On Thursday, Chagee Holdings (NASDAQ:CHA) discussed first-quarter financial results during its earnings call. The full transcript is provided below.

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Summary

Chagee Holdings Limited reported a 4.5% year-over-year revenue increase for Q1 2026, with gross margin at 55.6% and a non-GAAP net income of RMB 506.7 million.

The company has implemented a new GMV-based revenue sharing model for franchise teahouses, which does not affect profitability and aims to align interests with franchisees.

Chagee launched a share repurchase program of up to $150 million, reflecting confidence in long-term growth and current share undervaluation.

Operational highlights include a teahouse network totaling 7,531 locations and the introduction of 12 new products, contributing to same-store GMV growth and customer engagement improvements.

Management emphasized their strategic focus on consumer value and operational efficiency, with a continued commitment to long-term shareholder value creation.

Full Transcript

OPERATOR

Good morning and good evening, ladies and gentlemen. Thank you for standing by and welcome to Chad G's first quarter 2026 earnings conference call. At this time, all participants are in listen only mode. We will be hosting a question and answer session after management prepared remarks. Please note that today's event is being recorded. With that, I'll now turn the call over to the first speaker today, Ms. Alicia Kuo, Investor Relations Director of the company.

Please go ahead, ma'am.

Alicia Kuo (Investor Relations Director)

Thank you. Hello everyone and welcome to Chad G's first quarter 2026 earnings call. With us today are Mr. Junjie Zhang, our CEO, Mr. Aiden Yin, our COO, and Mr. Aaron Huang, our CFO. The company's financial and operating results were released by the Newsware earlier today and are currently available online. Before we continue, I refer you to our Safe harbor statement in the earnings release which applies to this call. Any forward looking statements that we make on this call are based on assumptions as of today and Chad G does not undertake any obligations to update these statements.

Also, this call includes discussions of certain non GAAP financial measures. Please refer to our earnings release which contains a reconciliation of non GAAP measure to a GAAP measure. With that, I will turn the call to our CEO, Mr. Junjie Zhang. Please go ahead, sir. Hello everyone. Welcome to Chad G's first quarter 2026 earnings call. As we enter 2026, our strategic direction is clearer than ever and our execution is more focused. The reflections and adjustments of the past several months have allowed us to develop a way of working that is closer to our consumers and more committed to long term value creation.

First, on our strategic priorities in 2026, we're dedicating all our efforts to operations, focusing on executing every detail that truly matters to our consumers well. We believe that the ability of a company to navigate cycles ultimately depends on genuine consumer recognition. Therefore, our goal this year is very clear to perfect every single consumer touch point. Second, our organizational adjustments are delivering results and overall efficiency has improved significantly.

Overall, over the past few quarters, we have proactively optimized our organization. These changes have delivered tangible results, resource allocation is more precise, decision making and execution are more efficient, and our team's cohesion and effectiveness around our core mission have strengthened significantly. This has laid a solid foundation for us to continue achieving high quality growth. Third, our product and marketing plans are now clearly defined and our execution priorities are highly focused.

We have completed a comprehensive and actionable roadmap for both products and marketing. Our starting point has always been consumer needs rather than external trends. Going forward, all of our work will center on five dimensions products, service, environment, experience and value proposition. Making every tea house, every cup of tea and every interaction consistently well executed is our only true priority. As our business returned to steady growth and operational efficiency continue to improve in the first quarter, from a capital market perspective, we believe our current share price is significantly undervalued and to properly reflect our long term development prospects at this point, on behalf of the company and the management team, I would like to make a clear commitment. Our board has approved a share repurchase program authorizing us to repurchase up to a 150 million US dollar ads during a 12 month period as a concrete way to demonstrate our confidence and reward shareholders trust. Finally, I want to reiterate, our strategic direction is clear and our team is operating with high efficiency.

