HERE

Good morning and good evening, ladies and gentlemen. Thank you for standing by, and welcome to Here's earnings conference call. At this time, all participants are in a listen-only mode. We will be hosting a question and answer session after management's prepared remarks. Please note that today's event is being recorded. I will now turn the conference over to Ms. Tina Tang, the company's Manager of Investor Relations. Please go ahead, ma'am.

Thank you. Hello, everyone, and welcome to Here Group's earnings call for the first quarter of fiscal year 2026. With us today are Mr. Peng Li, our founder, chairman, and CEO, and Mr. Tim Xie, our CFO. Mr. Li will provide a business overview for the quarter, then Tim will discuss the financials in more details. Following their prepared remarks, Mr. Li and Tim will be available for the Q&A session. I will translate for Mr. Li. You can refer to our quarterly financials results on our IR website at ir.heregroup.com. You can also access a replay of this call on 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. Li.

Okay. Thank you. Good morning, everyone, and thank you for joining us today. I'm very pleased to announce that we achieved about RMB 165 million in revenue this quarter. This exceeded the high end of our guidance. More importantly, we keep improving our IP and pop toy business. We are consistently optimizing our operations and the cost structure to build a stronger foundation for long-term growth. As we all know, the H1 of the year, especially the first three months, is typically a slow season for the pop toy industry. Beyond working with our channel partners and selling through our own direct channels, we stayed focused on our core strategy. That means building internal capabilities, developing IP-related products and content, and optimizing our channels. The market environment remains challenging, but consumers' demand for emotional and experience-based spending persists.

We build our IP products and the services around what consumers actually need. Let me start with our IP performance. WAKUKU remains our flagship IP. It contributed RMB 102 million in revenue in Q3, or around 52.2% of total revenue. SINONO's revenue grew 73.1% quarter-over-quarter, accounting for 20.2% of total revenue. SINONO launched in the H2 of 2025. In less than a year, it has reached a meaningful scale. This is an early validation of our ability to incubate new IPs. More importantly, we are seeing a growing cross IP engagement. WAKUKU users are connecting with SINONO and other IPs, while new users are always discovering our increasingly rich IP portfolio. As we move forward, we keep coming back to one key insight. Short-term sales are not the real measure of success.

The real question is whether an IP can win users and earn a lasting place in their hearts and lives. IP development and ongoing operations take time. They require long-term interaction between the IP and its users. Often in physical spaces, offline D2C stores are a key part of making that happen. Based on our deeper knowledge of the IP industry, we have refined our strategy. In 2025, our growth was mainly driven by our strong product capabilities and the strength of our IP portfolio. At the same time, we benefited from several market cycles, channel tailwinds, and celebrity partnerships. These collaborations gave us additional momentum and valuable experience. We will continue to benefit from our partnerships. We know that building lasting IPs requires strong building and solid operational capabilities. That means building our own systems to reach users directly and engage with them deeply.

Therefore, long-term IP Momentum will always be our top priority. Revenue should follow from strong IPs, not be the target. To achieve this, we have set the following key priorities. First, keep building IPs and brand operations. Create ongoing interaction between IPs and users through different formats. Deliver great emotional experiences. We will stick to our strategy, focusing on our core IPs while creating and growing new ones. Around our core IPs, we are speeding up the development of innovative products. This will take about three to six months. We expect to launch new products from our core IPs very soon. Second, keep expanding our offline D2C stores and the robo shops. This extends our brand reach and the user touchpoints. We treat our offline D2C stores as an extension of our IP products. The store itself is a product. It unifies the IP expression within our self-operated brand system.

As of today, we have opened seven D2C brand stores. Each store serves as a space for brand user interaction. Our membership system has also been upgraded. We now have a full chain membership management system in place. This lays the foundation for constant user engagement. Our robo shop, ROART, has also recently begun. To date, we have developed around 15 robo shops in three cities. Third, keep building strong online operations. We want to note that online sales are not our goal. Online activities will serve as one of the tools for IP and product operations. This helps us deliver a great consumer experience. Fourth, keep a measured and steady pace on global expansion. In the near term, we plan to open a pop-up store in South Korea and participate in a trade show in the U.S. as initial market tests.

Fifth, keep optimizing our business cooperation with channel partners. We pursue mutual benefits and win-win outcomes. We work with them to promote our IPs and products and to deliver great experiences to users. Building IP value and enhancing user experience is a long journey, but with efficient execution, we can move more steadily, better, and faster. Our progress comes down to two things. First, IP ecosystem. We are moving from one-off hits to a repeat engine. As of March 31, 2026, our IP portfolio includes 20 total IPs. That includes 12 proprietary IPs and eight exclusive licensed IPs. This quarter, we focused on diversifying our IP metrics. We introduced new IPs with unique styles and different target audiences. We also accelerated our new product launch pace for both flagship and emerging IPs. This quarter, we launched a new co-branded IP, Xiao.

Its core spirit is defined by four words: cool, stubborn, brave, and free. This message resonates well with young consumers. To drive the launch, we ran an integrated campaign across celebrity, social, and fun channels. Leveraging our strengths in IP design, supply chain, and the omni-channel sales, we completed pre-launch prep, including character development and mass production. Xiao gained strong market attention and pre-launch buzz. The strong market response has validated and strengthened our portfolio. It proves that our IP incubation model is scalable and competitive. Beyond Xiao, we have a strong product pipeline in preparation. We will launch them steadily according to our planned cadence.

For WAKUKU, we launched a new series, the "Handicraft World of WAKUKU" series vinyl plush doll on March 28th. As of March 31, the initial launch period, the series achieved strong results. Total omni-channel sales exceeded RMB 20 million. Peak concurrent online viewers reached 28,000. The total new product explorer topped 100 million. The series focused on handcrafted feel, friendship and warmth, healing vibes. This deepens our emotional connection with the users. In May, we also released the 520 gift box, WAKUKU Heartbeat Devil, as a hanging card set. Recently, we have also launched the new products for other IPs.

This includes new plush toys, vinyl figures, hanging cards, and ceramics collections for IPs like ZIYULI, SINONO, Kido, KILIKILI, and Awai. Each of these IPs speaks to a different audience, with unique styles and labels. That's how we build a richer IP matrix. For Sinono, the new generation product, "Mood On" series vinyl plush doll, had its offline launch on May 30 and online launch on June 2nd. Second, omni-channel reach. We are boosting IP user interaction with a clear focus. Offline first, online empowering.

Offline, we operate through three channels: our D2C stores, robo shop network, and partner channels. First, our self-operated brand stores and robo shops. As of today, we have opened seven D2C stores in four cities. We recently opened two new D2C stores, one at Shenzhen Uniwalk Qianhai on April 25, and another at Xi'an SKP on May 1st. Both stores are in prime high-traffic business areas, and that's ranked among the biggest in their respective cities. We are closely tracking store performance and scouting locations for new stores. We are also expanding into automatic retail. As of June 4th, we have rolled out about 15 robo shops across key cities nationwide. These are manned vending machines and placed in high-traffic locations. They extend our offline reach without the higher cost of a full-scale store. They serve as both sales channels and brand touchpoints.

