TH International (US:THCH)2024-06-06 13:27Financial Data and Key Metrics Changes - In Q1 2024, system sales grew by 7.1% year-over-year to RMB363.5 million, driven by an increase in the number of system-wide stores from 648 to 917 [12][13] - Monthly average transacting customers increased by 22.8% to 2.8 million compared to 2.3 million in the same quarter of 2023 [13] - Digital orders as a percentage of total orders rose from 79.1% in Q1 2023 to 85.4% in Q1 2024 [13] - Food and packaging costs as a percentage of revenues decreased by 1.0 percentage points year-over-year, while rental and labor costs also saw reductions [14] Business Line Data and Key Metrics Changes - The percentage of orders that included food rose to 52.7%, an increase of over 8 percentage points from 44.2% in the same quarter of last year [11][33] - The company launched 14 new beverages and 18 new food products in Q1 2024, with significant sales from new items like Cherry Americano and croissant series [9] Market Data and Key Metrics Changes - The company expanded its store network significantly, entering new cities such as Huizhou and Huzhou during Q1 2024 [8] - The loyalty program surpassed 20 million registered members, representing a 63.6% year-over-year growth [7][35] Company Strategy and Development Direction - The company is focusing on operational efficiencies and targeted marketing efforts to enhance profitability and achieve adjusted corporate EBITDA breakeven [6][7] - A strategic partnership with sub-franchisees is underpinning the expansion of the store network, with over 3,000 applications received for sub-franchising [18][27] - Continuous product innovation is a cornerstone of the company's strategy, with a robust supply chain infrastructure established to support new product launches [9][29] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenging industrial landscape characterized by intense price competition and macroeconomic headwinds but remains committed to driving profitability [6][12] - The company plans to continue optimizing store unit economics and enhancing supply chain capabilities to support growth [15] Other Important Information - The company celebrated its 5th anniversary in China with a nationwide campaign, resulting in over 20 million media exposures [8][9] - The company is actively fine-tuning its Popeyes brand menu and has launched 14 Popeyes restaurants in Shanghai [11] Q&A Session Summary Question: How does the company plan to maintain store-level EBITDA margins amid competitive challenges? - Management emphasized that their differentiation strategy of combining coffee with food allows them to avoid direct price competition, which has attracted many sub-franchisee applications [18] Question: What factors contributed to Tims' margin performance compared to competitors like Luckin? - Management highlighted effective cost structure management, rigorous capital expenditure control, and collaboration with suppliers to achieve better pricing [20][21] Question: How does the company view the extended price war in the industry? - Management noted that the pricing competition is primarily due to coffee brands competing on similar products, while Tims' food offerings provide a competitive edge [24] Question: How has the franchising strategy evolved since its announcement? - The franchising strategy has exceeded expectations with over 3,000 applications, although the vetting process is time-consuming [26][27] Question: Can you provide insights on the supply chain and product optimization? - Management stated that a robust supply chain infrastructure has been built, allowing for competitive costs and flexibility in launching new products [29] Question: How does the company view competition in light of perceived weakness in the Chinese consumer market? - Management reiterated that Tims' differentiation strategy allows it to navigate competitive pressures effectively [31] Question: What is the impact of food orders on competition? - The increase in food orders has strengthened Tims' market position, reducing the need for price competition [33] Question: How effective is the loyalty program in driving customer spending? - Loyalty members spend significantly more than non-members, and the company employs creative marketing rather than relying heavily on coupons [35]