HDL

• Operational Efficiency & Middle Platform: The company is enhancing operational management through a 'middle platform' strategy where headquarters builds common digital, supply chain, and membership infrastructure, while regional teams adapt these tools to local market conditions. This has improved labor efficiency, reducing the employee cost-to-revenue ratio by approximately 1%.
• Product & Menu Localization: Menus are optimized for local tastes; for example, Southeast Asian stores introduced lemongrass and satay flavors. Marketing focuses on organic buzz through localized IP collaborations and thematic products (e.g., coriander-themed series) rather than high marketing spend.
• Membership & Customer Retention: Overseas members reached 9.246 million. The strategy shifts from one-time traffic acquisition to long-term retention via tiered membership benefits, differentiated in-store experiences, and cross-scenario engagement to boost repurchase rates.
• Store Expansion & Second Brands: Net open 3 new Haidilao stores in Q2, bringing the overseas total to 120.9. Double-digit new store openings are targeted for H2. The 'Pomegranate Plan' operates 12 brands/22 restaurants overseas, including testing high-ball and Izakaya formats in Japan and Canada, with a focus on verifying single-store models before scaling.
• Regional Performance Divergence: Southeast Asia and East Asia showed strong table turnover improvements. North America faced pressure due to lower turnover despite higher average checks, attributed to concentrated customer bases vulnerable to immigration policy changes. Other regions were impacted by geopolitical volatility in the Middle East, though impacts are diminishing.

• New Store Openings: Management expects double-digit new store openings in the second half of the year across North America, East Asia, and Southeast Asia. Several additional stores in the UK and North America are currently under construction.
• Payback Periods: The standard payback period for new stores is estimated at three to four years. Southeast Asia offers faster paybacks, while Europe and America are slower. Overall investment quality has improved due to more prudent site selection.
• Pricing Strategy: No uniform price adjustments are planned for Q3/Q4. Pricing will remain autonomous per market, focusing on perceived value and product mix variety rather than simple cost-pass-through.
• Cash Flow: Operating cash flow remained robust with a net inflow of $28 million. Liquidity reserves are ample to support continued expansion.

The company reported total revenue of $219 million, up 10% year-over-year. Haidilao restaurant operations generated $198 million in revenue (4.6% YoY growth), representing approximately 90.4% of total revenue. Other segments, including delivery services ($7.56 million, up 105% YoY) and other businesses ($13.39 million, up 119.7% YoY), contributed $21 million combined (up 114.3% YoY), increasing their share of total revenue from ~5% to nearly 9.6%. Operating profit surged 118.9% YoY to $8.1 million, with the operating margin expanding by 1.8 percentage points to 3.7%.

• Exchange Rate Volatility: Non-operating items were significantly affected by currency fluctuations, resulting in a $4.34 million foreign exchange loss compared to a $16.33 million gain last year, causing a net swing of over $20 million and turning net profit into a loss despite strong operational gains.
• Geopolitical Instability: Operations in 'Other Regions' (primarily Middle East) have been negatively impacted by geopolitical volatility, although management assesses this impact as gradually diminishing.
• Customer Concentration Risks: In North America, reliance on specific demographic segments makes traffic susceptible to external shocks like immigration or visa policy changes.
• Investment Risks in New Formats: While the 'Pomegranate Plan' allows for controlled trial-and-error costs, there is inherent risk in replicating new brand formats (e.g., Izakaya, High-Ball) if single-store models fail to achieve stability or customer acceptance.

Q: How does the company balance long-term investments in new brands (Pomegranate Plan) with short-term performance pressures?

A: Management employs a 'small cost verification' strategy, launching projects with only one or two initial stores to keep trial-and-error costs controllable and prevent material impact on short-term results. Significant capital allocation for replication occurs only after models are proven viable. The company emphasizes that marketing expenses remain reasonable, focusing on product-led organic buzz and member conversion rather than paid impressions, ensuring that long-term brand building does not compromise immediate financial health.

Q: What are the primary drivers behind the divergence in regional performance, particularly in North America?

A: North America's performance lagged due to lower table turnover, which was not fully offset by higher average spending. Management attributes this to a concentrated customer base heavily reliant on specific demographics, making traffic volatile against immigration policy changes. To address this, the company plans to diversify customer structures through localized marketing, menu adjustments, and deeper member operations to reduce reliance on any single segment, aiming for sustainable traffic growth beyond seasonal peaks.

Q: How is the company addressing cost control and operational gaps between stores?

A: Rather than across-the-board compression, management focuses on narrowing performance gaps by lifting underperforming stores to average levels without sacrificing customer experience. Key levers include leveraging operating leverage during peak seasons to dilute fixed costs and improving daily refinement in staffing, scheduling, procurement, and inventory shrinkage. The goal is sustainable efficiency through better resource allocation and talent development, ensuring that cost optimizations do not degrade service quality or brand reputation.

Q: What is the outlook for new store payback periods and site selection criteria?

A: The standard payback period for new stores is projected at three to four years, varying by region (faster in Southeast Asia, slower in Europe/America). Compared to previous years, payback periods are more manageable due to stricter site selection standards, precise investment calculations, and improved store format designs. Management notes that while decoration and labor costs have risen in some markets, overall per-store expenditure remains stable through optimized local procurement and construction management, ensuring higher quality and faster ramp-up speeds for new locations.