TH International Q1 Earnings Call Highlights

Key Points

• TH International reported weaker Q1 2026 results, with revenue down 14.6% year over year and same-store sales down 13.2% as it continued closing underperforming stores and cut back on discount-driven promotions.
• Management is shifting focus toward franchising and profitability, with more than 10,500 franchise applications received, over 440 stores signed, and nearly 260 franchise locations opened by the end of March.
• Costs improved in some areas, but margins stayed under pressure: food and packaging costs fell, marketing spending dropped sharply, yet adjusted corporate EBITDA margin remained negative 11.8%; the company expects same-store sales to improve later in the year.

TH International NASDAQ: THCH, the operator of Tims China, reported weaker first-quarter 2026 sales as management continued to close underperforming stores, reduce discount-driven promotions and shift resources toward franchising and profitability.

On the company’s earnings call, CEO Director Yongchen Lu said the coffee industry entered a seasonal slowdown in the quarter and that Tims China “proactively optimized its operating rhythm” by moderating promotions and reallocating resources toward franchise development and long-term profitability. Lu said the strategy put pressure on short-term revenue indicators but aligned with the company’s transition “from prioritizing scale growth to prioritizing quality growth.”

Sales decline as store pruning continues

Tims China said total revenue fell 14.6% year over year in the first quarter, while system sales declined 14.2%. CFO Albert Li said the declines were primarily due to the closure of certain underperforming company-owned and operated stores and lower same-store sales.

Lu said systemwide same-store sales fell 13.2% in the quarter, driven by an 8.3% decline in comparable transactions and a 4.8% decline in average comparable ticket size. He attributed part of the weakness to delivery aggregators significantly reducing subsidies, as well as the company’s own lower marketing spending and tighter discount controls.

The company continued its effort to prune underperforming stores during the quarter. Lu said Tims China expects to complete that process and resume net new store openings beginning in the second quarter of 2026.

Despite the pressure, Lu said stores opened in 2024 and 2025 continued to perform well, particularly compact and made-to-order formats. He said 2024 vintage company-owned stores generated a store contribution margin of nearly 15% for full-year 2025 and in the lower teens during the first quarter of 2026, with an expected payback period of two to three years. The company expects 2025 vintage stores, which are still ramping up, to achieve similar unit economics.

Franchise strategy remains a focus

Management emphasized franchising as a key part of Tims China’s next stage of growth. Since launching its individual franchise business in December 2023, the company has received more than 10,500 applications, signed agreements for more than 440 stores and opened nearly 260 franchise stores by the end of March 2026, Lu said.

Lu highlighted performance in special-channel locations such as railway stations, hospitals and highway rest areas, where franchise stores generated store contribution margins in the high teens in 2025 and are expected to achieve payback periods of about two years. He said the company plans to accelerate franchise openings in those channels.

During the quarter, Tims China launched its 2026 nationwide franchise roadshow program and introduced updated franchise support policies, including multi-store incentives, high-revenue rebates and opening support packages. Lu said the company is seeking to attract high-quality franchise partners while building a foundation for scalable expansion.

The company also said its “super franchise” business continued to contribute steady cash flow and profitability. Other revenue rose 7.7% year over year, while profit from other revenue increased 14% in the quarter.

Costs improve in some areas, but margins remain negative

Li said food and packaging costs as a percentage of revenue from company-owned and operated stores improved by 2.0 percentage points from the fourth quarter of 2025 to 28.4% in the first quarter of 2026, reflecting supply chain improvements and scale benefits.

Rental and property management fees declined 16.2% year over year to RMB 47.2 million, or $6.8 million, as the number of company-owned and operated stores fell to 541 as of March 31, 2026, from 569 a year earlier. Payroll and employee benefits expenses fell 10.4% to RMB 44.8 million, or $6.5 million.

However, several cost categories increased as a percentage of company-operated store revenue. Rental and property management fees rose to 22.8% of such revenue, while payroll and benefits increased to 21.6%. Delivery costs rose 1.0% year over year to RMB 27.3 million, or $4.0 million, as delivery orders increased from 4.5 million to 4.9 million. Li said delivery revenue accounted for 65.1% of company-operated store revenue in the quarter, up from 53.1% a year earlier.

Marketing expenses decreased 43.7% year over year to RMB 9.8 million, or $1.4 million, and fell to 3.8% of total revenue from 5.8% a year earlier. Adjusted general and administrative expenses declined 7.9% to RMB 43.4 million, or $6.3 million. Adjusted corporate EBITDA margin was negative 11.8%, compared with negative 9.8% in the prior-year period.

Product launches and membership growth

Lu said Tims China launched 21 new products during the first quarter, including 15 beverages and six food items. The products focused on seasonal occasions, health-conscious offerings and localized flavors.

The company cited the return of Cherry Zero, the launch of Apple Zero and the introduction of zero-sugar, zero-fat Luo Zero as examples of beverage innovation. On the food side, Lu said the Non-Chicken Bagel Sandwich and Non-Bagel supported the company’s localized product strategy. Apple Zero delivered the highest repurchase rate among spring product launches, he said.

Tims China also pursued brand collaborations tied to Chinese New Year and younger consumers, including partnerships with the drama IP “The Queen of News,” Tian Tian Si Ji, Air Canada and NetEase Cloud Music. Lu said customers under 30 accounted for nearly half of transacting members in the quarter.

The company added approximately 4 million new members during the quarter through a customer acquisition partnership with DiDi. Registered loyalty club members exceeded 35.9 million as of March 31, up 42.9% year over year. Lu said the company now has more than 35,000 members per store on average.

Outlook and balance sheet

As of March 31, Tims China had RMB 111.4 million, or $16.2 million, in cash, cash equivalents, deposits and restricted cash, down from RMB 129.7 million at the end of 2025. Li said the decline was mainly due to cash used in operations, partially offset by additional bank facility drawdowns.

Li also said the company entered a definitive agreement with THRI, its brand owner, for the issuance of up to $55.0 million in additional senior secured convertible notes. He said the financing is intended to support store network expansion and strengthen the balance sheet.

In response to an analyst question from Steve Silver of Argus Research Corporation, Lu said same-store sales had recently begun recovering after new marketing campaigns and that management expects better same-store sales in the second quarter and “much better” performance for the rest of the year.

When asked about competition from tea players entering coffee with low-priced offerings, Lu said Tims China’s differentiation lies in its “coffee plus fresh prepared food” model, which he described as distinct from both coffee peers and milk tea brands.

Li said the company’s near-term priorities include sustainable revenue growth, supply chain improvements, expanded store-level profitability, continued cost optimization, accelerated sub-franchising and achieving corporate EBITDA breakeven.

About TH International NASDAQ: THCH

TH International Limited operates Tim Hortons coffee shops in mainland China, Hong Kong, and Macau. The company offers brewed tea, coffee, milk tea, lemonade, hot chocolate, and coffee drinks. It is also involved in franchise related business. The company is based in Shanghai, the People's Republic of China.

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