TH International Limited (THCH) Q3 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents a mixed but overall positive outlook. Strong points include a 58.2% increase in profits from other revenues, significant growth in registered loyalty club members, and a successful franchise expansion. The Q&A section reveals effective liquidity management and strategic focus on improving margins. However, concerns about increased costs and a decline in company-owned store revenues are balanced by optimistic guidance and strategic measures to enhance profitability. The market is likely to react positively, especially with the promising franchise model and strategic partnerships.
Key Financial Performance
Net new store openings Returned to positive net new store openings in Q3 2025.
System sales Achieved a 12.8% year-over-year growth in Q3 2025.
Same-store sales growth for company-owned and operated stores Positive 3.3% year-over-year growth in Q3 2025, driven by the Light & Fit Lunch Box platform and Coffee Plus Freshly Prepared Food strategy.
Food revenues Increased by 24.2% year-over-year in Q3 2025, with food revenue contribution reaching a historical high of 36.5% of sales, up from 31.5% in Q3 2024.
Delivery revenues Increased by 23.1% year-over-year in Q3 2025, benefiting from promotional offers by delivery aggregators.
Profits from other revenues Achieved a year-over-year increase of 58.2% in Q3 2025.
Adjusted company-owned and operated store contribution margin Remained at 8.1% for the first 9 months of 2025, same as the first 9 months of 2024.
Adjusted corporate EBITDA Loss reduced by 10.4% year-over-year in Q3 2025.
Adjusted net loss Loss reduced by 11.5% year-over-year in Q3 2025.
Registered Loyalty club members Reached 27.9 million as of September 2025, reflecting a 22.3% year-over-year growth.
Monthly average transacting customers Reached 3.85 million in Q3 2025, a 16.7% increase from 3.3 million in Q3 2024.
Digital orders as a percentage of total orders Rose to an all-time high of 91.0% in Q3 2025, up from 86.6% in Q3 2024.
Company-owned and operated store revenues Dropped by 5.5% year-over-year in Q3 2025, primarily due to planned closure of underperforming stores, partially offset by a 3.3% increase in same-store sales growth.
Revenues from franchised business and retail business Increased by 25.0% year-over-year in Q3 2025.
Number of franchised stores Increased from 382 as of September 30, 2024, to 479 as of September 30, 2025.
Food and packaging costs as a percentage of revenues from company-owned and operated stores Increased by 1.6 percentage points year-over-year to 30.6% in Q3 2025.
Delivery costs as a percentage of revenues from company-owned and operated stores Increased by 2.9 percentage points year-over-year to 13.2% in Q3 2025, due to higher delivery revenue mix.
Marketing expenses as a percentage of total revenues Decreased by 0.7 percentage points year-over-year to 4.4% in Q3 2025.
Adjusted general and administrative expenses Increased by 23.2% year-over-year in Q3 2025, primarily due to higher outside service fees and credit loss of accounts receivable, partially offset by lower staff compensation and depreciation costs.
Adjusted corporate EBITDA margin Negative 4.2% in Q3 2025, compared to positive 0.6% in Q3 2024.
Total cash and cash equivalents, time deposits, and restricted cash RMB 159.3 million as of September 30, 2025, down from RMB 184.2 million as of December 31, 2024, primarily due to business expansion and additional bank borrowings.
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Operating Highlights
Light & Fit Lunch Box platform products: Launched in Q2, these products enhanced the Coffee Plus Freshly Prepared Food strategy, driving a 3.3% same-store sales growth for company-owned and operated stores. Food revenues increased by 24.2% year-over-year, with food revenue contribution reaching a historical high of 36.5% of sales.
Cold Blue platform: Launched in Q2, followed by monthly innovations in Q3, targeting younger consumers with a balanced portfolio of coffee and non-coffee SKUs. This strategy contributed to beverage sales growth.
Smile Bagel series: Introduced as part of the afternoon tea offerings, reinforcing leadership in the bagel category and enhancing competitive differentiation.
Store expansion: Expanded store footprint into 91 cities, including Yanji, Yangzhou, and Wuhu. Over 300 stores converted under the individual franchise program since December 2023, with over 8,400 applications received.
Strategic channel development: Developed 64 stores in high-traffic locations such as train stations, airports, and universities by the end of September 2025.
Loyalty program growth: Registered Loyalty club members reached 27.9 million, a 22.3% year-over-year growth, with an average of over 27,000 members per store.
Delivery revenue growth: Delivery revenues increased by 23.1% year-over-year, supported by promotional offers from delivery aggregators.
Digital orders: Digital orders rose to 91.0% of total orders in Q3 2025, up from 86.6% in Q3 2024.
Cost management: Maintained stable labor, rental, and property management costs as a percentage of revenues, despite higher discounts and delivery costs.
Convertible notes issuance: Issued approximately USD 89.9 million senior secured convertible notes due September 2029, restructuring unsecured convertible notes due 2027 and repurchasing variable rate convertible senior notes due 2026.
