Full Year 2026 Here Group Ltd Earnings Call

September 22, 2026

Operator: Good morning and good evening, ladies and gentlemen. Thank you for standing by, and welcome to HERE's earnings conference call. At this time, all participants are in a listen-only mode. We will be hosting a question and answer session after management's prepared remarks. Please note that today's event is being recorded. I would now like to turn the conference over to Ms. Tina Tang, the company's Manager of Investor Relations. Please go ahead, ma'am.

Speaker #1: We will be hosting a question-and-answer session after management’s prepared remarks. Please note that today’s event is being recorded. I would now like to turn the conference over to Ms. Tina Tang, the company’s Manager of Investor Relations.

Speaker #1: Please go ahead, ma'am.

Speaker #2: Thank you. Hello everyone, and welcome to Here's earnings call for the fourth quarter and the full fiscal year 2026. With us today are Mr. Paul Lee, our founder, chairman, and CEO, and Mr. Ting Xie, our CFO.

Tina Tang: Thank you. Hello, everyone, and welcome to HERE's earnings call for the Q4 and the full fiscal year 2026. With us today are Mr. Peng Li, our Founder, Chairman, and CEO, and Mr. Ting Xie, our CFO. Mr. Li will provide a business overview for the quarter, then Ting will discuss the financials in more detail. Following their prepared remarks, Mr. Li and Ting 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.

Tina Tang: Thank you. Hello, everyone, and welcome to HERE's earnings call for the Q4 and the full 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 detail. 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.

Speaker #2: Mr. Lee will provide a business overview for the quarter, then Tim will discuss the financials in more detail. Following their prepared remarks, Mr. Lee and Tim will be available for the Q&A session.

Speaker #2: I will translate for Mr. Lee. You can refer to our quality financial results on our IR website at ir.heargroup.com. You can also access a replay of this call on our IR website, which will be available a few hours after its conclusion.

Speaker #2: 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.

Speaker #2: As we will be making forward-looking statements, please note that all numbers stated in the following management-prepared remarks are in RMB terms. 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.

Tina Tang: As we will be making forward-looking statements, please know that all numbers stated in following management 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 filing with the SEC. I will now turn the call over to the CEO and Founder of HERE, Mr. Li.

Speaker #2: I will now turn the call over to the CEO and founder of Here, Mr. Lee.

Speaker #3: Yeah, okay. Good morning, everyone, and thank you for joining us today. We closed out our fiscal year 2026 with fourth quarter revenues for R&B of $127.7 million.

Peng Li: Yeah, okay. Good morning, everyone, and thank you for joining us today. We closed out our fiscal year 2026 with Q4 revenues of RMB 127.7 million, representing a robust year-over-year increase of 94.1%, and bringing out our full year revenue to RMB 596.8 million. Fiscal year 2026 marks our first full fiscal year dedicated to the pop toy business. Most importantly, this year has provided us with complete clarity about our corporation identity, our long-term strategic positioning, and the paths we must take to build lasting shareholder value. Before diving into our operational updates, I want to share the core strategic insights that are reshaping HERE. We firmly believe that enduring high premium IP company must anchor itself on distinctive products and constant creativity, not third-party distribution channels alone. Distribution expands market reach, but it cannot answer the fundamental question of user loyalty.

Speaker #3: We are presenting a robust year-over-year increase of 94.1%, bringing our full-year revenue to RMB 596.8 million. Fiscal year 2026 marks our first full fiscal year dedicated to the pop-toy business. Most importantly, this year has provided us with complete clarity about our corporate identity.

Speaker #3: Our long-term strategic positioning, and the path we must take to build lasting shareholder value. Before diving into our operational updates, I want to share the core strategic insights that are reshaping Here.

Speaker #3: We firmly believe that a lasting, high-premium IP company must anchor itself on distinctive products and constant creativity—not third-party distribution channels alone. Distribution expands market reach, but it cannot answer the fundamental question of our user loyalty.

Speaker #3: Why will customers remember you and consistently choose your brand? Historically, our product pipeline and release cadence were tightly coupled with wholesale channel demand. To protect our brand from external wholesale activity, we are shifting our business model into a strategic closed loop.

Peng Li: Why will customers remember you and consistently choose your brand? Historically, our product pipeline and release cadence were tightly coupled with wholesale channel demand. To protect our brand from external volatility, we are shifting our business model into a strategic closed loop. This model integrates proprietary IPs, adaptive product design, and direct-to-customer channels. This closed loop grants us autonomy over our go-to-market cadence, product presentation, and customer experience. Our self-operated D2C channels serve as the premier theater to showcase these high-value portfolio extensions. An industry-leading IP house cannot merely churn out what the mass market passively accepts today. This is why our D2C retail network is far more than a point of sale. It is an IP incubator and a hub to test new ideas.

Speaker #3: This model integrates appropriately IPs, adaptive product design, and direct-to-customer channels. This closed loop grants us autonomy over our go-to-market cadence, product presentation, and customer experience. Our self-operated D2C channels serve as the premier theater to showcase these high-value portfolio extensions. Industry-leading IP houses cannot merely train out what the mass market passively accepts today.

Speaker #3: This is why our D2C retail network is far more than a point of sale. It is an IP incubator and a hub to test new ideas. As a result, our capital allocation and operational priorities are focused on perfecting this D2C closed loop and optimizing our structural unit economics, rather than maximizing short-term volume at the expense of brand health.

Peng Li: As a result, our capital allocation and operational priorities are focused on perfecting this D2C closed loop and optimizing our structural unit economics, rather than maximizing short-term volume at the expense of brand health. This philosophy brings us to our core thesis on brand momentum. True brand momentum does not stem from chasing fleeting market trends or mindlessly copying customer performance. Real long-term brand momentum is forged through design conviction and artistic leadership. Furthermore, the long-term asset value of an IP is intrinsically linked into its perceived scarcity. Once market supply outpaces consumer interest, that scarcity dissolves and triggers structural devaluation of the IP. While we remain pragmatic about macro conditions, we maintain absolute control over our own operational cadence. We have made a deliberate strategic choice to prioritize long-term IP assets value over short-term wholesale sales volume. This choice is heavily driven by who we are.

Speaker #3: This philosophy brings us to our core thesis on brand momentum. True brand momentum does not stem from chasing fleeting market trends or mindlessly copying customer performance.

Speaker #3: Real, long-term brand momentum is forged through design conviction and artistic leadership. Furthermore, the long-term asset value of an IP is intrinsically linked to its perceived scarcity.

Speaker #3: Once market supply outpaces consumer interest, that scarcity dissolves and triggers structural devaluation of the IP. While we remain pragmatic about micro conditions, we maintain absolute control over our own operational cadence.

Speaker #3: We have made a deliberate strategic choice to prioritize long-term IP asset value over short-term wholesale sales volume. This choice is heavily driven by who we are.

Speaker #3: Within the global pop-toy landscape, truly independent pure-play IP companies are exceedingly rare. Here Group stands as one of the very few enterprises that regularly adheres to the path of priority IP incubation and self-operated execution.

Peng Li: Within the global pop toy landscape, true independent pure-play IP companies are exceedingly rare. Here Group stands as one of the very few enterprises that rigorously adheres to the path of proprietary IP incubation and self-operated execution. Over the past fiscal year, we have proven the scalability of this model. Navigating the current headwinds requires resilience, disciplined efforts, and a refusal to compromise our core strategy for short-term convenience. We will strictly adhere to the IP-first principle. Our mission is not to generate fleeting retail transactions, but to deliver long-term emotional companionship and lasting narrative value to our users. To fully realize this vision, we focused our execution across four strategic pillars during the fourth quarter. First, IP portfolio diversification and ecosystem monetization. We continue to curate our IP metrics across the entire asset lifecycle, boosting product innovation and brand collaborations.

Speaker #3: Over the past fiscal year, we have proven the scalability of this model. Navigating the current headwinds requires resilience. Disciplined efforts and the refusal to compromise our core strategy for short-term convenience reveal our strict adherence to the IP-first principle.

Speaker #3: Our mission is not to generate fleeting retail transactions, but to deliver long-term emotional companionship and lasting narrative value to our users. To fully realize this vision, we focused our execution across four strategic pillars during the fourth quarter.

