Chagee Holdings Limited

good morning and good evening ladies and gentlemen thank you for standing by and welcome to chaji's fourth quarter 2025 earnings conference call at this time all participants are in a listen-only mode we will be hosting a question and answer session after management's prepared remarks please note that today's event is being recorded with that i will now turn the call over to the first speaker today ms Alicia Guo, Investor Relations Director of the company. Please go ahead, Madam.

Thank you. Hello, everyone, and welcome to Tragic's fourth quarter 2025 earnings call. With us today are Mr. Junjie Zhang, our CEO, Mr. Deng Fengyi, our COO, Global Executive President and CEO of Greater China Region, 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. With that, I will turn a call to our CEO, Mr. Junjie Zhang. Please go ahead, sir.

Hello, everyone.

Thank you all for joining Chargy's fourth quarter 2025 earnings conference call.

In the past year, the market has undergone a fierce wave. The competitive attitude has also become more complex. As a young company with a new career, we have indeed undergone some ups and downs in our journey in 2025. We have also faced uncertainties at certain times. Therefore, the management team and I have done a deep review and reflection.

Over the past year, the market has experienced significant volatility, and the competitive landscape has grown even more complex. As a newly listed young company, we indeed encountered some ups and downs on our 2025 journey, took a few detours, and at times faced moments of uncertainty in our decision-making.

The management team has conducted a deep review and a reflection on these, reviewing them as vital nourishment to drive the company's evolution and build long-term competitiveness. Looking back at our journey,

2023 to 2024 were a period of rapid expansion in greater China markets. Our primary strategy was quality sea health expansion with the core objective of securing prime location across major commercial districts nationwide, leveraging a standardized business model to achieve rapid scale. This strategy delivered significant results. We now have over 7,000 core tea house locations across mainland China. And through Boya Tea Latte, our blockbuster product, we successfully pioneered the fresh tea leaf category and accumulated a total of nearly 240 million members registered with our membership program. These achievements have formed the foundation of our durable competitive moat.

The market economy is entering a new stage. Consumers are entering a K-shaped trend of double-track consumption. On the one hand, it is the extreme cost-effectiveness of consumer-oriented products. On the other hand, it is the extreme experience of product service upgrade. And the food delivery war has also intensified this trend. For tea machines, we have an obvious advantage in terms of extreme experience. But it's a pity that we didn't work hard here in the past. Over the past year, the market entered a new phase

and consumers have shown a case shift of divergence in spending habits. One side chasing extreme value, the other seeking premium experiences through superior products and service. The ongoing price war among the third-party delivery platform has further intensified this divergence. For Chaji, we have a strong foundation in premium experiences with over 7,000 prime offline locations a core fresh team lead by Pay, driving over 90% of revenue and a loyal membership base. We under-invested here before. Now we are ready to expand categories and fully unlock our offline potential.

Last year, after the company's basic platform was stable, we entered a stage of high-quality development. We gradually began to realize that the organizational habit of the formation in the past industrial and land period was not enough to support and the new requirements for detailed management and deep operation of the new stage. Therefore, from the second half of 2025, we have implemented a series of internal adjustments, including the optimization of the organizational structure, the update and switch of the business model, and the strategic slowdown of the rhythm of our new products. This objectively affects our part of the income. At the same time, we have indeed underestimated the price of the food delivery platform, and the impact it has had on the offline industry. But we still insist on modernism, not blindly following, and insisting on our own strategic principles. Today, I would like to share with you the clear knowledge we have accumulated from these experiences, as well as the strategic direction and strategy based on this more definitive strategy. We believe that A team that is willing to face the problems directly, is good at summarizing experiences, and is more and more clear-minded, is truly worthy of long-term trust, and is able to continue to create value for shareholders, users, and society over time.

Last year, Shanghai Foundation solidified and re-entered high-quality development. We recognize that essential space inertia no longer met the demands of refined management and operational excellence. Starting the second half of 2025, we advanced a series of internal adjustments, including organizational restructuring and business model transition, while strategically slowing down the pace of new product launches. This had a measurable impact on our revenue. We also underestimated delivery platform price wars on offline sales. We stayed true to our long-term strategy, avoiding short-term trends. Today, I would like to share the clear insights from these experiences and our definitive 2026 direction. We believe a team that faces problems head-on learns from them and sharpens its thinking, develops long-term trust. In this way, we aim to deliver enduring value to our shareholders, our consumers, and society at large.

Now I can tell you with confidence that our internal adjustments have been basically completed. The business rhythm and business order have returned to normal. Looking forward to the year 2026, our core strategy is to insist on high-value brand positioning, focus on user value, and carefully polish everything related to users. Specifically, we will include brand upgrades, product innovation, I can now share with confidence that our internal realignment is largely complete and we have returned to steady operations and order.

