Super Hi International Holding (HKEX:9658) Q2 2026 Earnings Call

0:00 Dear esteemed investors and analysts, good evening. Thank you for joining SUPER HI INTERNATIONAL twenty twenty six Second Quarter Earnings Conference Call. The company leaders attending today's meetings are Mr. Di Yu, Executive Director and CEO and Ms. Qi Song, Chief Financial Officer and Board Secretary. Today's meeting content may contain forward looking statements, but not limited to the company's statements regarding strategies and business plans as well as outlook on performance prospects. The content of this earnings presentation and the comments and response to your questions represent management's view only as of today. Please refer to the latest Safe Harbor statements in the earnings press release, which applies to the conference call. The meeting is conducted in Chinese with an external agency providing simultaneous English interpretation.

0:52 In case of any discrepancies, the Chinese content shall prevail. The presentation materials have been uploaded to the company's IR page. Please feel free to review them. Now, we invite Mr. Li Yu, CEO and Executive Director of SUPER HI INTERNATIONAL to review the company's performance for the second quarter of twenty twenty six.

1:14 Thank you, moderator. Can everybody hear me okay?

1:21 Yes, we can. Please go ahead. Dear investors and analysts, good evening. I am Li Yu, CEO and Executive Director of SUPER HI INTERNATIONAL. Let me present to you the key highlights of SUPER HI INTERNATIONAL for the second quarter of twenty twenty This quarter, the company's earlier investment in employees and customers have further translated into operating improvements. Customer traffic and table turnover rates both improved year over year, while the employee cost ratio in several operating expense ratios declined, driving a significant year over year increase in operating profit. In Q2, Haidi and L restaurants are reserved 8,100,000 customer visits, up 5.2% compared to the previous year last year. Supported by customer traffic, overall table turnover rate for the quarter was 3.9 times per day. Same store turnover was 4.0 times per day, both up 0.1 times per day year over year. Both dining service at Haidi and our restaurants and also were expanding revenue sources, the revenue from delivery and other businesses both doubled this quarter, driven by the above business. The company achieved total revenue of $219,000,000 in the second quarter, representing a 10% increase year over year. This quarter company's operating profit increased by 118.9% year Y o Y. The operating profit margin increased by 1.8 percentage point Y o Y. Profit

2:52 growth significantly outpaced revenue growth, reflecting the continued conversion of companies earlier investment into the beginning of the operating leverage release. Now I will review the major operational initiatives that this quarter. First, continue to enhance the operational management of Haidia Lao restaurants. This quarter, we maintained management flexibility with each region autonomously adjusting operating strategies based on the local business conditions, market conditions and consumer trends. At the same time, we further strengthened the professionalism and support capabilities of the headquarter platform by introducing digital tools and new technologies. We enhanced our insights into the industry markets and consumers, empowering frontline restaurants in areas such as menu items, marketing and labor efficiency, thereby making improvements in the precision and execution efficiencies.

3:46 These second quarter is traditional low season judging from the table turnover performance. We believe that these initiatives have delivered a positive response. Second, in terms of products and menus, the first half of this year, the company fully integrated local consumer dietary habits, consumption trends and dining scenarios to drive menu optimization and new product development. For instance, in Southeast Asia, we introduced local flavors such as lemongrass, satay and basil, extended soup bases, snacks and beverage combinations around the core products to enhance the cross selling. At the same time, we optimized the existing products by improving taste of presentation and product combination, lowering the barrier for customer trial and enhanced product appeal. In addition, the company continuously conducts dynamic operations based on new product sales performance, customer feedback and regional market characteristics of providing customer with a more value oriented and differentiated consumption experience.

4:48 Third, in terms of membership and marketing, as of the end of June, the number of overseas members reached at 9,246,000. This quarter, we continue to improve customer management loop around sustained marketing, precise traffic acquisition and member operations. On the other hand, region combined the local consumption happens, holiday occasions, the preference of younger customer groups to continue to enhance brand exposure and reach new customers through IP collaborations and new product launches and new local events. On the other hand, we place greater emphasis on post marketing customer retention by further strengthening tiered membership operations using member exclusive activities, differentiated benefits, the customer communications, in store experience optimizations that we improve the member activities and visit frequency.

