Chagee Holdings Limited

Good morning and good evening, ladies and gentlemen. Thank you for standing by and welcome to Chachi's first quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. We'll be hosting a question-and-answer session after many changes with Mary Marks. Please note that today's event is being recorded. With that, I'll now turn the call over to the first speaker today, Ms. Alicia Guo, Investor Relations Director of the company. Please go ahead, ma'am.

Thank you. Hello, everyone, and welcome to Chargy's first quarter 2025 earnings call. With us today are Mr. Junjie Zhang, our CEO, and Mr. Aaron Huang, our CFO. The company's financial and operating results were released by the NewsWare earlier today and are currently available online. Before we continue, I refer you to our safe harbor statement in the earnings price release, which applies to this call. Any forward-looking statements that we make on this call are based on assumptions as of today, and CHAGI does not undertake any obligations to update these statements. Also, this call includes discussions of certain non-GAAP financial measures. Please refer to our earnings release which contains a reconciliation of non-GAAP measure to GAAP measure. I will turn the call to our CEO, Mr. Jun Jie Zhang. Please go ahead.

尊敬的各位投资者,分析师朋友们大家好。 感谢大家参加我们上市后的首次财报电话会议。 Hello everyone, and thank you all for joining us on first earnings call as a public company. 今年4月,我们成功在纳斯达克挂牌上市。 This is a key part of the strategic significance of the company's development journey. This is not only providing us with a broader development platform and funding support, but more importantly, it has built a gateway to the global capital market to show the new market industry in China. Here, I would like to express my special gratitude to all the members of the Bawang Tea Group for your persistence and hard work to get us to where we are today. I would also like to thank our business partners, This April marked a pivotal moment in our journey as we joined Nasdaq, a significant achievement

that positions us for our next chapter of growth. This milestone does more than strengthen our financial foundation and introduces the innovation and dynamism of Greater China's premium tea drinks brand to global investors. I'm profoundly grateful to the entire Chaiji team whose talent and dedication made this possible. To our franchise partners, your confidence in our vision has been instrumental in our expansion. And most importantly, to our customers, Chachi friends, your loyalty remains the bedrock of everything we build. Finally, I want to sincerely thank our shareholders. Your trust and support enables us to move forward with confidence and create greater longer-term value.

I am delighted to share our operating results for the first quarter of 2025 along with our strategic plans for the future. 整体来看,我们在一季度延续了稳健的发展态势,多项关键指标保持良好增长, Overall,

We maintained steady growth in the first quarter with several key metrics showing strong improvement. Revenue for the quarter reached RMB 3,392.7 million, up 35.4% year over year. Total GMV generated in the first quarter was RMB 8,226.8 million, growing by 38% from a year ago. Net income was RMB 677.3 million, a 13.8% increase compared to the same period last time. These results demonstrate the resilience and sustainability of our business model.

公司的业绩的稳定提升 主要得益于三大战略支柱的协同发力 全球化布局的持续推进 产品创新的差异化优势 e.g.

you who shouldn't I don't think about it just and I just to put things to a moment and she do she the you we yet you don't want to get to 10 this year go again comes to time she can jump you later don't notice are solid performance is mainly driven by three strategic pillars working together continued global expansion differentiated product innovation any healthy customer ecosystem this pillars not only supported our strong results this quarter, but also formed the foundation of our long-term competitive advantage.

首先,在门店网络拓展方面, 我们持续完善全球布局。 截至一季度末, 国内门店总数达到6512家, 较善季度近增228家, 国内一季度GMV同比增长37.2%, to RMB 80.5 billion. The overseas market is expanding steadily. The total number of stores in Southeast Asia has increased to 169. 9 new stores in Malaysia, 4 new stores in Singapore. The overseas market GMV reached RMB 1.8 billion. The same growth rate is 85.3%.

First, on store network extension, we continue to improve our global footprint. By the end of the first quarter, we had 6,512 stores in Greater China. a net increase of 228 stores from the previous quarter. GMV in Greater China market was RMB 8,048.4 million, up 37.2% year-over-year. Our overseas expansion progressed steadily, with the total number of stores in Southeast Asia rising to 169, including nine new stores in Malaysia and four in Singapore. GMV generated from overseas market reached RMB 178.4 million, representing an 85.3% growth year-over-year.

