Core Viewpoint - The rise of domestic coffee brands in China is highlighted, showcasing the innovative development path of the Shenzhen Airbus Star Wanjia Coffee Chain Management Co., Ltd. and its chairman Zhu Shiyao, who integrates Yunnan Dali's coffee beans into his coffee vision [1][2]. Company Overview - Shenzhen Airbus Star Wanjia Coffee Chain Management Co., Ltd. is led by Zhu Shiyao, who transitioned from a nuclear physics professor to a coffee chain entrepreneur at the age of 80, marking a significant cross-industry entrepreneurial journey [2][4]. - The company emphasizes product innovation and brand building as core principles to stand out in a competitive coffee market [6][10]. Product Development - The product line includes both online and offline offerings, such as canned coffee drinks, solid coffee beverages, and upcoming functional coffee products, catering to diverse consumer needs [8]. - The coffee beans used, known as Zhu Kula coffee beans, are sourced from Dali, Yunnan, benefiting from the region's unique climate and soil conditions, which enhance the flavor and aroma of the coffee [6][8]. Market Positioning - Zhu Shiyao aims to position Airbus Star Coffee as a "little Huawei" in the coffee industry, aspiring to become a Chinese equivalent of Starbucks and promote the national brand globally [10]. - The company is actively involved in promoting coffee culture through various activities, aiming to deepen consumer engagement and appreciation for coffee [11]. Future Plans - The company plans to continue enhancing product quality and service levels while promoting coffee culture, ensuring a better coffee experience for consumers [11].

Financial Data and Key Metrics Changes - The company reported a gross margin expansion of close to 200 basis points, reaching approximately 67% by the end of Q2 [36] - The EBITDA margin is expected to grow by 70 to 90 basis points in fiscal '25, aiming for a close to 19% EBITDA margin by the end of the fiscal year [41][122] Business Line Data and Key Metrics Changes - The Prestige business is impacted by challenges in China, Travel Retail Asia, and Australia, contributing to a decline of roughly 3 points in sales [12][31] - The Consumer Beauty segment is facing challenges in the U.S., also contributing to a 3-point impact on sales [12] Market Data and Key Metrics Changes - Retailers are exhibiting cautious inventory management, leading to a gap between sell-out and sell-in, particularly in the Prestige and Fragrance categories [14][68] - The U.S. market is showing strong sell-out growth, with some weeks reaching 50% to 60% growth prior to the holiday season [60] Company Strategy and Development Direction - The company plans to launch two major blockbuster products in fiscal '26 to drive organic sales growth [28] - There is a focus on expanding distribution for key brands in the Prestige division, particularly in the U.S. and emerging markets [30][97] - The company is shifting resources from Asia to the U.S. and European markets to capitalize on growth opportunities [60] Management's Comments on Operating Environment and Future Outlook - Management acknowledges that the current sales trend is unsatisfactory but remains optimistic about the long-term growth potential of the beauty category, particularly in Fragrances [121] - The company is committed to outperforming the beauty market despite macroeconomic uncertainties and regional challenges [92] Other Important Information - The company is evaluating its portfolio for long-term opportunities and return on investment, considering potential divestitures or M&A to enhance exposure to faster-moving categories [111] - The gross margin reached a record level of approximately 70%, indicating strong operational performance [122] Q&A Session Summary Question: Thoughts on retailer replenishment and issues in China - Management noted that 20% of the business is facing challenges, particularly in China and Travel Retail, with cautious inventory management from retailers impacting sales [11][14] Question: Structural and competitive challenges in U.S. color cosmetics - Management highlighted that the U.S. color cosmetics market is facing structural challenges, with a need for both heritage and new brands to drive growth [20][21] Question: Sales growth expectations for fiscal '26 - Management expects improvement in sales growth in fiscal '26, driven by retailer inventory normalization and significant product launches [26][31] Question: Margin outlook and cost structure - Management confirmed a healthy P&L with gross margin expansion and a focus on maintaining discipline in cost management while supporting brand initiatives [36][40] Question: Performance of Prestige Fragrances - Management indicated that Prestige Fragrances are holding up better due to their unique offerings and higher entry barriers compared to other categories [44][45] Question: Travel Retail performance outside Asia - Management acknowledged that Travel Retail in Asia is lagging, but the Americas and Europe are performing well, with a strategic shift in resources to capitalize on these markets [60][62] Question: Retail channel shifts and online competition - Management confirmed that e-commerce, particularly through platforms like Amazon, is growing rapidly for both Consumer Beauty and Prestige brands [70][71] Question: Pricing strategy amid FX impacts - Management plans to implement moderate price increases in the low single digits while monitoring market elasticity [74][75] Question: Inventory levels and sell-in versus sell-out - Management noted ongoing adjustments in inventory levels at wholesalers and retailers, with positive sell-in for Fragrances expected to continue [81][82]