DPC Dash Ltd (1405) Earnings Call Transcript & Summary

Good day, and welcome to the DPC Dash Ltd First Half 2026 Earnings Conference Call. [Operator Instructions] Please note, today's event is being recorded. I'd now like to turn the conference over to Cathy Zhang with Investor Relations. Please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining us on today's call. [Operator Instructions] Today, you will hear from Ms. Aileen Wang, Executive Director and CEO of DPC Dash; Ms. Helen Wu, CFO of DPC Dash; and Mr. Michael Xu, CPO of DPC Dash. Aileen will provide insights into the company's overall performance and share recent developments, Helen will go a bit deeper into the first half financial results. The management team will address your questions after their remarks. Before we continue, I'd like to remind you that our earnings call and investor materials contain forward-looking statements about our business that may be considered as forward-looking statements under applicable securities laws, which are based on various assumptions and other factors that are beyond the company's control and are subject to risks, future events and uncertainties. Accordingly, actual results may differ materially and adversely from those anticipated or implied in the forward-looking statements. You can identify these forward-looking statements because they include terminologies such as may, will, expect, estimate, believe, going forward, plan, projection, aim or other similar expressions. Statements that are not historical fact, including, but not limited to the statements about the company's beliefs, plans, expectations are forward-looking statements. All forward-looking statements should be considered in conjunction with the cautionary statements in our earnings release and the risk factors included in our filings with the Hong Kong Stock Exchange. Also, this call includes discussions of financial information and certain non-IFRS financial measures. Please refer to our results announcement and interim report to be published in accordance with the rules governing the listing of the securities on the Stock Exchange of Hong Kong Limited, which contain a reconciliation of the IFRS measures to IFRS measures. All information provided in this earnings call is as of the date of this call. The company, our affiliates, advisers and representatives undertake no obligation to update any forward-looking statements, except as required by law. With that, I will turn the call over to Ms. Aileen Wang, Executive Director and CEO of DPC Dash. Aileen, please go ahead.

Hello, everyone, and thank you for joining us today as we discuss DPC Dash Ltd's results for the first half of 2026. As the exclusive master franchisee for Domino's Pizza in the Chinese Mainland, Hong Kong SAR, -- SAR, we continue to operate in a market with substantial growth opportunities. Our global franchisor, Domino's Pizza Inc. remains one of the largest pizza companies in the world with more than 32,500 stores across over 90 markets as of the end of the reporting period. Before I discuss the figures, I want to contextualize our first half performance which provides a clearer perspective on our current trajectory. Revenue grew 20.8% to RMB 3,133.8 million, driven primarily by a 33.7% year-over-year increase in transaction volume. This growth was fueled by both our expanding store network and a 7.1% increase in same-store transactions. However, this half was characterized by two opposing forces, robust demand and network expansion versus pricing pressure from industry-wide aggregator subsidy dynamics. I will now outline how these dynamics diverged across our different types of markets. Let's start with our initial city markets, defined as the markets we enter before 2023, where we have the longest operating history, transaction comps accelerated and same-store transaction growth was 8.5%, actually a healthy number, but same-store sales growth, SSG turned negative, marking the first such occurrence in these initial city markets in recent years. We did not see evidence of a broad-based to command deterioration in our initial city markets. Indeed, more customers were visiting us. This shift was primarily attributable to the intensified third-party platforms, subsidy campaigns leading to lower average ticket as they put in a meaningful shareholders on to these lower-priced channels. Now let's turn to our new city markets. The market we have entered since 2023, SSG while still negative and negative 9.4% has narrowed consistently for 3 consecutive halves. We have improved from negative 19.6% to negative 13.2% and now negative 9.4%. This is the normalizing curve we expect to see. When we enter a new city, our first stores opened to extraordinary demand, often the strongest sales performance in the entire Domino's system globally. As that initial launch phase settles, and we increase more store density to drive operational efficiency, same-store comparisons naturally experienced contraction for a period. We made a deliberate choice on managing this transition period, and I would like to outline our strategic rationale behind our decision-making. Rather than waiting out the 3PP subsidy wave, we view this as a one-of-a-kind media window and an accelerated rollout of delivery services in our new stores ahead of our original plan. As a result, deliver order contribution in these new city stores rose to 25% today and in a much faster pace as we observed in our initial city markets in the past. We want to point out that through building delivery penetration, together with landing value and other initiatives, same-store transaction growth in new city markets turn positive at 2.2%, up from negative 19.1% a year ago and negative 7.9% in the second half of last year. However, embracing aggregated platforms meant expecting a realized transaction price in the near term. Since 3PP orders carry a lower artic their orders through our own channels. But we believe that the customer habits and brand mindshare, well building today in what is an early and informative period for delivery in these new cities like what we did in initial cities will yield long-term benefits. And importantly, even at the deep point of same-store sales comparison cycle, the underlying economics level at these stores has remained healthy. Our 93 stores opened in new markets this half generated an average daily sales of RMB 28,230 with a weighted expected payback period of just [ 14 ] months. Beyond the network expansion in same-store story, we continue to innovate our products and collaborate with popular IPs to engage with our customers. To name a few of the highlights. We launched the Crispy Croissant Crust, football field square shapped pizza, Chicken Pizza and Energy Bo series, alongside a successful partner with the gaming title Archnites, mainly fund to capture a larger share of the used demographics. On delivery, we maintained a delivery on-time rate of 93.6%, even as volumes grew significantly, which speaks to the quality of our operating system. On digital engagement, our loyalty program grew to 41.9 million members, up from 30.1 million a year ago, with 18.1 million new customers placing their first order over the past 12 months. On our supply chain, our full supply chain center in Wuhan commenced operations on August 21, 2026, selling opportunity stores around Wuhan areas across the Western region. We have also secured sites in Chengdu and Nanjing, targeting opening during the second half of 2027. We believe these investments are necessary to solidify our prod and operation foundation as we keep scaling. Moving forward, our strategy is defined by a distinct approach to our two core business segments. In our initial city markets, the priority is structural as to improvement. Orders placed through our own channels, our application and -- Program have consistently carried in ATP, meaning average transaction price above RMB 90, meaningfully higher in CPP orders. So our focus is migrating more customers back to these higher-value channels through our loyalty program, combo innovation, et cetera. In our new city markets, the priority is still expansion and penetration, continuing to scale delivery from its current base of around 25% and communicating our iconic value programs while taking similar initiatives to migrate customers to our own channels and elevating ADP. Regarding our network expansion, we remain on track to open approximately 350 net new stores in 2026, have already delivered 235 openings in the first half. To better quantify our long-term growth potential, we're introducing store density as a key performance indicator in this period. Currently, China's overall beta market density stands at 13.9 stores per million population, while our own national footprint is just 1.1. We believe these metrics provide a more precise illustration of the significant unpenetrated demand available to us. Highlighting a substantial runway for growth, both through new city entry and further densification of our existing markets. With that, I'll hand the call over to Helen to discuss our financial results in more detail.