5:40 We're continuously exploring more scenario more across the scenario and the multi branded membership benefits hoping to gradually transfer one time and marketing traffic into long term membership relationships further enhancing customer repurchase and the store operating resilience. In terms of store expansion, this quarter, we opened one new Hai Ding Lau restaurant in South Korea, one in Vietnam. In the first half of this year, we opened a total of three Hai Ding Lau restaurants. At end of Q2, we operated a total of 129 Hai Ding Lau restaurants overseas.

6:13 To date, the number of signed but not yet opened Haidi Lau stores remain in the double digits. Meanwhile, based on the current construction schedules in July and August, we expect several new stores to be opened successfully in the second half of the year. In the full year, New store opening target is in the double digits. As of this quarter, the pomegranate plant has operated a cumulative total of top brands and twenty two second brand restaurant overseas. We continue to optimize the highball monotone project, which originated in Canada. And we're now opening up the second highball store in Japan. At the same time, the ISAKaya project in Japan is also steadily improving the stability with the potential for further replication. There is a country markets are exploring opportunities to independently incubate or replicate existing second brand formats.

7:07 That's my conclusion for the business performance for this quarter. I'd like to invite Qi Song to present the financial results. Thank you, Mr. Li. I will now report about the financial results. In Q2 of twenty twenty six, the company achieved a total revenue of $219,000,000 an increase of 10% year over year. HDL restaurant operating revenue was $198,000,000 up by 4.6% year over year. Number of the HDL restaurants increased by a net of three compared to the same period last year. Company served around 8,100,000 customer visits in this quarter, an increase of 5.2% year over year continuously to support the restaurant business. Beyond the dining business, the company continued to expand revenue sources. Delivery service reached 7,562,000 up by 105% year over year. During the period, each region continued to strengthen delivery operation investment, deepen collaboration with the major delivery platforms in each country, secure more promotional resources and online traffic of favorabilities.

8:12 They enrich their delivery product offerings to enhance product appeal in the delivery scenario. Other businesses reached $439,000 up by 119,700,000 year over year, mainly contributed by sales of food and seasoning under the Hailiadol brand and from the company's own central kitchens as well as the active development of some new restaurant business under the pomegranate plan. Overall, in this quarter, delivery and other business together generated $21,000,000 in revenue, up by 114,300,000 year over year. The share of total company revenue increased from about 5% in the same period last year to nearly 9.6% to further diversifying companies revenue. In terms of cost and expenses, overall operating efficiency improved compared to the same period last year. In the second quarter, raw material and consumable cost was US74 million dollars with a gross profit margin of 65.9%, down slightly by 0.1 percentage point year over year. Restaurant operating gross margin remained stable, mainly because of the central kitchen BN, the supply chain business has grown significantly versus the last year.

9:20 In terms of employee cost of 74,951,000 and the employee cost to revenue ratio decreased from 35.3% in the same period of last year, down approximately 1%, decreased as past two years of employee efforts and employee capacity building, staffing and store management to optimization have gradually been implemented. The labor efficiencies improvements have begun to materialize. Related expenses were $5,600,000 accounting for approximately 2.6% of revenue, down about 0.4 percentage, mainly due to revenue growth, the diluting rent expenses as well as adjustment in restaurant network layout reductions.

10:06 In short term utility expenses, dollars 7,000,000 accounting for approximately 3.3% of revenue, down 0.3% year over year. Depreciation and amortization, 21,000,000 accounting for 9.6% of our revenue, down about 0.3 year on year. In terms of travel communications and other operating related expenses, $25,783,000 accounting for about 11.8%, remaining broadly stable year on year. Overall, the declines in the employee cost ratio and expenses ratio for rent, utilities, depreciation and amortization were important factors in the operating margin improvement this quarter. Raw material and other expenses resources still have room for further optimization.