Looking ahead to 2026, our core strategy will remain centered on high-value brand positioning and consumer value. with full focus on refining every detail that shapes the consumer experience. Specifically, we will focus on five key areas, brand upgrade, product innovation, scenario expansion, experience enhancement, and organizational improvement. These initiatives will bring us closer to our customers and support sustainable high-quality growth.

At the brand level, We will introduce a new type of power supply for standard power supply and individual power supply, and match the product combination of the difference to meet the emotional needs of different scenarios and different times. From there, we will increase the sense of experience of offline points in all areas, and use the third space to form a value-adjustment with the user, so that consumers can truly feel the unique charm of 8nX.

At the brand level, we will launch new formats for regular and personalized tea houses, complemented by varied product lines to suit diverse occasions and emotions. We will elevate the offline experience, creating a true third space that connects emotionally with customers and showcases Chagi's unique charm.

On the product innovation, products are a group of people. We, Mao Ding, We will stay true to the logic that product equals people.

We will innovate across categories by anchoring our 18 to 30 demographic coordinates.

and develop new offerings in special deals, tea lattes, and more, aligning our portfolio with consumers' multi-scenario lifestyle. We will penetrate new scenarios with morning and evening specific products such as energizing morning tea lattes and evening low caffeine drinks to complete our all-day lineup.

We will also grow into workplaces, celebrations, birthdays, schools, and weddings. Leveraging scenario marketing to win lasting mindshare and wave strategy into everyday and special occasions.

Experience upgrade and organizational capability are the key to strategic landing. Experience upgrade is divided into two main parts, environment and service. The environment is focused on the optimization of the environment and the optimization of the scene. Through the design of the cross-unification of the benchmark store, the flagship store, and the individual store, we will create a rich experience. We will promote the upgrade of the after-sales system and the training of the members. We will open up the SVIP special line. We will build the after-sales channel into the core entrance for user feedback. We will make the user's suggestion an important basis for our optimization work.

The consumer experience and organizational strengths underpin our strategy. We'll enhance tea house environments through improved ambience and differentiated designs for flagship, landmark, and boutique tea houses. On service, we will overhaul our sales system, rolling out company-wide training, launch a SVIP hotline, and create feedback channels that directly shape improvements based on real customer input.

Organizational capability is the core support for strategic landing. In 2026, we will do our best to promote systematized ability construction, deepening digital layout, and optimizing internal operation processes in door-to-door operations, product development, supply chain management, and other areas. The best implementation of full-time operations will make organizational operation more efficient. more suitable to the brand development rhythm, with strong internal capabilities to protect the value of the front-end users.

Strong organizational capability is essential to delivering our core strategic goals. In 2026, we will advance digital tools, optimize processes, and standardize best practices in operations, R&D, supply chain, and beyond. This will create a leaner, more agile structure, perfectly synced with our brand's expansion and consumer needs.

We all know that high-quality distribution is a long-term process that requires patience and perseverance. We must always insist on doing the right thing for a long time. In 2026, all strategic execution and resource investment will be around the core of user value. We understand that high-quality growth is a long-term process requiring patience and results.

and we must consistently do what is right for the long term. In 2026, all of our strategic execution and resource allocation was centered on consumer value. We believe that only by truly understanding consumers, meeting their needs, and creating value that exceeds their expectations can a brand achieve long-term steady development. We also look forward to working with all partners to advance these strategies and build on an even more vibrant Cha Ji.

Over eight years,

Taiji extended from one teahouse to 7,453 teahouses. This growth reflects the strength of our sustainable business model, adaptive organization, and commanding brand equity.

In the second half of 2025, due to the comprehensive adjustment of the organization, the response speed has also slowed down. The slowdown of Shanshin has led to a significant decline in performance. Especially in the fourth quarter, the overall electricity sales decreased by 25.5%. This is indeed the biggest challenge we faced in 2025. But I think what you should pay attention to is not just the numbers themselves. At the same time, it is also that we did not take short-term action under the pressure of short-term performance, but the bottom line of the long-termism that is still firmly held. In 2026, In recent years, domestic telecommunications sales data has shown a trend of rapid improvement. This makes us very happy with the whole-year rhythm of repair in the first half of the year and the rest of the year. In the long term, our goals are always clear. Let the Chinese market enter a high-quality, sustainable development stage. Overseas business continues to explore. From a long-term perspective, we believe that globalization will become an important catcher in the growth of tea machines.

