Q2 2026 TH International Ltd Earnings Call

August 18, 2026

Operator: Ladies and gentlemen, welcome to Tims China's Q2 2026 earnings conference call. All participants will be in listen-only mode during management's prepared remarks, then there will be a question and answer session to follow. Today's conference is being recorded. At this time, I would 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.

Operator: Ladies and gentlemen, welcome to Tims China's Q2 2026 Earnings Conference Call. All participants will be in listen-only mode during management's prepared remarks, then there will be a question and answer session to follow. Today's conference is being recorded. At this time, I would 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: And then there will be a question-and-answer session to follow. Today's conference is being recorded. At this time, I would like to turn the call over to Patty Yu, Tims China's Public and Media Relations Manager, for prepared remarks and introductions.

Speaker #1: Please go ahead, Patty.

Patty Yu: Hello, everyone, and thank you for joining us on today's call. TH International Limited announced its Q2 2026 financial results earlier today. A press release, as well as the company presentation, which concludes 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, and Albert 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 would like to remind you that our earnings presentation and investor materials contain forward-looking statements, which are subjected 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: Hello, everyone, and thank you for joining us on today's call. TH International Ltd announced its second quarter 2026 financial results earlier today. A press release, as well as a company presentation which includes operational and financial highlights, are now available on the company's IR website at ir.teamchina.com.

Speaker #2: Today, you will hear from Yong Chen, our CEO, 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 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 risk 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 substitutes for the comparable GAAP measures. The common 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 like now to turn it over to Yongchen Lu, our CEO. Please go ahead, John.

Speaker #2: 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.

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 a substitute 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 Yong Chen, our CEO.

Speaker #2: Please go ahead, Yong.

Yongchen Lu: Well, thank you, Patty. Good morning, good evening, everyone. Thank you for joining us today. Tim Hortons is one of the world's top 10 most valuable restaurant brands, and China represents one of the most compelling consumer markets. It's truly a privilege to take on this role as the CEO of Tims China. I'm truly excited and honored to be here and am very passionate about our future. Since joining the company, well, in fact, I have to say even before joining the company in mid-June, I spent a lot of my time diving into the business, visiting stores and suppliers, talking to our baristas and store managers, hearing from our partners, and most importantly, connecting with our customers. These learnings have helped me, having a strong grip of where we are and what we need to do differently moving forward.

John Cheung: Well, thank you, Patty. Good morning, good evening, everyone. Thank you for joining us today. Tim Hortons is one of the world's top 10 most valuable restaurant brands, and China represents one of the most compelling consumer markets. It's truly a privilege to take on this role as the CEO of Tims China. I'm truly excited and honored to be here and am very passionate about our future. Since joining the company, well, in fact, I have to say even before joining the company in mid-June, I spent a lot of my time diving into the business, visiting stores and suppliers, talking to our baristas and store managers, hearing from our partners, and most importantly, connecting with our customers. These learnings have helped me, having a strong grip of where we are and what we need to do differently moving forward.

Speaker #3: Well, thank you, Patty. Good morning, good evening, everyone. Thank you for joining us today. Tim Hortons is one of the world's top 10 most valuable restaurant brands.

Speaker #3: And China represents one of the most compelling consumer markets. It's truly a privilege to take on this role as the CEO of Teams China.

Speaker #3: I'm truly excited and honored to be here, and I am very passionate about our future. Since joining the company—well, in fact, I have to say, even before joining the company in mid-June—I spent a lot of my time diving into the business.

Speaker #3: Visiting stores and suppliers, talking to our barristers and store managers, hearing from our partners, and most importantly, connecting with our customers—these learnings have helped me have a strong grip of where we are and what we need to do differently moving forward.

Speaker #3: Everything I've seen and heard tells me we have significant strength to build on, and our brand is enduring. Over time, the market and competition have evolved.

Yongchen Lu: Everything I have seen and heard tells me we have significant strength to build on, and our brand is enduring. Over time, market and competition evolved. Consumer habits change. There are many things we need to change to get consumers back, and get them back more often. I look forward to sharing more about my framework of a plan going forward and how to drive our next phase of growth for Tims China with you shortly. But first, I would like to turn it over to our CFO, Albert Li, for a more detailed overview of our Q2 2026 financial performance. Albert.

John Cheung: Everything I have seen and heard tells me we have significant strength to build on, and our brand is enduring. Over time, market and competition evolved. Consumer habits change. There are many things we need to change to get consumers back, and get them back more often. I look forward to sharing more about my framework of a plan going forward and how to drive our next phase of growth for Tims China with you shortly. But first, I would like to turn it over to our CFO, Albert Li, for a more detailed overview of our Q2 2026 financial performance. Albert.

Speaker #3: Consumer habits have changed. There are many things we need to change to get the consumer back—and to get them back more often. I look forward to sharing more about my framework for a plan going forward, and how to drive our next phase of growth for Teams China Review, shortly.

Speaker #3: But first, I would like to turn it over to our CFO, Albert Lee, for a more detailed overview of our second quarter 2026 financial performance.

Speaker #3: Albert.

Albert Li: Thank you, Yongchen, and welcome to your first Tims China earnings call. During the Q2 2026, our total revenues and system sales were RMB273.4 million and RMB347.8 million respectively, which dropped by 21.7% and 15.1% year-over-year. The decrease was primarily due to the closure of certain underperforming company-owned and operated stores and a 17.8% decrease in same-store sales growth. Our overall monthly average transacting customer reached 2.85 million during the Q2 2026, compared to 3.59 million in the same quarter of 2025. Net new store openings totaled 2 during the Q2 2026, representing a net opening of 15 made-to-order stores and, in the meantime, a net closure of 13 non-MTO stores.

Speaker #4: Thank you, John. And welcome to your first Tim's China earnings call. During the second quarter of 2026, our total revenues and system sales were RMB 273.4 million and RMB 347.8 million, respectively, which dropped by 21.7% and 15.1% year over year.

