TH International (NasdaqCM:THCH) Q3 2025 Earnings Call December 09, 2025 08:00 AM ET Company ParticipantsYongchen Lu - CEOGemma Bakx - Head of Investor RelationsAlbert Li - CFOConference Call ParticipantsSteve Silver - Security AnalystOperatorLadies and gentlemen, welcome to Tims China Third Quarter 2025 earnings conference call. All participants will be in listen-only mode during management's prepared remarks, and there will be a question-and-answer session to follow. Today's conference is being recorded. ...

Financial Data and Key Metrics Changes - In Q3 2025, the company achieved a 12.8% year-over-year growth in system sales, with food revenues increasing by 24.2% year-over-year [4][12] - Adjusted Corporate EBITDA improved by 10.4% year-over-year, while Adjusted Net Loss improved by 11.5% [5] - The average monthly transacting customers reached 3.85 million, a 16.7% increase from the same quarter in 2024 [12] - Company-owned and operated store revenues dropped by 5.5% year-over-year due to planned store closures [12][14] Business Line Data and Key Metrics Changes - Same-store sales growth for company-owned and operated stores was 3.3%, contributing to overall positive performance despite revenue drops [4][12] - Revenues from the franchise and retail business increased by 25.0% year-over-year, with the number of franchise stores rising from 382 to 479 [12][13] - Delivery revenues increased by 23.1% year-over-year, benefiting from promotional offers from delivery aggregators [4] Market Data and Key Metrics Changes - The largest loyalty club members reached 27.9 million, reflecting a 22.3% year-over-year growth [7] - The coffee sector faced intensified competition from rapidly expanding tea beverage categories, impacting market dynamics [8] Company Strategy and Development Direction - The company is focused on enhancing operational efficiencies, supply chain capabilities, and rigorous cost controls to support sustainable profit growth [17] - Strategic initiatives include expanding into special channel stores, such as high-speed train stations and airports, which have shown strong performance [29] - The company aims to improve gross margins through supply chain optimizations and new product launches [26] Management's Comments on Operating Environment and Future Outlook - Management acknowledged challenges in the industry but emphasized resilience and continuous improvement in business execution [18] - The company expects to generate positive operating cash inflows and become more self-sustainable in supporting long-term growth [24][26] Other Important Information - The company successfully issued approximately $89.9 million in senior secured convertible notes and restructured existing convertible notes to focus on store network development [19] - The average payback period for sub-franchisees is two to three years, indicating attractive unit economics [6][18] Q&A Session Summary Question: Company's liquidity status and long-term financing plan - Management highlighted the successful issuance of $89.9 million in convertible notes and the extension of due dates for existing notes, allowing focus on daily operations and reducing leverage [22][23] Question: Pressure on store contribution margins and future margin profile - Management noted that lower margins were due to higher delivery revenue mix and aggressive subsidies from delivery platforms, expecting this to be temporary [26] - Plans to improve gross margins include supply chain optimizations and new product launches, aiming for double-digit store level margins next year [27] Question: Performance of strategic special channel stores - Special channel stores have performed well, generating mid- to high-teens EBITDA margins with a payback period of around two years [29]

Core Viewpoint - Starbucks employees are reportedly facing significant pressure to sell mooncakes, with some resorting to purchasing them themselves to meet sales targets, indicating a systemic issue within the company's sales practices [1][2] Group 1: Sales Pressure and Employee Experience - Employees in multiple Starbucks locations in Shandong are subjected to varying degrees of sales pressure, with some required to meet hourly sales targets and others facing consequences for not achieving their goals [1] - A detailed grading system for sales targets has been revealed, with specific quotas assigned to different roles: store managers are expected to sell 60 boxes, full-time employees 25 boxes, and part-time employees 15 boxes [1] - Employees report a stressful work environment, with constant reminders to meet sales targets leading to significant mental strain [1] Group 2: Consequences of Not Meeting Targets - Failure to meet sales targets results in formal reprimands, including the need for managers to write analyses or reflections in the company system [2] - Employees often have to use their personal benefits, such as "partner vouchers," to incentivize sales, with some giving away multiple vouchers to sell a single mooncake [2] - There are reports of disciplinary actions, such as warnings, for employees who do not actively promote products to customers [2]