They make our IPs more accessible with collecting valuable data on product performance and purchasing habits. Second, partner channels. We continue to work with our channel customers. These partnerships help us reach more consumers through established retail networks. They extend our IPs and brand elements at more offline touchpoints and help us interact with users. On the online side, our social media presence continues to grow. As of June 4th, our cumulative followers across major platforms is approaching 800,000. We use online channels to build content and community. Doing so empowers our IP and brand operations. We have also run several brand marketing events to build brand awareness and drive user engagement. We partnered with Apollo Go, Baidu's autonomous driving platform, to integrate our IPs with AI technology and smart mobility. This partnership spans co-branding in vehicle exposure and youth-focused content campaigns.

In May, we participated in the first China New Culture and Creative Market and Trendy Toy Carnival in Beijing. This is a nationwide level event co-hosted by three central ministries. Here Group was the only non-state-owned enterprise featured in media coverage, including BRTV. Our flagship IP, WAKUKU, was showcased alongside traditional culture exhibits at the New Oriental Aesthetics Section. Going forward, we will accelerate the creation of more offline scenarios to give our IPs and users more spaces to interact. At Beijing Airport, we plan to set up a store to enhance brand visibility, we are actively exploring more similar scenarios. In Hong Kong, we plan to create a dedicated ride experience on the boats at Central Pier using our IPs, building a unique brand stand. Operational discipline is reflected in our capital allocation. We continue to align resource support and the cost structure with our strategic adjustments.

Whether investing in a new IP, opening a store, or launching a content initiative, we evaluate each potential investment against a clear ROI framework. We don't make guesses. We allocate capital based on the information and the data from IP Momentum, our offline network, membership system, and sales channels. Thank you for your continuing support. I will now turn it over to Tim for a detailed review of our financial results. Thank you, everyone.

Thank you. Before I go into the details of our financial results, please note that all amounts are in RMB terms, that the reporting period is the Q3 of fiscal year 2026, ending on March 31, 2026, and that in addition to GAAP measures, we'll also be discussing non-GAAP measures to provide greater clarity on the trends in our actual operations. We are pleased to report on our Q3 results, which exceeded expectations on both revenue and gross margin, despite navigating a softer demand environment in the broader industry. Total revenue was RMB 164.7 million, with gross profit of RMB 56.9 million, representing a gross margin of 34.5%. While revenue decreased from the previous quarter's RMB 177.3 million, gross margin improved by 350 basis points from 31%. These results reflect our ability to maintain operational resilience and financial discipline in a challenging market environment.

We are positioning the company for sustainable long-term growth through strategic cost management and continued focus on our core IP portfolio. Revenues for the quarter were RMB 164.7 million, primarily generated from sales of our three flagship IPs, WAKUKU, SINONO, and ZIYULI, compared to RMB 177.3 million in the previous quarter. This change was driven by the cadence of our new product launches and the impact of the Chinese New Year holidays during the quarter, which materially reduced effective working days and temporarily constrained our supply chain and delivery capabilities. Gross profit for the quarter was RMB 56.9 million, compared to RMB 55 million in the previous quarter. Our gross margin increased to 34.5% this quarter from 31% in the previous quarter. This margin improvement reflects the early benefits of our strategic cost structure refinement implemented during this quarter, positioning us for enhanced margin performance going forward.

On the operational front, total operating expenses were RMB 100.8 million for this quarter. To break this down, sales and marketing expenses were RMB 57.7 million. These expenses mainly included advertising and promotion expenses and staff compensation to support brand building and customer acquisition efforts across multiple platforms. As a percentage of total revenue, non-GAAP sales and marketing expenses, which exclude share-based compensation, changed to 35% this quarter from 29.6% in the previous quarter. Research and development expenses were RMB 9.5 million. These expenses mainly consisted of IP design and product development expenses. As a percentage of total revenue, non-GAAP research and development expenses, which exclude share-based compensation, changed to 5.7% this quarter compared to 5.1% in the previous quarter. General and administrative expenses were RMB 33.6 million. These expenses reflected our core operational functions, including employee compensation, professional service fees, and other operational expenditures.

As a percentage of total revenue, non-GAAP general and administrative expenses, which exclude share-based compensation changed to 13.8% this quarter from 12.7% in the previous quarter. Our net loss was RMB 34.1 million compared to RMB 25.4 million in the previous quarter. Our adjusted net loss was RMB 22.9 million compared to RMB 16.1 million in the previous quarter. Basic and dilutive net loss per share were RMB 0.21 during this quarter. Basic and diluted adjusted net loss per share were RMB 0.14 during this quarter. Looking ahead, we remain excited about the growth prospects for our pop toy business. Based on current available information, including our pipeline for upcoming IP releases and seasonal demand, we expect revenues from our pop toy business to be in the range of RMB 130 million to RMB 140 million for the Q4 of fiscal year 2026.

We are revising our fiscal year 2026 revenue guidance to a range of RMB 600 million-RMB 610 million. This revision reflects near-term market realities and demonstrates our commitment to providing transparent guidance aligned with current industry conditions. That concludes my prepared remarks. Operator, let's open up the call for questions. Thank you.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone. If you wish to withdraw your question, please press star then two. When asking a question in Chinese, please translate your question in English for the convenience of everyone on the call. Please ask one question at a time. Today's first question comes from Jing Yuan at CICC. Please go ahead.

[Non-English content]

Good evening, management. Thanks for taking that question. Could management elaborate what change in the consumer demand within the pop toy market, how we've seen in the past year, and how has the competition shift? Thanks.

Okay. Thank you. I'll take this question. We see that emotional consumption is really all about companionship. Consumer motivation is driven by a mix of emotional value and collectible value, and their expectations for IP products keep rising. Only products with real character and solid operations can truly connect with consumers. For young buyers, they are buying for immediate emotional satisfaction. Our Handicraft World of WAKUKU series focuses on handcrafted feel, companionship, and warm healing. This responds directly to what consumers are looking for. This is a recent example for our new product launch for the IP WAKUKU. At the same time, good IP products have real artistic value. Some collectors still want to collect a complete set or even buy on the secondary market because they love the IP. Companionship and portability have become very important product dimensions.

The plush and bag charms saw strong growth in 2025 and became the fastest-growing category in the pop toy industry. Starting in the H1 of this year, we've seen the market cool down. The main reason is that supply chain grew too quickly, which reduced the early scarcity. This is actually a normal market correction. The industry is moving back to the core of emotional consumption, from chasing scarcity to buying what you like, or the both. For us, the underlying logic of this category has not changed. Consumers still want IP products that fit into their daily lives. We stick to our strategy, creating excellent IPs and products. For example, our recently launched SINONO "Mood On" series, the new product, has been very popular based on recent consumer response.

For the competitive condition, the competitive landscape is shifting from grabbing territory to competing on ecosystem capabilities. Firstly, more players have entered the market, but only a few can operate IPs, especially the self-owned IPs, consistently over time. It is still a large market with many small players. Secondly, the core of competition is moving from product capability to full chain IP operation. Long-term IP value must be built from within. Pop toys are not fast-moving consumer goods. You cannot drive growth simply by adding more SKUs. You should need IP design, supply chain, brand, and sales all working together as one system. Honestly, very few companies can actually pull it all together. Thirdly, the industry is taking a fresh look at owned IPs.

