Here Group's Q1 2026 Earnings Call: Contradictions in Production Capacity, IP Strategy, and Overseas Market Expansion

Date of Call: December 2, 2025

Financials Results

• Revenue: RMB 127.1M, up 93.3% quarter-over-quarter from RMB 65.8M
• EPS: Basic and diluted net loss RMB 0.16 per share; adjusted net loss per share RMB 0.11; adjusted net loss from continuing operations narrowed to RMB 17.1M from RMB 19.3M in the prior quarter
• Gross Margin: 41.2%, compared with 34.7% in the previous quarter

Guidance:

• Q2 FY2026 revenue expected RMB 150M to RMB 160M.
• Full FY2026 revenue expected RMB 750M to RMB 800M.
• Production capacity expected to ramp to ~400,000 sets/month (~2.4M units) by year-end to support launches and orders.
• Management expects continuing cost optimization and narrowing adjusted losses, targeting profitable growth in upcoming quarters.

Business Commentary:

* Revenue Growth and Pop Toy Market Opportunity: - Here Group Limited reported total revenue of RMB 127.1 million for Q1 FY2026, with its pop toy business growing 93.3% quarter-over-quarter from RMB 65.8 million. - The growth was driven by the completion of the disposal of non-pop toy businesses, allowing for a focused strategy on the global pop toy market.

• Improved Gross Margin and Profitability:
• 
• The company's gross margins expanded to 41.2%, up from 34.7% in the previous quarter.

• This improvement is attributed to the sharpened focus on the pop toy business, which has led to improved operational efficiency.

• Strong IP Ecosystem and Strategic Partnerships:

• Here Group's flagship IPs, such as WAKUKU and ZIYULI, continue to contribute significantly to revenue, with WAKUKU alone accounting for 71% of total revenue.

• The success of these IPs and strategic partnerships, like the one with Beijing Radio and Television Station, has expanded cultural influence and brand credibility.

• International Market Expansion:

• The company is expanding its overseas presence, with a distribution network covering around 20 countries.
• Despite challenges like supply chain shortages, international expansion is supported by increased production capacity and partnerships with overseas distributors.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management described Q1 as "strong execution and accelerating momentum," reported RMB 127.1M revenue with pop toy growth of 93.3% QoQ, gross margin expansion to 41.2% (from 34.7%), adjusted net loss narrowed to RMB 17.1M, and provided upbeat FY revenue guidance of RMB 750–800M.

Q&A:

• Question from Yijing Cai (Citigroup): I have two questions. And the first one, based on the second quarter guidance imply that the first half revenue is around RMB 280 million, right? So, to hit the full year target of RMB 800 million, second half revenue is to reach at least RMB 500 million, which is nearly double first half. What is the specific breakdown of this confidence? And is this cost driven by capacity, secure orders from retailers? Or is it based on projected sell-through of new launches -- new IP launches, I mean? And do we expect to turn profitable in the second half given the strong revenue guidance? And my second question is about the implication on the Labubu momentum. Do we expect -- is there any impact on our Labubu revenue momentum?
  Response: Guidance is supported by confirmed orders and product-launch timing enabled by a production ramp to ~400k sets/month (≈2.4M units), with adjusted losses narrowing as fixed costs are optimized and management targeting profitable growth in coming quarters.

• Question from Liping Zhao (China International Capital Corporation Limited): Congrats on your strong quarter. As Xie Dong just said that you guys are going to launch the DTC stores offline. Could you please share the latest updates on these stores and your future opening pipeline in 2026? And how should we expect the sales value of these DTC stores?
  Response: First DTC stores will open late December 2025/early January 2026 as immersive brand experience pilots; management will validate single-store profitability and replicate only after proving the model, prioritizing brand-building over immediate scale sales.

• Question from Yichen Zhang (Citic Capital Equity Investment (Tianjin) Co., Ltd.): And my question is regarding our overseas market. Because we know that Pop Mart's overseas business almost contributed half of its revenue. But for now, our current overseas revenue proportion is relatively low. So, will the overseas market be our focus for the next year? And what is our strategy on the overseas market?
  Response: Overseas is a strategic focus now that capacity has ramped (management noted a ~40x monthly capacity increase vs. early year); company will expand via distribution partners and overseas online platforms (e.g., TikTok Shop) while domestic sales remain primary in the near term.

• Question from Dai Xi (Huatai Securities): I'm Dai Xi from Huatai Securities. My question is about our IP structure. So, I wonder what is the revenue structure breakdown by IP this year? And how do we foresee the drivers from new IPs in the next year?
  Response: WAKUKU accounted for ~71% of Q1 revenue (RMB 127M), ZIYULI ~16%, SIINONO ~10%; management will concentrate resources on top IPs and replicate SIINONO's incubation model to cultivate additional flagship IPs over time.