10:52 In Q2, the company achieved operating profit of US8.1 million dollars up by 18,900,000 from CNY 3,700,000 in the same period last year. Operating margin increased from 1.9% in the same period last year to 3.7%, up 1.8 percentage point year over year. As revenue grew, the employee cost ratio and several fixed operating expense ratio declined, driving the earlier investment in employees, customers and the store management to gradually translate into operating efficiency improvements. Although operating profit improved significantly, non operating items in this quarter were mainly affected by exchange rate fluctuations. The same period of last year, there was a net foreign exchange gain of 16,330,000.

11:39 For this quarter, there was a loss of

11:44 million dollars a negative swing of more than US20 million year over year. A company resulted recorded a net loss of after tax of US1.93 million dollars for this quarter compared to a net profit of million in the same period last year. Although final net profit was affected by nonoperating factors, but the company's core operating profitability improved significantly.

12:07 In terms of operating cash flow, company's for this quarter was a net inflow of $28,000,000 an increase of 6.2% compared with a net inflow of $26,000,000 in the same period as of the June 30. This year, companies' cash flow reserve was approximately $266,000,000 and overall liquidity remains ample to be used for continued store expansion. In terms of key restaurant operating metrics, the company served approximately 8,100,000 customers of visits per this quarter, up by 5.2%. And this reflects that high demand turnover ratio and as well as same day period is going up. Further improvement in the store customer traffic and overall spending per store for the quarter was $24.3 Daily revenue was $17,400 down slightly by 1.1.

13:03 And this overall restaurant operations, the customer traffic and table turnover have improved this quarter. Those single store operating quality in certain regions have a room for further optimization. By region market performance that diverge this quarter. And the table turnover in South Asia and East Asia continue to improve the turnover rate in North America and other regions are faced of pressure For Southeast Asia, hence the restaurant revenue for this quarter was 98.66%, up about 3.9%.

13:39 In term this is mainly driven by high customer traffic. And then in terms of average spending per customer, it was $18.6 flat year over year. Other overall Southeast Asian stores maintain a steady and upward operating trend in East Asia. Had you know, restaurant revenue was $3,700,000 up about 9.9% year on year. Average table turnover increased from 4.8 turns per day, 4.9

14:09 turns per day, continuing to maintain at a high level. And this is mainly because the customer decreased their spending from $29.4 in the same period down by $2 to 27.4 On a constant currency basis, average spending per customer in both countries actually increased year over year, excluding exchange rate disturbances. The East Asia continues to maintain a strong operating trend with a good customer traffic and the table turnover performance. In North America, Hai Ding Lau restaurants revenue was approximately 14,000,000, up about 6.6% year over year with the store count increasing from 20 to 22 average table turnover four turns. And in terms of the average spending per customer increased from 39.1% the same period to 41 but the higher average check has not fully offset the impact of the lower turnover in North America still needs to focus on improving customer traffic and operating efficiency.

15:07 Other regions, the restaurant revenue was 25.1% and down by 1.8%.

15:14 Average table turnover is 3.7 turns per day, down by 0.2 turns per day. This is mainly due to geopolitical volatility in The Middle East. This is still affecting the operation, though the impact is currently assessed to be gradually diminishing. Average spending per customer in other regions increased from 39.7% in the same period to 41%, primarily driven by exchange rate effects. Overall, regional operating performance in the second quarter showed some divergence. The

15:43 Southeast Asia improved, the East Asia continued to maintain a high level. North America and other regions need to further enhance the customer traffic and per store output. Same store performance, so there were 111 same store restaurants. Same store sales was approximately 179,000,000 down about 0.8%.