For most pop toy companies, licensed IPs account for a majority of their revenue, and these licenses typically last only one to three years and have a high cost. If a license doesn't get renewed, you're looking at a major hit to your revenue. We've taken a different approach. We have built a systematic capability to create and sell our own IPs. Our IP portfolio is much more balanced. More than half of our IPs are self-owned, and even with our licensed IPs, we focus on long-term partnership. For co-branded IPs like Xiao, which is just recently launched, we use a deep co-creation model rather than relying on a simple licensing deal. That's all. Thank you.

Thanks. That's very helpful.

Thank you. Our next question today comes from Yikun Zheng with CITIC. Please go ahead.

[Non-English content] Hey. Good evening, management. Thank you for taking my question. My question is about the momentum of IPs. Far, we have several very successful IPs, such as WAKUKU, SINONO, Xiao. My question is, in the future, how to keep both strength and the momentum of these popular IPs. Thank you.

Okay. Thank you very much for your question. I will answer in Chinese, and my colleague will translate for me.[Non-English content]

IP momentum depends on two factors, the IP's characteristics and ongoing successful operations. To maintain this momentum, the key is to consistently deliver events, content, products, and experiences that align with the IP's characteristics and connect with our target audience.

[Non-English content]

Specifically, here is what we are doing and will continue to refine in our IP operations strategy. First, we remain focused on our core IPs. We concentrate resources on our core IPs and build our IP portfolio around them. We need steady resources to keep our core IPs running smoothly. At the same time, we closely monitor performance across multiple dimensions to improve resource efficiency.

[Non-English content]

Second, we strengthen the user awareness and engagement through high-quality products and experiences. This helps maintain and build IP momentum. We arrange product plans at a steady pace and keep innovating around IP. This year, we're planning next-generation products for our core IPs, along with offerings of new materials and new play styles. We will expand into new categories at the right time. Beyond physical products, we're developing IP-driven experiences through a live asset model. For example, we recently signed a ferry at Hong Kong Central Pier, and we turned it into IP theme park on water.

[Non-English content]

Third, we actively manage our IP brands through partnerships. This includes the placement in variety shows, celebrity partnerships, and brand collaborations to grow our IP influence over time. Fourth, we're strengthening offline touchpoints through our DTC stores, robo shops, and dedicated branded sections in partner retail locations.

Overall, we believe strong fundamentals help us manage and extend an IP's life cycle. This does not come from a single hit product. It comes from consistent, stable, and systematic operations. Okay, that's all. Thank you.

Thank you, Mr. Li. It's very clear.

Thank you. Our next question comes from Di Shi with Huatai Securities. Please go ahead.

[Non-English content] Management, good evening. My question is about our company's plan for the category expansion in the future. Thank you.

[Non-English content]

Yes, we do. We are continuously exploring the category expansion opportunities. Our principle is to extend from our IPs, not to launch the new categories for their own sake. At this stage, we mainly consider where each IP is in its life cycle. Then we carefully expand into merchandise around our core IPs. Our strategy focuses on three key areas.

[Non-English content]

First, merchandise is a key focus for us. We gradually expanding into IP-related merchandise, particularly lifestyle products. The idea is to transform our IPs from collectibles on a shelf into everyday companions in people's lives.

[Non-English content]

Second, we're expanding at a disciplined pace. There is a common trend in industry right now: many SKUs, very broad coverage. That is not our approach. We believe category expansion must align with IP's context and user needs, not to just add more SKUs. We prefer to go deep with our core IPs, not broad.

[Non-English content]

Third, we are watching for opportunities like smart companionship and tech plus IPs development. The combination of AI and pop toys is becoming a new direction. We're actively researching it, but we're still exploring and don't have any specific plans yet.

[Non-English content]

To sum up, stay focused on IP. We go deep in our core categories, then gradually expand into merchandise. We are not trying to cover everything. Instead, our goal is to make sure every new category truly supports the emotional connection between our IPs and our users. Thank you.

Yeah. That's all. Thank you. Thank you. That's helpful. Thank you.

Thank you. As there are no further questions, I'd like to hand the conference back to management for closing remarks.

No 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.

Thank you. That concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.

Good morning and good evening, ladies and gentlemen. Thank you for standing by, and welcome to Here's earnings conference call. [Operator Instructions] Please note that today's event is being recorded. I will now turn the conference over to Ms. Tina Tang, the company's Manager of Investor Relations. Please go ahead, ma'am.

Thank you. Hello, everyone, and welcome to Here's earnings call for the second quarter of fiscal year 2026. With us today are Mr. Peng Li, our Founder, Chairman and CEO; and Mr. Tim Xie, our CFO. Mr. Li will provide a business overview for the quarter, then Tim will discuss the financials in more detail. Following their prepared remarks, Mr. Li and Tim will be available for the Q&A session. I will translate for Mr. Li. You can refer to our quarterly financial results on our IR website at ir.heregroup.com. You can also access a replay of this call on 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's prepared remarks are in RMB terms, and we will discuss non-GAAP measures today which are more solidly explained and reconciled to the most comparable measures reported in our earnings release and the filings with the SEC. I will now turn the call over to the CEO and the Founder of Here. Mr. Li.

