Guming (Trans): Dine-in mix has returned to a relatively healthy level.

Below is Dolphin Research's transcript of Guming's 2H25 earnings call. For our take, see 'Guming: As subsidies fade, the 'Costco of tea drinks' remains solid'.$GUMING(01364.HK)

I. Key takeaways

1. Shareholder returns: Proposed a final dividend of HK$0.50/share, paid in two tranches of HK$0.25 in Aug and Dec. After deducting major CapEx and withholding taxes, the effective payout is ~40%, in line with the IPO pledge of paying out not less than 50% of profit after major CapEx.

2. GPM: FY25 GPM expanded by ~250bps vs. FY24. FY24 was depressed by one-offs and recovered in FY25; H1 was dragged by lower-margin coffee beans and machines, with a smaller impact in H2. Looking to FY26, GPM should edge up but stay broadly stable; FY25 full-year level is a reasonable benchmark.

3. Balance sheet: Restricted cash rose to ~RMB 6bn, matched by interest-bearing bank borrowings. This reflects an arbitrage at offshore entities via HKD loans and USD time deposits to capture FX and rate spreads, expected to unwind after Jun 2026.

4. CapEx: In FY25, acquired a plot in Xiaoshan, Hangzhou (~RMB 400mn+) for HQ construction. Recurring maintenance CapEx is ~RMB 100mn/yr, with building costs at ~RMB 200mn/yr; the asset-light model remains unchanged.

II. Earnings call details

2.1 Management highlights

1. GMV and store footprint

a. FY25 total GMV reached RMB 32.7bn (incl. delivery fees, per IPO methodology). Amid the food delivery battle, growth in delivery-fee-inclusive GMV diverged from underlying merchandise GMV.

b. Single-store daily GMV rose 21% YoY, faster than merchandise-only GMV. Management reminded investors to note the methodology difference.

c. Year-end store count exceeded 13,500, with mix broadly unchanged YoY. Lower-tier cities and the franchisee share edged up.

d. Absolute closures were similar to FY24, while the closure rate declined meaningfully vs. FY24. e. Over 12,000 stores are equipped with coffee machines, essentially full coverage.

2. Accounting standards and profit adjustments (MPM)

a. Early adoption of IFRS 18 MPM (Management Defined Performance Measures), with clear definitions for each adjustment. b. The largest adjustment was fair value changes of pre-IPO preferred shares (~RMB 500mn+ in FY25), driven by end-2024 valuations being above the Feb 2025 IPO valuation; this will not recur. c. Listing expenses are adjusted as one-off; withholding tax on onshore-to-offshore dividends is adjusted to enhance comparability with non-dividend-paying peers.

d. A new FX translation adjustment was added — roughly HK$2bn IPO proceeds remained unconverted to RMB, and HKD/USD weakened ~5% vs. RMB, causing a loss of ~RMB 100mn. This is non-recurring, and different accounting treatments (P&L vs. OCI) can create discrepancies.

3. Shareholder returns and capital allocation

a. Rationale for land/HQ build: low construction and land costs, talent stability (avoid relocation attrition), and rising long-term rents. b. The asset-light positioning remains, with no ongoing heavy-asset commitments beyond the HQ. c. Any sizable new investments will be communicated in a timely manner.

4. Response to market sentiment

a. The long-term goal is to align interests of shareholders and franchisees, without managing short-term expectations up or down. b. Avoid linear extrapolation — profit rose just 5% from FY23 to FY24, then far exceeded expectations from FY24 to FY25. c. Management encourages deeper fundamental work and a longer-term view of the company's trajectory.

2.2 Q&A

Q: How does the fade of the food delivery battle affect store profits and this year's SSS?

A: The biggest impact was on store revenue, rather than company revenue. The delivery battle peaked in Jul–Aug, with a smaller spike in May, not a full-year drag; spread over the year, the pressure is a bit over 5ppt and under 10ppt. The real hit came from a higher delivery mix compressing franchisee profitability.

We started preparing in 2023. In 2024–2025, we lifted the realized net take rate on delivery by nearly 10ppt vs. early 2024, primarily by pricing delivery tickets RMB 3–4 above dine-in. This gives us flexibility — as delivery fades, we can adjust pricing to protect store health.

The delivery mix has come off the peak from nearly 60% to ~50%, with dine-in back to a healthier level. Currently our realized take on delivery is ~78%, well above the industry norm of 55%–65%. We offer among the lowest item-level subsidies on delivery across brands.

Overall, the delivery fade has a very minor impact on HQ sales. We have multiple levers to offset it. If we must choose, we would sacrifice some HQ margin in the short term to protect store profits, though we do not see a pressing need now.

Q: What is the outlook for store openings, and how is franchisee appetite?

A: This year's plan has three blocks: new openings, location upgrades for existing stores, and remodels. Total openings will stay around FY25 levels, with a ±500 store swing. With the new store image boosting profitability last year, we will prioritize remodels and site optimization this year, and 6th-gen stores will grow from 4,000 to ~10,000.

