3 Important Takeaways From Xiabuxiabu’s 2019 Results

Last week, Xiabuxiabu Catering Management (China) Holdings Co Ltd (SEHK: 520), a hotpot fast-food chain operator in China, reported its full-year results for the year ended December 31, 2019.

I’ll look at three important takeaways that investors should know from its earnings release.

Financial overview

In the latest fiscal year, Xiabuxiabu reported that revenue came in at RMB 6.0 billion (US$849.1 million). This was an increase of 27.4% from 2018, primarily driven by restaurant expansion.

In particular, Coucou (the high-end hotpot brand) saw revenue jump by 116.0% to RMB 1.2 billion in 2019.

Profit before tax, however, declined 17.4% year-on-year to RMB 503.2 million owing to higher operating expenses and the implementation of IFRS 16. Excluding the impact of IFRS 16, profit before tax would have reduced by 1.5% year-on-year.

The company’s balance sheet remains solid with RMB 785.2 million in cash and cash equivalents and zero borrowings (excluding lease liabilities).

Operational metrics

Xiabuxiabu reported a mixed performance on its various operational metrics.

Let’s start with the positives. The group grew its restaurant number by 136 to 1,022 in 2019. Also, average spending per customer improved by 4.7% to RMB 58.80 stemming from higher sales of newly-launched menu items.

On the downside, same-store sales declined by 1.4% year-on-year. All regions, except for Beijing and Hebei, reported lower same-store sales.

Impact of Covid-19

The recent Covid-19 outbreak has disrupted businesses across the globe. In China, the government has implemented various measures to contain the outbreak, such as an extension of the Lunar New Year holiday and travel restrictions.

This negatively impacted the Chinese economy and local businesses, though to varying degrees. As for Xiabuxiabu, it has voluntarily suspended the operation of 941 of its restaurants in Mainland China since January 2020.

As of today, it has reopened 866 of such closed restaurants. Still, it has lost at least two months of income due to the closure.

Going forward

For the fiscal year 2020, the company expects the economy in China to be negatively affected in the short term.

Nevetheless, it expects that consumption growth will gradually regain its momentum in the second half of 2020 thanks to the government’s effort to boost domestic consumption to support economic growth.

As for Xiabuxiabu, the Covid-19 outbreak will have a material impact on its business, considering the restaurant closures, as well as the continued weak operating environment in the coming months.

Investors should, therefore, expect weaker performance in the year 2020.