Super Hi International (NASDAQ:HDL) released second-quarter financial results and hosted an earnings call on Wednesday. Read the complete transcript below.

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Summary

Super Hi International reported a 10% increase in total revenue for Q2 2026, reaching $219 million, with a significant 118.9% year-over-year increase in operating profit.

Key operational highlights include improved customer traffic and table turnover rates, with 8.1 million customer visits and a table turnover rate of 3.9 turns per day.

The company expanded its off-premise offerings, with delivery revenue up 105% year-over-year, contributing to a diversification of revenue sources.

Strategic initiatives involved enhancing operational management through digital tools, optimizing menus with local flavors, and expanding membership and marketing efforts.

Super Hi International opened 63 new Haidilao restaurants in the first half of 2026, with further plans for double-digit store openings in the second half, focusing on North America, East Asia, and Southeast Asia.

Despite significant improvements in operating profit, the company recorded a net loss of $1.93 million, mainly due to exchange rate fluctuations resulting in a $4.34 million foreign exchange loss.

Management emphasized the importance of operational flexibility and local market adaptation in overseas operations, along with continued focus on cost control and efficiency improvements.

Future guidance remains cautiously optimistic, with an emphasis on enhancing customer experience, expanding store networks, and optimizing operational efficiencies.

Full Transcript

OPERATOR

Dear esteemed investors and analysts, good evening. Thank you for joining Super Hi International 2026 Second Quarter Earnings Conference Call. The company leaders attending today's meeting are Mr. Li Yu, Executive Director and CEO, and Ms. Chu Song, Chief Financial Officer and Board Secretary. Today's meeting content may contain forward-looking statements, including but not limited to the company's statements regarding strategies and business plans, as well as outlook on performance prospects.

The content of this earnings presentation and the comments in response to your questions represent management's view only as of today. Please refer to the latest safe harbor statement in the earnings press release, which applies to this conference call. The meeting is conducted in Chinese with an external agency providing simultaneous English interpretation. In case of any discrepancies, the Chinese content shall prevail. The presentation materials have been uploaded to the company's IR page.

Please feel free to review them now. We invite Mr. Li Yu, CEO and Executive Director of Super Hi International, to review the company's performance for the second quarter of 2026.

Li Yu, CEO and Executive Director

Thank you, moderator. Can everybody hear me okay?

OPERATOR

Yes, we can. Please go ahead.

Li Yu, CEO and Executive Director

Dear investors and analysts, good evening. I am Li Yu, CEO and Executive Director of Super Hi International. Let me present to you the key highlights for the second quarter of 2026. This quarter, the company's earlier investment in employees and customers further translated into operating improvements. Customer traffic and table turnover rates both improved year over year, while the employee cost ratio and several operating expense ratios declined, driving a significant year-over-year increase in operating profit.

In Q2, Haidilao restaurants served 8.1 million customer visits, up 5.2% compared to last year. Supported by customer traffic, overall table turnover rate for the quarter was 3.9 turns per day. Same-store turnover was 4.0 turns per day, both up 0.1 turn per day year over year. Both dine-in service at Haidilao restaurants and off-premise offerings were expanding revenue sources. Revenue from delivery and other businesses both doubled this quarter. The company achieved total revenue of 219 million in the second quarter, representing a 10% increase year over year.

This quarter, operating profit increased by 118.9% year over year, and the operating profit margin increased by 1.8 percentage points. Profit growth significantly outpaced revenue growth, reflecting the continued conversion of earlier investments and the beginning of operating leverage release. Now I will review the major operational initiatives this quarter. First, we continued to enhance the operational management of Haidilao restaurants. We maintained management flexibility, with each region autonomously adjusting operating strategies based on local business conditions, market conditions, and consumer trends.

At the same time, we further strengthened the professionalism and support capabilities of the headquarters platform. By introducing digital tools and new technologies, we enhanced our insights into the industry, markets, and consumers, empowering frontline restaurants in areas such as menu items, marketing, and labor efficiency, thereby improving precision and execution efficiency. This second quarter is a traditional low season. Judging from the table turnover performance, we believe that these initiatives have delivered a positive result.

