TH International (NASDAQ:THCH) held its fourth-quarter earnings conference call on Tuesday. Below is the complete transcript from the call.
This transcript is brought to you by Benzinga APIs. For real-time access to our entire catalog, please visit https://www.benzinga.com/apis/ for a consultation.
The full earnings call is available at https://edge.media-server.com/mmc/p/ro58awqs/
Summary
TH International reported a 7.6% increase in total system sales to RMB 1.57 billion in 2025, with a focus on expanding its store network to 1,047 locations across 92 cities in China.
The company highlighted its strategic positioning in coffee plus freshly prepared foods, completing renovations of 74% of its stores and continuing to prune underperforming locations.
Same-store sales growth faced a 2.4% decline due to increased competition and platform dynamics, but the company maintained a resilient margin with an adjusted corporate EBITDA margin improved by 1 percentage point.
2025 saw the launch of 178 new products, contributing to over 25% of top-line sales, with significant growth in non-coffee beverages and breakfast offerings.
TH International's loyalty program grew by 29% year-over-year, reaching over 31 million members, and the company plans to continue expanding its franchise model, particularly in high-margin special channels like railway stations and hospitals.
Operational efficiencies led to a 1.4 percentage point reduction in food and packaging costs as a percentage of revenue, and a 7.4 percentage point decrease in adjusted general and administrative expenses.
For 2026, the company aims to enhance supply chain capabilities, improve store unit economics, and expand its sub-franchising model, targeting at least 100 net new store openings.
Full Transcript
OPERATOR
Ladies and Gentlemen, welcome to Teams China fourth quarter 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 to Teams China's Public and Media Relations Manager for prepared remarks and introductions. Please go ahead.
Patty Yu (Public and Media Relations Manager)
Patty hello everyone and thank you for joining us. On today's call, TH International Limited announced its fourth quarter and full year 2025 financial results earning today. A press release as well as accompanying presentation which contains operational and financial highlights are now available on the company's IR [email protected] today you will hear from Yongqian Lu, our CEO Director and Albert Lee, our CFO. After the accompanied prepared remarks, the managed 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 invest 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. 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 risk factors included in our filings with the SEC. This presentation also include 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 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 Lu, our CEO Director. Please go ahead.
Yong Chen Lu (CEO)
Yong Chen 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 Team China. We're excited to continue serving our innovative and local and relevant offerings to our fast growing loyal guests. 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 RMB 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 1047 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 increased from 45.2% in Q1 20232025 marked a critical transaction year for the company. We further solidified our differentiated strategic positioning in coffee plus freshly prepared foods, completing made to order renovations of over 74% system wide stores while while we strategically pruned certain underperforming stores, especially those non MTO express stores. Our same store sales growth we managed to achieve overall comparable transaction growth of 2.7% in 2025, but we had to apply higher discounts on delivery business to mitigate intensified competition due to aggregator platform dynamics which led to 2.4% decline in the same store sales growth for system wide wireless stores in 2025. Despite the headwinds on CS competition, especially from low priced local brands, our team demonstrates strong resilience and maintain our margins well at both store and corporate level. 2025 full year company owned and operated store's contribution margin was 7% compared with 7.4% in 2024 which was primarily attributable to the temporarily increased delivery rated costs due to aggregator platform dynamics. 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 store contribution margin of nearly 15% in 2025 and I expect to achieve a payback period within 23 years. Our 2025 vintage year stores are still new but are ramping up right now. We believe they will have similar unique economics too. In the meantime, our company owned an operated store in tier one cities including Beijing, Shanghai, Guangzhou and Shenzhen and in Those cities with 10 plus stores generate 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 expand our store footprint while maintaining capital efficiency delivering absolute convenience for our customers. Leveraging sub franchisee partnerships, we accelerate market penetration entering 92 cities by year end including the debut of our first stores in Lianyang, Sichuan Province, Datong, Shanxi Province and Xinxiang, Henan province during the fourth quarter of 2025. This growth strategy not only further strengthened our brand presence but but also ensure 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 over 300 stores by the year end of 2025. Showcasing continued market confidence in our franchise model, we have witnessed reasonable returns for our franchise stores. For instance, our franchises stores at special channels including railway stations, hospitals and highway rest areas generate store contribution margin of high teens in 2025 and expect to achieve a payback period of a of approximately two years will accelerate opening franchise doors on these special channels. 