Speaker #3: First, IP portfolio diversification and ecosystem monetization. We continue to curate our IP matrix across the entire asset life cycle, boosting product innovation and brand collaborations.

Speaker #3: Our ecosystem is structurally engineered to mitigate single IP dependency. As of June 30, 2026, our total portfolio expanded to 22 IPs, comprising 13 priority IPs and 9 exclusively licensed IPs.

Peng Li: Our ecosystem is structurally engineered to mitigate single IP dependency. As of 30 June 2026, our total portfolio expanded to 22 IPs, compromising 13 proprietary IPs and nine exclusively licensed IPs. Our flagship IP, WAKUKU, generated RMB 47.7 million in the fourth quarter and RMB 369.3 million for the full year. This accounted for 51.9% of our annual revenue. Meanwhile, our next-generation powerhouse, SIINONO, has delivered a phenomenal trajectory. Launched only in the second half of 2025, SIINONO generated RMB 27.3 million in Q4 fiscal year 2026 alone, rapidly growing to represent 21.4% of our total quarterly revenue. For its first full fiscal year, SIINONO generated RMB 92.7 million, contributing 15.5% to our annual top line. The meteoric rise of SIINONO from zero to a near RMB 100 million annualized scale in under 12 months confirms that we can systematically build and scale new proprietary IPs.

Speaker #3: Our flagship IP, Bakuku, generated R&B 47.7 million in the fourth quarter and R&B 369.3 million for the full year. This accounted for 61.9% of our annual revenue.

Speaker #3: Meanwhile, our next-generation powerhouse, Senono, has delivered phenomenal trajectory, launched only in the second half of 2025. Senono generated R&B 27.3 million in Q4 of fiscal year 26 alone.

Speaker #3: Rapidly growing to represent 21.4% of our total quarterly revenue. For its first full fiscal year, Senono generated RMB 92.7 million, contributing 15.5% to our annual top line.

Speaker #3: The metallic rise of Senono from zero to a near R&B $100 million annualized scale in under 12 months confirms that we can systematically build and scale new proprietary IPs.

Speaker #3: We have also built out a diversified, long-tail flywheel revenue from our other IP category, which includes emerging priority stars like Xiaomi, Mimimo, Funini, Fila, Imperfix, and more.

Peng Li: We have also built out a diversified long-tail flywheel. Revenue from our Others IP category, which includes emerging proprietary stars like Xiao, Mememo, Fonini, Fila, Intertopics, and more, surged by an extraordinary 661% year-over-year to RMB 39.8 million in the fourth quarter. This is up from just RMB 5.2 million in the same period last year. Combined with Xiuli's solid contribution of RMB 12.8 million in the fourth quarter, this portfolio of IPs now collectively amounts from over 41% of our quarterly revenue. On the product expansion and lifestyle integration front, we recently accelerated several high impact initiatives. Recently, we aggressively expanded our IPs into premier daily consumer scenarios. SIINONO launched a limited edition co-brand sparkling water with Genki Forest, and partnered with the French fashion house, IRO Paris, on an exclusive plush pendant collection.

Speaker #3: Search revenue grew an extraordinary 661% year over year to RMB 39.8 million in the fourth quarter. This is up from just RMB 5.2 million in the same period last year.

Speaker #3: Combined with Theory's solid contribution of R&B—$12.8 million in the fourth quarter—this portfolio of IPs now collectively amounts to over 41% of our quarterly revenue.

Speaker #3: On the product expansion on the lifestyle integration front, we recently accelerated several high-impact initiatives. We aggressively expanded our IPs into premium daily consumer scenarios. Senono launched a limited edition co-branded sparkling water with Stinky Forest.

Speaker #3: And then partnered with the French fashion house Hero Paris on an exclusive plush pendant collection. Meanwhile, we evaluated our cultural positioning with an exclusive partnership with the Museum of Fine Arts Boston, co-developing five premium artistic works across three core IPs.

Peng Li: Meanwhile, we evaluated our cultural positioning with exclusive partnership with the Museum of Fine Arts, Boston, co-developing 5 premium artistic works from across 3 core IPs. Furthermore, we have formalized our partnership with the 2026 China Open, establishing SIINONO as the headline IP for this year's tournament. New IP pipelines were another part of our strategy. We officially introduced Yuna, a novel IP, alongside with seasonal collection for Impopetics and Fluffy Lily. Notably, Fluffy Lily captured strong youth engagement during the Qixi Festival, via collaboration with Kids Bomb, and served as an official event partner for the prestigious 38th Hundred Flowers Awards. Finally, in Hong Kong, our landmark cruise project at the Central Pier is undergoing final decoration. We have transformed the ship into a multilayered vertical experiential space on Victoria Harbor. Ticket sales officially launched on Ctrip on 21 September, ahead of the maiden voyage on 1 October.

Speaker #3: Furthermore, we have formalized our partnership with the 2026 China Open, establishing Senono as a headline IP for this year's tourism. New IP pipelines were another part of our strategy.

Speaker #3: We officially introduced Yuna, a noble IP, alongside the seasonal collection for Imperfix and Fluffy Lily. Notably, Fluffy Lily captured strong youth engagement during the Qixi Festival with a collaboration with Kiss Bomb.

Speaker #3: And served as an official event partner for the prestigious 2038 Husband Flowers Awards. Finally, in Hong Kong, our landmark cruise project at Central Pier is undergoing final decoration.

Speaker #3: We have transformed the ship into a multi-layered vertical experience show space on Victoria Harbor. Ticket sales officially launched on SeaTrip on September 21.

Speaker #3: Ahead of the Madden Voyage on October 1, this will allow us to capture the peak tourist flows of the upcoming National Day Golden Week.

Peng Li: This will allow us to capture the peak tourist flows of the upcoming National Day Golden Week. Second, the disciplined D2C network expansion and scenario optimization. Our offline direct-to-customer footprint remains the primary avenue for deepening user intimacy and validating product market fit. At this stage, our network strategy prioritizes high ROI unit economics and qualitative location premium over share of store count. We continue to manage our permanent footprint with strict capital discipline to optimize our assets portfolio. As of today, we operated 7 D2C stores across 4 core metropolitan areas. During the quarter, we successfully inaugurated our new store at Beijing Daxing International Airport. This marks our strategic entry into high-traffic premium transit hub retail scenarios. We leverage agile pop-up storefronts as a dual-purpose strategic vehicle. Beyond de-risking permanent site selection, these pop-ups function as IP centers for IP activation and immersive user interaction.

Speaker #3: Second, disciplined D2C network expansion and scenario optimization. Our offline direct-to-customer footprint remains the primary avenue for deepening user intimacy and validating product-market fit.

Speaker #3: At this stage, our network strategy prioritizes high RI unit economics and qualitative location premium over sheer store count. We continue to manage our permanent footprint with strict capital discipline to optimize our asset portfolio.

Speaker #3: As of today, we operate seven D2C stores across four core metropolitan areas. During the quarter, we successfully inaugurated our new store at Beijing Daxing International Airport.

Speaker #3: This marks our strategic entry into high-traffic, premium transit hub retail scenarios. We leverage agile pop-up storefronts as a dual-purpose strategic vehicle. Beyond de-risking permanent seat selection, these pop-ups function as IP centers for IP activation and immersive user integration.

Speaker #3: Interaction. A prime example is our successful activations in September at Prisma Xinjiang Center in Shanghai and Hangzhou Tower. In addition, our automatic retail network expanded to 25 robot shops across six cities, having completed our initial structural layout.

Peng Li: A prime example is our successful activations in September at PRISMA Xinjia Center in Shanghai and Hangzhou Tower. In addition, our automated retail network expanded to 25 robot shops across 6 cities. Having completed our initial structural layout, we shift our operational mandate from aggressive deployment to maximizing same machine efficiency and data extraction. Third, operational refinement and digital integration. On the supply chain, we are optimizing our procurement, warehousing, and logistics frameworks by strengthening our bargaining leverage with manufacturers and suppliers. We have shortened our supply chain response times. This enables faster, higher quality replenishment and boosts our supply chain resilience. We are also consolidating data streams across our physical stores, robot shops, and online commerce to build omnichannel data infrastructure. Our upgraded membership ecosystem tracks customer behavior, allowing predictive insights, which help us optimize our inventory. On partner channels, our operational metrics is evolving towards deeper integration.

