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DATE
Tuesday, Aug. 26, 2025 at 8 a.m. ET
CALL PARTICIPANTS
Chief Executive Officer and Director — Yongchen Lu
Chief Financial Officer — Albert Li
Head of Investor Relations — Gemma Bakx
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TAKEAWAYS
Food Revenue-- Food revenue increased 8.6% year over year in Q2 2024, supporting growth in non-beverage sales mix.
Food Sales Contribution-- Food sales reached a historical high of 35.2% of total sales in Q2 2024, up 2.8 percentage points from 32.5% in Q2 2023.
System Sales-- System sales grew 1.4% year over year in Q2 2024, reflecting continued expansion.
Loyalty Club Members-- Registered 26.2 million as of June 30, 2025, representing 22.4% year-over-year growth.
Franchised Stores-- The number of franchised stores grew from 333 as of 06/30/2023 to 449 as of 06/30/2024.
Monthly Average Transacting Customers-- Monthly average transacting customers rose 14.3% to 3.59 million in Q2 2024.
Digital Order Penetration-- Digital order penetration hit a record 90.4% of total orders in Q2 2024, up from 86.5% in Q2 2023.
Company-Owned and Operated Store Revenue-- Revenue from company-owned and operated stores fell 12.5% year over year in Q2 2024, primarily due to store closures and a 3.6% decrease in same-store sales.
Same-Store Transaction Growth-- Same-store transaction growth was 3.4% in Q2 2024.
Other Revenues-- Other revenues delivered a 110.3% year-over-year profit increase in Q2 2024, driven by subfranchisee and retail businesses.
Company-Owned and Operated Store Cost Efficiencies-- Food and packaging costs as a percent of revenues from company-owned and operated stores decreased by 0.8 percentage points in Q2 2024 compared to Q2 2023. Labor and other operating costs declined by 1.0 and 0.4 percentage points year over year, respectively.
Rental and Delivery Costs-- Rental and property costs increased 0.9 percentage points in Q2 2024; Delivery expenses rose 1.8 percentage points, now at 11.8% of revenue for company-owned and operated stores, reflecting a higher delivery mix.
Marketing Spend-- Marketing spend accounted for approximately 4% of total revenues in Q2 2024, up 0.5 percentage points year over year, supporting the new Lunchbox products.
General and Administrative Expense-- General and administrative expenses decreased by 5.2% year over year in Q2 2024 compared to Q2 2023. As a percentage of total revenues, general and administrative expenses remained relatively stable at 10.8% in both 2023 and 2024.
Net Store Growth Pipeline-- Over 8,100 franchise applications were received from December 2023 through the end of Q2 2024, and more than 400 stores were converted to franchise by the end of Q2 2025.
Gross New Store Target-- Management maintains a goal of around 200 franchise store openings on a gross basis in 2025.
EBITDA Performance-- The company returned to positive adjusted corporate EBITDA in Q2 2024 and cited a 16.2% reduction in adjusted net losses.
Liquidity-- Total cash and equivalents stood at RMB 10.778 billion as of June 30, 2024, compared to RMB 184.2 million at December 31, 2023.
Refinancing Efforts-- Management reported "good progress" on refinancing convertible debt, with updates to be disclosed upon completion.
Store Closures-- A total of 49 stores were closed in Q2 2024, of which 41 were non-MTO (Express) stores, with management citing ongoing focus on closing underperformers and improving profitability.
SUMMARY
Management announced the introduction of 43 new menu items—28 beverages and 15 food products—in Q2 2024 to drive menu innovation and broaden customer reach. Executives emphasized the successful launch of new franchise models, indicating strong market confidence from over 8,100 franchise applications since December 2023. The company highlighted a focus on company-level efficiencies leading to positive adjusted corporate EBITDA. Cost management initiatives included optimizing store operations and headquarter expense controls, as well as targeted marketing spend increases focused on product launches. The loyalty platform continued to scale, with average membership per store now close to 26,000 as of Q2 2025 and management positioning it as a key growth driver.
CEO Yongchen Lu said, "we are steadfast in our commitment to sustainable profit growth and to generating long-term value for our shareholders."
indicating that operating cash flow self-sufficiency may be imminent, as discussed by management.
