Helens International Is Shrinking To Grow In 1H FY2026

Helens is Shrinking to Grow and What Investors Need to Know

The 1H FY2026 interim results for Helens International Holdings Company Limited confirm a definitive, albeit painful, pivot from aggressive land-grabbing to a “rationalization” phase. While the Group is framing this as “optimization and adjustment,” the financial reality is stark: adjusted net profit plummeted from RMB 54.8 million to RMB 23.9 million, and the profit before income tax (PBIT) margin collapsed from 17.8% in 1H FY2025 to just 6.1% in 1H FY2026. For investors, the question is whether the current contraction is a controlled burn to save the core or a symptom of a fundamental loss of pricing power in a crowded market.

The Strategic Retreat: An Accelerating Contraction

Helens’ footprint is shrinking at an accelerating rate. The global bar network, which stood at 576 at the start of the year, contracted to 555 by June 30. However, the post-period data is more telling: between June 30 and August 26, the network lost an additional 14 bars, bringing the total to 541. This indicates that “optimization” is not yet at a plateau but is gaining momentum as management aggressively cuts underperforming locations.

The “HiBeer Partnership” model bore the brunt of this shift, seeing a net decrease of 19 bars during the first half of the year. While revenue from the self-operated business fell significantly, revenue from the franchise business—driven by product sales to HiBeer partners—now represents a more critical, though lower-margin, component of the trade receivable turnover.

Same-Store Sales and Inventory Red Flags

The operational core is facing severe headwinds, with same-store turnover (SSS) growth hitting -21.0%. In absolute terms, same-store turnover for the 133 qualifying bars dropped from RMB 218.3 million to RMB 172.4 million. Management is attempting to stem this tide through product mix refinement and public/private domain marketing, but the pressure is also manifesting in the supply chain.

Inventory turnover days increased from 29.2 days to 33.8 days. For a hospitality model predicated on high-velocity throughput, slowing inventory while simultaneously shrinking the store base suggests a lag in supply chain responsiveness that investors must monitor closely.

Margin Divergence: Losing the Branded Advantage

The most concerning metric in this report is the erosion of Helen’s branded drink margins. As the core engine of the Group’s profitability, the contribution margin for Helen’s branded alcoholic drinks fell from 80.2% to 75.8%, a drop management attributes to a “decline in end-store prices.”

Interestingly, there is a divergence here: third-party branded drinks actually saw a margin increase from 57.8% to 60.8%. This suggests that while Helens is gaining procurement efficiencies for external brands, it is losing the ability to command a premium for its own label in a price-sensitive environment.

Operational Efficiency and the Flexible Labor Model

To protect the bottom line, Helens has leaned into aggressive cost-cutting. Employee benefit and manpower service expenses dropped 15.1% to RMB 52.3 million. This was achieved through a strategic shift in the labor mix; as of June 30, the Group utilized 766 outsourced personnel against only 480 direct employees, allowing for a more flexible, variable cost structure.

Further efficiency gains were found in:

• Short-term rentals: Down 49.5% to RMB 4.9 million, largely due to the reduction in staff dormitories.
• Other Income: Rose 57.1% to RMB 1.1 million, primarily from the Group’s tactical move to monetize unused headquarters space by renting out a portion of its office building—a quintessential “shrinking to grow” maneuver.

Treasury Management and the Share Premium Dividend

Despite the profit contraction, the Board recommended an interim dividend of RMB 0.0410 per share. Crucially, this is being paid out of the Share Premium Account, a move that preserves operational cash while maintaining shareholder returns.

The Group’s “prudent treasury management” is further evidenced by a shift in asset allocation. Cash and bank balances stood at RMB 479.5 million as of June 30. To maintain liquidity, the Group reduced its holdings of low-risk bond products from RMB 55.8 million to RMB 25.0 million, ensuring funds are readily accessible during this transition period.

Governance: Aligning with HKEX Standards

The leadership transition—where founder Mr. Xu Bingzhong resigned as CEO to remain Chairman—is more than a simple division of labor. This move was specifically designed to rectify a “deviation from code provision C.2.1” of the Corporate Governance Code regarding the separation of Chairman and CEO roles. By appointing Mr. Wang Hao and Mr. He Daqing as Co-CEOs, Helens is moving toward standard institutional governance compliance, providing a more robust structure for the Group’s new phase of development.

Comparative Performance Metrics

The turnover decline was felt across all tiers, but the performance of “Small Stores” within the HiBeer model highlights the difficulty of the current environment.

Table 1: Average Daily Turnover (Self-Operated & Franchised)

Table 2: HiBeer Partnership Turnover by Store Size

Outlook

Helens is currently a story of defensive resilience. The “Good” includes a strong cash position of RMB 479.5 million, a disciplined shift toward HKEX governance compliance, and a flexible labor model that is successfully mitigating some revenue loss.

However, the “Bad” cannot be ignored: the PBIT margin collapse to 6.1% and the accelerating decline in store count post-June 30 suggest the “optimization” phase may be more protracted than initially expected.

Investors should look for a stabilization of same-store daily sales as the leading indicator of a turnaround. Until the Group can prove it can maintain its own-brand margins without sacrificing volume, the strategy remains one of careful, necessary contraction.

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