TH International Limited

Ladies and gentlemen, welcome to Teams China's first quarter 2026 earnings conference call. All participants will be in listen-only mode during management's prepared remarks, and there will be a 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, Teams China's public and media relations manager, for prepared remarks and introductions. Please go ahead, Patty.

Hello everyone and thank you for joining us on today's call. TH International Limited announces its first quarter 2026 financial results earlier today. A press release as well as a campaign presentation which contains operational and financial highlights are now available on the company's IR website at ir.teamchina.com. Today, you will hear from Yongchun Liu, our CEO Director, and Albert Li, our CFO. After the comments, prepare the remarks. The management 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 the investor materials 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 and risk factors included in our findings with the SEC. This presentation also includes certain non-GAAP financial measures, which we believe can be helpful in evaluating our performance. However, those measures should not be considered substitute for the comparable GAAP measures. The accompanying reconciliation information related to those non-GAAP and GAAP measures can be found in our earnings procedure issued earlier today. With that said, I would now like to turn it over to Yongcheng Liu, our CEO and Director. Please go ahead, Yongcheng.

Thank you, Patty. Good morning and good evening, everyone. Thank you for joining us today. As the coffee industry entered a seasonal slowdown during the first quarter, the company proactively optimized its operating rhythm and moderately reduced discount-driven promotions, reallocating resources toward franchise system development and long-term profitability. While certain short-term revenue indicators face pressure, core user quality continues to improve. in line with the company's strategic transition from prioritizing scale growth to prioritizing quality by growth. During the first quarter, we continued our strategic adjustment to prove underperforming stores, and we expect to complete this process and resume next new store openings starting from the second quarter of 2026. On same-store sales growth, We experienced overall comparable transaction decline of 8.3% and an average compatible six-size decline of 4.8%, which led to a negative 13.2 same-store sales growth for the system-wide stores in Q1. A decline was partly due to delivery aggregators backing down subsidies significantly, partly due to understanding our marketing spending and discount control. Despite the temporary headwind on top-line growth and fierce industrial competition, we continue to witness strong performance of our 2024 and 2025 vintage stores, most of which were compact and make-to-order stores. With further optimized store capital expenditure and enhanced store unit economics, our 2024 vintage year company-owned and operated stores generated a store contribution margin of nearly 15% in 2025 full year, and lower teens in Q1 2026, and are expected to achieve a payback period within two to three years. Our 2025 vintage year stores, which are still ramping up now, are expected to achieve similar unique numbers too. In the meantime, our company-owned and operated stores in tier one cities including Beijing, Shanghai, Guangzhou, and Shenzhen, and in those cities with 10-plus stores, generate over 10% and a 7% store contribution margin in 1995, respectively. Outperforming other tiered cities with lower store density. We will continue adding density in existing cities to achieve higher economic scale. Leveraging sub-franchise partnerships, new stores will open across multiple positive and emerging markets, including Shanghai, Guangzhou, Shenzhen, Hangzhou, Beijing, Shenzhou, Nantou, et cetera, in Q1 2026. The company continues to expand across diversified locations, such as transportation hubs, office buildings, commercial complexes, and university campus, et cetera. further enhancing brand penetration and consumer reach. Since we launched our individual franchise in December 2023, we have received over 10,500 applications signed up for over 440 stores and successfully opened nearly 260 stores by the end of March 2026, showcasing continued market confidence in our franchise model. We have witnessed reasonable returns for our franchise stores. For instance, our franchise stores have special channels, including railway stations, hospitals, and highway rest areas, generate store contribution margin of high in 2025, and are expected to achieve a payback period of approximately two years. We'll accelerate opening franchise stores on those special channels. During the quarter, the company officially launched its 2026 Nationwide Franchise Leadership Program. Systematically communicating its operational standards and unique economic model to prospective franchise partners. At the same time, the company introduced upgraded franchise support policies, including multi-store incentives. high-revenue rebates, and opening support packages, further enhancing franchise objectives, attracting high-quality partners, and laying a solid foundation for long-term scalable expansion. In the meantime, our separate franchise business contributes steady cash flows and profitability. Other revenues increased by 7.7% year-over-year, and profits from other revenues achieved a year-over-year growth of 14% in Q1. The first quarter marked the traditional seasonal slowdown for the coffee industry. It intensified market competition against its backdrop. The company remained focused on improving operational quality and efficiency, making progress across art innovation, brand marketing, and loyal member engagement. During the first quarter of 2026, the company launched a total of 21 new products. across categories, including 15 new beverage products and six new food items, centered around seasonal occasions, health conscious offerings, and localized flavors, with a strong market response. On the beverage side, the cherry series returns with strong consumer recognition, effective rate driving traffic and repurchases. The company also introduced limits time-x apple cereal beverage and the zero sugar, zero fat low-carb cereal to further adjust to the low-end health order and demand. On the food side, the launch of the non-chicken bagel sandwich and the non-bagel further strengthen localized cloud innovation. Among the new launches, the spring apple cereal delivered particular strong performance among all product series. In brand marketing and loyalty management engagement, the company focused on Chinese New Year social occasions and the younger consumer segment through diversified crossover collaborations. Partnerships with the popular drama IP, the band Data of Time, Time as a City, Air Canada, and Latin Cloud Music enhanced brand awareness and member engagement and penetration among younger consumers. In Q1 2026, transacting members under the age of 30 accounted for nearly 50% of the total membership rate. In addition, through a customer acquisition project with DD, the company's request for it added approximately 4 million new members during the quarter, representing nearly three-fold year-over-year growth. As of March 31, 2026, Our largest loyalty club members exceeded 35.9 million, reflecting a remarkable 42.9% year-over-year growth. The average number of members per store has not surpassed 35,000, serving as a solid foundation for growth and a testament to our customers' support for an embrace of Kim Hoyer's loyalty program. At this time, I would like to turn it over to our CFO, Albert Li, to discuss our first quarter financial performance in more detail.