We encourage franchisees to complete remodels before the summer peak, as a one-week shutdown in peak season is costly. This is one reason for our early-year subsidy policy for franchisees.

Q: A peer pushes a 'fresh ingredients' strategy — how do you view this year's competition?

A: Fresh ingredients have been a long-running direction, not unique to one brand. It is difficult because the build cycle is long, spanning from factory processing to agricultural semi-finished, deep processing, and processing technologies; it requires an end-to-end supply chain from product to supply chain to store operations, and cannot be solved by logistics and warehousing alone. Capital cannot iterate in just one to two years.

In cold-chain, there are shallow and deep waters. Many brands use frozen inputs such as juices, but cold-fresh is harder — starting from citrus and milk, and gets even tougher down the line. Achieving controllable cost and stable quality for cold-fresh requires long-term fine-tuning. Peers moving toward 'fresh' validates our multi-year direction, but challenges are significant, and even we are only halfway there with much still to deepen.

Q: How to think about future dividend payout ratio?

A: Our IPO pledge is to pay not less than 50% of profit after major CapEx. If you use adj. core profit of RMB 2.8bn as the base, headline payout looks ~38%. But withholding tax on onshore-to-offshore dividends, though accrued in accounting, is a real cash outflow; netting this, the denominator is ~RMB 2.6–2.7bn, and the actual payout is ~40%.

On CapEx, investors chose us for an asset-light model, and that will not change. Land/HQ build is largely one-off, with annual building spend around RMB 200mn. Recurring maintenance CapEx (vehicles, servers, etc.) is ~RMB 100mn/yr, not a large burden relative to operating profit.

Q: FY26 GPM outlook? Why did per-cup GMV rise only 1–2% last year?

A: The per-cup GMV uptick largely reflects 'froth' from including delivery fees. With a high delivery mix this year, GMV included delivery fees, while actual store pricing changed little. Excluding delivery fees, per-cup price was slightly down due to mix — coffee is priced lower on average, and summer added lower-priced items like lemonade.

Store pricing determines company sales, and this saw little change this year and likely not much next year. GMV under a delivery-fee-inclusive basis may dip as delivery fades, but this does not affect true company GP.

On GPM, FY25 improved ~250bps, partly because some transportation costs are in cost of revenue, and more new stores opened in established regions, lowering marginal warehousing and delivery costs. Into FY26, GPM should rise modestly without big swings; using FY25 as the benchmark is more appropriate. We prioritize keeping franchisee and system-level margins healthy — with franchisee GPM protected, our own GPM did not decline and still grew.

Over a 3–5+ year horizon, we aim for stability, with ±1–2ppt yearly swings as normal.

Q: What opportunities did the delivery battle create for Guming?

A: New users acquired via platforms are effectively co-acquisition, and we focus on repeat and retention, confident in conversion after acquisition. More importantly, there is a strategic opportunity: delivery battles bring orders but also damage single-store economics. We deliberately did not chase short-term revenue from delivery because we saw an opportunity — as delivery pressure makes single-store franchisees struggle, the industry will consolidate around leaders. When the tide recedes, healthier stores mean a stronger base and higher share.

Our FY25 strategy was not to maximize growth speed but to keep stores healthy. When some stores were loss-making, ours improved profitability, which supports share gains.

Q: How is brand building progressing this year?

A: The brand image will change significantly. A new logo is already rolling out, with a major visual refresh. On store design, 7th-gen stores will launch in H2, and 6th-gen stores will reach ~10,000 by year-end. On product, we aim to shift from milk tea to 'tea + coffee'.

Several key strategies last year are only ~50% executed. For example, coffee now sells 80+ cups/day, with a goal to stabilize at 120+/day for the full year. We will launch more differentiated coffee — last year focused on staples to establish a value-for-money, high-quality perception; this year, we will address 'who we are'. For instance, 'Ku Jin Gan Lai' was a first trial; we are strong in fruit know-how and ops, and fruit-coffee and other products built last year will scale this year. At the same time, staple coffee will continue to iterate as a long-term core. Other new strategic projects are underway but not yet ready for disclosure.

Q: What are the levers for SSS growth this year?

A: SSS in FY26 faces pressure mainly from the delivery fade; our internal estimate is >5ppt headwind. But we have several tailwinds: first, coffee contributes meaningfully to SSS. Coffee only started to scale from late Sep/Nov last year, with 70–80 cups/day only from year-end, contributing to just ~three months of FY25; FY26 will see full-year coffee contribution with clear momentum.

Second, 6th-gen stores outperform 5th-gen materially. 6th-gen will grow from 4,000 to ~10,000, averaging ~8,000 for the year, which also supports SSS. In addition, breakfast and the new brand image have not been fully realized.

In Q1, on our internal standard gross sales basis (ex-delivery fees), SSS was double-digit. SSS is the hardest to control, influenced by external factors and time lags, but we are confident SSS will at least not decline. We cannot commit to a specific uplift, and it is not our guidance, but Q1 improved notably both QoQ and YoY.

Q: How did franchisee profitability trend in FY25? Any differences between new and existing franchisees?

