approach. Sustainable organic growth remains our primary engine. Second, we selectively deploy capital into highly accretive M&A. We target assets that build strategic abilities across R&D, local manufacturing, proprietary brands, and route to market distribution while meeting clear financial standards. Third, we remain committed to direct shareholder returns.

Speaker #1: We allocate capital across three core priorities. The first one is organic growth and high-ROI core business initiatives. This includes funding multi-category R&D, supply chain localization—specifically, our manufacturing hubs currently under construction in Southeast Asia—and strategic product launches.

Speaker #1: When regulations and tariff shifts occur in a given market, we take an ROI-gated approach. Sustainable organic growth remains our primary engine. Second, we selectively deploy capital into highly accretive M&A.

Speaker #1: We target assets that build strategic capabilities across R&D, local manufacturing, proprietary brands, and route-to-market distribution, while meeting clear financial standards. Third, we remain committed to direct shareholder returns.

Speaker #1: Our strong cash generation and liquid capital resources allow us to consistently reserve excess capital through systematic share repurchases and dividend distributions, subject to board approvals and prevailing market conditions.

Sam Tsang: Our strong cash generation and liquid capital reserves allow us to consistently reserve excess capital through systematic share repurchases and dividend distributions, subject to board approvals and prevailing market conditions. Regarding your second question about our M&A criteria, we do not have a specific valuation cap or top-line contribution threshold, but we do adhere to strict financial and operational standards. On valuation, we benchmark targets directly against transaction comparables and our own public trading multiple. Every potential transaction must have a clear timeline for a cash payback, be structurally non-dilutive, and generate EPS accretion. In terms of execution, we actively empower our investee company by providing capital support, supply chain integration, procurement optimization, and operational capabilities to unlock structural value.

Speaker #1: Regarding your second question about our M&A criteria, we do not have a specific valuation cap or top-line contribution threshold, but we do adhere to strict financial and operational standards.

Speaker #1: On valuation, we benchmark targets directly against transaction comparables and our own public trading multiple. Every potential transaction must have a clear timeline for cash payback, be structurally non-dilutive, and generate EPS accretion.

Speaker #1: In terms of execution, we actively empower our investee companies by providing capital support, supply chain integration, procurement optimization, and operational capabilities to a non-structural value.

Speaker #1: While we prioritize strategic fits and synergy potential across arbitrary size floors, our fitness operational bandwidth means we intentionally focus on larger-scale opportunities that can move the financial needle and meaningfully enhance our global infrastructure.

Sam Tsang: While we prioritize strategic fit and synergy potential across arbitrary size floors, our fitness operational bandwidth means we intentionally focus on larger scale opportunities that can move the financial needle and meaningfully enhance our global infrastructure. In summary, we deploy capital only where valuation discipline and clear strategic synergies full align. Thank you very much for your questions.

Speaker #1: In summary, we deploy capital only where valuation discipline and clear strategic synergies fully align. Thank you very much for your questions.

Speaker #3: Thank you.

Christine Peng: Thank you.

Speaker #2: The next question comes from Lydia Ling with Citi. Please go ahead.

Operator: The next question comes from Lydia Ling with Citi. Please go ahead.

Speaker #4: Hi, management. This is Lydia from Citi. I also have two questions. So, the first one is: what’s your expectation on the overseas growth in the second half of the year, especially considering both the acquisition as well as your organic growth in the overseas market?

Lydia Ling: Hi, management. This is Lydia from Citi. I also have two questions. First one is on what's your expectation on the overseas growth in the H2 of the year, and especially considering the both strong acquisition as well as your organic growth in the overseas market. My second question is on the margin side, and what's your outlook for the H2, especially like considering the acquisition impact on your cooperation profitability? Thank you.

Speaker #4: And my second question is on the margin side. What's your outlook for the second half, especially considering the acquisition impact on your operation capability and profitability?

Speaker #4: Thank you.

Speaker #1: Thank you very much, Lydia, for your questions regarding our growth outlook and margin expectations. Regarding our growth outlook, for the second half of the year, we are taking a quality-focused, pragmatic approach to driving international growth.

