Chagee Holdings Limited American Depositary Shares (NASDAQ:CHA) Q3 2025 Earnings Call Transcript

Chagee Holdings Limited American Depositary Shares (NASDAQ:CHA) Q3 2025 Earnings Call Transcript November 28, 2025

Operator: Good morning and good evening, ladies and gentlemen. Thank you for standing by, and welcome to Chagee’s Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that today’s event is being recorded. With that, I’ll now turn the call over to the first speaker today, Ms. Alicia Guo, Investor Relations Director of the company. Please go ahead, ma’am.

Alicia Guo: Thank you. Hello, everyone, and welcome to Chagee’s Third Quarter 2025 Earnings Call. With us today are Mr. Junjie Zhang, our CEO; and Mr. Aaron Huang, our CFO. The company’s financial and operating results were released by the Newswire earlier today and are currently available online. Before we continue, I refer you to our safe harbor statement in the earnings press release, which applies to this call. Any forward-looking statements that we make on this call are based on assumptions as of today, and Chagee does not undertake any obligation to update these statements. Also, this call includes discussions of certain non-GAAP financial measures. Please refer to our earnings release, which contains a reconciliation of non-GAAP measures to GAAP measures. With that, I will turn the call to our CEO, Mr. Junjie Zhang. Please go ahead, sir.

Junjie Zhang: [Interpreted] Hello, everyone. Thank you all for joining the Chagee’s Third Quarter 2025 Earnings Conference Call. First and foremost, I would like to express my sincere gratitude to every member of the Chagee team. In a dynamic and challenging markets, our resilience and strong execution have driven steady progress and built a durable foundation for the long-term future we envision. Over the past few years, we have consistently asked one core question. Why does Chagee exist? Our answer is clear that is bringing people together through tea. This founder mission and commitment drives us to focus on user value as the starting point for all strategies. Every decision and initiative aims to expand and depend a community of people, who connect with our brand value.

Guided by this belief, we will steadfastly execute our high-quality development strategy. We’re dedicated to delivering high-quality products rather than chasing traffic and trends. We prioritize our product excellence. Our ongoing raw material upgrades ensure tea that is authentic, wholesome, warm and culturally rich serving as cornerstone of every experience and a key trust pillar for our brand. We emphasized the user experience, creating engaging content and building emotional connections to make each cup a shareable story. Our offering goes beyond a beverage to a distinctive experience rooted in Eastern Aesthetics. Store quality remains our focus and global expansion will depend on each store’s health and profitability. We pursue health growth across our network, identify high potential locations and strive to make every Chagee store the go-to place for friends gathering over tea.

In the face of short-term market fluctuations, we would maintain our strategic results. We’re deeply confident in a vast potential of global tea beverage and in a distinctive path, Chagee has chosen the one driven by culture and quality. These are my reflections on the core of our business and future direction. Now I will turn the call over to our CFO, Aaron, who will detail the specific results of our strategic execution this quarter. Thank you.

Hongfei Huang: Hello, everyone. Thank you for joining our earnings call. Before we dive into the detail, please note that all amounts are in RMB and all comparisons on a year-over-year basis, unless otherwise stated. So in the third quarter, our total net revenue were RMB 3,208.3 million, a decrease of 9.4% year-over-year and 3.7% sequentially. Total GMV for the quarter was RMB 7,929.5 million. Despite the challenging macro environment and the intensified competition, we maintained our focus on profitable growth and the disciplined execution. Non-GAAP net income was RMB 502.8 million with a non-GAAP net margin of 15.7%, reflecting underlying resilience of our business model. Let me highlight several key operational achievements.

First, our global teahouse network reached 7,338 with a net addition of 300 teahouses in the third quarter. Overseas expansion accelerated, contributing 54 net new teahouse as we successfully entered the new market, including the Philippines and Vietnam. Second, product innovation continued to drive the momentum. In the home market, we will launch the low caffeine, Jasmine Green Tea Latte become top 3 best seller driving strong user acquisition. BOYA Jasmine Green milk tea earned the best in nature or organic beverage title at the 2025 World Beverage Innovation awards, underscoring our strong product quality and the leadership in healthy beverage innovation. In Asia Pacific, the [indiscernible] tea launch performed exceptionally well, validating our regional product strategy.

Furthermore, our member ecosystem remains robust. Total registered members reached 222 million by the end of the third quarter, representing an increase of 15 million sequentially and 36.7% year-over-year. Our franchisee network also demonstrated a remarkable stability. The store closure rate remained low at 0.3% for 3 consecutive quarters, underscoring the health and the confidence of our franchisee partners. Now let me provide a more detailed financial analysis. Starting with the revenue. Our total net revenue for the third quarter were RMB 3,208.3 million mainly driven by the continued expansion of our teahouse network. Among them, net revenue from franchisee to teahouse worth RMB 2,811.6 million, representing 87.6% of our total net revenue.

