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Limited seats available, first come first served. Let us embark on the journey of sustainability together! [Click to register] Source: Wenxuan Finance. A business model in which franchisees bear terminal risks, high-end pricing supports brand premiums, and an exclusive specialty model counters platform-based competition is now facing structural challenges in the current consumer environment.
Observer丨San Wei Reviewer丨Wang Heng. "Pagoda lost 700 million yuan in 2 years" trended on Weibo. This 700 million yuan represents the cumulative losses for the 2024 and 2025 fiscal years. However, the recently released 2026 interim results announcement shows that Pagoda has already turned a profit. Between loss and profit, what exactly has this "first stock in China's fruit chain retail" gone through?
Where did the 700 million yuan in losses come from?
Shenzhen Pagoda Industrial (Group) Corporation Limited (referred to throughout as: Pagoda) was founded in Shenzhen in 2001 by Yu Huiyong, a native of Jiangxi. In January 2023, Pagoda listed on the Hong Kong stock exchange at an issue price of HK$5.6. That year was its peak: full-year revenue of 11.39 billion yuan, net profit attributable to shareholders of 360 million yuan, and 6,093 stores by year-end.
The turning point began in 2024, when revenue fell to 10.27 billion yuan, down 9.8% year on year, and the company recorded its first loss, amounting to 386 million yuan; in 2025, revenue fell another 20.4% to 8.17 billion yuan, with a loss of 317 million yuan (according to the 2025 annual report). Combined over the two years, the loss totaled about 700 million yuan. The number of stores also contracted in tandem: a net decrease of 966 in 2024 and a net decrease of 659 in 2025, leaving only 4,468 stores by the end of 2025, more than a quarter below the peak.
As of the end of 2025, among the 4,468 stores, 4,460 were franchise stores, with only 8 self-operated stores remaining, meaning franchise stores accounted for over 99%. To understand how Pagoda lost money, one must first see clearly its revenue structure. More than 99% of Pagoda's stores are franchise stores, and headquarters revenue mainly comes from supplying goods to franchisees rather than from terminal retail sales at stores.
The gross margin was 11.5% in 2023, falling to 7.4% in 2024 and further to 7.3% in 2025. Gross profit fell from 1.315 billion yuan in 2023 to 760 million yuan in 2024, a decline of more than 40%. Revenue from product sales to franchise stores, the pillar of income, dropped from 7.396 billion yuan in 2024 to 5.912 billion yuan in 2025, a sharp fall of 20.1%, directly driving overall revenue down by more than 20% year on year. With revenue shrinking sharply while costs could not be compressed in tandem, profit margins were rapidly squeezed.
How did the gross margin decline?
The first half of 2025 was the most typical: revenue fell by just over 20%, but costs fell only 16%, and the gross margin plunged from 11.1% in the same period of 2024 to 4.9%. This is a vivid illustration of operating leverage in fresh produce retail: when revenue declines, costs such as warehousing, logistics, and spoilage are difficult to compress in tandem, and profits are devoured with multiplied amplification. According to Frost & Sullivan data, the spoilage rate in China's fruit retail industry generally ranges between 35% and 45%, and as a chain brand specializing in fruit, Pagoda is far more exposed to this pressure than general retailers that use fruit as a traffic-driving category.
More unfavorably, expenses rose rather than fell. In 2024, Pagoda renovated stores, increased promotion, and hired a "Better Life Ambassador," causing selling expenses to rise from 481 million yuan to 605 million yuan, an increase of more than 25%. Revenue was declining while expenses were expanding, sales volume did not keep pace, and profit margins were squeezed from both ends.
Behind the turnaround
In the first half of 2026, Pagoda turned a profit. According to its recently disclosed interim report, Pagoda's first-half revenue was 5.008 billion yuan, up 14.5% year on year, and net profit attributable to shareholders was 33.56 million yuan, compared with a loss of 342 million yuan in the same period last year. The gross margin rebounded sharply from 4.9% in the same period a year earlier to 12.2%, with gross profit of 609 million yuan, up 182.5% year on year.
On the numbers, Pagoda did turn a profit. But breaking down this interim report, the source of the turnaround was not a recovery in the traditional fruit retail main business, but rather the combined result of consolidating new businesses, compressing expenses, and improving operating efficiency. The incremental growth mainly came from two new businesses. The first was the "Seven Star Alliance" formed in January this year: Pagoda only provides the supply chain, while 7 regional brands handle store openings, and 1,951 partner stores contributed 720 million yuan in consolidated revenue and 56 million yuan in gross profit. The advantage of this model is that it is asset-light; Pagoda does not bear store rent or labor costs and only earns money from the supply chain, with revenue directly consolidated into the financial statements.