It is worth emphasizing that we successfully opened our first store in Indonesia on April 11, 2025. The signifier is to officially enter the Indonesian market. Indonesian stores not only provide high-quality milk tea, Fresh tea and specialty drinks were brewed, and the brand's innovative extraction technology was also introduced, bringing a rich and pure tea experience. The door design cleverly combines the local cultural elements of Indonesia. The wall murals were personally created by local artists, perfectly showcasing the deep fusion of tea culture and traditional Indonesian culture. In addition, It's worth mentioning that on April 11, 2025, we reached a significant milestone with our first Indonesian location at Jakarta.

This store showcases our premium tea offerings, fresh brewed selections, and signature beverages. all enhanced by our preparatory tea espresso extraction method that delivers unparalleled depth and aroma. The space itself celebrates our cross-cultural vision through stunning murals by acclaimed local artists, thoughtfully weavering tea traditions with local heritage. Just weeks later, on May 11th, we had grand opening for our first U.S. flagship store in Los Angeles.

which serves over 5,000 cups on its opening day, a remarkable milestone that signals strong momentum in this key market. On March 21, it was launched in several provincial cities and received a good return. The growth rate of Sanxing City's GMV per week is significantly higher than that of the non-Sanxing City. The new city's pull effect has been increased. The new class is active in the afternoon and evening. The new class is very competitive. The new class is the third in history. We have also set up a new English area in the small city to strengthen brand recognition.

Second, in product innovation, we bring back seasonal limited products for existing users while continuously launching new products to attract new customers. This quarter, we expanded our lineup with seven innovative offerings, including the low-caffeine Boya tea latte and our specialized low-caffeine collection. Our low-caffeine range delivered strong week-over-week GMV growth. with particularly encouraging the results in pilot cities where customer receptions have been positive. Lunch week performance showed higher GMV growth than other cities, driven by strong afternoon and evening consumption patterns. Notably, the low caffeine Boya tea latte now holds one-third highest. new customer conversion rate we further amplified this momentum by creating a dedicated low caffeine showcase within our minimum program strengthening category recognition and highlighting its unique value proposition so

The popularity of users is leading. Longjing Tea is welcomed with its fresh tea box. The limited flower tea, Rose from the middle, is exposed to up to 3.4 billion people all night. With rose elements and high degree of recognition, the package is dragged out. Activate the festive atmosphere and successfully attract young users.

Furthermore, our seasonal specialty Xing Shi Chun Shan featuring premium Longjing tea represented over 16% of total cups sold during its limited availability and secured our third highest repurchase rate. Clearly demonstrating its strong consumer appeal. Our Valentine's Day collection, Meigui Cong Zhong, achieved exceptional market visibility with 340 million online impressions. standing out through its sophisticated rose-infused flavors and distinctive packaging that resonated perfectly with the holiday spirit. According to data from SocialTouch, Chaiji maintains leadership in the premium tea beverage sector across both volume and engagement matrix, while holding the top position in key social media search rankings.

we have established a linear ecosystem. Since the end of the first quarter, the number of small-scale users in the company has exceeded 1.92 billion. The growth in the quarter has increased by 1.5 million users. The number of active users has reached nearly 4.5 million. The number of users is increasing year-on-year. This result, on the other hand, benefits the product development of the Qingying series of products, especially Qingying Boya Juexian. Third, we've cultivated a thriving user ecosystem that continues to expand.

By the close of the first quarter, our registered members in mobile mini program grow to over 192 million. With 50 million new members joined during this quarter alone, our active member count is now approaching 45 million, with steadily strengthening engagement matrix across all segments. A significant driver of this growth has been our local caffeine selections, which have successfully captured increased afternoon and evening consumption occasions. Building on this momentum, our precision-targeted marketing campaigns and strategic brand partnership have established a powerful foundation for sustained customer acquisition and retention.

In the future, we will continue to deepen the three core strategies, continue to optimize the door-to-door network, improve the efficiency of single-dial operation, including improving cost structure, to optimize manpower costs and rental fees, to insist on product innovation, to deepen the field of original tea, to strengthen user operation, and to enhance brand value. We believe that through the unwavering progress and the business mission of Dongfan Tea to the world, Bao'an Tea Machine will grow into the benchmark brand of the Chinese tea culture to the world. At the same time as we continue to contribute to the creation of shareholders,

Moving forward, we will continue to advance our three core strategies. First, we will optimize our store network while driving optional efficiency at the store level, streamlining our cost structure and right-sizing labor and rental expenses. Second, we remain committed to product innovation that showcases our authentic leaf tea heritage. Third, we'll enhance the customer experience to reinforce our premium brand positioning. we remain steadfast in our mission of aspiring to foster a global connection of people and cultures with every cup of our tea, positioning Chai Ji as the authentic voice and premier representative of Chinese tea heritage on the world stage. As we pursue sustainable shareholder returns, we will persistently push the boundaries of what's possible in our pursuit of excellence and continue to foster a global connection of people and cultures through our tea. 接下来有请CFO Aaron为大家详细介绍公司财务表现。 With that, I will turn the call over to our CFO Aaron to go over the financials.