Speaker #3: We shift our operational mandate from aggressive deployment to maximizing same-machine efficiency and data extraction. Third, operational refinement and digital integration. On the supply chain, we are optimizing our procurement, warehousing, and logistics frameworks by strengthening our budgeting leverage with manufacturers and suppliers.

Speaker #3: We have shortened our supply chain response times; this enables faster, higher-quality replenishment and boosts our supply chain resilience. We are also consolidating data streams across our physical stores, robot shops, and online commerce to build omnichannel data infrastructure.

Speaker #3: Our upgraded membership ecosystem tracks customer behavior, allocating predictive insights which help us optimize our inventory on partner channels. Our operational metrics are evolving towards deeper integration. We are transitioning channel partner relationships from traditional transaction-led distribution into high value.

Peng Li: We are transitioning channel partner relationships with traditional transaction-led distribution into high-value, customized strategic alliance. We are working closely with partners to ensure our premium IP products are placed in environments that respect our brand integrity and pricing. On the digital front, our cumulative social footprint continues to scale in a positive flywheel, and we have shifted our KPIs from vanity followers metrics to deep engagement quality. Our online platforms function as a strategic bridge, converting digital community engagement into physical D2C foot traffic and reinforcing offline experience with online merch. Fourth and finally, talent acquisition and organizational capability building. To execute our closed-loop strategy, we continue to build our team, onboarding top-tier industry experts across premium store operations, product design, and core brand operations. Before I hand the call over to our CFO for a granular financial review, I want to address our bottom line results directly.

Speaker #3: We customized strategic alliances and worked closely with partners to ensure our premium IP products are placed in environments that respect our brand integrity and pricing.

Speaker #3: On the digital front, our cumulative social footprint continues to scale in a positive flywheel. And we have shifted our KPI follower metrics to deep engagement quality.

Speaker #3: Our online platforms function as a strategic bridge, converting digital community engagement into physical D2C foot traffic and reinforcing offline experience with online loyalty. Also, talent acquisition and organizational capability building.

Speaker #3: To execute our close-the-loop strategy, we continue to build our team, onboarding top-tier industry experts across premium store operations, product design, and core brand operations. Before I hand the call over to our CFO for a granular financial review, I want to address our bottom line results directly.

Speaker #3: Our financial loss this quarter was heavily impacted by a one-time non-operating income statement item driven entirely by market valuation adjustments. This historical accounting revaluation is non-cash in nature and separated from our ongoing core operations. Operationally, our performance reflects our necessary upfront investment in design capability, next generation product innovation, and targeted brick-and-mortar storefront and pop-up expansions. Currently, as we proactively optimize our business model and navigate a challenging retail sales environment, our revenue scale was affected by lower sales through traditional channels. Cost and expense optimization is underway across all operational segments. While revenue and cost trends are not yet fully aligned, we expect that gap to close over time as our revenue stability and our cost structures are optimized. Looking forward, we are committed to balancing capital stability with operational momentum, with a near-term mandate to drive towards sustainable profitability at an early date.

Peng Li: Our financial loss this quarter was heavily impacted by a one-time non-operating income statement item driven entirely by market valuation adjustments. This historical accounting revaluation is non-cash in nature, separated from our ongoing core operations. Operationally, our performance reflects our necessary upfront investments in design capability, next-generation product innovation, and targeted brick-and-mortar storefront and pop-up expansions. Currently, as we proactively optimized our business model and navigated a challenging retail sales environment, our revenue scale was affected by lower sales through traditional channels. Cost and expense optimization is underway across all operational segments. While revenue and cost trends are not yet fully aligned, we expect that gap to close over time as our revenue stabilizes and our cost structures are optimized. Looking forward, we are committed to balancing capital stability with operational momentum with near-term mandates to drive towards sustainable profitability at an early date.

Peng Li: Cost and expense optimization is underway across all operational segments. While revenue and cost trends are not yet fully aligned, we expect that gap to close over time as our revenue stabilizes and our cost structures are optimized. Looking forward, we are committed to balancing capital stability with operational momentum with near-term mandates to drive towards sustainable profitability at an early date. At the same time, we will maintain a steady, uncompromising cadence in operating and incubating the proprietary IPs our users love. I will now turn the call over to Jim for the detailed financials. Thank you.

Speaker #3: At the same time, we will maintain a steady, uncompromising cadence in operating and incubating the proprietary IPs our users allow. I will now turn the call over to Tim for the detailed financials.

Peng Li: At the same time, we will maintain a steady, uncompromising cadence in operating and incubating the proprietary IPs our users love. I will now turn the call over to Jim for the detailed financials. Thank you.

Speaker #3: Thank you.

Speaker #1: Hey, thank you. Before I go into the details of our financial results, please note that all amounts are in RMB terms. Unless otherwise stated, the reporting period is the fourth quarter of fiscal year 2026, ended on June 30, 2026.

Ting Xie: Okay, thank you. Before I go into the details of our financial results, please note that all amounts are in RMB terms unless otherwise stated. The reporting period is Q4 of fiscal year 2026, ended on 30 June 2026. In addition to GAAP measures, we will also be discussing non-GAAP measures to provide greater clarity on the trends in our actual operations. In Q4, our total revenue was RMB 127.7 million, up 94.1% year-over-year, but down sequentially. The year-over-year growth was primarily driven by higher sales of both existing and newly launched IP product lines in our Pop Toy business. On a sequential basis, the decrease was mainly due to a challenging market environment and the lower channel sales. Cost of revenue was RMB 94.7 million compared to RMB 43 million a year ago, and RMB 107.9 million in Q3.

Tim Xie: Okay, thank you. Before I go into the details of our financial results, please note that all amounts are in RMB terms unless otherwise stated. The reporting period is Q4 of fiscal year 2026, ended on 30 June 2026. In addition to GAAP measures, we will also be discussing non-GAAP measures to provide greater clarity on the trends in our actual operations. In Q4, our total revenue was RMB 127.7 million, up 94.1% year-over-year, but down sequentially. The year-over-year growth was primarily driven by higher sales of both existing and newly launched IP product lines in our Pop Toy business. On a sequential basis, the decrease was mainly due to a challenging market environment and the lower channel sales. Cost of revenue was RMB 94.7 million compared to RMB 43 million a year ago, and RMB 107.9 million in Q3.

Speaker #1: In addition to GAAP matters, we will also be discussing non-GAAP matters to provide greater clarity on the trends in our actual operations. In the fourth quarter, our total revenue was $127.7 million, up 94.1% year over year, but down sequentially.

Speaker #1: The year-over-year growth was primarily driven by higher sales of both existing and newly launched IP product lines in our Pop Toy business.

Speaker #1: On a sequential basis, the decrease was mainly due to a challenging market environment and lower channel sales. Cost of revenue was $94.7 million, compared to $43 million a year ago, and $107.9 million in the third quarter.

Speaker #1: The year-over-year change was mainly due to higher IP product costs in line with revenue growth, as well as an increase in logistics, labor, and IP licensing expenses.

Ting Xie: The year-over-year change was mainly due to higher IP product costs in line with revenue growth, as well as increase in logistics, labor, and IP licensing expenses. Sequentially, the change was primarily due to lower channel sales. Our gross margin was 25.8% this quarter compared to 34.7% a year ago and 34.5% in Q3. Total operating expenses were RMB 216.1 million for the quarter. To break this down, sales and marketing expenses were RMB 56.2 million this quarter, broadly in line with RMB 57.7 million in Q3, compared to RMB 19.1 million a year ago. The year-over-year change mainly reflected higher advertising and promotional expenditures and increased employee compensation. This investment supported targeted marketing for our brands and IP products. They also supported the continued expansion of our multichannel sales capabilities.

