TH International (NASDAQ:THCH) released second-quarter financial results and hosted an earnings call on Tuesday. Read the complete transcript below.

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Summary

TH International Limited reported a decline in Q2 2026 revenues to RMB 273.4 million, down 21.7% year-over-year, primarily due to store closures and a 17.8% decrease in same-store sales growth.

The company launched 27 new products during the quarter, emphasizing product innovation and strengthening its all-day dining proposition.

Digital orders increased to 91.8% of total orders in Q2 2026, up from 90.4% in Q2 2025, as the company enhanced its digital capabilities.

Cost optimization measures led to reductions in food and packaging costs by 1.8 percentage points, and additional decreases in rental and payroll expenses.

The company secured a US$15.8 million tranche from a US$55 million financing deal to support innovation, marketing, and store network expansion.

The CEO emphasized a strategic focus on product innovation, enhancing operational excellence, and optimizing store networks by closing underperforming locations and expanding in top-tier cities.

Management plans to increase marketing spending in the second half of 2026 to drive customer traffic and support revenue growth.

Competition from new entrants in the coffee market was acknowledged, with a strategic emphasis on delivering superior product offerings and value to customers.

Full Transcript

OPERATOR

Ladies and gentlemen, welcome to Tims China's second quarter 2026 earnings conference call. All participants will be in listen-only mode during management's prepared remarks, and then there will be a question-and-answer session to follow. Today's conference is being recorded. At this time, I would like to turn the call over to Pati Yu, Tims China's Public and Media Relations Manager, for prepared remarks and introductions. Please go ahead.

Pati Yu, Public and Media Relations Manager

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 includes operational and financial highlights, are now available on the IR website at ir.teamchina.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 subject to future events and uncertainty. 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 uncertainty, 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 a substitute 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 John Chen, our CEO. Please go ahead, John.

John Chen, CEO

Well, thank you, Pati. 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 have a strong grip of where we are and what we need to do differently moving forward. Everything I've seen and heard tells me we have significant strengths to build on, and our brand is enduring. Over time, markets and competition evolve, consumer habits change. There are many things we need to change to get consumers back, and get them back more often. I look forward to sharing more about my framework and plan going forward and how to drive our next phase of growth for Tims China shortly, but 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 Lee, CFO

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 RMB 273.4 million and RMB 347.8 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 customers 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 2 during the second quarter of 2026, representing a net opening of 15 MTO stores and, in the meantime, a net closure of 13 non-MTO stores. On same-store sales growth, we experienced an overall comparable transaction decline of 16.3% and an average comparable ticket size decline of 1.5%, which led to negative 17.8% same-store sales growth for systemwide 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 and 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 menu and enhancing its product portfolio across key consumption occasions. The company launched a total of 27 new products during the quarter, including 20 beverage and 7 food items, further enriching customer choice and strengthening its all-day dining proposition.

As of 06-30-2026, 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 customers' 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 benefits 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.

As a result of the foregoing, company-owned and operated store contribution margin was 5.7% in the second quarter of 2026 compared to 9.6% in the same quarter of 2025. Benefiting from our cost optimization measures and improved brand influence, our marketing expenses were RMB 13.3 million in Q2 2026, representing a decrease of 4.4% from RMB 13.9 million in the same quarter of 2025. Marketing expenses as a percentage of total revenues increased by 0.9 percentage points from 4.0% in the second quarter of 2025 to 4.9% in the same quarter of 2026, as we spent more marketing efforts to support our franchise business during the second quarter of 2026.

Our adjusted general and administrative expenses—which exclude (1) share-based compensation expenses of RMB 0.3 million and (2) impairment losses of rental deposits of RMB 2.3 million—were RMB 39.6 million in Q2 2026, representing an increase of RMB 5.0 million from RMB 34.6 million in the same quarter of 2025, which was primarily due to a RMB 4.2 million increase in professional and other service fees. Adjusted general and administrative expenses as a percentage of total revenues increased by 4.6 percentage points from 9.9% in the second quarter of 2025 to 14.5% in the same quarter of 2026.

