Here Group Ltd. Q4 FY2026 earnings call

• Strategic Shift to Closed-Loop D2C: Management is transitioning from a wholesale-dependent model to a strategic closed loop integrating proprietary IPs, adaptive product design, and direct-to-customer (D2C) channels. This aims to control go-to-market cadence, preserve brand integrity, and enhance customer experience.
• IP Portfolio Diversification: The IP portfolio expanded to 22 IPs (13 proprietary, 9 licensed). Flagship IP 'Wacoku' generated RMB 47.7 million in Q4 (61.9% of annual revenue). New IP 'Synono' grew rapidly, generating RMB 27.3 million in Q4 (21.4% of quarterly revenue) and RMB 92.7 million for the full year (15.5% of annual revenue).
• Product Expansion & Collaborations: Accelerated entry into premium daily consumer scenarios through collaborations, including limited edition sparkling water with Genki Forest, plush pendants with IRO Paris, and partnerships with the Museum of Fine Arts Boston and the 2026 China Open.
• D2C Network Optimization: Operates seven permanent D2C stores across four core metropolitan areas, recently opening a store at Beijing Daxing International Airport. Prioritizes high ROI and qualitative location premium over sheer store count. Automated retail network (robot shops) has expanded to 25 units, shifting focus from deployment scale to operational efficiency and data extraction.
• Operational Refinement: Optimizing supply chain response times and consolidating data streams across physical stores, robot shops, and online commerce to build an OMI (Online-Merge-Offline) channel data infrastructure. Transitioning partner relationships from transaction-led distribution to strategic alliances that respect brand pricing.
• Organizational Capability Building: Onboarding top-tier experts in premium store operations, product design, and brand operations to execute the closed-loop strategy.

Total revenue for the fourth quarter of fiscal year 2026 was RMB 127.7 million, representing a 94.1% year-over-year increase but a sequential decline from the third quarter. For the full fiscal year 2026, total revenue reached RMB 596.8 million. The gross margin in Q4 was 25.8%, down from 34.7% in the same period last year and 34.5% in Q3. Net loss from continuing operations was RMB 169.6 million (including a one-time goodwill impairment charge of RMB 124.1 million related to the 'Fast Fund' acquisition), while adjusted net loss was RMB 37.7 million.

• Profitability Timeline: Management expects the gap between revenue and cost trends to close over time as revenue stability improves and cost structures are optimized, with a mandate to drive towards sustainable profitability at an early date.
• Capital Allocation: Commitment to balancing capital stability with operational momentum. Will remain disciplined in allocating capital across different formats, prioritizing investments with the strongest long-term potential based on unit economics.
• Share Repurchases: Board approved a $20 million ADS repurchase program; approximately $0.7 million had been utilized as of September 16, 2026. Future repurchases will be assessed alongside investment needs.

• Goodwill Impairment: Recorded a significant one-time non-cash goodwill impairment charge of RMB 124.1 million related to the 'Fast Fund' acquisition due to lower-than-expected financial performance amid macroeconomic headwinds.
• Inventory Mismatch: Channel inventory ran higher than normal operating ranges due to a structural mismatch between cooling macro demand and historical wholesale pacing. Reliance on traditional distributors led to less precise visibility into end-market sell-through.
• Brand Dilution Risk: Management highlights the risk of scarcity dissolving if market supply outpaces consumer interest, potentially triggering price erosion. They emphasize strict control over supply to maintain IP asset value.
• Macro Headwinds: Navigating challenging retail sales environments and fluctuating industry sentiment, which have impacted short-term volume and necessitated a shift away from maximizing short-term wholesale sales.

Q: What are the plans for exploring, incubating, and commercializing new IPs? / A: Management outlined a systematic '0-to-1' approach involving original creation and artist collaborations for discovery. Incubation is driven by real-time data from D2C/robot stores combined with emotional character development (e.g., Synono's 'imperfect love'). Commercialization involves stabilizing flagship IPs while aggressively expanding newer IPs through cross-industry collaborations (beverages, fashion, art) to integrate them into broader lifestyle scenarios, ensuring repeatable processes for future launches.

Q: What are the updates and future plans for offline channels given industry fluctuations? / A: The company operates seven D2C stores, prioritizing quality and ROI over quantity, with recent expansion into high-traffic hubs like Beijing Daxing Airport. Robot shop deployment is largely complete, with a shift in focus to operational efficiency and data insights. Expansion remains disciplined, requiring strict ROI reviews and confirmed unit economics before replication. New scenario explorations include the Hong Kong Central Pier IP-themed cruise project.

Q: How is inventory managed, particularly regarding sell-in/sell-through dynamics? / A: Inventory levels were temporarily elevated due to a mismatch between cooling macro demand and historical wholesale pacing, exacerbated by necessary front-loaded manufacturing for upcoming launches. To address this, management is leveraging omni-channel synergy (D2C, pop-ups) to accelerate sell-through, intentionally moderating wholesale shipping pace to control scarcity, and implementing targeted clearing programs. Long-term, they aim to use D2C data for better demand forecasting to prevent future mismatches.