Tim Xie: The year-over-year change was mainly due to higher IP product costs in line with revenue growth, as well as increase in logistics, labor, and IP licensing expenses. Sequentially, the change was primarily due to lower channel sales. Our gross margin was 25.8% this quarter compared to 34.7% a year ago and 34.5% in Q3. Total operating expenses were RMB 216.1 million for the quarter. To break this down, sales and marketing expenses were RMB 56.2 million this quarter, broadly in line with RMB 57.7 million in Q3, compared to RMB 19.1 million a year ago. The year-over-year change mainly reflected higher advertising and promotional expenditures and increased employee compensation. This investment supported targeted marketing for our brands and IP products. They also supported the continued expansion of our multichannel sales capabilities.

Speaker #1: Sequentially, the change was primarily due to lower channel sales. Our gross margin was 25.8% this quarter, compared to 34.7% a year ago and 34.5% in the third quarter.

Speaker #1: Total operating expenses were $216.1 million for the quarter. To break this down, sales and marketing expenses were $56.2 million this quarter, broadly in line with $57.7 million in the third quarter.

Speaker #1: Compared to $19.1 million a year ago, the year-over-year change mainly reflected higher advertising and promotional expenditures, as well as increased employee compensation. This investment supported targeted marketing for our brands and IP products.

Speaker #1: We also supported the continued expansion of our multi-channel sales capabilities. As a percentage of total revenue, non-GAAP sales and marketing expenses—which exclude share-based compensation—were 43.9% this quarter, compared to 29.0% a year ago and 35.0% in the third quarter.

Ting Xie: As a percentage of total revenue, non-GAAP sales and marketing expenses, which exclude share-based compensation, were 43.9% this quarter, compared to 29% a year ago and 35% in Q3. Moving to research and development, R&D expenses were $9.9 million this quarter, compared to $9 million a year ago and $9.5 million in Q3. The year-over-year change was mainly due to higher product design-related expenses as we continue to invest in our design team. Meanwhile, employee compensation and other service fees remained broadly stable during the quarter. As a percentage of total revenue, non-GAAP research and development expenses, which excludes share-based compensation, was 7.7% this quarter, compared to 13.5% a year ago and 5.7% in Q3. General and administrative expenses were $25.8 million, compared to $19.7 million a year ago, and $33.6 million in Q3.

Tim Xie: As a percentage of total revenue, non-GAAP sales and marketing expenses, which exclude share-based compensation, were 43.9% this quarter, compared to 29% a year ago and 35% in Q3. Moving to research and development, R&D expenses were $9.9 million this quarter, compared to $9 million a year ago and $9.5 million in Q3. The year-over-year change was mainly due to higher product design-related expenses as we continue to invest in our design team. Meanwhile, employee compensation and other service fees remained broadly stable during the quarter. As a percentage of total revenue, non-GAAP research and development expenses, which excludes share-based compensation, was 7.7% this quarter, compared to 13.5% a year ago and 5.7% in Q3. General and administrative expenses were $25.8 million, compared to $19.7 million a year ago, and $33.6 million in Q3.

Speaker #1: Moving to research and development, R&D expenses were $9.9 million this quarter, compared to $9 million a year ago and $9.5 million in the third quarter. The year-over-year change was mainly due to higher product design-related expenses as we continued to invest in our design team.

Speaker #1: Meanwhile, employee compensation and other service fees remained broadly stable during the quarter. As a percentage of total revenue, non-GAAP research and development expenses, which exclude share-based compensation, were 7.7% this quarter, compared to 13.5% a year ago and 5.7% in the third quarter.

Speaker #1: General and administrative expenses were $25.8 million compared to $19.7 million a year ago and $33.6 million in the third quarter. The year-over-year change was mainly due to higher share-based compensation expense. Sequentially, the decrease was driven by lower salary expenses and lower share-based compensation expense.

Ting Xie: The year-over-year change was mainly due to higher share-based compensation expense. Sequentially, the decrease was driven by lower salary expenses and lower share-based compensation expense. As a percentage of total revenue, non-GAAP general and administrative expenses, which excludes share-based compensation, were 14.4% this quarter, compared to 26.3% a year ago and 13.8% in Q3. As a result, our net loss from continuing operations was $169.6 million compared to $21.8 million a year ago and $34.1 million in Q3. Our adjusted net loss from continuing operations was $37.7 million, compared to $19.3 million a year ago and $22.9 million in Q3. Basic and diluted net loss from continuing operations per ordinary share were both 1.07 during the quarter compared to 0.12 a year ago and 0.21 in Q3.

Tim Xie: The year-over-year change was mainly due to higher share-based compensation expense. Sequentially, the decrease was driven by lower salary expenses and lower share-based compensation expense. As a percentage of total revenue, non-GAAP general and administrative expenses, which excludes share-based compensation, were 14.4% this quarter, compared to 26.3% a year ago and 13.8% in Q3. As a result, our net loss from continuing operations was $169.6 million compared to $21.8 million a year ago and $34.1 million in Q3. Our adjusted net loss from continuing operations was $37.7 million, compared to $19.3 million a year ago and $22.9 million in Q3. Basic and diluted net loss from continuing operations per ordinary share were both 1.07 during the quarter compared to 0.12 a year ago and 0.21 in Q3.

Speaker #1: As a percentage of total revenue, non-GAAP general and administrative expenses, which exclude share-based compensation, were 14.4% this quarter, compared to 26.3% a year ago and 13.8% in the third quarter.

Speaker #1: As a result, our net loss from continued operations was $169.6 million compared to $21.8 million a year ago, and $34.1 million in the third quarter. Our adjusted net loss from continued operations was $37.7 million compared to $19.3 million a year ago, and $22.9 million in the third quarter.

Speaker #1: Basic and diluted net loss from continued operations per auditor share were both $1.07 during the quarter, compared to $0.12 a year ago and $0.21 in the third quarter. Basic and diluted adjusted net loss from continued operations per auditor share were both $0.24 during the quarter, compared to $0.10 a year ago and $0.14 in the third quarter.

Ting Xie: Basic and diluted adjusted net loss from continuing operations per ordinary share were both 0.24 during the quarter compared to 0.10 a year ago and 0.14 in Q3. Separately, we recorded a goodwill impairment charge of $524.1 million this quarter related to our acquisition of Fast One. This was mainly due to lower-than-expected financial performance amid macro headwinds. The original goodwill from this acquisition was $187.6 million, and after the impairment, our remaining goodwill balance was $63.5 million as of 30 June 2026. Now moving to capital allocation. Our board approved a $20 million ADS repurchase program in June. As of 16 September 2026, we had repurchased approximately 0.4 million ADSs for approximately $0.7 million US under the program. We will continue to assess share repurchases and other capital return opportunities alongside our investment needs, with the goal of maximizing long-term shareholder value.

Tim Xie: Basic and diluted adjusted net loss from continuing operations per ordinary share were both 0.24 during the quarter compared to 0.10 a year ago and 0.14 in Q3. Separately, we recorded a goodwill impairment charge of $524.1 million this quarter related to our acquisition of Fast One. This was mainly due to lower-than-expected financial performance amid macro headwinds. The original goodwill from this acquisition was $187.6 million, and after the impairment, our remaining goodwill balance was $63.5 million as of 30 June 2026. Now moving to capital allocation. Our board approved a $20 million ADS repurchase program in June. As of 16 September 2026, we had repurchased approximately 0.4 million ADSs for approximately $0.7 million US under the program. We will continue to assess share repurchases and other capital return opportunities alongside our investment needs, with the goal of maximizing long-term shareholder value.

Speaker #1: Separately, we recorded a goodwill impairment charge of $124.1 million this quarter related to our acquisition of that fund. This was mainly due to lower than expected financial performance amid macro headwinds.

Speaker #1: The original goodwill from this acquisition was $187.6 million, and after the impairment, our remaining goodwill balance was $63.5 million as of June 30, 2026.

Speaker #1: Now, moving to capital allocation, our board approved a $20 million ADS repurchase program in June. As of September 16, 2026, we had repurchased approximately 0.4 million ADS for approximately $0.37 million under the program.

Speaker #1: We will continue to assess share repurchases and other capital return opportunities alongside our investment needs, with the goal of maximizing long-term shareholder value. Looking ahead, as we continue to invest in our self-operated system, we will remain disciplined in allocating capital across our different formats.

Ting Xie: Looking ahead, as we continue to invest in our self-operated system, we will remain disciplined in allocating capital across our different formats, closely evaluating the unit economies of each one, and prioritizing investment towards those with the strongest long-term potential. We remain committed to strengthening our IP and product capabilities while improving operating efficiency over time. That concludes my prepared remarks. Operator, let's open up the call for questions. Thank you.

