Mixue: Frenzied Expansion in Lower-tier Markets, Luckin Coffee's Comeback, The Reason Behind High Valuation

$MIXUE GROUP(02097.HK) On the afternoon of August 27, Beijing time, Mixue Group (2097.HK) released its 2025 H1 results. On one hand, "Snow King" accelerated its store opening pace, and on the other hand, delivery subsidies also promoted the company's same-store revenue growth, maintaining a relatively high growth rate in the first half of the year.

Key points are as follows:

1. Strong revenue growth. In 25H1, Mixue Bingcheng achieved total revenue of 14.87 billion yuan, a year-on-year increase of 39.3%. Unlike Gu Ming, which was affected by the low base effect of 3.15 last year, Mixue's same-store sales were not significantly impacted during the same period. Therefore, the growth quality is higher compared to Gu Ming, with the core driver being the company's continuous rapid store expansion in the first half of the year, coupled with delivery subsidies driving same-store sales growth.

2. The pace of store openings has not slowed down. Compared to the end of 2024, there was a net increase of 6,697 stores domestically, bringing the total number of stores to 48,281. The expansion scale in half a year has basically reached the level of new store additions for the entire previous year. Breaking down the regions of new store additions, the focus is on third-tier and lower-tier sinking markets. Overseas, as of 25H1, Mixue had a total of 4,733 stores, a decrease of 162 from the end of 2024, mainly due to Indonesia and Vietnam still being in a business transition period, focusing on optimizing existing stock stores. Additionally, Mixue continued to expand into international markets in the first half of the year, entering Kazakhstan and other Middle Eastern regions.

3. Cup volume drives same-store revenue growth. Although the company did not disclose specific data related to store operations, based on research information, Mixue's same-store growth in the first half of the year was close to 9%. Breaking it down, benefiting from the delivery subsidy bonus and the launch of spring new products (taro ice cream, Longjing tea drinks), cup volume is expected to increase by 6%-7% year-on-year. In terms of pricing, with the overall price war in the tea drink industry easing at the end of last year, Mixue slightly increased prices at the beginning of the year, with the cup unit price expected to increase by 1%-2% year-on-year.

4. Gross margin slightly declined. In the first half of the year, from a cost perspective, although sugar and milk prices fell, the price increase of Mixue's main raw materials, lemons and coffee beans, led to an increase in overall raw material costs. However, the company continuously increased the proportion of self-production and expanded procurement scale to enhance scale effects, ultimately resulting in a slight decline in overall gross margin by 0.3 percentage points to 31.6%.

5. Expense ratio increased. In terms of management expenses, on one hand, with a large number of franchise contracts expiring in 2025, the company upgraded its internal training system to strengthen renewal rates. On the other hand, with the expansion of new overseas businesses, the company added a direct sales team and international talent reserves, leading to an increase in management expense ratio by 0.3 percentage points to 2.9%, while the sales expense ratio remained basically flat, ultimately resulting in a year-on-year decline in core operating profit margin by 0.5 percentage points to 22.3%.

6. Overview of financial information:

Dolphin Research's overall view:

Overall, in the first half of the year, under the circumstances of delivery subsidies and rapid store expansion, "Snow King's" performance was still good. Taking this financial report as an opportunity, we also discuss the impact of the recent market's most concerned platform subsidies on Mixue and the entire ready-to-drink tea industry:

For Mixue's franchisees, in the early stage of the war (April to July), due to e-commerce platforms bearing most of the subsidies to compete for market share, the most direct result was the improvement of store profitability and the shortening of the franchisees' payback period. Although after July, as the war slowed down, some e-commerce platforms gradually required franchisees to share the subsidy costs (franchisees bear 40%-60% of the cost), leading to a decline in store profitability, but based on research information, the scale effect brought by the surge in orders still made store profitability higher than usual.

As for Mixue, since its performance and store GMV are strongly tied, and it does not need to bear subsidy costs, it is obviously more beneficial compared to franchisees.

Additionally, if subsidies disappear in 2026, considering that Mixue's delivery proportion in tea drink brands is relatively low, the impact will be smaller compared to mid-priced tea drinks like Gu Ming.