16:06 Among them, same store sales in Southeast Asia and East Asia increased by 2.50.9% year over year. Same store in other regions declined by two point seven percent and eight point five percent, and the same reason as a consistent over trend overall. Going forward, company will continue to focus on cooperation, customers, customer operations and in store operations driving further conversion of customer traffic improvement into per store sales and profitability enhancement. And we now welcome questions. And our first question comes from Danshong Wei from CICC. Please welcome. Thank you, Mr. Li. And Ms. Chief, thank you for giving me this opportunity.

16:51 And I have three questions. And number one is that we can see that in China and right now there is an emphasis on empowering through an intelligent middle platform. Does the overseas operation have any new ideas or plans regarding

17:07 middle platform constructions or organized structure adjustment? And the second is about the pomegranate plans.

17:20 How do you balance the mature single store model to share? And do you balance the long term investment, the cost of the new brands with the company's short term performance? Do you currently have any relatively mature mechanisms and methodologies to further improve the probability?

17:35 And my third question is about further optimization measures that there are for cost and expensive controls going forward. Thank you, Mr. Lai, for your question. There are a total of three questions, and I will take them one by one. In terms of the middle platform capability building, overseas is similar to China, but the overseas characteristic is that each country has a different consumer habits and labor regulations, supply chain tax and marketing environments. There's no single set of operating methods that can be directly replicated across all markets. Therefore, the principle for overseas middle platform construction is the headquarters should build common capabilities as well, whilst the regions and stores should run their local business as well.

18:20 In terms of a division of labor, headquarters centrally build common capabilities such as digital systems, bulk supply chain, personal management, financial management and membership systems, standards and infrastructure, regional teams and then adapt and implement these capabilities in combination with the local market conditions, whilst

18:40 specific operational decisions are left to the frontline teams who know the local markets and customers. From an organizational perspective, HQ's role will increasingly

18:53 become that of a supporting platform and frontline autonomy and operation will continue to be preserved. And but things such as food safety and service quality will not be relaxed in any way. Currently, there are two projects that are running relatively smoothly. One is Hypo Melaton. Currently, we have both in Canada and one in Japan. It's a simple and fast Cairo and easy to run low barrier. In terms of turnover efficiency and operating performance, both meet our expectations, we're also looking at The United States, Canada and other markets will continue to verify its recordability. Others is the Japanese izakaya, its product offering focused on sashimi, yakitori and Japanese side dishes at the moment in Tokyo, the customer acceptance and operation stability are continuing improving and the second store is being prepared in Osaka.

19:46 Regarding the balance between long term investments and short term performance, we use we verify the certainty with a small cost at each projects that start with one or two stores. The investment per store is not large. A trial and error cost is controllable. It will not have a material impact on the short term performance during the process. If operating performance or customer experience does not meet expectations, we'll make adjustment without blinding pursuing scale. So, the real significant spending comes in the scale replication, and we only allocate replication resources to models that have been verified and proven viable. So, once proven, the company has already designed the return path and expectation for projects in the replication phase.

20:36 Third question about the cost control. Currently, it's not about compressing cost across the board, but to narrow the gaps between the stores. There is still imbalance in operating performance among stores and lifting underperforming stores to the average levels. And this is a better way forward. And if we continue to compress this floor level investment, this will ultimately harm a customer experience and that's not the efficiency we want nor is it sustainable. We have identified two sources of improvement. The first is operating leverage as the second half enters the peak season. Customer traffic and the table turnover maintained good performance. Revenue growth itself will dilute relatively fixed costs such as labor running and depreciation.

21:26 Second is daily refinement and staffing and scheduling efficiency, procurement and supply chain and inventory shrinkage. We will continue to optimize these areas as routine work and not dependent on peak season. And right now, we still focus on our investments in pomegranate plan. And we are not going to be stopping due to short term profit pressure, but we'll control the pace and strictly manage budgets. So as you can see, with the new brands gradually contribute to revenue and the middle platform capability building completes, its major investment phase, this gap will gradually narrow. Thank you, Mr. Li, for your comprehensive response. Next question comes from Zheng Jun from Huatai Securities. Please.