Second, in terms of products and menus, in the first half of this year the company fully integrated local consumer dietary habits, consumption trends, and dining scenarios to drive menu optimization and new product development. For instance, in Southeast Asia, we introduced local flavors such as lemongrass, satay, and basil, and extended soup bases, snacks, and beverage combinations around core products to enhance cross-selling. At the same time, we optimized existing products by improving taste, presentation, and product combinations, lowering the barrier for customer trial and enhancing product appeal.

In addition, the company continuously conducts dynamic operations based on new product sales performance, customer feedback, and regional market characteristics, providing customers with a more value-oriented and differentiated consumption experience. Third, in terms of membership and marketing, as of the end of June, the number of overseas members reached 9.246 million. This quarter, we continued to improve customer management, loop around sustained marketing, precise traffic acquisition, and member operations.

Each region combined local consumption habits, holiday occasions, and the preferences of younger customer groups to enhance brand exposure and reach new customers through IP collaborations, new product launches, and local events. We also placed greater emphasis on post-marketing customer retention by further strengthening tiered membership operations. Using member-exclusive activities, differentiated benefits, customer communications, and in-store experience optimizations, we improved member activity and visit frequency.

We are continuously exploring more cross-scenario and multi-branded membership benefits, hoping to gradually convert one-time marketing traffic into long-term membership relationships, further enhancing customer repurchase and store operating resilience. In terms of store expansion, this quarter we opened one new Haidilao restaurant in South Korea and one in Vietnam. In the first half of this year, we opened a total of 63 Haidilao restaurants. At the end of Q2, we operated a total of 129 Haidilao restaurants overseas.

To date, the number of signed but not yet opened Haidilao stores remains in the double digits. Meanwhile, based on the current construction schedules in July and August, we expect several new stores to open successfully in the second half of the year, and the full-year new store opening target is in the double digits. As of this quarter, the Pomegranate Plan has operated a cumulative total of top brands and 22 second-brand restaurants overseas. We continue to optimize the Haibo Marathon project, which originated in Canada, and we are now opening the second Haibo store in Japan.

At the same time, the izakaya project in Japan is also steadily improving in sustainability, with the potential for further replication. Various country markets are exploring opportunities to independently incubate or replicate existing second-brand formats. That's my conclusion for the business performance for this quarter, and I'd like to invite Ms. Chu Song to present the financial results.

Chu Song, Chief Financial Officer and Board Secretary

Thank you, Mr. Li. I will now report the financial results. In Q2 of 2026, the company achieved total revenue of 219 million, an increase of 10% year over year. Haidilao restaurant operating revenue was 198 million, up 4.6% year over year. The number of Haidilao restaurants increased by a net of three compared to the same period last year. The company served around 8.1 million customer visits this quarter, an increase of 5.2% year over year. To support the restaurant business beyond dine-in, the company continued to expand revenue sources.

Delivery service reached 7.562 million, up 105% year over year. During the period, each region continued to strengthen delivery operation investment, deepen collaboration with major delivery platforms in each country, secure more promotional resources and online traffic favorability, and enrich delivery product offerings to enhance product appeal. In the delivery scenario, other businesses reached 13.439 million, up 119.7% year over year, mainly contributed by sales of food and seasoning under the Haidilao brand and from the company's own central kitchens, as well as the active development of some new restaurant business under the Pomegranate Plan. Overall in this quarter, delivery and other businesses together generated 21 million in revenue, up 114.3% year over year. Their share of total company revenue increased from about 5% in the same period last year to nearly 9.6%, further diversifying company revenue. In terms of cost and expenses, overall operating efficiency improved compared to the same period last year. In the second quarter, raw material and consumable cost was 74 million, with a gross profit margin of 65.9%, down slightly by 0.1 percentage point year over year.