For the entire ready-to-drink tea industry, this round of delivery subsidies superficially completed the cultivation of more potential consumers, but in fact, Dolphin Research believes it accelerated the current industry's stock competition stage, with market share further concentrating towards the top. On one hand, this is because e-commerce platforms will prioritize cooperation with leading chain brands with strong supply chain capabilities, while small and medium-sized brands that fail to participate in subsidies will face a cliff-like drop in orders, increasing the risk of store closures.

In fact, based on research information, taking Taobao Flash Sale as an example, leading brands often receive targeted free coupons from e-commerce platforms, while small and medium-sized brands can only participate in general activities, with subsidy strength significantly inferior to leading brands. On the other hand, the short-term surge in delivery orders will also pose a severe challenge to the fulfillment capabilities of small and medium-sized brands with weak supply chain links.

Besides the positive impact of the delivery war on Mixue, another point that exceeded Dolphin Research's expectations is Mixue's coffee sub-brand—Lucky Coffee, which seems to have returned to the fast lane after team adjustments and operational restructuring.

As of July, the total number of Lucky Coffee stores increased from 4,600 at the end of 2024 to over 7,000, setting a historical high in expansion speed, and announced plans to enter first- and second-tier markets, aiming to exceed 10,000 by the end of the year. Additionally, in terms of same-store revenue, Lucky Coffee's growth rate in the first half of the year was also over 20%, far exceeding the industry average. The question is how did Lucky Coffee achieve this? What is the sustainability?

Dolphin Research analyzed in "Mixue Bingcheng: Lucky Coffee's 'Misfortune', Mixue's Next Big Bet on 'Fields'?" that the two major issues that previously hindered Lucky Coffee's success were:

1. Lucky Coffee's weak product strength, coupled with slow product iteration, made it difficult to attract high-line city consumers with relatively low price sensitivity.

2. The coffee beans were partially dependent on external suppliers rather than a unified Mixue supply chain, resulting in weak cost advantages, slow franchisee payback periods, and a lack of motivation to open stores.

The core reason for Lucky Coffee's comeback in the first half of the year lies in targeted optimization of the above two pain points:

Firstly, addressing the first point, Lucky Coffee reassembled a 400-person market team to directly connect with the R&D department and share the R&D team with the main Mixue brand, achieving rapid conversion from demand to product. Additionally, in terms of product strategy, it fully transitioned from milk coffee to fruit coffee (reusing the frozen fruit pulp of the main Mixue brand), reshaping consumer brand perception, and launched 14 fruit coffee products in May, with monthly sales accounting for over 15%.

Furthermore, another major change is that from 2025, Lucky Coffee fully integrated into Mixue Group's "Big Coffee International" supply chain system, achieving 100% integration with the main Mixue brand's supply chain. Lucky Coffee's coffee beans, fruits, and dairy products are fully procured by the group, significantly reducing procurement costs. Based on research information, the current procurement cost of Lucky Coffee's coffee beans is less than 70 yuan/kg, 20%-30% lower than the industry average.

Through the above two dimensions of change, it can be seen that while enhancing Lucky Coffee's product strength, reducing franchisees' procurement costs also enhanced store profitability, which is the core reason for the significant increase in Lucky Coffee's brand momentum.

In terms of valuation, considering that Lucky Coffee's development exceeded Dolphin Research's expectations, after revising the model, the corresponding future 5-year compound growth rate for Mixue is approximately 20%. Compared to the current 27x valuation, it is still relatively high. Therefore, for investors who are optimistic about Mixue's long-term competitiveness, they can consider entering when it falls to 22-23x, corresponding to 140-150 billion HKD.

Below is a detailed interpretation of the financial report:

I. Overall revenue meets expectations

In 25H1, Mixue Bingcheng achieved total revenue of 14.87 billion yuan, a year-on-year increase of 39.3%. Unlike Gu Ming, which was affected by the low base effect of 3.15 last year, Mixue's same-store sales were not significantly impacted during the same period. Therefore, the growth quality is higher compared to Gu Ming, with the core driver being the company's continuous rapid store expansion in the first half of the year, coupled with delivery subsidies driving same-store sales growth.