In 2025, due to the comprehensive organizational adjustments in the second half of the year and the deliberate pausing new product launches, we experienced a slower growth in top line. Our same store sales in the fourth quarter declined 25.5% year over year. This was indeed our biggest challenge in 2025. But what I want to emphasize is not just this number, but also the fact that despite short-term pressure, we did not resort to short-term tactics. Instead, we held firmly to our long-term principles. In 2026, recent domestic things to ourselves showed sequential improvement, reinforced our confidence in a full-year trajectory of stabilizing in the first half and improving in a second. From a long-term perspective, we will continue to make overseas operations a powerhouse growth driver, and we are unwavering in our goal to evolve Chaiji into a global key leader, originating from China but resonating universally.

With that,

I will now turn the call over to our CFO, Aaron, who will provide detailed insights into the financials. Thank you.

Thank you, Jingjie. And hello, everyone. Thank you for joining our earnings call today. And as Jingjie outlined, we have gained a valuable clarity from 2025, that position as well for 2026 execution. I will focus on remarks on the metrics that support this outlook. Before we begin, please note that all amounts are in RMB and all comparisons are on year-over-year basis, unless otherwise stated. For the full year 2025, total GMV reached 31.6 billion, representing a 7.2% increase from 29.5 billion in the 2024. In the fourth quarter, total GMV was 7,322.9 million, Reflecting the challenging environment in our home market, but also strong growth momentum overseas. As of December 1st, 2025, our tea house network totaled 7,453 locations across greater China and overseas, a 15.7% increase from 6,440 a year ago. Specifically, Our franchisee teahouse accounts for 6,838, compared to 6,971 in the third quarter, while company-owned teahouse reached 615, representing a net increase of 248 sequentially. This change was primarily because we convert some of our franchisee teahouse into company-owned ones in China. In Greater China, Average monthly GMV per tier house was $337,000 in fourth quarter of 2025 and $387,000 for the full year, consistent with same store and the mixed dynamic that Junjie discussed. At the same times, overseas GMV for the fourth quarter grew 84.6% year over year to $371.9 million. And for the full year, our international market made an increasing meaningful contribution to overall growth. On the revenue line, first quarter 2025 net revenue were $2,974.5 million compared to $3,334.4 million in the same quarter of 2024. For the full year 2025, net revenue increased by 4% to $12.9 billion. In the fourth quarter, net revenues from franchisee tea houses were $2,434.9 million, representing 81.9% of total net revenues, compared to $3,095.9 million a year ago. This reflects the cadence of the new product launch and the impact of subsidy competition on the delivery platform. Net revenue from the company-owned tea house were $539.6 million, up 126.2% from $238.6 million in the fourth quarter of 2024. mainly as a result of our deliberate development of the company-owned tea house network in both Greater China and overseas markets. Turning to margin, our gross profit calculated by excluding cost of material storage and the logistics from net revenue reached 1,581.9 million this quarter. resulting in a gross margin of 53.2 percent this marks an improvement from 51.6 percent last year the margin improvement results primarily from low packaging material costs equipment and the supply chain costs on operating expenses share based compensation expenses this quarter were six 66.1 million. This reflects our commitment to long-term employee engagement and aligning their goal with stakeholders. To provide greater clarity on underlying operational performance, we will reference non-GAAP operating results with full recommendations available in our early release in the form 6K. We recorded an operating loss of 35.5 million. compared to operating income of 642.5 million last year based on management accounts the operating loss was mainly attributable to the operating operational change in the fourth quarter with an impact of approximately 320 million which includes organizational structural optimization, and business model transition costs. Excluding share-based compensation expenses, non-GAAP operating income was $30.5 million, representing a 1% margin. The above-mentioned margin differences reflect our step-up investment in talent recruitment for global expansion, including brand building to support new product launches, R&D, to enhance our offering and the digital infrastructure to elevate customer experience. Operating costs for company-owned tea houses were $376.8 million, up 130.8% from $163.2 million a year ago. As of December 31, 2025, we operated 615 company-owned tea houses, up from 169 at year end 2024. Other operating costs increased by 26.9% to $231.4 million, largely due to high payroll supporting the expansion of our global tea house network. On a non-GAAP basis, other operating costs accounts for 7.6% of revenue compared to 5.5 a year ago. Sales and marketing expenses for the quarter were $373.6 million, down 5.6% from $395.7 million a year ago. On a non-GAAP basis, sales and marketing expenses representing 12.2% of revenue compared to 11.9% a year ago. General and administrative expenses reached $635.6 million, up 89% year-over-year from $336.3 million. This includes costs associated with targeted organizational restructuring to position the company for more efficient linear operation going forward. The higher GNA reflects our continued investment in global corporate infrastructure and this to support international expansion alongside costs associated with ongoing initiatives to optimize internal process and the resources allocation. On a non-GAAP basis, G&A expenses represented 19.7% of revenue compared to 10.1% a year ago. Beyond operating income, we generated a positive financial income reflecting interest earned on our current cash and investment balance, as well as a positive other income, which was mainly of government grants largely in line with prior year periods. On a non-GAAP basis, excluding share-based compensation, our four-year 2025 tax rate was 18.4%. Importantly, we delivered another profitable quarter on both GAAP and the non-GAAP basis, marking our 12th consecutive quarter of profitability at the net income level, even though this transitional period. Gap net income was 33.9 million. Non-gap net income, excluding 66.1 million of share-based compensation expenses, was 100 million, with a non-gap net margin of 3.4% compared to 9.3% last year. For the full year 2025, Gap net income was 1,186.3 million, and the non-gap net income was 1,909.9 million. For the fourth quarter, basic and the diluted net income per ordinary share were both RMB 0.15 yuan. On the non-gap basis, basic net income per ordinary share was RMB 50 cents and the diluted net income per ordinary share was RMB 49 cents. For the full year 2025, basic net income per ordinary share was RMB 6.27 yuan and diluted was RMB 6.18 yuan. On a non-GAAP basis, basic was RMB 10.21 cents, and the diluted was RMB 10.07 cents. Turning to liquidity, we ended the quarter with $7,892.4 million in cash and the cash equivalent, restricted cash and the time deposits. up from $4,868.7 million at year end 2024. This robust balance sheet provides ample flexibility to execute our gross investment while delivering shareholder return. In closing, our fourth quarter and the full year 2025 results demonstrate our durable profitability and our commitment to returning value to shareholders through dissipating capital allocation. This positions us strongly as we execute our 2026 priorities. With that, I will turn the call back to the operator to begin the Q&A. Operator, please go ahead.

