RLX Technology Inc. American Depositary Shares, each representing the right to receive one (1) Class A ordinary share 2026 Q2 Earnings Call

Hello, everyone, and welcome to RLX Technology's second quarter 2026 earnings conference call. The company's financial and operational results were released through PR Newswire services earlier today and have been made available online. You can also view the earnings press release by visiting our IR website at ir.rlxtech.com. Participants on today's call include our Chief Executive Officer, Ms. Kate Wang, our Chief Financial Officer, Mr. Chao Lu, and me, Sam Tsang, Head of Capital Markets. Before we continue, please note that today's discussions will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements typically contain words such as may, will, expect, anticipate, aim, estimate, intend, plan, believe, potential, continue, or other similar expressions. Forward-looking statements involve inherent risks and uncertainties.

The accuracy of these statements may be impacted by a number of business risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, many of which are factors that are beyond our control. The companies, its affiliates, advisors, and representatives do not undertake any obligation to update this forward-looking information except as required under the applicable law. Please note that RLX Technology's earnings press release and this conference call include discussions of unaudited GAAP financial measures, as well as unaudited non-GAAP financial measures. RLX press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited GAAP measures. For today's call, management will use English as the main language. We will also provide simultaneous interpretation on the Chinese line. Please note that the Chinese line is in listen-only mode, and Chinese interpretation is for convenience purposes only.

In case of any discrepancy, management statements in the original language will prevail. I will now turn the call over to Ms. Kate Wang.

Please go ahead. Thank you, Sam, and thank you all for joining today's call.

We delivered solid second quarter financial and operational results, supported by our commitment to quality-driven resilience and compliant global growth. Our top line grew 14.8% year-over-year in the second quarter, mainly driven by our expanding international footprint. Gross profit increased 47.8% year-over-year to 357.8 million RMB. As expected, revenue and gross profit moderated sequentially, not due to any softening in demand, but rather reflecting a trade inventory normalization following the first quarter's shipment, pulled forward driven by regulatory export adjustments. Because our distribution partners manage multi-brand portfolios, first quarter pre-stocking temporarily obscured visibility into sellout rates, leading to the shipment adjustments we saw this quarter. Underlying demand across our key international markets remains healthy and resilient. Against this backdrop, we focus on two strategic priorities: sharpening retail execution and optimizing our global operational infrastructure.

These deliberate requirements are designed to lay the foundation for our next era of sustainable, profitable growth. Rather than chasing low-margin volume, we are directing our capital towards building an agile, compliant global platform that can absorb regulatory shifts and quickly adapt to evolving demand. Regulatory oversight across our international market is becoming more detailed and more restrictive enforced, from customs enforcement priorities to refined frameworks. The U.K. is a case in point. Proposed regulations cover plain packaging, standardized device authentic retail display bans, restricted flavor descriptions, and limits on dark store operations. As an industry leader, we welcome these regulatory shifts. It poses the operational agility required to address them proactively. Engaging these stakeholders to foster high standards, attainable compliance frameworks. Over the long term, clearer and consistently enforced boundaries push out non-compliant, low-quality competition and raise barrier to entry.

Our robust compliance infrastructure, R&D, and supply chain enables us to meet those standards early, enhancing our platform's operational predictability and long-term sustainability. Our hands-on operational experience across international markets has taught us valuable lessons. In mature environments, traditional wholesaling model are no longer sufficient to sustain high-quality margin growth. As hardware technology and product standards stabilize, competition is shifting from pure product development to route-to-market execution. Direct retail, promise proximity, and channel agility. As such, we are aggressively upgrading our distribution architecture through a targeted mix of direct channel investments, strategic distribution alliance, operational support, and channel innovation, and moving away from reliance on a single rigid distribution model. In Asia, where our brand equity and consumer trust remains exceptionally strong, we are selectively broadening our footprint through localized commercial entities and proprietary channel models.

