Q4 2025 TH International Ltd Earnings Call

April 14, 2026

Operator: Ladies and gentlemen, welcome to Tims China Q4 and Full Year 2025 Earnings Conference Call. All participants will be in listen-only mode during management's prepared remarks, and there will be question and answer session to follow. Today's conference is being recorded. At this time, I'd like to turn the call over to Patty Yu, Tims China's Public and Media Relations Manager, for prepared remarks and introductions. Please go ahead, Patty.

Speaker #1: Today's conference is being recorded. At this time, I'd like to turn the call over to Patty Yu, Team China's public and media relations manager, for prepared remarks and introductions.

Speaker #1: Please go ahead, Patty.

Speaker #2: Hello, everyone, and thank you for joining us on today's call. TH International Ltd announced its fourth quarter and full year 2025 financial results on air today.

Patty Yu: Hello, everyone, thank you for joining us on today's call. TH International Limited announced its Q4 and full year 2025 financial results earlier today. A press release as well as an accompanying presentation, which contains operational and financial highlights, are now available on the company's IR website at ir.timschina.com. Today, you will hear from Yongchen Lu, our CEO, Director, and Dong Li, our CFO. After the company's prepared remarks, the management team will conduct a question and answer session. You will find the webcast of today's earnings call on our IR website. Before we get started, I'd like to remind you that our earnings presentation and investor materials contain forward-looking statements, which are subject to future events and uncertainties. Statements that are not historical facts, including but not limited to statements about the company's beliefs and expectations, are forward-looking statements.

Speaker #2: A press release, as well as a presentation of the complaint, which contains operational and financial highlights, are now available on the company's IR website at ir.teamchina.com.

Speaker #2: Today, you will hear from Yongchen Liu, our CEO and Director, and Albert Lee, our CFO. After the company's prepared remarks, the management team will conduct a question and answer session.

Speaker #2: You will find the webcast of today's earnings call on our IR website. Before we get started, I'd like to remind you that our earnings presentation and the investor materials contain forward-looking statements, which are subject to future events and uncertainties.

Speaker #2: Statements that are not historical facts, including but not limited to statements about the company's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties, and our actual results may differ materially from those forward-looking statements.

Patty Yu: Forward-looking statements involve inherent risks and uncertainties, and our actual results may differ materially from those forward-looking statements. All forward-looking statements should be considered in conjunction with the cautionary statements in our earnings release and the risk factors included in our filings with the SEC. This presentation also includes certain non-GAAP financial measures, which we believe can be helpful in evaluating our performance. However, those measures should not be considered as substitutes for the comparable GAAP measures. The accompanying reconciliation information related to those non-GAAP and GAAP measures can be found in our earnings press release issued earlier today. With that said, I would now like to turn it over to Yongchen Lu, our CEO Director. Please go ahead, Yongchen.

Speaker #2: All forward-looking statements should be considered in conjunction with the cautionary statements in our earnings release and risk factors included in our filings with the SEC.

Speaker #2: This presentation also includes certain non-GAAP financial measures, which we believe can be helpful in evaluating our performance. However, those measures should not be considered substitutes for the comparable GAAP measures.

Speaker #2: The accompanying reconciliation information related to those non-GAAP and GAAP measures can be found in our earnings press release issued earlier today. With that said, I would now like to turn it over to Yongchen Liu, our CEO and Director.

Speaker #2: Please go ahead, Yongchen.

Yongchen Lu: Thank you, Patty. Good morning and good evening, everyone. Thank you for joining us today. As we just celebrated the 62nd anniversary of the globally renowned Tim Hortons brand and the seventh anniversary of Tims China, we're excited to continue serving our innovative and local relevant offers to our fast-growing loyal guests. As of 31 December 2025, China stood as the largest international market in Tim Hortons global system by number of stores. We continue our growth trajectory, generating total system sales of CNY 1.57 billion in 2025, a 7.6% increase compared with 2024, fueled by mainly 25 net new store openings and expanding our store network to 1,047 across 92 cities in China. Food sales as a percentage of the total revenues account for 33.4% in Q4 2025, increased from 24% in Q1 2023. Orders with food items account for 51% of total orders in Q4 2025.

Speaker #3: Patty: Good morning and good evening, everyone. Thank you for joining us today. As we just celebrated the 62nd anniversary of the globally renowned Tim Hortons brand, and the 7th anniversary of Team China, we're excited to continue serving our innovative, local, and relevant offerings to our fast-growing loyal guests.

Speaker #3: As of December 31, 2025, China stood as the largest international market in Tim Hortons' global system by number of stores. We continue our growth trajectory, generating total system sales of $1.57 billion in 2025, a 7.6% increase compared with 2024, fueled mainly by 25 net new store openings and expanding our store network to 1,047 across 92 cities in China.

Speaker #3: Food sales as a percentage of total revenues accounted for 33.4% in Q4 2025, up from 24% in Q1 2023. Orders with food items made up 51% of total orders in Q4 2025, an increase from 45.2% in Q1 2023.

Yongchen Lu: Increased from 45.2% in Q1 2023. 2025 marked a critical transition year for the company. We further solidified our differentiated strategic positioning in coffee plus fresh prepared foods, completing made-to-order renovations of over 74% system-wide stores, while strategically pruned certain underperforming stores, especially those non-MTO Express stores. On same-store sales growth, we managed to achieve overall comparable transactions growth of 2.7% in 2025. We had to apply higher discounts on delivery business to mitigate intensified competition due to aggregator platform dynamics, which led to a 2.4% decline in the same-store sales growth for system-wide stores in 2025. Despite the headwinds on fierce competitions, especially from low-price local brands, our team demonstrates strong resilience and maintain our margins well at both store and company levels.

