Mixue Group, the Chinese drinks chain that sells most of its tea and ice cream for less than a dollar, paid shareholders a special dividend of 2.65 yuan a share on Friday, Nov. 6, a payout the company estimated at about 1.006 billion yuan. The cash went out after the company reported that its first-half profit fell 14.7% to 2.32 billion yuan.

For investors in Hong Kong's crop of listed tea chains, the payout shows where the sector now stands. Store counts are still climbing, but the cheapest end of China's drinks market is earning less on each yuan of sales, and the companies are returning surplus cash rather than promising faster profit growth. Mixue's shareholders approved the dividend at an extraordinary general meeting on Sept. 30, with a record date of Oct. 12, according to its filings with the Hong Kong stock exchange. Holders on the Hong Kong register were paid 3.08304 Hong Kong dollars a share.

Mixue's costs rise faster than its sales

Mixue's revenue rose 2.3% to 15.22 billion yuan in the six months to June 30, its interim results showed. Cost of sales rose 4.1%, which the company tied to spending on better ingredients, and gross margin slipped to 30.4% from 31.6%. Selling and distribution expenses climbed 22.9% and administrative costs 39.4%, mainly on marketing and staff, the filing said. Earnings per share fell 16.3% to 6.05 yuan.

The company has room to pay. Cash, deposits and wealth management products reached 21.64 billion yuan at the end of June, up 8.3% from December, and it had no bank borrowings, it said.

Menu prices remain low. The company said its core Mixue drinks typically sell for 2 to 8 yuan, and its Lucky Cup coffee for 2 to 10 yuan. It said it had switched Mixue's coffee from pre-ground to freshly ground beans and put fully automatic coffee machines into more than 3,000 Mixue stores by the end of June, while Lucky Cup moved to fresh milk and beans used within 60 days of roasting. Better ingredients at the same low price points are the squeeze the company describes in its cost line.

Expansion has slowed. Franchisees opened 5,455 stores in the first half, down from 7,721 a year earlier, while 1,289 closed, up from 1,187. The network still grew to 63,987 stores from 53,014. Outside mainland China, the count fell to 4,378 from 4,733, as Mixue trimmed stores in Indonesia and Vietnam while entering Mexico, Kyrgyzstan and Brazil.

Chabaidao and Guming take different paths

Sichuan Baicha Baidao Industrial, which trades as Chabaidao, is next in line to pay. Its shareholders approved an interim dividend of 0.15 yuan a share on Oct. 30, payable on Nov. 30 to holders on the register on Nov. 9, at 0.175226 Hong Kong dollars a share, the company said.

Chabaidao's first-half revenue rose 6.2% to 2.65 billion yuan and profit edged up to 344.7 million yuan from 332.9 million yuan, but gross profit fell to 797.5 million yuan from 814.8 million yuan, its results showed. Royalty and franchising income dropped 19.5%. The franchise network grew only slightly, to 8,778 stores, with 669 added and 499 closed in the half.

Guming, which runs the mid-priced Good me brand, grew much faster. Revenue rose 31.9% to 7.47 billion yuan and its store count rose 28.4% to 14,351. Reported profit fell 3.6% to 1.57 billion yuan, which the company's own adjusted measure, excluding items such as fair value changes on financial liabilities and listing costs, showed up 44.4%. Guming did not declare an interim dividend.

Sales at each Good me store held roughly flat: about 440 cups a day, against 439 a year earlier. Guming said more coffee drinks and a push into breakfast offset smaller subsidies from food delivery platforms. Fading delivery subsidies have also shown up in Luckin and Yum China's results.

Chagee's premium model under pressure

Chagee, the Nasdaq-listed tea chain, has yet to report its third quarter. Its last figures showed slow growth at the premium end too. Second-quarter net revenue rose 2.5% to 3.415 billion yuan on gross merchandise value of 7.66 billion yuan, KrASIA reported, while overseas gross merchandise value more than doubled to 504 million yuan. The chain had 7,639 stores worldwide at the end of June.

For Mixue, the next numbers come with its full-year results. The company said its network of roughly 64,000 stores now spans 17 countries, and investors will watch whether openings keep slowing and whether the gross margin, at 30.4% in the first half, stabilizes while its drinks stay at 2 to 8 yuan.