As a result of the foregoing, adjusted corporate EBITDA margin was negative 7.6% in the second quarter of 2026 compared to positive 0.6% in the same quarter of 2025. Turning to liquidity, as of June 30, 2026, the total amount of our cash and cash equivalents and restricted cash was RMB 121.1 million, compared to RMB 129.7 million as of December 31, 2025. The change was primarily attributable to cash disbursements on business operations, partially offset by the drawdown of additional bank borrowings.

We successfully closed the initial tranche of US$15.8 million in additional senior secured convertible notes issued to Tim Hortons Restaurant International GmbH, our brand owner and founding shareholder, in July 2026. With the proceeds from this US$55 million series of proposed financing, we plan to drive our innovation and product offerings, invest more in marketing activities, and deploy a more balanced store network development strategy by opening both company-owned and operated stores and franchise stores going forward.

Looking ahead, our core near-term priorities will be to deliver sustainable revenue growth, to further enhance supply chain capabilities and expand store-level profitability of both company-owned and operated stores and franchise stores, to continuously optimize the cost structure of our corporate marketing and G&A expenses, and to achieve corporate EBITDA break-even. With that, I will now turn the call over to John.

John Chen, CEO

Thank you, Albert. The second quarter is a period of transition for the company. Results are disappointing. Top-line revenue and same-store sales were both in significant decline as we are losing share to competition. Also, revenue was affected by our strategic adjustment of closing underperforming stores, as well as we have been cycling last year's heightened base of delivery business. Prior to my joining TH International as CEO, I have had 30 years of building and stewarding world-class consumer brands, and here at TH International it becomes very clear to me we need to significantly step up our effort to win back our customers and to gain new customers through providing superior product offerings and experience, whether dining or delivery, also supported with our great Tim Hortons hospitality and services. Our unwavering aspiration with product and service quality will drive everything we do and every decision we make going forward. I have a few points I want to share with you. First and foremost, we have been and will continue to focus our resources to accelerate our product innovation based on thorough consumer understanding and insight, ranging from improving the appearance and flavor of our core products to creating exciting innovations, and also in ways we offer new bundles and promotion activities. So far, we have looked into more than 10,000 of our loyalty club members' information to get insight from the feedback, and we have hired external professional advisors to support the process. Also, we are starting efforts to work with our core coffee bean suppliers and also our in-house coffee masters to pursue the best fit of coffee to the Chinese consumer need and taste. Second, we'll strengthen our capacities in product innovation and marketing to ensure we're able to bring superior products and experience to consumers in a much faster time and more cost-efficient manner.

We will enhance investment in our organization. We work with strategic partners, our suppliers, to enhance our capabilities, especially in certain categories like dairy and bakery. We'll broaden our CRM and marketing efforts beyond the current loyalty club program to reach new customers and, as importantly, to enhance interaction and frequency. Third, we'll further enhance our operational excellence to escalate our service level and enhance overall guest experience.

Additional efforts are being made on staff recruitment, training, and labor scheduling to enable us to deliver the level of service we aim at. Fourth, on store network development, we are working on two fronts at the same time. On one hand, we are closing underperforming stores, which had started before my arrival to this company. Yet at the same time, we are expanding stores with our new and enhanced product offering and services. We will focus more in top-tier cities in our expansion so that we can concentrate our resources and effort, especially among office work areas, trade zones, or some special channels like train stations, major transportation hubs, airports, universities. This is a reliable channel where we have good data to predict the traffic and have high accuracy in our projected sales revenue. And lastly, on the productivity front. I and the team are keen to use more technology, especially AI, to increase our efficiency ranging from inventory management to labor shift planning to marketing material production and all the way to more personalized messages and promotion activities planned for our members.

With that, I turn back to Pati to continue with our call.

