Guming: Subsidy reduction, the "Costco of the tea beverage industry" remains steady!

How can the coffee business become a new growth engine for Gu Ming?

On the evening of March 25, Beijing time, $Gu Ming (01364.HK) announced its performance for H2 2025. Overall, the performance in the second half of the year was quite good. Compared to BBG’s expectations, aside from the strategic promotion of the coffee category leading to a temporary overshoot in marketing expenses, other core operational metrics were basically in a beat state. However, the day after the financial report was released, the stock opened high and then declined during the day. According to information obtained by Dolphin Jun, this was due to prior communication with some institutions in a small meeting, where profit-taking was understood.

The key points are as follows:

1. New and existing stores working together, revenue maintains rapid growth. From the overall performance perspective, in the second half of the year, Gu Ming benefited from aggressive store openings, delivery subsidies, and the new launch of coffee business, driving improvement in same-store sales. Gu Ming achieved total revenue of 7.25 billion yuan, a year-on-year increase of 52%. Unlike Mixue, whose revenue mainly comes from store openings, combined with survey information, Gu Ming’s same-store growth was nearly 20% in the second half of the year, indicating that the overall growth quality is clearly superior to that of Mixue.

2. Store openings enter the fast lane. From the perspective of store openings, benefiting from the explosive growth of Gu Ming’s new coffee category and upgrades to franchise support policies, Gu Ming’s store openings entered the fast lane in the second half of the year, with a net increase of 2,375 stores, which is double that of the first half. In terms of regions, more focus was on markets that had not reached critical scale, primarily through existing franchisees opening second or multiple stores. Structurally, the new stores were mainly concentrated in lower-tier markets, and operational data shows that the proportion of stores in third and fourth-tier cities increased by 0.8 percentage points compared to the first half, reaching 58%.

3. Single-store cup volume hits a new high. From the perspective of franchise store operations, Dolphin Jun estimates that in the second half of the year, Gu Ming’s average GMV per store reached 1.507 million yuan, a year-on-year increase of 23.6%. Breaking it down, the average daily cup volume per store reached 474 cups, an increase of 20.5%, serving as the core driver. In addition to the incremental increase from delivery subsidies, the large-scale integration of coffee into Gu Ming stores and the increase in morning operating hours significantly boosted cup volume. In terms of unit price, although the company did not disclose specific data, Dolphin Jun estimates the cup unit price to be 17.3 yuan/cup, which is basically flat compared to the first half.

4. Gross margin hits a new high. In terms of gross margin, on the one hand, Gu Ming’s concessions on raw materials sold to franchisees were restrained in the second half, combined with the company’s supply chain efficiency improvements and cost reductions, resulting in a significant increase in H2 gross margin by 4.4 percentage points to 34.1%, reaching a new high.

5. Operational leverage boosts profitability. In terms of expenses, in the second half, to support the promotion of the coffee category, Gu Ming increased spending on star partnerships, advertising, and other brand-building expenses, leading to a stable sales expense ratio. Meanwhile, the management expense ratio declined by 0.9 percentage points to 2.5%, accompanied by improvements in the company’s operational efficiency, ultimately resulting in an operating profit margin of 26.7%, reaching a new high.

6. Overview of financial information:

Dolphin Jun’s overall viewpoint:

Regarding Gu Ming’s performance in the second half of the year, Dolphin Jun believes there are no issues, as both same-store and new store sales achieved rapid growth, and the release of operational leverage also led to a decrease in various expense ratios.

Although in 2026, under the circumstances of subsidy reduction, facing a high base from 2025, growth pressure will be significant, it actually depends more on how many new consumers gained during this wave of delivery wars can settle down and create repeat purchases. On this point, Dolphin Jun is quite confident in Gu Ming’s product strength.

Combined with survey information, even in Gu Ming’s most densely populated, fiercely competitive, and highest penetration home base—Zhejiang, in fact, except for 2024 (the industry’s extreme price war), same-store sales have actually been growing every year.

This also indicates that high store density does not necessarily mean same-store sales will decline; rather, an increase in store density brings positive additions in terms of supply chain, unit delivery costs, and brand perception. In Dolphin Jun’s view, for Gu Ming, the real variable that determines whether same-store sales can continue to grow is whether it can consistently capture the public’s taste and maintain a core product strength centered on high cost-effectiveness and freshness.

Finally, from a valuation perspective, although the slowdown in delivery subsidies in 2026 will have some impact on Gu Ming’s cup volume, Dolphin Jun assumes that if coffee penetration increases in 2026, it can offset the impact of the slowdown in delivery. Ultimately, if cup volume remains unchanged, Gu Ming’s performance in 2026 will rely entirely on store openings (an additional 3,000 stores), which corresponds to a net profit of 3.5 billion yuan, translating to about 15x, and compared to Dolphin Jun’s estimated future three-year performance growth rate of over 18%, it is not considered high. Moreover, since Gu Ming’s medium to long-term growth logic has not undergone substantial changes, therefore at this current juncture, Dolphin Jun believes the downside risk is not significant, and the valuation could recover to 18x, corresponding to an upside space of 20%.