Thank you, Jingjian, and hello everyone. First, I would like to express my sincere appreciation business partners and shareholders along the way. As a listed company, we will continue to focus on sustainability of business growth, the value creation for our shareholders. Before we get into the financials, please note that all numbers are in RMB and all comparisons are on year-over-year basis, unless otherwise stated. We began 2025 with solid execution across our key business priorities. We made a meaningful progress in network expansion, adding stores that are strengthening our market position, while delivering notable improvements in store operation efficiency. These achievements highlight our team's consistent execution capabilities and the resilience of our business fundamentals. Building on the foundation, we continue to advance the strategic initiatives designed to ensure our business remain adaptable and resilient amid the current market dynamics. First, we continue to optimize our supply chain efficiency across all markets. As we expand globally, we work with local suppliers where it makes operational sense, which helps us maintain product freshness and manage logistic costs. This approach supports our commitment to delivering high-quality products to consumers while maintaining operational efficiency. Second, we have prioritized cost optimization and operational efficiency across our business. By leveraging our growing scale, we have enhanced our negotiation position with suppliers and streamlined our operations. Third, we expect our geographic diversification into Southeast Asia. and the North American market will reduce our dependencies on any single market while creating new growth opportunities. These strategic initiatives have positioned us well to navigate the market uncertainties while we continue to deliver strong financial results. Next, let's go through the financials. Our net revenue for the first quarter increased by 35.4% year-over-year to $3,392.7 million, mainly driven by continued expansion of our tea house network. Among them, net revenues from franchisee tea house rose 31.8% to $3,149.9 million, representing 92% 92.8% of our total revenues. Net revenue from company-owned tea houses increased 107.7 to 242.8 million, accounts for 7.2% of total revenues. The average monthly GMV per tea house in Greater China was 431,973 RMB. in the first quarter. While this represents a sequential decrease from the fourth quarter last year, it's important to note that this primary reflects in two factors. First, seasonality. The first quarter typically experiences low consumer traffic following the Chinese New Year holiday period. And the second, our strategic network expansion. which includes a higher proportion of tea houses in their honeymoon phase. Turning into margin and expenses, operating income was $820.8 million with an operating margin of 24.2% compared to 28.2% in the first quarter of 2024 and 19.3% in the fourth quarter of 2024. This change reflects our strategic investment in brand building and marketing for new products launched, R&D to enhance our product offerings, digital infrastructure to improve customer experience, and the talent acquisition to support global expansion. To elaborate, operating costs for company-owned tea houses were $157 million. up 170% from a year ago, but down 3.8% from the fourth quarter of 2024. As of March 31st, 2025, we operated a 191 company-owned tea house, up from 169 at the end of the 2024. On a per store basis, operating costs have decreased compared to the full year 2024. showing improved efficiency at the store level. Other operating costs increased by 79.6% to $172.5 million. This was primarily driven by higher payroll utility, office expenses, and travel costs to support the rapid expansion of our franchisee T-House network. As a percentage of total net revenue, The other operating costs were 5.1%, up from 3.8% in the same quarter of 2024. Sales and marketing expenses for the quarter were $299.3 million, up 166% from a year ago. This increase was primarily driven by higher advertising costs related to the launch of the new tea product and associated marketing campaigns. as well as increased payroll expenses due to the expansion of our sales and marketing team. As a percentage of total net revenue, sales and marketing expenses were 8.8%, compared to 4.5% in the same quarter of 2024. General and administrative expenses reached $352.8 million, an increase of 62.1% from a year ago. The growth was mainly attributable to higher R&D expenses for upgrading existing tea recipe and loading out our new product. Increased IT service costs to support business development and operational efficiency. And a higher payroll expenses resulting from it and expanded administrative team to support our growing business. G&A expenses accounted for 10.4% of total net revenues, compared to 8.7% in the same quarter of last year. As a result, net income increased by 13.8% to $677.3 million, resulting in a net income margin of 20% compared to 23.7% a year ago, and then 19.3% in the fourth quarter of 2024. The decline of the net income margin versus last year Q1 due to, firstly, continued investing in branding and marketing, especially in new products and overseas market. And secondly, net loss occurred by overseas operations, which were still at a rampant upper stage. Basic and diluted net income per ordinary share was 3.92 RMB during the first quarter. As of March 31st, 2025, our cash and cash equivalents, restricted cash and the time deposit totaled $5,392.4 million, up from $4,868.7 million at the end of 2024. Our IPO in April raised the total gross proceeds of approximately US$472.9 million, including the over-allotment option, providing significant flexibility to fund our growth initiatives and navigate market uncertainties. We will not be providing the formal quarterly financial guidance at this time. Instead, we are focused on executing our long-term growth strategies, and delivering lasting value to our shareholders. We may consider providing such guidance in the future as we see fit. With that, I will hand it back to Operator to begin the Q&A session. Operator, please go ahead.