Pati Yu, Public and Media Relations Manager

Thank you, John. We will turn it over to the Q&A session and open it up for our registered questions. Let's begin with our first question. Operator, please go ahead.

OPERATOR

Dear participants, as a reminder, if you wish to ask a question over the phone, please press star one one on your telephone keypad and wait for your name to be announced. To withdraw a question, please press star one one again. If you wish to ask a question via the webcast, please use the Q&A box available on the webcast link at any time. Once again, if you would like to ask a question over the phone, please press star one one. And now we're going to take our first question.

The question comes from the line of Steve Silva from Argos Research. Your line is open. Please ask your question.

Steve Silva, Analyst at Argos Research

Thank you, operator. And John, welcome to the new leadership role. You mentioned in your prepared remarks some initial learnings in your discussions with customers, stores, and suppliers. Can you talk about some of these top priorities in the corporate strategy that you see supporting TH International to become a profitable business and maybe how long you think it may take to implement some of these strategies?

John Chen, CEO

Well, thank you, Mr. Silva, for your questions. Indeed, our imperative is to get back to our business fundamentals to regain customers and to gain new users. In short, our top priority is to raise our game in innovation to offer more competitive products and experience to our customers. We are working on strengthening our core products that we offer during the breakfast and lunch dayparts—products like bagels. We made it popular in this market, China, and we'll continue to bring innovation so that we can differentiate better from competitors.

At the same time, we will offer some new products that have been the strength for our operation in other markets, like melts. We will even try some new bakery in other dayparts. Also, we are working on strengthening our coffee offerings, especially those meal-based coffee offerings, like latte. I look forward to sharing more details when we have the new product ready sometime later in the year. And we are seeing opportunities in filling some gaps where we see there's still space to grow, like the afternoon daypart.

So that's our top priority—raising our game in innovation. Our second priority is to improve our store economics. As Albert earlier mentioned, we'll continue to work on efficiency on all fronts—rent, labor, even our food product cost. We have done a lot over the last years, but there's still room we can work on. At the same time, importantly, we'll continue to close underperforming stores. As I mentioned, this initiative had started even before my arrival.

I'll continue to drive that, but importantly is to expand new stores in a clearly defined network strategy—primarily top-tier cities, primarily office, transportation hub, trade zones—under our defined network strategy and discipline. And to make the two early priorities possible, one thing I've been attending a lot of my effort and resources to is building capabilities to make them both happen. So build abilities, capabilities—strengthen capability in innovation, in marketing; strengthen and continue investing our capabilities in operation and business development, that is new store development. So in short, those are three top priorities for me, for our leadership team, and for our organization. I would be very glad to share with you progress as I move along in this role. In the time target, I can't share with you, but I can share with you all cylinders are firing now, and we are reserving no resources to drive progress on the fronts I just shared.

I hope these priorities will bring some signs of results or improvement very soon, but for the time being I can't share with you a particular timeline. Hope you can bear with us.

Steve Silva, Analyst at Argos Research

That's great. Thank you. And one more, if I may. So with the recent commitment from RBI to invest 55 million into TH International, and you mentioned the receipt of the first tranche from the financing, is there any update on the number of net new stores that you plan on opening in the second half of 2026 and 2027 and whether there are any changes to the new store mix between company-owned stores and franchise stores?

John Chen, CEO

Yes, the fund came in in a timely manner and a very much needed period. We prioritize actually strengthening the model of our business. As I mentioned, our top priority number one is raise our game in innovation, so we will prioritize more of the resources in bringing in more productive innovations, strengthening our marketing performance by both investing more in marketing as well as behind strengthened team and resources. So those will be our top priority.

We will expand our store footprint with discipline, hopefully with our new offerings. So going forward I won't share a particular number, but we will diligently expand according to the strategy I just shared—that is, prioritize cities in the top tier and also in particular trade zones. Answering your question on the company-owned store and franchise network, we are aiming at a more balanced approach. So we will see both company-owned stores and franchisee-supported stores contribute roughly equally in our new store network.

