Here Group (HERE) Q4 2026 earnings call transcript

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. 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.

I will translate for Mr. Lee. You can refer to our quality financial results on our IR website at ir. heregook. com. You can also access a replay of this call from 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 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. Lee.

Thank you. Yeah, okay. Good morning, everyone, and thank you for joining us today. We closed out our fiscal year 2026 with fourth 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 R&B 596.8 million. Physical 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 on distinctive products and constant creativity, not third-party distribution channels alone.

Distribution expense market reach, but it cannot answer the fundamental question of user loyalty. Why will customers remember you and consistently choose your brand? Historically, our product pipeline under release cadence was 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 the 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 trim out what the mass market passively accepts today.

This is why our D2C retail network is far more from 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.

This philosophy brings us to our core thesis on brand momentum. True brand momentum does not stem from chasing fleeting market trains 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 or short-term wholesale sales volume.

This choice is heavily driven by who we are. Within the global proprietary landscape, two 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 a proprietary IP. Incubation and self-operated execution. Over the past fiscal year, we have proven the scalability of this model. Navigating the current Here Gwins requires resilience, disciplined efforts, and refusal to compromise our core strategy for short-term communities.

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 ISAT lifecycle, boosting products innovation and brand collaborations. Our ecosystem is structurally engineered to mitigate a single IP As of June 30, 2026, our total portfolio expanded to 22 IPs, compromising 13 proprietary IPs and 9 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 61.9% 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, a 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 R&B 100 million annualized scale in under 12 months confirms that we can systematically build and scale new proprietary IPs. We have also built out a diversified long tail flywheel revenue from our others IP category, which includes emerging proprietary stars like Xiao, Manimo, Funini, Fila, Inturopix, Inturopix, and more. Third by 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. And combined with the ULIS solid contribution of RMB 12 billion 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. The Nuno launched a limited edition co-brand sparkling water with Dinky Forest, and the partners with the French fashion house, Here Paris, on an exclusive plush pendant collection. Meanwhile, we evaluated our cultural positioning while exclusive partnership with the Museum of Fine Arts, Boston, co-developing five premium artistic works from the across three core artists.

Furthermore, we have formalized our partnership with the 2026 China Open, establishing Synono as the headline IP for this year's tourism. New IP pipelines were another part of our strategy. We officially introduced Yuna, a noble IP, alongside with seasonal collection for ImpopoPix and Fluffy Lily. Notably, Flava Lily captured strong youth engagement during the Chi Chi festival via collaboration with Case Bond, and served as an official event partner for the prestigious 2038 Husband 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 multi-layered vertical experiential space on Victoria Harbor. Ticket sales 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 D2C network expansion and scenario optimization. Our offline direct-to-customer foot point remains the primary avenue for depending user intimacy and validating product At this stage, our network strategy prioritizes high ROI unit economics and qualitative location premium over share store count. We continue to manage our permanent footpoints with strict capital discipline to optimize our assets portfolio. As of today, we operated seven D2C stores across four 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 as a dual-purpose strategic vehicle. Beyond the derisking permanent site selection, This pop-ups function as IP centers for IP activation and immersive user integration, interaction.

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 six 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 the digital integration. On the supply chain, we are optimizing our procurement warehousing and the logistics frameworks by strengthening our budging leverage with manufacturers And the 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, roboshops, and online commerce to build only channel data infrastructure. Our upgraded membership ecosystem tracks customer behavior, allotting predictive insights which help us optimize our inventory. On partner channels, our operational metrics is evolving towards deeper integration. We are transitioning channel partner relationships with traditional transaction leads distribution Into high value, customized strategic aliens, and 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 positive flyview, and we have shifted our QPS from vanity followers metrics to deep engagement quality. Finally, our online platform function as a strategic bridge, converting data to community engagement into physical D2C food traffic and reinforcing offline experience with online knowledge. 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, Product design and core brand operations.

Before I had the call over to our CFO for granular financial review, I want to address our bottom line results directly. Our financial loss this quarter was heavily impacted by one time non-operating income statement itself, item driven entirely by market evaluation adjustments.

This historical accounting evaluation is non-cash in nature. Separated from our ongoing call operations. Operationally, our performance reflects our necessary upfront investment in design capability, next generation product innovation, and targeted brick and mortar storefront and the pop-up 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. While revenue and cost trends are not yet fully aligned, we expect that gap to close over time as our revenue stability The 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. 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 in RMB 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 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-to-it business. On a sequential basis, the decrease was mainly due to a challenging market environment and lower channel sales.

The 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 gross 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-gap 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 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% a 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 month. 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 good balance was $63.5 million as of June 30, 2026.

Now moving to capital allocation, our board approved a $20 million U. S. ADS repurchase program in June. As of September 16, 2026, we had repurchased approximately $0.4 million ADS for approximately $0.7 million 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. And we will be able to use the IP of the system to build the ability to build the power of the network. And from the挖掘 to the商业化, every single-stage we have already formed the way and team. And we will also be able to use some international IP to do a partnership with these partnerships. We will also be able to increase the development of the IP and the development of the network. And finally, we will be able to bring the IP to the right direction of the network.

Okay. 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 lifecycle 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.

Thank you. Let me make more details. 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-cute to adorable to fashion-for-worth. We continue to bring in talented emerging designers and artists to keep our creative pipeline fresh and diverse.

This is a very important thing to see the IP. Next, I will put the same method to add to the RDD and Popo, and the new IPs will be able to form a can of the can of the can of the DTC.

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 DTC stores and robbershops 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 zero to one 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 will now turn the call over to the Here Grip Lt. 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 collaborations and expanding into more scenarios For example Sinono has been very active on a partnership this year We teamed up with Janky Forest on a limited edition white peach sparkling water collaborated with the Museum of Fine Arts Boston on the co products and partnered with the French fashion brand IRO Paris on an exclusive plush pantalibus Sinono will also take a part as an official partner IP at 2026 China Open.

From the new IP front, Fluffy Lily rolled out a themed campaign during Chi Chi Festival, and also teamed up with a phone case friend. And case ban. Flossus Lily also served as an official event partner for the 38th 100 Flowers Award. 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. So we believe that in the market from the company to pick单品 and then turn to the IP of the ability of the capacity of the IP, who can continue to form a character and story of the IP, who can go far from the distance.

So this is what we always have to say, the basic performance of a long-term health.

Okay. 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.

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, G2C 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 IPCM 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 found. That is our approach.

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 the consumer market cooled, the limitations of this traditional wholesale model became apparent. Our direct visibility into real-time and customer demand was not precise enough, creating a temporary gap between our selling pace and the actual end market sales tool. 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.

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, disciplined measures to optimize our inventory structure. The first one is leveraging omni-channel synergy to accelerate sales through. We are significantly increasing product exposure and localized touch points through our scaling D2C online channels, premium D2C stores, and Roboshop 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 sales 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 channel sufficient room to clear existing stock in a healthy way, rather than overcrowding the channel for short-term gain.

And thirdly, 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 matters that undermine our brand premium. I think the most important thing is that back-to-bar are 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. Thank you.

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.