Sam Tsang: Thank you very much, Lydia, for questions regarding our growth outlook and margin expectations. Regarding our growth outlook for the H2 of the year, we are taking a quality focus, pragmatic approach to driving international growth. On organic performance, we are prioritizing retail velocity and channel inventory health rather than pushing volume into channels at any cost. This prudent recalibration established a solid, sustainable baseline for our ongoing operations. In addition to our organic baseline, the financial consolidation of our newly acquired Western Europe distribution platform starting in Q3 will deliver a step change increase in reported international revenue growth for the H2. Beyond the immediate top-line expansion, we anticipate compounding commercial synergies across medium to long-term.

Speaker #1: On organic performance, we are prioritizing retail sales for velocity and channel inventory health, rather than pushing volume into channels at any cost. This prudent recalibration established a solid, sustainable baseline for our ongoing operations.

Speaker #1: In addition to our organic baseline, the financial consolidation of our newly acquired Western Europe distribution platform, starting in the third quarter, will deliver a step-change increase in reported international revenue growth for the second half.

Speaker #1: Beyond the immediate top-line expansion, we anticipate compounding commercial synergies across the medium to long term. While our organic growth rate reflects disciplined inventory management, the consolidation of our European platform, combined with operational synergies, gives us full confidence in delivering strong overall overseas performance in the second half.

Sam Tsang: While our organic growth rates reflects disciplined inventory management, the consolidation of our European platform, combined with operational synergies, gives us full confidence in delivering strong overall overseas performance in the H2. Regarding our margin trajectory, the gross margin expansion observed in Q2 was primarily driven by temporary products and revenue mix shift. As our product mix and shipment flows normalize in Q2, we expect gross margin to settle back a healthy, balanced range. While non-operating factors, such as macroeconomic interest rate movements and foreign exchange dynamics from reporting in renminbi, while generating revenue in USD and GBP may create minor headline fluctuations, we maintain strict operational cost controls. Regarding our European acquisition, as we mentioned earlier, starting in Q3, we will consolidate the Western Europe downstream distribution platform.

Speaker #1: Regarding our margin trajectory, the gross margin expansion observed in the second quarter was primarily driven by temporary products and revenue mix shifts. As our product mix and shipment flows normalized in the second quarter, we expect gross margin to settle back into a healthy balance range.

Speaker #1: While non-operating factors such as macroeconomic interest rate movements and foreign exchange dynamics—from reporting in renminbi while generating revenue in US dollars and sterling—may create minor headline fluctuations, we maintain strict operational cost controls.

Speaker #1: Regarding our European acquisition, as we mentioned earlier, starting in the third quarter, we will consolidate the Western Europe downstream distribution platform. Distribution businesses naturally operate on a lower percentage gross margin profile than proprietary brand operations.

Sam Tsang: Distribution businesses naturally operate on a lower percentage gross margin profile than proprietary brand operations. Consequently, while percentage margins will reflect this structural mix shift on an absolute dollar basis, this transaction will meaningfully expand our operating profits and net profit scale. Thank you for your questions.

Speaker #1: Consequently, while percentage margins will reflect this structural mix shift, on an absolute dollar basis, this transaction will meaningfully expand our operating profits and net profit scale.

Speaker #1: Thank you for your questions.

Speaker #2: The next question comes from Yun Guo with Cinex. Please go ahead.

Operator: The next question comes from Yun Guo with CITIC Securities. Please go ahead.

Speaker #4: Hi, management. I also have two questions. The first question is about the US market. British American Tobacco is preparing to sell flavored e-cigarettes in the US starting in the third quarter.

Yun Guo: Hi, management. I also have two questions. The first question is about the US market. British American Tobacco is preparing to sell flavored e-cigarettes in the US starting in Q3. What is our forward strategy for the US market? The second question is about the domestic market. With the regulations on the illegal e-cigarettes becoming increasingly strict in China, what is the impact on the company? Thank you.

