Strategic Growth and Financial Performance
Zhuangzhuang Peng, President and CFO of TAL Education Group, emphasized the company's commitment to executing strategic priorities while strengthening the foundation for future development. He highlighted that learning services achieved a steady growth trajectory across both offline Peiyou programs and online enrichment offerings. Peng noted the disciplined expansion of the Peiyou learning center network, focusing on cities where services are established and reinforcing product quality for user retention.
Peng reported that the company further expanded its product lineup in this quarter, providing learning solutions tailored to diverse user needs. In May, three new models—P4, S4, and T4—were launched across different price tiers. For Q1, Peng announced net revenues of $575 million, representing a year-over-year growth of 38.8%. Non-GAAP income from operations reached $25.1 million, with net income attributable to TAL reaching $42 million.
Jackson Ding, Deputy CFO, stated that the Peiyou enrichment programs continued to deliver year-over-year revenue growth, supported by consistent service quality and broad user recognition. Ding also noted that the retention rate for Peiyou Small Class stood at around 80% in the quarter. He highlighted the learning devices’ business, noting that it saw continued year-over-year revenue growth driven by efforts to optimize products, enhance user experience, and strengthen sales channels.
Ding further announced that on July 28, 2025, the company's Board of Directors authorized a new share repurchase plan. Under the new program, the company may spend up to $600 million to repurchase its common shares over the next 12 months.
Outlook and Operational Focus
Peng stated that the company expects progress to continue into the second quarter of fiscal year 2026. Q2 is generally a high season for the business, benefiting from summer vacation and major e-commerce shopping festivals, which are expected to contribute positively to revenue. The company anticipates an improvement in operating profit compared to this quarter on a non-GAAP basis.
Peng indicated a continued focus on enhancing both product and service quality to better meet user needs. For the content solutions business, product optimization, innovation, and go-to-market execution will remain key priorities.
Financial Results Overview
TAL reported net revenues of $575 million, representing a 38.8% year-over-year increase. Gross profit increased by 47.3% to $315.4 million, with a gross margin rising to 54.9% from 51.7% in the prior year period. Operating income was $14.3 million, reversing a loss from operations of $17.3 million in the same period last year. Non-GAAP income from operations was $25.1 million versus $0.9 million a year ago.
Net income attributable to TAL was $31.3 million, with non-GAAP net income at $42 million. Non-GAAP selling and marketing expenses as a percentage of revenue increased to 30.9% from 28.5% year-over-year. Non-GAAP general and administrative expenses as a percentage of total revenues decreased to 19.8% from 23.7% year-over-year.
The company had $1,267.2 billion in cash and cash equivalents, $2,205.6 million in short-term investments, and $291.2 million in restricted cash. Deferred revenue stood at $967.9 million. Net cash provided by operating activities for the quarter was $347.8 million.
Q&A Highlights
During the earnings call, Timothy Zhao of Goldman Sachs asked about Peiyou business expansion and outlook. Peng responded that expansion would focus on increasing center density in established cities, maintaining a disciplined approach, and prioritizing long-term sustainable growth. He noted that the fiscal '25 growth pace is not expected to stay the same in fiscal '26, with Peiyou's year-over-year revenue growth expected to gradually taper off.
Eddy Wang of Morgan Stanley inquired about learning devices and performance of new models. Peng explained that Q1 is typically a low season for the learning device business, with revenue declining quarter-over-quarter compared to the fourth quarter last fiscal year. However, on a year-over-year basis, healthy growth was recorded due to sales volume expansion.
Felix Liu of UBS questioned about sales and marketing expenses and margin profile for hardware. Ding confirmed that non-GAAP selling and marketing expenses as a percentage of revenue increased slightly from 28.5% to 30.9% year-over-year, primarily due to investment in online marketing activities. Regarding learning devices, Ding said the business recorded a non-GAAP operating loss in Q1, with a strategy balancing near-term investment with long-term development.
Jing Yuan of CICC questioned drivers of margin performance and outlook. Ding pointed to operating leverage from revenue base expansion, efficiency improvements, and AI integration in content production. He mentioned using AI agents to support learning coaches with tasks such as tracking student attendance, creating study plans, answering questions, and managing routine logistics.
Sentiment and Strategic Evolution
Analysts' tone was positive, with consistent congratulations on results and a focus on understanding growth sustainability and expense trends. Their questions targeted expansion pacing, hardware profitability, and cost optimization, showing underlying curiosity about future margins and competitive positioning.
Management maintained a confident yet measured tone, emphasizing disciplined expansion and sustainable growth. Phrases like "we remain confident in its trajectory" and "our primary focus remains on sustainable long-term growth" supported a slightly positive sentiment, especially when discussing innovation and financial discipline.
Compared to the previous quarter, both management and analysts demonstrated more focus on margin improvement and operational efficiency, with a subtle shift from discussing broad growth to highlighting sustainable profitability and cost control.
Quarter-over-Quarter Comparison
Guidance language shifted from general optimism about core business growth in the previous quarter to an explicit expectation of seasonal revenue increases and operating profit improvement in Q2. Strategic focus remained on learning services and content solutions, but with new emphasis on AI-driven product innovation and broadening device offerings.
Analysts’ questions continued to probe for detail on expansion pacing and profitability, but with increased attention to margin drivers and sales/marketing investment. Key financial metrics showed improvement: revenue and operating income increased, gross margin rose, and the company moved from an operating loss to a profit.
Management’s confidence appeared bolstered by concrete margin improvements and cash generation, while reiterating a disciplined, long-term approach. Strategic priorities evolved to include a new $600 million share repurchase plan, indicating increased focus on shareholder returns.
Risks and Concerns
Management noted that Peiyou's year-over-year revenue growth is expected to gradually taper off as supply and demand normalize. The learning devices business, while showing year-over-year growth, recorded a non-GAAP operating loss in Q1 and remains in an investment phase amid intensifying competition.
Ding highlighted the need for careful capacity planning and maintaining high-quality service as the learning center network expands. Margin improvement measures focus on operational efficiency and leveraging AI, but management cautioned that investments will be balanced with long-term growth objectives.
Final Takeaway
TAL Education Group reported strong year-over-year revenue and margin growth for Q1 2026, supported by disciplined expansion in learning services and a broadened portfolio of AI-powered learning devices. Management highlighted ongoing investment in technology, operational efficiency, and a new $600 million share repurchase plan as key pillars for sustaining long-term value. The outlook remains positive, with expectations for further operating profit improvement in the high season, while the company continues to monitor growth normalization in its core businesses and invest strategically in innovation and market reach.