Chagee Holdings Limited (CHA) Q1 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reveals mixed results: strong revenue growth and IPO proceeds are positive, but declining operating margins, negative same-store sales growth, and refusal to provide guidance are concerning. The Q&A highlights international expansion success, but also significant challenges in same-store sales. Given these factors, coupled with competitive pressures and rising costs, the stock is likely to react negatively over the next two weeks, especially without guidance, which typically unnerves investors.
Key Financial Performance
Revenue RMB3,392.7 million, up 35.4% year-over-year, driven by continued expansion of the tea house network.
Total GMV RMB8,226.8 million, growing by 38% year-over-year.
Net Income RMB677.3 million, a 13.8% increase year-over-year, attributed to strong operational performance despite increased investments in branding and marketing.
Operating Income RMB820.8 million, with an operating margin of 24.2%, down from 28.2% year-over-year due to strategic investments in brand-building and marketing.
Operating Costs (Company-owned tea houses) RMB157 million, up 170% year-over-year, but down 3.8% from the previous quarter, reflecting increased operational efficiency.
Other Operating Costs RMB172.5 million, up 79.6% year-over-year, driven by higher payroll, utility, office expenses, and travel costs.
Sales and Marketing Expenses RMB299.3 million, up 166% year-over-year, primarily due to higher advertising costs and expanded sales and marketing team.
General and Administrative Expenses RMB352.8 million, an increase of 62.1% year-over-year, mainly due to higher R&D expenses and increased IT service costs.
Net Income Margin 20%, down from 23.7% year-over-year, due to increased investments in branding and net losses from overseas operations.
Cash and Cash Equivalents RMB5,392.4 million, up from RMB4,868.7 million at the end of 2024.
Basic and Diluted Net Income per Share RMB3.92 during the first quarter.
Operating Highlights
New Product Launches: Expanded lineup with seven innovative offerings, including the low-caffeine BOYA Tea Latte and specialized low-caffeine collection, showing strong week-over-week GMV growth.
Seasonal Products: Seasonal specialty Xing Shi Chun Shan featuring premium Longjing tea represented over 16% of total cups sold during its limited availability.
Valentine's Day Collection: Achieved exceptional market visibility with 340 million online impressions.
Store Network Expansion: Total of 6,512 stores in Greater China, a net increase of 228 stores; overseas expansion includes 169 stores in Southeast Asia.
New Market Entry: Opened first store in Jakarta, Indonesia, and first flagship store in Los Angeles, USA, serving over 5,000 cups on opening day.
Operational Efficiency: Optimizing supply-chain efficiency and enhancing negotiation position with suppliers.
Cost Optimization: Prioritizing cost optimization and operational efficiency across the business.
Strategic Focus: Continue to advance global expansion, product innovation, and enhance customer experience.
Market Positioning: Positioning Chagee as the authentic voice and premier representative of Chinese tea heritage globally.
Risk or Challenges
Competitive Pressures: Chagee faces competitive pressures in the premium tea beverage sector, necessitating continuous innovation and marketing efforts to maintain market leadership.
Regulatory Issues: As Chagee expands internationally, it must navigate varying regulatory environments, which could pose challenges to its operations and compliance.
Supply Chain Challenges: The company is optimizing supply-chain efficiency, but as it expands globally, it may encounter logistical challenges and increased costs associated with local suppliers.
Economic Factors: Market uncertainties and economic fluctuations could impact consumer spending and overall business performance, necessitating adaptability in strategies.
Operational Costs: Rising operational costs, particularly in payroll and marketing, could affect profitability margins, especially as the company invests heavily in expansion and brand-building.
International Expansion Risks: The ramping-up stage of overseas operations has resulted in net losses, indicating potential risks associated with international market entry and establishment.
Guidance & Outlook
Store Network Expansion: By the end of Q1 2025, Chagee had 6,512 stores in Greater China, a net increase of 228 stores from the previous quarter. Overseas expansion included 169 stores in Southeast Asia, with significant growth in GMV.
Product Innovation: Chagee launched seven new products, including the low-caffeine BOYA Tea Latte, which showed strong week-over-week GMV growth and high new customer conversion rates.
User Ecosystem Growth: Registered members in the Mobile Mini-Program grew to over 192 million, with 15 million new members in Q1 2025. Active member count approached 45 million.
Operational Efficiency: Chagee is optimizing supply-chain efficiency and prioritizing cost optimization across its business to enhance operational efficiency.
Revenue Growth: Net revenue for Q1 2025 increased by 35.4% year-over-year to RMB3,392.7 million.
Net Income: Net income increased by 13.8% to RMB677.3 million, resulting in a net income margin of 20%.
Future Guidance: Chagee will not provide formal quarterly financial guidance at this time but is focused on executing long-term growth strategies.
IPO Proceeds: The IPO raised approximately $472.9 million, providing flexibility to fund growth initiatives.
Shareholder Return Plan
IPO Proceeds: The IPO in April raised a total gross proceeds of approximately $472.9 million, providing significant flexibility to fund growth initiatives.
Key Q&A
Earnings Word Cloud
CHA Transcript
The earnings call summary reveals a mixed picture: while there is strong overseas growth and a special dividend announcement, there are significant challenges such as declining same-store sales, increased operating costs, and margin pressures. The Q&A provided some clarity on strategic initiatives, but ongoing economic uncertainty and competitive pressures present risks. The overall sentiment is negative due to the decline in net revenue, increased costs, and margin pressures, despite some positive developments in overseas markets and shareholder returns.
Despite strong revenue and GMV growth, positive overseas expansion, and increased membership, the lack of formal guidance, rising operating costs, and competitive pressures in Greater China weigh on sentiment. The Q&A highlighted management's avoidance of specific financial impacts, adding uncertainty. The decision not to provide guidance, coupled with increased expenses, offsets the positives, leading to a neutral outlook.
The earnings call reveals mixed results: strong revenue growth and IPO proceeds are positive, but declining operating margins, negative same-store sales growth, and refusal to provide guidance are concerning. The Q&A highlights international expansion success, but also significant challenges in same-store sales. Given these factors, coupled with competitive pressures and rising costs, the stock is likely to react negatively over the next two weeks, especially without guidance, which typically unnerves investors.
CHA Report
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