RLX Technology Inc. Q2 FY2026 earnings call

• Core Financial Results

  • Delivered solid Q2 2026 results with 14.8% year-over-year top line growth driven by expanding international operations
  • Sequential moderation of revenue and gross profit reflects trade inventory normalization after Q1 2026 pre-shipments driven by export regulatory adjustments, not softening underlying demand, which remains healthy across key international markets

• Strategic Priorities & Regulatory Adaptation

  • Focuses on strengthening retail execution and optimizing global operational infrastructure, prioritizing long-term profitable sustainable growth over low-margin volume
  • Welcomes increasing detailed and strictly enforced international vaping regulations, which eliminate non-compliant low-quality competitors and raise barriers to entry; the company's existing robust compliance, R&D and supply chain infrastructure allow it to meet new standards early

• Global Distribution Expansion

  • Upgrading distribution architecture away from a single rigid model, using a mix of direct channel investments, strategic partnerships and equity investments tailored to regional markets
  • In Asia, expands through localized commercial entities and proprietary channels leveraging strong existing brand equity
  • In Europe, the cornerstone of the company's global growth strategy, uses a dual-engine model of targeted M&A and organic growth; completed a strategic controlling investment in a leading Western European B2B FMCG distribution leader in July 2026, which serves over 30,000 retail endpoints and connects 20,000+ independent merchants via its proprietary B2B app
  • The European acquisition will be fully consolidated starting Q3 2026; the platform will remain an open multi-brand marketplace, with RLX expecting to reduce distribution costs and expand its retail reach via synergies

• Multi-Category Business Transformation

  • Transitioning from an eVapor leader to a diversified multi-category next-generation smoke-free product platform
  • Has commercialized its modern oral nicotine pouch line and is scaling manufacturing capacity and distribution
  • Holds extensive proprietary technology and patents for heat-not-burn products, with market-ready products waiting for appropriate regulatory and market conditions for launch

• Supply Chain Resilience

  • Constructing a new multi-category manufacturing hub in Southeast Asia to reduce exposure to trade friction from macroeconomic and geopolitical uncertainty, improve tariff positioning and streamline logistics

• ESG & Balance Sheet

  • Published the 2025 ESG report this quarter, advancing standards across governance, product safety, youth access prevention, supply chain ethics and environmental stewardship
  • As of June 30, 2026, holds 13.9 billion RMB in total liquid capital resources including cash, equivalents and liquid investments

RLX Technology reported total net revenue of 1.01 billion RMB for Q2 2026, representing a 14.8% year-over-year increase. The international business segment is the company's primary growth driver, contributing approximately 70% of total net revenues, with growth coming from both organic volume expansion and incremental contributions from the May 2025 European acquisition. Gross profit for the total company increased 47.8% year-over-year to 357.8 million RMB, with a gross margin of 35.4%, an expansion of 790 basis points year-over-year and 360 basis points sequentially. Non-GAAP operating income reached 149.6 million RMB, up 28.8% year-over-year, marking the 11th consecutive quarter of positive non-GAAP operating profit. Non-GAAP net income for the quarter was 238.8 million RMB. No separate financial performance breakdown is provided for the domestic China business or new product segments in this call.

• For overall international growth in H2 2026: Management maintains confidence in delivering strong overall overseas performance, with organic growth focused on quality retail sell-through velocity and channel inventory health rather than unprofitable volume. The consolidation of the newly acquired Western European distribution platform starting in Q3 2026 will deliver a material step-up in reported international revenue growth for H2 2026, with compounding synergies expected over the medium to long term.
• For gross margin: After the Q2 2026 expansion driven by temporary product and revenue mix shifts, management expects gross margin to settle back to a healthy balanced range as shipment flows normalize. The newly acquired Western European distribution business operates at a lower gross margin profile, which will impact consolidated margins post-consolidation.
• For Mainland China full year 2026 sales: Management expects full year mainland China sales to be broadly flat year-over-year, due to extended procedural timelines for government approvals amid intensified regulatory enforcement against illegal products.
• For new categories: Management expects oral nicotine pouches to become a meaningful contributor to revenue and profits in the longer term, following scaling of manufacturing capacity and distribution expansion through the newly acquired European platform.

