Despite Shede Spirits' attempts to break through current challenges via diversified positioning, given the extended payback period for cultural tourism projects, significant uncertainties remain regarding whether this business can truly deliver sustainable growth for the company.

In the first half of this year, Shede Spirits Co.,Ltd. (600702.SH) once again delivered declining results for both revenue and net profit. Financial reports indicate that during the reporting period, company revenue fell 17.41% year-over-year to 2.701 billion yuan, while attributable net profit dropped 24.98% year-over-year to 443 million yuan.

During this period of deep adjustment in the baijiu industry, characterized by overall sales pressure and widespread price inversions, the company's mid-to-high-end products and regular liquor both experienced declining gross margins, with significant contraction in markets outside Sichuan province and continued weakening in distributor payment willingness. Despite weak performance indicators, Shede Spirits continues expanding production capacity.

What draws particular market attention is that since Fosun's takeover, Shede Spirits' senior management team has undergone multiple changes in key positions, creating uncertainties for strategic continuity and team stability.

Facing the dual challenges of declining performance and management team turbulence, the company is attempting to identify new growth drivers through cultural tourism industry positioning. Whether this strategy represents a breakthrough solution or will create additional pressures remains to be validated by time.

**Comprehensive Product Growth Deceleration Creates Significant Performance Pressure**

Half-year reports show that during the reporting period, Shede Spirits' revenue declined 17.41% year-over-year to 2.701 billion yuan; attributable net profit fell 24.98% to 443 million yuan; gross margin reached 65.71%, decreasing 3.73 percentage points year-over-year.

This trend closely correlates with overall pressure across the baijiu industry. The China Alcoholic Drinks Association's latest "2025 China Baijiu Market Mid-term Research Report" indicates that from January to June this year, peak season demand recovery in the baijiu market remained unobvious, with overall sales performance remaining lackluster. Notably, the price segments with the best current market performance have generally shifted downward to the 100-300 yuan range; while the three segments experiencing the most severe price inversions are 800-1,500 yuan, 500-800 yuan, and 300-500 yuan, reflecting continued significant pressure in mid-to-high-end markets.

Under this backdrop, all of Shede Spirits' business segments have been affected. In the first half, the company's mid-to-high-end liquor achieved revenue of 1.973 billion yuan, declining 24.15% year-over-year, with gross margin also falling 1.25 percentage points year-over-year to 76.82%; regular liquor revenue increased 15.86% year-over-year to 445 million yuan, but gross margin declined 5.56 percentage points year-over-year to 43.04%. Additionally, glass bottle business revenue decreased 5.9% year-over-year to 232 million yuan.

Regarding first-half operational performance, Shede Spirits stated that the baijiu industry overall remains in a deep adjustment period, with intensified industry competition and pressured baijiu product sales, while customer confidence remains in a recovery phase, particularly with sub-premium product consumption demand still awaiting recovery.

From regional performance perspectives, Sichuan province market revenue declined 13.91% year-over-year to 783 million yuan; markets outside the province fell 21.24% to 1.635 billion yuan.

By sales channel, wholesale agency channels achieved revenue of 2.082 billion yuan, declining 23.72% year-over-year. As of the end of the first half, the company's liquor product distributor count reached 2,585, a net decrease of 78 from the end of 2024.

Facing performance growth pressure, Shede Spirits is actively advancing cost and expense management. During the period, the company's first-half operating costs declined 7.32% year-over-year to 926 million yuan; various expenses also showed significant contraction. Among these, sales expenses fell to 572 million yuan, decreasing 13.09% year-over-year; administrative expenses dropped 19.49% to 247 million yuan; R&D expenses also compressed 13.37% year-over-year to 42 million yuan.

Even with Shede Spirits' substantial reduction across various expense categories, its net profit margin still declined 1.74 percentage points year-over-year to 16.35%, reaching a new low since mid-2018.

**High Inventory Persists Amid Counter-trend Expansion, Creating Strategic Concerns**

Against the backdrop of the baijiu industry facing overall performance growth deceleration and weak sales momentum, high inventory has become an important risk factor that enterprises cannot ignore.

