On August 15, PAGODA GP (02411) released a profit warning for the first half of 2025, expecting revenue to decline by no more than 25% year-on-year, with a net loss attributable to shareholders of 330-380 million yuan. The announcement has drawn widespread market attention. However, taking a longer-term perspective and conducting an in-depth analysis of industry trends and corporate strategic adjustments, this profit warning may conceal investment opportunities overlooked by the market.

**Consumer Market Recovery and Retail Innovation Wave**

On July 15, the National Bureau of Statistics released economic performance data showing that China's GDP grew 5.3% year-on-year in the first half, reaching 66 trillion yuan. Consumption, as the main engine of economic growth, contributed 52%, demonstrating the strong resilience of domestic demand.

Data from the National Information Center further confirms the consumption recovery trend: offline consumption heat index increased 25.5% year-on-year in Q2, with a cumulative increase of 18.9% in the first half, showing continued vitality in offline consumption scenarios.

From the consumer price perspective, the national Consumer Price Index (CPI) rose 0.1% year-on-year in June, ending four consecutive months of decline. Core CPI increased 0.7%, reaching a 14-month high. Combined with anti-involution policy environment, malicious price competition is expected to ease, creating a healthier development space for the retail industry.

Additionally, offline retail formats are revitalizing through model innovation. Emerging formats like discount snack stores are flourishing, while traditional retailers such as Yonghui and Bubugao are undergoing transformation waves, achieving significant customer flow recovery through optimizing product mix and enhancing service experience.

For PAGODA GP, which focuses on offline stores as its core battlefield, its transformation and exploration in improving cost-effectiveness and optimizing consumer services align well with current industry trends. If the company can capitalize on this development opportunity, it may unlock new growth potential.

**Strategic Transformation Causes Short-term Pain, Turnaround Logic Gradually Emerging**

According to the profit warning announcement, PAGODA GP's revenue and profit decline stems mainly from two short-term factors: store network adjustment and consumer concessions.

According to the company's 2024 earnings conference, PAGODA GP initiated strategic transformation from the second half of 2024, centering on the "high quality, high value campaign" and launching the "Good Fruit Gratitude" activity. This involves selecting one high-attention, high-value, cost-effective fruit product monthly as a traffic driver, aiming to enhance price competitiveness and improve customer repurchase rates and brand recognition.

This transformation has created short-term pressure on performance. To implement the "high quality-price ratio" strategy, the company proactively reduced gross margins to benefit consumers, directly impacting current profit performance. Meanwhile, continued store network optimization in the first half, closing over 700 inefficient stores to improve overall operational efficiency, also contributed to the revenue and profit decline.

However, turnaround signs are quietly emerging. Recent brokerage research reports indicate that PAGODA GP's channel adjustments are nearing completion, with both single-store traffic and gross margins recovering simultaneously. Single-store traffic growth confirms that activities like "Good Fruit Gratitude" have successfully stimulated consumer demand and enhanced brand loyalty. The gross margin recovery demonstrates that traffic-driving products are gradually boosting higher-margin products, indicating that the company's efforts in product mix optimization and supply chain efficiency improvement are beginning to show results.

Additionally, the company's second growth curve - B2B business - has shown considerable growth momentum in recent years. The fruit B2B market is large-scale with highly fragmented competition, with CR5 less than 5%, presenting significant consolidation opportunities. Unlike the previous market dominated by supermarket customers, the emergence of new online and offline retail channels in recent years has continuously enriched fruit customer categories and market channels, which was also mentioned in the company's profit warning announcement.

The emergence of new channels and models may open new incremental space for the company.

**Comprehensive Outlook**

Overall, this interim profit warning may represent more of a short-term adjustment pain during the transformation period. According to the profit warning disclosure, the company has completed store network optimization in the first half and same-store performance has stabilized and recovered. The second half will focus on improving profitability through expanding product categories, optimizing product mix, and expanding store scale, while actively exploring new store types and developing new products and channels to restart expansion.

As expansion pace recovers, leveraging deep brand foundation, strong channel network, and mature supply chain system, PAGODA GP is expected to return to a growth trajectory. From a PB valuation perspective, the company's valuation remains at low levels. If performance gradually recovers, the valuation rerating process may present new investment opportunities.