Chatgi is entering a mature, stable and sustainable phase of high quality growth. We're confident in every step we take forward toward the future. That concludes our strategic direction. Next, I will hand the call over to our COO Aiden who will walk you through the specific operational progress in the first quarter. Thank you, Thank you Junjie and thank you all for joining our earnings call today.

Aiden Yin (Chief Operating Officer)

. Let me begin by sharing our overall performance for the first quarter. Total revenue reached RMB 3,546 million, representing a 4.5% increase year over year and a 19.2% increase quarter over quarter. Gross margin came in at 55.6%. Non GAAP net income was RMB 506.7 million, increasing more than four fold sequentially. Non GAAP net margin improved to 14.3%. Total GMV reached RMB 7,917.8 million, up 8.1% quarter over quarter. Greater China GMV grew 7.8% sequentially while overseas GMV growth grew 14.6% sequentially and 139% year over year.

It is clear that overseas markets are becoming an increasingly important growth engine. More importantly, our operating quality continued to improve. Same store GMV growth in Greater China improved by 9.4 percentage points sequentially and overall same store sales. Same store GMV growth improved by 9.5 percentage points sequentially. These results shows that our strategy of focusing on consumer value is working in practice. This quarter we concentrated our efforts on four key areas to drive performance recovery. . . First, our improved organizational efficiency. Through continued optimization in the first quarter, our organizational efficiency achieved a qualitative leap, making execution faster, more precise and more coordinated while overall expense ratio declined. On one hand, organizational adjustments improved execution efficiency. On the other hand, our goals became clearer and more resolute, with teams from headquarters to teahouses forming a strong consensus on executing priorities, channeling limited resources into activities that best create consumer value.

In the first quarter, our non GAAP G and A expense ratio declined by 8.1 percentage points sequentially to 11.6% and our non GAAP sales and marketing expense ratio declined by 3.6 percentage points sequentially to 8.6%. Second, our product expansion in the first quarter we launched a total of 12 new products. More importantly, our categories are broadening gradually extending into tea lattes, special deals and others. Our product innovation and consumer recognition continues to improve.

The Dahong Pao series launched in February, delivered strong performance with first week GMV contribution, cup contribution, repeat purchase rate and direct new customer acquisition all exceeding historical averages for new product launches during the Tianwen campaign, the product Dahong Pao Tea Latte founded series saw especially strong sequential growth and became an important growth driver. Caramel Pour Latte with its distinctive caramel flavor and interactive sweetness, customization created a strong impression among consumers and was a clear point of differentiation.

The product was well received by our consumers and shows strong potential to become a long term bestseller. . Clearer and more effective marketing execution? On the marketing side, we introduced a morning buy one get one free campaign and launch a low caffeine beverage section for the evening, successfully expanding consumption scenarios in both the early morning and late evening. Since the campaign began, the share of cards sold in the morning has doubled. At the same time, we continue to strengthen our private domain traffic through in store promotions.

As a result, the share of orders from our mini program channel and the share of new customer both improved during the campaign period. This demonstrates steady progress in both private domain traffic conversion and new customer acquisition is. Fourth. Growing our teahouse network with quality remains our top priority. We place great importance on customer experience and brand standards. So we have deliberately slowed our pace of teahouse expansion and focused on improving operating quality while comprehensively upgrading our teahouses.

At the same time, our new business model has been fully implemented, further aligning the interests of the company and our franchisees. We believe that only when every teahouse deliver a consistent brand value that Chagy truly earn consumer long term trust. At the end of the first quarter, our global teahouse network totaled 7,531 locations including 7,157 in Greater China and 374 overseas. . Our overseas markets continue to expand steadily. Currently our tea house presence includes 36 in Singapore, 221 in Malaysia, 32 in Thailand, 41 in Indonesia, 13 in Philippines, 22 in Vietnam and nine in the United States. Our overseas teahouse network maintain a steady growth pace with operating performance in line with our expectations. . Finally, let me return to the strategic direction that Jingie laid out earlier. Our strategic core is to perfect every small detail that consumers truly care about. Whether consumers genuinely recognize this is not measured by what we say, but by what they do. At the end of the first quarter, the number of our total registered members reached 200248 million with nearly 50 million active members, an increase of over 11% quarter over quarter. What gives us even greater confidence is that the repurchase rate among active members remained stable at 42.3% and members who made two or more purchases contribute over 76% of total order.