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% 55.7% in 2025. Product innovation has always been an important strategic focus for us. In 2025 teams China accelerate 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 the fourth quarter included the Palmer Granade, Rose cheese and oat latte cereals offering a diverse and differentiated flavor portfolio. We also focus on adding non coffee beverage offers complementary to existing product portfolio. During the afternoon tea day part, 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 day parts and launch several campaigns to promote lunch day part. In 2025, 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 and offering great value. Building on our classic bagel breakfast sets, the croissant combo includes protein rich options like meat catering to high energy needs in colder months. Meanwhile, the croissant itself is light yet satisfying, perfect for those wanting a hearty but not very not overly filling breakfast. In addition, Tim China continued to broaden its bagel sandwich range, introducing new products including the Black Truffle Mushroom bagel and spicy Pickled Cabbage Beef bagel, further enriching its several menu. We continue to strengthen our leadership in the bagel platform, selling a total of over 80 million bagels and bagel sandwiches products cumulatively as of the end of 2025, the fourth quarter 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 first quarter, TeamStrina 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 N San' an Aziqi as well as a co branded campaign with People's Daily 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. In parallel, Timschina advanced its sustainability initiatives by expanding its bring your own CAP program and increasing the incentive to IAB 8 per cap. As of now, the program had 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 Carbon Ax Mate program using carbon capture technology to convert industrial carbon dioxide into sustainable materials. SGS certification confirms that every 100 stores store 3.185 grams of carbon dioxide, reinforcing Team China commitment to sustainable product innovation. As of December 31, 2025, our rushed Laudate 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 Teams China's laundry programs. this time I would like to turn it over to our CFO Albert Lee to discuss our fourth quarter and full year 2025 financial performance in more detail.
Albert Lee (Chief Financial Officer)
Thank you Yunquan. We continue to strive for excellence in delivering high value for quality, healthy products and for 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. 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. 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 the fourth quarter of 2025, amidst 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. 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 benefiting from the expansion of our franchise store network with the number of our franchise stores increased 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 million during the fourth quarter of 2025. 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 our long term sustainable growth specifically through refinements in our supply chain capabilities and economy 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. 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. 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. 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 RMB US$9.7 million 1.4 million decrease in quite a lot of accounts receivables. Turning to Liquidity as of December 31, 2025, our total cash on cash equivalents, time deposits and restricted cash were RMB 129.7 million 18.5 million compared to RMB 184.2 million as of December 31, 2024. The change was primarily attributable to cash disbursements on the back of of the expansion of our business, partially offset by the drawdown of additional bank facilities in the meantime, with the issuance of the US$89.9 million 2025 senior secured convertible Notes and the amendment 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. 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 Yung Chen for concluding remarks followed by Q and A.
Yong Chen Lu (CEO)
Thank you ever before we turn to Q and 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 continued 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 products as an international coffee brand, differentiated 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 and A session. Patti thank you. Yong Chen. We will turn it over to Q and A session and open it up for our registered questions. Let's begin with our first question. Amber, please go ahead. Thank you.
OPERATOR
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. To withdraw your question, please press Star one and one again. To ask your question via the webcast, please use the Q and A box available on the webcast link. 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 AGUS Research Corporation. Please ask your question.
Steve Silver (Equity Analyst)
Steve. Your line is now open. 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 the railway stations, hospitals and highway rest areas and you've 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 and really what impact you expect this to have on future operating results?
Yong Chen Lu (CEO)
Yeah, sure. Thank you Steve for your question. I mean the beauty of the stores on special channels, especially on railway stations and highway rest areas, it's purely dying business. 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 despite okay, the rent might be higher, but still those stores are generating high teens contribution margin and the payback is very attractive around two years, even lower than two years. So I mean in China there are a lot such areas, you know, there are thousands of tens of thousands of stations, airports, rest areas in highways and hospitals. So we have generated the momentum in those channels. As we mentioned, we are the only, essentially we are the only international coffee brand that open to individual franchise. So we are attracting a lot of interest from those franchisee partners. So this year we'll accelerate our openings on those channels.
Albert Lee (Chief Financial Officer)
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? 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 higher percentage of our delivery revenue mix. And in the meantime we have also 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. 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 by from 7.4% to 7%. I think overall we have in the meantime actually increased our gross margin. 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 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. So we will do everything we can to actually to mitigate potential delivery costs. And I think in the meantime we are also negotiate with those delivery aggregator platforms to actually to strike a better cost on the delivery cost. 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. 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 cost. So 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, but we expect that trend might be mitigated or might be slowed down this year. Thank you Steve.