Thank you. As a reminder, to ask a question, you will need to press star 1-1 on your telephone. To remove yourself from the queue, you may press star 1-1 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Lillian Liu of Morgan Stanley. Your question, please, Lillian.

Thank you, Director Guan, for the opportunity to ask this question. Thank you, Director Jingjie and Director Aaron, for sharing in detail. My question is about a power supply. Actually, Director Jingjie just gave a big look at the year of 2026. That is to say, we are very confident that we have finished the adjustment. The year of 2026 is a year of high-quality growth and high-quality development. Just now, Mr. Jin mentioned that from the beginning of the year, there has been a recovery. In the first half of the year, it is stable. In the second half of the year, it is full of confidence. As an analyst, I still want to implement the big direction that I just mentioned into the numbers. That is to say, from the fourth quarter of 2024 to the fourth quarter of 2025, the entire copper power has always been in a state of decline. From the current situation, How do we see the transition of copper electricity in every quarter in 2026? And what specific measures do we take to repair copper electricity?

Thank you. Okay, thank you for your question. Thank you very much. For copper electricity sales to continue to decline, we will definitely do a deep review inside. There are many environmental challenges behind this. This is more because of our internal strategy to adjust the rhythm. As we mentioned earlier, in the organizational adjustment in 2025, the first thing is that we underestimated Cha Ji, which has become a huge organizational company with a management team of more than 3,400 people. Behind that, in terms of organizational adjustment, we underestimated its complexity and practicality. Thank you for your question.

We conducted a deep review of our performance, and we think it reflects both external challenges and our internal strategy adjustment pace. As you mentioned, we underestimate the complicity of a company who has over 3,000 employees, which has delayed our strategy rolling out for the year of 2025. For that, I apologize, or I feel sorry for the market.

Yes, so the market rollout in 2025 is indeed beyond our expectations. The impact of the foreign trade platform price war on the market is indeed underestimated. This is an objective fact. So, many of our short-term response strategies are not perfect enough, and the response efficiency is also not enough. In this intense price war, although we chose to participate in the war and compete at low prices, we were actually able to make a lot of mistakes. But due to the organization's adjustment, we did miss out on a lot of opportunities. But of course, another good thing is that we are still holding on to our high-value We also made a series of internal adjustments.

I think this is a good thing.

Of course, in the short term, it also brought us such a lot of pressure, but we also believe that the growth of a healthy business model is the possibility of sustainability. The market competition in 2025 exceeded our expectations.

The intense third-party platform competition impacted offline operations and our short-term market tactics. were not as strong as they needed to be. In this environment, we chose not to chase low-price traffic blindly. Instead, we stuck to our premium brand positioning. At the same time, we were very focused on internal adjustments and slowed our new product cadence, which did create short-term pressure on cap volume. Even so, we believe growth based on healthy business models is sustainable. Meanwhile, we are reflecting on how to actively adapt to market changes with flexible short-term tactics while maintaining our high-value brand positioning.