The second was the B2B platform Banguo, with a transaction volume of 1.4 billion yuan, up 21.9% year on year. But note that transaction volume is not equal to revenue, and B2B itself has relatively thin gross margins, so its contribution to profit is limited. The expense side also improved. In the first half, selling expenses were 286 million yuan, up 11.4% year on year, mainly due to increases in employee benefits and depreciation of right-of-use assets brought by the consolidation of Seven Star Alliance stores; administrative expenses were 226 million yuan, up only 4.4% year on year; R&D expenses were 38.636 million yuan, down 16.9% year on year.
More importantly, there was structural optimization in expense ratios: the selling expense ratio, administrative expense ratio, and R&D expense ratio fell by 0.2, 0.4, and 0.3 percentage points respectively year on year, to 5.7%, 4.5%, and 0.8%. Revenue growth of 14.5% outpaced expense growth, and positive operating leverage began to appear. There were two more pieces of evidence of improved profit quality. First, operating cash flow turned sharply positive to 126 million yuan from -123 million yuan in the same period a year earlier; second, adjusted net profit reached 61 million yuan, with an adjusted net margin of 1.2%, up 7.9 percentage points year on year.
In addition, as of the end of June, total membership reached 97.7 million, and online channel orders accounted for 27.8%; after the launch of the AI middle platform, intelligent customer service reduced the customer service team's labor costs by 44%, and remote intelligent store inspections were 5 times more efficient than traditional methods. At the same time, revenue from traditional fruit retail stores rose only slightly by 0.1% year on year. Based on a rough calculation from financial report data, after excluding the 720 million yuan from Seven Star Alliance, organic revenue was about 4.3 billion yuan, slightly down about 2% from the same period last year. In other words, if the newly consolidated business is removed, Pagoda's own old base is still shrinking.
The first-half net profit of 33.56 million yuan corresponds to revenue of 5.008 billion yuan, a net margin of less than 1%.
Where is the problem?
Closing stores, cutting staff, and squeezing expenses can pull the loss figure back into positive territory within a few quarters. But the real problem Pagoda faces is not something short-term contraction can solve; it is that the old model struggles to adapt to new changes. More than 99% of Pagoda stores are franchise stores, and among 4,468 stores at the end of 2025, only 8 were directly operated. Headquarters makes money by supplying franchisees: the more that is sold, the higher the revenue, so it tends to open more stores and push more inventory; meanwhile, rent, labor, and spoilage are all borne by franchisees.
Headquarters earns from supplying goods, but the risk all sits with the stores: franchisees face relatively high purchase prices and limited room to mark up, so gross margins are squeezed from both ends; when foot traffic declines, pushed inventory is hard to sell, fruit is perishable, and losses fall directly on franchisees, forming a cycle of "the more inventory is pushed, the more is lost; the more is lost, the more stores close." More troublesome is quality control. Fruit is highly difficult to standardize, and the A-grade and B-grade standards set by headquarters are easily distorted across thousands of franchise stores. In 2024, a Wuhan store was exposed for using rotten fruit to make fruit cuts, which eroded consumer trust; in August 2025, Chairman Yu Huiyong publicly said that "Pagoda has been walking the path of educating consumers to maturity for so many years, and we will not cater to consumers," and the related video caused an uproar, with the stock price falling as much as 8% intraday, pushing the brand further into opposition with consumers.
Today, Pagoda's rivals are no longer just street-corner fruit shops. Platforms such as Meituan Xiaoxiang Supermarket, Hema, JD Seven Fresh, and Dingdong Maicai treat fruit as a traffic-driving product and can sell it at a loss while making money from other categories; Pagoda specializes in fruit and has no room to spread risk. More critically, its main battlefield is still offline. In the first half of 2026, online channel orders accounted for 27.8%, still below the average level of peer general supermarkets, and in fruit sales rankings on platforms such as Meituan Flash Purchase and JD Daojia, it has been surpassed by general supermarkets such as Yonghui and Hema.
Pagoda has invested heavily in the supply chain and built a nationwide cold-chain warehousing and distribution network, which was a moat in the traditional retail era, but in the instant retail era, the denser front warehouses and more flexible delivery networks of major platforms are filling in that moat. A business model in which franchisees bear terminal risks, high-end pricing supports brand premiums, and an exclusive specialty model counters platform-based competition is now facing structural challenges in the current consumer environment. The capital market is a true reflection of its current situation. As of the midday trading session on October 15, Pagoda's stock price was HK$1.44, down 5.57% that day, with a total market value of about HK$2.88 billion; its price-to-earnings ratio (TTM) was 42.08 times, and its price-to-book ratio was 0.95 times, having already fallen below net asset value; its 52-week stock price range was HK$1.270 to HK$2.394. Compared with the issue price of HK$5.6 in January 2023, the stock price has cumulatively fallen by more than 70%.
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