RLX Technology’s Net Profit Fell By 41.1% Year-Over-Year

Government regulations and COVID-19 cases were restricting RLX Technology’s development, according to the company's CFO.

On May 20, 2022, RLX Technology (RLX) announced its unaudited financial report for Q1 2022. RLX Technology reported net revenue of CNY 1.71 billion ($255.6 million), down 28.5% year-over-year. Under non-GAAP, its adjusted net profit was CNY 360 million ($53.8 million), down 41.1% compared with CNY 610 million ($91.2 million) in Q1 2021.

The net profit had a significant decrease year-over-year. Mr. Lu, CFO of RLX Technology, concluded that it was mainly due to COVID-19. RLX Technology shut down its Shenzhen factory for three weeks, negatively impacting its production. The external environment has also significantly influenced the company’s operations.

On March 11, 2022, the China's State Tobacco Monopoly Administration announced the management and regulation of electronic cigarettes. The announcement was implemented on May 1, 2022. Corresponding with that announcement, China’s State Administration for Market Regulation and the Standardization Administration of China approved the release of the national standard for electronic cigarettes.

The transition period will be Sept. 30 this year and it will be officially implemented on Oct. 1, 2022. These government regulations created more standards and limitations towards the product itself and the avenues of selling electronic cigarettes.

Because of government regulation, RLX Technology’s gross profit in Q1 2022 was CNY 657 million ($98.2 million), down 40.5% compared with CNY 1.1 billion ($164.4 million) in Q1 2021. Its gross profit margin decreased 7.7% compared with last year. This indicated that people were not optimistic about electronic cigarettes.

Positively speaking, however, Mr. Lu mentioned that RLX Technology had sufficient cash reserves. The company is still in the process of evaluating its products and making modifications due to government regulations.