Earnings Call Transcript - HDL Q1 2026

Operator, Operator

Hello, respected investors and analysts. Thank you for joining today's Super High International earnings call. Participating in today's meeting are Mr. Li Yu, Executive Director and CEO; and Ms. Qu Cong, Financial Controller and Board Secretary. Today's meeting may contain forward-looking statements, including, but not limited to, the company's statements on strategies and business plans as well as outlook on performance. The content published by the company during the earnings presentation as well as comments in response to all your questions represent only management's views as of today. Please refer to the latest safe harbor statement in the earnings press release, which applies to the conference call. The meeting is conducted in Chinese with simultaneous English interpretation provided by an external agency. In case of any discrepancies, the Chinese version shall prevail. The presentation materials have been uploaded to the company's Investor Relations page for your review.

Yu Li, Executive Director and CEO

Hello, investors and analysts. I'm Li Yu, Executive Director and CEO of Super High International. Welcome to Super High International Q1 2026 Earnings Call. On behalf of the company, I thank you for your interest and support. It is my honor to share with you Super High International's operating performance for this quarter. In the first quarter of 2026, the company's operations maintained a positive improvement trend with all core operating metrics achieving simultaneous increases. As of March 31, 2026, the company operated a total of 127 Haidilao restaurants in overseas markets, added 1 new store in Southeast Asia during the period, and recorded a net increase of 4 stores compared to the same period last year. At the same time, the operating quality of the existing stores is continuously being strengthened. In the first quarter, Haidilao restaurant revenue was RMB 204 million, an increase of 8.4% year-over-year. Same-store sales increased by 4% year-over-year. Total customer traffic exceeded 8.1 million visits and the overall table turnover rate was 4 turns per day, an increase of 0.1 turn per day compared to the same period last year. Meanwhile, the delivery business, the Red Pomegranate project and other businesses continue to contribute to incremental growth with a combined year-over-year increase of 130.9%. These multiple initiatives drove the company's total revenue to RMB 226 million, a year-over-year increase of 14.2%. On this basis, thanks to increased customer traffic and refined operations, we have seen a significant release of operating leverage. In the first quarter, the company's operating profit reached RMB 13.993 million, a year-over-year increase of 7.7%. The operating profit margin rose from 4.1% last year to 6.2%, representing a substantial improvement in profitability. In terms of specific business initiatives, we continue to focus on strengthening the three fundamentals: focus on employees, focus on customers and focus on frontline employees. Therefore this quarter, we continuously emphasized flexible operations, helping employees understand the logic behind service actions by strengthening post-event reviews, store manager mentoring, and granting them more on-site discretion. While maintaining high-standard operations, we provide more personalized and flexible service, thereby continuously improving customer satisfaction at individual stores. We're gradually seeing that these actions focused on enhancing employee awareness and capabilities are translating into better customer experiences. In terms of product and menu innovation, this quarter headquarters focused on scenario segmentation, differentiation and product empowerment, providing targeted support to various regional markets globally. First, we deeply explored dining scenarios. We offered various kids meal sets for families with young children. For late-night hours, we focused on launching spicy braised dishes paired with refreshing drinks to precisely drive consumption during that period. Second, following the spring season, we collaboratively launched combination products such as vegetable-and-mushroom sets and beef-and-lamb combos in multiple regions. In our core categories, we focused on upgrading the beef series, offering premium Australian value and freshly cut beef to meet the quality experience and needs of different customer segments. Looking at the results, the menu innovation in the first quarter was more customer-centric and each market produced excellent localized products. This not only effectively drove single-store sales, but also validated the effectiveness of our strategy of localized product selection and refined menu planning. In terms of business expansion, we added 1 new restaurant in Southeast Asia during this period. Since last year, the company has imposed stricter requirements on new store location accuracy, profit expectation and execution quality. Currently, our pipeline of reserved stores remains in the double digits and the overall expansion pace going forward will continue to adhere to the principle of balancing stability and quality. Regarding the Red Pomegranate project, we are actively building a multiple-brand matrix, continuously incubating prototype stores and second-brand projects in different countries. To date, we have operated a total of 10 brands with a total of 18 stores, including formats such as Canadian Malatang, Indonesian Halal-style concepts, Japanese izakaya-style concepts, Korean barbecue concepts and SPARC Cora BBQ. This quarter, other business revenues achieved a strong growth of 166.7%, marking substantial growth in diversifying our revenue structure and expanding our customer base. Looking ahead, the company remains committed to its long-term development goal of becoming a leading global integrated catering group, continuously improving in five areas: customer experience, restaurants and network, operational enhancement, new businesses and headquarter capabilities. That concludes my introduction of the business situation. Next, let me invite Ms. Qu Cong to present the financials.

