3 Important Takeaways From Xiabuxiabu’s Latest Earnings

Recently, Xiabuxiabu Catering Management Chain Holdings Co Ltd (SEHK: 520), a hotpot fast-food chain operator in China, reported its first-half results for the year ending 31 December, 2020.

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

1. Financial overview

In the first half of 2020, Xiabuxiabu reported that revenue came in at RMB 1.9 billion (US$277.5 million), a decrease of 29.1% from 2019 amid the outbreak of Covid-19 on two occasions.

The first time being at the end of January which impacted all areas, with the second outbreak in Beijing in the middle of June. Consequently, profit before tax fell from RMB 225 million to a loss of RMB 312 million.

The company’s balance sheet remains solid with RMB 254 million in cash and cash equivalents and RMB 766 million invested in liquid financial assets.

This compares favourably to its debt of RMB 188 million in borrowings (excluding lease liabilities).

2. Operational metrics

Xiabuxiabu reported a mixed performance across its operational metrics.

To begin with, the group opened 36 new restaurants and also closed 43 restaurants in the first half of 2020, giving it a net reduction of seven restaurants.

Its table turnover rate also declined from 2.4 times to 1.8 times. Moreover, the restaurant did not disclose its same-store sales since none of the restaurants were open for more than 150 days in the first half of 2020.

On a slightly positive note, average spending per customer improved by 10.2% to RMB 63.30, stemming from higher sales of its delivery business and newly-launched menu items.

3. Impact of Covid-19

The recent Covid-19 outbreak has disrupted Xiabuxiabu’s business due to the national lock-down (January) and the lock-down in Beijing (June).

In responding to the new operating environment, Xiabuxiabu has embarked on a few initiatives to upgrade its business model and enhance its financial performance.

For example, it continued to invest in the Coucou brand by opening five new restaurants, which resulted in revenue increasing by 21.3% to RMB 593 million in the first half of 2020. It plans to grow this brand further in the second half of 2020.

Also, Xiabuxiabu has developed its fresh food business and also promoted its delivery services. It uses its community network to drive the fresh food business, and turn some restaurants – that cannot do dine-in business – into supermarkets.

As for its delivery business, Xiabuxiabu expanded its coverage from 73 to 100 cities, which resulted in year-on-year growth of 18.5%.

Looking ahead

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

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