Thank you. We will now begin the question and answer session. To ask a question, please press star 11 on your telephone and wait for a name to be announced. Our first question comes from the line of from CICC. Please go ahead, ma'am.

Okay. Thank you, management. Congrats for the solid revenue and profit growth in Q1. So, I have a question on the overseas markets. Could you provide an update on your current overseas market expansion and development? Thank you.

Thanks. That's a good question. As of March 31st, 2025, our 169 overseas stores, including 157 in Malaysia, 10 in Singapore, and 2 in Thailand, represented only 2.5% of our global network. But it demonstrates exceptional growth quality. Overseas GMV reached RMB 178 million, growing 85.3% year over year. highlighting the tremendous growth potential of the overseas markets. Taking Singapore as an example, our 10 stores achieved an average monthly GMV of approximately RMB 1.8 million per store in Q1 2025, substantially higher than the greater China market average. This demonstrates the higher spending power and the profitability potential in the early stage of development in the overseas market, providing crucial support for long-term growth trajectory. We have achieved strong results in our strategic markets. In Singapore, we have added four new stores in Q1, with a total store count now 10 stores. These stores delivered an excellent per-store GMV performance in Q1. In Indonesia, Shakada fresh store opened on April 11th with exceptional performance, over 10,000 cups in the first three days, 5,000 plus registered users in the first week. Daily average now of 2,000 plus cups in April. In United States, Los Angeles fresh stores opened in May with over 5,000 cups sold on the opening day. generating strong market enthusiasm. These results show that we can tailor our product offerings and in-store experience to local market demands, delivering authentic regional characteristics for consumers. This helps us build our brand and connect with customers globally. At the current stage, we are focused on building our team and system overseas. This help us create a strong foundation for healthy, long-term, sustainable growth. When it comes to opening new store abroad, we care more about quality and the key performance rather than just how fast we can expect. Moving forward, we will continue to expand our global footprint while maintaining steady growth in greater China market. By strategically enhancing the contribution of the overseas stores, we aim to propel Char-Gee towards the goal of becoming a world leading tea drink brand. Next question, please.

Thank you. One moment for the next question. Our next question comes from from .

Thanks, management. I have one question about SIM store sales growth. Could you provide more details on your 1Q SIM store sales growth trends? Thanks.

Thank you. Thank you for the question. Yeah, SSSG is measured for stores that have been open for at least 13 months and have generated sales in both periods. Being compared. In the first quarter of 2025, So about 3,300 stores met these criteria. This made up around 50.6% of our total store portfolio at the end of the quarter. SSSG experienced a declining as our store level performance started to fall in a normalized trajectory. As a result, Q1 SSSG was negative 18.9% after we rapidly scaled our new tea house expansion from 4,000 plus to 6,600 plus just within one year. This unprecedented growth strategy helped Chai-Chi to rapidly take the leading market share in the premium category of refreshing made tea drinks, far ahead of our closest peers. Now, Charge is transitioning from a rapid market penetration strategy to a same-store sales growth strategy. So to do so, we focus on new product, more usage occasions, exciting marketing events, and excellent full customer experience through day-by-day operations. So we work closely with our partners to grow in a healthy way by creating high brand value to win consumers instead of just by cutting prices. So we have seen consistent and healthy growth in the same store sales over the last several years in some of the more mature markets. For example, in Yunnan and Guangxi provinces, where we have operated for over six, seven years, the same store sales grow in Q1 still reach high single digit to high team level. Thanks.

Thank you for the questions. That concludes the Q&A session. I would like to have a call back to management for closing.

Thank you again for joining our call today. If you have any further questions, please feel free to contact us or request through our IR website. We will look forward to speak with everyone in our next call. Have a good day. Thank you.

Bye.