22:16 Thank you, Mr. Li and Ms. Yu. This is Sung Ji from Huatai. I would like to congratulate the company on your very stable performance. My first question is that with more Chinese hotpot and catering brands going overseas, how do you view the competition and especially that you are quite competitive in the China market, how do you view the overseas competition? And especially for the pomegranate plant in this phase where the brands are not yet established, how do you view the competitors entry, for instance, in terms of your brand's buzz and what are the localized approach that you would adopt? And my second question is that we can see table turnover performance has been good. Average is steadily rising. What specific measures are used to improve the stores that need improvement?

23:13 In addition, what are the planned measures that you have in mind? Thank you. Great. Thank you, Ms. Zheng, for your questions. And I will take the first few questions, and Ms. Chi will answer the third question. Number one, in terms of overseas market, apart from Chinese cuisine and hot pot, we also look at the entire dining market Currently, overseas consumers' acceptance of Asian cuisine and Chinese food continue to rise. There's a lot of room for involvement. Our main brand is in the hot pot segment in Chinese cuisine. We're still cultivating the market and raising consumer awareness, far from a zero sum competition at the moment. Therefore, more Chinese brands going overseas is a positive sign. It validates the real demand existing and will also accelerate the process of overseas customers are getting to know and accept Chinese cuisine, expanding the overall category part. But of course, we maintain a healthy respect for competition. We will focus on doing our own things while continuing to enhance brand appeal through products and service and customer experience, especially by diversifying our customer base and continuing improving the proportion of local customers.

24:31 For pomegranate projects, they are relatively diverse, including incubating and operating restaurants and serving local cuisine. It's not about the brand, but it's about the model and the capability first. For these projects, being the first to enter is not the most critical factor. What matters the most is to really prove the single store model and make it replicable. Second, in terms of the overseas brand building, we don't really need to increase the marketing spend to buy the bus. We center on products and services store experience to let bus grow organically. Marketing expenses have always been kept at a reasonable level. And what we pursue is a discussion conversion, not just impressions. There are three layers. The first layer is to place marketing creativity and execution locally.

25:19 Teams in each region have considerable flexibility to collaborate with the local IPs, artists and games to plan around the local festivals and major events and to interact with the customers on the local online platforms so that the activities are rooted in local culture and feel familiar to local customers. Second is to make the products themselves carriers of communication. We launched a coriander themed product series in some of the regions. Coriander as an ingredient is strongly loved or hated by people. And so we build a complete product portfolio around this theme, expanding from soup base to dishes and snacks, generated excellent organic discussion and in store conversion. We plan this every season and with the same logic, the theme selection comes from the real interest of local customers, while supply chain and R and D are centrally supported by the company. And number three is to capture and retain the buzz. If it only comes once, then the value is limited.

26:21 We continue to connect the market activities, the member operations and online attention is directed to offline stores. And after arrival through membership benefits and refined operations, it is converted into repeat purchase and referrals. The buses, the entry point of membership and repurchase are the lasting accumulation. Finally, we must return to the fundamentals and no matter how front end marketing changes, the metric of win value is all about customer satisfaction. Customer willing to come again and recommend us to other people. This is where the brand influence truly takes root. Marketing amplifying the process, but cannot replace it. The third question about turnover performance and what are the specific measures that we have. I'll have Ms. Xu to answer this question.

27:06 Thank you, Ms. Zhong, for your question. I will take your third question. For Q2, our overall increased by 0.1 turn year over year. The trend is healthy, but there is indeed divergence among regions. The East Asia and the Southeast Asia performed better, while North America and other regions still have room for improvement. Take North America as an example. The issue for some stores is that the customer base structure is relatively concentrated and the coverage of our mainstream local customers are insufficient. For instance, if there are changes in the local immigration or visa policies, this can cause a fluctuation in traffic. In the short term, we'll drive store traffic by adjusting menu combination of peak operations. But at the end of the day, it's already about diversifying the customer structure, solid speed develops surrounding customer groups and member operations and localize the marketing, reducing reliance on any single customer segments. And this is our long term direction across all over all overseas markets in other regions.

