Chagee Holdings Limited American Depositary Shares (CHA) Earnings

Management highlights

- Strategic Priorities * The company's 2026 core focus is disciplined execution centered on consumer needs rather than external competition, with work aligned across five core dimensions: product, service, environment, experience, and brand value proposition. * Organizational optimization completed in prior quarters has delivered tangible results: resource allocation is more precise, decision-making and execution are faster and more coordinated, and team cohesion around the core business has strengthened significantly, laying a foundation for sustained high-quality growth. * A clear, comprehensive product and marketing roadmap has been finalized, with a goal of consistent high-quality execution across every consumer touchpoint. * Management believes the company's current share price is significantly undervalued and does not reflect long-term growth prospects. The board has approved a $150 million ADS share repurchase program over a 12-month period to demonstrate confidence and reward shareholder trust. * Chagi has entered a mature, stable phase of sustainable high-quality growth, with overseas expansion continuing to advance. - Operational Performance Highlights * Overall Q1 2026 results: Total net revenue of RMB 3,546 million (4.5% year-over-year growth, 19.2% sequential growth), gross margin of 55.6% (up from 53.1% year-over-year), non-GAAP net income of RMB 506.7 million (more than four-fold sequential increase), non-GAAP net margin of 14.3%, and total GMV of RMB 7,917.8 million (8.1% sequential growth). The company extended its track record to 13 consecutive quarters of positive net income. * Product: 12 new products were launched in Q1, expanding the product portfolio into new categories including tea lattes and specialty offerings. New products like Da Hong Pao Tea Latte and Caramel Pour Latte outperformed historical averages for new launches on all key metrics, with the latter showing strong potential to become a long-term bestseller. * Marketing: New initiatives expanded consumption into morning and evening time slots via a morning buy-one-get-one-free promotion and a dedicated low-caffeine evening beverage section. Morning sales share doubled, and private domain mini-program order share and new customer acquisition both improved. * Store Network: The company prioritized quality over rapid expansion, deliberately slowing new store growth to upgrade existing locations and improve operating quality. A new GMV-based franchise revenue sharing model was fully implemented, aligning company and franchisee interests. Total global locations reached 7,531 at quarter-end: 7,157 in Greater China and 374 across 8 overseas markets. * Membership: Total registered members reached 248 million, with nearly 50 million active members (up 11% sequentially). The active member repurchase rate held steady at 42.3%, and members with two or more purchases contribute over 76% of total orders, demonstrating strong consumer brand loyalty.

Guidance

Management did not release formal full-year or next-quarter numerical guidance, but reaffirmed its unwavering strategic direction and forward priorities: - Product: Maintain a steady new product launch cadence and continue expanding into new specialty tea categories. - Service: Continue optimizing the membership system and overall consumer experience. - Store network: Prioritize quality over rapid expansion in the Greater China market, and continue steady, disciplined expansion of overseas locations, with overseas markets positioned as an increasingly important long-term growth engine. - Capital allocation: Continue optimizing capital allocation strategy, support core business healthy growth, and focus on delivering improved long-term shareholder returns. The $150 million 12-month share repurchase program will be executed flexibly based on market conditions and valuation.

Segment performance

Chagi operates two core tea house segments: franchisee tea houses and company-owned tea houses, plus geographic segments of Greater China and overseas. - Franchisee tea houses: Net revenue of RMB 2,743.9 million, accounting for 77.4% of total net revenue, with a 12.7% sequential increase. - Company-owned tea houses: Net revenue of RMB 802.1 million, accounting for 22.6% of total net revenue, with a 230.4% year-over-year increase. This segment carries a higher gross margin that drove overall gross margin improvement in the quarter. As of quarter-end, there were 790 company-owned locations and 6,741 franchisee locations globally. - Geographic segment (Greater China): Total GMV of RMB 7,491.4 million, with 7.8% sequential GMV growth. Same-store GMV growth improved 9.4 percentage points sequentially, and average monthly GMV per tea house increased 5.5% quarter-over-quarter to RMB 356,080. - Geographic segment (Overseas): Total GMV of RMB 426.4 million, with 139% year-over-year GMV growth and 14.6% sequential GMV growth. There were 374 overseas locations as of quarter-end, with operating performance meeting management expectations.

Risks & headwinds

Management did not explicitly discuss material new business risks or operational failures during the call. No adverse unplanned operational events, regulatory risks, or supply chain disruptions were raised.

Analyst Q&A

• Q: What factors drove the strong sequential improvement in same-store GMV in the first quarter, and can this improvement be sustained amid industry-wide pressure?

  A: Same-store GMV decline narrowed by 10 percentage points compared to Q4 2025, showing a clear recovery trend. The improvement came from three main sources: first, the Tianwen marketing campaign drove an average of 3 million incremental orders per day during its peak week, enabled by improved execution efficiency after organizational adjustments. Second, 12 new product launches drove incremental traffic and GMV, with morning-focused new products contributing 45% of morning cup volume during the campaign. Third, localized new products in overseas markets delivered strong performance, narrowing the same-store GMV decline in international markets significantly. All initiatives align with the company's long-term consumer-centric strategy, providing a foundation for sustained improvement.

• Q: What impact will the new GMV-based franchise revenue sharing model have on Chagi's profitability?

  A: Under the new model, the brand collects a higher fee share based on franchise GMV, but reduces markups on raw materials and guarantees fixed discount rates for franchisees. This changes the revenue mix: revenue from raw material and equipment sales declines, while franchising service revenue increases. The model has not hurt overall profitability, as Q1 gross margin held at 55.6% with a slight sequential increase. The overall gross margin improvement comes from a higher share of higher-margin company-owned stores; franchise gross margin is largely flat sequentially after accounting for the model shift. The model aligns the interests of the company and franchisees: franchisees get lower input costs and shared risk, while company revenue is tied directly to franchise store performance, creating a mutually beneficial, sustainable long-term structure.

• Q: What is the reasoning behind the new $150 million share repurchase program, and what is the company's approach to future shareholder returns?

  A: The repurchase decision is based on three core factors: first, management and the board believe the current share price significantly undervalues the company's improving business fundamentals and long-term growth potential. Second, the company maintains a very healthy balance sheet with strong liquidity, holding roughly $1.04 billion in cash and similar liquid assets at quarter-end, giving it capacity to return capital to shareholders while funding core growth plans. Third, the repurchase demonstrates management's strong confidence in the company's future prospects. Going forward, the company will continue to optimize capital allocation to support core business healthy growth, prioritize delivering improved long-term shareholder returns, and execute the repurchase flexibly based on market conditions.