Okay. Good morning, everyone, and thank you for joining us today. Just over [ 3 months ] ago, we held our first earnings call as a pure-play portfolio company. We shared our vision of focused acceleration. Today, I'm pleased to report that we have not only maintained that momentum but also began translating it into the durable long-term value we promised. This quarter marks a significant milestone with our first full quarter operating as a dedicated IP trained company. We have a clear and firm strategy and we are continuously optimizing in execution in a rapidly changing market environment. Building on our Q1 outperformance, Q2 delivered strong results. Total revenue reached RMB 177.3 million, representing 35.4% quarter-over-quarter growth. This performance exceeded the high end of our guidance and reflects a sustained and steady momentum following our strategy. We continue to focus our flagship IPs to create an ultimate product appeal. Our flagship IP, WAKUKU contributed on the RMB 129.4 million, accounting for 73% of Q2 revenue. SIINONO is another potential flagship IP. It has been gaining momentum since its initial launch in July 2025. It's generated over RMB 19.2 million in revenue this quarter. This is not just about product's success, it demonstrates that our IP-first strategy is successfully converting more consumers into a growing base of our users. This quarter, based on our observation on changing market conditions and our evolving operational insights, we improved our strategy implementation in a timely manner. We have gained a deep understanding. Product sales for a period of time are not the only metric to measure an IPs success. The ultimate goal of our operations is to build IPs that users love and that process lasting vitality. We expanded sales contribution from off-line distributor channels. This allows users to experience IP products more intuitively. We have opened 5 offline D2C stores, positioning as a dedicated venue for brand user interaction. We are continuously optimizing the operational experience. Our online operations team has also improved our user membership system. This quarter, we refined our core operational systems. This covers IP portfolio health, product appeal, supply chain efficiency, channel effectiveness and user engagement. These efforts aim at building enduring value, not just focusing on quarterly revenue. Building on the framework we discussed last quarter, let me walk you through the performance of our two pillar growth strategy this quarter. Pillar one, IP ecosystem, moving from a creative to a systematic pipeline. In Q1, we demonstrated our ability to turn IP launches into cultural phenomena. The WAKUKU split in Shanghai was a great example. This quarter, we refined our operational approach. We identified what works and applied those licenses systematically. Our IP and product development now rely on continuously improving mechanisms, data-driven systematic engine. Let me share a snapshot of our IP portfolio. As of December 31, 2025, we had a total of 18 IPs. That includes 11 proprietary exclusive licensed and two nonexclusive licensed IPs. This diversified portfolio from our IP ecosystem condition. We have established a comprehensive end-to-end mechanism carrying everything from IP planning to production and promotion. The WAKUKU On A Roll series launched in late November 2025 it builds WAKUKU's growing success. It took our daily [ continuous ] concept to new highs. We introduced a many authorized from factor for full scenario integration. [ The only thing ] about WAKUKU is the entirely new category of [indiscernible] as everyday companies. The market response was immediate. We achieved total omnichannel sales, surpassing RMB 18 million within one week along with over 84,000 presale registrations. Our 56,000 peak concurrent online users and over RMB 100 million in total new product exposure. For SIINONO, the success of it's latest release is clear. The Whispers of "Ta" series value plus store hit over RMB 11 million in omnichannel sales within a week with more than 60 peak concurrent online users and total exposure reaching RMB 170 million. The IP journey begins at launch, but it extends far beyond this quarter. This quarter, WAKUKU was invited by the Tianjin culture and the tourism bureau to serve as a promotion ambassador. This demonstrates our success integrating IP with culture and tourism development. Recently, WAKUKU also launched a co-branding collaboration with Lukfook jewelry [indiscernible]. This continuously enhanced IP influence. We are planning to enrich our narrative grows through our live content strategy. That short-from storytelling that depends emotional connections. [indiscernible] IP influence from physical spaces into narrative spaces. It expands sustained emotional engagement between IPs and [ brands ]. Pillar two, omnichannel reach. Our approach ranges from online brand visibility to offline user experiences, we are continuously depending the connection between IP's products and the users. Our diverse channels are not just sales points. There are portals for IP user interaction and experience. They continuously empowering the IP ecosystem. Building on last quarter's massive organic reach, our members are strong. As of February 26, 2026, our total cumulative followers across major social platforms in China reached approximately 700,000 and our cumulative social media exposures exceeded RMB 1.8 billion. This growing digital footprint forms one of the foundations of our brand and IP-driven model. For off-line channels, we position our D2C stalls as brand users interaction and experience hubs. Since December 2025, we have opened 5 D2C stores in Beijing, Shenzhen and Chongqing. To date, additional two stores are in the preparation stage. A notable example is the ground opening of our Shenzhen Upperhills flagship store on February 1 this year. We invited a celebrity to serve as store manager for a day. This grew a massive ground and it generated a strong same-day sales of approximately RMB 250,000. This validates the power of our off-line experiential approach. Our Shanghai K11 pop-up generated strong social media buzz and even become a trending topic and this event has more become one of the key drivers of both traffic and sales. On 2026, New Year's Eve, we held here at [indiscernible] an exhibition and the light show in core commercial districts such as Wangfujing in Beijing, Gulou in Tianjin, and K11 in Shanghai. Through this landmark's public spaces, we achieved high traffic, which under dependent interaction between the brand and the consumers. At the same time, we are deeply leveraging the powerful and the creative tools of the AI era and innovating vigorously in the area of smart sales Terminals. We expect to deploy our intelligent sales robots to more offline locations for user interaction in the near future. The change in gross margin this quarter reflects our strategic participation of partnerships with small offline distributor channels. we are committed to providing more interactive and cocktail experience through will diversified offline channels to our consumers. This deepens IP connections and strengthen user loyalty through physical engagements. We firmly believe that the strategic investment will lay a solid foundation for the company's long-term healthy development. Our international strategy continues to gain momentum. On one hand, as our supply chain capability improved, we are working with domestic distribution partners to promote overseas export sales. On the other hand, we are actively seeking local overseas partners for IP and product sales collaborations. As we continue to refine our approach, the appeal of various international markets is steadily increasing. This quarter, we continue to optimize our organic base organizational structure and the core operating platform. We refined our cost structure. We now have a leaner and more focused team and cost structure compared to the first fiscal quarter. We are building an integrated operational systems that will be a crucial competitive advantage. On the supply chain brands, we -- our production capability -- capacity is now approximately at 50x what it was at the beginning of 2025. This progress further step from last quarter was a solid foundation for creating [indiscernible] product this year. Operational excellence provides a solid foundation for our capital allocation. We will continue to invest in high potential IP development, strategic metric expansion and our live content initiatives. We will continue to systematically build cultural assets based on IP. As a dedicated IP-trained company. we are committed to continuously improving our operational efficiency and financial health. The journey of building an enduring company requires patients and discipline, and we are fully committed to both. I will now turn it over to Tim for a detailed review of our financial results. Thank you, everyone.

Thank you. Before I go into the details of our financial results, please note that all amounts are in RMB terms, that the reporting period in the second quarter of fiscal year 2026, ending on December 31, 2025. And then in addition to GAAP measures, we'll also be discussing non-GAAP measures to provide greater clarity on the trends in our actual operations. We are pleased to report another quarter of solid financial performance, marked by continued revenue growth and further improvement in our profitability metrics. This demonstrates the sustained successful execution of our strategy as an IP-based product-driven pop toy company. Total revenue reached RMB 177.3 million, representing a 39.4% increase from the previous quarter. Gross profit reached RMB 55 million with a gross margin of 31% compared with total revenue of RMB 127.1 million and a gross margin of 41% in the previous quarter. Adjusted net loss from continuing operations continued to narrow to RMB 161.1 million, down from RMB 17.1 million in the previous quarter. These results reflect the growing traction of our pop toy products and operating leverage, we are beginning to realize in our focused business model. Revenues for the quarter were RMB 177.3 million entirely generated from the sales of pop toys and other related activities compared to RMB 127.1 million in the previous quarter. This sequential growth is primarily driven by our off-line channel sales. Gross profit for the quarter was RMB 55 million compared to RMB 52.4 million in the previous quarter. Our gross margin decreased to 31% this quarter from 41% in the previous quarter. The margin decline reflects our strategic expansion of off-line channels which generated lower per unit margins than direct online sales. This channel diversification strategy is designed to enhance IP engagement and strengthen customer loyalty through physical retail experiences, aligning with the company's long-term vision as a leading IP chain company. On the operational front, total operating expenses were RMB 93.2 million for this quarter. To break this down, sales and marketing expenses were RMB 52.8 million. These expenses nearly included advertising and promotion expenses and staff compensation to support brand building and customer acquisition efforts across multiple platforms. As a percentage of total revenue, non-GAAP sales and marketing expenses, which include share-based compensation changed to 29.6% this quarter from 21.7% in the previous quarter. Research and development expenses were RMB 9.1 million. These expenses were mainly consisting of IP design and product development expenses. As a percentage of total revenue, non-GAAP research and development expenses, which exclude share-based compensation, changed to 5.1% this quarter compared to 12.5% in the previous quarter. General and administrative expenses was RMB 31.3 million. These expenses reflected our operational functions, including employee compensation, professional service fees and other operational expenditures. As a percentage of total revenue, non-GAAP general and administrative expenses which excludes share-based composition changed to 12.7% this quarter from 23.2% in the previous quarter. Our net loss from continued operations was RMB 25.4 million compared to RMB 25.8 million in the previous quarter. Our adjusted net loss from continuing operations was RMB 16.1 million compared with RMB 17.1 million in the previous quarter. Basic and diluted net loss from continuing operations per share were RMB 0.16 during this quarter. Basic and diluted adjusted net loss from continuing operations per share was RMB 0.1 during this quarter. Regarding our balance sheet position, our accounts receivable amounted to RMB 32.6 million as of December 31, 2025, primarily attributable to revenue from our off-line channel sales. It's worth noting that despite significant revenue growth from off-line channels during this quarter, our accounts receivable balance actually decreased markedly compared to September 30, 2025. This improvement reflects our intensified efforts to enhance customer engagement management capabilities and strengthen collections discipline. Our inventories were RMB 111.8 million as of December 31, 2025, representing a significant increase from the prior quarter. This was primarily driven by enhanced supply chain capacity and efficiency as well as inventory build proactively in anticipation of the Chinese New Year factory closures and new product launches in the upcoming quarter. We view this as a strategic move to ensure we are well positioned to meet upcoming demand. Looking ahead, we remain excited about the growth prospects for our pop toy business. Based on currently available information, including our pipeline for the upcoming IP releases and seasonal demand, we expect revenue from our pop toy business to be in the range of RMB 140 million to RMB 150 million for the third quarter of fiscal year 2026 and in the range of RMB 750 million to RMB million for the full fiscal year of 2026. This forecast reflect our confidence in the total market opportunity and our ability to scale our IP portfolio and expand internationally. That concludes my prepared remarks. Operator, let's open up the call for questions. Thank you.

