Pop Mart's first-half results missed expectations, with overseas sales, FX losses, and elevated inventory weighing on near-term earnings

Overview

The report assesses Pop Mart's 1H26 results, the second-quarter sales slowdown, inventory and margin pressures, as well as progress in IP diversification and new business formats. Goldman Sachs believes the company's long-term development of its IP ecosystem remains positive, but near-term demand uncertainty, operating deleverage overseas, and tougher comparison bases will continue to cause earnings volatility. It therefore cut its forecasts and target price while maintaining a Neutral rating.

Core views

1H26 results fell short of expectations, mainly due to slowing sales and FX losses. Pop Mart's first-half sales increased 23.8% year over year to RMB17.173 billion, 10.1% below Goldman Sachs' expectation; net profit attributable to shareholders grew approximately 10% year over year to RMB5.038 billion, 12% below Goldman Sachs' expectation, while adjusted net profit attributable to shareholders of RMB5.156 billion was 13% below expectations. Expense control was better than expected, with the selling and administrative expense ratio at 28.3%, below Goldman Sachs' 30.8% expectation, while government grants also offset some earnings pressure. However, these factors were insufficient to make up for the shortfall caused by sales, overseas profitability, and FX losses. Based on the first-half data and first-quarter performance, second-quarter sales slowed significantly both sequentially and year over year. China business grew 47% year over year in the first half, 3.4% below Goldman Sachs' expectation; its growth slowed from 100%—105% in the first quarter to approximately 14%—15% in the second quarter. Overseas pressure was greater: Asia-Pacific declined 10% in the first half, implying a decline of approximately 30% in the second quarter; the Americas declined 16% in the first half, implying a decline of approximately 52% in the second quarter; Europe and other regions grew 6% in the first half but implied a decline of approximately 24% in the second quarter. These markets had still grown 25%—30%, 55%—60%, and 60%—65%, respectively, in the first quarter. Goldman Sachs therefore believes the exceptionally high online traffic generated by Labubu's popularity in 2025 is normalizing, while 2H26, particularly 3Q26, will face tougher comparison bases. Margins were simultaneously affected by geographic mix, costs, and operating deleverage. The 1H26 gross margin was 69.7%; the main-text overview describes a year-over-year decline of 0.6 percentage points, while the metrics table shows a decline of 0.7 percentage points. A lower contribution from high-margin overseas revenue reduced the margin by approximately 0.9 percentage points, while higher raw material costs reduced it by approximately 0.7 percentage points, partly offset by an approximately 1.0-percentage-point contribution from lower licensing fees. Adjusted net margin declined 3.9 percentage points year over year to 30.0%, mainly reflecting FX losses, lower overseas revenue scale, new-store expansion, and investment in organizational upgrades. Overseas operating margins are expected to remain under pressure in 2026. The company plans to improve efficiency through local procurement, supply-chain localization, warehouse expansion, logistics optimization, and supplier consolidation, but Goldman Sachs believes these measures will take time to translate into earnings. Inventory is another key pressure. Inventory stood at RMB6.102 billion at the end of June 2026, up 168% year over year, significantly faster than the 23.8% sales growth; inventory turnover days increased from 123 days in 2025 to 201 days. Management primarily attributed the pressure to forecasting errors following rapid growth in the prior year. The Americas were also affected by inaccurate demand forecasts, product mismatches, and longer logistics cycles. Inventory aged over two years increased slightly from 1Q26, but management said inventory trends began improving in July and that it would not clear inventory through large-scale promotions, to avoid damaging brand value and the consumer experience. Subsequent improvement will depend on inventory transfers, SKU discipline, warehouse localization, and end-to-end merchandise management. At the channel level, offline remains the primary customer-acquisition channel, with relatively healthy operating performance. In China, more than 20 stores were relocated and upgraded in 1H26, with both store productivity and floor area achieving double-digit improvements. In 2H26, the company plans to continue renovating dozens of stores in tier-one to tier-three cities and open flagship stores, while its primary store format will remain 150—200 square meters. As of June 2026, China had 455 retail stores, up from 443 in June 2025 and 445 at the end of 2025. Overseas stores increased to 221 from 128 a year earlier and 185 at the end of the prior year, including 90 in Asia-Pacific, 86 in the Americas, and 45 in Europe and other regions. The overseas store-opening strategy has shifted from pursuing store count to seeking better locations, larger formats, and higher store productivity, but new-store investment and lower revenue scale will continue to weigh on near-term returns. Online channel growth slowed, although repeat purchases on Tmall and Douyin continued to post high-double-digit growth. The company hopes to improve customer engagement by linking its membership system and online interactions with offline consumption. The IP and category mix indicates that Labubu is cooling, but the portfolio is becoming more diversified. Sales of proprietary products grew 24% in 1H26 and maintained a 99% revenue contribution; artist IP grew 25%, while non-exclusive licensed IP grew 16%. Sales of The Monsters (Labubu) declined 7% year over year to RMB4.45 billion, accounting for 26% of total sales. Sales of Skullpanda, Crybaby, Molly, Dimoo, and Twinkle Twinkle were RMB1.6 billion, RMB1.6 billion, RMB0.9 billion, RMB1.6 billion, and RMB2.7 billion, respectively, representing year-over-year changes of 27%, 34%, -34%, 47%, and 581%. Twinkle Twinkle grew strongly in China and Asia, but its appeal in Western markets remained weaker. Skullpanda and Hirono continued to gain share globally, particularly in Western markets, while the Skullpanda and Little Pony collaboration generated RMB600 million in sales in 1Q26 alone. The company plans to adjust the pace of new-product launches, allowing consumers more time to understand and absorb its IPs. By category, plush toys remained the primary growth driver while also creating a new concentration risk. Plush-toy sales increased 60% year over year to RMB9.8 billion in 1H26, with their contribution rising from 54% in 2H25 to 57%; figurine sales were flat year over year and accounted for 30%; other IP-related products declined 16%, with their contribution falling from 16% to 13%. Management plans to launch new Labubu product categories in 2H26 to reduce dependence on plush toys. Molly is expected to launch breakthrough designs from year-end through 1H27, while Dimoo will prepare richer content and products around its tenth anniversary in 2027. Progress in new business formats and content projects has been faster than management originally expected, although they remain in the incubation stage. The company has opened two bakery stores. The Aranya flagship store received more than 60,000 customer visits in its first month, while the Singapore store recorded an average transaction value of more than SGD50. Management does not plan aggressive expansion for now and will first refine operations and the supply chain. After new attractions opened at Pop Land, visitor traffic more than doubled sequentially, with nighttime operations contributing more than 25% of traffic, while conceptual design for phase two has begun. The Labubu film project is progressing as planned, and content, entertainment, and experiential businesses are viewed as important components of the long-term IP ecosystem. Management has redefined 2026 as a year of operational and organizational adjustment rather than one focused on maximizing growth, and acknowledged that domestic and overseas challenges have exceeded expectations, making the original target of more than 20% full-year revenue growth unattainable. The company believes the ecosystem foundation of its China business is relatively solid and that its IP portfolio is more diversified than before, reducing dependence on a single IP. However, Goldman Sachs believes slowing IP momentum, persistent demand volatility, tougher comparison bases, elevated inventory, overseas operating deleverage, and store investment will continue to create near-term earnings uncertainty. The company also announced that it would repurchase RMB2 billion—5 billion of shares over the next six months, equivalent to approximately 1.1%—2.8% of market capitalization based on the latest closing price. Based on weaker sales performance, particularly in the overseas business, Goldman Sachs cut its 2026—2028 sales and net profit forecasts by 17%—20%, with better-than-expected expense control providing only a partial offset. Its 2026, 2027, and 2028 revenue forecasts were reduced from RMB42.426 billion, RMB47.137 billion, and RMB51.164 billion to RMB34.950 billion, RMB38.488 billion, and RMB41.314 billion, respectively. EPS forecasts for the same periods were cut from RMB10.05, RMB11.24, and RMB12.36 to RMB7.99, RMB9.23, and RMB9.99, respectively. Overseas revenue forecasts were reduced by 37.3%, 37.7%, and 38.4%, significantly greater than the 5.8%, 6.8%, and 7.4% cuts to China business forecasts. The target price was lowered from HK$164.0 to HK$139.5, continuing to apply a 15x 2027E P/E multiple discounted to 2026 at a 12% cost of equity, while the rating was maintained at Neutral.