The following is a detailed interpretation of the financial report:

1. New and existing stores working together, revenue maintains rapid growth.

From the overall performance perspective, in the second half of the year, Gu Ming benefited from aggressive store openings, delivery subsidies, and the new launch of coffee business, driving improvement in same-store sales. Gu Ming achieved total revenue of 7.25 billion yuan, a year-on-year increase of 52%, speeding up compared to the first half. Unlike Mixue, whose revenue mainly comes from store openings (Mixue’s same-store growth was only low single digits), combined with survey information, Gu Ming’s performance growth in the second half was mainly driven by 30% growth from the store side and 20% same-store growth, indicating that the overall growth quality is clearly superior to that of Mixue.

2. Deepening further, store opening speed accelerates.

From the perspective of store openings, benefiting from the explosive growth of Gu Ming’s new coffee category and upgrades to franchise support policies, Gu Ming’s store openings entered the fast lane in the second half of the year, with a net increase of 2,375 stores, achieving nearly double growth compared to the first half, bringing the total number of stores to 13,554.

For the entire beverage industry, the second half of the year actually saw an intensification of the Matthew effect. According to data from Tea and Coffee Observation, the top 10 brands contributed about 90% of the store growth, while many small and medium brands experienced negative growth due to intensified competition.

From a regional perspective, in the second half of the year, Gu Ming focused on intensifying its presence in third and fourth-tier cities and towns in 8 key-sized provinces (Zhejiang, Fujian, Jiangxi, Guangdong, Hunan, Hubei, Jiangsu, Anhui), with the proportion of town stores increasing from 41% to 44%. Combined with survey information, more than 50% of existing franchisees opened second or multiple stores in the second half, indicating a high loyalty among Gu Ming’s franchisees.

In higher-tier markets, in the second half, Gu Ming focused on enhancing store image, expanding signage, and increasing outdoor seating areas as part of store remodeling.

Based on conference call information, Gu Ming’s net store opening target for 2026 is no less than that of 2025, indicating that 2026 will still be a year of rapid store expansion for Gu Ming.

3. “Selling shovels” business proportion rebounds.

From the revenue structure perspective, in the second half of the year, the company’s revenue from sales of goods and equipment reached 5.77 billion yuan, a year-on-year increase of 50%, with a slight rebound of 0.2 percentage points compared to the first half. Combined with survey information, Dolphin Jun speculates that this was mainly due to Gu Ming restraining concessions on raw materials sold to franchisees in the second half.

4. Single-store cup volume hits a new high.

From the actual cash flow perspective of stores, in the second half of the year, Gu Ming achieved a GMV of 18.6 billion yuan, a year-on-year increase of 56.6%. Although Gu Ming did not disclose same-store revenue in the financial report, combined with survey information, H2 Gu Ming’s same-store growth rate was close to 20%.

Breaking it down, the average daily cup volume per store reached 474 cups/day, an increase of 20.5%, serving as the core driver. In addition to incremental increases from delivery subsidies, the large-scale integration of the coffee business into Gu Ming stores significantly boosted cup volume.

According to survey information, the proportion of coffee business in revenue increased significantly from less than 10% in the first half to around 15%-20% in the second half. Due to the integration of the coffee business, on one hand, many stores have adjusted their operating hours from the original 10 AM to an earlier time of 7:30-8:00, launching a “morning coffee + breakfast” combo to fill the gap in Gu Ming’s breakfast offerings. On the other hand, combined with the company’s previous communications, coffee has also brought significant cross-selling, with nearly 65% of consumers purchasing both coffee and milk tea products.

In terms of unit price, although the company did not disclose specific data, Dolphin Jun estimates that the cup unit price in the second half was 17.3 yuan/cup, remaining basically flat compared to the first half.

For more thoughts on Gu Ming’s coffee business layout, please refer to Gu Ming: Left hand delivery, right hand coffee, has the “Costco of the tea beverage industry” smiled again? Here, no further elaboration will be provided.

5. Gross margin hits a new high.

In terms of gross margin, on the one hand, Gu Ming’s concessions on raw materials sold to franchisees were restrained in the second half, combined with the company’s supply chain efficiency improvements and cost reductions, resulting in a significant increase in H2 gross margin by 4.4 percentage points to 34.1%, reaching a new high.

6. Operational leverage boosts the company’s profitability.

In terms of expenses, in the second half, to support the promotion of the coffee category, Gu Ming increased spending on star partnerships, advertising, and other brand-building expenses, leading to a stable sales expense ratio. Meanwhile, the management expense ratio declined by 0.9 percentage points to 2.5%, accompanied by improvements in the company’s operational efficiency, ultimately resulting in an operating profit margin of 26.7%, reaching a new high.

Long Bridge Dolphin Research “Gu Ming” historical articles:

In-depth

July 4, 2025: “Gu Ming: Slow is fast! Is there a ‘Costco’ in the tea beverage industry?”

July 8, 2025: “Gu Ming: Advance or retreat, can ‘Costco of the tea beverage industry’ laugh to the end?”

Comments

August 27, 2025: “Gu Ming: Left hand delivery, right hand coffee, has the ‘Costco of the tea beverage industry’ smiled again?”

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