Speaker #3: 2025 marked a critical transaction year for the company. We further solidified our differential strategic positioning in coffee plus freshly prepared foods, completing made-to-order renovations of over 74% of system-wide stores, while we strategically pruned certain underperforming stores, especially those non-MTO express stores.

Speaker #3: On same-store sales growth, we managed to achieve overall comparable transaction growth of 2.7% in Q4 2025. But we had to apply higher discounts on the delivery business to mitigate intensified competition due to aggregator platform dynamics.

Speaker #3: This led to a 2.4% decline in same-store sales growth for system-wide stores in 2025. Despite the headwinds on CS competitions, especially from low-price local brands, our team demonstrated strong resilience and maintained our margins well at both the store and corporate levels.

Speaker #3: 2025 full-year company-owned and operated stores contribution margin was 7%, compared with 7.4% in 2024, which was primarily attributable to the temporarily increased delivery-related costs due to aggregator platform dynamics.

Yongchen Lu: 2025 full year company-owned and operated stores contribution margin was 7%, compared with 7.4% in 2024, which was primarily attributable to the temporarily increased delivery-related cost due to aggregator platform dynamics. 2025 full year adjusted company EBITDA margin actually improved by 1 percentage point. With further optimized store capital expenditures and enhanced store unit economics, our 2024 vintage year company-owned and operated stores generated store contribution margin of nearly 15% in 2025, and are expected to achieve a payback period within two to three years. Our 2025 vintage year stores are still new, but are ramping up right now. We believe they will have similar unit economics too.

Speaker #3: The 2025 full-year adjusted corporate EBITDA margin actually improved by 1 percentage point. With further optimized store capital expenditures and enhanced store unit economics, our 2024 vintage year company-owned and operated stores generated a store contribution margin of nearly 15% in 2025 and are expected to achieve a payback period within two to three years.

Speaker #3: Our 2025 vintage year stores are still new, but are ramping up right now. We believe they'll have similar unit economics too. In the meantime, our company-owned and operated stores in Tier 1 cities, including Beijing, Shanghai, Guangzhou, and Shenzhen, and in those cities with 10-plus stores, generated over 10% and 7% store contribution margin in 2025, respectively.

Yongchen Lu: In the meantime, our company-owned and operated store in Tier 1 cities including Beijing, Shanghai, Guangzhou, and Shenzhen, and in those cities with 10+ stores, generated over 10% and 7% store contribution margin in 2025, respectively, outperforming other tier cities with lower store density. We will continue adding more company-owned and operated stores in existing stores to achieve a high economy of scale. In 2025, we strategically expanded our store footprint while maintaining capital efficiency, delivering absolute convenience for our customers. Leveraging several franchisee partnerships, we accelerated market penetration, entering 92 cities by year-end, including the debut of our first stores in Mianyang, Sichuan Province, Datong, Shanxi Province, and Xinxiang, Henan Province during Q4 2025. This growth strategy not only further strengthened our brand presence, but also ensured sustainable scalability through optimized resource allocation.

Speaker #3: We are outperforming other Tier cities with lower store density. We will continue adding more company-owned and operated stores in existing markets to achieve a high economy of scale.

Speaker #3: In 2025, we strategically expanded our store footprint while maintaining capital efficiency, delivering absolute convenience for our customers. Leveraging sub-franchisee partnerships, we accelerated market penetration, entering 92 cities by year-end, including the debut of our first stores in Lianyang, Sichuan Province; Datong, Shaanxi Province; and Xinxiang, Henan Province, during the fourth quarter of 2025.

Speaker #3: This growth strategy not only further strengthened our brand presence, but also ensured sustainable scalability through optimized resource allocation. Since we launched our individual franchisee business in December 2023, we have received over 10,000 applications and successfully opened more than 300 stores by the year-end of 2025, showcasing continued market confidence in our franchise model.

Yongchen Lu: Since we launched our individual franchising business in December 2023, we have received over 10,000 applications and successfully opened over 300 stores by the year-end of 2025, showcasing continued market confidence in our franchise model. We have witnessed reasonable returns for our franchising stores. For instance, our franchising stores at special channels, including railway stations, hospitals, and highway rest areas, generated store contribution margin of high teens in 2025 and are expected to achieve a payback period of approximately two years. We'll accelerate opening franchise stores on these special channels. In the meantime, our supermarket chain business contributes steady cash flows and profitability. Profits from other revenues achieved a year-over-year growth of 55.7% in 2025. Product innovation has always been an important strategic focus for us.

Speaker #3: We have witnessed reasonable returns for our franchisee stores. For instance, our franchisee stores at special channels, including railway stations, hospitals, and highway rest areas, generate store contribution margin in the high teens in 2025 and are expected to achieve a payback period of approximately two years.

Speaker #3: We'll accelerate opening franchise stores on this special channel. In the meantime, our sub-franchisee business contributes steady cash flows and profitability. Profits from other revenues achieved a year-over-year growth of 55%.

Speaker #3: 55.7% in 2025. Product innovation has always been an important strategic focus for us. In 2025, Teams China accelerated product innovation across both beverages and food, launching a total of 178 new products.

Yongchen Lu: In 2025, Tims China accelerated product innovation across both beverages and food, launching a total of 178 new products, 96 new beverages, and 82 new food items, which contributed over 25% of our top-line sales. Standout offerings have resonated strongly with customers. Seasonal beverage highlights during Q1 include the pomegranate, roasted cheese, and oat latte series, offering a diverse and a differentiated flavor portfolio. We also focused on adding non-coffee beverage offers complementary to existing product portfolio during the afternoon tea daypart. Total number of non-coffee beverage cups accounted for approximately 18.3% of total beverage cups sold in 2025 compared to 14% in 2024. On the food side, we continued to strengthen breakfast dayparts, and launched several campaigns to promote lunch daypart in 2025.