Speaker #4: The decrease was primarily due to the closure of certain underperforming company-owned and operated stores, and a 17.8% decrease in same-store sales growth. Our overall monthly average transacting customers reached 2.85 million during the second quarter of 2026, compared to 3.59 million in the same quarter of 2025.

Speaker #4: Net new store openings totaled 2 during the second quarter of 2026, representing a net opening of 15 MTO stores and, in the meantime, a net closure of 13 non-MTO stores.

Albert Li: On same-store sales growth, we experienced overall comparable transaction a decline of 16.3% and an average comparable ticket size decline of 1.5%, which led to a -17.8% same-store sales growth for system-wide stores in Q2 2026. The decline was partly due to the delivery aggregators backing down their subsidies significantly, and also partly due to our underspend in marketing and advertising spending, and also certain discount control. Digital orders as a percentage of total orders rose from 90.4% in Q2 2025 to 91.8% in Q2 2026. We continued to enhance our digital capabilities to meet the growing demand for delivery and takeaway services. In Q2 2026, Tims China continued to execute its product innovation strategy by expanding its all-day menu and enhancing its product portfolio across tier consumption occasions.

Speaker #4: On same-store sales growth, we experienced an overall comparable transaction decline of 16.3% and an average comparable ticket size decline of 1.5%, which led to negative 17.8% same-store growth for system-wide stores in Q2 2026.

Speaker #4: The decline was partly due to the delivery aggregator significantly reducing their subsidies, and also partly due to our underspend in marketing and advertising, as well as certain discount controls.

Speaker #4: Digital orders, as a percentage of total revenues, rose from 90.4% in Q2 2025 to 91.8% in Q2 2026, as we continued to enhance our digital capabilities to meet the growing demand for delivery and takeaway services.

Speaker #4: In Q2 2026, Teams China continued to execute its product innovation strategy by expanding its all-day menu and enhancing its product portfolio across key consumption occasions.

Speaker #4: The company launched a total of 27 new products during the quarter, including 20 beverage and 7 food items, further enriching customer choice and strengthening its all-day dining proposition.

Albert Li: The company launched a total of 27 new products during the quarter, including 20 beverage and seven food items, further enriching customer choice and strengthening its all-day dine-in proposition. As of 30 June 2026, our registered loyalty club members exceeded 37.1 million, reflecting a remarkable 41.7% year-over-year growth. The average number of members per store has now surpassed 36,000, serving as a solid foundation for growth and a testament to our customer support for and embrace of Tims China's loyalty program. We are also committed to improving our financial performance by refining store unit economics and boosting operational efficiencies at both store and corporate levels, setting the foundation for long-term sustainable growth.

Speaker #4: As of June 30, 2026, our registered Royalty Club members exceeded 37.1 million, reflecting a remarkable 41.7% year-over-year growth. The average number of members per store has now surpassed 36,000, serving as a solid foundation for growth and a testament to our customers' support for and embrace of Tims China's Royalty program.

Speaker #4: We are also committed to improving our financial performance by refining store unit economics and boosting operational efficiencies at both the store and corporate levels, setting the foundation for long-term, sustainable growth.

Albert Li: Specifically as we continued to benefit from higher efficiencies in supply chain and cost reduction on raw materials, logistics, and warehousing expenses, we managed to reduce Q2 2026 food and packaging cost as a percentage of revenue from company-owned and operated stores by 1.8 percentage points from 30.1% in Q2 2025 to 28.3% in the same quarter of 2026. Rental and property management fees were RMB 47.9 million in Q2 2026, representing a decrease of 15.6% from RMB 56.8 million in the same quarter of 2025, which was primarily due to a decrease in the number of our company-owned and operated stores from 566 as of 30 June 2025 to 544 as of 30 June 2026.

Speaker #4: Specifically, as we continued to benefit from higher efficiencies in supply chain and cost reduction on raw materials, logistics, and warehousing expenses, we managed to reduce Q2 2026 food and packaging costs as a percentage of revenue from company-owned and operated stores by 1.8 percentage points, from 30.1% in the second quarter of 2025 to 28.3% in the same quarter of 2026.

Speaker #4: Rental and property management fees were RMB 47.9 million in Q2 2026, representing a decrease of 15.6% from RMB 56.8 million in the same quarter of 2025, which was primarily due to a decrease in the number of our company-owned and operated stores from 566 as of June 30, 2025, to 544 as of June 30, 2026.

Albert Li: Rental and property management fees as a percentage of revenues from company-owned and operated stores increased by 1.5 percentage points from 20.2% in Q2 2025 to 21.7% in the same quarter of 2026. In the meantime, rental and property management fees for comparable stores decreased by 5.2% year-over-year in Q2 2026, which demonstrated our continued efforts to negotiate permanent rent concessions with our landlords. Payroll and employee benefits expenses were RMB 43.9 million in Q2 2026, representing a decrease of 12.6% from RMB 50.2 million in the same quarter of 2025, which was primarily due to a decrease in revenues from company-owned and operated stores. Payroll and employee benefit expenses as a percentage of revenue from company-owned and operated stores increased by 2.1 percentage points from 17.8% in Q2 2025 to 19.9% in the same quarter of 2026.

Speaker #4: Rental and property management fees as a percentage of revenues from company-owned and operated stores increased by 1.5 percentage points, from 20.2% in the second quarter of 2025 to 21.7% in the same quarter of 2026.

Speaker #4: In the meantime, rental and property management fees for comparable stores decreased by 5.2% year over year in Q2 2026, which demonstrates our continued efforts to negotiate permanent rent concessions with our landlords.

Speaker #4: Payroll and employee benefits expenses were RMB 43.9 million in Q2 2026, representing a decrease of 12.6% from RMB 50.2 million in the same quarter of 2025. This was primarily due to a decrease in revenues from company-owned and operated stores. Payroll and employee benefit expenses as a percentage of revenue from company-owned and operated stores increased by 2.1 percentage points, from 17.8% in the second quarter of 2025 to 19.9% in the same quarter of 2026.