Qu Cong, Financial Controller and Board Secretary

Thank you, President Li Yu. Next, I will report on the financial situation. In the first quarter of 2026, the company achieved total revenue of RMB 226 million, an increase of 14.2% year-over-year. Haidilao restaurant operating revenue accounted for 90.4% of total revenue, reaching RMB 204 million this quarter, an increase of 8.4% year-over-year. This was mainly attributable to the continued improvement in operating performance of the existing overseas stores in both the table turnover rate and customer traffic. Second, a net increase of 4 stores in the company's restaurant network compared to the same period last year, with adjustments in the store network layout contributing incremental revenue. Delivery business revenue accounted for 3.2% of total revenue, reaching RMB 7.3 million this quarter, an increase of 82.5% year-over-year, primarily because we continue to optimize delivery products and services based on market demand and strengthen cooperation and joint marketing with local delivery platforms. Other businesses' revenue accounted for 6.4% of total revenue, reaching RMB 14.4 million this quarter, an increase of 166.7% year-over-year. The revenue growth came primarily from the sales of food products and seasonings under the Haidilao brand and from the company's own central kitchen as well as from the active development of some new brand restaurants business under the Red Pomegranate project. This quarter, external sales from the central kitchen contributed significantly. We have commercially converted some of the central kitchen's excess capacity for external use, although the gross margin of this type of B-end supply chain business is lower than that of the C-end restaurant business, and order volatility dilutes our supply chain fixed cost absorption. Of course, from the perspective of our core model, the restaurant business remains our most core business. Next, regarding costs and expenses: benefiting from the company's proactive investment in employee management and customer experiences throughout 2025, the operating leverage brought by revenue growth in this quarter has led to further improvement in the cost structure. Raw material cost for this quarter was RMB 76 million with a gross margin of 66.1%, an increase of 0.1 percentage points compared to the same period last year. Employee costs were RMB 76.6 million, with employee cost as a percentage of revenue at 34%, a decrease of 1.3 percentage points compared to the same period last year. This improvement was mainly because after the company proactively shared profits with employees and strengthened the team last year, we began to see in the first quarter of this year the release of personal efficiency brought by higher customer traffic. Rental expenses were over RMB 6 million, representing 2.8% of revenue, remaining relatively stable. Utilities expenses were RMB 7 million, representing 3.2% of revenue, a decrease of 0.4 percentage points compared to the same period last year. Depreciation and amortization were RMB 20.658 million, representing 9.2% of revenue, a decrease of 0.9 percentage points compared to the same period last year, demonstrating the diluting effect of revenue growth on fixed cost. Meanwhile, the end of the amortization period of certain individual stores brought some short-term optimization. Travel and other operating expenses were RMB 23.891 million, representing 10.6% of revenue, a decrease of 0.1 percentage point compared to the same period last year. On the profit side, driven by both revenue growth and cost structure optimization, the company's core profitability improved significantly this quarter. Operating profit reached RMB 13.99 million, a substantial year-over-year increase of 78.7% with an operating margin of 6.2%, a year-over-year increase of 2.6 percentage points, representing a clear improvement in operating quality. A special note is warranted regarding the fluctuation in net profit for the period. This quarter, we had a net foreign exchange loss of approximately RMB 4.292 million compared to a foreign exchange gain of RMB 7.435 million in the same period last year. The difference in non-operating exchange rate fluctuations amounts to RMB 11.727 million; this translation impact on reported net profit for this quarter was RMB 4 million lower compared to the same period last year. Excluding the non-operating factor of exchange rate fluctuations, the company's actual business profitability showed a growth trend. The company's operating cash flow for this quarter was RMB 24.24 million, an increase of 23.1% compared to RMB 19.69 million in the same period last year. As of the same period end, our cash reserves were RMB 240 million, a decrease of RMB 30 million compared to