New Oriental (EDU) Q4 FY26 earnings call: guidance and Q&A

Can you break down the FY27 revenue guidance into quarters, especially Q1 FY27, and comment on margin trends?

Management is optimistic about FY27, guiding 14-18% revenue growth but expecting to beat it. They are changing to annual guidance to reflect long-term focus. Q1 FY27 is expected to show accelerated revenue growth due to strong summer enrollment and East Buy's contribution. Margin expansion is anticipated for FY27 and Q1, driven by cost control and operational efficiency.

“And so given the positive momentum, I think including the healthy growth of our K-12 business and the recovery of the East Buy, I think we are now in a more optimistic position regarding our business outlook in fiscal year 2027. So we gave the guidance of the annual guidance in fiscal year 2027 in the range of 14% to 18%. I must mention that, as always, we're still conservative to give the annual guidance. We do expect to beat our annual guidance in fiscal year '27.”

asked by Yiran Sheng · answered by Zhihui Yang

How should we project the revenue growth outlook for the K-12 business for Q1 and FY27?

The K-12 business (K-9 and high school) is expected to grow roughly 20% year-over-year in FY27. Q1 revenue growth for K-12 will be stronger, and this segment is expected to bring higher margins.

“I would like to guide the K-12 business in total, the K-9 and high school in total, roughly will be expected to increase roughly close to 20%, or around 20% year-over-year. And because I think this enrollment growth trend is good. And also, I think the Q1 revenue growth will be stronger. So this is my guidance of the K-12 business.”

asked by Yicheng Yuan · answered by Zhihui Yang

What is the plan for capacity expansion in FY27, current utilization, and any risks from regulatory inspections?

New Oriental plans to open 10-15% new capacity in FY27, primarily in top-performing areas, following 13% expansion in FY26. Top-line growth is expected to exceed capacity growth, increasing utilization. On regulation, management believes they are compliant and the environment is neutral to positive.

“We -- in fiscal year '26, we added 13% new capacity in total. I think it's based on the expansion control, and we -- I think we did well in the last year. And in the coming new year, we plan to open 10% to 15% new capacity.”

asked by Alice Cai · answered by Zhihui Yang

Update on overseas test prep/consulting growth trajectory for FY27 and margin outlook after the merger.

The overseas-related business is expected to be flattish or low single-digit growth in FY27, with low single-digit growth in Q1. The merger of test prep and consulting in Q3 last year aimed to enhance cost control and provide one-stop service. The margin for this combined business was roughly 15% in FY26 and is expected to expand in FY27 due to cost control and restructuring.

“And so in the coming new year, we expect our overseas-related business will be flattish or low single-digit growth in the coming new year. And I think the Q1 -- roughly the Q1, we -- I think we still believe that we can get some low single-digit growth of the overseas-related business. ... And roughly the margin of the overseas-related business last year is roughly 15% roughly last year.”

asked by Timothy Zhao · answered by Zhihui Yang

Why were sales and marketing expenses up in Q4, and what is the margin trend for the core education business excluding East Buy?

Q4 sales and marketing expenses increased because East Buy spent more on marketing, driving revenue growth. For FY27, selling and marketing expenses as a percentage of revenue for the group are expected to decrease, driving margin up. Excluding East Buy, the core education business margin was roughly flattish in Q4, but would have been up if not for $10-15 million in one-off restructuring expenses.

“I think in Q4, the East Buy spend a little bit more money on the marketing that -- it drive the revenue growth up a lot. And so in the coming new year, I do believe the selling and marketing expenses as a percentage of the revenue for the whole group will be down. So it will drive the margin up in the coming new year, Lucy.”

asked by Lucy Yu · answered by Zhihui Yang

Is cost optimization complete, can we quantify FY27 savings, and what is the CapEx budget for FY27?

Cost control saved roughly $100 million in FY26 (Phase 1 is ending). Phase 2 will focus on management restructuring and AI to save more in FY27. FY27 CapEx is budgeted at $250-300 million, higher than FY26's $250 million, partly due to a new headquarters building in Chongqing, not East Buy offline stores.

“Roughly, we saved $100 million roughly in fiscal year '26. So now we're closely to the end of the Phase 1, cost control Phase 1. So we're [ steady ] into the Phase 2. As I said, in the cost control Phase 2, we will do more like the restructuring of the management teams to do more cost control. And we will use more AI to save the legacy staff cost or extra. So I think in the coming year, we expect the cost control can save more amount than that of last year.”

asked by D. S. Kim · answered by Zhihui Yang