Mid-year results from Luzhou Laojiao, once a top performer in the baijiu sector, have landed with a thud, revealing a sharp downturn in both revenue and profitability. The company reported revenue of 10.472 billion yuan, a steep 36.35% year-on-year decline, while net profit dropped 43% to 4.339 billion yuan. Even more striking, operating cash flow plunged 66% from 6 billion to 2.1 billion yuan, underscoring the severity of the slowdown.

Data from Wind shows that Luzhou Laojiao Company Limited maintained profit growth above 20% as recently as 2023, but momentum reversed sharply by Q4 2024 when profit growth turned negative. The slide has continued since, with Q4 2025 seeing a staggering 96.4% profit collapse alongside a 60% revenue drop. The trend persisted into Q2 2026, with revenue falling 65.5% and profits shrinking by 80%, marking a dramatic reversal of fortune.

Similar to the selling pressure seen in Kweichow Moutai from major holders, Luzhou Laojiao Company Limited has also faced significant reduction by the China Securities Finance Corporation (CSF), which cut its stake by one-third. The CSF trimmed its holdings from 32.31 million shares to 22.22 million shares, netting roughly 900 million yuan based on average prices. While public funds and insurers have stepped in to absorb some of the selling, retail investors have been left exposed to the downturn.

The core issue lies in weakening consumer demand, particularly for high-end baijiu. Sales of mid-to-high-end products fell to 9.2 billion yuan, down from 15 billion yuan a year earlier, a 38.86% decline that accounts for the bulk of the revenue shortfall. In response, the company has scaled back spending, including logistics and warehousing costs, while advertising expenses were trimmed 18.47% to 50.1 million yuan. Interestingly, promotional discount spending increased by 3%, reflecting efforts to stimulate demand.

Investors have reacted with alarm, questioning how the company can sustain dividends amid falling revenue and shrinking cash flow. The mid-year report outlines a shareholder return plan committing to no less than 8.5 billion yuan in dividends for 2026. While operating cash flow for the first half stands at just 2.1 billion yuan, the company holds 26.1 billion yuan in monetary funds and 23.2 billion yuan in undistributed profits, suggesting dividend payments are likely secure for now.

Market sentiment remains bearish, with some investors predicting a 5% drop and others bracing for a limit-down move. There are also concerns that, like Moutai, Luzhou Laojiao Company Limited could drag down the broader baijiu sector. Consumption trends remain weak, the impact of restrictions on official drinking continues to be a headwind, and shifting preferences among younger consumers are all weighing on baijiu sales volumes.