Every repeat purchase is generating recognition from our tragedy friends. 248 million Chad G friends are telling us through their repeated purchases that they trust this brand and are willing to return to our teahouse again and again. This is our most valuable assets and our strongest foundation for navigating market cycles. Our strategy is clear, our execution is delivering and consumer trust is our best answer. Looking ahead, our direction remains unwavering.

On product, we will maintain a steady launch cadence while continuing to expand into new categories such as special deals. On service, we will continue to optimize our membership system and consumer experience. On environment, we will continue to upgrade keyhouse differentiation through design. On experience, we will make the Third Place a place where consumers genuinely want to spend time. On brand value proposition, we will continue to embrace the spirit of connecting through tea, creating emotional resonance with our customers.

On tea house operations, we will continue to prioritize quality in our greater China market while steadily expanding overseas. That concludes my remarks. Now let me turn the call over to our CFO Aaron who will walk you through the detailed financials. Thank you.

Aaron Huang (Chief Financial Officer)

Thank you, Aidan and hello everyone. Excuse me for my voice. Thank you for joining our earnings call. Before we begin, please note that all amounts in RMB and all comparisons are on year over year basis unless otherwise stated. As Junjie and Aiden just outlined, 2026 was about disciplined execution, a sharper operating focus and a visible progress in restoring gross quality. I'm delighted to say that this strategy is already translating into improved financial performance.

For the first quarter of 2026, our total GMV was 7917.8 million and 8.1% sequential increase from 7322.9 million. In the fourth quarter of 2025. As of March 31, 2026, our teahouse network totaled 7531 locations across Greater China and overseas, up 12.7% from 6681 a year ago. Of these, 6741 were franchisee teahouses and 790 were company owned teahouses, reflecting the continued conversion of selected location into company owned store as a part of a networking optimization strategy in Greater China.

Average monthly GMV per teahouse was 356. In the first quarter representing a quarter over quarter increase of 5.5% from 337,358 yuan in the fourth quarter of 2025. At the same time, overseas total GMV for the first quarter grow 139% year over year and 14.6% quarter over quarter to 426.4 million. On the revenue line, our net revenues from the first quarter for the first quarter of 2026 were 3,546 million compared to 3,392.7 million in the same quarter of 2025 and up 19.2%.

Sequentially, net revenue from franchiseed teahouses were 2,743.9 million representing 77.4% of total revenue compared to 3,149.9 million a year ago and up 12.7%. Sequentially, net revenue from company owned teahouses were 802.1 million up 230.4% from 242.8 million a year ago, mainly as a result of our continued development of company owned teahouses network across greater China and overseas markets. Turning to margin, our gross profit calculated by excluding cost of materials storage logistics from net revenue reached 1,970 this quarter resulting in a gross margin of 55.6%.

This marks an improvement from 53.1% a year ago. This improvement was primarily supported by increased revenue contribution from company owned teahouses which generated higher gross margin. Operating expenses remained well controlled relatively to scale of business. Share based compensation. Expenses this quarter were 59 million reflecting our commitment to long term employee engagement and aligning their goal with shareholders. To provide greater clarity on underlying operational performance, we will continue to reference non GAAP operating results with full reconciliation available in our earning Release and the Form 6K operating income was 547.2 million representing an operating income margin of 15.4% and marking a sequential turnaround from an operating loss in the previous quarter. Excluding share based compensation expenses Non GAAP operating income was $606.2 million, representing a 17.1% margin compared to a 1% margin in the previous quarter. This sequential improvement reflects both stronger operating leverage and the benefit of organization adjustment and the strategic investment we have made to support future growth.