Thank you, Aileen. Our financial results this half in calculate the margin dynamics resulting from our continued network scale up amidst the ongoing market subsidies. I will now detail the specific impacts across our P&L. Revenue performance. The total revenue grew 20.8% year-over-year to RMB 3,133.8 million. Alongside our usual Tier 1 versus non-Tier 1 breakdown, we're also sharing a new lens this half based on market maturity, the initial city markets versus new city markets, which we think gives a clearer picture of where our growth is coming from. Looking at this by market maturity, our initial city markets contributed RMB 1,723.9 million or 55% of revenue, growing modestly as strong transaction growth was largely offset by the ATP pressure I didn't described previously. Our new city markets contributed RMB 1,410 million, now accounting for 45% of revenue and up from 34.6% a year ago, growing 57.3% as our expanding new store base scaled up. Looking at the same revenue through our Tier 1 versus non-Tier 1 lands, non-Tier 1 markets grow 36.5% to RMB 2,059.7 million and now represents 65.7% of revenue, again, reflecting our revenue network growth is concentrated. The channel story reflects same underlying dynamic playing out again. Total delivery sales grew 44.7% to RMB 1,618.8 million, now representing 51.7% of revenue. But within that, deliveries from third-party platforms grew 81%, while deliveries through our own channel actually declined 11.8% because the subsidy put orders through 3PP. This matters for margin because our own channel delivery orders carry an ATP, average transaction price of RMB 94. So every order that shift channel has a direct effect on our realized pricing, not because the customers are spending less but because of which door they are working through. So offering the differentiated value and services to build up a larger base of customers or high-quality loyal customers over time will help us improve ATP and order economics and a higher lifetime value of our customers. Margins and cost efficiency. This channel and pricing dynamic flow straight through to our store level profitability. Store level EBITDA grew 8.3% to RMB 544.5 million, though the margin declined to 17.4% from 19.4%. And the store level operating profit grew 2.9% to RMB 394 million, with a margin at 12.5% versus 14.6% a year ago. The primary driver was the lower ATP or together with a higher PP delivery sales mix, which carries a different cost structure. And this was only partially offset by the cost efficiency measures that we have underway. To put some texture on that offset, our raw material cost rental and other store level costs all grew broadly in line with our revenue and store count growth. And in a few areas, we actually improved. Advertising and promotion expenses fell to 5% of revenue from 5.3%. And the store operation and maintenance expenses improved slightly to 6% from 6.1%, both reflecting more efficient spending as we scale. Where we saw more pressure was in a store-level of stack cost, which rose to 28.9% of revenue from 27.7%. Reflecting the staffing we put into our new stores to protect service quality, plus the simple mathematical effect that lower ADS means less revenue to spread our fixed labor costs and also the higher rider costs from our growing delivery volume. At the group level, our company cost discipline served as an effective buffer improving from 8.1% to 7.5% of revenue as we get scale benefit and cost control at headquarters even while we keep investing to support our growth. Putting that all together, adjusted EBITDA grew 8.6% to RMB 350.7 million with margin at 11.2% versus 12.4% last year, and the adjusted net profit grew 7.4% to RMB 98.2 million. Liquidity and capital allocation. We ended the period with cash and bank balances of RMB 934.7 million. Our operating cash flow grew to RMB 504.9 million from RMB 361.1 million. So this means that our growth continued to be substantially supported by internally generated cash. Our gearing ratio improved to 7.9% from 8.2% and we retained RMB 300 million in unutilized credit facilities. So we are comfortable with our funding positions as we continue to expand. Looking at our capital expenditure. At the store level, our average CapEx for a new store, excluding the landlord rental deposits and net tax is approximately RMB 1.3 million per store. We will continue to optimize the store design and procurement to further lower new store CapEx and improve the cash payback cycles. Looking ahead, we will continue to invest in our three main areas: store expansion, supply chain center investment and the digital infrastructure to build our competitive strengths for the business in the longer term. To sum up, this half's result tell a consistent story across both the operating and the financial numbers. Our underlying demand and the network growth are healthy. And in the case of our new city markets, the improving faster than expected, while pricing pressure from the current subsidy environment is a near-term drag on margin but with a clear pathway for recovery as subsidy gradually normalized, the channel mix improves and together with our other growth levers. Now also with our own cost efficiency initiative continue to build, we believe the business remains well positioned to benefit from operating leverage as sales productivity improves. This marks the end of our presentation, and we will open the floor for questions now. Thank you very much. Operator?