Albert Li: Delivery costs were RMB 28.9 million in Q2 2026, representing a decrease of 13.3% from RMB 33.3 million in the same quarter of 2025, which was in line with the 11.9% decrease in delivery orders from 8.2 million in Q2 2025 to 7.2 million in the same quarter of 2026, and a reduction in average delivery cost per order. Delivery cost as a percentage of revenue from company-owned and operated stores increased by 1.3 percentage points to 13.1% in Q2 2026, compared to 11.8% in the same quarter of 2025, which was primarily due to an increase in delivery revenue as a percentage of total revenues from company-owned and operated stores from 61.0% in Q2 2025 to 65.7% in the same quarter of 2026.

Speaker #4: Delivery costs were RMB 28.9 million in Q2 2026, representing a decrease of 13.3% from RMB 33.3 million in the same quarter of 2025, which was in line with the 11.9% decrease in delivery orders from 8.2 million in the second quarter of 2025 to 7.2 million in the same quarter of 2026, and a reduction in average delivery cost per order.

Speaker #4: Delivery cost as a percentage of revenue from company-owned and operated stores increased by 1.3 percentage points to 13.1% in the second quarter of 2026, compared to 11.8% in the same quarter of 2025. This was primarily due to an increase in delivery revenue as a percentage of total revenues from company-owned and operated stores, from 61.0% in the second quarter of 2025 to 65.7% in the same quarter of 2026.

Speaker #4: Other operating expenses were RMB 17.4 million in Q2 2026, representing a decrease of 14.7% from RMB 20.4 million in the same quarter of 2025, which was primarily due to a decrease in revenue from company-owned and operated stores.

Albert Li: Other operating expenses were RMB17.4 million in Q2 2026, representing a decrease of 14.7% from RMB20.4 million in the same quarter of 2025, which was primarily due to a decrease in revenue from company-owned and operated stores. Other operating expenses as a percentage of revenue from company-owned and operated stores increased by 0.7 percentage points to 7.9% in the second quarter of 2026, compared to 7.2% in the same quarter of 2025. As a result of the foregoing, company-owned and operated store contribution margin was 5.7% in the second quarter of 2026, compared to 9.6% in the same quarter of 2025. Benefiting from our cost optimization measures and improved brand influence, our marketing expenses were RMB13.3 million in Q2 2026, representing a decrease of 4.4% from RMB13.9 million in the same quarter of 2025.

Speaker #4: Other operating expenses as a percentage of revenue from company-owned and operated stores increased by 0.7 percentage points to 7.9% in the second quarter of 2026, compared to 7.2% in the same quarter of 2025.

Speaker #4: As a result of the foregoing, company-owned and operated store contribution margin was 5.7% in the second quarter of 2026, compared to 9.6% in the same quarter of 2025.

Speaker #4: Benefiting from our cost optimization measures and improved brand influence, our marketing expenses were RMB 13.3 million in Q2 2026, representing a decrease of 4.4% from RMB 13.9 million in the same quarter of 2025. Marketing expenses as a percentage of total revenues increased by 0.9 percentage points, from 4.0% in the second quarter of 2025 to 4.9% in the same quarter of 2026, as we spent more on marketing efforts to support our franchise business during the second quarter of 2026.

Albert Li: Marketing expenses as a percentage of total revenues increased by 0.9 percentage points from 4.0% in the second quarter of 2025 to 4.9% in the same quarter of 2026, as we spent more marketing efforts to support our franchised business during the second quarter of 2026. Our adjusted general and administrative expenses, which excludes, one, share-based compensation expenses of RMB0.3 million, and two, impairment losses of rental deposits of RMB2.3 million, or RMB39.6 million in Q2 2026, representing an increase of 14.4% from RMB34.6 million in the same quarter of 2025. Which was primarily due to an RMB4.2 million increase in professional and other service fees. Adjusted general and administrative expenses as a percentage of total revenues increased by 4.6 percentage points from 9.9% in the second quarter of 2025 to 14.5% in the same quarter of 2026.

Speaker #4: Our adjusted general and administrative expenses, which exclude (1) share-based compensation expenses of RMB 0.3 million and (2) impairment losses of rental deposits of RMB 2.3 million, were RMB 39.6 million in Q2 2026, representing an increase of 14.4% from RMB 34.6 million in the same quarter of 2025.

Speaker #4: This was primarily due to a RMB 4.2 million increase in professional and other service fees. Adjusted general and administrative expenses as a percentage of total revenues increased by 4.6 percentage points, from 9.9% in the second quarter of 2025 to 14.5% in the same quarter of 2026.

Speaker #4: As a result of the foregoing, adjusted corporate EBITDA margin was negative 7.6% in the second quarter of 2026, compared to positive 0.6% in the same quarter of 2025.

Albert Li: As a result of the foregoing, adjusted EBITDA margin was -7.6% in the second quarter of 2026, compared to +0.6% in the same quarter of 2026. Turning to liquidity, as of 30 June 2026, the total amount of our cash and cash equivalents and restricted cash were RMB121.1 million, compared to RMB129.7 million as of 31 December 2025. The change was primarily attributable to cash disbursements on business operations, partially offset by the drawdown of additional bank borrowings. We successfully closed the initial tranche of USD15.8 million in additional senior secured convertible notes issued to Tim Hortons Restaurants International GmbH, our brand owner and funding shareholder, in July 2026.

Speaker #4: Turning to liquidity, as of June 30, 2026, the total amount of our cash and cash equivalents and restricted cash was RMB 121.1 million, compared to RMB 129.7 million as of December 31, 2025.

Speaker #4: The change was primarily attributable to cash disbursements on business operations, partially offset by the drawdown of additional bank borrowings. We successfully closed the initial tranche of $15.8 million in additional senior secured convertible notes issued to Tim Houghton's Restaurant International GmbH, our brand owner and funding shareholder, in July 2026.

