DeRUCCI’s first-half net profit plunges 48% as surging advertising and R&D spending eats into earnings — BigGo Finance

DeRUCCI Health Sleep Co., Ltd. (001323.SZ), a Chinese mattress and sleep products maker, disclosed its 2026 interim report on the evening of August 25, showing first-half revenue of 2.491 billion yuan (approximately $370.7 million), up a marginal 0.56% year-on-year. Net profit attributable to shareholders, however, came in at only 186 million yuan (approximately $27.7 million), down 48.13% from a year earlier. Excluding non-recurring items, net profit was 181 million yuan (approximately $26.9 million), down 36.40%. With revenue essentially flat and profit nearly halved, the core reason was not weak product sales but rather substantial front-loaded spending on the expense side.

Looking at the income statement structure, the company’s overall gross margin did not deteriorate meaningfully. First-half consolidated gross margin was approximately 51.76%, down only about 0.14 percentage points year-on-year, essentially stable. The real drag on profit came from the rapid expansion of period expenses. Total period expenses across the four categories reached 1.08 billion yuan (approximately $160.7 million), up about 142 million yuan (approximately $21.1 million) year-on-year, with the expense ratio climbing from 37.86% in the prior-year period to 43.34%, an increase of 5.48 percentage points.

The expense growth was concentrated in three areas. Selling expenses reached 791 million yuan (approximately $117.7 million) in the first half, up 18.91% year-on-year, of which advertising expenses totaled 274 million yuan (approximately $40.8 million), a sharp 40.49% increase. R&D expenses came to 114 million yuan (approximately $17.0 million), up 13.78%. In its financial report, the company attributed the higher expenses to brand promotion, AI research and development, and overseas market expansion, yet the incremental revenue over the same period was only about 14 million yuan (approximately $2.1 million) — a clear timing gap between investment and output.

Beyond the expense factor, sharp swings in financial asset-related gains further amplified the profit decline. Investment income and fair value changes combined to a loss of approximately 9.86 million yuan (approximately $1.5 million) in the first half, compared with a positive 74.42 million yuan (approximately $11.1 million) in the prior-year period — a swing of roughly 84.28 million yuan (approximately $12.5 million). This was a key reason the decline in net profit attributable to shareholders was significantly larger than the decline in net profit excluding non-recurring items.

Product mix showed clear divergence. Mattresses, the core category, generated first-half revenue of 1.354 billion yuan (approximately $201.5 million), up 7.83% year-on-year, remaining the company’s primary revenue driver, though gross margin for the category fell 3.53 percentage points to 60.02%. Bed frame revenue declined 3.19%, sofa revenue slumped 28.65%, while bedding product revenue grew 19.96%. Notably, AI product revenue reached 236 million yuan (approximately $35.1 million), up 95.69% year-on-year — nearly doubling — though its absolute scale still accounted for less than 10% of total revenue.

Overseas business maintained its growth trajectory. First-half overseas revenue was 134 million yuan (approximately $19.9 million), up 22.69% year-on-year, accounting for 5.37% of total revenue. Domestic revenue in China edged down 0.46%. At period-end, the company had 53 overseas stores in operation, a net increase of 16 in the half-year period, indicating a clearly accelerating pace of expansion. Going global has begun contributing incremental growth, but the domestic market in China remains the absolute core, and the overseas business is not yet large enough to offset weakness at home.

The external demand environment remains subdued. Data from China’s National Bureau of Statistics showed that first-half retail sales of furniture by enterprises above designated size fell 3.7% year-on-year, while new commercial housing sales area declined 11.6%, including a 12.4% drop in residential sales area. While furniture retail and mattress sales are not measured on identical statistical bases, the two data points together reflect the overall pressure on the durable consumer goods market.

On cash flow, net operating cash flow was 124 million yuan (approximately $18.5 million), up 43.82% year-on-year, mainly due to slightly higher revenue and lower income tax payments. Accounts receivable, however, rose 39.28% from the end of last year to 132 million yuan (approximately $19.6 million), which the company attributed to growth in e-commerce channels and overseas expansion. The fact that accounts receivable growth far outpaced revenue growth suggests that part of the growth was achieved at the cost of looser credit terms, and the quality of subsequent collections warrants attention.

Taken together, the core tension DeRUCCI faces in the first half is the timing gap between essentially stable revenue and front-loaded expense investment. Mattresses, AI products, and overseas business all posted growth, but declining mattress gross margins, continued weakness in non-core categories, and the swing in financial asset gains from positive to negative combined to drive a sharp contraction in profit. Whether selling expenses can convert into sustained revenue, whether AI products can move from scale growth to profit contribution, and whether overseas expansion can maintain collection quality while rapidly opening new stores — these three questions will need to be answered in subsequent financial reports.