Xiabuxiabu Earnings: Management Lowers Guidance on Pricing and Margin Headwinds

We trimmed our fair value estimate for no-moat Xiabuxiabu to $4.7 per share from $4.9, after management lowered full-year 2023 guidance. While softening macroeconomic conditions are certainly a factor, the business' underperformance in same-store sales in China is concerning. With Xiabuxiabu being the only restaurant operator under our coverage that lowered unit opening guidance for 2023, the business seems to be facing more challenges than its peers. We still think Xiabuxiabu's shares are undervalued, but we believe continued profitability concerns could create a more attractive entry point. We recommend investors wait until ongoing macroeconomic weakness is fully priced before buying Xiabuxiabu.