Restaurant operating gross margin remained stable, mainly because the central kitchen and supply chain businesses have grown significantly versus last year. Employee cost was 74.951 million, and the employee cost-to-revenue ratio decreased from 35.3% in the same period last year by approximately 1 percentage point. As past years' efforts in employee capacity building, staffing, and store management optimization have gradually been implemented, labor efficiency improvements have begun to materialize.

Rent and related expenses were 5.6 million, accounting for approximately 2.6% of revenue, down about 0.4 percentage point, mainly due to revenue growth diluting rent expenses as well as adjustments in restaurant network layout. Utilities were 7 million, accounting for approximately 3.3% of revenue, down 0.3 percentage point year over year. Depreciation and amortization were 21 million, accounting for 9.6% of revenue, down about 0.3 percentage point year over year.

Travel, communications, and other operating-related expenses were about 25.783 million, accounting for about 11.8%, remaining broadly stable year over year. Overall, the declines in the employee cost ratio and expense ratios for rent, utilities, and depreciation and amortization were important factors in the operating margin improvement this quarter. Raw material and other expense resources still have room for further optimization. In Q2, the company achieved operating profit of US$8.1 million, up 118.9% from 3.7 million in the same period last year.

Operating margin increased from 1.9% in the same period last year to 3.7%, up 1.8 percentage points year over year. As revenue grew, the employee cost ratio and several fixed operating expense ratios declined, driving the earlier investment in employees, customers, and store management to gradually translate into operating efficiency improvements. Although operating profit improved significantly, non-operating items in this quarter were mainly affected by exchange rate fluctuations.

In the same period last year, there was a net foreign exchange gain of 16.33 million; for this quarter, there was a loss of 4.34 million, a negative swing of more than 20 million year over year. The company recorded a net loss after tax of 1.93 million for this quarter, compared to a net profit of 16.39 million in the same period last year. Although final net profit was affected by non-operating factors, the company's core operating profitability improved significantly.

In terms of operating cash flow, the company recorded a net inflow of 28 million this quarter, an increase of 6.2% compared with a net inflow of 26 million in the same period. As of 30 June this year, the company's cash reserve was approximately 266 million, and overall liquidity remains ample to be used for continued store expansion. In terms of key restaurant operating metrics, the company served approximately 8.1 million customer visits this quarter, up 5.2%.

Haidilao's table turnover ratio improved year over year. Overall spending per store for the quarter was $24.3 thousand per day. Daily revenue was 17.4 thousand, down slightly by 1.1%. Overall, customer traffic and table turnover improved this quarter, though single-store operating quality in certain regions has room for further optimization. By region, market performance diverged this quarter. Table turnover in Southeast Asia and East Asia continued to improve.

Turnover in North America and other regions faced pressure. In Southeast Asia, restaurant revenue for this quarter was 98.66 million, up about 3.9%, mainly driven by higher customer traffic. Average spending per customer was $18.6, flat year over year, and overall Southeast Asian stores maintained a steady and upward operating trend. In East Asia, restaurant revenue was 33.7 million, up about 9.9% year on year. Average table turnover increased from 4.8 turns per day to 4.9 turns per day, continuing to maintain a high level.

This is mainly because the reported average spending per customer decreased from $29.40 in the same period to $27.40 due to exchange rate effects; on a constant currency basis, average spending per customer in both countries actually increased year over year. Excluding exchange rate disturbances, East Asia continues to maintain a strong operating trend with good customer traffic and table turnover performance. In North America, Haidilao restaurant revenue was approximately 14 million, up about 6.6% year over year, with the store count increasing from 20 to 22.

Average table turnover was 4 turns per day, and average spending per customer increased from $39.10 in the same period to $41. However, a higher average check has not fully offset the impact of lower turnover. North America still needs to focus on improving customer traffic and operating efficiency. In other regions, restaurant revenue was 25.1 million, down by 1.8%. Average table turnover was 3.7 turns per day, down by 0.2 turns per day, mainly due to geopolitical volatility in the Middle East still affecting operations, though the impact is currently assessed to be gradually diminishing.