Analysis framework

Goldman Sachs first compares 1H26 revenue, profit, expense ratios, and working capital with its own forecasts and already-lowered market expectations, then uses first-quarter growth rates to infer regional performance in the second quarter. It subsequently breaks down sales changes by geography, channel, IP, and category, and explains margin changes through geographic mix, raw materials, licensing fees, FX losses, store-opening investment, and operating leverage. The report then assesses the 2H26 trajectory using management guidance, inventory, and store operating conditions, adjusts its 2026—2028 earnings forecasts accordingly, and determines its 12-month target price by discounting a 2027E P/E-based valuation.

Methodology notes

• Event-driven strategies and behavioral financeExpectation gap/expectation management

  Comparison of results with Goldman Sachs' forecasts and already-lowered market expectations

  The report measures the shortfall in actual revenue and profit relative to Goldman Sachs' forecasts and market expectations to assess the magnitude of the earnings surprise and anticipate a potentially negative market reaction.

• Industry/sector analysis frameworkVolume-price decomposition

  Sales breakdown by geography, channel, IP, and product category

  The report breaks total sales changes down across China and overseas markets, offline and online channels, different IPs, and product categories to identify that the slowdown mainly resulted from normalization of overseas online traffic, cooling Labubu momentum, and changes in the category mix.

