HAIDILAO (6862.HK) has released its 2026 interim results, revealing a revenue of RMB 22.337 billion for the first half of the year, marking a 7.89% year-on-year increase. However, net profit attributable to shareholders stood at RMB 1.767 billion, reflecting a marginal 0.47% growth compared to the same period last year.

From an operational perspective, the delivery business and other restaurant operations emerged as the primary drivers of revenue growth during the period, posting impressive growth rates of 121.2% and 113.1%, respectively. In stark contrast, revenue from HAIDILAO's traditional dine-in restaurant segment declined by 4% year-on-year, with same-store sales also showing a downward trend. It's evident that HAIDILAO's growth narrative is undergoing a fundamental shift, yet its rapidly expanding new businesses remain trapped in a "revenue growth without profit growth" predicament. Whether the company can successfully navigate this transitional phase will depend on its ability to accelerate the shift of these new ventures from "scale expansion" to "profit contribution."

Slowing Self-Operated Store Expansion and Negative Same-Store Sales Growth

Hotpot dine-in service has long been HAIDILAO's bread and butter, but during the reporting period, this core business continued to reveal signs of weakness. As early as 2025, revenue from HAIDILAO's restaurant operations had already declined by 7.1% to RMB 37.543 billion. At that time, the company attributed this to lower table turnover rates and a reduction in the number of self-operated restaurants due to the steady progress of its franchise business.

In the first half of this year, revenue from HAIDILAO's restaurant operations reached RMB 17.837 billion, a year-on-year decrease of approximately 4%. The company attributed this decline primarily to a reduction in the number of self-operated restaurants. As of the end of June, the number of self-operated restaurants had fallen from 1,322 in the same period last year to 1,290, reflecting a net decrease of 32 restaurants, including a net reduction of 14 during the first half alone.

While the company did not provide separate explanations for the closure of self-operated restaurants, its interim report indicated that a total of 32 restaurants were closed during the period, citing reasons such as facility aging and relocation, underperformance relative to expectations, and other commercial factors. In terms of new store development, 24 self-operated and 14 franchise stores were opened during the first half, compared to 79 and 21, respectively, in the same period last year. The significant slowdown in new store openings, particularly among self-operated locations, reflects HAIDILAO's cautious approach to expansion.

Notably, despite the contraction in self-operated restaurant numbers, the average table turnover rate for these locations improved slightly to 3.9 times per day in the first half, up from 3.8 times during the same period last year. While this signals a positive development in store optimization, the improvement has not effectively translated into stronger same-store revenue. Same-store sales from self-operated restaurants amounted to RMB 16.349 billion, a year-on-year contraction of 1.34%, with average daily sales per store declining 1.39% to RMB 77,800. More critically, the average customer spend was reduced from RMB 97.9 to RMB 97.0, and this RMB 0.9 reduction offset the benefits that increased customer traffic should have delivered, preventing operational efficiency gains from converting into meaningful profit growth.

Additionally, in response to the current environment where consumers are becoming increasingly rational in their spending, HAIDILAO implemented consumer-friendly promotional activities during the first half. This "volume-for-price" strategy has, to some extent, also put pressure on same-store sales at self-operated restaurants.

Delivery Platform Costs Erode Profitability

With the core dine-in business under pressure, the delivery business and other restaurant operations emerged as two key pillars driving revenue growth in the first half. Delivery revenue reached RMB 2.051 billion, representing a 121.2% year-on-year surge and raising its revenue share to 9.2%. This growth stems from two primary factors: first, an expanded product portfolio, with "single-person meal" products such as rice bowls experiencing significant year-on-year sales growth, transforming delivery from an extension of hotpot into an independent category covering everyday main meals; and second, the expansion of delivery stations, with the company continuing to advance its self-built delivery station model to improve coverage density and fulfillment efficiency while reducing pressure on in-store kitchen capacity.

Beyond delivery, HAIDILAO's multi-brand initiatives under its "Red Pomegranate Plan" have also delivered impressive results. Revenue from other restaurant operations reached RMB 1.271 billion in the first half, a 113.1% year-on-year increase, with its revenue share climbing to 5.7%. Under this framework, HAIDILAO has incubated several independent sub-brands, including Yanqing Barbecue Shop, Xiaohai Fried Chicken, Dapaidang Hotpot, and Ruyi Sushi. Among these, Dapaidang Hotpot and the sushi concept have developed relatively mature single-store models and entered the phase of scaled replication. The company anticipates these two categories will become significant contributors to revenue growth in other restaurant operations by 2027.

However, the robust growth of these new businesses has not effectively translated into profits. In the first half, HAIDILAO's net profit grew only 0.47% year-on-year. The reasons for this stagnating profit go beyond the contraction in the core restaurant business, with the central issue being simultaneous pressure on both cost and expense fronts. The company's gross margin declined by 1.77 percentage points year-on-year to 58.41% during the period. Beyond the consumer-friendly pricing strategy mentioned earlier, the increased revenue share from lower-margin delivery and multi-brand businesses also contributed to dragging down the overall gross margin level.

On the expense side, other expenses emerged as the most significant eroding factor. Other expenses increased by 38.9% year-on-year to RMB 1.51 billion in the first half, an absolute increase of approximately RMB 420 million. The company attributed this primarily to increased delivery and other platform-related expenses, with these costs growing in tandem with the expansion of the delivery business. In other words, every unit of revenue contributed by the delivery business comes with commensurate increases in rigid costs such as platform commissions and delivery fulfillment expenses.

In addition to other expenses, the swing of other gains and losses from profit to loss also weighed on profitability. This line item recorded a gain of RMB 235 million in the same period last year, but turned into a loss of RMB 9.656 million in the first half of this year. The losses stem from several factors, including losses on disposals of property, plant, equipment, other intangible assets, and terminated leases; increased impairment losses related to closed or underperforming restaurants; and reduced gains from transferring self-operated restaurants to franchisees.

Overall, HAIDILAO's growth logic is clearly transitioning: traditional dine-in business is contracting while delivery and sub-brands step in to fill the gap. However, the cost of this substitution is equally apparent—lower-margin businesses have dragged down overall profitability, while platform expenses from delivery expansion continue to push costs higher. This brings HAIDILAO's core challenge into sharp focus: when will the high growth of its emerging businesses finally translate into genuine profit contribution?