Chinese restaurant chain Haidilao International said it will swing to a profit in the first half of the year, but the company’s stock still dropped almost 17% after revealing that its performance fell short of management’s expectations.
Zhang Yong, cofounder and chairman of the Sichuan hotpot chain, saw his net worth plunge $2.4 billion in just one day. His net worth currently sits at $12.7 billion, according to Forbes Real-Time Billionaires List. Zhang’s fortune is derived from his majority stake in Haidilao and and its subsidiary condiment maker Yihai International, which dropped almost 12% on Monday.
Haidilao said it expects to record a net profit of about 80 million to 100 million yuan ($12.3 million to $15.4 million) in the first half, compared to a net loss of approximately 965 million yuan the same period a year earlier, the company said in a filing on Sunday. The hotpot chain said it booked a 104% surge in first-half revenue to about 20 billion yuan.
The company said its results failed to meet expectations due to higher expenditures incurred from newly opened restaurants that took longer to breakeven and generate positive returns, according to Haidilao’s filing. The ongoing pandemic also hampered the operations of its overseas restaurants.
“The group has been paying close attention to the market condition, thereby adjusting its organization structure, business strategies and operations to reduce negative impact,” Haidilao said in the statement.
Zhang established Haidilao in 1994 in his hometown of Jianyang in Sichuan province with the help of three friends, including one who became his wife. The 51-year-old and his spouse have been serving as the chairman and director, respectively.
The hotpot chain built a reputation for putting a strong emphasis on customer service that includes activities like free manicures, shoulder massages and noodle-pulling demonstrations.
Haidilao aggressively expanded its network in 2020 with the opening of 544 new restaurants in spite of the disruption to its operations caused by the pandemic. It now boasts of having a network of 1,298 restaurants, and 93% of them are located in mainland China. “It’s better to scale fast and be everywhere instead of having a single towering presence,” Zhang told Forbes in an interview in 2018.
But rapid expansion has come at a price. Haidilao reported that its profit fell 87% to 309 million yuan in 2020. The company also said it faced a labor shortage in the second half of the same year.