Where did the third quarter differ from expectations?

  • Suofeiya’s third-quarter 2026 revenue was 1.945 billion yuan, down 21% year over year and in line with Goldman Sachs’ forecast. Net profit was 108 million yuan, down 70% year over year and 39% below the bank’s forecast.
  • Goldman Sachs believes the profit miss was driven primarily by pressure on gross margins: the third-quarter gross margin fell 4.6 percentage points year over year, possibly due to higher input costs and competition.

Which businesses contributed to the revenue decline?

  • By brand, Suofeiya brand revenue fell 21% year over year in the third quarter, a narrower decline than the 27% recorded in the first half. Milana fell 31% year over year, a wider decline than the 18% in the first half.
  • Revenue from the whole-home renovation channel fell 20% year over year in the first three quarters of 2026. Goldman Sachs inferred from this that the third-quarter decline was similar to that in the first half. Overseas revenue rose 91% over the same period, but accounted for only 2% of total revenue, providing limited support to overall revenue.

Why did profit fall more than revenue?

  • In addition to the decline in gross margin, contracting revenue amplified expense pressure. Although absolute operating expenses fell in the third quarter, the selling and administrative expense ratio still rose 2.7 percentage points year over year.
  • Goldman Sachs said operating deleverage was the main reason for the 11.3 percentage-point year-over-year decline in operating margin: expenses did not fall enough to offset the contraction in revenue, so expenses absorbed a greater share of revenue.

How did Goldman Sachs revise its outlook?

  • In light of the latest results, Goldman Sachs cut its earnings-per-share forecasts for 2026–2028 by 11%–23%. Its revised model forecasts revenue to fall 21.8% year over year in 2026, decline a further 0.8% in 2027, and grow 3.4% in 2028.
  • Goldman Sachs expects gross margin to recover from 32.8% in 2026 to 35.4% in 2028, and net profit to rise from 332 million yuan to 704 million yuan. The bank believes, however, that the benefits of product and channel expansion have yet to materialize and that demand for customized furniture is highly dependent on the property market.
  • Goldman Sachs cut its 12-month price target from 8.7 yuan to 7.8 yuan and maintained a neutral rating. The target is based on a valuation of 12 times forecast earnings per share for 2028, discounted to 2027 at a cost of equity of 9.8%.