RMB 270 million at the end of 2025, primarily due to investment in the continuous expansion of stores and the development of second-brand businesses. Regarding the restaurant performance metrics: this quarter, Haidilao restaurants served approximately 8.1 million customers, an increase of 3.8% year-over-year, driven by customer traffic, and the overall average table turnover ratio for Haidilao restaurants was 4 turns per day, an increase of 0.1 turn from 3.9 turns per day in the same period last year. The average spend per customer at Haidilao restaurants this quarter was RMB 25.3, an increase of 1.1% from the same period last year, of which approximately RMB 0.8 of the increase came from exchange rate fluctuations driven by both customer traffic and average check. The average daily revenue per Haidilao restaurant was RMB 18.4, an increase of 3.4% year-over-year, effectively improving single-store operating efficiency. Looking at the regional breakdown, there was some divergence in regional performance, but the overall foundation of restaurant operations remained stable. This quarter, the Southeast Asia region served 5.2 million customers, an increase of 2% year-over-year, benefiting from customer traffic; the table turnover rate increased by 0.1 turn year-over-year to 3.8 turns. The average check in Southeast Asia was RMB 19.6, an increase of RMB 0.9 from RMB 18.7 in the same period last year, mainly affected by exchange rate fluctuations. As of the end of the quarter, the company operated a total of 72 Haidilao restaurants in Southeast Asia, a net increase of 1 restaurant compared to the end of the previous quarter and a decrease of 1 restaurant compared to the same period last year. Overall, Southeast Asia remains the company's most profitable and stable foundation with relatively steady customer traffic and average check this quarter. The East Asia region continued its strong growth momentum this quarter. Haidilao restaurants in this region served 1.3 million customers, an increase of 18.2% year-over-year. The table turnover rate for East Asia restaurants was 5.1 turns, a further increase of 0.1 turn from 5.0 in the same period last year. The average check in East Asia was RMB 28.2, flat compared to the same period last year. As of the end of this quarter, the company operated a total of 21 Haidilao restaurants in East Asia, unchanged from the end of the previous quarter, a net increase of 2 restaurants compared to the same period last year. The North America region served 1 million customers this quarter, roughly flat year-over-year due to frequent cold weather in North America in January and February as well as the new stores opened at the end of last year in both the U.S. and Canada that are still in the ramping-up phase. Overall table turnover for North American restaurants fell from 4.0 turns to 3.6 turns this quarter. The average check was RMB 41.4, an increase of RMB 1.8 from the same period last year, of which RMB 0.7 of the increase came from exchange rate fluctuations. As of the end of this quarter, the company operated a total of 22 Haidilao restaurants in North America, unchanged from the end of the previous quarter and a net increase of 2 restaurants compared to the same period last year. The other regions had a table turnover rate of 3.6 turns this quarter, a decrease of 0.4 turn year-over-year, mainly because geopolitical volatility in the Middle East had a significant impact on restaurant operations. The average check was RMB 41.3, an increase of RMB 3.1 from the same period last year, primarily due to exchange rate fluctuations. As of the end of this quarter, the company operated a total of 12 Haidilao restaurants in other regions, unchanged from the end of the previous quarter and a net increase of one restaurant compared to the same period last year. Facing the uncontrollable external macro environment, we have implemented more prudent cost-control measures locally to enhance our risk-resistance capabilities there. This quarter, same-store revenue for Haidilao restaurants was RMB 184 million, representing same-store revenue growth of approximately 4%. Among them, East Asia performed most prominently with same-store sales growth of approximately 10.6% year-over-year. Southeast Asia and other regions saw same-store sales growth of approximately 6.3% and 1.8% year-over-year respectively. Same-store sales in North America declined by 5.1% this quarter, still affected by extreme weather impacting customer in-store dining behavior. Table turnover rate and average check performance were generally consistent with the overall trends and will not be reiterated here. The above is the performance review of the first quarter of 2026, and we now go into the Q&A session. We welcome questions and comments.