To put it briefly, although we have gone through some of these twists and turns, we did not respond to these changes in time, but these lessons do make us more awake. So, in the market of Shunxi, we must remain alert. This year, there will be a signing event in February. Cha Ji also responded quickly and actively. And in this event, we should have received a lot of benefits. This also proves that Cha Ji's team is returning to its normal level.

Honestly, we took some detours in new product launch rhythm and marketing execution, and we did not fully keep pace with how fast the market was moving. The positive side is that these lessons have made us more alert and agile, You can already see this in our Qianwen campaign in February, where we reached quickly and captured the opportunity, which shows the team's agility has gotten back to the normal level.

In 2026, we will not simply pursue high-speed growth, but return to the high-capacity business cycle. We will restore the sales of the same store as the company's first key KPI. will focus more on our store's operation, user experience, product innovation, and organizational efficiency, these four core dimensions.

For 2026, we're not going to pursue growth for its own sake. We want to get back to a cycle of higher quality operations with the same sort of recovery as our top KPI. We'll focus on four things, store operation, consumer experiences, product innovation, and organizational efficiencies.

First, we will focus on door-to-door operations. We will focus on storage, slowdown, and increase. In terms of power outages, this year's opening rhythm will be slowed down appropriately. We will prioritize our efforts on the healthy operation of existing door-to-doors, which will make our basic platform more stable. As for the door-to-doors that need to be improved, we will continue to select and adjust them and upgrade our brand. At the same time, we are also building a comprehensive quality management system from the beginning to the end of the year to ensure that our safety bottom line can strike a solid foundation for long-term management.

First on operations, we will focus on existing tea houses, slow new openings. We will moderate this year's expansion pace and prioritize healthy operations at current tea houses. For underperforming ones, we will keep optimizing and upgrading. And in parallel, we're building a full-chain quality management system from sourcing all the way to after sales to lay a solid foundation for long-term operations.

The second point is user experience. We will focus more on improving the value of the brand. We will not exchange short-term traffic by lowering the price, but through high-quality product innovation and excellent offline experience. to attract consumers.

Second, on consumer experience, we are focused on enhancing brand value. We won't trade price cuts for traffic. Instead, we attract consumers through high-quality product innovation and superior in-store services experiences.

Third, in terms of innovation, on the one hand, multi-product innovation consolidates the basic market for original milk tea. On the other hand, uh uh In the past, more than a month's worth of old customers and new products have been replaced by small-scale consumers. At the same time, the GMV of the whole big market in Shenzhen has increased by 16.2%, significantly higher than that of the historic new products. Of course, this is also a return that we have been waiting for half a year. So it's clear that consumers still have great expectations for our product innovation. Our product innovation also shows that we can travel through the period and restore the sales core drive of the same store. On the other hand, it is an exploration of many scenarios, including the expansion to the party, birthday, wedding, and other life-long world scenarios, which will open up the consumer's perspective after the whole day to enhance the texture and temperature of the brand.

Third, on innovation, on the one hand, we will keep innovating across multiple categories while reinforcing our core fresh leaf milk tea franchise. Our new product, Signature 4 Tea, launched in December, provides a strong example with a dormant membership reactivating rate as high as 51%, meaning one in every two members buying this product has been old members who haven't consumed of consumers the previous month. It rose to 16.2 weeks over the GMB uploads in the launch week, significantly exceeding the historical average for all new products. This example proves that our product innovation capability is our core driver for navigating cycles and resourcing for sales. On the other hand, we are exploring more consumer scenarios such as gatherings, weddings, first days, and other moments. and expanding to all the occasions to deepen the brand's warmth and texture in consumers' lives.

The fourth is the organizational efficiency part. Our major organizational adjustments have been completed. We will continue to optimize the organization's system in all aspects to achieve maximum efficiency.

Last, on efficiency, we have now completed the major organizational adjustments and we will continue to refine the structure so that we can maximize efficiency.

I believe that through speed adjustment, 2026 will be a year focused on high-quality growth. We will not blindly pursue rapid expansion of scale and return to high-quality development. We expect that the company's income and profits in 2026 will basically remain the same as in 2025. At the same time, on the operating level, we will also see that the share price will gradually fall and stabilize. In the second half of the year, there will be a healthier index that will gradually emerge. But of course, there is also a key factor in this. Overall, we expect 2026 to be a year where we're very focused on high quality growth rather than rapid expansion for scale.

And our goal is to keep revenue and profits broadly flat year-on-year, while seeing same-store growth trend stabilize at the operating level. And we believe in the second half, the overall same-store sales and operation will be healthier. And also, we want to focus that our priority for this year is to secure the market share rather than for the net profit. We have a conflict. If we see a conflict between market share versus profitability, we will choose the formal one.