Albert Li: With the proceeds from this USD55 million series of proposed financing, we plan to drive our innovation and product offerings, invest more in marketing activities, and deploy a more balanced store network development strategy by opening both company-owned and operated stores and franchised stores going forward. Looking ahead, our core near-term priorities will be to deliver sustainable revenue growth to further enhance supply chain capabilities and expand store-level profitability of both company-owned and operated stores and franchised stores. To continuously optimize cost structure of our corporate marketing and G&A expenses, and to achieve corporate EBITDA breakeven. With that, I will now turn the call over to Yongchen Lu.

Speaker #4: With the proceeds from this $55 million series of proposed financing, we plan to drive our innovation and product offerings, invest more in marketing activities, and deploy a more balanced store network development strategy by opening both company-owned and operated stores and franchising the stores going forward.

Speaker #4: Looking ahead, our core near-term priorities will be to deliver sustainable revenue growth, further enhance supply chain capabilities, and expand store-level profitability for both company-owned and operated stores as well as franchised stores.

Speaker #4: To continuously optimize the cost structure of our corporate marketing and G&A expenses, and to achieve corporate EBITDA break-even. With that, I will now turn the call over to John.

Speaker #3: Thank you, Albert. The second quarter is a period of transition for the company. Without disappointing, top-line revenue and same-store sales were both in significant decline.

Yongchen Lu: Thank you, Albert. Q2 is a period of transition for the company. Results are disappointing. Top-line revenue and same-store sales were both in significant decline as we are losing share to competition. Also, revenue was affected by our strategic adjustment of closing underperforming stores, as well as we have been recycling last year heightened phase of delivery business. Prior to my joining to Tim Hortons as CEO, I have had 30 years of building and stewarding world-class consumer brands. Here in Tim Hortons, it becomes very clear to me we need to significantly step up our effort to win back our customers and to gain new customers through providing superior products, offering, and experience, might it be dine-in or delivery. Also support with our great Tim Hortons hospitality and services.

John Cheung: Thank you, Albert. Q2 is a period of transition for the company. Results are disappointing. Top-line revenue and same-store sales were both in significant decline as we are losing share to competition. Also, revenue was affected by our strategic adjustment of closing underperforming stores, as well as we have been recycling last year heightened phase of delivery business. Prior to my joining to Tim Hortons as CEO, I have had 30 years of building and stewarding world-class consumer brands. Here in Tim Hortons, it becomes very clear to me we need to significantly step up our effort to win back our customers and to gain new customers through providing superior products, offering, and experience, might it be dine-in or delivery. Also support with our great Tim Hortons hospitality and services.

Speaker #3: As we are losing share to competition, revenue was also affected by our strategic adjustment of closing underperforming stores, as well as by cycling last year's heightened base of delivery business.

Speaker #3: Prior to my joining Tim Houghton as CEO, I had 30 years of building and stewarding world-class consumer brands. And here at Tim Houghton, it becomes very clear to me that we need to significantly step up our effort to win back our customers and to gain new customers through providing superior products and offering an experience.

Speaker #3: Might it be dining or delivery, also supported by our great Tim Horton's hospitality and services. Our unwavering aspiration for product and service quality will drive everything we do.

Yongchen Lu: Our unwavering aspiration with product and service quality will drive everything we do and every decision we make going forward. I have a few points I want to share with you online. First and foremost, we have been, and will continue to focus our resources to accelerate our product innovation based on thorough consumer, customer understanding and insight, ranging from improving the appearance, flavor of our core products to creating exciting innovations, and also in ways we offer new bundle and promotion activities. So far, we have looked into more than 10,000 of our loyalty club members' information to get insight from the feedback, and we have hired external professional advisors to support the process. Also, we are starting effort to work with our core coffee bean suppliers and also our in-house coffee masters to pursue the best fit of coffee to the Chinese consumer need and taste.

John Cheung: Our unwavering aspiration with product and service quality will drive everything we do and every decision we make going forward. I have a few points I want to share with you online. First and foremost, we have been, and will continue to focus our resources to accelerate our product innovation based on thorough consumer, customer understanding and insight, ranging from improving the appearance, flavor of our core products to creating exciting innovations, and also in ways we offer new bundle and promotion activities. So far, we have looked into more than 10,000 of our loyalty club members' information to get insight from the feedback, and we have hired external professional advisors to support the process. Also, we are starting effort to work with our core coffee bean suppliers and also our in-house coffee masters to pursue the best fit of coffee to the Chinese consumer need and taste.

Speaker #3: And every decision we make going forward. I have a few points I want to share with you online. First and foremost, we have been and will continue to focus our resources to accelerate our product innovation, based on thorough consumer and customer understanding and insight.

Speaker #3: Ranging from improving the appearance and flavor of our core products to creating exciting innovations, and also in the ways we offer new bundle and promotion activities.

Speaker #3: So far, we have looked into more than 10,000 of our loyalty club members' information to gain insights from their feedback. And we have hired external professional advisors to support the process.

Speaker #3: Also, we are starting efforts to work with our core coffee bean suppliers and our in-house coffee masters to pursue the best fit of coffee for the Chinese consumer's needs.

Speaker #3: And taste. Second, we'll strengthen our capacities in product innovation and marketing to ensure we're able to bring a superior product and experience to consumers in a much faster time.

Yongchen Lu: Second, we will strengthen our capacities in product innovation and marketing to ensure we are able to bring superior products and experience to consumers in much faster time and more cost-efficient manner. We will enhance investment in our organization. We work with strategic partners, our suppliers, to enhance our capabilities, especially in certain categories like dairy and bakery. We will broaden our CRM and marketing effort beyond current loyalty club program to reach new customers, and as importantly, to enhance interaction and frequency. Third, we will further enhance our operation excellence to escalate our service level and enhance overall guest experience. Additional efforts are being made on staff recruitment, training, and labor scheduling to enable us to deliver the level of service we aim at. Fourth, on store network development, we are working on two fronts at the same time.

