On the night of April 28, Luzhou Laojiao Co.,Ltd. (000568.SZ) released its annual report. The data revealed that this century-old distiller, which has long proclaimed itself the "Originator of Strong Aroma" and maintained growth for a decade, saw its revenue drop by 17.52%, with net profit shrinking by nearly 20%.
Behind these figures lies a clear echo of an old era's conclusion for the industry.
The impact is far more severe than it appears. The growth narrative of the past decade came to an abrupt halt before this single page of results. Revenue of 25.731 billion yuan represents a 17.52% year-on-year decline; net profit of 10.831 billion yuan shrank by 19.61%; earnings per share were 7.36 yuan, a drop of nearly 20%. This marks the first time since 2015 that Luzhou Laojiao has reported a simultaneous decline in both revenue and net profit.
Notably, this was not a double-digit decline spread across the full year, but a collapse concentrated in the fourth quarter. Single-quarter revenue was 2.604 billion yuan, slashed by over 60% year-on-year; net profit attributable to shareholders was a mere 68.3193 million yuan, plummeting 96.37%. The company essentially operated at a loss for the quarter, with the income statement nearly zeroing out. The first three quarters bore nearly 90% of the year's profit, while the cliff-like clearance in Q4 resembles a major purge at both financial and channel levels.
Profits fell more sharply than revenue, suggesting not merely a cyclical correction but a crack in the underlying growth logic.
Examining the product lineup reveals pressure everywhere. Sales of mid-to-high-end liquor for the full year reached 22.968 billion yuan, down 16.74%, constituting nearly 90% of the company's revenue base. Low-end liquor fared worse, with revenue of 2.638 billion yuan shrinking 23.93% year-on-year. While high-end liquor declined less than low-end, it bears a disproportionate profit burden, meaning the impact beneath the surface numbers is far more severe than it appears.
A research report from Guojin Securities highlighted a subtle but significant detail: within the mid-to-high-end category, the product structure is quietly shifting downward. The gross margin for this segment declined slightly by 0.9 percentage points to 90.9%. While 90.9% remains an enviable level industry-wide, that 0.9-point dip is telling—to protect market share, core major products are experiencing hidden losses characterized by "increased volume but decreased price per ton." The trick of trading price for volume hasn't yet caused major waves in the financial statements, but the brand's sense of scarcity and premium pricing power are being quietly eroded.
The dominance of Guojiao 1573, a sharp blade during industry tailwinds, becomes a critical vulnerability in a headwind. Accounting for over 65% of revenue, every price fluctuation ripples through the entire operation. More critically, the mid-range and foundation are weak: the Tequ and Jiaoling series struggle to gain ground, while low-end products continue to bleed. This "solitary peak with a collapsing midslope" structure makes Luzhou Laojiao inherently less stable in turbulent times compared to competitors with more robust product portfolios.
The Channel Contradiction Focusing solely on the financial statements risks missing the truly critical issues. In April, Luzhou Laojiao suddenly announced a nationwide suspension of shipments for all product lines, citing the need to "rectify pricing, channels, and policies." This system-wide "shock therapy" indicates one thing: channel conflicts can no longer be contained, and drastic measures are necessary.
The ex-factory price for Guojiao 1573 is approximately 980 yuan, yet the wholesale market struggles to hold 860 yuan. Dealers lose over 120 yuan on paper for every bottle sold. The company allocated 800 million yuan in subsidies to stem the bleeding, but the average dealer profit margin remains suppressed below 3%, rendering the business nearly unprofitable.
Inventory pressure is even more suffocating. By the reporting period's end, dealer inventory commonly exceeded three months, reaching six months in some regions—far beyond safe levels. Stock sitting in warehouses ties up capital. To recover funds, dealers are forced to dump goods at low prices, exacerbating price inversion. The vicious cycle of "forced stocking, price drops, more forced stocking, further price drops" tightens its grip.
The "Five-Code Integration" traceability system, intended as a tool to manage cross-regional sales, has morphed in implementation into a mechanism for monitoring and imposing fines, drawing complaints from retailers and eroding the already thin trust between manufacturer and channel. The data looks impressive: over 12 million cases of five-code products distributed annually, more than 56 million bottles opened by consumers, 13.6 million scan participants, and an opening rate nearing 80%. But numbers are one thing, sentiment another. It remains uncertain whether technical measures can mend fractured trust.
On complaint platforms, reports of cloudy liquor, suspended particles, damaged packaging, and odd odors have increased. More disheartening is the subtle downgrading of the brand image.