Average spending per customer in other regions increased from $39.70 in the same period to $41, primarily driven by exchange rate effects. Overall, regional operating performance in the second quarter showed some divergence: Southeast Asia improved; East Asia continued to maintain a high level; North America and other regions need to further enhance customer traffic and per-store output. Same-store performance: there were 111 same-store restaurants; same-store sales were approximately 179 million, down about 0.8%. Among them, same-store sales in Southeast Asia and East Asia increased by 2.5% and 0.9% year over year. Same-store sales in other regions declined by 2.7% and 8.5%, respectively, for the same reasons as above. Overall, going forward the company will continue to focus on customer operations and in-store operations, driving further conversion of customer traffic improvement into per-store sales and profitability enhancement.

We now welcome questions. Our first question comes from Dai Shengwei from CICC. Please go ahead.

Dai Shengwei, Analyst at CICC

Thank you, Mr. Li and Ms. Chu, for giving me this opportunity. I have three questions. Number one, we can see that in China there is an emphasis on empowering through an intelligent middle platform. Do the overseas operations have any new ideas or plans regarding middle-platform construction or organizational structure adjustment? Second is about the Pomegranate Plan. How do you balance the mature single-store model and the long-term investment cost of new brands with the company's short-term performance?

Do you currently have any relatively mature mechanisms and methodologies to further improve the probability of success? And my third question is about further optimization measures for cost and expense controls going forward.

Li Yu, CEO and Executive Director

Thank you, Mr. Dai, for your questions. There are a total of three questions; we'll take them one by one. In terms of middle-platform capability building, overseas is similar to China, but the overseas characteristic is that each country has different consumer habits, labor regulations, supply chain, tax, and marketing environments. There's no single set of operating methods that can be directly replicated across all markets. Therefore, the principle for overseas middle-platform construction is: headquarters should build common capabilities well, whilst the regions and stores should run their local business well.

In terms of division of labor, headquarters centrally builds common capabilities such as digital systems, bulk supply chain, personnel management, financial management, and a membership system—standards and infrastructure. Regional teams then adapt and implement these capabilities in combination with local market conditions, whilst specific operational decisions are left to the frontline teams who know the local markets and customers. From an organizational perspective, HQ's role will increasingly become that of a supporting platform, and frontline autonomy in operations will continue to be preserved.

But matters such as food safety and service quality will not be relaxed in any way. Currently there are two projects that are running relatively smoothly. One is Haibo Marathon—currently we have both in Canada and one in Japan. It's a simple and fast concept with low barriers; in terms of turnover, efficiency, and operating performance, both meet our expectations. We're also looking at the United States, Canada, and other markets, and will continue to verify its replicability.

The other is the Japanese izakaya. Its product offering focuses on sashimi, yakitori, and Japanese side dishes. At the moment in Tokyo, customer acceptance and operation stability are continually improving, and the second store is being prepared in Osaka. Regarding the balance between long-term investments and short-term performance, we verify the certainty with small costs. Each project starts with one or two stores; investment per store is not large; trial-and-error cost is controllable, and it will not have a material impact on short-term performance. During the process, if operating performance or customer experience does not meet expectations, we will make adjustments without blindly pursuing scale. The real significant spending comes in the scale replication, and we only allocate replication resources to models that have been verified and proven viable. Once proven, the company has already designed the return path and expectations for projects in the replication phase.

Third, about cost control. Currently it's not about compressing cost across the board, but to narrow the gaps between the stores. There is still imbalance in operating performance among stores; lifting underperforming stores to the average levels is a better way forward. If we continue to compress store-level investment, this will ultimately harm customer experience, and that's not the efficiency we want nor is it sustainable. We have identified two sources of improvement.

First is operating leverage: as the second half enters the peak season, if customer traffic and table turnover maintain good performance, revenue growth itself will dilute relatively fixed costs such as labor, rent, and depreciation. Second is daily refinement: staffing and scheduling efficiency, procurement and supply chain, and inventory shrinkage—we will continue to optimize these areas as routine work and not dependent on peak season. Right now we still focus on our investment in the Pomegranate Plan.

