Guo Circle (02517.HK), often dubbed the "MIXUE GROUP of the hotpot world," reported substantial profits for 2025 after two years as a public company. The father-daughter leadership team, featuring a founder with a literature background and his academically accomplished daughter, has successfully managed operations spanning sales, supply chain, and investment.

Despite a doubling of its share price in 2025, the stock remains approximately 60% below its all-time high. A key challenge for 2026 will be managing its franchisee network, a strategy that offers both significant benefits and risks.

Revenue from rural stores contributed significantly to an 88% surge in net profit. On April 7, Guo Circle released its impressive 2025 annual report.

The report indicated that several key financial metrics reached their highest levels since 2020. Revenue for 2025 was RMB 7.81 billion, surpassing the RMB 7.17 billion recorded in 2022 and representing a 20.71% year-on-year increase from RMB 6.47 billion in 2024.

Gross profit for 2025 was RMB 1.69 billion, a 19.04% increase from RMB 1.42 billion in the previous year. Net profit attributable to shareholders soared to RMB 432.9 million, nearly doubling from RMB 230.6 million in 2024, with a growth rate of 87.76%.

The company attributed the revenue growth primarily to an expansion in its store count and the integrated sales strategies involving new product launches and membership programs, which boosted sales to franchisees. The annual report highlighted 2025 as a pivotal year for deepening its "community central kitchen" strategy and expanding the "eating at home" market segment.

Growth was significantly driven by the rural market. A net 1,004 new stores were opened in townships during the year, bringing the total to 3,010 and solidifying its leading position in lower-tier markets. The total number of instant retail stores nationwide reached 11,566, a net increase of 1,416 from 2024. This means new rural stores accounted for 70% of the national store expansion in 2025.

The journey from a single store in 2017 to over 11,500 stores in 2025 has been challenging. Henan Guo Circle Supply Chain Management Co., Ltd. was founded in 2015 by Yang Mingchao, Meng Xianjin, and Li Xinhua. Its consumer-facing brand, "Guo Circle Food Market," gained widespread recognition through endorsements by comedian Yue Yunpeng. The first physical store opened in Zhengzhou, Henan province, in 2017, followed by multiple funding rounds in 2018.

Originating from Zhengzhou and following a budget-friendly strategy similar to MIXUE GROUP, Guo Circle earned its nickname. Coincidentally, both Guo Circle's founder, Yang Mingchao, and MIXUE GROUP's founder, Zhang Hongchao, share the character "Chao" in their names.

In 2019, the corporate predecessor, Guo Circle Supply Chain (Shanghai) Co., Ltd., was established as the headquarters. The company was restructured into a joint-stock company, Guo Circle Foods (Shanghai) Co., Ltd., in 2023. It listed on the Hong Kong Stock Exchange in late 2023, becoming the "first stock in the home ingredients retail sector." Its share price peaked in late January 2024 before entering a prolonged decline, hitting a record low in January 2025, down nearly 90% from the peak. Despite the strong rebound in 2025, the current share price remains far below its historical high.

Founder Yang Mingchao, 55, now serves as Chairman, Executive Director, and CEO. A 1994 graduate with a bachelor's degree in Chinese Language and Literature from Zhengzhou University, he has successfully transitioned into a leader in the catering industry.

Notably, his daughter, Yang Tongyu, has also joined the company. The 28-year-old, described as an academic high-achiever, holds a BA from the University of the West of England (2018) and an MSc from Loughborough University (2019).

Yang Tongyu currently holds the positions of Executive Director and Vice President at Guo Circle. She is also the Chairperson of Guo Circle Investment Management (Shanghai) Co., Ltd., a wholly-owned subsidiary, primarily responsible for managing affiliated factories and handling investment, financing, and capital market activities. Additionally, she serves as a delegate to the Henan Provincial People's Congress and as a standing committee member of the Luyi County CPPCC.

Franchising remains the core profit driver for Guo Circle. According to the 2025 annual report, the number of franchised stores far exceeds company-operated locations.

In 2025, the company had 11,554 franchised stores nationwide, a sharp increase of 1,419 from 2024. In contrast, it operated only 12 self-owned stores, three fewer than the previous year. Sales to franchisees accounted for 81.4% of total revenue, though this was a decrease of nearly 5 percentage points from 2024, with a corresponding increase in sales from other channels.

The gross profit margin for 2025 was 21.6%, slightly lower than the 21.9% in 2024 and below the 22.17% in 2023. The company explained that this was due to the lower gross margins of other sales channels compared to franchisee sales; the increased proportion of revenue from these other channels pulled down the overall margin.

Guo Circle continues to emphasize its "four-store format" strategy, which includes urban community stores, township stores, Guo Circle stir-fry shops, and Guo Circle camping shops. Looking ahead to 2026, the company aims to surpass 14,500 total stores, implying a net addition of over 2,934 stores, with an estimated store closure rate below 4%. Compared to just 1,441 stores nationwide in early 2020, a net increase of ten thousand stores over seven years is a remarkable achievement.

However, heavy reliance on franchisees is a double-edged sword. The benefit lies in the mature, easily replicable model that enables rapid expansion, boosting revenue and profit in a straightforward manner. The downside is the increasing complexity of managing a growing franchisee network. As market competition intensifies, if Guo Circle's popularity wanes, franchisees may shift to hotter brands. Losing franchisees would directly impact the company's revenue and profits.

Furthermore, the company faces pressures from rising inventory levels, up 16.1% from 2024, and a significant 81.7% year-on-year increase in accounts receivable, issues closely linked to franchisee management.

The annual report's risk factors acknowledge these challenges. Guo Circle stated that firstly, failure by the company, its franchisees, or suppliers to maintain effective product quality control could significantly harm brand reputation and operations. Secondly, the performance of franchised stores majorly impacts the company's results, but the company cannot fully control or effectively monitor their operations or guarantee the maintenance of existing franchisee relationships. Thirdly, past growth has heavily relied on rapid store network expansion, and there is no assurance that this network can be maintained or future expansion plans successfully executed.

Therefore, developing profitable channels beyond the franchise model may be the crucial issue for Guo Circle to address in 2026.