Chagee Holdings Ltd

NASDAQ:CHA

Q1-2025 Earnings Call

[Operator]

Good morning, and good evening, ladies and gentlemen. Thank you for standing by, and welcome to Chagee's First Quarter 2025 Earnings Conference Call. [Operator Instructions] 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.

[Alicia Guo, executive]

Thank you. Hello, everyone, and welcome to Chagee'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 newswire earlier today and are currently available online. Before we continue, I refer you to our safe harbor statements in the earnings press release. which applies to this call. Any forward-looking statements that we make on this call are based on assumptions as of today, and Chagee 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 measures to GAAP measures.

With that, I will turn the call to our CEO, Mr. Junjie Zhang. Please go ahead.

[Junjie Zhang, executive]

[Interpreted] Hello everyone. Thank you all for joining us on first earnings call as a public company.

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 Chagee 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, Chagee 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'm delighted to share our operating results for the first quarter of 2025, along with our strategic plans for the future.

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.

Our solid performance is mainly driven by 3 strategic pillars working together, continued global expansion, differentiated product innovation and a healthy customer ecosystem. These pillars not only supported our strong results this quarter, but also formed the foundation of our long-term competitive advantage.

First, on store network expansion, 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 9 new stores in Malaysia and 4 in Singapore. GMV generated from overseas market reached RMB 178.4 million, representing an 85.3% growth year-over-year.

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 proprietary Teaespresso extraction method that delivers unparalleled depth and aroma. The space itself celebrates our cross-cultural vision through stunning murals by acclaimed local artists, thoughtfully weaving key traditions with local heritage. Just weeks later, on May 11, we had grand opening for our first U.S. flagship store in Los Angeles, which served over 5,000 cups on its opening day, a remarkable milestone that signals strong momentum in this key market.

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 7 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 results in pilot cities where customer receptions were -- have been positive. Launch 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 1/3 highest new customer conversion rate. We further amplified this momentum by creating a dedicated low-caffeine showcase within our mini program, strengthening category recognition and highlighting its unique value proposition.

Furthermore, our seasonal specialty featuring premium Long Jing 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, Méigui cóng 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 Social Touch, Chagee maintains leadership in the premium tea beverage sector across both volume and engagement metrics, while holding the top position in key social media search rankings.

Third, we've cultivated a thriving user ecosystem that continues to expand. At the close of the first quarter, our registered members in Mobile Mini program grew to over 192 million with 15 million new members joined during this quarter alone. Our active member count is now approaching 45 million with steadily strengthening engagement metrics across all segments. A significant driver of this growth has been our low-caffeine selections, which have successfully captured increased afternoon and evening consumption occasions. Building on this momentum, our precision targeted marketing campaigns and strategic brand partnerships have established a powerful foundation for sustained customer acquisition and retention.

Moving forward, we will continue to advance our 3 core strategies. First, we will optimize our store network while driving optional efficiency at the store level, streamlining our cost structure and rightsizing labor and rental expenses. Second, we remained committed to product innovation that showcases our authentic leaf tea heritage. Third, we will 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 Chagee 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 throughout tea.

With that, I will turn the call over to our CFO, Aaron, to go over the financials.

[Hongfei Huang, executive]

Thank you, Junjie, and hello, everyone. First, I would like to express my sincere appreciation for all the support and help from our staff, the business partners and the shareholders along the way. As a listed company, we will continue to focus on sustainability of business growth and 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 a year-over-year basis, unless otherwise stated.

We began 2025 with solid execution across our key business priorities. We made meaningful progress in network expansion, adding stores that strengthened our market position while delivering notable improvements in store operational 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 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 help us maintain product freshness and manage logistic costs. This approach supports our commitment to delivering high-quality product to consumers while maintaining operational efficiency.