John Cheung: Second, we will strengthen our capacities in product innovation and marketing to ensure we are able to bring superior products and experience to consumers in much faster time and more cost-efficient manner. We will enhance investment in our organization. We work with strategic partners, our suppliers, to enhance our capabilities, especially in certain categories like dairy and bakery. We will broaden our CRM and marketing effort beyond current loyalty club program to reach new customers, and as importantly, to enhance interaction and frequency. Third, we will further enhance our operation excellence to escalate our service level and enhance overall guest experience. Additional efforts are being made on staff recruitment, training, and labor scheduling to enable us to deliver the level of service we aim at. Fourth, on store network development, we are working on two fronts at the same time.

Speaker #3: And in a more cost-efficient manner, we'll enhance investment in our organization, working with strategic partners and our suppliers to enhance our capabilities, especially in certain categories like dairy and bakery.

Speaker #3: We'll broaden our CRM and marketing efforts beyond the current loyalty club program to reach new customers, and, as importantly, to enhance interaction and frequency. Third, we'll further enhance our operational excellence to elevate our service level and enhance the overall guest experience.

Speaker #3: Additional efforts are being made in staff recruitment, training, and labor scheduling to enable us to deliver the level of service we aim for. Fourth, on store network development, we are working on two fronts at the same time.

Speaker #3: On one hand, we are closing underperforming stores, which were opened before my arrival at this company. Yet, at the same time, we are expanding stores with our new and enhanced product offerings and services.

Yongchen Lu: On one hand, we are closing underperforming stores, which have started before my arrival to this company. Yet, at the same time, we are expanding store with our new and enhanced product offering and services. We will focus more in top-tier cities in our expansion so that we can concentrate our resource and effort, especially among the office work area trade zone or some special channel like train stations, major transportation hubs, airports, universities. These are reliable channel that we have good data to predict the traffic and have a high accuracy in our project sales revenue. Lastly, on productivity front, I and the team are keen to use more technology, especially AI, to increase our efficiency, ranging from inventory management to labor shift planning, to marketing material production, and all the way to more personalized message and promotion activities planned for our members.

John Cheung: On one hand, we are closing underperforming stores, which have started before my arrival to this company. Yet, at the same time, we are expanding store with our new and enhanced product offering and services. We will focus more in top-tier cities in our expansion so that we can concentrate our resource and effort, especially among the office work area trade zone or some special channel like train stations, major transportation hubs, airports, universities. These are reliable channel that we have good data to predict the traffic and have a high accuracy in our project sales revenue. Lastly, on productivity front, I and the team are keen to use more technology, especially AI, to increase our efficiency, ranging from inventory management to labor shift planning, to marketing material production, and all the way to more personalized message and promotion activities planned for our members.

Speaker #3: We will focus more on top-tier cities in our expansion so that we can concentrate our resources and efforts, especially in office work area trade zones.

Speaker #3: Or some special channels like train stations, major transportation hubs, airports, universities. These are reliable channels where we have good data to predict the traffic, and the projects have a high accuracy in our project sales revenue.

Speaker #3: And lastly, on the productivity front, the team and I are keen to use more technology, especially AI, to increase our efficiency—ranging from inventory management to labor shift planning to marketing material production, and all the way to more personalized messaging and promotion activities planned for our members.

Speaker #3: With that, I turn it back to Patty to continue with our call.

Yongchen Lu: With that, I turn back to Patty to continue with our call.

John Cheung: With that, I turn back to Patty to continue with our call.

Speaker #2: Thank you, John. We will now 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, John. We will turn it over to Q&A session and open it up for our registered questions. Let's begin with our first question. Operator, please go ahead.

Speaker #2: Operator, please go ahead.

Operator: Dear participants, as a reminder, if you wish to ask a question over the phone, please press star 1 1 on your telephone keypad and wait for a name to be announced. To withdraw a question, please press star 1 and 1 again. If you wish to ask a question via the webcast, please use the Q&A box available on the webcast link at any time. Once again, if you would like to ask a question over the phone, please press star 1 1. Now we are going to take our first question. The question comes from the line of Steve Silver from Argus Research. Your line is open. Please ask your question.

Speaker #4: Dear participants, as a reminder, if you wish to ask a question over the phone, please press star 11 on your telephone keypad and wait for your name to be announced.

Speaker #4: To withdraw a question, please press star 1, and then 1 again. If you wish to ask a question via the webcast, please use the Q&A box available on the webcast link at any time.

Speaker #4: Once again, if you would like to ask a question over the phone, please press star 11. And now, we're going to take our first question.

Speaker #4: And the question comes from the line of Thief Silver from Argus Research. Your line is open. Please ask your question.

Speaker #5: Thank you, operator. And John, welcome to the new leadership role. You mentioned in your prepared remarks some initial learnings from your discussions with customers, stores, and suppliers.

Steve Silver: Thank you, operator. John, welcome to the new leadership role. You mentioned in your prepared remarks some initial learnings in your discussions with customers, stores, and suppliers. Can you talk about some of these top priorities in the corporate strategy that you see supporting Tims China to become a profitable business, and maybe how long you think it may take to implement some of these strategies?

Speaker #5: Can you talk about some of these top priorities in the corporate strategy that you see supporting Tim's China to become a profitable business? And maybe how long you think it may take to implement some of these strategies?

Speaker #3: Well, thank you, Mr. Silver, for your questions. Indeed, our imperative is to get back to our business fundamentals, to regain customers, and to gain new users.

Yongchen Lu: Well, thank you, Mr. Silver, for your questions. Indeed, our imperative is to get back to our business fundamentals to regain customers and to gain new users. Well, in short, our top priority is to raise our game in innovation to offer more competitive products and experience to our customers. We are working on strengthening our core products, product we offer during the breakfast and the lunch day part. Product like bagel, we make it popular in this market, China, and we will continue to bring innovation so that we can differentiate better from competitors. At the same time, we will offer some new product that have been the strength for our operation in other market, like melt. We will even try some new bakery in other day parts. Also, we are working on strengthening our coffee offerings, especially those milk-based coffee offerings, latte.

