TH International Limited (NASDAQ: THCH) Q1 2025 Earnings | 6/24/2025

TH International Limited (Tims China) Q1 2025 Earnings Call Summary

TH International Limited ("Tims China") reported its first-quarter 2025 financial results, highlighting solidified strategic positioning, significant profitability improvements, and strategic expansion despite macroeconomic volatility and intense market competition. The company is actively diversifying its offerings beyond coffee to capture a larger share of the "all-day healthy dining" market.

Q1 2025 Financial & Operational Highlights:

• Profitability Improvement:

  • Company-owned and operated store contribution margin improved by 5.9 percentage points year-over-year.

  • Adjusted corporate EBITDA margin improved by 6.1 percentage points year-over-year.

  • Adjusted corporate EBITDA losses were reduced by nearly 50%.

  • Profits from other revenues increased by 34.5% year-over-year.

• Top-Line Growth:

  • System sales increased by 3.5% year-over-year.

  • Monthly average transacting customers reached 2.92 million, a 4.3% increase from Q1 2024.

  • Digital orders as a percentage of total orders rose from 85.4% to 86.3%.

  • Revenue from franchise and retail business increased by 28.6% year-over-year.

  • Company-owned and operated store revenue dropped by 14.0% year-over-year, primarily due to underperforming store closures and a 6.5% decrease in same-store sales growth.

• Cost Optimization:

  • Food and packaging costs as a percentage of revenues from company-owned and operated stores decreased by 4.3 percentage points year-over-year (to 30.4%).

  • Labor costs and other store operating expenses as a percentage of revenue decreased by 2.4 and 1.1 percentage points, respectively.

  • Marketing expenses as a percentage of total revenues decreased by 0.1 percentage points.

  • General and administrative expenses decreased by 4.9% year-over-year, primarily due to headcount reduction and other cost-saving measures.

• Liquidity: Total cash, cash equivalents, time deposits, and restricted cash amounted to $211.4 million (USD $29.1 million) as of March 31, 2025.

Strategic Initiatives & Developments:

• "Coffee Plus Freshly Prepared Food" Strategy:

  • Launched "Light and Fit Lunch Box" series in Q1, featuring hot baked bagel sandwiches, energizing lunch wraps, and loaded power bowls (priced from RMB 24 / ~$3.50 with loyalty card).

  • Aims to reshape consumer perception of Tims as a lunch destination, creating a "second high-demand meal day part" to drive sustainable revenue growth.

  • The initiative has been "enthusiastically welcomed," contributing meaningful incremental daily transactions.

• Store Development & Franchising:

  • Expanded into 84 cities, including new entries in Fuyang and Nanchang.

  • Received over 7,000 applications and converted nearly 200 stores by the end of March since launching the individual franchise program in December 2023, demonstrating market confidence.

  • Franchise stores increased from 302 (March 31, 2024) to 455 (March 31, 2025).

  • Aims to open around 200 new "make-to-order" stores in 2025, with acceleration expected in Q2 and Q3, especially Q4. Underperforming, small "express stores" that cannot support the make-to-order model are being intentionally closed.

• Loyalty Program & Marketing:

  • Loyalty club members reached 25.2 million, a 25.7% year-over-year growth.

  • Implemented strategic Q1 initiatives to offset Chinese New Year slowdown, including co-branded collaborations (e.g., Oatly, Eagle Brand) and a brand birthday campaign, focusing on driving traffic and increasing average transaction value.

Market Conditions & Outlook:

• Chinese Consumer: Consumer morale improved post-Chinese New Year, but the economy remains "a bit struggling." The government's stimulus efforts are still being evaluated for their effectiveness on consumption.

• Competition: The market, especially for coffee, has become "more rational" compared to intense price wars previously. Tims China is differentiating itself through its coffee plus prepared food combos and competitive pricing for these bundled offerings.

• Same-Store Sales: While same-store sales have seen fluctuations, an improving trend is noted since October 2024. The strategic goal is to achieve positive same-store sales growth in 2025, particularly in the second half, with "positive same-store sales in recent weeks" noted.

• Future Focus: Continued emphasis on enhancing operational efficiencies, supply chain optimizations, rigorous cost controls, differentiating "make-to-order fresh and healthy food," and accelerating sub-franchising expansion.