Speaker #3: We launched 96 new beverages and 82 new food items, which contribute over 25% of our top-line sales. Stand-out offerings have resonated strongly with customers, with seasonal beverage highlights during the fourth quarter, including the Palmer Granate Rose Cheese and Oat Latte series.

Speaker #3: We are offering a diverse and differentiated flavor portfolio. We also focus on adding non-coffee beverage offerings, complementary to our existing product portfolio, during the afternoon tea step-up.

Speaker #3: Total number of non-coffee beverage cups accounted for approximately 18.3% of total beverage cups sold in 2025, compared to 14% in 2024. On the flip side, we continue to strengthen breakfast step ups.

Speaker #3: And launched several campaigns to promote lunch step-ups in 2025. For instance, we introduced a breakfast combo with the expansion of our croissants lineup, featuring new offerings such as cheese chicken and roasted coconut cheese croissants.

Yongchen Lu: For instance, we introduced a breakfast combo with expansion of our croissants lineup, with new offerings such as cheese, chicken, and roasted coconut cheese croissants, which suits the morning routines, offering good value. Building on our classic bagel breakfast sets, the croissant combo includes protein-rich options like meat, catering to higher energy needs in colder months. Meanwhile, the croissant itself is light yet satisfying, perfect for those wanting a hearty but not overly filling breakfast. In addition, Tims China now continued to broaden its bagel sandwich range, introducing new products including the black truffle mushroom bagel and the spicy pickled cabbage beef bagel, further enriching its savory menu. We continue to strengthen our leadership in the bagel platform, selling a total of over 80 million bagels and bagel sandwich products cumulatively as of the end of 2025.

Speaker #3: Which suits morning routines and offers greater value. Building on our classic bagel breakfast sets, the croissant combo includes protein-rich options like meat, catering to higher energy needs in colder months.

Speaker #3: Meanwhile, the croissant itself is light yet satisfying, perfect for those wanting a hearty but not overly filling breakfast. In addition, Team China continued to broaden its bagel sandwich range, introducing new products, including the black truffle mushroom bagel and the spicy pickle cabbage beef bagel.

Speaker #3: Further enriching its savory menu, we continue to strengthen our leadership in the bagel platform, selling a total of over 80 million bagels and bagel sandwich products.

Speaker #3: Cumulatively, as of the end of 2025, the fourth quarter being the hardest season saw us loading out a series of marketing campaigns designed for these special occasions, from Halloween to Thanksgiving and Christmas.

Yongchen Lu: The Q4, being the holiday season, saw us rolling out a series of marketing campaigns designed for these special occasions. From Halloween to Thanksgiving and Christmas, we joined the festive spirit with creative promotions and themed activities to grab consumer attention. During the Q1, Tims China continued to enhance brand relevance and consumer engagement through a series of marketing and product innovation initiatives. The company strengthened its cultural positioning through high-profile collaborations, including a limited edition partnership with the hit TV series of The Vendetta of An or Chang'an Ershiji, as well as a co-branded campaign with People's Daily, Renmin Ribao, to celebrate China's National Day and honor everyday heroes across the country. These initiatives leverage culturally relevant storytelling to deepen consumer connections and drive social engagement.

Speaker #3: We joined the festive spirit with creative promotions and themed activities to grab consumer attention. During the first quarter, Teams China continued to enhance brand relevance and consumer engagement through a series of marketing and product innovation initiatives.

Speaker #3: The company strengthened its cultural positioning through high-profile collaborations, including a limited-edition partnership with the hit TV series, The Vendetta of Anne Chang'e 24G, as well as a co-branded campaign with People's Daily, Langming Erbao Shi, to celebrate China's National Day and honor everyday heroes across the country.

Speaker #3: These initiatives leveraged culturally relevant storytelling to deepen consumer connection and drive social engagement. In parallel, Teams China advanced its sustainability initiatives by expanding its Bring Your Own Cup program and increasing the incentive to IMD 8 per cup.

Yongchen Lu: In parallel, Tims China advanced its sustainability initiatives by expanding its Bring Your Own Cup program and increasing the incentive to RMB 8 per cup. As of now, the program had attracted over 200,000 participants, reducing carbon emissions by approximately 8 tons, equivalent to planting around 368 trees. The company also introduced eco-friendly stores in collaboration with Tencent's CarbonXmade program, using carbon capture technology to convert industrial carbon dioxide into sustainable materials. SGS certification confirms that every 100 stores store 3.185g of carbon dioxide, reinforcing Tims China commitment to sustainable product innovation. As of 31 December 2025, our registered loyalty club members exceeded 31 million, reflecting a remarkable 29% year-over-year growth. The average number of members per store has now surpassed 29,600, serving as a strong catalyst for our growth and clearly demonstrating our consumers' ongoing support for Tims China's loyalty programs.

Speaker #3: As of now, the program has attracted over 200,000 participants, reducing carbon emissions by approximately 8 tons, equivalent to planting around 360 trees. The company also introduced eco-friendly stores in collaboration with Tencent's CarbonX Mate program, using carbon capture technology to convert industrial carbon dioxide into sustainable materials.

Speaker #3: SGS certification confirms that every 100 stores store 3.185 grams of carbon dioxide, reinforcing Tims China's commitment to sustainable product innovation. As of December 31, 2025, our largest floating club members exceeded 31 million, reflecting a remarkable 29% year-over-year growth.

