Shares of RLX Technology (RLX) were up 14.6% as of 3:45 p.m. EDT Monday after the China-based e-vapor company announced better-than-expected quarterly earnings.
That's not to say RLX's headline numbers looked good at first glance; third-quarter revenue declined 59% year over year to 428.1 million Chinese yuan, also known as renminbi, or RMB ($58.7 million), translating to adjusted (non-GAAP) net income of RMB$197.5 million ($23.7 million), or RMM0.146 per American depositary share ($0.02). But most analysts were only expecting adjusted earnings of $0.01 per share on a slightly more modest 54% revenue decline.
On cutting costs amid sustained industry headwinds
RLX co-founder, Chairperson, and CEO Ying Wang noted the third quarter marked one year since the Chinese government implemented a series of new rules and regulations -- notably including flavor restrictions and the need to obtain state-sanctioned manufacturing licenses -- to strengthen oversight of e-cigarette products in the country.
"As a legitimate industry participant, we have remained dedicated to developing our product portfolio to provide adult smokers with compliant, superior-quality products," Wang added. "While we have made some progress with our recovery, we are still facing external challenges, especially the impact of illegal products."
Perhaps most notably, RLX's cost-reduction initiatives have begun to yield fruit; this quarter also marked RLX's second straight period of positive operating cash flow at RMB$67.5 million ($9.2 million).
What's next for RLX investors?
Looking ahead, RLX says it will continue to move forward with its wide variety of compliant products, while simultaneously working with regulators and educating customers to combat illegal competitors.
RLX also noted that on Nov. 10, 2023, the company terminated an existing non-competition agreement with Relx Inc., which had been entered into on Dec. 16, 2020. The move gives RLX fresh flexibility to build an international presence by expanding its tobacco harm-reduction product business outside of China.
In the end, after coupling the promise of that international expansion with the positive impact to earnings and cash flows of RLX's cost-reduction initiatives, it's no surprise to see the stock rebounding today.
