RLX Technology Inc. Q4 2025 Earnings Call - International sales 76.5% of revenue, fueling margin expansion and $2.2B cash

Operator: Hello, ladies and gentlemen. Thank you for standing by for RLX Technology Inc.’s fourth quarter and fiscal year 2025 earnings conference call. At this time, all participants are in a listen-only mode. After management’s remarks, there will be a question and answer session. Today’s conference call is being recorded and is expected to last for about 40 minutes. I will now turn the call over to your host, Mr. Sam Tsang, Head of Capital Markets of the company. Please go ahead, Sam.

Sam Tsang, Head of Capital Markets, RLX Technology Inc.: Thank you very much. Hello, everyone, and welcome to RLX Technology’s fourth quarter and full year 2005 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.relxtech.com. Participants on today’s call will 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 US Private Securities Litigation Reform Act of 1995. These statements typically contain words such as may, will, expect, anticipate, aim, estimates, 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 factors are beyond our control. The company, 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 Technology 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 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.

Kate Wang, Chief Executive Officer, RLX Technology Inc.: Thank you, Sam, and thank you all for joining today’s call. 2025 was a landmark year for RLX Technology. We finished with a very strong fourth quarter, rounding out a highly successful year despite a complex global economy. Our consumer-first strategy and effective execution are keeping us at the absolute forefront of the global smokeless transition. We are building a lasting global next-generation smokeless tobacco business and entering 2026 with significant momentum on every front. While we are a top-tier global player, our true strength is in our position as an industry trendsetter. We do not just react to the market, we are shaping the future of tobacco alternatives. This past year, we captured significant market share by listening closely to our consumers and deeply supporting our distribution and retail partners.

Furthermore, we have built a highly scalable system through smart investments in core operations, allowing us to set the pace for the entire industry. Multidimensional global expansion. The standout story of 2025 is our global growth. International sales made up 76.5% of our fourth quarter revenue. This is a massive milestone. We are no longer just a single market company. We are a truly global enterprise, driven by multidimensional growth across many diverse regions. In the Asia Pacific region, we are taking a dominant position in multiple countries. While our market growth in these areas is strong, our own growth is significantly higher than the market average. This means we are rapidly winning market share as our products and distribution strategies resonate better with local consumers. Here is an example for East Asia.

We start from absolute zero at the beginning of 2025 in these key markets, specialty store channel. Our team execute flawlessly over the year. We launched two successful product series tailored for the local market. We also opened 425 franchise stores, captured over 20% of the specialty store channel, and increased our channel revenue by over 200%. We have now distilled this incredible speed and precision into a replicable global blueprint. We plan to further perfect the single store economic model in this approach in 2026, which will provide us with a solid foundation to explore potential franchise expansion opportunities in other Asian markets when conditions are favorable. At the same time, we are building a deep competitive moat in Europe. Europe is a high-value market with very strict standards.

We see this as a massive opportunity. In May 2025, we invested in a leading European firm to secure local distribution. In early 2026, we made European expansion our top strategic priority. We have moved key top-level leaders to focus entirely on Western Europe. We’re building major strategic partnerships with local distribution and retail giants, and leveraging our world-class supply chain to supply premium products made specifically for European tastes. We are also ensuring absolute compliance with strict local regulations. This holistic strategy is creating high barriers to entry. We are making it very difficult for others to compete with us in this region. Mainland China, stability, and compliance. Turning to our mainland China operations, this business remains strong, steady, and highly resilient.

In 2025, our domestic revenue grew by over 20% compared to last year. This growth was boosted by stricter customs enforcement, which significantly reduced the illegal market. We capitalized on market improvements by enhancing our product options, optimizing our distribution networks, and upgrading our retail operations. As a leader in China’s e-vapor industry, it is our duty to support a healthy, compliant market. We do not compromise on quality or safety, and we continue to support regulatory enforcement efforts that protect consumers and level the playing field. Enforcement alone is not enough. We’re using our proprietary tech and consumer data to create compliant products that are clearly superior in performance, in satisfaction, and in value. We firmly believe that giving them higher quality, higher value alternatives is the best way to move adult users away from the illicit market.