Analyst, Analyst

Well, Mr. Young's departure affected the company's established strategy of prioritizing customer and employee benefits to drive long-term growth. Will the approach to balance short-term profits and long-term development change? What specific consideration does the new management have to ensure strategic continuity and team stability?

Yu Li, Executive Director and CEO

Mr. Young's departure will not affect the deeply embedded strategy of prioritizing customers and employee benefits. Customer experience, service actions and employee engagement remain our core focus and will not change in the short term. Employee benefits, service enhancement and food quality control are key areas we will continue to advance. This quality improvement is the profit improvement and mainly comes from more proficient daily store operations, identifying more areas for improvement in strategy execution and boosting employee motivation. With revenue growth we are managing costs and expenses more efficiently, but our long-term strategic direction remains unchanged. Since the second half of 2025, this strategy has become ingrained in store operations; the proactive investment made earlier is part of our strategic design. As we balance short-term returns and long-term growth, we will continue to follow the logic of quality first, growth second. Even after Mr. Young's departure from Super High, the system will oversee regional managers and store managers who are responsible for store openings and operations; the operation remains unchanged. We will further deepen employee training, incentives and mentoring to steadily improve store operation quality.

Analyst, Analyst

How is the category layout and the decision-making authority of the Red Pomegranate plan allocated across the region? How is collaboration achieved between regions and headquarters? Will there be any linkage or collaboration on the Red Pomegranate after restructuring with Haidilao in China?

Yu Li, Executive Director and CEO

The Red Pomegranate plan is a key part of our development strategy. It now combines regional decision-making with headquarters empowerment. Successful projects such as the Canadian Malatang concept and other models in Indonesia and Japan were incubated by regional managers after in-depth local market research and local customer selection, including choices of business times and products. During incubation and operation, we continuously adjust management approaches. A cross-functional team covering product, brand marketing, business analysis, technology and operations has been formed at the headquarters level to deeply engage in key projects, better mobilize resources and make new-brand incubation more efficient. Decision-making authority remains with the regional managers for locally driven concepts. Some brands are driven top-down and involve collaboration with China; for example, SPARC Cora was inspired by concepts in China with brand and menu selection from the top. After opening the first prototype store in Malaysia, SPARC Cora has been replicated to Indonesia and Vietnam with daily operations managed by local country managers. We maintain regular but informal communication with the Red Pomegranate team in China. When mission members return to Haidilao China, they will share their experience with overseas Red Pomegranate projects and new business formats. We continue to give regions sufficient autonomy to ensure local adaptation and innovation.

Analyst, Analyst

What changes in consumer demand have you observed since the beginning of this year? Are there any noticeable new trends or characteristics based on recent consumption trends? How do you assess our medium- to long-term growth potential?

Yu Li, Executive Director and CEO

The most noticeable trend this year is that overseas consumer markets are not deteriorating; rather, consumers have become more rational and value-conscious. Value is not just about price, but also about memorable products, the dining experience, service quality and suitable ambience — intangible value for their money. This trend varies by market. North American customers focus more on cost performance and are more cautious in ordering. Southeast Asia remains vibrant but prioritizes convenience, delivery and use-oriented dining scenarios. Mature markets like Japan and Korea are more sensitive to efficiency, limited-time offerings, lighter versions and social sharing. Australia, the U.K., the Middle East and others have their own habits and pressure points. The common strategy is that customers increasingly want restaurants to give them a clear reason to choose them. For Haidilao we are trying to clarify our direction. What we have always done is essentially to provide clearer value choices for customers: we continue to advance quality-to-price ratio initiatives, adjusting menu structure, product combinations, portion sizes and price reasonableness, combined with effective promotions to make it easier for customers to choose and feel value. We are building experiences and a different Haidilao, not just through decoration. We design product variants tailored to different scenarios such as family meals, late-night snacks, friends gatherings and social interactions: fresh cuts, set meals, combo launches and extended delivery scenarios all follow the same logic, giving customers a reason to choose Haidilao in different contexts. In the medium to long term, we do not see the market space shrinking; rather industry barriers are rising. Our earlier management adjustment and strategy execution are making the company more resilient — from employees to products, from organization to operations. We believe a resilient company can quickly adapt to any market change and capture medium- to long-term growth opportunities.