Management expects positive same-store sales growth in both Q3 2024 and the second half of 2024, citing "a very positive trend in recent months."
The company is actively pursuing new capital through additional bank loans and financing plans, linking future company-owned store openings to this funding access.
Plans for 200 to 300 new store openings annually over the next few years were reiterated, with recent net growth driven by MTO store format openings even as underperforming stores are closed.
INDUSTRY GLOSSARY
MTO: "Made-To-Order"—a store model focused on freshly prepared food and beverage offerings, as opposed to pre-made or express formats.
System Sales: Aggregate sales generated across all company-owned, franchised, and retail locations, reflecting the brand’s total commercial activity in the market.
Subfranchisee: Franchisee operating under a master franchise arrangement, holding rights to develop and operate outlets within a defined region or territory.
Full Conference Call Transcript
Yongchen Lu, our CEO and Director, and Albert Li, our CFO. After the company's prepared remarks, the management team will conduct a question and answer session. You can find a slide presentation and the webcast of today's earnings call on our website. Before we get started, I'd like to remind you that our earnings presentation and investor materials contain 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 release and risk factors included in our filings 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 substitutes for the comparable GAAP measures. The accompanying reconciliation information related to those non-GAAP and GAAP measures can be found in our earnings press release issued earlier today. With that said, I would now like to turn it over to Yongchen Lu, our CEO and Director. Please go ahead, Yongchen.
Yongchen Lu: Thank you, Gemma. Good morning and good evening, everyone. In Q2, we reinforced our differentiated coffee plus freshly prepared food strategy with a successful launch of the live lunch box platform, a series of new combo products for the lunch daypart to further drive our top-line growth and enhance store unit economics. The product lineup includes hot baked bagel sandwiches, energizing lunch wraps, and loaded power bowls, paired with a coffee or other beverage, all at an acceptable price point. As a result, food revenue increased by 8.6% year over year, and food revenue contribution as a percentage of sales reached a historical high of 35.2%, an increase of 2.8 percentage points from 32.5% in 2024.
Our system sales continued to grow during the quarter, achieving a 1.4% year-over-year increase. Our subfranchisee and retail businesses continue to deliver steady cash flow and profitability. Profits from other revenues achieved a year-over-year increase of 110.3%. At the same time, we returned to positive adjusted corporate EBITDA and reduced adjusted net losses by 16.2% during the quarter. These achievements underscore TH International Limited's successful disciplined execution and our unwavering commitment to achieving sustainable long-term profitable growth.
On store development, leveraging several franchisee partnerships, we expanded our store footprint into 98 cities, including the city of Zibo in Shandong province, Lishei in Zhejiang province, Luan in Anhui province, and Jincheng in Shaanxi province that we entered in Q2 while maintaining capital efficiency and delivering absolute convenience for our guests. Since we launched our individual franchisee programs in December 2023, we have received over 8,100 applications and successfully converted over 400 stores by the end of the second quarter, showcasing market confidence in our franchisee model.
We have established attractive and desirable store unit economics for subfranchises with a reasonable two to three-year payback period on average and have a target to open on a gross base around 200 franchise stores in 2025. We are also focused on special channel store development with 18 new store openings in locations such as railway stations, airports, highway rest areas, hospitals, universities, and schools, etc. As of 06/30/2025, our registered loyalty club members reached 26.2 million, reflecting a remarkable 22.4% year-over-year growth. The average number of members per store is now close to 26,000, serving as a strong catalyst for our future growth.
On product category and offering in China's highly competitive beverage market, April marked the onset of peak seasonal demand, triggering intensified rivalry among brands aiming to capture market share and drive top-line growth. Therefore, TH International Limited executed a focused product-led strategy in Q2, strengthening its position across key consumption occasions and customer segments. We introduced a total of 43 new items during the quarter, 28 beverages, and 15 food products, reflecting our commitment to innovation and menu diversification. This low-cost pipeline supports our dual goals of increasing same-store sales and expanding our consumer base.