We expect this highly responsible approach to drive steady, healthy growth in our mainland China operation throughout 2026. The AI-empowered FMCG ecosystem. To manage a global business of this size and complexity, we are going all in AI. This means much more than just upgrading our standard software. We are integrating artificial intelligence directly into our company’s core DNA, turning our massive global data into a sharp competitive advantage. Speed and accuracy are everything for fast-moving consumer goods companies like RLX. AI is helping us rapidly improve everything from product design to complex supply chain management. It allows us to predict consumers’ preference and what they will want next, launch new products significantly faster than our peers, and accelerate global delivery. AI also make us, our entire team, much more efficient.

As our sales grow, we are letting AI handle the routine, repetitive work rather than adding headcount, freeing our talented team to focus on solving complex problems and driving strategy. This generates massive operational leverage and keeps our company lean, fast, and highly efficient as we scale globally. Architecturing the future. Looking ahead, RLX is evolving into a true local global company. We are connecting our highly efficient AI-empowered global supply chain directly to deep local retail networks and tailoring our approach to every single market. This creates a highly profitable business model that is almost impossible for our rivals to copy. We enter 2026 with incredible momentum, diverse, rapidly growing global revenue, and a fortress-like balance sheet with a very healthy $2.2 billion in cash and strong capital management discipline. We’re not just taking part in the global smokeless transition.

Through our matchless innovation and strategic execution, we are the ones defining the future. Now I will hand the call over to Chao to review our financial results in detail.

Chao Lu, Chief Financial Officer, RLX Technology Inc.: Thank you, Kate, and hello, everyone. We delivered a very strong fourth quarter to close out 2025. We accelerated our revenue growth and significantly improved our revenue mix. Fourth quarter net revenues reached RMB 1.14 billion, up 40.3% year-over-year. For the full year, total net revenues grew 44% to RMB 3.96 billion. This performance was driven by three engines, rapid international expansion, the successful integration of our European investment, and steady growth in mainland China. Together, these engines have created a expanded global footprint and a highly resilient, balanced revenue structure. Turning to profitability, our bottom line reflects our strict operational discipline. Gross margin expanded to 31.4% in the fourth quarter, up from 27% a year ago. For the full year, gross margin increased to 29.9%.

This margin expansion was driven by a favorable product mix and a highly optimized supply chain operations. We just recorded our ninth consecutive quarter of positive non-GAAP operating profit, reaching RMB 158 million in the fourth quarter. For the full year, non-GAAP operating income doubled to RMB 570 million. Full year non-GAAP net income surged to RMB 1.16 billion. As we scale globally, we are maintaining a very lean organization. This discipline gives us incredible operating leverage. Looking at cash and working capital, we are managing our capital with extreme efficiency. In the fourth quarter, our cash conversion cycle was negative 15 days, remaining at a healthy level. Because of this high operating efficiency, we generated RMB 1.1 billion in the operating cash flow for the full year.

We ended 2025 with total financial assets of RMB 15.73 billion or about $2.2 billion. This rock-solid balance sheet gives us the financial flexibility to fund strategic partnerships and bold innovation without taking on financial risk. We are deeply committed to disciplined capital allocation and shareholder returns. Thanks to our strong cash generation, we have returned over $500 million to our investors. This includes $330 million in share repurchases and $171 million in cash dividends. Going forward, our capital structure remains clear. We will fund our strategic growth, maintain our fortress-like balance sheet, and return excess cash to our shareholders. In closing, our 2025 results prove the strength of our global business model.

We remain focused on executing our strategy, maintaining operational discipline, and delivering sustainable long-term value. Thank you. Operator, we are now ready to take questions.

Operator: Thank you. We will now begin the question and answer session. To ask a question, please press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If your question has been addressed and you would like to withdraw your question, please press star then two. For the benefit of all participants on today’s call, if you wish to ask your question to management in Chinese. Please immediately repeat your question in English. At this time, we will pause momentarily to assemble our roster. The first question today comes from Lydia Ling with Citigroup. Please go ahead.

Lydia Ling, Analyst, Citigroup: Hi, management. Thanks for taking my questions. This is Lydia Ling from Citigroup. Congratulations on the results. I have two questions, and the first is on your overseas business. You made further progress on the overseas market in the last year. What would be your expectation for the growth outlook for overseas markets this year, and what would be your strategies? Any new markets that you plan to further enter or under consideration to further grow your market share? My second question is on the shareholder return. Given your strong cash position, do you plan to further increase the overall shareholder return or dividend payout? Thank you.

