J.P. Morgan: Pop Mart’s third-quarter revenue decline widens; fourth-quarter sequential stabilization is key

Where did third-quarter revenue fall short of expectations?

Pop Mart’s total revenue fell 45%–50% year over year in the third quarter of 2026, a steeper decline than JPMorgan’s previous forecast of 37% and near the worse end of the buy-side’s expected decline of 40%–50%. Revenue fell about 11% year over year in the second quarter.
Mainland China revenue fell 25%–30% year over year, weaker than the bank expected, mainly due to a drag from online channels. JPMorgan cut its 2026 revenue forecast from 33.393 billion yuan to 30.237 billion yuan, a year-over-year decline of 18.5%.

JPMorgan believes the third quarter faced the toughest year-over-year comparison and expects fourth-quarter revenue to fall 41% year over year but rise 1% quarter over quarter. The key is whether revenue in China and overseas can stabilize without another blockbuster IP on the scale of Labubu.
Management expects China revenue to rise slightly quarter over quarter in the fourth quarter and to remain positive for the full year. Overseas revenue is expected to rise quarter over quarter as the peak season begins, though there is some uncertainty in Europe.
There has been progress across multiple IPs: the top six IPs in Asia Pacific accounted for more than 60% of third-quarter sales, while Dimoo made progress in Europe and the US through a collaboration with Pixar. Meanwhile, foot traffic at China retail stores grew year over year, and new customers rose by a double-digit percentage year over year, accelerating from the second quarter.

Management expects the gross margin in the second half of 2026 to fall by no more than 2 percentage points from the first half, mainly because higher-margin overseas revenue accounts for a smaller share and because prices were proactively adjusted in some overseas markets to maintain competitiveness. The expense ratio is expected to rise.
New stores in core overseas markets bring labor, rent and fit-out expenses, and these costs are difficult to reduce in step with falling revenue. The overseas operating margin fell 14 percentage points year over year to 30% in the first half of 2026.
JPMorgan expects a net margin of about 21% in the second half and cut its full-year adjusted net profit forecast from 9.341 billion yuan to 7.871 billion yuan, down about 39% from 2025.

The company is accelerating its overseas flagship store rollout: the Paris flagship opened in September, the London store entered a soft-opening phase, and the number of US stores exceeded 100 at the end of September. Management says the expansion prioritizes quality over quantity, but JPMorgan is concerned that large stores could become a burden if the next blockbuster IP is slow to arrive.
Inventory has improved: management says total inventory peaked around May, began to decline in August, and showed a clear downward trend by the end of September. It plans to maintain inventory discipline and avoid large-scale promotions.
The company has shifted regional purchasing to headquarters coordination to reduce duplicate stocking of popular products and regional stockouts. Transfers between regions have increased, and China is also helping overseas markets absorb inventory held in domestic warehouses.

The bank maintained its underweight rating and cut its June 2027 price target from HK$110 to HK$100, still valuing the stock at 12 times forecast 2027 earnings. It sees limited share-price upside until overseas execution and margins stabilize.
JPMorgan still expects the company to return to modest growth in 2027, supported by its competitive position and room to expand overseas. Its model forecasts year-over-year revenue growth of 9.4% in 2027; investors, however, need to reassess normalized store efficiency and margins.