28:08 There are external factors such as the geopolitics, which are beyond our control. What we can do is to adjust operating strategies and control expenses in a timely manner based on local conditions. At the moment, we can see that the negative impacts are gradually diminishing. In terms of mechanisms, the headquarters role is to help stores accurately identify problems and using operating data to attribute underperforming stores by table turnover on the store by store basis, whether it's a customer base issue, a trade area issue or operational issue and we will be looking at the solutions, for instance, whether we will be relocating adjustments and rather than continuing to invest just to maintain the store count. Thank you. That is very clear. And I would also like to thank both the CEO and CFO for their answers. Thank you.

29:01 Next question, please. It comes from in SITC. Ms. Li and Ms. Chu, this is Wei Zhang Bao from CITIC Securities. I have three questions. Number one is what is the outlook for the average check average unit price per customer trend in Q3 and Q4? And why what are these specific measures that you will be taking if there are price increases or decreases? And second, which region will be the focus for store openings in the coming quarters? Will you accelerate openings in the regions with a few current stores or enter into entirely new countries? Next question is on the investment and payback period and in each region compared with the past, are they improving, roughly flat or increasing?

29:54 And what are the reasons for these changes behind those, if any? Thank you, Mr. Wei, for your question. Your first question with respect to the unit price for Q3 and Q4. Right now, we don't really have any plans for a uniform price adjustment. We will not just simply pass all costs onto customers. Each market will adjust autonomously based on the local customer acceptance, the competitive environment and product structure. We pay more attention to the value perceived by customers rather than simply pursuing higher prices. For instance, we add new products across different price ranges, adjust the set meals and combo products and give customers more choices.

30:42 So that's our unit price. And with respect to store openings for the second half, we expect double digit new stores to open in North America, East Asia and Southeast Asia. In addition, there are still about a dozen of stores with a substantial progress among which stores in North America and The UK are already in construction phase and will open successively over the next two years. They own business expansion in existing countries continue to be handled by each country in a bottom up manner. And the project advancement pace in each country is basically consistent with its operating rhythm. For new entrants, headquarter will more cautiously assess market conditions, consumptions and specific site locations. There is currently no definite entry plan for new countries.

31:32 We are under discussion, but they are not yet definitive. On your third question, for new stores currently, we are looking at a standard payback period of three to four years roughly. Southeast Asia relatively faster, in Europe and America relatively slower versus the past that each region has become more careful and prudent in site selections. So, the overall store payback periods are more controllable and quality has also improved. For single store investment, the fluctuates due to factors such as location store size and the decoration style. In the meantime, decoration and labor costs in some markets have indeed risen over the past two years. We continue to control investments by optimizing store formats, decoration design, local procurement and construction management, and overall per store expenditure remains stable.

32:29 Thank you. Thank you, Ms. Chi, for your answer. Thank you. Our next question comes from funding securities, Ms. Jenny Lee. Thank you for giving me this opportunity to ask a question. I have two questions here. Number one, which is about the localization of supply chain. For instance, Singapore and Malaysia in these areas in Southeast Asia, do you have central kitchens? And do you have plans for localization of central kitchens and supply chains in these areas? And my second question is about the impact of exchange rate fluctuation on your net profit and hedging. Cause we can see that there is an impact to a certain degree on the net profit, and what are the control measures that you have taken, and perhaps you could share with us on those points.

33:37 Thank you, Ms. Ding, for your question. The first question on supply chain and central kitchens in Singapore and Malaysia, after many years of operation, procurement and supply chain systems have become mature for products that can be stably procured locally and meet quality requirements that we will localize as much as possible. For some core seasonings, our products, so whose local supply is not yet stable enough, we will continue to source from central kitchens that were established suppliers. Central kitchens do not necessarily expand linearly with the store counts. We will consider store density, delivery radius and capacity utilization. Existing central kitchens have a surplus capacity, then we will also try to do external sales to improve capacity utilization efficiency.

