Chagee Holdings Limited (NASDAQ: ECHG) Q2 2025 Earnings Call | 08/29/2025

Key Highlights:

• Talent Strategy: Chagee bolstered its North American expansion by appointing Emily Chang as Chief Commercial Officer and Aaron Harris as Chief Development Officer for North America. Both bring extensive experience in brand building and market expansion, strengthening Chagee’s global strategy. The company is investing in local teams and operational systems in core markets like Asia-Pacific and North America to drive long-term growth.

Financial Performance (Q2 and H1 2025):

• Revenue: Q2 revenue reached RMB 3.33 billion, up 10.2% YoY, driven by tea house network expansion. Franchisee tea house revenue grew 6.1% to RMB 3.02 billion (90.7% of total), while company-owned tea house revenue surged 77.3% to RMB 311.2 million (9.3% of total).
• GMV: Q2 GMV was RMB 8.1 billion, up 15.5% YoY. Greater China saw a decline in average monthly GMV per tea house (RMB 404,352) due to a high base from Q2 2024 and intensified delivery platform competition. Overseas markets grew 77.4% YoY and 31.8% QoQ, driven by store expansion and brand awareness.
• Profitability: Non-GAAP net income was RMB 629.8 million in Q2 (+0.1% YoY) with an 18.9% margin, and RMB 1.3 billion in H1 (+6.8% YoY). Margin decline reflects investments in new products, overseas markets, and net losses from ramping-up international operations. Greater China maintained healthy profitability growth.
• Gross Margin: Q2 gross margin improved to 53.9% (from 48.4% in Q2 2024 and 53.1% in Q1 2025), driven by economies of scale and procurement optimization.
• Membership: Total registered members exceeded 200 million by Q2 end, up 14.5 million from Q1 and 42.7% YoY.
• Cash Position: Ended Q2 with RMB 8.9 billion in cash, cash equivalents, restricted cash, and time deposits, up from RMB 4.9 billion at year-end 2024.
• Expenses: Operating costs for company-owned tea houses rose 72.8% YoY to RMB 184.1 million, reflecting network growth (239 stores, up from 191 in Q1). Other operating costs increased 36.2% to RMB 173.7 million, sales and marketing expenses rose 54.6% to RMB 385 million, and G&A expenses surged 301.1% to RMB 944.6 million, driven by share-based compensation (SBC) tied to IPO vesting. Non-GAAP metrics show controlled expense ratios.

Operational and Strategic Updates:

• Brand Strategy: Chagee maintained a value-first, premium brand positioning, avoiding price wars despite intensified delivery platform subsidies in China. This approach drove strong third-party delivery GMV and repeat purchases among members.
• Product Innovation: Launched Lychee Black Milk Tea and Melon Oolong Milk Tea, with strong first-week sales and high popularity. A comprehensive raw material upgrade (tea, milk, syrups) is planned for H2 2025 to enhance product quality.
• Global Expansion:
  • Overseas Markets: Added 52 net new stores in H1, reaching 208 stores by June 30, 2025 (178 in Malaysia, 16 in Singapore, 8 in Indonesia, 5 in Thailand, 1 in the U.S.). Indonesia’s store openings added 35,000 new members in a week, Thailand saw 54% daily cup sales growth, and the Los Angeles store hit 5,000 cups sold in a single day. Plans include entering the Philippines and Vietnam, targeting over 200 new stores in 2025.
  • Localized Innovation: Launched Hojicha Jemai Milk Tea in Southeast Asia (sold out in Malaysia) and the Earl Grey series with the British Library, driving social media engagement. Pop-up events in Singapore and Malaysia attracted thousands, boosting brand visibility and sales.
  • Singapore Performance: Average daily sales exceeded 1,500 cups per store, with mature stores achieving a payback period of under 12 months. Malaysia’s stores surpassed profitability expectations.
• Domestic Market (China): Introduced themed concept stores (e.g., Samaric Inlay Arts in Guangdong, Kite Culture in Shandong), blending traditional tea culture with modern retail to enhance brand value.
• Operational Efficiency: Plans to roll out 4.0 automated machines in Q4 2025 to reduce labor costs and improve store-level efficiency. Continued focus on R&D for product upgrades and menu changes by year-end.

Market Challenges and Strategy:

• Delivery Platform Subsidies: Intensified competition in China pressured same-store GMV due to a high Q2 2024 base and price wars. Chagee avoided subsidies to protect brand integrity, focusing on quality, customer experience, and operational efficiency to maintain competitiveness.
• Outlook: Expects continued same-store GMV pressure in H2 2025 but anticipates fading subsidy impacts. Prioritizes long-term growth over short-term gains, with no formal financial guidance for 2025. Investments in talent, infrastructure, and R&D aim to build operational leverage in maturing overseas markets.

Q&A Highlights:

• China Market Impact: Delivery platform subsidies attracted price-sensitive customers, impacting franchisee margins and GMV. Chagee’s strategy includes avoiding price wars, enhancing product quality, and improving efficiency via automation (4.0 machines). The company aligns with China’s shift toward high-quality brands, emphasizing premium positioning.
• Overseas Expansion Plans: Detailed market breakdown (208 stores, with strong growth in Malaysia, Singapore, Thailand, Indonesia, and the U.S.). Plans to enter new markets (Philippines, Vietnam) and open over 200 stores in 2025. Localized products and campaigns (e.g., Hojicha, pop-ups) drive customer engagement and brand relevance.
• Same-Store Sales Growth (SSSG): Q2 same-store GMV softened due to a strong prior-year base and subsidy competition. Chagee will moderate store expansion in 2025 to ease pressure, focusing on quality products and customer experience to rebuild growth.