RLX (RLX) Q2 2025: International Revenue Jumps 40% as Europe Acquisition Reshapes Portfolio
RLX delivered a sharp acceleration in international revenue, fueled by a strategic acquisition in Europe, while navigating a tightening regulatory environment and evolving consumer preferences. The company’s pivot toward a multi-category smokeless portfolio and a disciplined cost structure is positioning RLX for sustainable, global growth. Investors should watch for further international expansion and regulatory clarity as key drivers for the next phase of margin and share gains.
Summary
- International Expansion Accelerates: RLX’s European acquisition and market share gains drove robust overseas growth.
- Regulatory Clarity Shifts Competitive Landscape: Ongoing crackdown on illegal products is channeling demand to compliant brands.
- Portfolio Diversification in Focus: Multi-category innovation and sustainability initiatives are set to reshape long-term growth.
Performance Analysis
RLX posted a 40% year-over-year revenue increase, reaching RMB 880 million, with international markets as the primary growth engine. The consolidation of a leading European e-vapor company in June contributed materially, marking a pivotal step in RLX’s global strategy. China operations also saw a rebound, aided by stricter regulatory enforcement and the successful launch of a new disposable product line.
Gross margin expanded by 2.3 percentage points to 27.5%, reflecting a more favorable revenue mix and ongoing cost optimization. Excluding acquisition-related amortization, margins remained stable sequentially, underscoring RLX’s ability to sustain profitability amid regulatory and competitive pressure. Operating cash flow surged to RMB 230 million, with the company maintaining a negative cash conversion cycle—a sign of strong working capital discipline. RLX announced its third post-IPO dividend, reinforcing a commitment to shareholder returns.
- International Revenue Mix Shift: Overseas business now represents a growing share of total sales, with Europe and Asia leading expansion.
- Margin Leverage: Gross and operating margins improved, driven by scale and disciplined cost control.
- Cash Discipline: Negative cash conversion cycle and robust balance sheet support ongoing investment and returns.
RLX’s financials now reflect a business model less reliant on China, with international diversification and compliance-led growth as defining features of the current trajectory.
Executive Commentary
"This strong performance underscores our effective strategic execution in our international expansion and outstanding ability to quickly adapt to change in regulations and consumer demand. With our matchless innovation and go-to-market capabilities, we are confident in our ability to lead this industry's realignment and continue driving sustainable growth."
Kate Wang, Chief Executive Officer
"Our outstanding Q2 2025 results demonstrated executional excellence as well as the resilience of our business model. With a diversified market presence, disciplined financial management, and a clear strategic roadmap, we are confident in our ability to continue delivering sustainable growth and significant value to stakeholders, even in a year of industry transition."
Chao Lu, Chief Financial Officer
Strategic Positioning
1. Internationalization and Local Market Agility
RLX’s acquisition of a European e-vapor company with a full industry chain (research, manufacturing, retail, e-commerce) marks a strategic shift from pure product sales to a multi-channel operator model. This move grants RLX direct market insights, diversified brand exposure, and the operational foundation to compete locally—critical for navigating Europe’s fragmented regulatory and consumer landscape.
2. Multi-Category Portfolio Development
RLX is moving beyond e-vapor with active development in modern oral nicotine and heat-not-burn products. The company’s pilot for modern oral nicotine, with positive distributor feedback, signals intent to reduce single-category risk and capture broader wallet share as the global smokeless market fragments and expands.
3. Compliance and Regulatory Leverage
Stricter global enforcement is shifting retail channels and consumer demand away from illicit products, creating a tailwind for RLX’s compliant offerings. The company is actively collaborating with regulators in China, providing intelligence on illegal operators, and leveraging compliance to win shelf space in key accounts abroad.
4. Sustainability and Product Innovation
RLX is investing in cartridge-based systems, which align with rising environmental standards and consumer preferences for sustainable alternatives. This positions the company favorably as disposables face mounting scrutiny and regulatory pressure in many markets.
5. Capital Allocation and Shareholder Returns
The company continues to balance growth investment with shareholder returns, paying a consistent dividend and executing share repurchases. Management’s comments suggest ongoing evaluation of efficient capital return mechanisms as scale and profitability improve.
Key Considerations
This quarter marks a critical inflection for RLX as it pivots from a China-centric, single-category business to a diversified, globally positioned nicotine alternative platform. The company’s ability to scale international operations, deepen regulatory relationships, and execute on product innovation will define its next growth cycle.
Key Considerations:
- Europe as a Growth Catalyst: The European acquisition accelerates market entry and provides a template for local market adaptation and future deals.
- Regulatory-Driven Market Share Gains: Enforcement against illegal products is consolidating share among compliant leaders, benefiting RLX’s brand and distribution footprint.
- Product Mix Evolution: High-capacity “big puff” devices and cartridge-based systems are reshaping consumer adoption and cost structures.
- Domestic China Still Challenged: Over 80% of the China market remains illicit, capping near-term upside, but regulatory tightening is a potential medium-term catalyst.
- Cash and Balance Sheet Strength: Ample liquidity supports both organic growth and opportunistic M&A, as well as ongoing capital returns.
Risks
Regulatory volatility remains the primary risk, with potential for abrupt policy shifts in key overseas and domestic markets. High exposure to compliance trends means that enforcement gaps or new restrictions could disrupt sales channels or product categories. The China market’s continued dominance by illegal operators also constrains growth and introduces reputational and operational risk.
Forward Outlook
For Q3 2025, RLX signaled:
- Continued focus on expanding distribution and retail capabilities in Asia and Europe
- Optimization of product portfolio to sustain competitiveness as market stabilizes post “big puff” trend
For full-year 2025, management maintained a disciplined growth and profitability outlook:
- Commitment to lean cost structure and operational efficiency as global scale increases
Management highlighted several factors that will shape the back half:
- Further regulatory clarity and enforcement in both China and overseas markets
- Potential entry into new geographies in 2026, subject to ongoing market evaluation
Takeaways
RLX’s Q2 marks a structural shift, with international and compliance-led growth now core to the investment case. The company’s execution on portfolio diversification and local market adaptation is setting the stage for continued global share gains.
- International Traction: Europe and Asia expansion is now a meaningful revenue driver, validating RLX’s global pivot.
- Compliance as a Competitive Moat: Regulatory tightening is consolidating share among compliant operators, with RLX well-positioned to benefit.
- Watch for Execution in New Categories: Successful commercialization of oral nicotine and cartridge-based systems will be central to sustaining growth and margin expansion.
Conclusion
RLX has emerged from a volatile regulatory period with a more resilient, diversified, and globally scaled business model. Execution in international markets and continued innovation in product and compliance will be the critical levers to watch as the company enters a new growth phase.
Industry Read-Through
The tightening regulatory environment in both China and overseas markets is rapidly consolidating the smokeless nicotine industry, favoring scale players with compliance infrastructure and diverse portfolios. RLX’s European acquisition and multi-category push signal a broader industry trend toward local market adaptation and portfolio breadth. Other nicotine and tobacco alternative companies should expect further regulatory-driven shakeouts and the need for sustainability-aligned innovation. Operators lacking compliance or multi-category capabilities risk marginalization as enforcement and consumer preferences evolve globally.