TH International Limited Q2 FY2025 earnings call

• Product Strategy: Reinforced coffee plus freshly prepared food strategy with launch of live lunch box platform and new combo products for lunch daypart, driving top-line growth and enhancing store unit economics. Food revenue up 8.6% YoY with 35.2% contribution to sales.
• Store Development: Expanded store footprint to 98 cities, received over 8,100 subfranchise applications, converted over 400 stores, target 200 franchise stores in 2025; opened 18 special channel stores in locations like railway stations, etc.
• Product Innovation: Launched 43 new items in Q2 (28 beverages, 15 food products). Expanded beverage portfolio with sparkling cold brew series, water buffalo milk series, and non-coffee beverages.
• Online Platform: Expanded live lunch box platform with wrap and energy ball series in Q2.
• Brand Ambassador: Appointed Lars Wong as official brand ambassador; launched collaborations to drive traffic and transactions.

In Q2, food revenue increased by 8.6% year over year, with food revenue contribution reaching 35.2% of sales, a historical high, up 2.8 percentage points from 32.5% in 2024. System sales grew 1.4% year-over-year. Profits from other revenues achieved a year-over-year increase of 110.3%. Company-owned and operated store revenues dropped 12.5% year over year due to planned closure of underperforming stores and 3.6% decrease in same-store sales growth, while franchised and retail businesses saw revenues increase by 50.7% year over year. Digital orders as a percentage of total orders rose from 86.5% in Q2 2024 to 90.4% in Q2 2025.

• Target to open around 200 new MTO stores in 2025 on gross basis.
• Expect positive same-store sales in Q3 and the second half of 2025.
• Close to full-year adjusted corporate EBITDA breakeven, working on securing additional capital to open more profitable company-owned and operated stores.

• Market competition in the highly competitive beverage market during peak seasonal demand.
• Dependence on successful execution of the franchise model and continuous product innovation.
• Uncertainties regarding liquidity and securing additional capital for expansion.

Q: Current thinking on the rate at which you can review the growing number of sub-franchise applications to accelerate the rate of new store growth and ultimately return to net store growth?

A: In Q2, 41 non-MTO Express stores were closed. Target is to open around 200 new MTO stores in 2025 on a gross basis, expect over 100 net openings this year, and 200-300 new openings in the next few years.

Q: Curious as to your thoughts on how sustainable the trend of increasing marketing expenses would be and what impact it would have on the business same-store sales growth and its margins?

A: Marketing expenses at ~4% of total revenues, lunch box campaign is working, same-store sales are recovering, and expect positive same-store sales in Q3 and the second half of the year.

Q: Could you provide an update on the refinancing of the convertible debt?

A: We are in good progress right now, and we will disclose when it's running.

Q: How can we better monetize the team's loyalty members which is sort of 26 million by now?

A: It's a great question, we have a large base of loyalty members and are working on ways to drive more spend from them.

Q: Do you expect your liquidity position to improve going forward?

A: We are approaching operating cash flow self-sufficient, working on securing new capital, and are confident in our current liquidity position.