On beverage portfolio expansion, to meet growing consumer demand for healthier, lighter beverage options, we launched the sparkling cold brew series, building on the success of our grape variant with additional fruit-inspired flavors. The sparkling texture differentiates the line from our value-tier Americano, while the use of cold brew coffee enhances the perceived quality and attracts black coffee enthusiasts seeking a refreshing upgrade. For our milk coffee drinkers, we reintroduced the water buffalo milk series, leveraging its naturally creamy, lightly sweet profile that resonates well in warmer weather. Positioning alongside our affordable like, pay offers, this creates a compelling product mix that strengthens our appeal across both price-sensitive and premium-seeking customers.
Recognizing rising demand for non-coffee options, particularly among families and younger guests, we expanded into adjacent categories by launching a series of non-coffee beverages, including the ice cap line as well as cold tea, etc. This product leverages existing product ingredients and infrastructure, enabling efficient innovation while broadening our afternoon reach. Together, these initiatives have enhanced the depth and balance of our beverage portfolio across price tiers and consumer needs, driving higher basket diversity and category penetration. Online time growth and data expansion, building on the successful launch of the live and fit lunch box series in Q1, we expanded the platform in Q2 with two new formats, the rock series and the energy ball series.
These additions reinforce our positioning in the growing light and healthy VO segments to strengthen our competitive advantage during the lunch daypart. We are confident that the full live meal box lineup not only meets rising demand for nutritious, convenient meals but also serves as a catalyst for traffic growth. Early data indicate a positive spillover effect with increased lunchtime business contributing to higher engagement during the breakfast and even during the daypart. Beyond revenue generation, this initiative enhances brand equity by positioning TH International Limited as a proven provider of balanced and everyday solutions, not just coffee.
In July, we announced the appointment of an immensely popular and talented singer-songwriter and influencer, Lars Wong, as our official brand ambassador for the year. Last, we launched a dynamic series of collaborations aimed at expanding the reach of the TH International Limited brand and introducing its flavorful, healthy, and light products to ever-growing audiences, especially among Gen Z consumers. These efforts are designed to drive traffic, increase average transaction value, and establish new consumption occasions. At this time, I would like to turn it over to our CFO, Albert Li, to discuss our second quarter 2024 financial performance in more detail.
Albert Li: Thank you, Yongchen. We continued to demonstrate our capabilities to further improve our financial performance by refining store unit economics and driving efficiencies at both store and corporate levels. Our subfranchisee and retail business contributed steady cash flows and profitability. In 2024, we further improved our company-owned and operated store contribution margin and adjusted corporate EBITDA margin by 2.7 and 2.8 percentage points year over year, respectively. We remain focused on delivering high value for quality, healthy products, and thoughtful services to our ever-growing customer base. Our overall monthly average transacting customers reached 3.59 million in Q2 2024, a 14.3% increase from 3.14 million in the same quarter of 2023.
Additionally, digital orders as a percentage of total orders rose from 86.5% in Q2 2023 to an all-time high of 90.4% in Q2 2024. We continue to enhance our digital capabilities to meet the growing demand for delivery and takeaway services. In Q2, our company-owned and operated store revenues dropped by 12.5% year over year, which was primarily due to the planned closure of certain underperforming stores and a 3.6% decrease in same-store sales growth. We have seen positive same-store transaction growth since April, and our same-store transaction growth was positive 3.4% in Q2. In the meantime, revenues from our franchised business and retail business increased by 50.7% year over year.
The number of our franchised stores increased from 333 as of 06/30/2023 to 449 as of 06/30/2024. Our system sales increased by 1.4% year over year. We also made significant progress in boosting operational efficiency in Q2, setting the stage for our long-term sustainable growth. Through refinements in our supply chain capabilities and economies of scale, we reduced the food and packaging costs as a percentage of revenues from company-owned and operated stores by 0.8 percentage points year over year. Food and packaging costs accounted for 30.1% of our company-owned and operated store revenues during the quarter. We continued to streamline our operations by pruning underperforming stores, refining staffing arrangements, and optimizing store managerial efficiency.
These actions led to a year-over-year reduction in labor costs and other store operating expenses as a percentage of revenues from company-owned and operated stores by 1.0 and 0.4 percentage points year over year, respectively. Rental and property management fees as a percentage of revenues from company-owned and operated stores increased by 0.9 percentage points from 19.3% in 2023 to 20.2% in the same quarter of 2024, which was primarily due to a 3.6% decrease in same-store sales volume growth for company-owned and operated stores in 2024.
