Pop Mart's First-Half Revenue and Profit Miss Expectations; UBS Cuts Earnings Forecasts and Price Target but Maintains Buy Rating

Overview

The report evaluates Pop Mart's 1H26 results, sales momentum, regional operations, IP mix, margins, and inventory changes. UBS believes slowing revenue and FX losses caused earnings to miss expectations, while the company will also face a higher comparison base and operating deleverage pressure going forward. UBS therefore cut its 2026—2028 forecasts and price target but maintained a positive 12-month rating.

Core views

In 1H26, Pop Mart's revenue and adjusted net profit grew 24% and 11% year over year to RMB17.17bn and RMB5.09bn, respectively, but missed UBS estimates by 5% and 7%. By region, revenue in Mainland China, Asia-Pacific, the Americas, and Europe and other regions grew 71%, 15%, 11%, and 3% year over year, respectively, representing variances of -4%, -7%, -10%, and +14% versus UBS estimates. The gross-margin decline was 0.5 percentage points smaller than expected, and expense-ratio control was also better than expected. However, an RMB720m FX loss reduced the adjusted net margin to only 29.7%, 0.8 percentage points below UBS's estimate; excluding the FX loss, net profit was broadly in line with expectations. Revenue momentum is the report's central concern. UBS estimates that even with contributions from flagship products such as Labubu World Cup and Labubu Hair Salon, 2Q26 revenue still fell 25% quarter over quarter and 12% year over year, indicating declining IP popularity. Sales momentum in the UK weakened after October 2025, while that in France weakened after December 2025. Given the higher comparison base in 2H26, UBS forecasts that revenue will decline 30%—40% year over year in 3Q26, with the decline narrowing in the fourth quarter. Management stated that, given greater-than-expected pressure in the first half, the company will likely be unable to meet its previously stated guidance of at least 20% year-over-year revenue growth in 2026. The Mainland China business still shows signs of localized improvement. More than 20 stores renovated in the first half achieved double-digit growth in both sales and floor area, and the company plans to renovate more stores in China during the second half. A high comparison base caused a slight decline in offline foot traffic in June, but positive growth resumed from July through August to date. Overseas online sales fell 44% year over year, which the report attributes to traffic normalization and an increase in offline stores. Following its early expansion, management has become more cautious and selective about opening new stores and plans to renovate some older stores in Asia-Pacific. The IP mix has become more balanced, but weakening popularity of the core IP remains a concern. The revenue contribution from “The Monsters” fell 9 percentage points year over year to 26%, indicating reduced reliance on a single IP while also reflecting cooling interest in Labubu. Theme-park attendance grew 40% year over year after a new area opened, with evening visitors accounting for more than 25%; the company plans to renovate the “Pop Street” area in 2027. Margins face dual pressure from the revenue mix and costs. Gross margin fell 0.6 percentage points year over year in the first half, mainly because of changes in the revenue mix and higher raw-material and logistics costs. UBS expects the operating margin of the overseas business to decline in 2026 due to operating deleverage, while upfront costs for store openings in the second half have already weighed on the first-half operating margin. Management plans to respond by improving store efficiency, developing local warehousing, and enhancing warehousing and logistics efficiency. Inventory pressure increased as sales fell short of expectations. Inventory rose by RMB629m in 1H26, while inventory days increased from 123 days in 2025 to 201 days. Management said inventory began declining in July and plans to reduce inventory in the second half by controlling orders rather than conducting large-scale promotions; this means inventory improvement will depend more heavily on procurement and replenishment discipline. Based on adjustments to sales forecasts and exchange-rate assumptions, UBS lowered its 2026—2028 revenue forecasts from RMB42,109m, RMB48,693m, and RMB57,228m to RMB35,197m, RMB40,904m, and RMB47,400m, representing cuts of 16%, 16%, and 17%, respectively. Revenue forecasts for Mainland China were cut by 7%, 6%, and 8%, respectively; Asia-Pacific by 38%, 34%, and 33%; and the Americas by 33%, 32%, and 31%; while Europe and other regions were adjusted by 0%, 0%, and +1%, respectively. UBS lowered its 2026—2028 diluted earnings-per-share forecasts from RMB10.01, RMB11.89, and RMB14.15 to RMB8.26, RMB9.91, and RMB11.61, representing cuts of 17%, 17%, and 18%, respectively; consensus estimates for the same period are RMB10.62, RMB12.55, and RMB14.30. Adjusted net profit forecasts were reduced to RMB11,041m, RMB13,198m, and RMB15,459m, representing overall cuts of 17%—19%. The new forecasts imply gross margins of 70.6%, 71.1%, and 71.6%, and adjusted net margins of 31.4%, 32.3%, and 32.6%. Using a three-stage DCF model, UBS lowered its 12-month price target from HK$237.50 to HK$203.10. Based on the HK$153.70 share price on August 20, 2026, the report projects share-price upside of 32.1%, a dividend yield of 1.8%, and a total stock return of 34.0%; relative to the assumed market return of 11.2%, the projected excess return is 22.8%. Despite significant near-term pressure on fundamentals and earnings forecasts, this valuation result supports the report's continued Buy rating.

Analysis framework

UBS first compares actual first-half revenue, profit, expense ratios, and margins against its own forecasts item by item. It then breaks down the variances across Mainland China, Asia-Pacific, the Americas, Europe, and other regions, while distinguishing FX losses from core operating performance. The report subsequently assesses the second-half trajectory using quarterly revenue trends, store operations, online sales, IP contributions, the theme park, costs, and inventory data, while also using European consumer transaction-monitoring data to observe brand-spending momentum in the UK and France. Finally, it adjusts its 2026—2028 regional revenue, margin, and earnings forecasts accordingly and revalues the price target using a three-stage DCF model.