Net revenue from company-owned teahouses increased by 63.8% to RMB 396.7 million, accounting for 12.4% of total revenue. The increase was primarily driven by the expansion of our company-owned teahouses network in both Greater China and overseas markets. In Greater China, total GMV decreased by 6.2% year-over-year to RMB 7,629.2 million. The average amongst the GMV for teahouses in Greater China was RMB 378,506, a year-over-year decline in reflecting both high base in last year and a more severe competitive environment, including the impact of the delivery platform subsidy competition. Even so, our commitment to maintain premium position and the brand integrity remain central. Meanwhile, overseas markets continue to show substantial progress with GMV increasing 75.3% year-over-year and 27.7% quarter-over-quarter to RMB 300.3 million.

This growth is mainly driven by strategic store expansion and growing brand awareness, positioning the overseas market as a key pillar of our future growth. In the third quarter, we expanded our overseas presence by adding a net 54 stores, bringing our total store number to 262 stores as of September 30, 2025. This growth was fueled by our successful entries into Philippines and Vietnam as well as we continued steady expansion in Malaysia, Thailand and Indonesia. During the quarter, we added 18 new stores in Malaysia and then 9 each in both Thailand and Indonesia. Our commitment to being an exceptional employer has earned the prestige award in key markets, including HR Asia’s Best Companies to Work For in Asia 2025 in Malaysia and certified OJT center plus NS Mark Gold status in Singapore.

These honors strengthened our brand and help us attract the top talent needed for the growth. While our store expansion continues, we recognize pressure on GMV performance at existing stores with domestic and overseas same-store sales GMV declining by 27.9% and 23.4%, respectively. This softness is attributed to a high base from the same period last year and intensified competitive pressure. However, our franchisees’ fundamentals remaining solid as evidenced by consistently lower closure rate. We expect the same-store GMV growth to remain under pressure in the near term. Turning to margin. Our gross profit calculated by excluding cost of materials, storage and logistics from net revenue reached RMB 1,726.5 million this quarter, resulting in a strong gross margin of 53.8%.

This marks a solid improvement both year-over-year, up from 50.1% in the third quarter of last year. The margin improvement results primarily from 2 factors. The first is the benefit of expanding economic upscale and the second is decrease the purchase costs driven by our persistent procurement optimization initiatives. On operating expenses, share-based compensation expenses this quarter were RMB 104.9 million. This results our — this reflects our commitment to long-term employee engagement and align their goal with shareholders to provide greater clarity on underlying operational performance. We will reference non-GAAP operating results with a full reconciliation available in our earnings release and the Form 6-K. Operating income was RMB 454.4 million, representing an operating margin of 14.2%.

Excluding share-based compensation expenses, non-GAAP operating income was RMB 559.3 million, representing a 17.4% margin. The above-mentioned margin differences reflects our step-up investment in talent recruitment for global expansion, including brand building to support new product launch, R&D to enhance our offering and the digital infrastructure to elevate customer experience. The operating costs for company-owned teahouses were RMB 271.4 million, up 94.7% from a year ago and up 47.4% from the second quarter of 2025. As of September 30, 2025, we operated 367 company-owned teahouses, up from 239 in the second quarter of 2025. On a per store basis, operating costs have decreased compared to the second quarter of 2025, showing continually improved efficiency at the store level.

Other operating costs increased by 7.3% to RMB 178.9 million largely due to high payroll support to the expansion of our global store network. On a non-GAAP basis, other operating costs accounted for 5.4% of revenue compared to 4.7% a year ago. Sales and marketing expenses for the quarter were RMB 304.5 million, down 13.4% from a year ago, achieved a strong discipline with branding promotion. On a non-GAAP basis, sales and marketing expenses representing 9.2% of revenue compared to 9.9% a year ago. General and administrative expenses reached RMB 517.4 million, up 59.7% year-over-year driven by an expanded workforce and additional office facility supporting global operations. On a non-GAAP basis, G&A expenses represented 13.4% of revenue compared to 9.1% a year ago.

Income tax expenses represent 21.4% of income before tax, slightly higher than 20% a year ago. This was primarily driven by the impact of share-based compensation expenses recognized during the quarter. We achieved our 11th consecutive quarter of profitability with GAAP net income of RMB 397.9 million. Non-GAAP net income, excluding share-based compensation expenses was RMB 502.8 million with a non-GAAP net income margin of 15.7% compared to 18.3% last year. This demonstrates our ability to maintain healthy profitability and margins while continuing to invest for future growth. During the quarter, basic net income per ordinary share was RMB 2.07 and diluted net income per ordinary share was RMB 2.03. On a non-GAAP basis, basic net income per ordinary share was RMB 2.63, and diluted was RMB 2.57.