Tim Xie: Looking ahead, as we continue to invest in our self-operated system, we will remain disciplined in allocating capital across our different formats, closely evaluating the unit economies of each one, and prioritizing investment towards those with the strongest long-term potential. We remain committed to strengthening our IP and product capabilities while improving operating efficiency over time. That concludes my prepared remarks. Operator, let's open up the call for questions. Thank you.

Speaker #1: We are closely evaluating the unit economics of each business and prioritizing investment towards those with the strongest long-term potential. We remain committed to strengthening our IP and product capabilities, while improving operating efficiency over time.

Speaker #1: That concludes my prepared remarks. Operator, let's open up the call for questions. Thank you.

Speaker #2: Thank you. We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad.

Ting Xie: Thank you. We will now begin the question-and-answer session. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. 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. Today's first question comes from Liping Zhao with CICC. Please go ahead.

Operator: Thank you. We will now begin the question-and-answer session. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. 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. Today's first question comes from Liping Zhao with CICC. Please go ahead.

Speaker #2: To withdraw your question, please press star then two. When asking a question in Chinese, please translate your question into English for the convenience of everyone on the call.

Speaker #2: Please ask one question at a time. And today's first question comes from Leping Zhao with CICC. Please go ahead.

Speaker #3: Hey, Li Zong, Team Zong, 晚上好。感谢接受我的提问啊。我的问题是关于这个新IP的。请问公司在新IP的挖掘、孵化和商业化方面有哪些机制和规划？然后我快快翻译一下。Good evening, Mr. Li and team. Thanks for taking my questions. My question is about the new IP. What plans do you have for the exploration, incubation, and commercialization of new IPs?

Liping Zhao: 李总、 Tim 总晚上好，感谢接受我的提问。我的问题是关于新 IP 的，请问公司在新 IP 的挖掘、孵化和商业化方面有哪些机制和规划？然后我快翻译一下。Good evening, Mr. Li and team. Thanks for taking my questions. My question is about the new IP. What plans do you have for the exploration, incubation, and commercialization of new IPs? Thank you.

Liping Zhao: 李总、 Tim 总晚上好，感谢接受我的提问。我的问题是关于新 IP 的，请问公司在新 IP 的挖掘、孵化和商业化方面有哪些机制和规划？然后我快翻译一下。

[Translator]: Good evening, Mr. Li and team. Thanks for taking my questions. My question is about the new IP. What plans do you have for the exploration, incubation, and commercialization of new IPs? Thank you.

Speaker #3: Thank you.

Speaker #4: Okay. 我来回答这个问题.然后我同事帮我来翻译.就是新IP的这个挖掘孵化和商业化呢,我们已经有了一套就是0到1的这么系统的打法.因为刚才也提到我们有20多个IP了.然后我们围绕着这个IP的生命周期去搭建这个能力.然后呢,从挖掘孵化到商业化,每个环节我们都有已经成型的方法和团队.然后同时呢,我们也在适当的就是引入一些国际IP做联名合作.通过这些合作呢,去积累产品开发和运营的经验.最后再反哺我们自己的原创IP来形成正向的循环. Okay.

Peng Li: 我来回答这个问题，然后我同事帮我来翻译。新IP的挖掘、孵化和商业化，我们已经有了一套0到1的系统的打法，因为刚才也提到我们有20多个IP了。我们围绕着IP的生命周期去搭建这个能力，从挖掘、孵化到商业化，每个环节我们都有已经成型的方法和团队。同时我们也在适当地引入一些国际IP做联名合作，通过这些合作去积累产品开发和运营的经验，最后再反哺我们自己的原创IP，来形成正向的循环。

Liping Zhao: In terms of new IP discovery, incubation, and commercialization, we have developed a systematic approach that takes our IPs from zero to one with, as we mentioned, 22 properties. We build our capabilities around the full life cycle of IPs, from discovery to incubation to commercialization. Every stage has its own approach and a dedicated team. At the same time, we selectively bring in international IP collaborations. These partnerships allow us to gain valuable experience in product development and marquee operations, which we then feed back into our own original IPs, creating a positive cycle that strengthens our core over time.

[Translator]: In terms of new IP discovery, incubation, and commercialization, we have developed a systematic approach that takes our IPs from zero to one with, as we mentioned, 22 properties. We build our capabilities around the full life cycle of IPs, from discovery to incubation to commercialization. Every stage has its own approach and a dedicated team. At the same time, we selectively bring in international IP collaborations. These partnerships allow us to gain valuable experience in product development and marquee operations, which we then feed back into our own original IPs, creating a positive cycle that strengthens our core over time.

Speaker #5: In terms of new IP discovery, incubation, and commercialization, we have developed a systematic approach that takes our IPs from zero to one, with—as we mentioned—22 properties.

Speaker #5: We build out of IPs—from discovery to incubation to commercialization. Every stage has its own approach and a dedicated team. At the same time, we selectively bring in international IP collaborations.

Speaker #5: These partnerships allowed us to gain valuable experience in product development and market operations, which we then feed back into our own original IP, creating a positive cycle that strengthens our core over time.

Speaker #4: 下面分别就是挖掘IP这个方面呢,我们就是坚持原创和跟艺术家合作两条腿来走路.那目前呢,IP的矩阵已经有22个.然后风格呢,就是有酷萌的,可爱的,时尚的,多个方面吧.然后呢,我们会持续的去跟有才华的新锐的设计师跟艺术家来合作.然后呢,不断来丰富我们的这个创意的来源.Okay.

Peng Li: 下面分别就是挖掘IP这个方面，我们坚持原创和跟艺术家合作两条腿来走路。目前IP的矩阵已经有22个，然后风格就是有酷萌的、可爱的、时尚的多个方面。然后我们会持续地去跟有才华的新锐的设计师跟艺术家来合作，然后不断来丰富我们的创意的来源。OK。

Speaker #5: Let me make it more detailed. On the discovery side, we maintain both original in-house creations and collaborations with artists. Our IP portfolio has now expanded to 22 properties, spanning a wide range of styles—from cool cute, to adorable, to fashion forward.

Liping Zhao: Let me make it more detailed. On the discovery side, we maintain both original in-house creation and collaborations with artists. Our IP portfolio has now expanded to 22 properties, spanning a wide range of styles from cool kids to adorable to fashion-forward. We continue to bring in talented emerging designers and artists to keep our creative pipeline fresh and diverse.

[Translator]: Let me make it more detailed. On the discovery side, we maintain both original in-house creation and collaborations with artists. Our IP portfolio has now expanded to 22 properties, spanning a wide range of styles from cool kids to adorable to fashion-forward. We continue to bring in talented emerging designers and artists to keep our creative pipeline fresh and diverse.

Speaker #5: We continue to bring in talented, emerging designers and artists to keep our creative pipeline fresh and diverse.

Speaker #4: 然后孵化的方面呢,就是我们运用数据和情感这两条线吧,来驱动.一方面呢,我们通过这个D2C门店和我们这个机器人商店的这个实时的数据.然后用户的反馈来去反向优化我们的IP设计.就让我们的这个孵化的过程有数据支撑.另外一方面呢,我们也非常看重就是每个IP的这种性格和感情的这种标签.比如Sinono呢,主打的是这个不完美也可爱.Bakuko呢,代表的是自由勇敢的一个小野孩.然后Sinono是去年下半年我们才推出的新IP.那么跨IP的这个用户重合度呢,还在持续的上升.这个就说明我们这套0到1的这个孵化机制已经走通了.那接下来呢,我们会把同样的方法论复制到就比如RDD Impopo这些新的IP上面来逐渐形成吧.就是这种可复制的孵化能力.Okay.