[Operator Instructions] The first question today comes from Alice Cai with Citibank.

Just one quick question. The revenue guidance for third quarter suggests a quarter-over-quarter decline of about 15% to 20%. Is it primarily due to seasonality? Or are there any specific adjustment due to your IP launch schedule for the upcoming quarter?

Thank you, Alice, for the question. Indeed, those factors have contributed. But the core message is that we are actively building momentum for subsequent growth. Firstly, regarding seasonality, given that our current business primarily operate through a distributor model. Distributors naturally slow down their operations and inventory stocking during the spring festival holiday. This is within our expectations and represents a common seasonal fluctuation in this industry. And secondly, regarding the recent and pace of our product launches. This is not an adjustment, but rather a proactive arrangement based on our annual planning. Our products are typically planned 3 to 6 months in advance with dynamic optimization made based on market feedback. Currently, we are fully prepared for our product pipeline in the coming quarter and beyond, with major new products expected to launch successively starting from this end of March. Therefore, what we are seeing in the short term is the normal seasonal dip from a medium- to long-term perspective, this is proactive management on our part to welcome a new product cycle and optimize inventory and channel pace.

The next question comes from Liping Zhao with CICC.

[Foreign Language] I'll transfer it myself. So my question is about the cooperation of other companies in the future. We noticed that the Shenzhen Yiqi has recently established a joint venture with Enlight Media that this partnership means we will be working closely with Enlight Media in areas such as content creation and IP development?

I think Mr. Li will answer this question. [Foreign Language]

I will answer the question in Chinese and Tina will translate for me. Okay. [Foreign Language]

Thank you for your interest. Regarding our cooperation with Enlight Media, it is a key part of our efforts to deepen our IP strategy.

[Foreign Language]

First, over the past year, we have successfully taxed and confirmed the commercial path from IP images to pop toys by focusing on our core IP to create key products. We have built a solid foundation centered on the product gens.

[Foreign Language]

Second, we have always trusted the talent of IP comes from continuous contact support. And both the [ third column ] is very important to this. We focus not only to sell in the physical products like the blend boxes and the plush toys, but also on the long term, develop our IP. So we are now enhancing our IPs through the suitable content forms. We're doing this by bringing in excellent contact tailwinds like the Enlight Media and cooperating with the top industry partners. Our goal is to add a cultural meaning to our IPs and strengthening emotional connection between users and IP.

[Foreign Language]

Finally, the joint venture within Enlight Media, you mentioned it's exactly one of the specific projects to carry out our product and content stewardship strategy. We hope to explore more possibilities for our IPs in areas like the film and the television contact and derivative development through such cooperation. As for specific future plans, we will disclose them to the market when there is a substantial progress.

The next question comes from Yichen Zhang with CITIC Securities.

My question is about our operations strategy. The company was very successful in IP operations last year. So are there any new strategies for IP operation and marketing in this year?

Okay. Thank you for questions. I'll take this. This year, the core keyword for our IP operations and marketing strategy is a comprehensive upgrade from -- maybe we can call that opportunistic creativity to a systematic IP factory. This is reflected in 3 key areas. The first one is on the product front. We have built a replicable assembly line for IPs. Extreme product excellence is the foundation of everything. Through our product committee mechanism, we rigorously select IPs based on 3 dimensions: the visual distinctiveness, story potential, storytelling potential and audience resonance, ensuring that every category launch has a generic makeup to become more classic. Concurrently, we have established a complete process from discovery and incubation to development and launch and then to fulfill the full-size life cycle management, making it possible to replicate and sustain at products. A great product in itself is the best nourishment for IP. We continuously strengthen our in-house teams and integrate outstanding external resources, injecting vitality into our IPs with product excellence. And secondly, on the operations front, we have developed an iterable omnichannel marketing methodology. Over the past year, we have continuously summarized and optimized our operational experience, forming a replicable playbook that we constantly refine and iterate. This year, we will flexibly deploy differentiated marketing strategies based on the unique characteristics of different IPs and products, whether it's celebrating collaborations, branding, crossovers with major sports events or integrated online to off-line user engagement activities. Our goal is to leverage precise operational support to ensure great products are sent and loved by more people. And third, on the content front, as just discussed by Mr. Li and the CICC analyst. We are opening a new chapter of light content empowerment for IPs. And this is a crucial step in our journey from purely physical space to narrative space, and from product moments to sustain store retiring. Through appropriate content, we infused our IP with culture substance and emotional depth, transforming them from mere trendy toys into cultural symbols, with stories and vitality. This multidimensional empowerment across products, content, operations and branding has one ultimate goal, to build truly enduring evergreen IPs. So that's our training strategy so far.

The next question comes from [indiscernible] with [indiscernible] Securities.

My question is about our channel expansion. I wonder how is the performance of the -- our recent offline stores have reached our expectation and what's the channel expansion plan in year 2026?

Okay. I've answered your question. I thank you for your interest in our store operations. Regarding our offline stores, I will address this from three dimensions: the short-term performance, strategic positioning and future plans. Firstly, regarding short-term performance, our newly opened stores have generally met or even slightly exceeded our internal expectations. Since late last December, in last year 2025, we have opened 5 D2C stores in Beijing, Shenzhen and Chongqing. Although they have been operating for just over one month, the overall performance has been solid, and we have broadly achieved nearly breakeven or commendable result for newly opened stores in their initial phase. Of course, due to differences in customer profiles across various shopping districts, we are continuously fine-tuning the operational strategies for individual stores. And second, regarding strategic positioning, we value these stores not only for their sales contribution, but also and more importantly, for their role as brand landmarks and user touch points. Our offline direct to sale stores are core scenarios for fostering deep interaction between our IPs and users. To this end, we recently established a user operation center the organization in our company aimed at integrating online and offline data and user and planning more cohesive interactive activities with our IP platform and the product launch pace as a crucial component of this strategy, the value of our stores for brand showcasing and user connection far exceeds near sales figures.