Sam Tsang, Head of Capital Markets, RLX Technology Inc.: Thank you very much, Lydia, for your questions. Regarding our overseas business, looking ahead to 2026, we see a much more stable and predictable environment for our international business. In 2025, the industry faced pressure on average selling price per milliliter due to the shifts from regular disposable products towards big puff products and closed pod system. This trend fully stabilized by the second half of 2025. For 2026, we expect volume growth and revenue growth to align closely. We project the broader industry will grow in double digits. As our internal mandate remains the same to consistently capture market share. We expect to grow significantly faster than industry average. Geographic expansion remains a core strategy. We have a strong pipeline of international markets for 2026.

We expect to see real results from these expansions in the first half of the year. For competitive reasons, we cannot share specific names yet, but we are highly confident in the progress we are making behind the scenes. Regarding your second question about our shareholder return policy, our capital allocation strategy remains resourcefully focused on maximizing long-term shareholder value. Subject to board approval and based on our operational results, we intend to distribute our non-GAAP net profit as dividends. To date, we have returned over $500 million to our shareholders through dividends and share repurchases. Moving forward, we will continue to elevate opportunities to optimize our capital structure and further enhance direct shareholder return. We view our strong cash position as a key strategic asset that provide us with significant optionality.

We are selectively deploying capital towards disciplined M&A and strategic investments to accelerate our geographic expansion and product diversification. By identifying the right targets and maintaining strong execution, we aim to convert our liquidity into sustainable recurring profits, a path to growth through consolidation similar to that historically taken by global tobacco companies. Crucially, this investment strategy complements our commitment to shareholder returns, supported by our robust balance sheets. Thank you for your questions.

Lydia Ling, Analyst, Citigroup: Thank you.

Operator: The next question comes from Yun Guo with CITIC Securities. Please go ahead.

Yun Guo, Analyst, CITIC Securities: Hi, management. Thank you for taking my questions. This is Yun Guo from CITIC Securities, and I have two questions. The first one is that could the management provide an update of the operational performance on the European operations? What is the business outlook and guidance for the company in 2026? The second question is about the domestic market and looking ahead to 2026, how does management view the recovery for the compliant vaping products in the mainland China market? Thank you.

Sam Tsang, Head of Capital Markets, RLX Technology Inc.: Thanks, Guoyin, for your questions. The first one is about our investment performance of the European companies invested, and the second question is about the mainland China market recovery. Regarding our European investments, our European platform successfully navigated the U.K. regulatory changes in 2025. By actively shifting our portfolio to compliant pod and open systems, we ensured a smooth transition for our customers. While the broader U.K. market experienced a contraction in total retail value, with the tracked e-vapor category within the FMCG channel down approximately year-over-year for 2025, the market has been stabilized. It is crucial to note that this decline does not reflect a softening of consumer demand. Rather, it is a direct result of the ongoing product mix shift.

Refillable and pod systems offer a significantly lower cost per use for consumer compared to single-use disposables, leading to a mathematical adjustment in total category value. Despite the low value environment, our business has grown, demonstrating remarkable resilience. We have steadily increased our revenue by acquiring new customers and expanding our shelf space in wholesale channel. Simply put, we are effectively taking market share. For 2026, our outlook is very positive. We expect the industry to consolidate around established compliant brands. This trend will accelerate with the new excise tax in the U.K. coming in October 2026. Higher taxes will push out unregulated players, which strongly favor scaled compliant operators like us. Regarding your second question on the Mainland China market. In Mainland China, we are seeing positive momentum. In 2025, thanks to stricter enforcement against illegal products, our domestic business grew by over 20%.

For 2026, we expect growth to continue, but at a more normalized pace given 2025 high base. The regulatory environment is maturing, but challenges remain, specifically illegal products from unverified workshops. As an industry leader, we will continue to work with regulators to bring users back to high-quality regulated products. Overall, our Mainland China operations provide a solid compliance foundation. Our primary engine for future growth will continue to be our international markets. Thank you for your question.

Operator: The next question comes from Zoe Zhu with CICC. Please go ahead.

Zoe Zhu, Analyst, CICC: Hi, management. This is Zoe from CICC. I have two questions about our overseas markets. First, can you share some information about our investment plan in Europe? Second, in Asia, it seems like the Korean market is seeing a trend towards higher tax lately, and Southeast Asia is going through some process to legalize and regulate the industry. How is your next plan to respond to this specific market condition? Thank you.