Peng Li: 然后孵化的方面，我们一是用数据和情感这两条线来驱动。一方面我们通过这个D2C门店和我们机器人商店的实时数据，然后用户的反馈来去反向优化我们的IP设计，就让我们的这个孵化的过程有数据支撑。另外一方面，我们也非常看重每个IP的性格和感情的这种标签。比如C Nono主打的是不完美与可爱，WAKUKU代表的是自由勇敢的一个小野孩。然后C Nono是去年下半年我们才推出的新IP。那么跨IP的用户重合度还在持续地上升，这个就说明我们这套0到1的孵化机制已经走通了。那接下来我们会把同样的方法论复制到就比如RBB、Impopetics这些新的IP上面，来逐渐形成这种可复制的孵化能力。

Speaker #5: On the incubation side, we use both data and emotional connection to guide our work. We look at real-time cells and user feedback from our D2C stores and rubber shops to shape our IP designs.

Liping Zhao: On the incubation side, we use both data and emotional connection to guide our work. We look at the real-time sales and user feedback from our D2C stores and Robo Shops to shape our IP designs. At the same time, we give each IP its own personality and emotional appeal.

[Translator]: On the incubation side, we use both data and emotional connection to guide our work. We look at the real-time sales and user feedback from our D2C stores and Robo Shops to shape our IP designs. At the same time, we give each IP its own personality and emotional appeal. C Nono is about imperfect but adorable. WAKUKU is a free and brave little wild child. C Nono launched in the second half of last year, and cross IP user overlap is still growing. This tells us our zero-to-one incubation model works. We will bring the same approach to Impopetics, building a repeatable process as we go.

Speaker #5: At the same time, we give each IP its own personality and emotional appeal. Sinono is about imperfect but adorable. Bakuko is a brave and brief little wild child.

Tina Tang: C Nono is about imperfect but adorable. WAKUKU is a free and brave little wild child. C Nono launched in the second half of last year, and cross IP user overlap is still growing. This tells us our zero-to-one incubation model works. We will bring the same approach to Impopetics, building a repeatable process as we go.

Speaker #5: Sinono launched in the second half of last year, and IP user overlap is still growing. This tells us our zero-to-one incubation model works.

Speaker #5: We will bring the same approach to Impopo Picks, building a repeatable process as we go.

Speaker #4: 然后商业化的方面,核心IP跟新IP呢,我们都在推.然后旗舰IP的话呢,就是我们要持续的这个稳固基本盘.然后新IP呢,我们在加速跨界合作和场景的这个拓展.今年我们Sinono的这个IP为例吧,就是联名动作呢,非常的密集.比如我们跟元气森林推出了限定的这个白桃气泡水.然后跟波士顿美术馆做了联名产品.还跟这个法国的一个时装品牌叫Hero.然后有合作推出联名吊卡.马上呢,我们还会作为就是今年的中国网球公开赛的官方合作IP来亮相.Okay.

Peng Li: 对，然后商业化的方面，核心IP跟新IP我们都在推。然后旗舰IP要持续地稳固基本盘，新IP我们在加速跨界合作和场景的拓展。今年我们以C Nono的IP为例，联名动作非常地密集。比如我们跟元气森林推出了限定的白桃气泡水，跟波士顿美术馆做了联名产品，还跟法国的一个时装品牌叫IRO有合作，推出联名吊卡。马上我们还会作为今年中国网球公开赛的官方合作IP来亮相。OK。

Tina Tang: On the commercialization side, we are advancing both our core IPs and our newer ones. For our flagship IPs, we keep rolling out new products to strengthen our base. For our newer IPs, we are driving cross-industry collaborations and expanding into more scenarios. For example, C Nono has been very active on a partnership this year. We teamed up with Genki Forest on a limited edition white peach sparkling water, collaborated with the Museum of Fine Arts, Boston on the co-branded products, and partnered with the French fashion brand IRO Paris on an exclusive plush panda series. C Nono will also take a part as the official partner IP at 2026 China Open.

[Translator]: On the commercialization side, we are advancing both our core IPs and our newer ones. For our flagship IPs, we keep rolling out new products to strengthen our base. For our newer IPs, we are driving cross-industry collaborations and expanding into more scenarios. For example, C Nono has been very active on a partnership this year. We teamed up with Genki Forest on a limited edition white peach sparkling water, collaborated with the Museum of Fine Arts, Boston on the co-branded products, and partnered with the French fashion brand IRO Paris on an exclusive plush panda series. C Nono will also take a part as the official partner IP at 2026 China Open.

Speaker #5: On the commercialization side, we're advancing both our core IPs and our newer ones. For our flagship IPs, we keep rolling out new products to strengthen our base.

Speaker #5: For our newer IPs, we're joining cross-industry collaborations and expanding into more scenarios. For example, Sinono has been very active in partnerships this year.

Speaker #5: We teamed up with Genki Forest on a limited edition white peach sparkling water, and collaborated with the Museum of Fine Arts Boston on co-branded products.

Speaker #5: And partnered with the French fashion brand IRO Paris on an exclusive plush candle series. Sinono will also take part as an official partner IP at the 2026 China Open.

Speaker #4: 新IP方面,RDD呢,在七七的这个期间我们推了相应的一个主题活动.然后呢,还跟手机壳的一个品牌叫Casebong联名推了系列的手机壳.并且呢,作为官方的活动伙伴,我们也亮相今年的这个大众百花奖.然后新的大娃呢,也在持续的推出.从饮料到时尚,然后文化艺术到体育赛事,节日策划到生活周边,我们的IP正在一步步的就是走向更多元化的消费跟生活场景.Okay.

Peng Li: 新IP方面，Rirui在七夕期间，我们推了相应的一个主题活动，还跟手机壳的一个品牌叫CASETiFY联名推了系列手机壳。并且作为官方的合作伙伴，我们也亮相了今年的大众百花奖。然后新的大娃也在持续地推出。从饮料到时尚，然后文化艺术到体育赛事，节日策划到生活周边，我们的IP正在一步步地走向更多元化的消费跟生活场景。

Speaker #5: On the new IP front, Fluffy Lily rolled out themed campaigns during the Qixi Festival and also teamed up with the phone case brand Case Band.

Tina Tang: On the new IP front, Fluffy Lily rolled out themed campaigns during Qixi Festival, and also teamed up with a phone case brand CASETiFY. Fluffy Lily also served as the official event partner for the 38th Hundred Flowers Awards. New Rirui square figures are also being released on a regular basis. Across all these initiatives, from the beverages to fashion, from arts and culture to sports events, and from seasonal campaigns to lifestyle merchandise, our IPs are steadily making their way into a broader range of consumer and everyday life scenarios.

Speaker #5: Fluffy Lily also served as an official event partner for the 38th Hundred Flowers Awards. New large-scale figures are also being released on a regular basis.

Speaker #5: Across all these initiatives—from beverages to fashion, from arts and culture to sports events, and from seasonal campaigns to lifestyle merchandise—our IPs are steadily making their way into a broader range of consumer and everyday life scenarios.

Speaker #4: 所以我们相信啊,就是在潮玩行业从拼单品,然后转向到拼IP的运营能力的这个阶段转换之后呢,谁能够继续孵化出有性格有故事的IP,谁就能走得更远.所以这就是我们一直强调的坚持的一个长期健康度的一个具体表现.Okay.

Peng Li: 所以我们相信，在潮玩行业从拼单品转向到拼IP的运营能力的这个阶段转换之后，谁能够继续孵化出有性格、有故事的IP，谁就能走得更远。所以这就是我们一直强调的、坚持的一个长期健康度的一个具体表现。OK。

Speaker #5: So, we believe the pop to an industry is shifting. It is no longer about single product hits; it is about who can consistently incubate IPs with real character and stories, and operate them well.

Tina Tang: We believe the pop toy industry is shifting. It is no longer about single product hits. It is about who can consistently incubate IPs with real character and stories, and operate them well. That takes time and discipline. This is a concrete reflection of what we mean by putting long-term health first. Thank you.

[Translator]: We believe the pop toy industry is shifting. It is no longer about single product hits. It is about who can consistently incubate IPs with real character and stories, and operate them well. That takes time and discipline. This is a concrete reflection of what we mean by putting long-term health first. Thank you.

Speaker #5: That takes time and discipline. This is a concrete reflection of what we mean by putting long-term health first. Thank you.

Speaker #4: Okay, thank you. That’s all for the questions.

Peng Li: Okay. Thank you. That is all for the question.

Speaker #1: Thank you, Ms. Lee. That's very clear.

Liping Zhao: Thank you, Miss Li. That is very clear.