最后总结一句,就是2026年呢, 我们的本质就是围绕用户,围绕门店, 让用户体验极致提升, 让门店的SSST, 同店效益和同店的收益得以保障, 其他事情都靠边站,就这个意思。

So, to sum up, the priority for this year, 2026, is to both elevate the user experiences and to keep the things for ourselves getting back to the healthy level. Operator, next question, please.

Thank you. Management asks that all who ask their questions in Chinese, please translate your questions to English for the convenience of everyone on the call. Thank you. Our next question comes from the line of Xiaopo Wei of Citi.

Your line is open, Xiaopo. Then my question is, when preparing Max and Junjie just answered the first question, they all mentioned a change in our business model. So I want to ask, what is the reason and motivation for us to do this kind of business model transformation? What is the current situation? Let me translate it. In your preparing Max, you briefly touched base on the business model transition. And could you share with us what has been motivating you to execute such a business model transition? And could you give us more update on the status of the transition? Thank you.

谢谢小郭总的问题。 那这道问题的话,我们有请我们的CEO尹登峰先生来回答一下。 好的,谢谢。 我们商业模式转换的核心动机只有一个, 就是与加盟商形成真正的风险论单, 利益共享的战略伙伴关系。

Thank you. Our model transition has one core motivation, that is to build true shared risk, shared reward, strategic partnership with franchisees.

In the past year, due to the upgrade of the price of the industry, our business is facing double-layer pressure from the increase in performance and cost-effectiveness. The original raw material sales model is difficult to provide enough relaxation and support to the business in the low-cost period. Therefore, Last year, industry price was worse intensified.

Franchisees faced the dual pressure of sales decline and rising cost. The old model offered insufficient buffer in downturn. So we restructured incentives, shifting from traditional supply relations to a

GMV-based revenue-sharing model.

In a new model, brand fees do go up slightly, but those fees come with two strong offsets. First, we offer enhanced discount management through marketing intelligence and targeted campaigns. Second, we cut raw material cost ratio at franchisees and sharply. Now our revenue moves up and down with their GMV sales. When they succeed, we succeed.

From 2026, we fully roll out the new model.

This unites our interests and goals. We look forward to even tighter collaboration to drive sustained GME growth. Thank you. Operator, next question, please.

Our next question comes from the line of CJ Lin of CICC. Your line is open, CJ.

My question is that can you provide an update on the performance of our overseas markets? And what are your expansion plans in 2020 domestic and overseas markets? Thank you.

Okay, thank you for your question. First of all, I would like to talk about the performance of the overseas market in 2025. In the fourth quarter, the performance of overseas businesses is still advanced and healthy. We have increased 83 stores in our stores, and we have reached a total of 345 stores. Thank you for your question. Let me start with our overseas performance in 2025.

In the fourth quarter, our international markets showed strong and healthy growth. We added a net 83 tea houses, bringing the total to 345 in the overseas markets. GMV grew 23.9% quarter over quarter and 84.6% year over year. More importantly, the average monthly GMV for overseas tea houses outperformed the domestic ones. preliminary capability and strong vitality of our business model overseas.

In 2025, we entered many new markets, including Indonesia, the United States, Vietnam, and the Philippines. At present, the overseas map of Bawang Tea is covered by Singapore, Malaysia, Thailand, Indonesia, Vietnam, the Philippines, the United States, and other seven countries. The Vietnamese market opened for the first time in three days. All three stores had more than 20,000 orders. The brand's market share also quickly reached the second place in the local product list. At the end of 2025, in collaboration with Hello Kitty, we launched a new product in Southeast Asia. It's also the Cocoa Oolong. On the Thai market, the first new product sales reached 75%, which is a very high sales threshold. In 2025, we entered four new markets, Indonesia, the United States, Vietnam, and the Philippines.

Currently, our overseas footprint covers seven countries, Singapore, Malaysia, Thailand, Indonesia, Vietnam, Philippines, and the United States. In Vietnam, our first tea house opening generated over 20,000 cups across three tea houses in the first three days. With brand voice rapidly climbing to second in the local tea category, at year-end 2025, our Hello Kitty IP co-branded Coco Oolong launched across five Southeast Asian countries, achieving a 75% new product sales share on launch day in Thailand in 38.3% in the Asia-Pacific region over the first three days. Topping regional T-brand voice, these achievements have demonstrated that ChatG's brand power can transcend broaders.