Sam Tsang, Head of Capital Markets, RLX Technology Inc.: Thank you, Zoe Zhu, for your questions. The first one is about our investment plan in Europe, and the second question is more on the regulatory developments in the Asian countries. Regarding your first question, we are very encouraged by our progress in Europe. The integration of the European company we invested in 2025 has been very smooth. Europe is a mature market with high barriers to entry. Therefore, our strategy relies on two pillars running side by side, strategic investments and organic growth. For investments, we are targeting two specific profiles. First, distributors, especially those with their own retail network. Second, complementary brands that fit well with our current products. We are actively looking for targets now, and our goal is to close more transactions this year. However, M&A always carries some uncertainty.

For that reason, we do not include these potential deals in our budgets. We will keep our budgets conservative while we pursue these new opportunities. Regarding your second question on the Asia regulatory development. In South Korea, there is a very clear trend towards higher taxes, but we must look at details. The recent tax hikes mostly target synthetic nicotine, which previously had a tax advantage. Our core strength in Korea is natural nicotine. Because natural nicotine is already taxed, this new policy does not materially affect us. We anticipate that the industry will simply pass the synthetic nicotine taxes on to consumers, so our competitive position remains very stable. In Southeast Asia, regulatory landscape is shifting towards legalization, often entailing the introduction of new excise taxes. Our strategy remain consistent. We utilize dynamic pricing to manage these cost adjustments.

Even under new tax regimes, e-vapor products maintains a significant price advantage compared to the majority of tobacco products in the market. Consequently, we believe consumer demand will remain resilient. To summarize, we welcome these regulations. They show the industry is maturing. As the gray areas disappear, the market becomes more transparent. This gives us much better business predictability. A regulated market plays exactly to our strengths and will support our leadership position in the long run. Thank you for your questions.

Zoe Zhu, Analyst, CICC: Very helpful. Thank you.

Operator: The next question comes from Lin Zhao with UBS. Please go ahead.

Lin Zhao, Analyst, UBS: Thank you, management. Congratulations on the strong quarter and full year results. I have two questions. The first question is, in light of the current macro uncertainty and geopolitical landscape, how does management view this sensitivity of consumer demand across different international markets? Can management provide some sensitivity analysis regarding their impacts on the production costs and the logistics?

The second question is, what would be the current progress of nicotine pouch products in terms of launch in select markets and channels? Thank you very much.

Sam Tsang, Head of Capital Markets, RLX Technology Inc.: Thank you, Lin Zhao, for your questions. The first one is on the macro headwind globally. In terms of the consumer demand, our products acts like consumer staples. Because they are deeply embedded in our users’ daily routines, demand is highly resilient. Even with current macro and geopolitical headwinds, consumer purchasing intent in our key markets remain very strong. Our e-vapor and modern oral platforms offer a reduced-risk alternative to traditional cigarettes at a much better price point. This structural price advantage protects our revenue regardless of the broader economy. Regarding costs, we are highly insulated from energy and freight volatility. Our products have a very high value-to-weight ratio, so shipping is a tiny fraction of our total cost. This means higher fuel prices or shipping surcharges have minimal impact on our margins.

Finally, we are developing our AI-empowered ERP system to dynamically optimize our supply chain system. Combined with our strong balance sheets, we are exceptionally well positioned to protect our margins and sustain our growth trajectory. Regarding our nicotine pouch products, we started rollouts of our modern oral products in Europe in the second half of 2025. We are using a multi-brand strategy which allows us to adapt to local market dynamics. In the UK, we are in the early stages. We are currently ramping up our production at our new facility in Southeast Asia, so we are intentionally controlling our marketing efforts for now. However, feedback from both consumers and distributors has been overwhelmingly positive. The demand is clearly there. We just need to give our supply chain time to reach full commercial share. Looking ahead through 2026, our main goal is channel expansion.

The retail channels for oral products are different from our traditional vape channels, so we are actively building new partnerships to expand our footprint. As our supply chain stabilizes and our marketing initiatives expand, we anticipate potential revenue growth in this category as the year progresses. Thank you for your questions.

Operator: Due to time constraints, now I would like to turn the call back over to the company for closing remarks.

Sam Tsang, Head of Capital Markets, RLX Technology Inc.: Thank you once again for joining us today. If you have further questions, please feel free to contact RLX Technology’s Investor Relations team through the contact information provided on our website or via Piacente Financial Communications.

Operator: This concludes this conference call. You may now disconnect your line. Thank you.