John Cheung: Well, thank you, Mr. Silver, for your questions. Indeed, our imperative is to get back to our business fundamentals to regain customers and to gain new users. Well, in short, our top priority is to raise our game in innovation to offer more competitive products and experience to our customers. We are working on strengthening our core products, product we offer during the breakfast and the lunch day part. Product like bagel, we make it popular in this market, China, and we will continue to bring innovation so that we can differentiate better from competitors. At the same time, we will offer some new product that have been the strength for our operation in other market, like melt. We will even try some new bakery in other day parts. Also, we are working on strengthening our coffee offerings, especially those milk-based coffee offerings, latte.

Speaker #3: Well, in short, our top priority is to raise our gains in innovation, to offer more competitive products and experiences to our customers. We are working on strengthening our core products that we offer during the breakfast and lunch dayparts.

Speaker #3: Product that, like bagel, we make it popular in this market, China. And we'll continue to bring innovation so that we can differentiate better from competitors.

Speaker #3: At the same time, we'll offer some new products that have been strained for our operation in other markets, like melt. We'll even try some new bakery in other dayparts.

Speaker #3: Also, we are working on strengthening our coffee offerings, especially those milk-based coffee offerings like lattes, where I look forward to sharing more details when we have a new product ready sometime later in the year.

Yongchen Lu: Well, I look forward to share more details when we have the new product ready sometime later in the year. We are seeing opportunities in filling some gaps that we see there is still space to grow, like afternoon day part. That is our top priority, raising our game in innovation. Our second priority is to improve our store economics, as Albert earlier mentioned. We will continue to work on efficiency on all front, the rental, labor, even our food product cost. We have done a lot over the last years, but there is still room that we can work on. At the same time, importantly, we will continue to close underperforming store. As I mentioned, this initiative have started even before my arrival. I will continue to drive that. Importantly is to expand new store in clearly defined network strategy.

John Cheung: Well, I look forward to share more details when we have the new product ready sometime later in the year. We are seeing opportunities in filling some gaps that we see there is still space to grow, like afternoon day part. That is our top priority, raising our game in innovation. Our second priority is to improve our store economics, as Albert earlier mentioned. We will continue to work on efficiency on all front, the rental, labor, even our food product cost. We have done a lot over the last years, but there is still room that we can work on. At the same time, importantly, we will continue to close underperforming store. As I mentioned, this initiative have started even before my arrival. I will continue to drive that. Importantly is to expand new store in clearly defined network strategy.

Speaker #3: And we are seeing opportunities in filling some gaps where we see there is still space to grow, like the afternoon daypart. So that's our top priority—raising our game in innovation.

Speaker #3: Our second priority is to improve our store economics. As Albert mentioned earlier, we'll continue to work on efficiency on all fronts: rental, labor, and even our food product cost.

Speaker #3: We have done a lot over the last years, but there is still room that we can work on. At the same time, importantly, we'll continue to close underperforming stores.

Speaker #3: As I mentioned, this initiative had started even before my arrival. I'll continue to drive that. But, importantly, it is to expand new stores in a clearly defined network strategy.

Yongchen Lu: Primarily top-tier cities, primarily office, transportation hub, trade zone, under our defined network strategy and discipline. To make the two early priority possible, one thing I have been attending a lot of my effort and resource is to build capabilities to make them both happen. So build abilities, capabilities, strengthen capability in innovation, in marketing, strengthen and continue to invest in our capabilities in operation and the business development, i.e., new store development. So, in short, those are three top priority, for me, for our leadership team and for our organizations. I would be very glad to share with you progress as I am moving along in this role. In the time, the target, I cannot share with you, but I can share with you all cylinders are firing now, and we are reserving no resource to drive progress on all front I just shared.

John Cheung: Primarily top-tier cities, primarily office, transportation hub, trade zone, under our defined network strategy and discipline. To make the two early priority possible, one thing I have been attending a lot of my effort and resource is to build capabilities to make them both happen. So build abilities, capabilities, strengthen capability in innovation, in marketing, strengthen and continue to invest in our capabilities in operation and the business development, i.e., new store development. So, in short, those are three top priority, for me, for our leadership team and for our organizations. I would be very glad to share with you progress as I am moving along in this role. In the time, the target, I cannot share with you, but I can share with you all cylinders are firing now, and we are reserving no resource to drive progress on all front I just shared.

Speaker #3: Primarily top-tier cities. Primarily office, transportation hub, trade zone, one, under our defined network strategy and discipline. And to make the two earlier priorities possible, one thing I've been dedicating a lot of my effort and resources to is building capabilities to make them both happen.

Speaker #3: So, build abilities and capabilities, and strengthen our capability in innovation in marketing. Strengthen and continue to invest in our capabilities in operations and business development, i.e., new store development.

Speaker #3: So in short, those are the top three priorities for me, for our leadership team, and for our organization. I would be very glad to share with you the progress as I move along in this role.

Speaker #3: Enough time target I can't share with you. But I can share with you all cylinders are firing now, and we are reserving no resource to drive progress on all fronts.

Speaker #3: I just share, and I hope this priority will bring some signs of results or improvement very soon. But for the time being, I can't share with you a particular timeline.

Yongchen Lu: I hope this priority will bring some signs of results or improvement very soon. But for the time being, cannot share with you a particular timeline. Hope you can bear with us.

John Cheung: I hope this priority will bring some signs of results or improvement very soon. But for the time being, cannot share with you a particular timeline. Hope you can bear with us.

Speaker #3: Hope you can bear with us.

Speaker #5: That's great, thank you. One more, if I may. So, with the recent commitment from RBI to invest $55 million into Tim's China— and you mentioned the receipt of the first tranche from the financing.

Steve Silver: That is great. Thank you. And one more, if I may. With the recent commitment from RBI to invest USD55 million into Tims China, and you mentioned the receipt of the first tranche from the financing, is there any update on the number of net new stores that you plan on opening in H2 2026 and 2027, and whether there are any changes to the new store mix between company-owned stores and franchise stores?

Speaker #5: Is there any update on the number of net new stores that you plan on opening in the second half of 2026 and in 2027? And are there any changes to the new store mix between company-owned stores and franchise stores?