Delivery costs as a percentage of revenues from company-owned and operated stores increased by 1.8 percentage points to 11.8% in 2024 compared to 10% in the same quarter of 2023, which was primarily due to the higher delivery revenue mix as a percentage of total revenues from company-owned and operated stores. The number of delivery orders for company-owned and operated stores increased by 10.2% year over year. We made more efforts to promote our newly launched Light and Fit Lunchbox series products. Our marketing expenses as a percentage of total revenues accounted for approximately 4% during the quarter, an increase of 0.5 percentage points year over year.
Our general and administrative expenses decreased by 5.2% year over year, which was primarily due to our cost optimization measures at the headquarter level. General and administrative expenses as a percentage of total revenues remained relatively stable at 10.8% in 2023 and 2024. As a result of the foregoing effects, we have been able to achieve positive adjusted corporate EBITDA again during the quarter as we achieved earlier in 2023. Turning to liquidity. As of 06/30/2024, our total cash and cash equivalents, time deposits, and restricted cash were RMB 10.778 billion compared to RMB 184.2 million as of 12/31/2023.
The change was primarily attributable to cash disbursements on the back of the expansion of our business, partially offset by the drawdown of additional bank borrowings. Looking ahead, with profitable growth always being front and center of everything we do, we are poised to further enhance our operational efficiencies such as supply chain optimizations and rigorous cost controls to roll out our differentiating made-to-order fresh and healthy food preparation model to drive traffic, to optimize the overall store unit economics, and to accelerate the expansion of our successful sub-franchising. And I will now turn it over to Yongchen for concluding remarks followed by Q&A.
Yongchen Lu: Yes. Thank you, Albert. Our second quarter performance reflects continuous improvements and the resiliency of our business and execution as well as both challenges and opportunities in this industry. We extend our heartfelt gratitude to our guests, team members, business partners, shareholders, and everyone supporting our endeavors and journey. Together, we have built over 1,000 stores in 90 cities, and a robust community of now over 26 million loyal club members, a unique coffee plus fresh prepared food business model offering the best value for quality products, a unique advantage of offering franchise opportunities as an international company in China, and refined store unit economics with a check payback period within two to three years.
With these milestones, we are steadfast in our commitment to sustainable profit growth and to generating long-term value for our shareholders. I will now turn the call over to Gemma for today's Q&A session.
Gemma Bakx: Thank you. Yes. Thank you, Yongchen. We will turn it over to Q&A now and open it up for our registered questions. Let's begin with the first one. Go ahead, operator.
Operator: Thank you. We will take our first question from the phone lines. This is from the line of Steve Silver from Argus Research Corporation. Please go ahead.
Steve Silver: Thank you, operator, and thank you for taking my questions. I was hoping you could provide your current thinking on the rate at which you can review the growing number of sub-franchise applications to accelerate the rate of new store growth and ultimately return to net store growth?
Yongchen Lu: Yes. I mean, I want to clarify, okay. I mean, for the Q2, we continue to improve underperforming company-owned stores as well as franchised stores, especially those non-MTO stores, those Express stores. Among the 49 closures in Q2, 41 were such non-MTO Express stores. So if we exclude these stores, actually, we had 31 net openings of MTO stores. So, I mean, based on the pipeline we have so far, our target is still to open around 200 new MTO stores in 2025 on a gross basis. And we'll open the majority at the subfranchisee stores, and we'll continue to improve underperforming stores over the year to improve profitability.
So, I mean, last year, this year, we'll continue to close nonperforming stores and aim at improving profitability. And we expect, okay, now we'll have over 100 net openings this year, and we expect, okay, 200 to 300 new openings every year in the next few years.
Steve Silver: Okay. Thank you. So it looks like the company continues to make good progress in managing its costs, although marketing expenses did go up as a percentage of revenues in Q2. Curious as to your thoughts on how sustainable that trend would be? And what impact it would have on the business same-store sales growth and its margins?