Speaker #3: The average number of members per store has now surpassed 29,600, serving as a strong catalyst for our growth and clearly demonstrating our consumers' ongoing support for Tims China's loyalty programs.

Speaker #3: At this time, I would like to turn it over to our CFO, Albert Li, to discuss our fourth quarter and full-year 2025 financial performance in more detail.

Yongchen Lu: At this time, I would like to turn over to our CFO, Dong Li, to discuss our Q4 and full year 2025 financial performance in more detail.

Speaker #2: Thank you, Yongchen. We continue to strive for excellence in delivering high value, quality healthy products, and sought-after services to our ever-growing customers. In the fourth quarter, we achieved positive net new store openings and continued our strong momentum in system sales, achieving a 4.0% year-over-year growth.

Dong Li: Thank you, Yongchen Lu. We continue to strive for excellence in delivering high value for quality coffee products and thoughtful services to our ever-growing customers. In Q4, we achieved positive net new store openings and continued our strong momentum in system sales, achieving 4.0% year-over-year growth. Our overall monthly average transacting customers reached 3.43 million during Q4 2025, a 14.3% increase from 3.01 million in Q4 2024. Additionally, digital orders as a percentage of total orders rose from 86.1% in Q4 2024 to 89.3% in Q4 2025. We continue to enhance our digital capabilities to meet the growing demand for delivery and takeaway services. Total number of delivery orders increased by 33.7% year-over-year during Q4 2025.

Speaker #2: Our overall monthly average transacting customers reached 3.43 million during the fourth quarter of 2025, a 14.3% increase from 3.01 million in the same quarter of 2024.

Speaker #2: Additionally, digital orders as a percentage of total orders rose from 86.1% in Q4 2024 to 89.3% in Q4 2025. We continue to enhance our digital capabilities to meet the growing demand for delivery and takeaway services.

Speaker #2: Total number of delivery orders increased by 33.7% year-over-year during the fourth quarter of 2025. Amid microeconomic volatility and intensive market competition, our team demonstrated strong resilience and achieved profitability improvements through enhanced operational efficiencies, supply chain optimizations, and rigorous cost controls.

Dong Li: Amidst macroeconomic volatility and intensive market competition, our team demonstrated strong resilience and achieved profitability improvement through enhanced operational efficiencies, supply chain optimizations, and rigorous cost controls. In Q4 2025, our adjusted corporate EBITDA margin improved by 3.3 percentage points year-over-year. During Q4 2025, our total revenues dropped by 7.3% year-over-year, which was mainly due to the closure of certain underperforming stores. Benefiting from the expansion of our franchised store network, with the number of our franchised stores increased from 446 as of 31 December 2024 to 485 as of 31 December 2025, our system sales increased by 4.0% year-over-year to RMB 359.4 million during Q4 2025. We are committed to improving our financial performance by refining store unit economics and boosting operational efficiencies at both store and our corporate levels, setting the stage for our long-term sustainable growth.

Speaker #2: In Q4 2025, our adjusted corporate EBITDA margin improved by 3.3 percentage points year-over-year. During the fourth quarter of 2025, our total revenues dropped by 7.3% year-over-year, which was mainly due to the closure of certain underperforming stores.

Speaker #2: Benefiting from the expansion of our franchise store network, with the number of our franchise stores increasing from 446 as of December 31, 2024, to 485 as of December 31, 2025, our system sales increased by 4.0% year-over-year to RMB 359.4 million during the fourth quarter of 2025.

Speaker #2: We are committed to improving our financial performance by refining store unit economics and boosting operational efficiencies at both store and corporate levels, setting the stage for growth.

Speaker #2: Specifically, through refinement in our supply chain capabilities and economies of scale, we reduced 2025 full-year food and packaging costs as a percentage of revenues from company-owned and operated stores by 1.4 percentage points year-over-year.

Dong Li: Specifically, through refinement in our supply chain capabilities and economy of scale, we reduced the 2025 full year food and packaging costs as a percentage of revenues from company-owned and operated stores by 1.4 percentage points year-over-year. We continued to streamline our operations by pruning underperforming stores, optimizing unit economics, refining staffing arrangements, and optimizing store managerial efficiency. These actions led to a reduction in 2025 full year store labor costs and other operating expenses as a percentage of revenues from company-owned and operated stores by 0.8 percentage points and 0.1 percentage points year-over-year, respectively. We expanded our branding initiatives and promotional offers to drive traffic. Our marketing expenses as a percentage of total revenues increased by 1.2 percentage points year-over-year.

Speaker #2: We continue to streamline our operations by pruning underperforming stores, optimizing unit economics, refining staffing arrangements, and optimizing store managerial efficiency. This action led to a reduction in 2025 full-year store labor costs and other operating expenses as a percentage of revenues from company-owned and operated stores by 0.8 percentage points and 0.1 percentage points year-over-year, respectively.

Speaker #2: We expanded our branding initiatives and promotional offers to drive traffic. Our marketing expenses as a percentage of total revenues increased by 1.2 percentage points year-over-year.

Speaker #2: Our adjusted general and administrative expenses as a percentage of total revenues decreased by 7.4 percentage points year-over-year, which was mainly attributable to an RMB 9.7 million, or $1.4 million, decrease in credit loss of accounts receivables.

Dong Li: Our adjusted general and administrative expenses as a percentage of total revenues decreased by 7.4 percentage points year-over-year, which was mainly attributable to a CNY 9.7 million, $1.4 million decrease in credit loss of accounts receivables. Turning to liquidity, as of 31 December 2025, our total cash and cash equivalents, time deposits, and restricted cash were CNY 129.7 million, $18.5 million compared to CNY 184.2 million as of 31 December 2024. The change was primarily attributable to cash disbursements on the back of the expansion of our business, partially offset by the drawdown of additional bank facilities. In the meantime, with the issuance of the $89.9 million 2025 senior secured convertible notes and the amendments to our existing 2024 unsecured convertible notes in December 2025, we have successfully repurchased the entire outstanding amount due under our variable rate convertible senior notes due 2026.