Speaker #2: Thank you. And our next question comes from Yikun Zhang with CITICS. Please go ahead.

Liping Zhao: Thank you. Our next question comes from Yikun Zheng with CITIC Securities. Please go ahead.

Operator: Thank you. Our next question comes from Yikun Zheng with CITIC Securities. Please go ahead.

Speaker #4: Great. Hey, 李总，谢总好。我这边请教一个问题是关于线下渠道这块。因为我们线下有直营门店，包括店中店，也包括像机器人商店这些直营渠道。想问一下在这些直营渠道的运营情况上有没有一些更新？包括现在整个潮玩行业的趋势还是有些波动。在这个波动趋势下，未来我们在这些直营渠道上的扩展计划是怎么样的？ Good evening, management. Thank you for taking my question. My question is about our offline channels. Can we have some update on the current situation of our offline channels, and what are our expansion plans on offline channels given the recent fluctuations in industry sentiment?

Yikun Zheng: 喂，余总、谢总好。我这边请教一个问题，关于线下渠道这块，就是因为我们现在线下有直营的门店，包括店中店，也包括像机器人商店这些直营的渠道，想问一下在这些直营渠道的运营情况上有没有一些更新？包括因为现在整个潮玩行业的趋势还是有一些波动的，在这个波动的趋势下，未来我们在这些直营渠道上的扩展的计划是怎么样的？Good evening, management.

[Translator]: Good evening, management. Thank you for taking my question. My question is about our offline channels. Can we have some update on the current situation of our offline channels? What is our expansion plans on offline channels given the recent fluctuations in industry segments? Thank you.

Yikun Zheng: Thank you for taking my question. My question is about our offline channels. Can we have some update on the current situation of our offline channels? What is our expansion plans on offline channels given the recent fluctuations in industry segments? Thank you.

Speaker #4: Thank you. 好，谢谢. Okay, thank you. I will answer your question directly in English. Currently, we have opened seven D2T brand stores across four core cities in China.

Peng Li: 好, 谢谢. Okay, thank you. I will answer your question directly in English. Currently we have opened seven D2C brand stores across four core cities in China since end of last year. This quarter, we opened a new store at Beijing Daxing International Airport.

Tim Xie: 好, 谢谢. Okay, thank you. I will answer your question directly in English. Currently we have opened seven D2C brand stores across four core cities in China since end of last year. This quarter, we opened a new store at Beijing Daxing International Airport. Making an important step into transportation hub scenarios and effectively reaching high-value business and travel consumers. Each D2C store is integrated into our self-operated brand system with a unified IP expression, serving not only as a sales channel but also as a core space for user interaction.

Speaker #4: Since the end of last year, this quarter we opened a new store at Beijing Daxing International Airport, making an important step into transportation hub scenarios and effectively reaching high-value business and travel consumers.

Ting Xie: Making an important step into transportation hub scenarios and effectively reaching high-value business and travel consumers. Each D2C store is integrated into our self-operated brand system with a unified IP expression, serving not only as a sales channel but also as a core space for user interaction. Regarding our store opening cadence, we are firmly committed to a quality over quantity approach. We prioritize the operational quality of each store over the number of stores we opened. For us, D2C stores are the foundation of our relationship with users. Regarding the Robo Shops, the initial rollout phase is largely completed. Our focus has shifted from deployment scale to operational efficiency and refined operations. These machines extend our offline presence and generated real-time consumer insights, helping us better understand product preferences and purchasing behaviors, and informing our assortment and placement decisions.

Speaker #4: Each D2T store is integrated into our self-operated brand system, with a unified IP expression, serving not only as a sales channel but also as a core space for user interaction.

Speaker #4: Regarding our store opening cadence, we are firmly committed to a quality-over-quantity approach. We prioritize the operational quality of each store over the number of stores we open.

Tim Xie: Regarding our store opening cadence, we are firmly committed to a quality over quantity approach. We prioritize the operational quality of each store over the number of stores we opened. For us, D2C stores are the foundation of our relationship with users. Regarding the Robo Shops, the initial rollout phase is largely completed. Our focus has shifted from deployment scale to operational efficiency and refined operations. These machines extend our offline presence and generated real-time consumer insights, helping us better understand product preferences and purchasing behaviors, and informing our assortment and placement decisions.

Speaker #4: For us, D2C stores are the foundation of our relationship with users. Regarding the robot shops, the initial rollout phase is largely completed. Our focus has shifted from deployment scale to operational efficiency and refund operations.

Speaker #4: These machines extend our offline presence and generate real-time consumer insights, helping us better understand product preferences and purchasing behaviors, and informing our assortment and placement decisions.

Speaker #4: In terms of expansion strategy, we remain disciplined in site selection and focused on refund operations. The Daxing Airport store validates our transportation hub approach, and the Hong Kong Central Pier IP sim boat experience, expected to launch early next month, represents another new scenario exploration.

Ting Xie: In terms of expansion strategy, we remain disciplined in site selection and focused on refined operations. The Daxing Airport store validates our transportation hub approach, and the Hong Kong Central Pier IP themed boat experience, expected to launch early next month, represents another new scenario exploration. We will not open stores for the sake of opening stores. Every new store plan goes through a strict ROI review and site evaluation before we move forward, especially under this challenging market environment. We only consider replication after confirming the unit economies are sound. Yeah, that is our approach.

Tim Xie: In terms of expansion strategy, we remain disciplined in site selection and focused on refined operations. The Daxing Airport store validates our transportation hub approach, and the Hong Kong Central Pier IP themed boat experience, expected to launch early next month, represents another new scenario exploration. We will not open stores for the sake of opening stores. Every new store plan goes through a strict ROI review and site evaluation before we move forward, especially under this challenging market environment. We only consider replication after confirming the unit economies are sound. Yeah, that is our approach.

Speaker #4: We will not open stores for the sake of opening stores. Every new store plan goes through a strict ROI review and size evaluation before we move forward.

Speaker #4: Especially under this challenging market environment, we only consider replication after confirming unit economics are sound. Yeah, that is our approach. Thank you, team.

Yikun Zheng: Thank you, Tim. It is very clear.

Speaker #4: It's very clear. Yeah.

Ting Xie: Yeah.

Tim Xie: Yeah.

Speaker #2: Thank you. And our next question comes from DC with Haitai Securities. Please go ahead.

Ting Xie: Thank you. Our next question comes from DC with Haitong Securities. Please go ahead.

Operator: Thank you. Our next question comes from DC with Haitong Securities. Please go ahead.

Speaker #4: 李总好，谢总好，感谢这个提问机会。我这边主要想请教一个问题，就是我们最新季度 sell-in 和 sell-through 的表现分别怎么样？后续的话，我们会如何看待库存管理？ Thank you, management, for taking my question. My question is about our inventory. What is the performance of our sell-in and sell-through in the most recent season? And how do we expect to manage our inventory in the future? Thank you.

[Analyst] (Haitong Securities): Thank you management for taking my question. My question is about our inventory. What is the performance of our sell in and sell through in most recent season, and how do we expect to manage our inventory in the future? Thank you.

[Translator]: Thank you management for taking my question. My question is about our inventory. What is the performance of our sell in and sell through in most recent season, and how do we expect to manage our inventory in the future? Thank you.

Speaker #4: Thank you for your question. Regarding our revenue compensation and the inventory dynamics, channel inventory did run higher than our normal operating range this quarter. The underlying cause is not attributable to any single product line.

Ting Xie: Thank you for your question. Regarding our revenue composition and the inventory dynamics, the channel inventory did run higher than our normal operating range this quarter. The underlying cause is not attributable to any single product line. Instead, it reflects a structural mismatch between a cooling macro environment and our historical operating pace. Historically, we relied heavily on our distributor network to gauge end market demand cycles. As the consumer market cooled, the limitations of this traditional wholesale model became apparent. Our direct visibility into real-time end customer demand was not precise enough, creating a temporary gap between our selling pace and the actual end market sell-through. Additionally, when evaluating our inventory balance, it is important to consider the unique operational characteristics of the pop toy and the IP industry.