In Europe, where barriers to entry are higher, we are expanding through capital-efficient strategic partnerships and equity investments. By combining our world-class supply chain with local distribution leaders, we empower existing trading ecosystems while securing direct sell-out visibility and dedicated retail shelf space, establishing a durable competitive mode. Europe is the cornerstone of our global growth strategy, where we are methodologically expanding our presence on the dual engine model with balanced, targeted M&A with organic growth across channels. In May 2025, we acquired a long-established European e-vapor company with an integrated local retail and online footprint and have been supporting its expansion as a collaborative partner ever since. Over the past year, this integration has brought us deep localized market insights and demonstrated the immense commercial value of aligning our global supply chain with trusted local operators.

Building on that acquisition, in July 2026, we made a strategic controlling investment in a leading B2B and FMCG physical distribution leaders in Western Europe. This entity has a robust offline footprint, directly serving retail endpoints across the market. In B2B digital commerce, its proprietary ordering app connects with over 50% of independent retail points of sales in the country. Our integration philosophy centers on empowerment, not operational disruption. We do not intend to restructure their core operations or convert the platform into an exclusive outlet for our own products. They will remain an open multi-brand marketplace serving the broader retail ecosystem. By applying our global supply chain scale and portfolio brand relationships, we are confident that we can reduce these platforms' distribution costs and optimize sourcing terms.

While expanding our distribution reach, we are also accelerating our transformation into a multi-category, next-generation smoke-free product platform, extending beyond our leadership in e-vapor into a broader smoke-free portfolio. We have commercialized our modern oral nicotine pouch line and are steadily ramping up manufacturing capacity and the channel distribution. In the heat-not-burn category, we hold extensive proprietary technology and patent reserves, as well as a pipeline of market-ready products awaiting optimal market and regulatory conditions for commercial launch. To support these multi-category expansion and reduce our exposure to trade friction in the macroeconomic and geopolitical uncertainties, we are currently constructing a state-of-the-art manufacturing hub in Southeast Asia. The facility will cover multi-product categories, improve our tariff positions, and streamline logistics, supporting long-term sales resilience across our international markets.

Our mandate is clear, leverage our R&D capabilities, regulatory infrastructure, and newly strengthened go-to-market networks to capture market share and establish leading position across the global smoke-free ecosystem. To sum up, we made meaningful progress this quarter, executing from a position of balance sheet strength. A solid capital position gives us flexibility and the patience to say no to suboptimal, marginal, dilutive projects. We remain financially disciplined, ensuring capital is deployed exclusively toward high-quality, value-accretive assets. By pairing direct channel control with multi-category product innovation, we are building a more resilient, diversified global platform structured to deliver sustainable long-term growth as the industry matures. Now, I will hand the call over to Chao to review our financial results in detail.

Thank you, Kate, and hello, everyone. We delivered solid second quarter top-line results, with net revenues reaching RMB 1.01 billion, representing a 14.8% year-over-year increase from RMB 880 million in the prior year period. Our top-line growth was primarily driven by organic volume expansion in international markets, alongside incremental contributions from our acquisition completed in May 2025. For the quarter, international revenues remained our principal growth engine, accounting for approximately 70% of total net revenues. As anticipated, second quarter net revenues moderated sequentially from first quarter 2026, which benefited from a one-time policy adjustment boost. Turning to profitability, gross profit rose 47.8% year-over-year to RMB 357.8 million in the second quarter. Gross margin expanded sequentially to 35.4%, up 790 basis points year-over-year and up 360 basis points sequentially, mainly due to supply chain optimization, manufacturing yield improvement, and favorable geographic and product mix shifts.

We delivered our 11th consecutive quarter of positive non-GAAP operating profit, driven by top-line expansion, favorable product mix, and disciplined operating cost control. Non-GAAP income from operations reached RMB 149.6 million, up 28.8% year-over-year. Non-GAAP net income for the quarter stood at RMB 238.8 million. Now, let me provide additional financial and strategic context regarding the Western European transaction Kate highlighted earlier. In July 2026, we made a controlling investment in one of Western Europe's leading distributors of next-generation smoke-free products and FMCG goods. This entity brings two strategic assets to us, an extensive offline network directly serving over 30,000 retail endpoints across key national accounts and specialized retail, and a proprietary B2B digital commerce platform, connecting over 20,000 independent merchants. We expect to unlock significant operational and supply chain synergies from this transaction.