TH International (THCH) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total system sales reached RMB 1.57 billion in 2025, a 7.6% increase compared to 2024, driven by 25 net new store openings [4] - Company-owned and operated store contribution margin was 7% in 2025, down from 7.4% in 2024, primarily due to increased delivery-related costs [6] - Adjusted corporate EBITDA margin improved by one percentage point in 2025 [6] Business Line Data and Key Metrics Changes - Food sales accounted for 33.4% of total revenues in Q4 2025, up from 24% in Q1 2023 [4] - Orders with food items represented 51% of total orders in Q4 2025, an increase from 45.2% in Q1 2023 [5] - Same-store sales growth achieved an overall comparable transactions growth of 2.7% in 2025, despite a 2.4% decline in same-store sales growth for system-wide stores [5] Market Data and Key Metrics Changes - The company expanded its store network to 1,047 across 92 cities in China by the end of 2025 [4] - The number of franchised stores increased from 446 as of December 31, 2024, to 485 as of December 31, 2025 [14] - Registered loyalty club members exceeded 31 million, reflecting a 29% year-over-year growth [12] Company Strategy and Development Direction - The company is focusing on a coffee plus fresh prepared foods model, with over 74% of system-wide stores undergoing made-to-order renovations [5] - Plans to accelerate the opening of franchise stores in special channels such as railway stations and hospitals, which have shown strong contribution margins [8] - The company aims to achieve net store openings of at least 100 in 2026, continuing to prune underperforming stores while expanding successful formats [30][41] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenges posed by intensified competition and delivery cost pressures but emphasized resilience and margin maintenance [5][14] - The company expects to further improve gross margins in 2026 by reducing food and packaging costs as a percentage of revenues by at least 1-2 percentage points [36] - Future growth is anticipated through enhanced supply chain capabilities and operational efficiencies [17] Other Important Information - The company launched 178 new products in 2025, contributing over 25% of top-line sales [8] - Marketing expenses as a percentage of total revenues increased by 1.2 percentage points year-over-year, reflecting efforts to drive traffic [15] - The company has implemented sustainability initiatives, including eco-friendly straws and a Bring Your Own Cup program [12] Q&A Session Summary Question: Contribution margins of franchise stores in special channels - Management highlighted that stores in special channels have high gross margins and do not rely on delivery, leading to attractive payback periods [23] Question: Mitigation of delivery cost risks - Management discussed strategies to maintain or improve store contribution margins, including negotiating better delivery costs and increasing prices on deliverable products [27] Question: Store growth and demand outlook for 2026 - Management confirmed plans to continue pruning underperforming stores while targeting net store openings of at least 100, indicating strong underlying demand [30][41] Question: Factors behind gross margin improvement - Management attributed gross margin improvement to better economies of scale, supply chain optimization, and higher margins on new product launches [35] Question: Margin profile differences in Tier 1 cities - Management explained that higher store density in Tier 1 cities leads to better brand awareness, lower delivery costs, and higher margins [39]