Second, we have prioritized cost optimization and operational efficiency across our business. By leveraging our growing scale, we've enhanced our negotiating 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 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 RMB 3,392.7 million, mainly driven by continued expansion of our teahouse network. Among them, net revenues from franchised teahouse grew 31.8% to RMB 3,149.9 million, representing 92.8% of our total revenues. Net revenue from company-owned teahouses increased 107.7% to RMB 242.8 million, accounts for 7.2% of total revenues.

The average monthly GMV per teahouse in Greater China was RMB 431,973 in the first quarter. While this represents a sequential decrease from the fourth quarter last year, it's important to note that this is primarily reflecting 2 factors: first, seasonality as the first quarter typically experiences a low consumer traffic following the Chinese New Year holiday period. And the second, our strategic network expansion, which includes a higher proportion of teahouses in their honeymoon phases.

Turning into margin and expenses. Operating income was RMB 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 launches, R&D to enhance our product offerings, digital infrastructure to improve customer experience and talent acquisition to support global expansion.

To elaborate, operating costs for company-owned teahouses were RMB 157 million, up 170% from a year ago, but down 3.8% from the fourth quarter of 2024. As of March 31, 2025, we operated 191 company-owned teahouse, up from 169 at the end of 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 RMB 172.5 million. This was primarily driven by higher payroll, utility, office expenses and travel costs to support the rapid expansion of our franchised teahouse 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 RMB 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 RMB 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 rolling out our new product, increased IT service costs to support business development and operational efficiency and higher payroll expenses resulting from an 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 RMB 677.3 million, resulting in a net income margin of 20% compared to 23.7% a year ago and 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 incurred by overseas operations, which were still at a ramp-up stage.

Basic and diluted net income per ordinary share was RMB 3.92 during the first quarter. As of March 31, 2025, our cash and cash equivalents, restricted cash and time deposits totaled RMB 5,392.4 million, up from RMB 4,868.7 million at the end of 2024.

Our IPO in April raised total gross proceeds of approximately USD 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 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.

[Operator]

[Operator Instructions] Our first question comes from the line of Sijie Lin from CICC.

[Sijie Lin, analyst]

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

[Hongfei Huang, executive]

That's a good question. As of March 31, 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 demonstrated exceptional growth quality. Overseas GMV reached RMB 178 million, growing 85.3% year-over-year, highlighting the tremendous growth potential of the overseas market.

Taking Singapore as an example, our 10 stores achieved an average monthly GMV of approximately RMB 1.8 million per store in Q1 '25, 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 4 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, Jakarta's flagship store opened on April 11 with exceptional performance, over 10,000 cups in the first 3 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 flagship stores opened in May with over 5,000 cups sold on the opening day, generating strong market enthusiasm. These results showing that we can tailor our product offerings and in-store experience to local market demands, delivering authentic regional characteristics for consumers. This helped 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 stores abroad, we care more about quality and key performance rather than just how fast we can expand. 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 Chagee towards the goal of becoming a world-leading tea drink brand.

[Operator]

Our next question comes from the line of Ziwei Liu from CITICS.

[Ziwei Liu, analyst]

I have one question about same-store sales growth. Could you provide more details on your 1Q same-store sales growth trends?

[Hongfei Huang, executive]

Yes, SSSG is measured for stores that have been opened for at least 13 months and have generated sales in both periods being compared. In the first quarter of 2025, 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 decline 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 teahouse expansion from 4,000-plus to 6,600 plus just within 1 year. This unprecedented growth strategy helped Chagee to rapidly take the leading market share in the premium category of fresh-made tea drinks, far ahead of our closest peers.

Now Chagee is transitioning from a rapid market penetration strategy to a same-store sales growth strategy. So to do so, we focus on new products, 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 6, 7 years, the same-store sales growth in Q1 still reached high single-digit to high-teen level.

[Operator]

That concludes the Q&A session. So I would like to hand the call back to management for closing.

[Alicia Guo, executive]

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.

[Hongfei Huang, executive]

Bye.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]