Tim Xie: Thank you for your question. Regarding our revenue composition and the inventory dynamics, the channel inventory did run higher than our normal operating range this quarter. The underlying cause is not attributable to any single product line. Instead, it reflects a structural mismatch between a cooling macro environment and our historical operating pace. Historically, we relied heavily on our distributor network to gauge end market demand cycles. As the consumer market cooled, the limitations of this traditional wholesale model became apparent. Our direct visibility into real-time end customer demand was not precise enough, creating a temporary gap between our selling pace and the actual end market sell-through. Additionally, when evaluating our inventory balance, it is important to consider the unique operational characteristics of the pop toy and the IP industry.

Speaker #4: Instead, it reflects structural mismatch between a cooling macro environment and our historical operating pace. Historically, we relied heavily on our distributor network to gauge end-market demand cycles.

Speaker #4: As a consumer market could, the limitation of this traditional wholesale model became apparent. Our direct visibility into real-time end customer demand was not precise enough, creating a temporary gap between our selling pace and the actual end market sales-through.

Speaker #4: Additionally, when evaluating our inventory balance, it is important to consider the unique operational characteristics of the pop toy and IP industry. To prepare for our packed pipeline of upcoming product launches, and to support the incubation of new IP products, a substantial amount of strategic front-loaded manufacturing and advanced stockpiling is structurally necessary.

Ting Xie: To prepare for our packed pipeline of upcoming product launches and to support the incubation of new IP products, a substantial amount of strategic front-loaded manufacturing and advanced stockpiling is structurally necessary. These forward-looking buffers designed to secure our upcoming release calendar represent a deliberate and healthy component of our current inventory composition. This friction is precisely why we remain firmly committed to our transition toward a self-operated closed loop. We have already initiated a series of proactive discipline measures to optimize our inventory structure. The first one is leveraging omni-channel synergy to accelerate sell-through. We are significantly increasing product exposure and localized touchpoints through our scaling D2C online channels, premium D2C stores, and robo shop network. Concurrently, selected assortments have been strategically integrated into promotional pipelines for our high engagement pop-up events and experiential offline initiatives to accelerate organic consumer sell-through. Secondly, international sell-in moderation for scarcity control.

Tim Xie: To prepare for our packed pipeline of upcoming product launches and to support the incubation of new IP products, a substantial amount of strategic front-loaded manufacturing and advanced stockpiling is structurally necessary. These forward-looking buffers designed to secure our upcoming release calendar represent a deliberate and healthy component of our current inventory composition. This friction is precisely why we remain firmly committed to our transition toward a self-operated closed loop. We have already initiated a series of proactive discipline measures to optimize our inventory structure. The first one is leveraging omni-channel synergy to accelerate sell-through. We are significantly increasing product exposure and localized touchpoints through our scaling D2C online channels, premium D2C stores, and robo shop network. Concurrently, selected assortments have been strategically integrated into promotional pipelines for our high engagement pop-up events and experiential offline initiatives to accelerate organic consumer sell-through. Secondly, international sell-in moderation for scarcity control.

Speaker #4: These forward-looking buffers, designed to secure our upcoming release calendar, represent a deliberate and healthy component of our current inventory composition. This friction is precisely why we remain firmly committed to our transition toward a self-operated closed loop.

Speaker #4: We have already initiated a series of proactive, disciplined measures to optimize our inventory structure. The first one is leveraging omnichannel synergy to accelerate sales through.

Speaker #4: We are significantly increasing product exposure and localized touch points through our scaling D2C online channels, premium D2C stores, and robot shop network. Concurrently, selected assortments have been strategically integrated into promotional pipelines for our high engagement pop-up events and experimental offline initiatives to accelerate organic consumer sales through.

Speaker #4: And secondly, international sell-in moderation for scarcity control. Intentionally, selling in moderation for scarcity has moderated our shipping pace to wholesale distributors. We prefer to absorb a short-term compression in wholesale revenue to give the channel sufficient room to clear existing stock in a healthy way.

Ting Xie: Intentionally sell-in moderation for scarcity control. We have deliberately moderated our shipping pace to wholesale distributors. We prefer to absorb a short-term compression in wholesale revenue to give the channel sufficient room to clear existing stock in a healthy way, rather than overcrowding the channel for short-term gain. Certainly, targeted channel clearing programs. Across select partner channels, we have introduced high-value bundle offers and tailored purchase incentives. This drives faster inventory turnover while preserving our core brand equity and pricing integrity. We view the current inventory pressure as temporary and fully manageable, but working it down structurally will take time, and the exact trajectory will depend on macro retail conditions. We do not anticipate a rapid market recovery in the near term, and we will not resort to aggressive clearing measures that undermine our brand premium.

Tim Xie: Intentionally sell-in moderation for scarcity control. We have deliberately moderated our shipping pace to wholesale distributors. We prefer to absorb a short-term compression in wholesale revenue to give the channel sufficient room to clear existing stock in a healthy way, rather than overcrowding the channel for short-term gain. Certainly, targeted channel clearing programs. Across select partner channels, we have introduced high-value bundle offers and tailored purchase incentives. This drives faster inventory turnover while preserving our core brand equity and pricing integrity. We view the current inventory pressure as temporary and fully manageable, but working it down structurally will take time, and the exact trajectory will depend on macro retail conditions. We do not anticipate a rapid market recovery in the near term, and we will not resort to aggressive clearing measures that undermine our brand premium.

Speaker #4: Rather than overcrowding the channel for short-term gain. And thirdly, through targeted channel clearing programs across select partner channels, we have introduced high-value bundle offers and tailored purchase incentives.

Speaker #4: This drives faster inventory turnover while preserving our core brand equity and pricing integrity. We view the current inventory pressure as temporary and fully manageable.

Speaker #4: But working it down structurally will take time, and the exact trajectory will depend on macro retail conditions. We do not anticipate a rapid market recovery in the near term.

Speaker #4: And we will not resort to aggressive clearing measures that undermine our brand premium. I think the most important thing is that we are backed by our interest-bearing, debt-free balance sheet and highly resilient liquidity profile.

Ting Xie: I think the most important thing is that, backed by our interest-bearing, debt-free balance sheet and highly resilient liquidity profile, we possess the financial durability and strategic patience required. This inventory episode has only reinforced our determination to minimize channel reliance and strengthen our self-operated capabilities. Going forward, we will fully leverage live data from our D2C store friends and robot stores to build more accurate demand forecasting models, optimizing our production and shipping pace from the source to prevent similar mismatches in the future. Thank you.

Tim Xie: I think the most important thing is that, backed by our interest-bearing, debt-free balance sheet and highly resilient liquidity profile, we possess the financial durability and strategic patience required. This inventory episode has only reinforced our determination to minimize channel reliance and strengthen our self-operated capabilities. Going forward, we will fully leverage live data from our D2C store friends and robot stores to build more accurate demand forecasting models, optimizing our production and shipping pace from the source to prevent similar mismatches in the future. Thank you.

Speaker #4: We possess the financial durability and strategic patience required. This inventory episode has only reinforced our determination to minimize channel reliance and strengthen our self-operated capabilities.

Speaker #4: Going forward, we will fully leverage live data from our D2C store friends and robot shops to build more accurate demand forecasting models, optimizing our production and shipping pace from the source to prevent similar mismatches in the future.

Speaker #4: Thank you.

Speaker #2: Thank you. As there are no further questions, I’d like to hand the conference back to management for closing remarks.

Ting Xie: Thank you. As there are no further questions, I would like to hand the conference back to management for closing remarks.

Operator: Thank you. As there are no further questions, I would like to hand the conference back to management for closing remarks.

Speaker #1: 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.

Tina Tang: 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 nice day.

Speaker #1: We look forward to speaking with everyone on our next call. Have a nice day.

Speaker #2: Thank you. That concludes today's presentation. You may now disconnect your lines, and have a wonderful day.

Tina Tang: Thank you. That concludes today's presentation. You may now disconnect your lines and have a wonderful day.

Operator: Thank you. That concludes today's presentation. You may now disconnect your lines and have a wonderful day.

Ting Xie: Okay, thank you. Bye bye.

Peng Li: Okay, thank you. Bye bye.

More HERE earnings call transcripts

Browse all earnings call transcripts

Full Year 2026 Here Group Ltd Earnings Call

Request TrialDemo

Here Group

Earnings