Analyst, Analyst

What is the current status of member consumption? Membership size, spending share, repurchase rate, and what are the future strategies and expected outcomes for member management?

Yu Li, Executive Director and CEO

As of the end of this quarter, Haidilao overseas membership reached 9.05 million. We continue to promote membership overseas. This quarter, over 92% of table turns came from member customers; member repurchase rate was 92.5%, a slight increase from last year. In terms of consumption composition, over 20% of spending came from newly registered members this year and about one-third came from repeat customers within three months. The overall members' contribution structure remains stable. Regarding membership work, we will continue to strengthen front-end and back-end cooperation. At the headquarter level, we will enhance the digitalization of the membership system and focus on optimizing member experience, including improving reach and refining a points system and benefit designs. On the operations side, we are committed to having strong managers and frontline staff place greater emphasis on customers by designing different tiered benefits that enable members to experience exclusive services, thereby increasing customer loyalty.

Analyst, Analyst

Based on current oil prices and raw material costs, what is the impact on the company's gross margin this year?

Yu Li, Executive Director and CEO

Based on current observations, the impact of rising oil prices and commodity costs on our gross margin is relatively controllable. On one hand, product-mix adjustment and supply chain optimization can buffer some pressure; regional managers can choose more cost-advantageous suppliers while ensuring quality. Our localized supplier model helps control overall margin pressure. For hot pot, there is flexibility in ingredient selection — for instance different seafood or vegetable choices — and we can adjust while ensuring customer experience. Regarding overseas business, we continue to localize supply chains and strengthen collaboration with local suppliers, which helps offset commodity cost increases. On the store front side, we have also been able to control operating costs. With respect to other fees, such as labor costs, our optimizations do not sacrifice customer benefits; growth really comes from business growth. For labor, the current range is about 33% to 34% of revenue, and that is within range. Going forward, we will use flexible labor allocation to further improve human efficiency. For rent, we expect relatively stable trends and will adopt stricter selection of locations to improve space utilization and negotiate leases. Apart from this, through cost controls in consumption and storefront management, we believe the cost pressure is quite manageable.

Analyst, Analyst

Thank you. It's very clear. Thank you, Mr. Li. How do you see the room for optimization in labor cost ratio, rent costs and other expenses this year?

Qu Cong, Financial Controller and Board Secretary

We have always maintained that ensuring customer experience and service quality is the most important priority, so store staffing has a certain rigidity. This quarter, overall labor costs accounted for 34% of revenue, a reasonable level. With respect to turnover since April, our performance overall is relatively stable. Generally speaking, we have been able to continue the trend from the first quarter. There are regional variations, but the reasons are roughly the same. In terms of pricing, we have been working through optimization of combinations and localized marketing. Meanwhile, we continue to maintain a stable average spend per customer. We have entered the off-season for hot pot and we are relying on several areas to further improve performance. First, we acknowledge the low season is seasonal and unavoidable. During this period, we continue to improve internal capabilities. For example, for the summer we will provide summer-appropriate menu items and launch new products, such as barbecued items and refreshing drinks suitable for summer. We are also adjusting resource allocation in a more flexible fashion. In terms of scenarios, we continue to further expand use cases: interactive marketing with various IPs, local performances and social events overseas, set meals and gifts to attract both existing and new customers. We are trying our best to maintain healthy turnover and a good customer experience even during the off-season.

Analyst, Analyst

So my next question is about the store opening expectations and store opening plans for this year and the next three years, as well as approximate numbers by region. Can you please tell us more about these aspects?

Yu Li, Executive Director and CEO

Okay. No problem. Thank you for your question. Our store opening strategy has always adhered to a bottom-up approach, and as I mentioned earlier, we have put forward strict requirements. At the moment, we have double-digit stores that we have already signed or are already entering into the substantial contract-signing stage. Apart from Haidilao expansion in various places, we will also expand new formats under the Red Pomegranate project. One type of opening is bottom-up, relying on local regional managers and local platforms; another type is top-down, pushed by the company headquarters to help expand and grow. We are not going to provide specific numbers or figures at this time because we rely on local teams and their local situations to come up with suitable plans for their future development and openings.

Operator, Operator

Thank you, management, and thank you to the host. Thank you, everyone, for joining the call.