Speaker #3: Yes. The funds came in at a very timely manner and during a much needed period. We prioritized—actually, we’re strengthening the model of our business.

Yongchen Lu: Yes. The fund came in in a very timely manner and a very much needed period. We prioritize actually with strengthening the model of our business. As I mentioned, our top priority, number 1, is raise our game in innovation. We will prioritize more of the resources in bringing in more productive innovations and strengthening our marketing performance by both investing more in marketing as well as behind a strengthened team and resources. Those will be our top priority. We will expand our store footprint with discipline, hopefully with our new offering proven. Going forward, I will not share a particular number, but we will diligently expand according to the strategy I just shared, i.e., prioritize cities in the top-tier cities and also in particular trade zone. But answering your questions on the company-owned store and the franchise network, we are aiming at a more balanced approach.

John Cheung: Yes. The fund came in in a very timely manner and a very much needed period. We prioritize actually with strengthening the model of our business. As I mentioned, our top priority, number 1, is raise our game in innovation. We will prioritize more of the resources in bringing in more productive innovations and strengthening our marketing performance by both investing more in marketing as well as behind a strengthened team and resources. Those will be our top priority. We will expand our store footprint with discipline, hopefully with our new offering proven. Going forward, I will not share a particular number, but we will diligently expand according to the strategy I just shared, i.e., prioritize cities in the top-tier cities and also in particular trade zone. But answering your questions on the company-owned store and the franchise network, we are aiming at a more balanced approach.

Speaker #3: So as I mentioned, our top priority—number one—is to raise our game in innovation. So we will prioritize more of the resources in bringing in more productive innovation and strengthening our marketing performance by both investing more in marketing as well as behind strengthened team and resources.

Speaker #3: So those will be our top priority. We will expand our store footprint with discipline, hopefully with our new offering proven. So going forward, I won't share particular numbers, but we will diligently expand according to the strategy I just shared—i.e., prioritize the top-tier cities and also particular trade zones.

Speaker #3: But answering your questions on the company-owned store and franchise network, we are aiming for a more balanced approach. So we will see both company-owned stores and franchisee-supported stores contributing roughly equally in our new store network.

Yongchen Lu: We will see both a company-owned store and a franchisee-supported store will contribute roughly equal in our new store network. That is what I can share for the time being.

John Cheung: We will see both a company-owned store and a franchisee-supported store will contribute roughly equal in our new store network. That is what I can share for the time being.

Speaker #3: So that's what I can share for the time being.

Steve Silver: Great. Thank you so much for the information. Best of luck.

Speaker #5: Great. Thank you so much for the information. Best of luck.

Speaker #3: Thank you.

Yongchen Lu: Thank you.

John Cheung: Thank you.

Speaker #2: Thank you. Now we're going to take our next question. The question comes from Emily from Tianfeng. Your line is open.

Operator: Thank you. Now we are going to take our next question. The question comes from the line of Emily from Tianfeng. Your line is open, please ask your question.

Speaker #2: Please ask your question.

Speaker #1: Okay. Thank you, operator. Hello, management. Thanks for taking my question. I have two questions to follow up. The first one is about Marketing Day.

[Analyst] (Tianfeng): Okay. Thank you, operator. Hello, management. Thanks for taking my question. I have two questions to follow up. The first one is about marketing fee. Marketing expense ratio was slightly lower than last year in H1. What is your view on marketing spending for H2 2026 and going forward? That is my first question.

Speaker #1: The marketing expense ratio was slightly lower than last year in the first half. What's your view on marketing spending for the second half of 2022 and going forward?

Speaker #1: That's my first question.

Speaker #3: Okay. I'm a I will take this one. Okay. So yes, as you have mentioned, so our marketing investment are expected to increase. As John has highlighted in the second half, especially I think starting from September because we have the annual actually blue coffee and also bagel festival.

Albert Li: Okay. I will take this one. Yes, as you have mentioned, our marketing investment are expected to increase, as Yongchen Lu has highlighted, in H2, especially, I think, starting from September, because we have the annual brew coffee and also bagel festival. In the meantime, we have identified marketing efficiency as one of the most important levers for us to consider in terms of rebuilding our customer traffic and also support our sustainable revenue growth. I think in H1, our marketing expenses were relatively under spent, I think because we are building up our marketing team and also actually recruiting more talents in both marketing and also in the product category team.

Speaker #3: So, in the meantime, we have identified marketing efficiency as one of the most important levers for us to consider in terms of rebuilding our customer traffic and also supporting our sustainable revenue growth.

Speaker #3: And I think in the first half, our marketing expenses were relatively underspent. I think this is because we are building up our marketing team and also actually recruiting more talent in both marketing and also in the product category team.

Speaker #3: Okay. So I think starting from the third quarter, so we are adding additional talents in marketing and also in product innovation. And we will plan to invest more actually significantly invest more in terms of the scale and in the meantime, the effectiveness of our marketing activities.

Albert Li: So I think starting from Q3, we are adding additional talents in marketing and also in product innovation, and we plan to invest more, actually significantly invest more in terms of the scale and, in the meantime, the effectiveness of our marketing activities. Our focus will not only drive dine-in business or take away business or delivery transactions in just one parameter. Actually, we want to expand all the day parts from all channels. We are also expanding our CRM and marketing beyond our existing loyalty members to reach new customers. So I think in the meantime, we want to attract more customers through giving more effective actually in terms of the coupons from those e-commerce channels.

Speaker #3: So our focus will not only be on driving dine-in business, or takeaway business, or delivery transactions in just one parameter. Actually, we want to expand all the dayparts from all channels, and we are also expanding our CRM and marketing beyond our existing loyalty members.

Speaker #3: To reach new customers. So, okay. So I think in the meantime, we want to attract more customers by giving more effective incentives, actually, in terms of coupons from those e-commerce channels. And in the meantime, we also want to make sure that, in terms of their frequency and also in terms of their average spending per customer, those will also increase over time.