As there are no further questions, I'd like to hand the conference back to management for closing remarks.

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.

Thank you for attending today's presentation. You may now disconnect.

Good morning, and good evening, ladies and gentlemen. Thank you for standing by, and welcome to Here's Earnings Conference Call. [Operator Instructions] Please note that today's event is being recorded. I would now like to turn the conference over to Ms. Leah Guo, Investor Relations Associate Director of the company. Please go ahead, ma'am.

Thank you. Hello, everyone, and welcome to Here's earnings call for the first quarter of fiscal year 2026. With us today are Mr. Peng Li, our Founder, Chairman and CEO; and Mr. Tim Xie, our CFO. Mr. Li will provide a business overview for the quarter, then Tim will discuss the financials in more detail. Following their prepared remarks, Mr. Li and team will be available for the Q&A session. I will translate for Mr. Li. You can refer to our quarterly financial results on our IR website at ir.heregroup.com. You can also access a replay of this call on 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's 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 filings with the SEC. I will now turn the call over to the CEO and Founder of Here, Mr. Li.

Good morning, everyone. Thank you for joining us today for our first quarter of FY '26 earnings call. This is a historic moment, our first earnings call, as Here Group following our business restructuring, which positions us a pure-play player in the global pop toy market. Today, I am proud to report that our first quarter as a fully focused organization has been one of the strong execution and accelerating momentum. We have completed the disposal of our non-pop toy businesses by September 30, 2025, allowing us to concentrate all our talent and resources on the immense global pop toy opportunity ahead. In Q1, we delivered total revenue of RMB 127.1 million, with our pop toy business growing 93.3% quarter-over-quarter from RMB 65.8 million, exceeding the higher end of our previous guidance RMB 110 million. Let me highlight our most impressive operational metric, which demonstrates the power of our focused strategy: Our total GMV across direct-to-customer online stores reached RMB 44.6 million this quarter. Fiscal year '26, Q1, has validated our capability to develop DTC operations, and our future DTC development strategy will align with our sales planning, new product launch schedules, and other operational activities. This operational momentum, along with contributions from our diversified sales channels, translates directly to strong financial performance. Our sharpened focus is also driving improved profitability, with gross margins expanding to 41.2%, up from 34.7% in the previous quarter. We ended the quarter with a solid balance sheet and strong asset base, reflecting our financial stability and operational strength. Now, let me walk you through how we're executing our two-pillar growth strategy and the tangible results we're seeing across our business. Our first pillar focuses on strengthening our IP ecosystem with a balanced portfolio. This strategy is delivering results across original proprietary IP creation, strategic partnerships of licensed IP, and cross-industry co-branding. A key element of this approach is concentrating resources on our flagship IP properties to maximize their market impact and cultural resonance. For WAKUKU, we launched WAKUKU On a Roll Series on November 29th. This new series brings collectibles into real-life scenarios, building emotional connections with young consumers who view these pieces as daily companions and personal symbols rather than just toys. By integrating lucky numbers into lifestyle contexts and offering versatile sizing, we transform youth interaction with collectibles into spontaneous social sharing moments. Every design element—s from trending colors to premium accessories like interchangeable silky cat head hats, —makes luck, a tangible daily experience. The launch was further enhanced by an original song and music video, creating a multimedia experience that extends the IP's culture reach beyond physical products. Our operational excellence demonstrates this strategy in action. WAKUKU-themed Street became one of Shanghai's most popular photography destinations in November, attracting young people and social media creators who generate diverse content through street photography and collection showcases. This capability —turning IP launches into cultural phenomena that drive organic community engagement —proves our ability to create compelling characters that naturally embed into young people's lives, becoming authentic expressions of personality and catalysts for cultural moments that extend beyond traditional product boundaries. Our flagship IPs continue to be powerful growth engines, with recent launches achieving record breaking performance, particularly in international markets. These launches show our systematic IP development capability and our ability to create emotionally resonant characters with compelling narratives. Looking ahead, we remain committed to adding value to our flagship IPs and newly launched IPs. Let me share our strategic partnerships that are expanding our cultural influence. We've formally established a strategic partnership with Beijing Radio and Television Station. The partnership covers content and cultural project cooperation mechanisms, including program co-creation, IP integration, and co-branded content production. This deep integration with mainstream media enhances our brand credibility and lays the foundation for nationwide media partnerships. Our pop toy IP participated in the official Golden Rooster Awards activities, including the Starry Sea gift sets, red carpet visual elements, and on-site interactive creativity, becoming one of the symbols of youth culture at this year's film festival. This collaboration achieved deep connections with China's mainstream entertainment industry. Our cross-industry co-branding strategy is elevating our brand into new consumer segments through diverse partnerships across entertainment, media, sports, and urban development. In the sports sector, we achieved a landmark milestone as the first official pop toy brand partner in China Open history, creating value across three key areas. From a media perspective, we generated over 200 million exposures and became a core tournament topic. In terms of athlete engagement, we secured authentic interactions and organic endorsements from global top players, including the world's number one ranked athlete, which drove strong celebrity same style demand. On the commercial side, our themed pop-up store generated millions in sales revenue, with multiple limited-edition items selling out immediately upon release. This success demonstrates the effectiveness of our pop toy plus premium sports events model, creating a seamless connection from brand awareness to actual sales conversion. In the entertainment sector, we've secured high-profile collaborations that expand our reach into mainstream pop culture. WAKUKU collaborated with the variety show, "Pijingzhanjí dí gege", Call Me By Fire, integrating our brand into China's popular entertainment landscape. This partnership demonstrates our ability to seamlessly blend pop toy culture with mainstream television programming, reaching diverse demographic segments. We also partnered with the local tourism government office to create an IP-themed Street featuring installations, interactive scenarios, and immersive photo opportunities in a core Beijing landmark commercial district. This project increased foot traffic and helped revitalize the area for younger audiences, providing a successful pilot for our urban renewal plus pop toy scenario operation strategy. These collaborations showcase our versatility in cross-industry partnerships, from premium sports tournaments to domestic variety shows and urban commercial districts, each designed to introduce our IP to new audiences while strengthening brand recognition across different consumer touchpoints These IP successes create the foundation for our second pillar—, our omnichannel approach, which amplifies these compelling brands across multiple touchpoints to drive efficient growth both domestically and internationally. In China, our social media matrix is delivering exceptional results. Our combined follower base across key platforms has reached 26,500. We have generated 679 million views on Douyin and 171 million views on RedNote—, demonstrating massive organic reach. This is converting directly to sales, with our Douyin flagship store GMV increasing 97.2% quarter-over-quarter. Offline, we are continuing to develop our offline DTC stores, which serve primarily as brand flagship experiences to showcase our products and strengthen brand presence in key markets. Our pop-up stores have generated over RMB 3 million in cumulative sales, and we have secured prime locations, which are all high-traffic locations in top-tier shopping districts including Shanghai, Beijing, and Shenzhen, for more direct-to-customer channels. Our first Beijing DTC store and our first Chongqing DTC store will open in December 2025. Two additional DTC stores in Beijing are set to open in early 2026. In addition, we have also launched Christmas and New Year themed pop-up stores to capture the holiday shopping momentum in Shanghai and Shenzhen. We participated in high-profile events including the 2025 China International Fair for Trade in Services, significantly boosting brand visibility, and generating qualified leads for our wholesale channel. Internationally, our momentum is accelerating across key markets. Our performance on TikTok Shop in North America has positioned us as a top player in the collectibles category. A standout success was our WAKUKU Panda series. Our overseas distribution network now covers around 20 countries including North America, Europe, Southeast Asia, and the Middle East. With this established infrastructure in place, we are now beginning to focus on enhancing sales performance in these markets as our supply chain capabilities continue to improve and our partnerships with overseas distributors deepen. This foundation allows us to rapidly scale our geographic footprint, while minimizing fixed infrastructure investments and leverage our partners' established retail relationships and local market expertise to achieve efficient market penetration. Underpinning our creative and commercial success is our integrated operational system, which represents a true competitive advantage. We are no longer in transition. We are in acceleration mode. With a pure-play pop toy strategy, a formalized two-pillar execution plan, agile supply chain capability, and a strengthened balance sheet, we are well positioned to capture the massive global pop toy opportunity and deliver sustainable, long-term value to our shareholders. The results this quarter validate our strategic choices. Our brands are resonating with consumers, our channels are scaling efficiently, and our operations are executing flawlessly. We have the momentum, the capabilities, and the resources to become a defining global player in the pop toy industry. I'll now turn it over to Tim for a detailed review of our financial results. Thank you, everyone.