Core Viewpoint - Recent reports indicate that Starbucks employees are facing pressure to meet sales targets for mooncakes, leading to financial strain and complaints about forced purchases [1][2][3] Group 1: Employee Experiences - A part-time employee from Hunan reported being forced to purchase 15 boxes of mooncakes, totaling nearly 3000 yuan, causing financial difficulties [1] - Full-time employees also shared similar experiences, with one from Zhejiang stating they had to buy 5 boxes, costing over 1000 yuan, and faced penalties for not meeting sales targets [2] - Many employees described the mooncake sales period as a "nightmare," with assigned sales quotas leading to significant stress and financial burden [3] Group 2: Market Dynamics - Mooncakes are being resold on second-hand platforms, with many sellers claiming to be Starbucks employees, indicating a potential oversupply and difficulty in selling the product at retail prices [3][10] - The original retail price for mooncakes is significantly higher than the resale prices, suggesting that employees are subsidizing sales to meet targets [10] Group 3: Company Response - Starbucks has stated that it does not allow employees to purchase products to meet sales targets and is investigating the claims made by employees [10] - A legal expert noted that requiring employees to purchase products to meet sales goals could expose the company to legal risks, as it violates principles of voluntary and equitable labor relations [10] Group 4: Public Perception - Media commentary suggests that if a large company like Starbucks resorts to pressure tactics on employees, it raises concerns about corporate practices and employee treatment [10]

Core Viewpoint - Tims China reported a 4.9% year-on-year decline in total revenue for Q2 2025, but system sales increased by 1.4%, driven by strong performance in the food segment and a differentiated strategy of "coffee + fresh prepared meals" [1][2] Group 1: Financial Performance - Total revenue for Q2 2025 was 349 million yuan, down from the previous year [1] - System sales reached 409.5 million yuan, reflecting a 1.4% increase year-on-year [1] - Adjusted EBITDA for Q2 was 2.2 million yuan, indicating a return to positive earnings [2] Group 2: Food Business Growth - Food revenue grew significantly by 8.6% year-on-year, accounting for 35.2% of system sales, a historical high [1] - The introduction of new products, such as the "light lunch box" series, contributed to increased store revenue and single-store profitability [1][2] Group 3: Marketing and Costs - The company launched 43 new products in Q2, including 15 food items, leading to an 8.4% increase in marketing expenses [2] - Delivery costs rose by 3.4% due to an increase in delivery orders [2] Group 4: Franchise Business Expansion - The number of franchise stores increased by 116 year-on-year, totaling 449 stores, which boosted other income by 50.7% to 67.1 million yuan [3] - The company plans to open approximately 200 new MTO (made-to-order) stores in China by 2025, primarily through franchising [3]

Financial Data and Key Metrics Changes - In Q2 2025, food revenue increased by 8.6% year over year, with food revenue contribution reaching a historical high of 35.2%, up 2.8 percentage points from 32.5% in 2024 [5] - System sales achieved a 1.4% year over year increase, while adjusted corporate EBITDA returned to positive, and adjusted net losses were reduced by 16.2% [6][19] - Monthly average transacting customers reached 3,590,000, a 14.3% increase from 3,140,000 in Q2 2024 [15] Business Line Data and Key Metrics Changes - Company-owned and operated store revenues dropped by 12.5% year over year due to planned closures of underperforming stores and a 3.6% decrease in same store sales growth [15] - Revenues from franchised and retail businesses increased by 50.7% year over year, with the number of franchised stores rising from 333 to 449 [16] - Food and packaging costs accounted for 30.1% of revenues from company-owned stores, with a reduction in labor costs and other operating expenses as a percentage of revenues [17] Market Data and Key Metrics Changes - The average number of members per store reached approximately 26,600, serving as a strong catalyst for future growth [7] - Digital orders as a percentage of total orders rose from 86.5% in Q2 2024 to an all-time high of 90.4% in Q2 2025 [15] Company Strategy and Development Direction - The company reinforced its coffee plus freshly prepared food strategy with the launch of the live lunch box platform and new combo products [5] - Plans to open around 200 new franchise stores in 2025, focusing on special channel store development in high-traffic locations [7] - The company aims to enhance operational efficiencies through supply chain optimizations and rigorous cost controls [19] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the second half of the year, expecting positive same store sales growth and continued improvements in profitability [21][45] - The company is focused on balancing the need for revenue growth with conservative operating capital management [30] Other Important Information - The company has established a unique coffee plus fresh prepared food business model, with a payback period of two to three years for franchise opportunities [22] - Marketing expenses as a percentage of total revenues increased to approximately 4% during the quarter, reflecting investments in the lunch box campaign [18] Q&A Session Summary Question: Current thinking on the rate of sub franchise applications and new store growth - Management clarified that 41 of the 49 closures in Q2 were non-MTO Express stores, with a target of around 200 new MTO stores in 2025 [25] Question: Sustainability of increased marketing expenses and impact on same store sales growth - Management noted that same store sales have been recovering well and expect positive growth in the third quarter [27] Question: Balancing investment for revenue growth with operating capital needs - Management indicated they are close to achieving operating cash flow self-sufficiency and are working on securing additional capital for growth [30] Question: Update on refinancing of convertible debt - Management confirmed good progress on refinancing and will disclose details when available [38] Question: Monetizing loyalty members and potential sales generation - Management acknowledged the challenge of deriving value from memberships and is working on product and campaign designs to attract spending [39] Question: Expectation of liquidity position improvement - Management expressed confidence in a good liquidity position and the approach to operating cash flow self-sufficiency [41]

