FAST NEWS: Store Closure Impairment Loss Turns Haidilao Red

The latest: China’s leading hot pot chain Haidilao International Holding Ltd. (6862.HK) on Sunday warned it expects to post a loss of 225 million yuan ($37.7 million) to 297 million yuan for the first half of the year, reversing a 96.5 million profit a year earlier.

Looking up: The company said performance of its restaurants has improved markedly since June with the pandemic’s easing. It added it will implement proactive measures to control rent and other operating costs, and use credit and equity financing to ensure a healthy cash flow.

Take Note: The company recorded a one-time loss on the disposal of long-term assets and impairment losses totaling 255 million yuan to 327 million yuan due to the impact of the pandemic and closure of some of its restaurant in the first half of the year.

Digging Deeper: Haidilao expanded aggressively between 2018 and 2020, boosting its store count to more than 1,000 over that time. But the overly aggressive expansion, combined with broader Covid control measures that affected the entire restaurant industry, have forced the company into a corrective mode over the last two years. As a result, the company had to close 276 stores last year, resulting in an impairment loss of over 3.65 billion yuan and moving the company into the red with a 4.16 billion yuan loss last year.

Market Reaction: Haidilao’s shares closed up 8.6% at HK$17.40 at the midday break on Monday, possibly because investors were braced for even worse results than those contained in the warning. But the stock still trades near the lower end of its 52 week range.

Translation by Jony Ho

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