II. The pace of store openings has not slowed down

Dolphin Research mentioned in Mixue Bingcheng: Lucky Coffee's 'Misfortune', Mixue's Next Big Bet on 'Fields'? that due to the high-line city's rapid expansion dividend period nearing its end, the future main battlefield is in the sinking market. Therefore, it was assumed that Mixue's store opening pace would slow down starting in 2025.

In fact, the company's overall store opening pace in the first half of the year not only did not slow down but accelerated expansion. Compared to the end of 2024, there was a net increase of 6,697 stores domestically, bringing the total number of stores to 48,281. The expansion speed in half a year has basically reached the level of new store additions for the entire previous year.

Even excluding the accelerated expansion of Lucky Coffee analyzed above, Dolphin estimates that the expansion speed of the main Mixue brand is also accelerating. Breaking down the regions of new store additions, the focus is on third-tier and lower-tier sinking markets. Combined with information disclosed by management in conference calls, in addition to normal locations, there are many special locations such as tourist attractions, highway service areas, and industrial parks that can be penetrated, indicating that the space in the sinking market is much larger than imagined.

Additionally, combined with the fact that Gu Ming will not slow down its store opening pace in the future, while the overall number of tea drink stores is stagnating, it further verifies Dolphin Research's previous statement that the concentration of the tea drink industry is accelerating.

Overseas, as of 25H1, Mixue had a total of 4,733 stores, a decrease of 162 from the end of 2024, mainly due to key areas in Southeast Asia, Indonesia, and Vietnam still being in a business transition period, focusing on optimizing existing stock stores. Additionally, Mixue continued to expand into international markets in the first half of the year, entering Kazakhstan and other Middle Eastern regions.

III. Cup volume is the core driver of same-store revenue growth

Although the company did not disclose specific data related to store operations, based on research information, Mixue's same-store growth in the first half of the year was close to 9%. Breaking it down, benefiting from the delivery subsidy bonus and the launch of spring new products (taro ice cream, Longjing tea drinks), cup volume is expected to increase by 6%-7% year-on-year, and in terms of pricing, with the overall price war in the tea drink industry easing at the end of last year, Mixue slightly increased prices at the beginning of the year, with the cup unit price expected to increase by 1%-2% year-on-year.

IV. Gross margin slightly declined

In the first half of the year, from a cost perspective, although sugar and milk prices fell, the price increase of Mixue's main raw materials, lemons and coffee beans, led to an increase in overall raw material costs. However, the company continuously increased the proportion of self-production and expanded procurement scale to enhance scale effects, ultimately resulting in a slight decline in overall gross margin by 0.3 percentage points to 31.6%. Based on conference call information, in the medium to long term, a gross margin of around 30% is a sustainable healthy level.

V. Expense ratio increased

In terms of sales expenses, due to the company's increased offline activities such as "Snow King Rapid Tour" and "Global Snow King Exhibition" to strengthen interaction with consumers, the sales expense ratio remained flat overall. In terms of management expenses, on one hand, with a large number of franchise contracts expiring in 2025, the company upgraded its internal training system to strengthen renewal rates. On the other hand, with the expansion of new overseas businesses, the company added a direct sales team and international talent reserves, leading to an increase in management expense ratio by 0.3 percentage points to 2.9%, ultimately resulting in a year-on-year decline in core operating profit margin by 0.5 percentage points to 22.3%.

Longbridge Dolphin Research "Mixue Bingcheng" historical articles:

In-depth

June 11, 2025 "Mixue Bingcheng: "Doubling" Mixue: Overseas is not yet "Sweet", Investment is Hard to "Sweeten""

June 10, 2025 "Mixue Bingcheng: Lucky Coffee's "Misfortune", Mixue's Next Big Bet on "Fields"?"

March 13, 2025 "Pinduoduo of the Ready-to-Drink Industry" Mixue Bingcheng: "Snow King's" Confidence in Crowning?

Risk disclosure and statement of this article: Dolphin Research Disclaimer and General Disclosure