Operating costs for company owned teahouses were 497.2 million, up 216.6% from 150 million a year ago. As of March 31, 2026, we operated 790 company owned teahouses, up from 615 in the fourth quarter of 2025 and 191 in the first quarter of 2025. Other operating costs decreased by 7.8% to 159 million, largely due to lower payroll expenses driven by organizational restructuring and the continued headcount optimization. On a non GAAP basis, other operating costs accounts for 4.3% of revenue compared to 5.1% a year ago.

Sales and marketing expenses for the quarter were 306.2 million, up 2.3% from 299.3 million a year ago, mainly due to our investment in strategic brand activities, new product launches and marketing campaigns. On a non GAAP basis, sales and marketing expenses representing 8.6% of revenue compared to 8.8 a year ago and 12.2% in the previous quarter. General administrative expenses reached 462 million, up 30.9% year over year from 352.8 million, the increase in G and A primarily reflecting our continued investment in global corporate infrastructure as we further expanded our international business footprint.

On a non GAAP basis, G and A expenses represented 11.6% of revenue compared to 10.4% a year ago and 19.7% in the previous quarter. Income tax expenses represented 21.2% of income before income tax, slightly higher than 19% a year ago. This was primarily driven by the impact of share based compensation expenses recognized during the quarter. Notably, we continued to deliver profitability on both GAAP and non GAAP basis, extending our track record of 13 consecutive quarters of positive net income.

GAAP net income was $447.7 million. Non GAAP net income excluding $59 million of share based compensation expenses was $506.7 million with a non GAAP net margin of 14.3% compared to 20% a year ago and 3.4% in the fourth quarter of 2025. For the first quarter, basic and diluted net income per ordinary share was RMB 2.36 yuan and RMB 2.34 yuan respectively. On a non GAAP basis, basic net income per ordinary share was RMB 2.67 and diluted net income per ordinary share was RMB 2.65 yuan.

Turning to liquidity, we ended the quarter with 7,146.3 million in cash and the cash equivalent, restricted cash and the time deposit compared to 7892.4 million as of December 31, 2025. We maintained a robust balance sheet which provides us with the flexibility to fund expansion, plan and continue to return value to our shareholders. As we move through 2026, we remain focused on executing our established strategy, strengthening our brand value and maintaining disciplined investment to support sustainable growth.

We are always committed to creating long term value for our shareholders. With that, I will turn the call back to the operator to begin Q and A operator, please go ahead.

OPERATOR

Thank you. We will now begin the question and answer session. To ask a question, please press star 11 and wait for our name to be announced. When asking your questions in Chinese, please translate your questions in English for the convenience of everyone on the call. Our first question comes from the line of Lilian Lo of Morgan Stanley. Please go ahead.

Lilian Lo (Equity Analyst)

And gmb the tea show. Let me translate my question. So thanks everyone. Management of the detailed Explanation of first Q Performance I just want to follow up on the more detailed factors that has driven the good sequential improvement on the unit GMV improvement in China and overall. Trying to understand what factors has been putting in place in terms of the new product traffic, pricing, etc. And what can be sustained. Thank you very much. Thank you Lillian for the question.

In Q1 our overall same store GMV growth was down 16%, but that was about 10 percentage points better than Q4 last year. So the trend has clearly improved and the recovery was mainly driven by a few things. First, we got an incremental lift from the Tianwen campaign. During the peak period from February 6th to 10th, the Tianmen Channel contributed about 3 million orders per day on average. Our ability to effectively capture this traffic and convert it into performance results was driven by two factors.

First, a more agile response mechanism and second, the continued improvement in executing efficiency following the earlier adjustments. Second, our new product launch helped as well. As Aidan mentioned, we launched 12 new products in the first quarter which helped to drive sequential growth in both car volume and gmv. In addition, recently we continue to expand morning and evening consumption scenario. Taking caramel pour tea latte and Long Jing tea latte as examples, their combined COP contribution during morning hours reached 45% during the campaign period, representing a relatively significant incremental contribution.

