- Adjusted Corporate EBITDA: Achieved profitability for the first time.
- Adjusted Store EBITDA Margin: Highest-ever at 10.3%.
- Revenue from Company-Owned Stores: Decreased by 6.6% due to strategic pruning of underperforming stores.
- System Sales Growth: Increased by 1.6%.
- Registered Loyalty Club Members: Reached 21.4 million, a 45.4% year-over-year growth.
- Average Members per Store: Surpassed 23,000.
- Marketing Campaign Exposure: Over $45 million across the region and the Little Red Book social platform.
- New Products Contribution: 25 new beverages and nine new food products contributed approximately 14% of top line sales.
- Bagels Sold: Increased from 4.8 million in Q2 last year to 6 million in Q2 2024.
- Orders Including Food: Rose to 51.9%.
- Store Renovations: Nearly 300 stores renovated to make-to-order model.
- Financing Secured: Up to USD 50 million from founding shareholders.
- Monthly Average Transacting Customers: Reached 3.1 million, a 12.1% increase year-over-year.
- Digital Orders: Increased from 80.6% in Q2 2023 to 86.5% in Q2 2024.
- Food and Packaging Costs: Reduced by 3.1 percentage points year-over-year.
- Rental Expenses: Reduced by 1.5 percentage points year-over-year.
- Labor Costs: Reduced by 3.0 percentage points year-over-year.
- Store Operating Expenses: Reduced by 1.3 percentage points year-over-year.
- Marketing Expenses: Decreased by 2.6 percentage points year-over-year.
- Adjusted General and Administrative Expenses: Reduced by 3.4 percentage points year-over-year.
- Total Cash and Cash Equivalents: RMB 253.2 million as of June 30, 2024, compared to RMB 219.5 million as of December 31, 2023.
Release Date: August 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- TH International Ltd (THCH, Financial) achieved adjusted corporate EBITDA profitability for the first time in its history.
- The company reported its highest-ever adjusted store EBITDA margin of 10.3%.
- Registered Loyalty club members reached 21.4 million, reflecting a 45.4% year-over-year growth.
- Digital orders as a percentage of total orders rose from 80.6% in Q2 2023 to 86.5% in Q2 2024.
- The company secured up to USD 50 million in financing from founding shareholders, Cartesian Capital Group and RBI.
Negative Points
- Revenue from company-owned stores decreased by 6.6% due to the strategic decision to prune underperforming stores.
- The Chinese coffee market continues to face significant challenges, including intense competition and macroeconomic pressures.
- Despite improvements, the company still faces high operational costs, including rental expenses and labor costs.
- The ongoing price war in the Chinese coffee market poses a challenge to maintaining profitability.
- The company needs to invest further in store renovations and marketing to sustain growth, which could strain financial resources.
Q & A Highlights
Q: Congratulations on achieving your first-ever adjusted corporate EBITDA profitability. Can you elaborate on how the company can maintain and achieve continuous profitability going forward?
A: We successfully achieved adjusted EBITDA profitability for the first time amidst macroeconomic challenges and intense competition in the Chinese coffee market. Moving forward, we will prioritize profitable growth by bolstering our revenue through our unique coffee plus freshly prepared food strategy and target precision marketing initiatives. Additionally, we will continue to improve operational efficiency and optimize unit economics to secure long-term profitable growth.
Q: In the past, Q4 has been the most active quarter for new store additions. Is there any visibility into the growth outlook for this year's Q4?
A: We expect much more openings in Q3 and especially in Q4. We have done well with individual franchisees in the first half, opening 20 stores and signing an additional 52 by the end of June. We are gaining momentum and expect more openings in the second half of this year.
Q: Does your Q2 adjusted store EBITDA margin of 10.3% have room to grow further in the coming months, which are typically the busiest of the year?
A: We are happy with the margin achieved in Q2 and will always seek further improvements. We keep a sharp eye on streamlining operations, refining our supply chain, and cutting costs where appropriate.
Q: How does Tims analyze and interpret the competitive landscape in the Chinese coffee market, given that some competitors are showing signs of growth weakness?
A: The Chinese coffee market continues to face challenges, but our distinctive coffee plus freshly prepared food strategy sets us apart. Despite reducing consumption and trading down, there is a strong pursuit of convenient and healthy food options among consumers. Our value-for-money coffee plus bagel combination caters to this change. We have completed make-to-order renovations in nearly 300 stores, showing great growth in sales, and plan to roll out this model to more stores by the end of the year.
Q: Where does Tims China position itself in the ongoing price war in the market?
A: While the price war affects us, we do not proactively participate in it. Our brand is value for money, and instead of lowering coffee prices, we promote combos like coffee plus bagel at attractive prices. We will continue this strategy and differentiate ourselves from other coffee players by launching value lines in both coffee and food.
Q: With recent capital infusions and achieving corporate EBITDA positivity, what are the company's primary needs for capital moving forward?
A: We plan to invest in make-to-order renovations to visualize fresh food preparation, which offers expanded revenue opportunities. We will also invest in marketing and R&D to offer more value-for-money products. Additionally, we plan to open new company-owned and operated stores, leveraging reused equipment from store closures to limit incremental CapEx.
Q: Do you expect the store count to go up this year, or will you continue to focus on pruning underperforming stores and store renovations?
A: We expect the store count to go up in the second half, especially in Q4. We focused on pruning underperforming stores in the first half and have now achieved positive corporate EBITDA. We are ramping up to open more stores in the second half.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
