Release Date: April 15, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- TH International Ltd (THCH, Financial) celebrated the grand opening of its 1,000th store in Central Shanghai, marking a significant milestone in its expansion journey.
- The company achieved a remarkable 29.7% year-over-year growth in registered loyalty club members, surpassing 24 million members.
- Operational efficiencies and cost controls led to significant profitability improvements, with the company-owned store contribution margin and adjusted corporate EBITDA margin improving by 5.3 and 9.9 percentage points year-over-year, respectively.
- TH International Ltd (THCH) launched 92 new products in 2024, contributing approximately 25% of topline sales, showcasing strong product innovation.
- The sub-franchisee business model has been successful, with over 6,200 applications received and around 100 stores opened by the end of 2024, indicating strong market confidence.
Negative Points
- Total revenues and system sales dropped by 10.8% and 6.2% year-over-year, respectively, primarily due to the closure of underperforming stores and a decrease in same-store sales growth.
- The company faced macroeconomic volatility and intense market competition, impacting its overall performance.
- Despite improvements, the adjusted general and administrative expenses as a percentage of total revenues increased by 0.3 percentage points year-over-year.
- The price of coffee beans has been volatile, posing potential challenges to managing food and packaging costs and store contribution margins.
- Liquidity concerns were highlighted, with total cash and cash equivalents decreasing from RMB219.5 million to RMB184.2 million by the end of 2024.
Q & A Highlights
Q: Can you discuss your strategies for managing cash flow while focusing on profitable growth and sub-franchise expansion in 2025?
A: Dong Li, CFO, explained that as of the end of 2024, the company had RMB184 million in cash and cash equivalents. They have stable bank facilities of approximately RMB400 million and are working on obtaining new ones. The company has improved profitability at both store and corporate levels, slowing cash burn rates. The sub-franchise model generates steady cash flow, and the company plans to expand its store network through this model, which has a two-to-three-year payback period on average.
Q: How is the volatility in coffee bean prices affecting your food and packaging costs and store contribution margins?
A: Dong Li, CFO, stated that they rely on the RBI global coffee bean ecosystem, which provides reliable and cost-effective supplies. They have started sourcing locally from Yunnan, China, to mitigate price increases. Coffee bean costs account for less than 14% of their overall food and paper costs. The diverse menu, including healthy food items, helps mitigate the impact of coffee bean price fluctuations. The overall impact on margins is expected to be less than 90 basis points for 2025.
Q: How are same-store sales trending in 2025, and have coffee prices been adjusted?
A: Yongchen Lu, CEO, noted that same-store sales growth is closely monitored. Despite short-term uncertainties, there is significant room for growth due to increasing coffee consumption demand. The company has seen an improving trend in same-store sales growth since October 2024 and aims for positive growth in 2025. The launch of new products like the light bagel burger lunchbox has been well-received, contributing to sales growth.
Q: Can you comment on your liquidity position as of today?
A: Dong Li, CFO, reiterated that as of the end of 2024, the company had RMB184 million in cash and cash equivalents, with nearly RMB390 million in bank borrowings. They have convertible notes and are securing new bank facilities. The company believes it is well-capitalized based on its current business plan and potential financing options.
Q: What is the company's approach to product innovation in 2025, particularly regarding healthy food strategies?
A: Yongchen Lu, CEO, emphasized that product innovation is a core strategic focus. In 2024, they introduced 92 new products, contributing to 25% of total net value. The company focuses on fresh, healthy, and delicious products, with plans to further innovate around freshness and healthiness. The coffee plus fresh prepared food strategy differentiates them in the market, allowing them to avoid pricing wars and focus on long-term value.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
