CHA

• Strategic Focus on Fundamentals: Management emphasized returning to basics amidst intense competition and market volatility. The strategy focuses on high-quality growth, consumer recognition, and perfecting consumer touchpoints rather than reactive measures.
• Product Innovation & Expansion: Launched 17 new products in Q2, including Gelato and Special Deals (Lemon Milk, Matcha Latte), expanding beyond core fresh milk tea. Classic products like Melon Oolong Tea Milk saw strong performance (110 cups/store/day initially). New categories aim to meet diverse user needs for self-expression and psychological healing.
• Marketing & Brand Resonance: Shifted from high-profile marketing to cultural resonance. Partnerships include the Oriya Theater Festival (Chaiji Imagine Tea Space) and Hubei Provincial Museum (first museum-themed store). Total registered members reached 257 million; active member repurchase rate is ~43%, and >78% of orders come from members purchasing twice or more.
• Operational Efficiency & Cost Control: Non-GAAP G&A expense ratio dropped to 9.1% (from 13.2% YoY and 11.6% QoQ). Sales & Marketing expense ratio narrowed to 8.8% (from 10.6% YoY). These improvements stem from organizational restructuring, headcount optimization, and precise resource allocation.
• Store Network Expansion: Global tea house count reached 7,639 (net increase of 108 QoQ). Greater China has 7,240 stores; Overseas has 399 stores across 8 markets. Entered South Korea in Q2 with strong initial sales (16,000+ cups in first 3 days in Seoul). Overseas GMV grew 114.3% YoY and 18.2% QoQ, serving as a key growth engine.
• Shareholder Returns: Executed $30 million in share repurchases out of a $150 million program announced last quarter. Maintained confidence in long-term value.

• H2 2026 Outlook: Defined 2026 as a year of 'adjustment and stabilization' rather than rapid scale expansion. Focus remains on building a foundation for sustainable high-quality growth.
• Same-Store Sales Trend: Positive recovery signals observed in Q3. July showed low single-digit decline (improvement from H1); August expected to turn positive YoY. Management believes this trend is continuous and sustainable due to product pipeline and operational refinements.
• Overseas Expansion: Continue disciplined overseas expansion without exaggeration, ensuring quality and brand competitiveness.
• Capital Allocation: Committed to returning value to shareholders through share repurchases and exploring regular dividend mechanisms, subject to board approval.

Total Net Revenue: RMB 3,415 million (up 2.5% YoY, down 3.7% QoQ). Franchisee Tea Houses contributed RMB 2,474 million, representing 72.5% of total net revenue. Company-owned Tea Houses contributed RMB 940.6 million, up 202.2% from the prior year period due to network expansion. Gross Margin remained flat at 54% YoY. GAAP Net Income was RMB 465 million with a margin of 13.6%, significantly improved from 2.3% in the same period last year. Non-GAAP Net Income was RMB 489 million with a stable Non-GAAP net margin of 14.3% sequentially.

• Intense Competition: The industry has shifted from incremental growth to存量博弈 (stock game/zero-sum competition) with rising intensity. Delivery wars have expanded public domain battlefields, requiring precise traffic tracking.
• Macroeconomic Volatility: Softer macro backdrop and fluctuating external environment impact consumer spending and channel dynamics.
• Execution Risks: Need to maintain operational efficiency and cost discipline while investing in new categories and overseas markets. Risk of failing to retain customers if brand resonance and service quality do not improve.

Q: How does management view the second half of the year amid current competitive pressures?

A: CEO Junjie Zhang defined 2026 as a year of adjustment and stabilization, prioritizing sustainable high-quality growth over rapid scale expansion. Following Q1’s organizational restructuring and Q2’s exploration of new categories, H2 efforts will focus on executing learnings from the first half. Management emphasized staying focused on fundamentals—making great products and enhancing member experience—to navigate the complex market environment effectively.

Q: What are the trends for same-store sales in Q3, and what drives the recovery?

A: COO Aiden Yin reported positive recovery signals, with July showing only a low single-digit decline and August expected to turn positive YoY. Key drivers include continued new product launches (e.g., Guava Peach Iced Tea, Gelato) suited for summer consumption, and the relaunch of popular classics. Additionally, refined in-store service details and improved preparation efficiency are boosting customer experience and repeat purchase rates, supporting sustained H2 performance.

Q: Are there plans for further shareholder payouts beyond the current buyback program?

A: CFO Aaron Huang stated that healthy free cash flow supports a move toward more regular and sustainable shareholder returns. While a special dividend was paid last year, management is actively reviewing options, including regular dividends, alongside ongoing share repurchases. Any specific plan requires board approval and will be disclosed after review, reflecting a firm commitment to sharing operating results with shareholders while funding strategic growth.