As of the end of the first half, Shede Spirits' inventory scale reached 5.603 billion yuan, increasing 15.34% year-over-year. Looking at extended timeframes, from 2022-2024, company inventory scales were 3.583 billion yuan, 4.424 billion yuan, and 5.219 billion yuan respectively, showing significant growth trends.

Additionally, Shede Spirits' contract liability scale continues contracting. Data shows that from 2022 to 2024 and the first half of 2025, company contract liabilities were 298 million yuan, 276 million yuan, 165 million yuan, and 157 million yuan respectively, with year-over-year changes of -54.80%, -7.38%, -40.40%, and -3.02%, reflecting continued weakening in distributor purchasing and payment willingness.

Amid inventory growth, Shede Spirits still has capacity expansion projects under construction. Public information shows that in 2022, Shede Spirits initiated capacity expansion projects with total investment of 7.054 billion yuan. During the period, the company invested 105 million yuan in this project, with cumulative investment of 1.762 billion yuan by period end, representing 31% project completion.

Half-year reports indicate that project construction funding sources primarily consist of company proprietary funds and bank borrowings. To support project construction, long-term borrowings surged 109.8% in the first half to 905 million yuan. It should be noted that the company's short-term borrowings during the same period were 844 million yuan, with monetary funds at 1.516 billion yuan, indicating that interest-bearing debt scale has exceeded monetary funds.

Review reveals that Shede Spirits' capacity expansion projects advanced in recent years represent important supporting investments for the "aged liquor strategy" implemented since 2019. However, this long-term strategy faces challenges at the internal governance level.

Since Fosun Group's takeover in 2020, Shede Spirits' senior management has been in continuous flux, including key positions such as chairman, president, and CFO, with frequent senior-level personnel turbulence raising market concerns about strategic continuity and operational stability.

Specifically, in January 2023, Fosun executive Ni Qiang assumed the chairman position, with Shede veteran Pu Jizhou serving as co-chairman. However, less than a year later, Ni Qiang stepped down from the chairman role, retaining only director status, with Pu Jizhou taking over comprehensive management responsibilities. In March this year, Vice President and Chief Financial Officer Zou Qingli also announced his departure; at the end of last month, Director Ni Qiang resigned from his director position due to "work reasons," completely exiting Shede Spirits, with his original term scheduled to run until September 2026.

Analysis suggests that such high-frequency personnel changes not only expose unstable factors in corporate governance structure but may also trigger issues such as inconsistent management thinking and impeded strategic advancement, creating uncertainties for Shede Spirits' long-term development.

Against the backdrop of continued senior management turbulence, Shede Spirits' performance growth has continued decelerating, shifting from growth to decline in 2024 with obvious deterioration. Market data shows that from 2022 to 2024, company operating revenue growth rates gradually slowed from 21.86% to 17.04%, ultimately falling to -24.41%; net profit performance was even more severe, with attributable net profit growth rates during the same period significantly narrowing from 35.31% to 4.98%, then plummeting 80.46% in 2024.

Facing performance growth pressure, Shede Spirits is actively exploring new growth pathways, turning attention toward the liquor-tourism integration sector, attempting to establish new growth curves during the industry's deep adjustment period.

In March this year, Shede Spirits announced plans to jointly establish a joint venture company with controlling shareholder Sichuan Tuopai Shede Group Co., Ltd. and non-related party Shehong Tongquan Liquor Industry Investment Development Co., Ltd. to advance the "Shede Liquor-Tourism Integration Project." According to plans, the project's total investment amount is 1.2 billion yuan, with Shede Spirits contributing 588 million yuan for a 49% stake. The company stated that this project aims to integrate regional cultural tourism and liquor resources, strengthen brand cultural experiences, and broaden profit channels. However, the project's investment recovery period is estimated at approximately 11.47 years.

Although Shede Spirits attempts to break through current challenges via diversified positioning, given the extended payback period for cultural tourism projects, significant uncertainties remain regarding whether this business can truly deliver sustainable growth for the company.