New Oriental Education & Technology Group, Inc. Q1 FY2027 earnings call

• Strong Financial Momentum: Total net revenue exceeded guidance upper range, growing 23.1% YoY. Both core education and East Buy reported YoY margin expansion.

• Operational Efficiency: Margin improvements are primarily attributed to better utilization of learning centers and cost control measures initiated since March 2025. Management emphasizes looking at business lines individually rather than just consolidated figures to avoid distortion from revenue mix changes.

• East Buy Acceleration: Rapid growth in Q1 driven by accelerated private label development (high safety/quality/value), professional live streamers, and expanded channel matrix. Offline experience stores and front warehouse delivery trials are underway in Beijing and Shanghai.

• New Oriental Home Platform: A family-centric app integrating education, East Buy, and tourism products. Registered users exceed 1.678 million families across 69 cities. Key metrics include >90% cumulative activity participation rate and 33% campaign activation rate. The platform lowers customer acquisition costs and improves cross-selling efficiency.

• AI and OMO Investments: Continued investment in the OMO teaching platform ($28.2M in Q1). Launched a proprietary AI-powered personalized learning platform (vertical-specific, not general LLM) which generated meaningful sales within 25 days of launch.

• Capacity Expansion: Added 2% new capacity quarter-over-quarter. Plan to open 10-15% new learning centers for the full year, focusing on existing cities with some new city entries, prioritizing utilization rates over pure volume.

Total net revenue grew 23.1% year-over-year to $1,874.5 million. Non-GAAP operating income rose 21.2% to $406.8 million.

• Core Education Business: Reported healthy growth with year-over-year expansion in operating margins driven by enhanced operational efficiency and improved learning center utilization. Specific segment breakdowns include:

  • Overseas Test Prep: Revenue increased ~8% YoY.
  • Overseas Study Consulting: Revenue increased ~7% YoY.
  • Adults & University Students: Revenue increased 22% YoY.
  • Non-Academic Tutoring (K-9): Rolled out to ~60 cities; top 10 cities contribute ~60% of revenue.
  • Intelligent Learning System/Devices: Launched in ~60 cities; top 10 cities contribute ~50% of revenue.
  • New Educational Initiatives (combined above): Delivered a 25% YoY revenue increase.

• East Buy (E-commerce/Retail): Experienced rapid growth, now carrying greater weight in consolidated revenue. The private label lineup exceeds 1,000 SBUs across food, apparel, and skincare. Live streaming channels expanded to over 30 on Douyin. While specific revenue contribution % is not broken out separately from the total, its margin expanded YoY due to efficiency gains.

• Integrated Tourism: Operates in ~55 cities for student programs (top 10 cities >50% revenue) and covers ~30 provinces for premium adult offerings. Expanded into senior health/wellness tourism via an asset-light model.

• Full-Year Revenue Guidance: Reiterated previous guidance for FY2027 total net revenue to be between $6,400 million and $6,680.3 million, representing a YoY increase of 14% to 18%.

• Segment Growth Expectations:

  • Overseas Test Prep: Expected >5% YoY growth.
  • New Business (K-9/Educational Initiatives): Expected ~20% YoY growth.
  • College Business: Expected ~20% or higher YoY growth.
  • East Buy: Expects accelerated revenue growth in Q2 compared to Q1.

• Shareholder Returns: Approved a $0.2 per common share cash dividend for FY2027 (approx. $300M total), paid in two installments. Authorized a new share repurchase program of up to $200 million for the subsequent 12 months.

• Regulatory and Market Conditions: Outlook is subject to change based on prevailing market conditions and regulatory developments in China.

• Revenue Mix Distortion: Changes in the relative share of revenue between business lines (e.g., rapid growth of East Buy) can influence the overall consolidated operating margin without indicating deterioration in underlying businesses.

• Execution Risks: Scaling new initiatives like 'New Oriental Home' and AI platforms requires continuous refinement and successful product-market fit validation beyond early traction.

Q: Analyst asked about margin outlook given stable consolidated margin despite individual business expansions, questioning if mix shifts will cap growth. / A: CFO explained that East Buy's rapid growth shifted revenue mix, stabilizing the consolidated figure despite both core education and East Buy achieving YoY margin expansion through efficiency and center utilization. He expressed confidence that all business lines will see margin expansion in the coming fiscal year as cost controls and operational improvements continue to yield results.

Q: Analyst questioned why non-academic tutoring enrollment appeared down 10% YoY while revenue grew 25%, asking if counting methods changed. / A: IR clarified this was a timing difference; enrollments were booked earlier this year for summer/autumn semesters compared to last year, causing a one-time spike in prior period comparisons. She advised aggregating two quarters to match trends, while CFO reiterated that annual K-9 revenue growth remains guided at ~20%.

Q: Analyst asked if the 10-15% planned learning center expansion applies broadly or specifically to K-9/new education classrooms, and requested clarity on East Buy profitability signals. / A: CFO confirmed that K-9 classroom expansion will likely exceed the 10-15% average. Regarding East Buy, he noted that while minority interest profits dipped due to ESOP grants recorded in Q1, non-GAAP operating and net margins actually expanded, confirming strong underlying profitability.

Q: Analyst sought details on how 'New Oriental Home' metrics translate to financials, specifically regarding marketing savings and cross-selling. / A: IR highlighted the platform’s 1.6M+ registered families and high engagement (>90% participation) enable effective cross-selling between education and e-commerce. CFO added that the platform significantly reduces customer acquisition costs by consolidating household management, allowing efficient monetization of existing users across multiple business lines.