We are not going to stop due to short-term profit pressure, but will control the pace and strictly manage budgets. As new brands gradually contribute revenue and the middle-platform capability building completes its major investment phase, this gap will gradually narrow.

OPERATOR

Thank you, Mr. Li, for your comprehensive response. Our next question comes from Zeng Jun from Huatai Securities. Please go ahead.

Zeng Jun, Analyst at Huatai Securities

Thank you, Mr. Li and Ms. Chu. I would like to congratulate the company on your very stable performance. My first question is, with more Chinese hot pot and catering brands going overseas, how do you view the competition—especially as you are quite competitive in the China market? How do you view overseas competition, and especially for the Pomegranate Plan in this phase where the brands are not yet established, how do you view competitors' entry?

For instance, in terms of your brand's buzz, what localized approaches will you adopt? My second question is that we can see table turnover performance has been good, with averages steadily rising. What specific measures are used to improve the stores that need improvements? In addition, what planned measures do you have in mind?

Li Yu, CEO and Executive Director

Great, thank you, Ms. Zeng, for your questions. I will take the first questions, and Ms. Chu will answer the third question. Number one, in terms of overseas markets, apart from Chinese cuisine and hot pot, we also look at the entire dining market. Currently, overseas consumers' acceptance of Asian cuisine and Chinese food continues to rise. There's a lot of room for development. Our main brand is in the hot pot segment; in Chinese cuisine we're still cultivating the market and raising consumer awareness—far from a zero-sum competition at the moment.

Therefore, more Chinese brands going overseas is a positive sign. It validates that real demand exists and will also accelerate the process of overseas customers getting to know and accept Chinese cuisine, expanding the overall category pie. But of course, we maintain a healthy respect for competition. We will focus on doing our own things well—continue to enhance brand appeal through products, service, and customer experience—especially by diversifying our customer base and continuing to improve the proportion of local customers.

For Pomegranate projects, they are relatively diverse, including incubating and operating restaurants serving local cuisine. It's not about brand; it's about the model and capability. First, for these projects, being the first to enter is not the most critical factor. What matters most is to really improve the single-store model and make it replicable. Second, in terms of overseas brand building, we don't need to increase marketing spend to buy buzz.

We center on products, service, and store experience to let buzz grow organically. Marketing expenses have always been kept at a reasonable level, and what we pursue is discussion conversion, not just impressions. There are three layers. The first layer is to place marketing creativity and execution locally. Teams in each region have considerable flexibility to collaborate with local IPs, artists, and games; to plan around local festivals and major events; and to interact with customers on local online platforms so that activities are rooted in local culture and feel familiar to local customers. Second is to make the products themselves carriers of communication. We launched a coriander-themed product series in some regions. Coriander as an ingredient is strongly loved or hated by people, and we built a complete product portfolio around this theme, extending from soup base to dishes and snacks—generating excellent organic discussion and in-store conversion.

We plan this every season with the same logic. The theme selection comes from the real interests of local customers, while supply chain and R&D are centrally supported by the company. Third is to capture and retain the buzz. If it only comes once, the value is limited. We continue to connect market activities and member operations. Online attention is directed to offline stores, and after arrival—through membership benefits and refined operations—it is converted into repeat purchase and referrals.

Buzz is the entry point; membership and repurchase are the lasting accumulation. Finally, we must return to fundamentals. No matter how front-end marketing changes, the metric of win value is all about customer satisfaction: customers willing to come, come again, and recommend us to other people. This is where brand influence truly takes root. Marketing can amplify the buzz but cannot replace it. The third question about turnover performance and specific measures—I will have Ms. Chu answer this question.

Chu Song, Chief Financial Officer and Board Secretary

Thank you, Ms. Zeng, for your question. I will take your third question. For Q2, our overall table turnover increased by 0.1 turn year over year. The trend is healthy, but there is indeed divergence among regions. East Asia and Southeast Asia performed better, while North America and other regions still have room for improvement. Take North America as an example. The issue for some stores is that the customer base structure is relatively concentrated and the coverage of mainstream local customers is insufficient.