Core Insights - Tim Hortons China reported Q2 2025 revenue of 349 million yuan, with system sales increasing by 1.4% to 409.5 million yuan [1][2] - The company’s franchise and retail business provided stable cash flow and profitability, while other business revenue grew by 50.7% [1][2] Financial Performance - As of June 30, 2025, the total number of franchise stores reached 449, a 35% increase from 333 stores in the same period last year [1][2] - Other business revenue amounted to 67.1 million yuan, reflecting a 50.7% year-on-year growth [2] - Food revenue increased by 8.6%, with its share rising from 32.5% in Q2 2024 to 35.2% in the current quarter [2] Strategic Initiatives - The company is expanding its special channel network, opening new stores in transportation hubs such as high-speed rail stations, airports, and highway service areas [1] - Tim Hortons China is also increasing its presence in hospitals, schools, and banks to leverage stable customer flow and enhance consumption frequency [1] - The introduction of the "light lunch box" series during lunch hours is part of the company's differentiated strategy of "coffee + warm food" [2]

Core Insights - Tims China reported Q2 2025 revenue of 349 million yuan, with system sales increasing by 1.4% to 409.5 million yuan, driven by stable cash flow and profitability from franchising and retail operations [1][2] - The company launched 43 new products in Q2, including 28 beverages and 15 food items, leading to an 8.6% increase in food revenue, which now accounts for 35.2% of total revenue, a record high [1] Financial Performance - In the first half of 2025, self-operated stores saw profit margins and adjusted EBITDA margins increase by 2.7 percentage points and 2.8 percentage points, respectively [1] - Other business revenue grew by 50.7%, and profits from other business segments increased by 110.3% year-on-year [1] Membership and Store Expansion - As of June 30, 2025, Tims China had 26.19 million registered members, a 22.4% year-on-year increase, with an average of over 25,800 members per store [2] - The total number of franchise stores reached 449, a 35% increase from 333 stores in the same period last year, bringing the total store count to 1,015 across 90 cities [2] Strategic Focus - The CEO emphasized that profit growth is the core focus for 2025, with ongoing improvements in operational efficiency and store-level economics [2] - The differentiation strategy of "coffee + fresh prepared meals" is becoming increasingly prominent, contributing to store revenue growth and cost control through scale advantages and refined operations [2]

Group 1 - Starbucks plans to set up self-service kiosks in airport locations to alleviate long queue issues [1]

Core Insights - Tims China reported a total revenue of 300.7 million yuan and a system sales of 376.3 million yuan for Q1 2025, with self-operated stores contributing 17.15 million yuan, representing a contribution rate of 6.7%, a year-on-year increase of 5.9% [1][2] - The total number of Tims China stores reached 1,024, including 569 self-operated and 455 franchised stores, covering 84 cities nationwide [1] - The brand's registered membership reached 25.15 million, a year-on-year growth of 25.7%, with an average of over 24,500 members per store [1] Financial Performance - The costs and expenses for self-operated stores decreased by 19% compared to Q1 2024, with food and packaging costs down by 24.6%, rent and property management fees reduced by 12.9%, and other operating expenses decreased by 25.6% [2] - Marketing expenses at the headquarters level decreased by 11.8% due to the expanding brand influence [2] - The adjusted EBITDA loss was significantly reduced by nearly 50%, indicating improved profitability [2] Strategic Initiatives - The introduction of the "Light Lunch Box" product line aims to strengthen the "Coffee + Warm Food" differentiation advantage, driving system sales growth and enhancing store efficiency [2] - The company is focusing on franchise strategies to consolidate scale advantages while achieving organic growth in profitability [2] - Tims China plans to leverage the recovery in consumer spending to further advance its franchise strategy and ensure sustainable growth [2]