Thank you. Before I go into the details of our financial results, please note that all amounts are in RMB terms, that the reporting period is the first quarter of our fiscal year 2026 ending on September 30, 2025. And that in addition to GAAP measures, we will also be discussing non-GAAP measures to provide greater clarity on the trends in our actual operations. We are pleased to report on solid financial performance this quarter, which demonstrates the successful execution of our strategic transformation into a product-driven pop toy company. Total revenue reached RMB 127.1 million with a gross margin of 41.2%, compared with total revenue of RMB 65.8 million with a gross margin of 34.7% in the previous quarter. Adjusted net loss from continuing operations narrowed to RMB 17.1 million, down from RMB 19.3 million in the previous quarter. These results reflect the success of our strategic business restructuring and the disposal of our non-pop toy businesses, allowing us to focus entirely on our high-growth Pop Toy segment. Revenues for the quarter were RMB 127.1 million, entirely generated from the sales of pop toys and the related activities, compared to RMB 65.8 million in the previous quarter. Gross profit for the quarter was RMB 52.4 million, compared to RMB 22.8 million in the previous quarter. Our gross margin increased to 41.2% this quarter from 34.7% in the previous quarter, reflecting the strength of our pop toy business model. On the operational front, total operating expenses were RMB 81.6 million for this quarter. To break this down, sales and marketing expenses were RMB 27.6 million. These expenses mainly included advertising and promotion costs aimed at enhancing product and brand visibility to accelerate growth and expand market share. As a percentage of total revenue, non-GAAP sales and marketing expenses, which exclude share-based compensation, decreased to 21.7% this quarter from 29% in the previous quarter. Research and development expenses were RMB 15.8 million. These expenses were mainly focused on advancing our pop toy portfolio through new product design innovation and establishing our integrated sales platform and data center infrastructure. These investments create a solid operational foundation to support future business expansion. As a percentage of total revenue, non-GAAP research and development expenses, which exclude share-based compensation, decreased to 12.5% this quarter from 13.5% in the previous quarter. General and administrative expenses were RMB 38.1 million. These costs reflected our operational functions including employee compensation, professional service fees, and other operational expenditures. As a percentage of total revenue, non-GAAP general and administrative expenses, which exclude share-based compensation, decreased to 23.2% this quarter from 26.3% in the previous quarter. Our net loss from continuing operations was RMB 25.8 million, compared with RMB 21.8 million in the previous quarter. Our adjusted net loss from continuing operations was RMB 17.1 million, compared with RMB 19.3 million in the previous quarter. Basic and diluted net loss from continuing operations per share were RMB 0.16 during the quarter. Basic and diluted adjusted net loss from continuing operations per share were RMB 0.11 during this quarter. Regarding our balance sheet position, as of September 30, 2025, we held RMB 789.4 million in cash and cash equivalents, restricted cash, and short-term investments. Looking ahead, we are excited about the growth prospects for our pop toy business. Based on currently available information, we expect revenues from our pop toy business to be in the range of RMB 150 million to RMB 160 million for the second quarter of fiscal year 2026, and in the range of RMB 750 million to RMB 800 million for the full fiscal year 2026. These forecasts reflect our confidence in the pop toy market opportunity and our ability to scale our IP portfolio and expand internationally. That concludes my prepared remarks. Operator, let's open up the call for questions.

[Operator Instructions] And our first question today will come from Alice Cai with Citi. Please go ahead.

I have two questions. And the first one, based on the second quarter guidance imply that the first half revenue is around RMB 280 million, right? So, to hit the full year target of RMB 800 million, second half revenue is to reach at least RMB 500 million, which is nearly double first half. What is the specific breakdown of this confidence? And is this cost driven by capacity, secure orders from retailers? Or is it based on projected sell-through of new launches -- new IP launches, I mean? And do we expect to turn profitable in the second half given the strong revenue guidance? And my second question is about the implication on the Labubu momentum. Do we expect -- is there any impact on our Labubu revenue momentum?

Okay. Thank you for your question, Alice. For the first one, regarding the guidance, the revenue forecast is primarily based on the following points: the timeline and pace of the product launches for different IPs and corresponding production capacity arrangements as well as the current production capacity and the inventory situation. It also takes into account the order from our customers' allocation and arrangements for the channel partners and self-operated online platform and DTC channels. Currently, our production capacity is expected to reach approximately 400,000 sets per month, equivalent to 2.4 million units in the near future, I think maybe by end of this year, which will help avoid severe supply chain shortages such as first half year from recurring. At the same time, based on the order situation for new products in the latest months, the subsequent product launch plans and the order placements from various channel partners, our projections can generally support the overall revenue guidance range for the fiscal year ending June 2026. I think, the core of our business lies in balancing IP operations and sales scale with a focus and priority on continuously extending and enriching the emotional value that the IP products bring to our users while achieving sales growth. We are striving to continuously realize and optimize this objective. Regarding the bottom line, I think the losses, especially the adjusted losses, excluding the share-based payment expenses, is narrowing. And also the losses incurred in the fourth quarter were primarily due to the short-term business adjustment for the business restructuring. Because the existing fixed cost structure and cost and expenses structure, including the fixed cost remained relatively high compared to our current revenue scale, of which many items are inappropriate with the legacy business, such as fixed expenses related to maintaining the listed company status, the audit fees and the leased office spaces based on the previous business model, all of which are currently being optimized. We are actively refining our cost and expense structure in accordance with the needs of the new business development. In the upcoming quarters, the proportion of similar fixed costs and expenses are expected to continue decreasing. Regarding sales expenses, I think one of the major expenses, we anticipate that the adjusted ratio will fluctuate around 20% of the revenue. The specific amount and proportion will depend on market conditions and the schedule of new product launches. During this rapid growth phase, we plan to allocate slightly more resources to branding and marketing to enhance the IP operation activities. However, consistent with our long-standing business strategy, we will not pursue growth through excessive spending. In the early stages, we aim to strike a balance between profitability and growth, and we are confident that -- this profitable growth will be achieved in the coming quarters. I think, the other question related to the product, especially for the IP. I think our peers, for example, the Labubu IP operations have achieved outstanding business performance and rapid growth. And we believe the market is closely following the latest developments of the Pioneer companies and other IPs. But as a pop toy company, we believe there is plenty of room for the growth in our industry. And according to a recent research report, the data from a research firm, the market of this IP pop toys is still growing very fast at a CAGR of over 18% in the next 5 years. So moving forward, we will continue to prioritize our IP operations, new product launches and brand building. The market has validated WAKUKU's unique appeal to the users. Let me share some sales numbers. The first generation of WAKUKU was launched at the end of last year and second generation was launched in the first half of this year in this May. All of the previous version of WAKUKU products, the cumulative sales up to now have now exceeded 6 million individual units. And we launched our new generation mini version on -- just now on November 29. The offline debut received very positive feedback and the online launch is scheduled for December 4. So the pop toy market has moved beyond its niche origins and now reaches a much broader audience. Going forward, we will continue to build our IP portfolio, creating distinctive and resonant IPs for different consumer segments. In product development, we will continue exploring the unique characteristics of each IP to develop new products that align with market demand. For marketing and promotions, we will integrate our operations with strategic marketing campaigns to continuously strengthen our IPs and maintain their long-term vitality. Yes.