Speaker #2: Turning to liquidity, as of December 31, 2025, our total cash and cash equivalents, time deposits, and restricted cash were RMB 129.7 million (USD $18.5 million), compared to RMB 184.2 million as of December 31, 2024.

Speaker #2: The change was primarily attributable to cash disbursements on the back of the expansion of our business, partially offset by the drawdown of additional bank facilities.

Speaker #2: In the meantime, with the issuance of the $89.9 million 2025 senior secured convertible notes and the amendments to our existing 2024 unsecured convertible notes in December 2025, we have successfully reported the entire outstanding amount due under our variable rate convertible senior notes due 2026.

Speaker #2: Looking ahead to 2026, with profitability being front and center of everything we do, we will continue to enhance our supply chain capabilities and efficiencies, and roll out our differential eating, made-to-order fresh and healthy food preparation model to drive traffic, optimize overall store unit economics, and accelerate the expansion of our successful sub-franchising.

Dong Li: Looking ahead to 2026, with profitability being front and center of everything we do, we will continue to enhance our supply chain capabilities and efficiencies, roll out our differentiating made-to-order fresh and healthy food preparation model to drive traffic, optimize overall store unit economics, and accelerate the expansion of our successful sub-franchising. I will now turn it over to Yongchen for concluding remarks, followed by Q&A.

Speaker #2: I will now turn it over to Yun Chen for concluding remarks, followed by Q&A.

Speaker #1: Thank you, Abel. Before we turn to Q&A, I would like to take this opportunity to once again express my heartfelt gratitude to our customers and employees, business partners, and investors for your continued support, dedication, and trust.

Yongchen Lu: Thank you, Edward. Before we turn to Q&A, I would like to take this opportunity to once again express my heartfelt gratitude to our customers, employees, business partners, and investors for your continuous support and dedication and trust. Together, we have created an overwhelming community of over 31 million loyalty club members, a unique coffee plus freshly prepared healthy food business model, offering the best value for quality.

Speaker #1: Together, we have created an overwhelming community of over 31 million loyalty club members—a unique coffee plus freshly prepared healthy food business model, offering the best value for quality products as an international coffee brand.

Yongchen Lu: Products as an international coffee brand. Differentiate and comprehensive store formats with over 1,000 stores in 92 cities, most of which are made-to-order stores with expected payback period between two to three years, and a unique advantage of offering franchising opportunities as an international coffee brand. With these milestones behind us, we are steadfast in our commitment to sustainable growth and to generating long-term value for our shareholders. I will now turn the call over to Patty for today's Q&A session. Patty?

Speaker #1: We differentiate with comprehensive store formats, with over 1,000 stores in 92 cities—most of which are made-to-order stores—with an expected payback period between two to three years, and a unique advantage of offering franchise opportunities as an international coffee brand.

Speaker #1: With these milestones behind us, we are steadfast in our commitment to sustainable growth and to generating long-term value for our shareholders. I will now turn the call over to Patty for today's Q&A session.

Speaker #1: Patty?

Speaker #3: Thank you, Yun Chen. We will turn it over to the Q&A session and open it up for our registered questions. Let's begin with our first question.

Patty Yu: Thank you, Yongchen. We will turn it over to the Q&A session and open it up for our registered questions. Let's begin with our first question. Amber, please go ahead.

Speaker #3: Amber, please go ahead.

Speaker #4: Thank you. To ask a question via the telephone, please press star, one, and one on your telephone keypad and wait for your name to be announced.

Operator: Thank you. To ask a question via the telephone, please press * one and one on your telephone keypad and wait for your name to be announced. To withdraw your question, please press * one and one again. To ask your question via the webcast, please use the Q&A box available on the webcast link. Once again, that's * one and one for questions. We will now take our first question from the phone line of Steve Silver of Argus Research Company. Please ask your question, Steve. Your line is now open.

Speaker #4: To withdraw your question, please press star one and one again. To ask your question via the webcast, please use the Q&A box available on the webcast link.

Speaker #4: Once again, that's star one and one for questions. We will now take our first question from the phone line of Steve Silver of Argus Research Corporation.

Speaker #4: Please ask your question, Steve. Your line is now open.

Speaker #5: Thanks, operator, and thanks for taking my questions. So, over the past few quarters now, you've highlighted franchise stores in special channels such as railway stations, hospitals, and highway rest areas.

Steve Silver: Thanks, Operator, and thanks for taking my questions. Over the past few quarters now, you've highlighted franchise stores in special channels such as the railway stations, hospitals, and highway rest areas, and you'd cited their strong contribution margins and the two-year payback periods. While you've mentioned in your prepared remarks that you see openings under this model accelerating, can you quantify at all how much of a part of the future store mix you expect these channels to comprise? Really, what impact do you expect this to have on future operating results?

Speaker #5: And you cited their strong contribution margins and the two-year payback periods. So while you've mentioned in your prepared remarks that you see openings under this model accelerating, can you quantify at all how much of a part of the future store mix you expect these channels to comprise?

Speaker #5: And really, what impact do you expect this to have on future operating results?

Speaker #1: Yeah, sure. I think, Steve, for your question—yeah, I mean, the beauty of the stores on special channels, especially on railway stations and highway rest areas, it's purely a dying business.