So as we enter 2026, our opening strategy is mainly divided into two parts. First of all, it is the domestic market. We mainly focus on the priority of storage. This year, we will try to slow down some of the domestic expansion. We will focus on the growth of copper, to ensure the health of the store's storage. Our plan to add stores to China in 2026 is only to add 300 stores to the strategic location that is necessary for us. The number itself is not the goal. I'll break 2026 strategy into domestic and international markets.

For domestic markets, we focus on the existing. prioritizing quality. This will moderate domestic expansion pace and shift our focus to same-store sales growth and ensuring store-level health and profitability. We plan about 300 next new tea house opening in strategic locations in mainland China. The number is not the goal. We prioritize healthy profitability for each new tea house while supporting existing same-store growth. through optimizing and reinforcing key location resources. Additionally, we may make strategic adjustments to our expansion pace based on our performance this year.

Let's go back to overseas. We will expand overseas. In the fourth quarter of 2025, we will expand overseas in Malaysia, Indonesia, Thailand, Vietnam, Singapore, The core market has maintained a steady growth of documents. 21, 19, 13, 12, and 11 of them have been added respectively. By 2026, our expansion is still ongoing. Our Thai stores have moved from Bangkok to Qingmai. Our first store in Korea is also planning to open in the second quarter of 2026. We will enter the eighth overseas market. 2026 is the year we will be living overseas. We have about 200 new overseas stores. Of course, this number is just a direct target. We will eventually adjust it based on the actual situation. More importantly, we will run through and monitor our profit model in each country we have entered, and we will create a repeatable model for future scale opening and opening.

Overseas expansion will continue at a steady pace. In the fourth quarter, we added 21 tea houses in Malaysia, 19 in Indonesia, 13 in Thailand, 12 in Vietnam, and 11 in Singapore. This momentum carries into 2026. Thailand is now expanding from Bangkok to Chi Mai, and our Korea debut is planned for the second quarter, making it our eighth overseas market. 2026 is our foundation building year. We target about 200 net new tea houses overseas. More importantly, in every market we enter, we will continue to refine business models and build a replicable template for future scale.

Lastly, I would like to share with you a fundamental view on globalization in the international market. First of all, globalization is a must-do for a tea machine management team. It's a difficult thing, but we believe it's incredibly correct. At the same time, it's something that needs to be accumulated over a long period of time. We look at the investment in globalization as a 10-year cycle. It's not a short-term, rapid, explosive growth, but a long-term, patient, continuous growth, and continuous optimization. So for globalization, Cha Ji's investment is a 10-year growth engine. We will continue to invest in globalized markets. Of course, we will continue to optimize our model, so that the single-storey model of the international market becomes better and more sustainable. One of the key markets is the United States. To put it bluntly, we have always thought that the U.S. market is the second largest market in the world, except for the Chinese market. But for the U.S. market, today's check is one of the This is the most difficult path. I'd like to share a few words with the investors. When we enter the US, we have a lot of options in the entire industry. By licensing, franchising, and other business models, we can create localization. This is the easiest way. Going to the US, opening in the Chinese area, or in the university city, is the most convenient way. You can open a store and earn money. But we don't want to just open dozens or hundreds of tea shops in the US. We want to be an overseas brand. We hope that tea will become the future of the American people. It will become a way of life for the American people like Starbucks. It's the same with Starbucks entering China. They also took a long and correct path. So when the tea machine went to the US, we did have a lot of capital investment in the early stages. China China China China Lastly, in terms of globalization, I have to add on a little bit of touch.

We are doing something that is a must, and this is something we have to do, but it's difficult. So we're not only investing the overseas market in the next several years. We're actually investing in the next decade, especially the US market. And so we're not talking about a short-term sprint, but a long lasting marathon for our global expansion. And we believe the priority for our overseas market is to refine the business model as we go. and also the priority is to keep a healthy unique economics especially for the u.s market which is the second largest market except for china so we believe there are a lot of business models that we can adopt like license or franchisee but we choose the hard way to bring it out because we not only want to open thousands or hundreds stores in the U.S., but we want to bring the drinking habits of tea into the U.S. market like Starbucks has been doing for the past several years when they entered into the Chinese market. So we chose a route that is more difficult and requires higher capex, and we might make mistakes. But I'm here to ask for the capital markets to give us more confidence and understanding about our overseas market expansion. Thank you.

最后我想跟所有的投资者做一个补充性的分享。 谭帅讲,茶几在这个行业里面确实走了一条不太一样的路。 我们一直相信中国在茶这个领域上面, 在全世界范围内一定会诞生出一家以高价值品牌为导向的茶几。 这样的茶几诞生之后呢, First of all, in the short term, it may be some growth, income, or profit. But in the long term, it is to open a new category. This category is not just to open a store in this limited sale scenario. It will gradually extend to the next scenario, family office, even convenience stores, RTD drinks. But behind this is one thing that can't be separated. We are in the process of making a brand value-oriented China China Thank you.