To protect market share, promotions and bundled sales have become routine. The稀缺感 and prestige of Guojiao 1573 are being worn down by repeated price promotions, sliding from "luxury item" toward "ordinary business liquor," widening the gap with rivals like Moutai and Wuliangye. Compounding this are longstanding, unresolved issues: a proliferation of sub-brands and excessive "developer" wines. The market is flooded with various "Luzhou Laojiao" series products of mixed quality, diluting the core value of the master brand.
How to Break the Impasse? Traces of a strategic shift can be seen in the company's expense structure. Annual sales expenses decreased by 8.51% to 3.237 billion yuan. However, a breakdown shows advertising expenses were cut by 17.6% to 1.276 billion yuan, while promotional expenses surged 15.47% to 1.281 billion yuan.
Administrative expenses were cut by 12.57%, and R&D expenses shrank 17.29%, as cost-cutting measures reached internal operations. But beyond the expense structure, cash flow presents a more concerning figure: net cash flow from operating activities was 7.123 billion yuan, a drastic drop of over 60% compared to 19.182 billion yuan in 2024. The company attributed this to "decreased cash received from sales of goods and reduced bill discounting," meaning collections are becoming more difficult. The channel lacks funds, and pressure is flowing back upstream to the manufacturer.
Despite the plunge in cash flow, shareholder dividends remain generous. The 2025 cash dividend is approximately 8.5 billion yuan, representing 78.48% of net profit. Since listing, cumulative dividends total 60.56 billion yuan. High dividends may please the capital markets, but at a critical juncture with operating cash flow sharply contracting and channel inventory piling up, this near-"bloodletting" approach to dividends risks draining future strategic investment and channel recovery capabilities. This is a difficult calculation.
A Guojin Securities research report dated April 29 offered a similar assessment: while the Q4 clearance was sharp, Q1 2026 performance largely met expectations. The report suggested this proactive contraction is making room for long-term development, stating that "cash flow and channel order are improving sequentially, balance sheet risks have been relatively fully cleared, and once consumer sentiment recovers, there is potential for upward elasticity and sustainability."
The strategy of trading space for time sounds logical, but the cost is real. Contract liabilities (dealer prepayments) decreased by 912 million yuan in Q1 2025, a clear signal of the channel voting with its feet. Proactive clearance is fine, provided the channel system doesn't disintegrate during the purge.
The Q1 2026 report shows further declines: revenue of 8.025 billion yuan, down 14.19% year-on-year; net profit attributable to shareholders of 3.708 billion yuan, down 19.25%; and adjusted net profit of 3.684 billion yuan, down 19.84%. A positive note is net cash flow from operating activities at 4.543 billion yuan, a 37.35% year-on-year recovery, indicating sequential improvement. However, the underlying trend of double-digit declines in revenue and profit persists. The deepest winter may not yet be over.
Looking across the industry, no one has it easy. In Q1 2026, aside from Moutai's slight 1.47% net profit increase, leading distillers almost universally saw declines: Shanxi Fenjiu reported dual declines of 9.68% in revenue and 19.03% in profit; Yanghe fared worse with drops of 26.03% and 32.73% respectively; Gujing Gongjiu also declined by 18.59% and 31.03%. Luzhou Laojiao's declines of 14.19% and 19.25% place it in the middle of the pack within the industry.
The old playbook—forcing inventory to boost sales, raising prices to support profits, pressuring dealers to stockpile to absorb capacity—has fueled the baijiu industry's growth for years. Now, it has finally collided with a new cycle of "declining volume and rising quality" and can no longer function.
Many analysts judge that, based on the performance of leading distillers, the industry is accelerating risk release, and an inflection point may arrive later than expected.
For Luzhou Laojiao, the immediate greatest test is not how quickly growth can resume, but whether it can accomplish three difficult tasks during this deep industry reshuffle: restore health to the channel pricing system, make dealers believe again in profitability, and convince consumers to pay a premium for the "Originator of Strong Aroma" once more.
2026 marks a critical chapter for this century-old company. The industry winter persists, and tactical moves like shipment suspensions and price controls are far from sufficient. How to reform the channel model, strengthen brand management, rebuild the product portfolio, and recalibrate manufacturer-dealer relationships—this constitutes a deep, inside-out reconstruction. Whether the company emerges standing after the storm, and even more solidly than before, depends on how resolute and thorough this reconstruction proves to be.
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