Here Group Ltd (HERE) Q4 2026 Earnings Call Transcript

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.

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. Peng Li, our founder, chairman, and CEO, and Mr. Ting Hsie, 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 quality financial results on our IR website at ir.heelbook.com. You can also access a replay of this call on our IR website when it becomes available a few hours after its conclusion. Before we continue, I would like to refer you to our safe harbor statement in our earnings press release, which also applies to this call, as we will be making forward-looking statements. Please note that all numbers stated in the following management prepared remarks are in R&B terms, and we will discuss non-guide measures today, which are more thoroughly explained and reconciled to the most comparable measures reported in our earnings release and following with the SEC I will now turn the call over to the CEO and founder of here mr. Lee yeah okay good morning everyone and thank you for joining us today we closed out our fiscal year 2026 with false quarter revenues of RMB 127.7 million, representing a robust year-over-year increase of 94.1 percent,

and bring 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 cooperation identity 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 we firmly believe that enduring high premium IP company must anchor itself distinctive products and constant creativity not third-party distribution channels alone distribution expense market rich but it cannot answer the fundamental question of our love of user loyalty why will customers remember you and consistently choose your brand historically our productive pipeline under release cadence were tightly coupled with wholesale channel demand to protect our to protect our brand from external wall they volatility we are shifting our business model into a strategic closed loop this model integrates proprietary a piece adaptive product design and the direct to customer channels this closed loop at this closed loop grounds us autonomy over our go-to-market cadence product presentation and the customer experience our self-operated d2c channels serve as the premier theater to showcase this high value perform portfolio extensions industry leading IP house cannot merely trim out what the mass market passively accepts today this is why our need to say retail network is far more from than point of sale it is an IP incubator and the hub to test new ideas as a result our capital allocation and operational prior priorities are focused on perfecting this D2C closed loop and optimizing our structural unit economics rather than maximizing short-term volume as a expense of brown house this philosophy brings us to our core that is on browns momentum true brown the momentum does not stem from chasing fleeting market trains or mindlessly copying customer performance real long-term broader momentum is forged through design convicting 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 evaluation of the IP while we they 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 or short-term wholesale sales volume this choice is heavily driven by who we are within the global proprietary landscape true independent pure play IP companies exceedingly rare here group stands as one of the very few enterprises that we rigorously adheres to the path of a parallel proprietary IP incubation and the self-operated execution. Over the past fiscal year we have proven the scalability of this model. Navigating the current high advance requires resilience, discipline efforts, and the refusal to compromise our core strategy for short-term companies 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 our IP metrics across the entire assets life circle, boosting product innovation and brand collaborations. Our ecosystem is structurally engineered to mitigate a single IP dependency. As of June 30, 2026, our total portfolio expanded to 22 IPs, Compromising 13 proprietary IPs and 9 exclusively licensed IPs. Our flagship IP, Bakuku, generates RMB 47.7 million in the fourth quarter and the R&B three hundred and a fifty nine point three million for the full year these are counted for sixty one point nine percent of our annual revenue. Meanwhile, our next generation powerhouse, Synono, has delivered a phenomenal trajectory. Launched only in the second half of 2025, Synono generated RMB 27.3 million in Q4, fiscal year 26 long, 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, the metallic rise of synodal 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 we have also build out diversified long tail flywheel revenue from our others IP category which includes emerging preparatory staffs like Xiao, Manimo, Fu Nini, Fila, Impulpix, Impulpix and more served by extraordinary 661% year-over-year to R&B 39.8 million in the first quarter. This is our from just RMB 5.2 million in the same period last year. Combined with the ULIS 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. Our product expansion and lifestyle integration front we recently accelerated several high-impact initiatives recently we aggressively expanded our IPs into premium daily consumer scenarios phenomenal launched limited edition co-brand sparkling water with stinky forest and the partners with the French fashion house hero Paris on exclusive plush pendant collection meanwhile we evaluated our cultural positioning well exclusive partnership with the Museum of Fine Arts Boston co-developing five premium artistic works from the across three core it is furthermore we have formalized our partnership with 2026 China open establishing synonyl as the headline IP for this year's tourism new IP pipelines or another part of our strategy we officially officially introduced Yuna a noble IP alongside with seasonal collection for in politics and fluffy lily notably cleverly captured strong youth engagement during the cheesy festival where collaboration with kids bond and served as an official event partner for the prestigious 2038 husband flowers awards finally in Hong Kong our landmark cruise project at a central here is undergoing final declaration. We have transformed the ship into a multi-layered vertical experiential space on Victoria Harbour. TKT cells officially launched on Ctrip on September 21, 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. Second, discipline the D2C network expansion and scenario optimization. Our offline direct to customer foot point remains the primary avenue for depending user intimacy and validating product market fit at this stage our network strategy priority prioritizes high RI unit economics and qualitative location premium over share store count we continue to manage our permanent footpoints with strict strict capital discipline to optimize our assets portfolio as of today we operated seven D2C stores across four core metropolitan metropolitan areas during 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 as a dual-purpose specific vehicle. Beyond the derisking permanent site selection, these pop-ups function as IP centers for IP activation and the immersive user integration into interaction prime example is our successful activations in September at Prisma Xinjia Center in Shanghai and Hondo tower in addition our automatic automated retail network is to 25 robot shops across six cities having complete completed our initial structural layout we shift our operational mandate from aggressive deployment to maximizing same mission machine efficiency and the data extraction third operational refinements and the data code integration on the supply chain we are optimizing our procura procurement warehousing and the logitech frameworks by strengthen our bugging leverage with manual factors and the suppliers we have shortened our supply chain response times this enables faster higher quality we plan is should replenishment and the boosts our supply chain resilience we are also consolidating data streams across our physical stores roboshops and online commerce to build only channel data infrastructure our upgraded membership ecosystem tracks customer behavior allotting practical insights which help us optimize our inventory on partner channels our operational metrics is evolving towards deeper integration we are transition mean we are transitioning channel partner relationships with a uh traditional uh transaction lead distribution into high value customize the strategic aliens uh uh and working uh 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 source point continues to scale in a positive flyview. And we have shifted our QPS from vanity followers metrics to deep engagement quality. Our online platforms function as a strategic bridge, converting data to community engagement into physical D2C foot traffic and reinforcing offline experience with online loyalty. Fourth and finally, talent acquisition and organizational capability building. To execute our closed-loop strategy, we continue to build our team, onboarding top-tier industrial experts across premium store operations productive design and the core brand operations before I had the call over to our CFO for granular granular financial review I want to address our bottom line results directly our financial loss this quarter was heavily impacted by a one-time non-operating income statement itself item driven entirely by market valuation adjustments this historical call accounting the value Asian is non cash in nature separated from our ongoing core operations operationally our performance reflects our next three upfront upfront investment in design company capability next generation production innovation and targeted brick and mortar storefront and the pop-up expansions on currently as we proactively optimized our business model and navigated challenging retail sales environment our revenue scale was affected by lower sales through traditional channels cost and expense optimization is on the way across all operational segments well revenue and cost of trains are not yet fully aligned we expect we expect that gap to close over time as our revenue stability stability stability and our cost structures are optimized it. 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. 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. Thank you.