• Forward-looking statements are inherently impacted by unexpected changes in international regulatory environments, which can create uncertainty around commercialization timelines and operating costs
• Geopolitical and macroeconomic uncertainty creates trade friction and foreign exchange volatility that can impact reported financial results
• Increased regulatory enforcement across global markets creates operational adjustments requirements that can impact near-term shipment timelines
• Intensified regulatory crackdown on illegal products in mainland China has extended government approval procedural timelines, creating near-term headwinds for domestic sales
• Industry competition in Europe is intensifying with the expansion of large legacy tobacco companies across multiple smoke-free categories

Q: What is RLX's capital allocation strategy going forward given its strong cash balance, and what valuation and financial criteria does the company use for acquisitions?

A: RLX follows a disciplined capital allocation strategy focused on three core priorities. First priority is funding organic growth for high ROI core initiatives, including multi-category R&D, the new Southeast Asia manufacturing hub, and strategic product launches, with an ROI-gated approach to market entry adjustments. Any excess capital after organic investment is allocated to strategic M&A that meets the company's criteria, then to systematic share repurchases and dividends subject to board approval. For M&A, RLX requires clear cash payback timelines, structurally non-dilutive terms that are accretive to EPS, benchmarks valuations against public trading multiples and transaction comparables, and prioritizes larger scale opportunities that improve global infrastructure and deliver meaningful strategic synergies over arbitrary size targets.

Q: What is RLX's outlook for overseas growth and margins in H2 2026, including the impact of the recent Western European acquisition?

A: RLX is taking a quality-focused approach to H2 international growth, prioritizing healthy retail sell-through velocity and channel inventory over pushing unprofitable volume. Consolidation of the newly acquired distribution platform starting Q3 will deliver a material step-up in reported H2 international revenue growth, and management is confident in strong overall H2 performance with long-term compounding synergies. For margins, after Q2's expansion driven by temporary mix shifts, gross margin will normalize to a healthy balanced range. The acquired distribution business has a lower gross margin profile that will impact consolidated margins post-consolidation, and minor volatility may occur from foreign exchange movements, but the company maintains strict operational cost controls.

Q: What is RLX's strategy for the U.S. market following a competitor's plan to launch flavored e-cigarettes, and what is the outlook for the mainland China market amid tighter illegal product regulations?

A: RLX continues to monitor U.S. regulatory developments, with PMTA applications from its non-listed affiliates currently in advanced stages awaiting approval. The company will not commit large-scale capital to a U.S. commercial rollout until regulatory pathways and enforcement standards are clear and credible, and will prioritize investing in other transparent regulatory markets in Europe and Asia in the interim. For mainland China, tighter regulation against illegal products is a strong positive long-term development that eliminates bad actors and redirects demand to legal compliant brands like RLX, but near-term approval timelines have become extended, so full year domestic sales are expected to be flat year-over-year as the company maintains full compliance and works with regulators.

Q: How does RLX compete with growing competition from legacy tobacco firms like Philip Morris in Europe, and what is the strategic plan for oral nicotine pouches?

A: Multi-category execution is now required for all industry participants, and RLX holds clear competitive advantages over legacy players: it is a pure-play smoke-free business with no internal conflict between combustible cigarettes and reduced-risk products, and it has superior supply chain efficiency and innovation capabilities paired with strong specialty retail relationships. The company's recent strategic distribution investments also strengthen route-to-market and shelf space control, positioning it well to gain market share. For oral nicotine pouches, dedicated production lines are being added to the new Southeast Asia manufacturing hub; once complete, pouches will be distributed through RLX's new European distribution network, and the company expects the category to become a meaningful long-term contributor to revenue and profit.