The next question will come from Liping Zhao with CICC.

Congrats on your strong quarter. As Xie Dong just said that you guys are going to launch the DTC stores offline. Could you please share the latest updates on these stores and your future opening pipeline in 2026? And how should we expect the sales value of these DTC stores?

Thank you. I will answer it. Our key progress with offline DTC stores centers on building strategic of brand experience centers. The first batch of the stores are expected to open between late December this year and early 2026 in very early of January. Current preparations focus on decoration and operational systems, and I think we are getting ready. Our goal is to transform our DTC stores into immersive and interactive offline narrative spaces. This will serve as physical hubs for our brand culture and core basis for offline community engagement. In terms of channel synergy, our DTC stores represent a strategic investment in brand building and deepening user relationships. The goal is not only direct sales competition. Instead, we enhance overall brand momentum by providing unique immersive experiences. The approach reinforces and empowers the online DTC and KA channels. We are creating a positive cycle of offline experience, online engagement and omnichannel conversion. This ultimately strengthens our brand's omnichannel competitiveness. I think, future expansion will strictly follow a prudent sales strategy. We begin by validating the profitability of a single store and brand impact model using operational data from our initial stores. Once we successfully validate the business model, we will consider to speed the process of replication. This way ensures very -- every new store becomes a valuable brand asset that keeps generating value over time. That's my answer.

The next question will come from Yichen Zhang with CITIC.

And my question is regarding our overseas market. Because we know that Pop Mart's overseas business almost contributed half of its revenue. But for now, our current overseas revenue proportion is relatively low. So, will the overseas market be our focus for the next year? And what is our strategy on the overseas market?

Thank you for your question. Regarding the overseas market, I think that definitely is our -- one of our focuses, especially starting from recently in this quarter. I think because of the supply chain shortage in the first half year, we are -- our major resources are put into the domestic market, because we are still at early stage and also we are -- we should supply all of the demand -- order demand from the existing clients in the domestic market, especially the KAs first. But as -- at the same time, we are increasing our capacity, the production capacity, especially recently, as I just mentioned, we have increased the monthly capacity almost 40x recently of the -- compared to that early this year. So, we started to make our efforts in terms of the overseas channel and sales. So starting from this quarter, we will adopt such a strategy that, first, we will cooperate closely with our KAs, with our distribution partners, especially with that who has very solid overseas chain stores and distribution network. And then at the same time, we are building our overseas online platforms such as TikTok in North America and Southeast Asia at the same time. So, I think combining both of these efforts, we will make progress in terms of the overseas sales in this -- in the coming quarters. But I think as we -- even though we definitely think that the overseas market is growing very fast compared in terms of the speed, the growth rate with the domestic market. But as this -- overall, we are still at the early stage and our absolute sales volume is still growing very fast. I think to -- the majority of our sales will still come from the domestic market in the short term. Definitely, we will replicate the strength and experiences built in the domestic market to the overseas market. So, everything is at the beginning and on a trajectory trend so that we can make big progress in the coming quarters. Yes.

The next question will come from [ Dai Xu ] with Huatai Securities.

I'm Dai Xi from Huatai Securities. My question is about our IP structure. So, I wonder what is the revenue structure breakdown by IP this year? And how do we foresee the drivers from new IPs in the next year?

Based on this quarter data, our total business shows a healthy and well-structured IP portfolio. We ranked our IPs according to the popularity and also the IP strength. First, in this quarter, the total revenue for the quarter was RMB 127 million. Our super hit product and IP, WAKUKU alone accounted for 71% of our total revenue. And this makes it the key driver for our growth. Our classic IP, ZIYULI, as a stable pillar contributed 16% of the total revenue approximately. And the new IP, which we launched in July, and it is the third-party licensed exclusively licensed IP called SIINONO, made a solid debut, accounting for approximately 10% of our revenue this quarter, demonstrating a remarkable performance. And the remaining coming from -- came from other IPs because we currently have 70 IPs. So, for this result, I will give you some basic principles. First is that we will focus our efforts, all of our efforts, the majority of our efforts and resources on our class IPs, that is WAKUKU, ZIYULI and SIINONO, currently. I think in the short term, maybe in the coming quarters and maybe 3 -- around 3 years, we will focus on the top IPs, because we think the IP should -- we should put efforts to make the top IP to last their popularity. Looking ahead to the next year, our new IP strategy will be driven by a dual approach, deep in the core and systematic incubation. So our core engine, WAKUKU will transition from that explosive launch momentum to deeper operations and extending its product life cycle. We will consolidate our market-leading position through strategic product line expansion and enhanced user experience. And also, we will systematically replicate SIINONO's proven incubation model to cultivate one to two additional flagship IPs, creating a more balanced and diversified growth portfolio. So overall, our company will drive future growth through an IP matrix operating model. This breaks down into two main areas. And we -- first, we will refresh our established IPs to keep them fresh and engaging for our audiences. Second, we will set up a flexible incubation mechanism that allows us to continually test new concepts and strategically allocate resources to the most promising emerging IPs. Over time, this approach will help us create a healthy IP ecosystem, one that appeals to diverse audiences, protect us from single product risk and also deliver long-term growth potential. But quarter-by-quarter, I think the IP revenue fluctuation will be based on the product launches and the pace of the product -- each IP. So, I think in a sum, we will focus on three to five key IPs such as WAKUKU, SIINONO, ZIYULI, and other IPs maybe in the future. And also, we will incubate some new IPs so that we can not only diversify the revenue concentration risks, but also to grow the whole IP portfolio. Thank you.

As there are no further questions, I'd like to hand the conference back over to management for closing remarks. Please go ahead.

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 good day.

The conference has now concluded. Thank you for your participation. You may now have a good day.