Interim results briefing

Goodbaby International 2025 Interim Results Discussion

QAQ: What are the reasons for the performance differences between quarters in the first half of 2025? What are the specific impacts of tariffs and new U.S. car seat regulations on the company's performance? A: The company faced significant pressure in Q1 2025, with some improvement in Q2, mainly due to new U.S. car seat regulations and tariffs. Tariffs had an overall impact of approximately $3.5 million in H1 2025, primarily in Q2. The implementation of the U.S. side-impact car seat regulations and inadequate responses were the core factors affecting performance, with cost increases far exceeding tariff impacts. • Specifically, the new U.S. regulations require car seats to pass side-impact tests, originally planned for June 2025. Although the company began shipping compliant products in December 2024, the higher costs of new products and delayed price adjustments led to additional costs of over $4 million in H1. • Additionally, management missteps during the product transition resulted in unsold old-standard inventory, requiring deep discounts (costing ~$3 million) and disrupted new product shipments, causing market price chaos. New product shelf placement also incurred one-time costs of over $3.7 million. • The U.S. government has now postponed the side-impact regulation to December 2026, leaving the company’s early investments unable to yield competitive advantages and instead placing it at a cost disadvantage. • Q2 performance was also affected by legal settlement expenses (~$2 million). Overall, U.S. market issues reduced H1 profits by over $10 million, the main reason for the decline. Q: What factors will affect Q3 performance? What is the outlook for Q4? A: Q3 will be impacted by: 1) inventory digestion; 2) price adjustments; and 3) tariff increases to 34%, alongside higher product costs. Q4 performance to normalize. Q: How have U.S. tariffs changed? Impact on margins and costs? A: Tariffs rose from 4% (exempted last year) to 34%. H1 impact: ~$3 million; annualized impact on gross margin expected. Despite stronger absorption capacity vs. peers, U.S. plant cost advantages are diminished. Q: Brand strategy, competition, and performance in the U.S.? A: Three brands: UPPA Baby (premium), 3BX (mid-tier), and Saiwai (entry-mid). Saiwai grew 30% YTD, profitable since July; UPPA Baby hurt by tariff-driven price hikes. Competition: Few high-quality rivals; Nuna competes with UPPA Baby. Market share: 3BX + UPPA Baby hold 30-40% in premium. Q: U.S. stroller/car seat market size? Premium segment? A: Total market: ~$3B+; premium: ~$1B. Q: U.S. car seat demand? Units per child? A: ~3M newborns/year → 5-6M car seats. Typically 3 seats/child: rear-facing (infant), forward-facing (~1yo), and booster (~3yo). Q: Global newborn counts and market size differences? A: U.S.: ~3.6M (4M incl. immigrants); Europe: ~4M; China: ~9M. China’s market size is half of U.S./Europe due to lower prices. Q: Car seat penetration and ownership by market? A: U.S.: high penetration, multiple seats/child; China: low penetration (~1M units/year), no legal enforcement. Q: Price differences between China and U.S./Europe? A: Quality products have small gaps; China has many non-compliant, low-cost alternatives. Q: Materials and equipment for child products? A: Plastics, steel, fabric; injection molding, metalworking, assembly. Q: China’s production advantages vs. Southeast Asia/Mexico? A: China: mature supply chain, high efficiency; SEA/Mexico lack depth. Q: Production bases? U.S. plant status? A: Mainly Kunshan, Jiangsu, Pingxiang (China). U.S. plant (ex-Evenflo) near phase-out. Q: Major U.S. child product brands? Graco’s position? A: Only Goodbaby and Dorel own factories. Graco: #1 with 40% share, mid-tier focus, ~$800M revenue. Q: U.S. child product market segments? A: Premium: $1B; strollers: $1.5-2B; car seats: $1.5-2B. Q: U.S. margin trends and improvements? A: Evenflo (ex-Walmart) margins rose to 37%; efficiency hurt by pandemic (4-day weeks), now improving. Q: U.S./Europe online/offline sales mix? A: U.S.: 30-40% online; Europe: 50/50. Key U.S. channels: Amazon, Target, Walmart. Q: Channel profitability and strategy? A: Target: higher pricing, better margins; Walmart: low margins. Evaluating reducing low-margin Walmart business. Q: Other H1 profit decline factors beyond one-offs? A: Discount-driven margin compression; gross sales stable. Q: Premium brand distribution strategy? A: Exclusively high-end department stores and D2C (no Walmart/Target/Amazon). Q: H1 net profit one-offs? Underlying performance? A: $7M+ one-offs (legal, layoffs, shelf fees). Excluding these, H1 ~flat YoY (RMB1.85B). Additional non-one-off pressures: side-impact costs, tariff passthrough lag, old inventory clearance. Q: U.S. price hikes and margin recovery? A: Planned 20% hikes in June achieved only 7%; targeting 15% in Q4. Margin recovery delayed to Q4. Q: Inventory status and impact? A: ~2 months’ inventory. Old product clearance blocked new product channels; digestion pressures persist in Q3. Q: Management issues in H1? A: Poor planning on inventory transition, cost passthrough failures, lack of coordination. Led to CEO/commercial head replacements.