Dong Li: Yeah, sure. Thank you, Steve, for your question. Yeah, the beauty of the stores on special channels, especially on railway stations and highway rest areas, it's purely dine-in business. They don't rely on delivery. Also, we don't need to give discounts on those stores in those special channels. Those stores have very high gross margin and no delivery costs. Despite, okay, the rent might be higher, but still, those stores are generating high teens store contribution margin. The payback is very attractive, around two years, even lower than two years. I mean, in China, there are a lot such areas, there are thousands of stations and airports, rest areas in the highways and hospitals. We have generated the momentum in those channels. As we mentioned, essentially, we are the only international coffee brand that open to individual franchise.

Speaker #1: So they don't rely on delivery. And also, we don't need to give discounts on those stores in those special channels. So those stores have very high gross margin and no delivery costs.

Speaker #1: Despite—the rent might be higher—but still, those stores are generating high-teens store contribution margin. And the payback is very attractive, around two years, even lower than two years.

Speaker #1: So I mean, in China, there are a lot of such areas. There are thousands or tens of thousands of stations and airports, rest areas in highways, and hospitals.

Speaker #1: So we have generated the momentum in those channels as we mentioned. We are essentially the only international coffee brand that opened to individual franchise.

Speaker #1: So, we are attracting lots of interest from those franchisee partners. So this year, we'll accelerate our openings on those channels.

Dong Li: We are attracting lots of interest from those franchisee partners. This year will accelerate our openings on those channels.

Speaker #5: Great. And so, company-owned and operated store contribution margins have now been negatively impacted by the higher delivery costs over the past few quarters. Is the company doing anything specifically to mitigate these risks in 2026 to improve same-store sales growth as well as the store contribution margins?

Steve Silver: Great. Company-owned and operated store contribution margins have now been negatively impacted by the higher delivery costs over the past few quarters. Is the company doing anything specifically to mitigate these risks in 2026 to improve same-store sales growth as well as the store contribution margins?

Speaker #1: Okay. Steve, thank you for the question. I think I will take this one. Right. So as you have mentioned, due to those aggregator platform dynamics in 2025, which led to very aggressive subsidies that we have been seeing—so that, I think, on one hand, drives higher delivery orders and also a higher percentage of our delivery revenue mix.

Dong Li: Okay. Steve, thank you for the question. I think I will take this one. Right. As you have mentioned, due to those aggregator platform dynamics in 2025, which led to very aggressive subsidies that we have been seeing. That, I think, on one hand, drives higher delivery orders and also higher percentage of our delivery revenue mix. In the meantime, we have also suffering from actually increased delivery costs because of this. I think, overall, it's within our expectations because we want to manage our top-line growth, our same-store sales, our margins, and also our pricing well. Actually, we are taking every step to maintain or even expand our store contribution margins.

Speaker #1: And in the meantime, we have also been suffering from actually increased delivery costs because of this. So I think overall, it's within our expectations because we want to manage our top-line growth, our same-store sales, our margins, and also our pricing well.

Speaker #1: So actually, we are taking every step to maintain or even expand our store contribution margins. So, as you can see, even though I think the whole year 2025 store contribution margin for company-owned stores was slightly decreased from 7.4% to 7%, I think overall, we have in the meantime actually increased our gross margin.

Dong Li: As you can see, even though I think the whole year 2025 store contribution margin for company-owned stores was slightly decreased from 7.4% to 7%, I think, overall, we have, in the meantime, actually increased our gross margin. The food and packaging cost as a percentage of revenue actually has decreased by 1.4 percentage points. In the meantime, we are still in the process of pruning some of the underperforming stores and achieving better economy of scale labor costs. As you can see, the full year 2025 labor cost has also improved, as well as store other operating expenses. We will do everything we can to actually mitigate potential delivery costs. I think in the meantime, we are also negotiating with those delivery aggregator platforms to actually strike a better delivery cost.

Speaker #1: So the food and packaging cost as a percentage of revenue actually has decreased by 1.4 percentage points. And in the meantime, we are still in the process of pulling some of the underperforming stores and achieving better economy of scale. Labor costs—as you can see, the full year 2025 labor cost has also improved—as well as store other operating expenses.

Speaker #1: So, we will do everything we can to actually mitigate potential delivery costs. And I think, in the meantime, we are also negotiating with those delivery aggregator platforms to actually strike a better cost on the delivery cost.

Speaker #1: So, in terms of the delivery cost per order, we want to improve the cost structure to streamline the delivery cost per order as well.

Dong Li: In terms of the delivery cost per order, we want to improve the cost structures to streamline the delivery cost per order as well. I think lastly, we are also actually increasing some of the pricing on the deliverable products. That is to mitigate the potential headwinds from higher delivery costs. Overall, I think our goal is to at least maintain, and even achieve certain margin improvement on our store contribution margin. Despite in terms of the aggressive subsidies from those delivery aggregated platforms might still continue in 2026, we expect that trend might be mitigated or might be slowed down this year. Thank you, Steve.

Speaker #1: And I think, lastly, we are also actually increasing some of the pricing on the delivery products. So that is to mitigate the potential headwinds from higher delivery costs.

Speaker #1: So overall, I think my goal is to at least maintain, and even achieve, certain margin improvement on our store contribution margin, despite the fact that the aggressive subsidies from those delivery aggregated platforms might still continue.

Speaker #1: In 2026, but we expect that trend might be mitigated or might be slowed down this year. Thank you, Steve.

Speaker #5: Yeah, that's helpful. Thank you. And one more, if I may. So, in 2025, net store growth was positive, but it was a little more modest than maybe what previous thoughts might have been around store expansion. Yet, at the same time, the franchise applications sound like they've continued to be very, very strong.