That's what I can share for the time being.

Steve Silva, Analyst at Argos Research

Great. Thank you so much for the information. Best of luck.

OPERATOR

Thank you. Now we're going to take the next question, and the question comes from the line of Emily from Tianfeng. Your line is open. Please ask your question.

Emily, Analyst at Tianfeng

Okay, thank you, operator. Hello, management. Thanks for taking my question. Now I have two questions to follow up. The first one is about marketing fee. Marketing expense ratio was slightly lower than last year in the first half, and what's your view on marketing spending for the second half of 2022 and going forward? That's my first question.

Albert Lee, CFO

Okay, I will take this one. So yes, as you have mentioned, our marketing investments are expected to increase, as John has highlighted, in the second half, especially I think starting from September, because we have the annual brewed coffee and also bagel festival. In the meantime, we have identified marketing efficiency as one of the most important levers for us to consider in terms of rebuilding our customer traffic and also supporting our sustainable revenue growth.

In the first half, our marketing expenses were relatively underspent, I think because we are building up our marketing team and also recruiting more talents in both marketing and in the product category team. Starting from the third quarter, we are adding additional talents in marketing and also in product innovation. And we plan to invest more—actually, significantly more—in terms of the scale and, in the meantime, the effectiveness of our marketing activities.

Our focus will not only drive dine-in business or takeaway business or delivery transactions in just one parameter. We want to expand all the dayparts across all channels, and we are also expanding our CRM and marketing beyond our existing loyalty members to reach new customers. We want to attract more customers through giving more effective coupons through those e-commerce channels, and in the meantime we also want to make sure that their frequency and also their average spending per customer will also increase over time.

To conclude, we will definitely increase our marketing spending, and the key metrics for us is not only a specific amount of marketing dollars or marketing percentage to spend, but more importantly the return and effectiveness of our marketing efforts. We expect our overall business will recover and, with the store network expansion, we will continue to balance our investment in customer acquisition, traffic growth, and also our profitability.

Emily, Analyst at Tianfeng

Okay, thank you. And my second one is about competition. We noted that more and more key players, such as Kuming and Mi Xue Ding Cheng, recently penetrated into the coffee business. What's your view on competition, and how may this impact your business strategy? Thank you.

John Chen, CEO

Maybe I will take on this question. Well, indeed, we notice there are many different forms of new entrants to the coffee market. As you said, some examples from the tea chain. However, on our side, it's very clear to us that we have to offer the best value to our customers. And value is delivered through the combination of product experience and also pricing. So our strategy is to ensure we can always provide superior product coffee. In this case, as you asked, to our customers, whether we are talking about the more basic product like black coffee, Americano, or the more innovative limited-time product offering, does relate to the effort and resources we are putting in innovation, as I mentioned earlier. So to continue to be able to offer consumers superior product and experience, as much as for services and the ambience consumers can experience in our restaurant as well as in delivery. And then the third is price. We have a lot of effort in working on our cost and also on our combination of product offering to ensure some consumers who want the most basic product can enjoy a very good cup of coffee from us at a very affordable price.

So we are also planning programs to deliver part of our promo mix at a price-comparative fashion so we have answers to different needs of our customers, consumers, at different dayparts. So I and the organization and our team are aiming at bringing the best value to our customers.

Emily, Analyst at Tianfeng

Okay, thanks for answering my question. It helps me a lot. Thank you.

John Chen, CEO

Thank you.

OPERATOR

Thank you, Emma. Thank you, dear speakers, for the questions for today. I would now like to hand the conference over to the management team for any closing remarks.

John Chen, CEO

Okay. So thank you for joining today's conference call. We look forward to providing timely updates on any progress we have made on our new business plan and also our corporate strategies. We look forward to speaking in the next quarter. Thank you.

OPERATOR

This concludes today's conference call. Thank you for participating. Have a nice 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.