TH International Limited Ordinary shares 2026 Q2 Earnings Call

Please go ahead, Patty. Hello, everyone, and thank you for joining us on today's call.

TH International Limited announced its second quarter 2026 financial results earlier today. A press release as well as a company presentation, which concludes operational and financial highlights are now available on the company's IR website at ir.timschina.com. Today, you will hear from John Chen, our CEO, and Albert Lee, our CFO. After the company's prepared remarks, the management team will conduct a question and answer session. You will find the webcast of today's earnings call on our IR website. Before we get started, I'd like to remind you that our earnings presentation and investor materials contain forward-looking statements, which are subjected 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 like now to turn it over to John Chen, our CEO.

Please go ahead, John. Well, thank you, Patty.

Good morning, good evening, everyone. Thank you for joining us today. Tim Hortons is one of the world's top 10 most valuable restaurant brands, and China represents one of the most compelling consumer markets. It's truly a privilege to take on this role as the CEO of Tims China. I'm truly excited and honored to be here and am very passionate about our future. Since joining the company, well, in fact, I have to say even before joining the company in mid-June, I spent a lot of my time diving into the business. Visiting stores and suppliers, talking to our baristas and store managers, hearing from our partners, and most importantly, connecting with our customers. These learnings have helped me, having a strong grip of where we are and what we need to do differently moving forward.

Everything I have seen and heard tells me we have significant strength to build on, and our brand is enduring. Over time, market and competition evolved. Consumer habits change. There are many things we need to change to get consumer back, and get them back more often. I look forward to sharing more about my framework of a plan going forward and how to drive our next phase of growth for Tims China review shortly. First, I would like to turn it over to our CFO, Albert Lee, for a more detailed overview of our second quarter 2026 financial performance.

Albert. Thank you, John, and welcome to your first Tims China earnings call.

During the second quarter of 2026, our total revenues and system sales were RMB207.4 million and RMB347.8 million respectively, which dropped by 21.7% and 15.1% year-over-year. The decrease was primarily due to the closure of certain underperforming company-owned and operated stores and a 17.8% decrease in same-store sales growth. Our overall monthly average transacting customer reached 2.85 million during the second quarter of 2026, compared to 3.59 million in the same quarter of 2025. Net new store openings totaled two during the second quarter of 2026, representing a net opening of 15 Made to Order stores and, in the meantime, a net closure of 13 non-MTO stores. On same-store sales growth, we experienced overall comparable transaction decline of 16.3%.

An average comparable ticket size decline of 1.5%, which led to a negative 17.8% same-store sales growth for system-wide stores in Q2 2026. The decline was partly due to the delivery aggregators backing down their subsidies significantly, and also partly due to our underspend in marketing and advertising spending, and also certain discount control. Digital orders as a percentage of total orders rose from 90.4% in Q2 2025 to 91.8% in Q2 2026. We continued to enhance our digital capabilities to meet the growing demand for delivery and takeaway services. In Q2 2026, Tims China continued to execute its product innovation strategy by expanding its all-day menu and enhancing its product portfolio across tier consumption occasions. The company launched a total of 27 new products during the quarter, including 20 beverage and seven food items, further enriching customer choice and strengthening its all-day dining proposition.

As of June 30, 2026, our registered loyalty club members exceeded 37.1 million, reflecting a remarkable 41.7% year-over-year growth. The average number of members per store has now surpassed 36,000, serving as a solid foundation for growth and a testament to our customer support for and embrace of Tims China's loyalty program. We are also committed to improving our financial performance by refining store unit economics and boosting operational efficiencies at both store and corporate levels, setting the foundation for long-term sustainable growth. Specifically, as we continued to benefit from higher efficiencies in supply chain and cost reduction on raw materials, logistics, and warehousing expenses, we managed to reduce Q2 2026 food and packaging cost as a percentage of revenue from company-owned and operated stores by 1.8 percentage points from 30.1% in the second quarter of 2025 to 28.3% in the same quarter of 2026.

Rental and property management fees were RMB 47.9 million in Q2 2026, representing a decrease of 15.6% from RMB 56.8 million in the same quarter of 2025, which was primarily due to a decrease in the number of our company-owned and operated stores from 566 as of June 30, 2025 to 544 as of June 30, 2026. Rental and property management fees as a percentage of revenues from company-owned and operated stores increased by 1.5 percentage points from 20.2% in the second quarter of 2025 to 21.7% in the same quarter of 2026. In the meantime, rental and property management fees for comparable stores decreased by 5.2% year-over-year in Q2 2026, which demonstrated our continued efforts to negotiate permanent rent concessions with our landlords.

Payroll and employee benefits expenses were RMB 43.9 million in Q2 2026, representing a decrease of 12.6% from RMB 50.2 million in the same quarter of 2025, which was primarily due to a decrease in revenues from company-owned and operated stores. Payroll and employee benefit expenses as a percentage of revenue from company-owned and operated stores increased by 2.1 percentage points from 17.8% in the second quarter of 2025 to 19.9% in the same quarter of 2026. Delivery costs were RMB 28.9 million in Q2 2026, representing a decrease of 13.3% from RMB 33.3 million in the same quarter of 2025, which was in line with the 11.9% decrease in delivery orders from 8.2 million in the second quarter of 2025 to 7.2 million in the same quarter of 2026, and a reduction in average delivery cost per order.

Delivery cost as a percentage of revenue from company-owned and operated stores increased by 1.3 percentage points to 13.1% in the second quarter of 2026, compared to 11.8% in the same quarter of 2025. Which was primarily due to an increase in delivery revenue as a percentage of total revenues from company-owned and operated stores from 61.0% in the second quarter of 2025 to 65.7% in the same quarter of 2026. Other operating expenses were RMB 17.4 million in Q2 2026, representing a decrease of 14.7% from RMB 20.4 million in the same quarter of 2025, which was primarily due to a decrease in revenue from company-owned and operated stores. Other operating expenses as a percentage of revenue from company-owned and operated stores increased by 0.7 percentage points to 7.9% in the second quarter of 2026, compared to 7.2% in the same quarter of 2025.