Franchise model: Showcased attractive store unit economics with a 2-3 year payback period, reinforcing market confidence in the franchise model.
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Risk or Challenges
Competitive Pressure: The coffee sector is facing intensified competition from the rapidly expanding tea beverage categories. Leading tea brands are entering the coffee space, increasing market competition.
Delivery Costs: Delivery costs as a percentage of revenues from company-owned and operated stores increased by 2.9 percentage points year-over-year, primarily due to a higher delivery revenue mix.
Store Closures: Revenues from company-owned and operated stores dropped by 5.5% year-over-year due to the planned closure of underperforming stores.
General and Administrative Expenses: Adjusted general and administrative expenses increased by 23.2% year-over-year, driven by higher outside service fees, credit loss of accounts receivable, and other operational costs.
Cash Liquidity: Total cash and cash equivalents decreased from RMB 184.2 million to RMB 159.3 million, primarily due to cash disbursements for business expansion.
Profitability Challenges: Adjusted corporate EBITDA margin was negative 4.2% in Q3 2025 compared to positive 0.6% in Q3 2024, indicating profitability challenges.
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Guidance & Outlook
Future Store Expansion: The company plans to further enhance operational efficiencies, optimize store unit economics, and accelerate the expansion of its successful sub-franchising model. This includes leveraging supply chain capabilities and rigorous cost controls to support growth.
Profitability Goals: The company is committed to sustainable profit growth and generating long-term value for shareholders. It aims to refine store unit economics with attractive payback periods of 2 to 3 years on average.
Market Positioning and Product Strategy: Tims China plans to reinforce its coffee leadership through premium offerings and expand its non-coffee SKUs to compete for tea drinkers' market share. Seasonal and innovative product launches will continue to drive consumer engagement and sales growth.
Digital and Delivery Growth: The company will continue to enhance digital capabilities to meet growing demand for delivery and takeaway services, which currently account for 91% of total orders.
Financial Strategy: The company successfully issued approximately USD 89.9 million senior secured convertible notes due September 2029 and restructured other convertible notes to focus on store network development and brand growth.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:With the closing of the new convertible notes transaction in Q3, what is the company's latest thinking on its liquidity status and long-term financing plan?
A:The company successfully issued USD 89.9 million 2025 senior secured convertible notes and used part of the proceeds to fully repurchase the remaining 2021 variable notes due 2026. Additionally, the due date of the 2024 unsecured convertible notes was extended to September 2029. The company now has no near-term offshore liabilities, allowing it to focus on daily operations. These financing measures are expected to reduce the onshore leverage ratio significantly and improve access to onshore bank facilities. The company is also working on securing additional debt or equity financing to support the expansion of its store network. With improved store and corporate-level margins, the company expects to generate positive operating cash inflows and become more self-sustainable for long-term growth.
Q:In Q3, there was pressure on store contribution margins. Do you expect this trend to continue, and what are the company's thoughts on the margin profile moving forward?
A:The lower store contribution margin in Q3 was due to a higher delivery revenue mix caused by aggressive subsidies from delivery platforms in China. This is viewed as a temporary issue. For the first 9 months of 2024 and 2025, store contribution margins were consistent at 8.1%. The company aims to expand margins to mid- to high teens by enhancing gross margins, driving same-store sales, and optimizing the store network. Plans include closing high-rent loss-making stores, opening high-quality new stores, optimizing the supply chain, increasing delivery platform pricing, launching high-margin new products, and improving existing core product recipes. The company expects to achieve double-digit store-level margins next year.
Q:What information is available about the performance of strategic special channel stores under the franchise model?
A:As of the end of September 2025, the company had over 60 special channel stores in locations such as high-speed road stations, airports, highway rest areas, and hospitals. These stores performed well, generating mid to high teens EBITDA margins with a payback period of around 2 years. There is significant interest from franchisees with access to these special channels, and the company sees great momentum in this area, planning to open many more such stores next year.
Q:Review of Unclear Management Responses
A:None of the questions were avoided or lacked clarity. All responses provided detailed and specific information.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Anhui Province
Bagel Festival
Blue Water
Blue platform
Buffalo Milk
China store
Cold Blue
Festival digit
SKUs
Yongchen
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beverage market
brand coffee
category
celebrity
club member
consumer preference
decrease
delivery order
development store
high
interest
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loss
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note
order food
portfolio
sale month
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series
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store revenue
store sale
summer beverage
system sale
tea
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The earnings call presents a mixed but overall positive outlook. Strong points include a 58.2% increase in profits from other revenues, significant growth in registered loyalty club members, and a successful franchise expansion. The Q&A section reveals effective liquidity management and strategic focus on improving margins. However, concerns about increased costs and a decline in company-owned store revenues are balanced by optimistic guidance and strategic measures to enhance profitability. The market is likely to react positively, especially with the promising franchise model and strategic partnerships.
THCH Report
Frequently Asked Questions
Where does this earnings call transcript come from?
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