Steve Silver (Equity Analyst)
Yeah, that's helpful. Thank you. And one more if I May. So 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 continues to be very, very strong and the loyalty membership continues to expand significantly almost 30% in 2025. So 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.
Yong Chen Lu (CEO)
Yeah, I mean, no, I mean we are in the, 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 open a lot of high rent stores during 2019-2022 and even 2023. High rent, larger store formats for the brand building and also the rent back then was very high, much higher than the current situation. So we are in the process of continuing pruning those underperforming stores. So 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. So I mean in this year we will continue to prune some underperforming stores. But as we mentioned the new vintage of our stores have higher store contribution margins for the stores we open in 2024 and in 2025 have store margin around 15%. So now this newer vintage store formats have been approved. So we'll continue to open such format for both common owned and franchise stores. So we target to achieve net store openings this year of at least 100, even more when we see the capital secured. So I mean that's kind of the process. So we'll continue to expand the network. And that's the plan for now. Great.
Steve Silver (Equity Analyst)
Thanks for taking the questions and best of luck throughout the year.
OPERATOR
Thank you. Thank you, Steve. Thank you. Our next question comes from the phone line of from TF Securities. Please ask your question. Fu Lee, your line is open. Hello.
Fu Lee
Thanks for taking my question. I have three questions. The first one is about growth margin. 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?
Albert Lee (Chief Financial Officer)
Thank you, Phui. I think I will 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 point in 2025, representing an improvement of 1.4 percentage points. And in the meantime I also want to highlight that if you take a Look on the fourth quarter 2025, the cost percentage was 29.4%. Actually it represents a 2 percentage points margin improvement from the fourth quarter of 2024. So 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. And two, we have tried actually many ways in terms of on the supply chain optimization projects, so especially on existing food and packaging materials. So we have almost renegotiated the unit cost and in terms of the overall pricing for each of the supply chain vendors. 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. And fourthly, we have also seen higher margin on our new product launch. As we have mentioned, we have actually launched nearly 180 new products in new LTO products in 2025. And most of this new LTO products had higher margins. And I think lastly we have also optimized the recipe of existing core products and some other like material costs. And also in terms of the transportation and the freight costs, this is also contributing to our overall margin expansion in 2025. 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. So that would be our target for this year. Thank you fully for your question.
Fu Lee
Very clear. The second one is about margin profile. You mentioned company owned and operated star system in tier one cities and in those cities with 10 plus stores generated over 10% and 7% star contribution margin in 2025 respectively outperforming other tier cities with lower star density. Can you explain more details about the differences on margin profile of these stars? Thank you.
Yong Chen Lu (CEO)
Okay, I'll take this one. Thank you for your question. I mean it's a great question. I mean, I mean the density really matters, you know, 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 and lower cost on delivery and supply chain and look more efficiency on the management, density really matters. I mean so the data clearly shows that we have the highest margin on tier one cities and as we mentioned early for the 2024 and 2025 vintage stores our store margin about 15% 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 store in existing cities to add density and density really helps everything. Thank you.
Fu Lee
Okay, and the last one is about store count. Target, what's the store of new and closure target for 2026 and expected mix between company owned and operated stores and franchised stores. That's all.
Yong Chen Lu (CEO)
Yeah, we would just answer the question, the similar question from the Steve. So we target to achieve Nest opens of at least 100 including both company owned and franchisee stores. And we are very happy to see our Europe industries have very high margins. So we'll continue to open and although we'll continue to prove some underperforming stores, we should be able to achieve next door openings again at least 100 this year.
Fu Lee
Okay, thank you Fleet.
OPERATOR
All right, thank you. I'll now hand back to Patty to read any questions coming through via the webcoms.
Patty Yu (Public and Media Relations Manager)
It seems that we have no questions online. Is that right, Emily?
Emily
That's correct. So at this time there are no further questions. So with that we conclude today's question and answer session. I'd like to hand the call back to Yong Chen for his closing comments.
Yong Chen Lu (CEO)
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 and we expect to even improve our margins further this year and achieve accelerated openings this year. So Stay tuned. We'll see you soon. Thank you.
OPERATOR
Thank you. Thank you. That does conclude today's conference call. Thank you for your participation. You may now disconnect your lines.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.
Login to comment