Lastly, to add on a little bit, Chagi is not adopting the normal way to grow, especially as a listing company. But we believe we want to bring the higher value and make Chagi a high-value branding-oriented company in the future. In the short term, we believe most of the capital markets or investors is focused on P&L. But in the long term, Chagi wants to grow. the company as a new category pioneer, which not only provides freshly brewed drinks to our customers, but also to bring a new lifestyle to our customers such as RTV and also different scenarios of consumption. In the short term, we might see volatility from our financial performance. But in the long term, we believe Chaiji has the possibility to evolve from a freshly brewed maker to a lifestyle changer worldwide to the global consumers. So hopefully, we have all the investors' long-term support, and we welcome your comments and your advices as well. Thank you. Operator, next question, please.

Our next question comes from the line of Jessie Xu of JPMorgan.

Your line is open, Jessie. I am very moved to hear President Junjie's speech today. It was very sincere, frank and optimistic. I can also feel that Cha Ji is ready to start again. She has the willpower and patience. The year 2025 is indeed quite fluctuating, but the most difficult time has already passed. We can see that the editorial improvement that investors are most looking forward to has also begun to be realized in SQ. I believe that during this period, the company's adjustment to the organizational structure and the cleaning of the team's products will help the company to move more steadily and further in the future. I remember that at the performance meeting of the last quarter, the management mentioned some measures to reduce the cost. Can you help us understand and introduce what efforts we made in the cost reduction effect from the fourth quarter last year? What is the current progress? What initial results can you share? um thank you for taking my question uh jessie she from morgan uh 2025 was a tough year but i think it's fair to say that the most difficult time seems already behind us investors had been looking forward to a marginal improvement in same store sales trend. And I think 4Q print already provides some reasons for investors to turn more positive from here. Management mentioned cost reduction initiatives on the earnings call last quarter. So could management introduce the concrete measures? What did we do? How it's progressing? And any initial feedback or efficiency gains from these initiatives? And lastly, how should we figure out the OPEX ratio for this year? Thank you.

Okay, thank you, Jessie. Thank you for your question. Yes, we mentioned in the last episode that we are planning to reduce the cost-effectiveness. First of all, what we want to emphasize is that the cost-effectiveness is not entirely based on short-term pressure. Thank you for your question.

Our cost reduction and efficiency efforts are not short-term fixes for a single quarter performance. They're part of a bigger long-term push to make the organization healthy overall. Things are moving forward well, and we're already seeing some early results.

The first aspect is that we have completed the first stage of optimization on the optimization of organizational efficiency. The key point is to integrate some of the functions of the middle and back stages, reduce the repetition of construction and the link between glory. Because a lot of our original organizational construction is for rapid expansion, just like what Jinjie just mentioned, we completed a rapid expansion in 2023 and 2024. In fact, in 2025, our competition in China exceeded more than 800. So in terms of the entire rhythm, the original resources are actually cooperating with this strategy. Then we, just like what Junjie just introduced, at this stage in 2026, we will introduce the same store, and then re-adjust the resources, so that more people can write strategies, and then strengthen our one-line execution and response speed. The only organization side, we've wrapped up phase one.

That means combining mid and back office functions and cutting out duplicate work. As Junjie just mentioned, we opened a lot of new stores during the year of 2023 and 2024. And in 2025 alone, we opened more than 800 stores as well. So now we are focusing on the same store sales and shifting more resources to the front lines for better execution and faster response. This is not about a smarter structure, not just a trimming headcount.

The second aspect is that we have more detailed control of our costs. At the cost side, we have established a more strict system, including the budget system and some specific ideal systems for using costs. Then, from covering sales, to the precise placement of sales, to some optimization of daily revenue.

For expenses, we've put in stricter controls and better budgeting. It covers everything from targeted marketing spending down to daily operations.

We expect to focus on two areas of China's overall spending in 2026. We will continue to invest in sales and marketing. Looking at 2026, we expect our overall fees rate to stay stable, especially for self-marketing.

We'll keep investing in this area and also we'll keep at investing efficiency and controls without hurting core growth areas. the game is better quality inputs leading to stronger outputs no matter the environment.

For the GNA expenses, our goal is to keep optimizing the overall efficiency with the precondition that

without, in fact, our overseas market expansion. Thank you. Operator, next question, please.

Thank you. As there are no further questions, I'd like to hand the conference back to management for closing remarks.

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 look forward to our next call with everyone. Have a great day ahead. Thank you.

Thank you. This concludes today's event. Thank you for participating. You may now disconnect.