Methodology notes

• Valuation MethodDCF Discounted Cash Flow

  Three-stage DCF valuation

  The report forecasts and discounts the company's future cash flows across three development stages to derive a 12-month price target of HK$203.10; reduced sales and exchange-rate assumptions are the main reasons for the lower price target.

• Company Fundamentals and Financial Framework

  Breakdown of variances between actual results and UBS estimates

  The report compares actual revenue, regional sales, gross margin, expense ratios, and net margin against UBS forecasts item by item to identify the respective effects of the revenue miss, FX losses, and expense control on performance.

• Industry/Sector Analysis Framework

  European consumer transaction monitoring

  UBS Evidence Lab aggregates offline and online transactions from a sample of active users at the brand level; this report uses the data to observe changes in sales momentum in the UK and France as supplementary evidence for assessing European demand trends.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Pop Mart International Group (9992.HK)

  The Hong Kong-listed company directly covered by the report; its performance is affected by IP popularity, regional sales, its store network, exchange rates, costs, and inventory changes.

  Strengths

  Mainland China revenue still grew 71% year over year; renovated stores achieved double-digit growth in both sales and floor area; the IP revenue mix became more balanced; and theme-park attendance grew 40% year over year.

  Weaknesses

  Revenue and adjusted net profit missed expectations, second-quarter revenue turned negative year over year, overseas online sales fell 44%, and FX losses, operating deleverage, and worsening inventory turnover created pressure.

  Comparison

  The report provides no direct comparison with specific peers.

  Risks

  Slower macroeconomic consumption, intensifying competition, tighter blind-box regulation, IP fashion risk, insufficient appeal of new IPs, limited purchasing power in lower-tier cities, and profit pressure from investment in new businesses.

Key data

• 1H26 RevenueRMB17.17bnUp 24% year over year, 5% below UBS's estimate.
• 1H26 Adjusted Net ProfitRMB5.09bnUp 11% year over year, 7% below UBS's estimate.
• FX LossRMB720mWeighed on the adjusted net margin; excluding it, net profit was in line with UBS's estimate.
• Regional Revenue Growth Year over YearMainland China 71%; Asia-Pacific 15%; Americas 11%; Europe and Other Regions 3%Variances versus UBS estimates were -4%, -7%, -10%, and +14%, respectively.
• 1H26 Adjusted Net Margin29.7%0.8 percentage points below UBS's estimate.
• Estimated 2Q26 Revenue TrendQuarter over quarter -25%; year over year -12%Revenue still declined even after including contributions from flagship products.
• 3Q26 Revenue ForecastDown 30%—40% year over yearUBS expects the year-over-year decline to narrow in the fourth quarter.
• Overseas Online SalesDown 44% year over yearThe report attributes this to traffic normalization and an increase in offline stores.
• The Monsters Revenue Contribution26%Down 9 percentage points year over year, reflecting a more balanced IP revenue mix.
• Theme-Park AttendanceUp 40% year over yearGrowth followed the opening of a new area, with evening visitors accounting for more than 25%.
• Inventory IncreaseRMB629mMainly due to weaker-than-expected sales.
• Inventory Days201 daysVersus 123 days in 2025; management said inventory began declining in July 2026.
• 2026—2028 Revenue ForecastsRMB35,197m / RMB40,904m / RMB47,400mCut by 16%, 16%, and 17% from the previous forecasts, respectively.
• 2026—2028 Diluted EPS ForecastsRMB8.26 / RMB9.91 / RMB11.61Previous forecasts were RMB10.01, RMB11.89, and RMB14.15, representing cuts of 17%, 17%, and 18%, respectively.
• Price TargetHK$203.10Based on a three-stage DCF, versus the previous price target of HK$237.50.
• Projected Total Stock Return34.0%Includes projected share-price upside of 32.1% and a projected dividend yield of 1.8%.

Impact & implications

The report believes weakening sales momentum has spread from overseas online channels and European transaction data to overall revenue performance, while a high comparison base places further pressure on growth in 2H26. The company is responding through store renovations, tighter control over overseas store openings, improved warehousing and logistics efficiency, and reduced ordering, but it still needs to absorb operating deleverage, cost, and inventory pressures in the near term. The cuts to earnings forecasts and the price target reflect lower sales assumptions and updated exchange-rate assumptions. However, UBS's DCF valuation still indicates projected upside of 32.1% relative to the share price cited in the report, so the report maintains its 12-month Buy view.

Risks

• A slowdown in China's economy could suppress designer-toy consumption.
• The entry of internet companies into the market could intensify industry competition.
• The blind-box sales model may face stricter regulatory scrutiny.
• Existing IPs may be affected by changing trends and declining popularity.
• If new IPs cannot continuously attract and retain consumers, growth may weaken.
• Insufficient consumer purchasing power in lower-tier cities may increase pressure from channel expansion into those markets.
• Investment in new businesses such as films, games, and theme parks may weigh on profitability.

What to watch

• Watch whether 3Q26 revenue declines 30%—40% year over year as UBS forecasts and whether the decline narrows in the fourth quarter.
• Watch whether the company can achieve or formally revise its previously stated guidance of at least 20% year-over-year revenue growth in 2026.
• Watch the recovery in offline foot traffic in China and the sales impact of additional store renovations in the second half.
• Watch changes in store efficiency and overseas operating margins after the company adopts a more cautious pace of overseas store openings.
• Watch whether inventory continues the downward trend that began in July and whether tighter order control can reduce inventory days.
• Watch the popularity of The Monsters and Labubu, and whether other IPs can support more balanced growth.
• Watch the impact of raw-material and logistics costs and local warehousing development on gross margin and expense ratios.
• Watch the renovation plans for the “Pop Street” area in 2027 and theme-park attendance.