Speaker #4: What is our forward strategy for the US market? And the second question is about the domestic market. With the regulations on illegal e-cigarettes becoming increasingly strict in China, what is the impact on the company?

Speaker #4: Thank you.

Speaker #1: Thank you, Yun, for your questions. One is on the US market, and the other one is on the China market. So, for the US market, we closely monitor US regulatory developments and peer actions regarding PMT enforcement.

Sam Tsang: Thank you, Yun Guo, for your questions. One is on the US market and the other one is on the China markets. For the US markets, we closely monitor US regulatory developments and peers' action regarding PMTA enforcements. While adult smoker demand for diverse alternatives persists, regulatory compliance and visibility remain the critical determinants for long-term commercial commitment in the US. Our strategic stance toward the US market is discipline, agile, and strictly ROI-driven. Notably, our non-listed affiliates previously submitted PMTA applications, which are currently in advanced stages, awaiting regulatory approvals. However, we will not commit large-scale capital growth to aggressive commercial rollouts until regulatory pathway and enforcement standards provide long-term credibility. In the interim, we are directing our capital and management bandwidth towards regulatory transparent markets across Europe and Asia, alongside scalable reduced-risk categories such as modern oral nicotine pouches.

Speaker #1: While adult smoker demand for diverse alternative purchases, regulatory compliance and visibility remain the critical determinants for long-term commercial commitments in the US. Our strategic check stands toward the US market is disciplined, agile, and strictly outline-driven.

Speaker #1: Notably, our non-listed affiliates previously submitted PMT applications, which are currently in advanced stages awaiting regulatory approvals. However, we will not commit large-scale capital growth to aggressive commercial rollouts until the regulatory pathway and enforcement standards provide long-term credibility.

Speaker #1: In the interim, we are directing our capital and management benefits towards regulatory transparent markets across Europe and Asia, alongside scalable reduced risk categories such as modern oral nicotine pouches.

Speaker #1: Regarding your question on the mainland China market, we view the tightening domestic regulatory environment and crackdown on illegal, non-compliant products as an overwhelmingly positive long-term development for the industry.

Sam Tsang: Regarding your question on the mainland China market, we view the tightening domestic regulatory environment and crackdown on illegal non-compliant products as an overwhelmingly positive long-term development for the industry and for our company as well. Eliminating illicit trade restores order to retail channels, removes bad actors, and redirects consumer demand back to legal, tax-paying brands like us. In the near term, as regulatory bodies intensify enforcement and refine administrative oversight, procedural timeline for government approval has become more conservative. Accordingly, we have adopted a prudent baseline in our internal forecasting and expect mainland China sales for the full year to be broadly flat year-over-year. We remain in full compliance and continue to work closely with regulators to support a transparent, legally compliant industry ecosystem. Thank you for your questions.

Speaker #1: And for our company as well, eliminating illicit trade restores order to retail channels, removes bad actors, and redirects consumer demand back to legal, taxpaying brands like us.

Speaker #1: In the near term, as regulatory bodies intensify enforcement and refine administrative oversights, the procedural timeline for government approvals has become more conservative. Accordingly, we have adopted a prudent baseline in our internal forecasting and expect mainland China sales for the full year to be broadly flat year over year.

Speaker #1: We remain in full compliance and continue to work closely with regulators to support a transparent, legally compliant industry ecosystem. Thank you for your questions.

Speaker #2: The next question comes from Zoe Zou with CICC. Please go ahead.

Operator: The next question comes from Zoe Zhu with CICC. Please go ahead.

Speaker #4: Hi, management. This is Zoe from CICC. I have two questions. First, with Philip Morris growing rapidly in Europe, how do you see competition evolving there?

Zoe Zhu: Hi, management. This is Zoe from CICC. I have two questions. First, with Philip Morris growth rapidly in Europe, how do you see competition involving HnB? Secondly, could you walk us through the strategic plan for new categories like oral pods? Thank you.

Zoe Zhao: Hi, management. This is Zoe from CICC. I have two questions. First, with Philip Morris growth rapidly in Europe, how do you see competition involving HnB? Secondly, could you walk us through the strategic plan for new categories like oral pods? Thank you.