Yongchen Lu: Yes. I mean, our same-store sales have been recovering well. And we expect we will have positive same-store sales in the third quarter and in the second half of the year. And now the market spends in the second quarter, some part of the third quarter was to support the lunch box campaign. I mean, lunch box is a big campaign this year and which has been improving which has been working so far. As we can see, the food contribution has been continuing now to grow, and we have reached the historical high of the contribution in the second quarter. And we expect, okay, that will continue.
Steve Silver: Great. And one last one for me, just a big picture question. Just in terms of how TH International Limited is balancing the need to invest in order to grow revenues while at the same time being conservative with operating capital, really just your current thinking about your capital needs in order for TH International Limited to take the next steps towards sustainable profitable growth?
Albert Li: Okay. Sure, Steve. I think let me address this question. So as we just mentioned during the earnings call, we returned to positive adjusted corporate EBITDA this quarter as we did in the second and third quarter of last year. So we believe we are very close to full-year adjusted corporate EBITDA breakeven as of this moment. So which means, you know, we are very close to, you know, realizing or achieving operating cash flow self-sufficient. So in terms of that, I think we are not, like, actually putting cash on at the operating level.
So in the meantime, you know, if we could secure additional capital, actually, we continue working very hard on that, I think, in terms of securing, like, more bank loans onshore. And also, you know, we are also working on, like, certain financing plans for the company to bring more capital to the company and to the business. So if we could, like, actually secure more additional financing capital, we would consider opening more profitable company-owned and operated stores in the meantime. So honestly speaking, we want to achieve a very good balance between opening more company-owned stores and also in terms of balancing our overall financial position. So hopefully, I can address your question here.
Steve Silver: Yes. That was helpful. Thank you very much.
Albert Li: Thank you, Steve.
Operator: Thank you. I will now hand back to Gemma to read the questions coming through via the webcast.
Gemma Bakx: Yes. Thank you, Sarah. We received a couple of questions online. You already commented on same-store sales trends. Is there anything additional you can say about those trends thus far? And also, in particular, your outlook for the remainder of the year that you haven't addressed when you spoke with this earlier?
Yongchen Lu: Yes. We talked about the same stores already. I mean, we will improve quarter by quarter. And in the second quarter, the same-store sales decreased, what has been now to only 3.6%. And we have seen, you know, a very positive trend in recent months. And again, we expect, okay, we'll achieve positive same-store sales in Q3 and in the second half of this year.
Gemma Bakx: Okay. And could you provide an update on the refinancing of the convertible debt?
Yongchen Lu: Yes. We are in good progress right now, and we will disclose when it's running.
Gemma Bakx: Okay. Another question we received online is how can we better monetize the team's loyalty members, which is sort of 26 million by now. The question is about the theoretical spend of $1 per member per week and what that would generate in annual sales. What is realistic in this regard? And how could this be better monetized?
Yongchen Lu: Yeah. It's a great question, but it's also a very challenging question. No. I mean, we kind of have a gold mine. We need to dig and derive the value from the memberships. So we have the mine there, and we need to design a good product and campaign and attract those members to spend more in our stores. I mean, that's something that we are working on every day.
Gemma Bakx: Okay. The last question I have online is do you expect your liquidity position to improve going forward?
Albert Li: Yeah. I think as, you know, what I have explained to Steve's last question. So, actually, we are actually approaching operating cash flow self-sufficient. So we do not expect to burn cash. And in the meantime, we are working very hard to bring in new capital to the company. So as of this moment, I think we are very confident that we can actually we are in a good liquidity position for now.
Gemma Bakx: Sarah, those were the questions I have that came in online.
Operator: Thank you. And as a reminder, to ask a question via the webcast, you can type it into the box and click Submit. Please stand by while we check for any further questions. There are no further questions at this time. So with that, that concludes today's question and answer session. I would like to hand the call back to Yongchen for closing remarks.
Yongchen Lu: Thank you always for your time and attention. And as mentioned earlier, we are optimistic about the second half of the year. We are at a turning point of, you know, parts of same-store sales and parts of, you know, corporate EBITDA. So we'll see you again in Q3 and report back the good news. Thank you.
Gemma Bakx: Thank you all very much.
Yongchen Lu: Thank you. Bye-bye.
Operator: Thank you. That does conclude today's conference call. Thank you for your participation. You may now disconnect your lines.