Thank you. Before I go into the details of our financial results, please note that all amounts are R&B terms, unless otherwise stated. The reporting period is the fourth quarter of fiscal year 2026, ended on June 30, 2026. And in addition to gap measures, we will also be discussing non-gap measures 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. The year-over-year growth was primarily driven by higher sales of both existing and newly launched IT product lines in our pop toy business. 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. 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 growth margin was 25.8% this quarter, compared to 34.7% a year ago and 34.5% in the third quarter. 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, compared to $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 multi-channel sales capabilities. As a percentage of total revenue, non-GAAP sales and marketing expenses which exclude share-based competition were 43.9% this quarter, compared to 29% the year ago and 35% in the third quarter. 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 continue to invest in our design team. Meanwhile, employee competition 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, was 7.7% this quarter compared to 13.5% the year ago and 5.7% in the third quarter. 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. At the 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. 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 the third quarter. Our adjusted net loss from continuing operations was $37.7 million compared to $19.3 million a year ago and $22.9 million in the third quarter. 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 adjusting 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. Separately, we recorded a good bill impairment charge of $124.1 million this quarter related to our acquisition of last one. This was mainly due to lower-than-expected financial performance amid macro headbands. The original good bill from this acquisition was $187.6 million, and after the impairment, Our remaining goods balance was $63.5 million as of June 30, 2026. Now moving to capital allocation, our board approved a $20 million U.S. dollar ADS repurchase program in June. As of September 16, 2026, we had repurchased approximately $0.4 million ADS for approximately $0.7 million U.S. dollars 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. 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. We will now begin the question and answer session. To ask a question, you may press star than 1 on your telephone keypad. To withdraw your question, please press star than 2. When asking a question in Chinese, please translate your question in English for the convenience of everyone on the call. Please ask one question at a time. And today's first question comes from Liping Zhao with CICC. Please go ahead.

Good evening, Mr. Lee 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.