34:28 With respect to the exchange fluctuation for Q2, there was indeed quite pronounced. And this is mainly due to base effects. Same period last year, we recorded a larger foreign exchange gain. This year is a loss, positive and negative combined to amplify to the year over year fluctuation. But it should be emphasized that this is a non operating non cash impact from currency translation does not reflect the changes in the underlying business, excluding foreign exchange gain losses. Operating profit and operating profit margin in Q2 both improved significantly year over year. Therefore, we ourselves focus on the operating profit measures. In exchange rate management, our project has two layers. The first layer is natural hedging. That is most of our revenue and costs occur in the same market, local collections, local procurement, labor and rent repayments.

35:23 The higher degree of the business and localization, the smaller cross border exposure that truly needs to be managed. The second layer is for exposures that do exist such as a centralized funds and cross border settlements. Company will continue to monitor them and based on the size of exposure, hedging costs and local compliance requirements evaluate appropriate funds and exchange rate management methods. However, we will not engage in speculative forex operation just for the sake of reported numbers. Overall speaking, we're quite cautious. Thank you. Thank you, Ms. Chu. That's very clear. Thank you. Juchan Securities, Mr. Zhong Yecheng, please.

36:11 Ms. Zhong Yecheng, please. Hi, everyone. This is Zhong Yecheng from Zhou Shang Securities. I have two questions. Number one is about stores. If we divide them into mature stores, new stores and new stores, are there significantly differences in the table turnover and store model among them if we compare and which ones would perform better and or vice versa? And my second question is about incentives for overseas headquarter management teams. And we are going overseas early, and we have a large scale relatively sound talent pipeline with more and more Chinese cuisine brands going overseas. So it's likely that there are people who will be approaching yourself and your talent. So how do you ensure the team's stability?

37:04 Thank you for your question. And on the first point, the store age itself is not the key factor determining store performance and the difference among mature stores come from the trade areas and operational capabilities rather than how many years they have been open. The real impact of the store age is mainly in the first six months after opening, new stores need to go through a ramp up period of team integration, developing of surrounding customers and groups and stabilizing operating processes. This is a normal pattern. Taking 2024 as a dividing line, among 107 stores opened from 2018 to 2023, about 50 achieved a positive cash flow in the first months of opening. Among the 27 stores opened from 2024 to June this year, the proportion rose to about 78%.

37:55 In other words, the ramp up speed of the new generation stores is significantly faster than before. The underlying reason is that in recent years, we have tightened requirements and site selection standards, investment calculations, store format design and store manager reserves. Stores are opened more precisely and preparation before opening is also more thorough. Your second question, with respect to the evaluation, there are three levels and core of a store manager evaluation is about on one hand employees, on the other hand customers with a focus on customer satisfaction, employee development and long term store operating quality. Business results are included in incentives, but they are not only the only metric because focusing solely on short term profit can easily sacrifice employee and customer experience. Regional teams are more resource oriented. They're looking at operating performance, growth quality and talent development. The headquarter functional teams are evaluated on whether they can truly help frontline improve efficiency rather than merely completing their own tasks and targets.

39:06 In terms of talent stability, intensified competition is inevitable, but retaining people is not only about compensation, but also growth space and operating space. Haili and I went overseas early. Its greater advantage is that it has already cultivated a group of local store managers and regional managers from the frontline. They have a deep understanding of the local market and company culture. As new stores expand, new regions are entered, the new pomegranate business are explored. Outstanding managers will always have the next bigger stage. They can also share in the fruits of the business growth through incentive and mechanisms. This is our most fundamental way to maintain team stability. Thank you for your question. I would also like to thank the management for your very clear answers, and I also wish the company a bright future.

39:52 Thank you. Thank you very much, everyone. And in the interest of time, this concludes today's conference earnings call. I'd like to thank all the investors and analysts for joining us in today's call. Thank you, and we'll see you next time.