Steve Silver: Yeah, that's helpful. Thank you. One more, if I may. In 2025, net store growth, it was positive, but it was a little more modest than maybe what previous thoughts might have been around store expansion. Yet at the same time, the franchise applications sounds like it's continued to be very strong, and the loyalty membership continues to expand significantly, almost 30% in 2025. Just, I'd love to hear your thoughts in terms of the underlying demand, in terms of what we might think about for system sales growth in 2026.

Speaker #5: And the loyalty membership continues to expand significantly, almost 30% in 2025. So I'd love to hear your thoughts in terms of the underlying demand, in terms of what we might think about for system sales growth in 2026.

Speaker #1: Yeah. I mean, we are in the process of pruning the underperforming stores for the past two years, and we'll do so this year as well.

Dong Li: Yeah. We are in the process of pruning the underperforming stores for the past two years, and we'll do so this year as well. As you know, we opened a lot of high-rent stores during 2019 to 2022 and even 2023. Higher rent, larger store formats for the brand-building and also the rent back then was very high, much higher than the current situation. I know we are in the process of continuing pruning those underperforming stores. That's why you see the revenue for company-owned and operated stores has dropped last year and this year, probably for the last two years. In this year, we will continue to prune some underperforming stores. As we mentioned, the newer vintage of our stores have higher store contribution margins for the stores we opened in 2024 and in 2025, have store margin around 15%.

Speaker #1: As you know, we opened a lot of high-rent stores during 2019 to 2022, and even 2023—high-rent, larger store formats. This was for brand building, and also, the rent back then was very high—much higher than the current situation.

Speaker #1: So, we are in the process of continuing to prune those underperforming stores, so that's why you see the revenue for company-owned and operated stores has dropped last year.

Speaker #1: And this year, probably for the last two years—so I mean, in this year, we will continue to prune some underperforming stores. But as we mentioned, the newer vintage of our stores have higher store contribution margins. For the stores we opened in 2024 and in 2025, they have store margin around 15%.

Speaker #1: So, this newer vintage of store formats has been approved. So we'll continue to open such formats for both company-owned and franchisee stores. We target to achieve net store openings this year of at least 100—might even be more when we see the capital secured.

Dong Li: Now this newer vintage of store formats have been proven. We'll continue to open such formats for both company-owned and the franchisee stores. We are targeted to achieve net store openings this year of at least 100, and might even more when we see the capital secure. That's kind of the process. We'll continue to expand the networks, and that's the plan for now.

Speaker #1: So, I mean, that's kind of the process. So we'll continue to expand the network, and that's the plan for now.

Speaker #5: Great. Thanks for taking the questions, and best of luck throughout the year.

Steve Silver: Great, thanks for taking the questions and best of luck throughout the year.

Speaker #1: Thank you. Thank you, Steve.

Dong Li: Thank you. Thank you, Steve.

Speaker #3: Thank you. Our next question comes from the phone line of Fuli He from TF Securities. Please ask your question, Fuli. Your line is open.

Operator: Thank you. Our next question comes from the phone line of Fu Li from TF Securities. Please ask your question. Fu Li He, your line is open.

Speaker #6: Hello. Thanks for taking my question. I have three questions. The first one is about growth margins. Your margin—your growth margin—improved by 1.4 percentage points in full year 2025.

Fu Li He: Hello. Thanks for taking my question. I have three questions. The first one is about gross margins. Your gross margin improved by 1.4 percentage points in full year 2025. This is quite impressive. Can you explain more on the factors behind this, and how would you expect your gross margin in 2026?

Speaker #6: This is quite impressive. Can you explain more on the factors behind this, and how would you expect your growth margin in 2026?

Speaker #1: Thank you, Fuli. I think I would take this question related to gross margin. So as you have mentioned, so our food and packaging cost as a percentage of revenue from company-owned and operated stores actually decreased from 31.5% in 2024 to 30.1% in 2025 representing an improvement of 1.4 percentage points.

Dong Li: Thank you, Fu Li. I think I will take this question related to gross margin. As you have mentioned, our food and packaging cost as a percentage of revenue from company-owned and operated stores actually decreased from 31.5% in 2024 to 30.1% in 2025, representing an improvement of 1.4 percentage points. In the meantime, I also want to highlight that if you take a look on Q4 2025, the cost percentage was 29.4%. Actually, it represents a 2 percentage points margin improvement from Q1 of 2024. I think the overall improvement was mostly because of the following factors. The first one is better economy of scale, as our overall GMV has increased and our overall store network has expanded. Two, we have tried actually many ways in terms of on the supply chain optimization projects, especially on existing food and packaging materials.

Speaker #1: And in the meantime, I also want to highlight that, if you take a look at the fourth quarter 2025, the cost percentage was 29.4%.

Speaker #1: Actually, it represents a 2-percentage-point margin improvement from the fourth quarter of 2024. So, I think the overall improvement was mostly because of the following factors.

Speaker #1: The first one is better economy of scale. As our overall GMV has increased and our overall store network has expanded, and two, we have tried actually many ways in terms of the supply chain optimization projects.

Speaker #1: So, especially on existing food and packaging materials. We have almost renegotiated the unit cost and, in terms of the overall pricing, with each of the supply chain vendors.

Dong Li: We have almost renegotiated the unit cost and in terms of the overall pricing with each of the supply chain vendors. I think thirdly, we have optimized our discounts program. Basically we have improved the average pricing a little bit, especially we have increased the pricing on delivery products, which definitely would help on the margins. Fourthly, we have also seen higher margin on our new product launch. As we have mentioned, we have actually launched nearly 180 new LTO products in 2025, and most of these new LTO products had higher margins. I think lastly, we have also optimized the recipe of existing core products, some other material costs, and also in terms of the transportation and the freight costs. This has also contributed to our overall margin expansion in 2025.