Okay. I'm going to answer this question, and I'm going to translate it. The new IP of this is a system that we have 0 to 1 of this system. We have 20 different IPs. We have the IP of the living room 7 to build this capability. From the挖掘 to the商业化, we have all the way we have already formed the method and a team.

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 allowed us to gain valuable experience in product development and market operations, which we then feed back into our own original IPs, creating a positive cycle that strengthens our core over time. and the style is different from cool, cute, and fashion.

We will continue to collaborate with the artist and artist-scientist, and not to be able to enrich our creativity.

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

实时的数据 然后用户的反馈 来去反向优化我们的app search 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Cinono呢 主打的是这个不完美也可爱 Baku库呢 代表的是自由勇敢的新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

On the incubation side, we use both data and emotional connection to guide our work. We look at the real-time cells and user feedback from our DTC stores and robotshops to shape our IP designs. At the same time, we give each IP its own personality and emotional appearance. Xenono is about imperfect but adorable. Wakuku is afraid and breathes little wild child. Xenono launched in the second half of last year, and cross-IP user overlap is still growing. This tells us our 0 to 1 incubation model works. We will bring the same approach to in-purpose picks, building a repeatable process as we go. 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 jogging 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 pando series. Sinono will also take a part as an official partner IP at 2026 China Open.

CIP方面, RUE在77的期间 我们推了相应的一个主题活动 然后还跟手机壳的一个品牌叫CaseBall 联名推了系列的手机壳 并且作为官方的合作伙伴 我们也亮相今年的大众百花奖 然后新的大娃也在持续的推出 从饮料到时尚 然后文化艺术到体育赛事 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CaseBomb 联名推了系列的手机壳 并且呢 作为官方的合作伙伴 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

on the new IP front, Fluffy Lily rolled out a themed campaign during Qixi Festival and also teamed up with a phone case friend, Case Ben. Fluffy Lily also served as an official event partner for the 38th 100 Flowers Awards. New large-scale 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. 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。 So 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.

Okay, thank you. That's all for the question.

Thank you, Ms. Li. That's very clear. Thank you. And our next question comes from Yi Kunzeng with CITICS. Please go ahead.

Hi, Yu總. Xie總好. I'm here to ask you a question about the internet. Good evening, management. Thank you for taking my question. And my question is about our offline channels. Can we have some update on the current situation of our offline channels and what is our expansion plans on offline channels given the recent fluctuations in industry segment?

Okay, thank you. I will answer your question directly in English. Currently, we have opened seven G2T brand stores across four core cities in China. 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. Each G2C store is integrated into our self-operated brand system with a unified IP expression, serving not only as a safe channel, but also as a call 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 RoboShops, 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 generate real-time consumer insights, helping us better understand product preferences and purchasing behaviors and informing our assortment and placement decisions. 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 economy's sound. That is our approach.

Thank you, Jim. It's very clear.

Thank you. And our next question comes from D.C. with Hightai Securities.

Please go ahead. 李总好,谢总好,感谢这个提问机会。 我这边的话只要想请教一个问题,就是我们最新的这个制度, Selling 和 sell through 的这个表现分别怎么样, 然后后续的话我们怎么样去看待这个库存的管理。 Thank you management for taking my question. My question is about our inventory.

So what is the performance of our selling and sell through in most recent season? and how do we expect to manage our inventory in the future? Thank you for your question. Regarding our revenue compensation and inventory dynamics, the channel inventory did run higher than our normal operating range this quarter. The underlying cost 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 a 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 sales route. Additionally, when evaluating our inventory balance, it is important to consider the unique operational characteristics of the pop toy and the IT 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. These forward-looking buffers designed to secure our upcoming release calendar represent a deliberate and healthy component of our current inventory composition. Precisely, while we remain firmly committed to our transition toward a self-operated closed loop, We have already initiated a series of proactive, disciplined measures to optimize our inventory structure. The first one is leveraging omni-channel synergy to exceed significantly increasing product exposure and localized scaling D2C online channels, premium D2C stores, and Roboshop network. selected assortments strategically integrated into new pipelines for high-engagement pop-up events, experiential or offline initiatives to sell through. And secondly, international sell-in moderation for scarcity control. 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 existing stock in a healthy way, rather than overcrowding the channel for short-term gain. And thirdly, targeted channel clearing programs have introduced hazardous incentives for 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 will take time to review 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 matters that undermine our, I think, the most important thing is that back to bar 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 robotsource to build more accurate demand forecasting models, optimizing our production and shipping pace from the source to prevent similar mismatches in the future.

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

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.

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