[Operator Instructions] And today's first question comes from Lisa Liao with Jefferies.

And here's two questions from my side. The first is about the same-store sales trend we have observed. In our fact sheet, we actually disclosed that we saw slightly positive same-store sales in May and June with successful marketing initiatives. So just wonder how do we see the most updated trend? And what will be our key initiatives to help further support the same-store sales in the second half? And -- regarding my second question is more on the aggregator subsidies. So we know the most intensified subsidies actually happened last year. So how do we assess the overall subsidy level from aggregators this year? Do we see any mitigation or slightly better situation recently? And how does this impact the overall consumer behaviors? What would be our key strategies to further drive our own delivery channels regarding this part?

Thank you, Lisa, for the question. I'll take this one. So last year, the aggregate all actually started in May, right? So May and June, we already had this aggregator sort of subsidy impact. And then at the same time, we have the new market normalization impact. So with that, we can still manage to actually keep SST positive for May and June, actually shows the strength of our strategy and also our sales initiatives. As I said, going forward in H2, I think last year in H2, sort of -- we have several things happening. One thing is that the aggregator actually went to the peak, right? So in the summer time and also in sort of part of the quarter 3. So then we are counting against a very strong base of last year. And then at the same time, we have very strong sort of new markets, the record retention on that kind of new market entering the same-store life cycle. So these actually will make ST sort of got some difficulty in H2. But then at the same time, we continue to see the ticket starting to stabilize and also improving. So then with these two together, we will still see SSG negative in the second half of the year of 2026. Now but we forecast to see in 2027, we'll start to have positive same-store sales. So that's to sort of answer sort of high level the first question. And then in terms of the initiatives, right? So like we mentioned, so for the initial market, the key issue is actually the ever sticking because the TC is still sort of healthy. And then we also need to find a way to support H2 when the subsidy level goes down. And then for the new markets, we did have comping against the higher opening base in the has and plus the same issue on So then the initiatives actually have two aspects. The first one is actually on the average ticket. We already see it starting to stabilize. And then we actually started to see that in the past 2 months, they actually got improving, right? So I think the key is actually sort of one the CPP with the subsidy level going down, the average ticket on CPP will actually come back naturally. And then two, as Helen mentioned, on our own online channel for delivery, our average ticket is actually as high as 94. So then we do have people who are very loyal to us and then pay higher average ticket on one channel. So then the key is how to convert aggregated customers to our own channel and then optimize the channel mix. And then on the TC side, we believe that in the initial markets, we will continue to launch innovative new products like we did for the ticket, for example. So during it's actually very popular in the pizza market, but we're the first brand to actually pull protein together with Studio, which is the grain innovation, and our customers like it. And also across the leadership, we actually launched the Carsales, right? It's another innovation to combine key fan bakery. So that proves that we will continue to lead on product innovation. And then also, we launched this new combo, right? 79 with 2 pizzas, 2 sites and two drinks, right? With this, we do believe that it will help both on the average ticket side and also on the guest concept, right, because this is quite attractive value. And then also by offering the combo, we'll make it very easy for customers to make choice. And then also, we have other things like IT innovation and for the new markets, we will continue to offer the iconic value programs and also keep penetrating product delivery as we continue to build the delivery market share in these cities. I stop here to -- for a second -- for this first question. Now for the second question, with less aggregator subsidy this year, do we see sort of any influence on consumer behavior and also our own channel. So we did see that our own channel sales has been growing back. So we do believe that on the aggregate, there are two types of customers, either for the sort of the original oil customers, and then an aviator actually provides more subsidy, so then they spend less on hybrid better, so they move to aggregate for where we have new customers coming to agree for Domino's, right? So I think for either one, the original one is the subsidy actually goes down, they will naturally come back to oil. And then for the second book, the new customers, we will just let them know that how our own channel actually provides a very different sort of value proposition. And in that way, we will actually build more channel mix in terms of overall. So I'll stop here. I'm sorry, I talked a lot this question. Just to give you a full picture on what we're doing -- versus TC and then initial markets versus new markets.