A: Franchisee store profits grew strongly in FY25 to a record high. In Q4, despite the delivery fade and peers seeing revenue without profit, franchisee net profit still grew double-digit YoY. In FY26 Q1, absent special items, single-store profit was meaningfully higher vs. FY25 Q1, though not every franchisee grew; we will provide targeted support to underperformers.

On new vs. existing, new stores opened in H2 FY25 led dine-in performance vs. old stores — a first in over a decade, and new stores in Jan–Jun FY26 are also ahead on dine-in. This reflects a major upgrade in site selection granularity and tighter management. New stores still have latent delivery upside, with some yet to open delivery channels. Overall franchisee quality is improving, and interviews will become more scientific.

Q: What is the thinking behind the franchisee subsidy policy? Will it cannibalize old stores?

A: We budget subsidies every year, with different priorities this year from last year. There are three goals: first, encourage completing remodels and new store fit-outs before the summer peak, as a one-week shutdown in Jul–Aug is suboptimal.

Second, prioritize support for small franchisees with 1–2 stores, and do not encourage large franchisees to expand rapidly. Overexpansion can hurt management efficiency; we want them to optimize existing stores first. Third, support relocating older stores to better sites when trade areas degrade or sites are suboptimal.

Subsidies are not incremental spend but a targeted use of the normal budget. With higher HQ profit and better franchisee intake, we have more resources for transfers, deployed more precisely — subsidizing franchisees with strong operations, QC, and key locations rather than spraying everyone.

There can be localized cannibalization from new stores to old stores. This is why we are prioritizing footprint optimization, and we stay vigilant on such issues.

Q: How will FY26 openings be distributed by region and city tier? Will you enter tier-1 cities?

A: We have no firm plan for quasi-tier-1 this year, and Shanghai and Beijing are not prioritized. Tier-1 cities have high delivery mix, labor, and rent, while pricing cannot be 1.5–2x that of tier-2; milk tea profitability is generally weaker there, and from a franchisee standpoint, margins are low. Malls are saturated with milk tea, and the competitive landscape is not defensible.

Given finite resources, they are not our focus. The city and township opening mix will be similar to prior years. Key focus areas: Guangxi/Guangdong have surpassed Zhejiang, and Yunnan/Guizhou/Sichuan and Guizhou have also surpassed Zhejiang, so we will emphasize regions with lower store density.

In North China, Shandong's Avg. performance has recovered to within ~RMB 100 of Jiangxi, and new stores in Shaanxi and Hebei are doing well. We will maintain discipline and avoid a breakneck opening pace, progressing by phase from new regions to mid-mature to mature to tail-end.

Q: Why did Guming respond best to the delivery battle, and is this sustainable?

A: The core is separating macro control by management from frontline execution. When delivery battles hit, frontline staff and franchisees naturally chase subsidies and short-term orders, but they suffer first when the tide turns. Our strategy was to control pricing at HQ.

For example, dine-in is RMB 15, while delivery is RMB 18–19 (incl. packaging), leaving franchisees with RMB 14+ — a healthy margin. Many brands price delivery at only RMB 16; after platform take-rate, franchisees net ~RMB 11, which hurts margins significantly.

This means we could have had higher delivery volume in FY25, but we chose not to maximize it. As the tide recedes, we do not need extra subsidies — just lower delivery from RMB 19 to 18 and franchisees still net RMB 14–15, protecting profit while holding volume.

Our delivery team is adept at A/B testing across parameters like delivery fees and pricing. But often it is simply about choices — when orders go from 4,000 to 5,000, do you take 4,500 or push to 5,000? If you sacrifice some delivery volume, the fade hurts less.

Ultimately, agility is key. Dine-in is a healthier revenue stream — roughly, RMB 3,000 of delivery contributes less net profit than RMB 1,000 of dine-in. Hence we channel most promotions and traffic to dine-in to avoid an unhealthy delivery mix.

Q: Does the larger footprint of 6th‑gen stores extend the payback? How do you convey the 'fresh' proposition to consumers?

A: At equal area, 6th-gen fit-out costs are lower than 5th-gen due to process optimization, but average area is ~10+ sqm larger, so total cost is higher. On a four-year depreciation, annual cost rises by ~RMB 10k. ROI has not declined, partly because FY25 store profits improved significantly, and the share of unhealthy stores did not rise and even fell.

The top three drivers of store profit, in order, are: 1) overexpansion by franchisees reducing management efficiency (e.g., expanding from 5 to 10 stores); 2) higher delivery mix driving revenue without profit (the biggest pain point for most brands); 3) increased fit-out/equipment costs. The third factor is far less impactful than the first two.

Introducing coffee machines (RMB 70–80k/unit) was a bigger shock than enlarging 6th-gen footprints — total equipment used to be ~RMB 100k, so an extra RMB 80k machine seemed unimaginable, yet it proved right. In FY25, we also rolled out installment plans for equipment and franchise fees, with zero down payment in year one, and set up a second-hand equipment recovery unit to reduce losses and psychological burden when stores close.