For instance, if there are changes in local immigration or visa policies, this can cause fluctuations in traffic. In the short term, we'll drive store traffic by adjusting menu combinations and peak operations, but at the end of the day, it's really about diversifying the customer structure—solidly developing surrounding customer groups and member operations and localized marketing—reducing reliance on any single customer segment. This is our long-term direction across all overseas markets.

In other regions, there are external factors such as geopolitics which are beyond our control. What we can do is to adjust operating strategies and control expenses in a timely manner based on local conditions. At the moment, we can see that the negative impacts are gradually diminishing. In terms of mechanisms, the headquarters' role is to help stores accurately identify problems, using operating data to attribute underperforming stores by table turnover on a store-by-store basis—whether it's a customer base issue, a trade area issue, or an operational issue—and we will look at solutions.

For instance, whether we will be relocating or making adjustments, rather than continuing to invest just to maintain the store count.

OPERATOR

Thank you. Next question, please. It comes from Wei Jiabao at CITIC Securities.

Wei Jiabao, Analyst at CITIC Securities

Mr. Li and Ms. Chu, this is Wei Jiabao from CITIC Securities. I have three questions. Number one, what is the outlook for the average unit price per customer trend in Q3 and Q4, and why? What specific measures will you take if the average price increases or decreases? Second, which region will be the focus for store openings in the coming quarters? Will you accelerate openings in regions with fewer current stores, or enter into entirely new countries?

Third is on the investment and payback period in each region. Compared with the past, are they improving, roughly flat, or increasing, and what are the reasons for these changes, if any?

Li Yu, CEO and Executive Director

Thank you, Mr. Wei, for your questions. On your first question with respect to the unit price for Q3 and Q4, right now we don't have any plans for a uniform price adjustment. We will not simply pass all costs onto customers. Each market will adjust autonomously based on local customer acceptance, competitive environment, and product structure. We pay more attention to the value perceived by customers rather than simply pursuing higher prices. For instance, we add new products across different price ranges, adjust set meals and combo products, and give customers more choices.

With respect to store openings for the second half, we expect double-digit new stores to open in North America, East Asia, and Southeast Asia. There are still about a dozen stores with substantial progress, among which stores in North America and the UK are already in the construction phase and will open successively over the next two years. Layout and business expansion in existing countries continue to be handled by each country in a bottom-up manner, and the project advancement pace in each country is basically consistent with its operating rhythm.

For new entries, headquarters will more cautiously assess market conditions, consumption, and specific site locations. There is currently no definite entry plan for new countries. Discussions are underway, but they are not yet definitive. On your third question, for new stores, currently we are looking at a standard payback period of three to four years—roughly Southeast Asia relatively faster, Europe and America relatively slower. Versus the past, each region has become more careful and prudent in site selection, so overall store payback periods are more controllable and quality has also improved.

Single-store investment fluctuates due to factors such as location, store size, and decoration style. In the meantime, decoration and labor costs in some markets have indeed risen over the past two years. We continue to control investments by optimizing store formats, decoration design, local procurement, and construction management, and overall per-store expenditure remains stable.

OPERATOR

Thank you. Our next question comes from Fontaine Securities. Ms. Jenny Lee, please go ahead.

Jenny Lee, Analyst at Fontaine Securities

Thank you for giving me this opportunity to ask a question. I have two questions. Number one is about the localization of the supply chain—for instance, in Singapore and Malaysia in Southeast Asia. Do you have central kitchens, and do you have plans for localization of central kitchens and supply chains in these areas? My second question is about the impact of exchange rate fluctuation on your net profit and hedging. Because we can see that there is an impact to a certain degree on net profit, what control measures have you taken?

Perhaps you could share with us on those points.

Chu Song, Chief Financial Officer and Board Secretary

Thank you, Ms. Lee, for your questions. On the first question—supply chain and central kitchens in Singapore and Malaysia—after many years of operation, local procurement and supply chain systems have become mature. For products that can be stably procured locally and meet quality requirements, we will localize as much as possible. For some core seasonings or products whose local supply is not yet stable enough, we will continue to source from central kitchens or established suppliers.