Our next question today comes from Lucy Yu of BofA Securities.

So two questions here. First of all, is the subsidy will come down in the second half of this year. So how should we think about ticket counts in the second half? And also the margin -- for the first half, we saw margin had some contraction possibly because of the negative same-store sales. How should we think about the margin for the second half especially on a year-over-year basis, is going -- is it the contraction going to be wider or narrower than the first half?

Got it. Thank you for the question, Lucy. So for the first question, it will be quite similar to my answer to the first question, but then I'll reiterate that. We do think that our sort of TC momentum is healthy, right? But just copy against large year's highlights. We do believe that we actually offer and the innovative products. We do offer a new value after 10 years of having the credits on Wednesday, 30% of across Tuesday and Wednesday, we actually offer this new sort of different value in terms of the combo and the customers like it. And then at the same time, we also start to offer a single offers, right? Because we realize there is a new occasion for this new demand, right? And then at the same time, for the new markets, we'll emphasize to the delivery and also value and all the levers we mentioned for the initial market. One thing I can mention, more is actually a media optimization. We have our new CMO joining, Harrigan is Coppola MacDon, Chief brought in a lot of new thoughts and she will help us to optimize the media and send that to create more so sales and also higher with higher -- and I'll stop here for the first question. And the second question is on margin. I hand over to Helen.

Yes. Lucy, thank you for the questions. For the first half, our store operating profit margin is at 12.5%. That's for the whole group, right? And also, I think the initial city, the OP margin is slightly below that. But the new market is higher than that. The reason being, even though people or you have seen that the SST for the new market for the initial new market -- sorry, for the new markets, is actually negative, but we have said that because they started from a very high base in terms of dollar sales, right? So even if you -- they have a negative SSG when they enter this into the SSG cycle, but in terms of dollar value wise in terms of sales, they're still very -- pretty high and very healthy. So their OP margin for the new city are actually higher than [ 12.5% ]. Now this trend is probably going to be the same for second half. And also, I think we also actually started from -- over the first half of this year, we also are gradually rolling out a lot of our cost-saving initiative or cost control initiative at the store level. Now some of that actually started from mid of first half. So we would expect a more kind of effect or impact on the cost savings will be kicking in during the second half. So for instance, we are actually trying our best to recover in the ATB, right? And also at the same time, we have a lot of initiatives to actually maintain or to keep the pipe transaction volume. So having improving ATP at the same time, sort of more impact on the cost saving initiative in the second half overall, we were expecting that actually the margin -- the store OP margin will be actually better than the first half. And on this basis, the performance between the initial city markets versus the new city market will be similar in pattern for the first half.

Our next question today comes from Linda Huang with Macquarie.

[Technical Difficulty]

Pardon me, Linda. This is the operator. I'm not sure if we were able to understand your question there, your line was breaking up pretty badly. We cannot hear you, ma'am. So I'm going to move on to our next question. I apologize. And our next question today comes from Miao Zhang with CMBI.

I'm Miao Zhang from CMBI. I have just two small questions on 3PP users, not so sure as already could make me share some color on what measures are currently being implemented or what auto convert rate users into our own platform and to repurchase frequency or lift average transaction price? And also, I'm wondering is there any available statistics rate or retention rate of such measures?