Speaker #4: Secondly, could you walk us through the strategic plan for new categories, like oral pouch? Thank you.

Speaker #1: Sure. Thanks, Zoe, for your question. So, one is on the European market competition and the second one is on the oral nicotine pouches. So, for the first one, while we do not directly comment on our PS, multi-category execution across vaping and modern tobacco products has clearly become mandatory for all major industry participants.

Sam Tsang: Sure. Thanks, Zoe, for your question. One is on the European market competition, and the second one is on the oral nicotine pouches. For the first one, while we do not directly comment on our peers, multi-category execution across vaping, modern oral, and heat-not-burn tobacco products has clearly become mandatory for all major industry participants. While legacy tobacco companies have the capital to pay for key account listing fees, RLX holds distinct competitive advantages. First, we are a pure-play non-cigarette business, meaning we are fully committed to harm reduction and replace combustible cigarettes without any internal channel conflict. Second, we possess strong supply chain efficiency and product innovation capabilities, which, combined with our deep relationships in specialty vape retail, position us to expand further into large chain channels. Furthermore, through our strategic investments, we are actively strengthening our route to market and shelf space control.

Speaker #1: While legacy tobacco companies have the capital to pay for key account listing fees, our host distinct competitive advantages. First, we are a pure-play, non-cigarette business, meaning we are fully committed to harm reduction and replacing combustible cigarettes without any internal channel conflict.

Speaker #1: Second, we possess strong supply chain efficiency and product innovation capabilities, which, combined with our deep relationships in specialty vape retail, position us to expand further into large chain channels.

Speaker #1: Furthermore, through our strategic investments, we are actively strengthening our route to market and shelf space control. Combining our agile supply chain with direct control of local distribution gives us strong confidence in capturing market share across Europe.

Sam Tsang: Combining our agile supply chain with direct control of lower distribution gives us strong confidence in capturing market share across Europe. Regarding our plans of the nicotine pouches, we think that modern oral nicotine pouches represent a pivotal growth driver in our business expansion. We have embedded specialized pouch production lines into our manufacturing hub currently under construction in Southeast Asia. Once construction is complete and production ramps up, this facility will ensure supply chain resilience, scale, and cost efficiency. Upon scaling, we will plug our oral pouch line directly into our strengthened European distribution architect, gaining immediate access to retail point of sales and B2B platforms across Western and Northern Europe. Supported by a dedicated internal team, we are leveraging our proprietary R&D capabilities to continuously optimize product attributes.

Speaker #1: So, regarding our plans for nicotine pouches, we think that all modern oral nicotine pouches represent a pivotal growth driver in our business expansion.

Speaker #1: We have embedded specialized pouch production lines into our manufacturing hub, currently under construction in Southeast Asia. Once construction is complete and production ramps up, this facility will ensure supply chain resilience, scale, and cost efficiency.

Speaker #1: Upon scaling, we will plug our oral pouch line directly into our strengthened European distribution architects, gaining immediate access to retail points of sale and B2B platforms across Western and Northern Europe.

Speaker #1: Supported by a dedicated internal team, we are leveraging our proprietary R&D capabilities to continuously optimize product attributes. We are confident that our modern oral pouches will become a meaningful contributor to revenue and profits in the future.

Sam Tsang: We are confident that our modern oral pouches will become a meaningful contributor to revenue and profits in the future. Thank you very much for your questions.

Speaker #1: Thank you very much for your questions.

Speaker #2: Due to time constraints, I would now like to turn the call back over to the company for closing remarks.

Operator: Due to time constraints, now I would like to turn the call back over to the company for closing remarks.

Speaker #1: Thank you once again for joining us today. If you have further questions, please feel free to contact the RLX Technology Investor Relations team through the contact information provided on our website or Piacente Financial Communications.

Sam Tsang: Thank you once again for joining us today. If you have further questions, please feel free to contact RLX Technology's investor relations team through the contact information provided on our websites or Piacente Financial Communications.

Operator: This concludes this conference call. You may now disconnect your line. Thank you.