Speaker #1: And I think certainly we have optimized our discounts program. Actually, so that basically we have improved the average pricing a little bit, especially we have increased the pricing on delivery products which definitely would help on the margins.

Speaker #1: And fourthly, we have also seen higher margin on our new products launch. As we have mentioned, we have actually launched nearly one 180 new products in new LTO products in 2025.

Speaker #1: And most of these new LTO products had higher margins. And I think, lastly, we have also optimized the recipe of existing core products. In addition, some other material costs, as well as transportation and freight costs, have also contributed to our overall margin expansion in 2025.

Speaker #1: So going forward, I think we will continue to implement the above measures and plans. And we targeted to further reduce our food and packaging costs as a percentage of revenues by another 1 to 2, at least 1 to 2 percentage points in 2026.

Dong Li: Going forward, I think we will continue to implement the above measures and plans. We target to further reduce our food and packaging costs as a percentage of revenues by at least 1 to 2 percentage points in 2026. That would be our target for this year. Thank you, Fu Li He, for your question.

Speaker #1: So that would be our target for this year. Thank you, Fuli, for your question.

Fu Li He: Very clear. The second one is about margin profile. You mentioned company-owned and operated stores in tier one cities and in those cities with 10+ stores generated over 10% and 7% store contribution margin in 2025, respectively, outperforming other tier cities with lower store density. Can you explain more details about the differences on margin profile of these stores? Thank you.

Speaker #6: Very clear. The second one is about margin profile. You mentioned company-owned and operated stores in Tier 1 cities, and in those cities with 10-plus stores, generated over 10% and 7% store contribution margin in 2025, respectively.

Speaker #6: Outperforming other Tier cities with lower store density. Can you explain in more detail the differences in the margin profile of these stores? Thank you.

Speaker #1: Okay, I'll take this one. Thank you for your question. I mean, it's a great question. I mean, the density really matters. I mean, so, I mean, the more stores we have in the city, the more brand awareness we have in the city, and the more efficiency on the marketing campaign.

Dong Li: Okay. I'll take this one. Thank you for your question. It's a great question. The density really matters. The more stores we have in the city, the more brand awareness we have in the city, and the more efficiency on the marketing campaign and lower cost on delivery and supply chain, and more efficiency on the management. The density really matters. The data clearly shows that we have the highest margin on tier one cities. As we mentioned early, for the 2024 and 2025 vintage stores, our store margin above 15%, and most of the stores are open in the tier one and high-tier cities. We'll continue to add more company-owned and even franchisee stores in existing cities to add density. The density really helps on everything. Thank you.

Speaker #1: And a lower cost on delivery and supply chain, and more efficiency in the management. So, I mean, the density really matters. I mean, the data clearly shows that.

Speaker #1: We have the highest margin on Tier 1 cities. And as we mentioned earlier, for the 2024 and 2025 vintage stores, our store margin is about 15%.

Speaker #1: And most of the stores are open in the Tier 1 and high-tier cities. So we'll continue to add more company-owned and even franchisee stores in the existing cities to add density.

Speaker #1: And the density really helps on everything. Thank you.

Fu Li He: Okay. The last one is about store count target. What's the store opening and closure target for 2026, and expected mix between company-owned and operated stores and franchised stores? That's all.

Speaker #6: Okay. And the last one is about store count target. What's the store opening and closure target for 2026? And what's the expected mix between company-owned and operated stores and franchised stores?

Speaker #6: That's all.

Speaker #1: Yeah. We would just answer the question the similar question from Steve. So we target to achieve net store open of at least 100, including both company-owned and franchisee stores.

Dong Li: Yeah. We just answered the similar question from Steve. We target to achieve net store openings of at least 100, including both company-owned and franchisee stores. We are very happy to see our new openings just have very high margins, so we'll continue to open. Although we'll continue to improve some underperforming stores, but we should be able to achieve net store openings, again, at least 100 this year. Okay. Thank you, Fu Li He.

Speaker #1: And we are very happy to see our new vintages have very high margins. So we'll continue to open, and although we'll continue to improve some underperforming stores, we should be able to achieve net store openings of at least 100 this year.

Speaker #3: Okay. Thank you, Fuli.

Speaker #2: All right. Thank you. I'll now hand back to Patty to read any questions coming through via the webcast.

Operator: All right. Thank you. I'll now hand back to Patty to read any questions coming through via the web conference.

Speaker #4: It seems that we have no questions online. Is that right, Emily?

Patty Yu: It seems that we have no questions online. Is that right, Emily?

Speaker #2: That's correct. So, at this time, there are no further questions. With that, we will conclude today's question-and-answer session. I would like to hand the call back to Yongchen for his closing comments.

Operator: That's correct. At this time, there are no further questions. With that, we conclude today's question and answer session. I'd like to hand the call back to Yongchen for his closing comments.

Speaker #1: Yeah. Thank you all for your time. And it's been a challenging year, but we have been able to improve our margins. And achieve net store openings.

Yongchen Lu: Yeah. Thank you all for your time. I know it's been a challenging year, but we have been able to improve our margins and achieve net store openings. We expect to even improve our margins further this year and achieve accelerated openings this year. Stay tuned. We'll see you soon. Thank you.

Speaker #1: And we expect to even improve our margins further this year. And achieve accelerate openings this year. So stay tuned. We'll see you soon. Thank you.

Operator: Thank you.

Dong Li: Thank you.

Operator: That does conclude today's conference call. Thank you for your participation. You may now disconnect your lines.

Q4 2025 TH International Ltd Earnings Call

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