• Corporate fundamentals and financial frameworkWorking capital cycle

  Analysis of inventory scale and inventory turnover days

  The report compares inventory growth with sales growth and examines changes in inventory turnover days and inventory aging to assess forecasting errors, product mismatches, and working-capital pressure.

• Corporate fundamentals and financial frameworkOperating/financial leverage analysis

  Overseas operating deleverage

  When overseas revenue declines while investment in stores, organization, and the supply chain continues, fixed and semi-fixed expenses cannot contract at the same pace, placing greater pressure on overseas margins and the overall net margin.

• Valuation methodologyPE/PEG valuation

  Discounted valuation based on 2027E P/E

  Goldman Sachs estimates value using a 15x 2027E P/E multiple and discounts it to 2026 at a 12% cost of equity, deriving a 12-month target price of HK$139.5.

Asset mapping & comparison

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

• Pop Mart (9992.HK)

  The Hong Kong-listed company directly covered by the report; near-term performance is affected by slowing sales, overseas profitability, and inventory pressure, while the long-term thesis depends on IP portfolio diversification and improvements in global operations.

  Strengths

  A high proportion of proprietary products, a continuously expanding IP portfolio, relatively healthy offline customer-acquisition capabilities, and a developing content, entertainment, and experiential ecosystem.

  Weaknesses

  Overseas online traffic has declined significantly, inventory turnover days have risen to 201 days, overseas store and organizational investment has caused operating deleverage, and plush toys account for 57% of sales.

  Comparison

  China business still grew approximately 14%—15% in the second quarter, while overseas markets including Asia-Pacific, the Americas, and Europe all turned to year-over-year declines; cuts to overseas forecasts were also significantly larger than those for the China business.

  Risks

  A single IP or expansion of the IP portfolio may underperform expectations, competition may intensify, and cost and operating-expense control may fall short of expectations.

Key data

• 1H26 salesRMB17.173 billionUp 23.8% year over year and 10.1% below Goldman Sachs' expectation
• 1H26 net profit attributable to shareholdersRMB5.038 billionUp approximately 10% year over year and 12% below Goldman Sachs' expectation
• 1H26 adjusted net profit attributable to shareholdersRMB5.156 billion13% below Goldman Sachs' expectation
• 1H26 gross margin69.7%The main-text overview indicates a 0.6-percentage-point year-over-year decline, while the metrics table indicates a 0.7-percentage-point decline; down 3.5 percentage points sequentially from 2H25
• 1H26 adjusted net margin30.0%Down 3.9 percentage points year over year
• Selling and administrative expense ratio28.3%Below Goldman Sachs' 30.8% expectation
• Inventory and turnoverRMB6.102 billion; 201 daysInventory increased 168% year over year, while turnover days exceeded the 123 days recorded in 2025
• Labubu salesRMB4.45 billionDown 7% year over year in 1H26 and accounting for 26% of total sales
• Plush-toy salesRMB9.8 billionUp 60% year over year in 1H26 and accounting for 57% of total sales
• China and overseas store counts455 stores; 221 storesAs of June 2026; overseas stores included 90 in Asia-Pacific, 86 in the Americas, and 45 in Europe and other regions
• Share buyback planRMB2 billion—5 billionTo be implemented over the next six months, equivalent to approximately 1.1%—2.8% of market capitalization
• 2026—2028 forecast revisionsSales and net profit both cut by 17%—20%Mainly reflecting weaker overseas sales, partly offset by tighter expense control
• 12-month target priceHK$139.50Cut from HK$164.0; based on a 15x 2027E P/E multiple discounted at a 12% cost of equity

Impact & implications

Goldman Sachs believes that expansion of Pop Mart's IP portfolio, improvements in global operations, and its content and experiential ecosystem support long-term sustainable development, but related investments are unlikely to translate fully into profits in the near term. Tough comparison bases in 2H26, volatility in overseas demand, inventory, and store investment mean earnings may remain volatile; better expense control, inventory improvement since July, and the share buyback can only partially cushion these pressures.

Risks

• Popularity of a single IP may decline, or the company may fail to expand its IP portfolio continuously.
• Intensifying industry competition may weaken the competitive advantages created by IP, launch frequency, and marketing.
• Cost and operating-expense control may fall short of expectations, further reducing margins.

What to watch

• Monitor sales trends in 2H26, particularly 3Q26, against tougher comparison bases.
• Monitor whether inventory improvement since July 2026 can be sustained and the effectiveness of SKU, inventory-transfer, and warehouse-localization measures.
• Monitor whether new Labubu categories in 2H26 can reduce dependence on plush toys.
• Monitor the quality of overseas offline stores, store-level returns, and demand performance after online traffic normalizes.
• Monitor whether supply-chain localization, logistics optimization, and supplier consolidation can improve overseas margins.
• Monitor implementation of the RMB2 billion—5 billion share buyback plan over the next six months.