TH International Q4 Earnings Call Highlights

Key Points

• Critical transition year: TH International grew total system sales to RMB 1.57 billion (up 7.6%) with 25 net new stores, ending 2025 at 1,047 locations while actively pruning underperforming high-rent/express stores, which pressured company-owned revenues and helped drive a 7.3% decline in Q4 total revenues year-over-year.
• Shift to made-to-order and food-led sales: Management completed made-to-order renovations at over 74% of stores and raised food sales to 33.4% of revenues in Q4 2025 (from 24% in Q1 2023) with orders containing food at 51%, supported by 178 new product launches that contributed over 25% of top-line sales.
• Margin, franchising and 2026 outlook: Adjusted corporate EBITDA margin improved by one percentage point while company-owned store contribution margin was 7% for 2025; franchising gained momentum with 10,000+ applications and 300+ stores, special-channel sites showing high‑teens margins, and management targeting at least 100 net store openings in 2026 amid tightened liquidity (cash down to RMB 129.7 million) and issuance of $89.9 million of convertible notes.

TH International NASDAQ: THCH executives said 2025 marked a “critical transition year” as the Tim Hortons operator in China balanced store expansion with pruning underperforming locations, while emphasizing margin improvement, a growing franchise footprint, and an increasingly food-led sales mix.

Store network growth alongside pruning

CEO and Director Yongchen Lu said the company generated total system sales of RMB 1.57 billion in 2025, up 7.6% from 2024, driven “mainly” by 25 net new store openings. The store network ended the year at 1,047 locations across 92 cities, which Lu said made China the brand’s largest international market by store count as of Dec. 31, 2025.

Management said the company continued to close underperforming stores, particularly certain non-made-to-order “express” locations. Lu told analysts the company opened many high-rent, larger-format stores during 2019–2023 and is continuing to prune stores that are not meeting expectations, which he said has contributed to declines in revenue from company-owned and operated stores over the past two years.

Shift toward made-to-order and higher food attachment

Lu said the company has been reinforcing its “coffee plus fresh prepared foods” positioning and has completed made-to-order renovations at more than 74% of system-wide stores. He also highlighted a continued increase in food mix and food attachment.

• Food sales as a percentage of total revenues were 33.4% in Q4 2025, up from 24% in Q1 2023, according to Lu.
• Orders with food items represented 51% of total orders in Q4 2025, up from 45.2% in Q1 2023, Lu said.

Product innovation remained a key focus. Lu said the company launched 178 new products in 2025—96 beverages and 82 food items—which contributed more than 25% of top-line sales. He also said non-coffee beverage cups accounted for about 18.3% of total beverage cups sold in 2025, up from 14% in 2024, as the company added options aimed at the afternoon tea daypart.

On the food platform, Lu said the company continued to build on bagels and bagel sandwiches, reaching cumulative sales of over 80 million bagel and bagel sandwich products as of the end of 2025. He also described breakfast and lunch initiatives, including expanded croissant breakfast combos and new bagel sandwich offerings.

Traffic trends, competition, and delivery dynamics

Lu said comparable transactions grew 2.7% in 2025, but same-store sales for system-wide stores declined 2.4% as the company applied higher delivery discounts amid intensified competition and “aggregator platform dynamics.” He cited pressure particularly from low-price local brands.

In the fourth quarter, management said system sales rose 4.0% year-over-year to RMB 359.4 million. The call also noted that total revenues in Q4 2025 fell 7.3% year-over-year, which management attributed mainly to the closure of underperforming stores.

Management highlighted an increasingly digital and delivery-heavy order mix in the quarter, including monthly average transacting customers of 3.43 million in Q4 2025, up 14.3% from 3.01 million in Q4 2024. Digital orders rose to 89.3% of total orders in Q4 2025 from 86.1% a year earlier, and delivery orders increased 33.7% year-over-year during the quarter.

Responding to a question about delivery-related margin pressure, management said it is taking steps to mitigate elevated delivery costs, including negotiating with aggregator platforms, working to improve delivery cost per order, and increasing pricing on deliverable products. Management also said it expects aggressive subsidies tied to delivery platforms could continue in 2026, though it anticipates the trend may be mitigated or slowed.

Margins: store-level stability and corporate EBITDA improvement

Lu said full-year 2025 company-owned and operated store contribution margin was 7%, compared with 7.4% in 2024, attributing the decline primarily to temporarily increased delivery-related costs. He added that adjusted corporate EBITDA margin improved by one percentage point for the full year.

Management also pointed to stronger performance in newer stores. Lu said 2024 “vintage year” company-owned and operated stores generated store contribution margin of nearly 15% in 2025 and are expected to achieve a payback period within two to three years; he said 2025 vintage stores are ramping and are expected to have similar unit economics. Lu also said company-owned and operated stores in Tier 1 cities generated over 10% store contribution margin in 2025, while stores in cities with 10-plus locations generated 7%, outperforming lower-density markets. He attributed the difference to store density, including higher brand awareness, more efficient marketing, and improved delivery, supply chain, and management efficiency.

CFO Dong Li said the company reduced full-year 2025 food and packaging costs as a percentage of revenues from company-owned and operated stores by 1.4 percentage points year-over-year, citing supply chain refinements and economies of scale. He also said labor costs and other operating expenses as a percentage of revenues from company-owned and operated stores declined by 0.8 percentage points and 0.1 percentage points, respectively, helped by store pruning, staffing optimization, and improved managerial efficiency.

In response to an analyst question, management said food and packaging costs as a percentage of revenue from company-owned and operated stores fell from 31.5% in 2024 to 30.1% in 2025, and were 29.4% in Q4 2025. The company attributed the improvement to scale benefits, vendor renegotiations, discount optimization, higher-margin new products, recipe optimization, and reduced transportation and freight costs. Management said it is targeting a further reduction in food and packaging costs as a percentage of revenues by at least 1 to 2 percentage points in 2026.

Franchising momentum, special channels, and 2026 store outlook

Lu said that since launching individual franchising in December 2023, the company has received more than 10,000 applications and opened more than 300 stores by the end of 2025. He also highlighted special-channel franchised stores—such as those in railway stations, hospitals, and highway rest areas—saying they generated “high teens” store contribution margins in 2025 and are expected to deliver payback of about two years.

Asked to elaborate, Lu said these stores are largely dine-in and do not rely on delivery, reducing discounting and delivery costs and supporting higher gross margins, even with potentially higher rent. He said the company plans to accelerate openings in these channels and noted “tens of thousands” of potential locations across stations, airports, rest areas, and hospitals.

For 2026, Lu said the company is targeting net store openings of at least 100, including both company-owned and franchised locations, while continuing to close underperforming stores. CFO Li said profitability would remain “front and center,” with priorities including supply chain improvements, further rollout of the made-to-order model, store unit economics optimization, and accelerated expansion of sub-franchising.

On liquidity, Li said total cash and cash equivalents, time deposits, and restricted cash were RMB 129.7 million as of Dec. 31, 2025, compared with RMB 184.2 million a year earlier, driven primarily by cash disbursements tied to business expansion and partially offset by additional bank facilities. He also said the company issued $89.9 million of 2025 Senior Secured Convertible Notes and amended its existing 2024 unsecured convertible notes in December 2025, enabling it to repurchase the entire outstanding amount due under its variable rate convertible senior notes due 2026.

Lu closed by acknowledging a “challenging year,” while saying the company improved margins, achieved net store openings, and expects further margin improvement and “accelerated openings” in 2026.

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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