Lastly, in the overseas markets, the decline in same store GMV growth has also narrowed significantly. We launched locally tailored products in different markets. For example, the Caramel Oolong tea latte in Singapore captured an 18% cap share during the campaign period. The Hojicha Chiang Mai launched in multiple markets in March generated an average of 440 daily cups per tea house in Singapore during its first week of lunch. These initiatives all played a positive role in improving overall same store performance.

Thank you. Next question please.

OPERATOR

Next question. The next question comes from the line of Sister Lin from cicc. Please go ahead.

Lin

So thank you management. Congrats on stabilizing earnings results Again. My question is will the new business model, which is the take rate based on GMV affect profitability and how to evaluate the impact? Thank you.

Aaron Huang (Chief Financial Officer)

. Thank you Sujie for the question. As previously disclosed in our annual report, since the beginning of the year we officially switched to a GMV based revenue sharing model for our franchise teahouse in greater. Under the new model, the brand takes a higher fee rate based on the franchise the teahouse gmv, but the markup on materials has come down significantly and also lock up or secure the discount rate for our franchisees. As a result, our revenue mix has changed accordingly.

The proportion of revenue from product sales including raw materials and packaging, tea house equipment and other supplies and has declined while the proportion of revenue from franchising services has increased. However, this change in revenue mix does not affect the company's profitability. Based on our Q1 results, our gross margin remained at 55.6% with a slight sequential increase. . Let me further explain the reason of the gross margin increase which is a result from the increase of the self owned tea house gross profit margin increase. If we exclude the self owned teahouse GP margin, the franchisee teahouse GP margin is flat versus the sequentially versus Q4 and also or a little bit slightly decrease from the previous GP margin. . Lastly, we believe that under the new model, the company and its franchisees truly become a community of shared interests. For franchisees, lower raw material and equipment procurement costs along with shared risk with the brand should help improve teahouse profitability and resilience. So for the company, revenue is now more closely tied to teahouse performance. So when teahouse sales improve, both our revenue and gross margin can benefit, creating a win win outcome.

Our goal is to build a long term sustainable profit model through closer collaboration. Hope this answers your question Next question please. Operator, next question please.

OPERATOR

Yeah, one moment please for the next questions. Our next question comes from Jesse Hsu from JP Morgan. Please ask your question.

Jesse Hsu (Equity Analyst)

Thanks for taking my question. This is Jesse Xu from JP Morgan. Very happy to see visible improvement in product launches, consumer engagement and also market impact in the first quarter. The 150 million US dollar repurchase program is indeed a positive surprise. What's your thoughts behind this decision? Would you prefer repurchase or cash dividend in the future? Anything you can share on shareholder return would be great. Thank you.

Aaron Huang (Chief Financial Officer)

Thank you for the question. As we just shared, the board has approved a share repurchase program authorizing the company to purchase up to 150 million US dollar of the ADS over the next 12 months. We will adjust the pace of repurchases depending on market conditions and valuation during the authorization period. Second, our balance sheet structure remains healthy and our liquidity position is strong. As of the end of March, we had about RMB 7.15 billion in cash, restricted cash and time deposits or roughly US$1.04 billion. Thirdly, we believe the current share price does not fully reflect the continued recovery in our business fundamentals or our long term growth potential through this buyback.

We want to show the board and management strong confidence in the company's future growth prospects as well as our commitment to create value and delivering better long term results for shareholders. Looking ahead, we will continue to optimize our capital allocation strategy while ensuring the health development of our core business. We aim to deliver tangible improvement in shareholder returns and ensure that the market fully understands our value.

That's it from. That's my answer and thank you all the shareholders and investors to join our call today.

OPERATOR

Thank you. As there are no further questions, I would like to hand the conference back to management for closing remarks. Thank you. As there are no further questions, I'd like to hand the conference back to the management and thank you for the calling today. We look forward to speaking with everyone again on our next call. Have a great day. Thank you.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.