Central kitchens do not necessarily expand linearly with store counts. We will consider store density, delivery radius, and capacity utilization. If existing central kitchens have surplus capacity, then we will also try to do some external sales to improve capacity utilization and efficiency. With respect to exchange rate fluctuation—for Q2 there was indeed quite a pronounced effect, mainly due to base effects. In the same period last year we recorded a larger foreign exchange gain; this year it's a loss. Positive and negative combined amplified the year-over-year fluctuation. It should be emphasized that this is a non-operating, non-cash impact from currency translation and does not reflect changes in the underlying business. Excluding foreign exchange gains and losses, operating profit and operating profit margin in Q2 both improved significantly year over year. Therefore, we ourselves focus on operating profit. In exchange rate management, our approach has two layers.

The first layer is natural hedging—that is, most of our revenue and costs occur in the same market: local collections, local procurement, local labor, and rent payments. The higher the degree of business localization, the smaller the cross-border exposure that truly needs to be managed. The second layer is for exposures that do exist, such as centralized funds and cross-border settlements. The company will continue to monitor them and, based on the size of exposure, hedging costs, and local compliance requirements, evaluate appropriate funds and exchange rate management methods.

However, we will not engage in speculative forex operations just for the sake of reported numbers. Overall, we are quite cautious.

OPERATOR

Thank you. Next, Zhoushan Securities—Mr. Zhong Yecheng, please go ahead.

Zhong Yecheng, Analyst at Zhoushan Securities

Hi everyone, this is Zhong Yecheng from Zhoushan Securities. I have two questions. Number one is about stores. If we divide them into mature stores, relatively new stores, and new stores, are there significant differences in table turnover and store model among them? Which ones perform better or vice versa? My second question is about incentives for overseas headquarters management teams. With more Chinese cuisine brands going overseas, it's likely there are people who will be poaching your staff and your talent.

How do you ensure team stability?

Li Yu, CEO and Executive Director

Thank you for your questions. On the first point, store age itself is not the key factor determining store performance. Differences among mature stores come from the trade areas and operational capabilities rather than how many years they have been open. The real impact of store age is mainly that, in the first six months after opening, new stores need to go through a ramp-up period of team integration, developing surrounding customer groups, and stabilizing operating processes.

This is a normal pattern. Taking 2024 as a dividing line: among 107 stores opened from 2018 to 2023, about 50 achieved positive cash flow in the first month of opening. Among the 27 stores that opened from 2024 to June this year, the proportion rose. In other words, the ramp-up speed of the new-generation stores is significantly faster than before. The underlying reason is that in recent years we have tightened requirements in site selection standards, investment calculations, store format design, and store manager reserves.

Stores are opened more precisely, and preparation before opening is also more thorough. Your second question, with respect to evaluation and incentives. There are three levels. The core of a store manager's evaluation is, on the one hand, employees; on the other hand, customers—with a focus on customer satisfaction, employee development, and long-term store operating quality. Business results are included in incentives, but they are not the only metric, because focusing solely on short-term profit can easily sacrifice employee and customer experience.

Regional teams are more resource-oriented, looking at operating performance, growth, quality, and talent development. Headquarters functional teams are evaluated on whether they can truly help the frontline improve efficiency, rather than merely completing their own tasks and targets. In terms of talent stability, intensified competition is inevitable. But retaining people is not only about compensation, but also growth space and operating space.

Haidilao went overseas early; its greatest advantage is that it has already cultivated a group of local store managers and regional managers from the frontline. They have a deep understanding of the local market and company culture. As new stores expand, new regions are entered, and new Pomegranate businesses are explored, outstanding managers will always have their next bigger stage. They can also share in the fruits of business growth through incentive mechanisms.

This is our most fundamental way to maintain team stability.

OPERATOR

Thank you very much, everyone. In the interest of time, this concludes today's earnings conference call. I'd like to thank all the investors and analysts for joining us. Thank you, and we'll see you next time.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.