Turning to liquidity. We ended the quarter with roughly RMB 9,142 million in cash and cash equivalents, restricted cash and time deposits. This robust balance sheet, coupled with our 11th consecutive quarter of profitability, provides a solid foundation. Our Board has approved a special cash dividend of USD 0.92 per ordinary share or ADS totaling approximately saw USD 177 million payable on or around December 15, 2025, to shareholders of record as of December 8, 2025. This distribution underscores our commitment to enhance shareholder value and reinforce investment — investor confidence in our business model. Our strong cash generation ability enables us to return capital while continue to invest in growth. This special dividend also demonstrates our conviction in the company trajectory and our dedication to reinforce our market confidence in our long-term prospects.

At this time, we will not provide formal financial guidance. Our strategic focus is on key pillars that foster sustainable long-term shareholder value. We are dedicated to continue product innovation and strategic brand investment to enhance market presence. At the same time, we are boosting operational efficiency to optimize resources and drive improved performance, positioning the company for agile and sustained growth. We are confident in delivering our long-term strategy and growth potential. We will persistent with prudent management, strategic investment in future drivers and commitment to creating durable value for shareholders. We believe our solid financial foundation, clear strategic road map and the exceptional team will help us capitalize on long-term opportunity despite the market dynamics.

With that, I will turn the call back to the operator to begin the Q&A session. Operator, please go ahead.

Q&A Session

Operator: [Operator Instructions] Our first question comes from the line of Sijie Lin from CICC.

Sijie Lin: [Interpreted] Sijie Lin from CCC. Could you please speak more about how will the high-quality development strategy be executed?

Junjie Zhang: [Interpreted] Thank you for your question. Regarding our high-quality development strategy, we have a clear execution path across 4 core dimensions: brand, product, experience and channels. First, in high-value brand building, we’re upgrading our brand to speed up the launch of brand experience, Teahealth and streamline the customer journey. At the same time, we’re growing specialty houses like tea culture theme locations and intangible culture heritage theme teahouses to deepen our cultural rules and highlight what makes the brand stand out. Meanwhile, we are building a high-quality product system with 4 core priorities. First, we will define and uphold strict premium tea centers. Second, we’ll enhance our core raw materials.

Third, we will improve food quality from end to end. Finally, we will introduce the 4.0 menu and guarantee uniform quality for all customers wherever they are. Next, we are driving cross-category innovation and new consumption scenarios. With the 4.0 menu, we’re adding exciting new categories like special tea to make things up. We’re also expanding into additional consumption scenarios, including breakfast and evening hours to improve store utilization across different times. In addition, we’ll fine-tune how products are shown while they are being prepared to make the experience even better for customers. We’re also enhancing the membership experience with the revamped membership system to build a true member community in a mutual benefit network.

This will boost the stickiness and repeat purchases for our 222 million members. At the same time, we’re optimizing store facilities and technologies to improve efficiency and customer satisfaction. Finally, we’re reshaping a strong channeled strategy. Our teahouse network is expanding at a healthy pace with 300 new teahouses added this quarter, and we will maintain a steady place to teahouse expansion. We’re also pushing ahead with standout flagship teahouses such as the Chagee Teahouse in Hong Kong and the product store at 2025 Rolex Shanghai Masters. These showcases really highlight what the brand stands for and enhance our brand awareness.

Operator: Our next question comes from Xiaopo Wei of Citigroup.

Xiaopo Wei: [Interpreted] Could you share more color on the overseas network — overseas market network expansion as well as a store operating in the non-China regions?

Hongfei Huang: All right. Thank you, Xiaopo. So our overseas markets are a pivotal growth driver. The momentum is solid across our channels. This quarter, we entered into the 2 new markets, Philippines and Vietnam. While our store count in Malaysia has exceeded 200 currently. So this is a big milestone. Our local operations are showing strong signal. Our localized products and the marketing campaigns will achieve the greatest success. So for example, our September collaboration with Pop Mart generated a tremendous response across the Southeast Asia. In Malaysia, the Green Grab series made up 50% of cups sold on the first day, making our all-time high. So during the campaign first week, teahouses in Singapore achieved average daily sales of over 500 cups of the product.

Our Peach Oolong Milk Tea also performed exceptionally well. It captured over 30% of cups sold in Indonesia within 15 days since launch and about 16% in Thailand, making a top seller in both markets. So this successful localization efforts, combined with our steady store expansion pace giving — give us strong confidence in overseas growth in Southeast Asia. So moving forward, we will continue to deepen our presence in those markets we’ve entered. Steadily expand into new markets and keep improved per store profitability and the brand impact.

Operator: As there are no further questions, I would like to hand the conference back to management for closing remarks.

Alicia Guo: Thank you again for joining our call today. If you have any questions, please feel free to contact us or request through our IR website. We look forward to our next call with everyone. Have a great day.

Operator: Today’s conference. Thank you for participating. You may now disconnect. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]