Shede Spirits Co.,Ltd. (SSE: 600702) has issued a preliminary forecast indicating a significant drop in its first-half 2026 performance, marking the inaugural semi-annual earnings projection within the Chinese baijiu industry.
The company anticipates its net profit attributable to shareholders for the first half of the year to range between 135 million and 175 million yuan, representing a year-on-year decrease of 60.52% to 69.55%. Its adjusted net profit, excluding non-recurring items, is forecasted to be between 123 million and 163 million yuan, a decline of 62.90% to 72.00%.
Second Quarter Performance Analysis
For the first quarter of 2026, the company reported a net profit of 232 million yuan. Based on the half-year forecast, this implies an estimated net loss for the second quarter ranging from 57 million to 97 million yuan, indicating a substantial sequential and annual shift into negative territory.
Reasons Behind the Downturn
The company attributed the performance decline to two primary factors. Firstly, the baijiu sector as a whole remains in a period of deep adjustment, with sales under sustained pressure. The company has proactively adhered to a core strategy of stabilizing prices, managing inventory, and boosting sell-through. This involved moderating shipments to support distributors in reducing stockpiles and stabilizing market prices, which is expected to result in an approximately 16% year-on-year decrease in first-half revenue.
Secondly, the company intensified its foundational market efforts, increased consumer engagement activities to enhance the experience of its aged spirits' quality and culture, and temporarily elevated market investment, leading to sustained high levels of sales and marketing expenses during the period.
An industry commentator noted that the core challenges facing the sector are clear: subdued income expectations and weak consumer confidence have led to a market slowdown and consumption stratification. Severe product homogenization across the market, intensified price competition among channels, and high social inventory levels compound the issue. In this context, Shede's strategy of prioritizing market investment and distributor destocking represents a trade-off of short-term profitability for long-term sustainable development.
Challenges in the Sub-Premium Segment
As a representative player in the sub-premium baijiu segment, with core products priced between 300 and 800 yuan, Shede faces heightened pressure during this industry transition. On the demand side, the business banquet and gifting scenarios, which are crucial for sub-premium brands, continue to shrink. Consumers are either trading up to high-end brands like Moutai and Wuliangye or opting for more cost-effective products in the 100-300 yuan range, leaving the sub-premium segment in a difficult middle ground.
On the supply side, this price band is being squeezed from both above and below. High-end brands are extending downward to capture share, while regional brands and upgraded affordable offerings are intercepting demand from below.
Broader Industry Context
Shede's sharp performance decline reflects the broader difficulties within the baijiu industry. A mid-year industry report highlighted a typical scenario of declining volume, price, and profit, with over 86% of surveyed companies experiencing falling profit margins and a majority expecting continued downward adjustment in the latter half of the year. Key challenges include shrinking business and gifting demand, a shift towards rational consumption, and significant pressure on the distribution channel, with many retailers reducing operations and distributors exiting, pushing inventory reduction pressure upstream to producers.
A recent report from Goldman Sachs characterized the current phase as the "very early stage of recovery" with signs of stabilization, suggesting the most challenging inventory destocking period may be over. However, the report also significantly lowered profit forecasts for most baijiu companies for 2026-2028, with cuts of up to 52% for mid-to-high-end brands. It anticipates industry revenue and profit recovery in 2027, alongside increased divergence among regional players.
Strategic Shift and Future Outlook
Facing the reality of shrinking consumption occasions and shifting demand structures, the industry consensus is moving towards a true consumer-centric (C-end) focus. This requires shifting resources from channel incentives to consumer cultivation, upgrading capabilities from distribution to sell-through operations, and changing the growth logic from selling to distributors to reaching consumers' glasses. Shede's actions in the first half—increasing consumer experience investment and actively managing inventory—embody this strategic shift.
In its announcement, Shede stated that for the second half of 2026, it will maintain strategic focus, implementing a core strategy of "brand elevation, channel deepening, and full consumer orientation." The company aims to explore and create new business models suitable for the evolving consumption environment to enhance its comprehensive competitiveness and drive sustainable, steady development.
At the market close on July 10th, Shede Spirits' share price rose 3.94% to close at 34.59 yuan per share, with a total market capitalization of 11.5 billion yuan.
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