Albert Li: In the meantime, we also want to make sure that in terms of their frequency and also in terms of their average spending per customer will also increase over time. To conclude, we will definitely increase our marketing spending. The key metrics for us is not only a specific how many marketing dollar or marketing percentage to spend, but I think more importantly, in terms of the return and effectiveness of our marketing efforts. So we expect our overall business will recover. With the store network expansion, we will continue to balance our investment in customer acquisition, traffic growth, and also our profitability.

Speaker #3: Okay. So to conclude, we will definitely increase our marketing spending, and the key metrics for us are not only the dollar amount or marketing percentage spent, but, I think more importantly, the return and effectiveness of our marketing efforts.

Speaker #3: So, we expect our overall business will recover, and with the actual store network expansion, we will continue to balance our investment in customer acquisition, traffic growth, and also our profitability.

Speaker #3: Okay.

[Analyst] (Tianfeng): Okay. Thank you. My second one is about competition. We noted that more and more key players, such as Guming, Mixue Bingcheng, recently penetrated into coffee business. What is your view on competition, and how is this make impact your business strategy? Thank you.

Speaker #1: Okay, thank you. And my second question is about competition. We have noted that more and more key players have recently penetrated into the coffee business.

Speaker #1: And what's your view on competition? And how does this impact your business strategy? Thank you.

Speaker #3: Maybe I will take on this question. Well, indeed, we noticed there are many different forms of new entrants to the coffee market. As you said, some examples are from the tea chain.

Yongchen Lu: Well, indeed, we notice there are many different forms of new entrants to the coffee market, as you said, some example from the tea chain. However, on our side, it is very clear to us that we have to offer the best value to our customers. Value is delivered through the combination of product, experience, and also pricing. So our strategy is to ensure we can always provide superior product, coffee in this case as you asked, to our customers, whether we are talking about the more basic product like black coffee Americano or the more innovative limited time product offering. That does relate to the effort and resource we are putting in innovation, as I mentioned earlier. So to continue to be able to offer consumer superior product and experience.

John Cheung: Well, indeed, we notice there are many different forms of new entrants to the coffee market, as you said, some example from the tea chain. However, on our side, it is very clear to us that we have to offer the best value to our customers. Value is delivered through the combination of product, experience, and also pricing. So our strategy is to ensure we can always provide superior product, coffee in this case as you asked, to our customers, whether we are talking about the more basic product like black coffee Americano or the more innovative limited time product offering. That does relate to the effort and resource we are putting in innovation, as I mentioned earlier. So to continue to be able to offer consumer superior product and experience.

Speaker #3: However, on our side, it's very clear to us that we have to offer the best value to our customers. Value is delivered through a combination of product, experience, and also pricing.

Speaker #3: So, our strategy is to ensure we can always provide a superior product—coffee, in this case, as you asked—to our customers, whether we are talking about the more basic products like black coffee or Americano, or the more innovative, limited-time product offerings.

Speaker #3: That's related to the effort and resources we're putting into innovation, as I mentioned earlier, so we can continue to offer consumers superior products and experiences.

Yongchen Lu: experience as much as for services and the ambience a consumer can experience in our restaurant as well as in delivery. The third is price. We have a lot of effort in working on our cost and also on our combination of product offering to ensure some consumer who want the most basic product, they can enjoy a very good cup of coffee from us at a very affordable price. We are also planning programs to deliver part of our product mix at a price competitive fashion. We have answers to different needs of our customer and consumer at different day part. I and the organization and our team are aiming at bringing the best value to our customers.

John Cheung: experience as much as for services and the ambience a consumer can experience in our restaurant as well as in delivery. The third is price. We have a lot of effort in working on our cost and also on our combination of product offering to ensure some consumer who want the most basic product, they can enjoy a very good cup of coffee from us at a very affordable price. We are also planning programs to deliver part of our product mix at a price competitive fashion. We have answers to different needs of our customer and consumer at different day part. I and the organization and our team are aiming at bringing the best value to our customers.

Speaker #3: Experience as much as for services, and the ambience consumers can experience in our restaurant as well as with delivery. And then the third is price.

Speaker #3: We have put a lot of effort into working on our costs and also on our combination of product offerings to ensure that consumers who want the most basic product can still enjoy a very good cup of coffee from us.

Speaker #3: At a very affordable price. So, we are also planning programs to deliver part of our product mix in a price-comparative fashion. So, we have answers to the different needs of our consumers at different day parts.

Speaker #3: So, I and the organization, along with our team, are aiming to bring the best value to our customers.

Speaker #1: Okay, thanks for answering my question. It helps me a lot. Thank you.

[Analyst] (Tianfeng): Okay. Thanks for answering my question. It helps me a lot. Thank you.

Speaker #3: Thank you. Thank you, Emma.

Yongchen Lu: Thank you. Thank you, Emma.

John Cheung: Thank you. Thank you, Emma.

Speaker #2: Thank you.

Operator: Thank you. Dear speakers, those are the questions for today. I would now like to hand the conference over to the management team for any closing remarks.

Speaker #4: The speakers are there for the questions for today. I would like to hand the conference over to the management team for any closing remarks.

Speaker #3: Okay. Thank you for joining today’s conference call. We look forward to providing a timely update on any progress we have made on our new business plan and also our corporate strategies.

Yongchen Lu: Okay. Thank you for joining today's conference call. We look forward to providing timely update on any progress we have made on our new business plan and also our corporate strategies. Look forward to speaking in the next quarter. Thank you.

John Cheung: Okay. Thank you for joining today's conference call. We look forward to providing timely update on any progress we have made on our new business plan and also our corporate strategies. Look forward to speaking in the next quarter. Thank you.

Speaker #3: So, I look forward to speaking in the second, in the next quarter. Thank you.

Operator: This concludes today's conference call. Thank you for participating. You may now all disconnect. Have a nice day.

Speaker #4: This concludes today's conference call. Thank you for participating. You may now all disconnect. Have a nice day.

Yongchen Lu: Thank you.

John Cheung: Thank you.

[Analyst] (Tianfeng): Thank you.

Yongchen Lu: Thanks.

John Cheung: Thanks.