Contradiction Point 1

Production Capacity and Sales Growth Strategy

It highlights differing strategies and expectations regarding production capacity expansion and its role in driving sales growth, which are critical for revenue projections and investor confidence.

Given Q2 guidance, how do you assess confidence in achieving the full-year RMB 800 million target and expect profitability in H2? Is there any impact on Labubu's momentum? - Yijing Cai (Citigroup Inc., Research Division)

2026Q1: Production capacity is expected to reach 400,000 sets per month. Adjusted sales expenses will fluctuate around 20% of revenue. The focus is on balancing IP operations and sales growth. - Dong Xie(CFO, Senior Vice President & Director)

Could you specify the dollar amount of the investments in product and marketing and what to expect from the product line? - Michael Kim (Zacks Small-Cap Research)

2025Q2: We may further adjust our production capacity to sell up to 4 million units in this quarter, which would be higher than our previous guidance, creating liquidity for our downstream customers in 2026. - Peng Li(Founder, Chairman, and CEO)

Contradiction Point 2

IP Strategy and Revenue Drivers

It concerns the company's IP strategy and its role in driving revenue growth, which is crucial for market positioning and financial performance.

What is the revenue breakdown by IP this year, and what drivers do you expect for new IPs next year? - Dai Xu (Huatai Securities)

2026Q1: The top three IPs account for 87% of revenue: WAKUKU (71%), ZIYULI (16%), and SIINONO (10%). The new IP strategy involves core expansion and systematic incubation. The goal is to create a healthy IP ecosystem that appeals to diverse audiences and mitigates single product risk. - Dong Xie(CFO, Senior Vice President & Director)

How do you plan to maintain profitability regarding adjusted net margin over the next 12 months? - Michael Kim (Zacks Small-Cap Research)

2025Q2: We will launch more product lines, including products like Zhuyao Duoyi, which is currently in the production phase, and further develop existing products. We aim to refine our product mix and address market demand. - Peng Li(Founder, Chairman, and CEO)

Contradiction Point 3

IP Revenue and Growth Strategy

It highlights changes in the company's IP revenue distribution and growth strategy, impacting revenue composition and long-term growth prospects.

What is the revenue breakdown by IP this year, and how do you expect new IPs to drive growth next year? - Dai Xu (Huatai Securities)

2026Q1: The top three IPs account for 87% of revenue: WAKUKU (71%), ZIYULI (16%), and SIINONO (10%). The focus is on key IPs for short-term growth. - Dong Xie(CFO, Senior Vice President & Director)

What is the revenue run rate for July to September and the dollar amount of confirmed order backlog? - Yijing Cai (Citigroup Inc., Research Division)

2025Q4: WAKUKU showed explosive growth post March... SIINONO, launched in July, has already sold over 300,000 units. Combined WAKUKU and SIINONO's growth accelerates overall revenue. - Dong Xie(CFO & Director)

Contradiction Point 4

Overseas Market Strategy and Focus

It differs in the emphasis and timeline for expanding the overseas market, which impacts the company's growth strategy and expectations.

Will the overseas market be a focus for next year, and what is the strategy? - Yichen Zhang (Citic Capital Equity Investment (Tianjin) Co., Ltd.)

2026Q1: The overseas market is a focus, with efforts increasing in cooperation with KAs and building online platforms. Production capacity is being increased to support overseas sales. - Dong Xie(CFO, Senior Vice President & Director)

What is the expected revenue contribution from Letsvan in Q4, and how will traffic allocation between business lines be balanced? - Yijing Cai (Citibank)

2025Q3: International expansion is planned, with initial focus on Southeast Asia. - Dong Xie(CFO)

Contradiction Point 5

IP Strategy and Growth Focus

It reflects differing priorities on the number of IPs, their growth focus, and the strategy for IP diversification, which could impact the company's growth trajectory and investor expectations.

What is the revenue breakdown by IP this year, and how do you expect new IPs to drive growth next year? - Dai Xu (Huatai Securities)

2026Q1: The new IP strategy involves core expansion and systematic incubation. The goal is to create a healthy IP ecosystem that appeals to diverse audiences and mitigates single product risk. - Dong Xie(CFO, Senior Vice President & Director)

What is the current sales mix for Letsvan across products, IP, channels, and geographies? - Michael Kim (Zacks)

2025Q3: Letsvan has created 10 original IPs with plans to launch standout IP-based pop toy products. - Dong Xie(CFO)