Good morning and good evening, ladies and gentlemen. Thank you for standing by and welcome to Chagee Holdings Limited's second quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. We will be hosting a question-and-answer session after management prepares remarks. Please note that today's event is being recorded. With that, I will now turn the call over to the first speaker today, Ms. Alicia Guo, Investor Relations Director of the company. Please go ahead, ma'am.
Thank you. Hello everyone, and welcome to Chagee Holdings Limited's second quarter 2025 earnings call. With us today are Mr. Junjie Zhang, our CEO, and Mr. Aaron Huang, our CFO. The company's financial and operating results were released by the newswire earlier today and are currently available online. Before we continue, I refer you to our safe harbor statements in the earnings press release, which applies to this call. Any forward-looking statements that we make on this call are based on assumptions as of today, and Chagee Holdings Limited does not undertake any obligations to update these statements. Also, this call includes discussions of certain non-GAAP financial measures. Please refer to our earnings release, which contains a reconciliation of non-GAAP measures to GAAP measures. With that, I will turn the call to our CEO, Mr. Junjie Zhang. Please go ahead, sir.
[Foreign language].
Hello everyone, thank you all for joining Chagee's second quarter 2025 earnings conference call. We truly appreciate your continued trust and support, which has enabled us to forge ahead steadily in this dynamic market environment.
[Foreign language].
Before we dive into our quarterly performance, I'm delighted to share an important update in our talent strategy. To accelerate our North American market expansion, we have successfully assembled a new North American leadership team. We're honored to welcome Ms. Emily Zhang as our Chief Commercial Officer for North America. Emily brings extensive international brand building experience, having served as CEO at West at VML and McCann Worldgroup China, and Chief Marketing Officer at Starbucks China.
[Foreign language].
Additionally, we welcome Mr. Aaron Harris as our Chief Development Officer for North America. As a chain restaurant industry expert, Aaron has successfully led market expansion for multiple national and international QSR brands, most recently as Senior Vice President of Development at Dutch Bros Coffee. His rich experience in scaled operations will drive our development in the U.S. market.
[Foreign language].
This is not just a key talent acquisition, but also an important move for our global strategic layout. We have proactively established a local team in core markets such as Asia Pacific and North America, making systematic investments in organizational capabilities. In the second half of this year, we will continue to invest strategically in overseas markets, steadily enhancing the development of a global talent pipeline and operational system. With our elite local teams, we're confident that we will achieve a pivotal breakthrough and sustain strong growth momentum globally.
[Foreign language].
Next, I will walk you through the operating results and business updates. Despite the evolving dynamics of the global tea beverage market, we have stayed committed to growth strategy driven by brand value and product innovation. This has reinforced our operational resilience and sharpened strategic focus. This quarter, we achieved solid progress, with revenue sustained double-digit year-over-year growth and consistent profitability.
[Foreign language].
One of the most important factors behind these results is our consistent commitment to a clearly defined brand strategy. In an environment where many in the industry compete for market share through aggressive price promotions, we remain committed to our differentiated value-first positioning, a strategy that is earning positive market feedback while maintaining a disciplined pricing framework. Our third-party delivery GMV has seen growing contributions, with strong repeat purchasing behavior among registered members. These results validate our brand positioning and confirm that consumers recognize and appreciate the value we offer.
[Foreign language].
To strengthen this advantage and deepen our competitive moat, we will launch a comprehensive upgrade plan for essential raw materials in the second half of the year, focusing on key ingredients such as tea, milk, and syrups. We believe that ongoing investment and sourcing improvements will deliver an elevated product experience to our customers, reflecting the core of our value-first strategy.
[Foreign language].
On the global stage, our strategy continues to deliver strong momentum. The overseas markets have demonstrated strong growth momentum and are becoming an increasingly important growth engine for the company.
[Foreign language].
This progress has been driven by a combination of localized product and marketing innovation, disciplined geographic expansion, and operational excellence. In April, our Hojicha Jemai milk tea captured customer attention across Southeast Asia, propelling us to the top position and share of voice among tea brands in the region. In Malaysia, the product was sold out in major cities within two weeks of launch. In June, our Earl Grey series, co-branded with the British Library, performed equally well. The collection sparked vibrant engagement on social media. Simultaneously, our pop-up experiential events in Singapore and Malaysia drew tens of thousands of visIPOrs, providing immersive brand experiences and significantly elevating brand visibility. Cup sales during these events recorded decent sequential growth, especially in Singapore.
[Foreign language].
At the same time, we continue to make steady and solid progress with our overseas store expansion. In the first half of the year, we advanced our strategic positioning in critical markets, including Indonesia and the United States, while further strengthening our strategic collaboration in Thailand.
[Foreign language].
Operational quality across all regions continues to improve. Our Singapore stores sustained solid and stable sales momentum, consistently delivering leading daily average sales. Profitability in our Malaysian stores exceeded expectations. More importantly, we have achieved a sequential increase in the sales price for our products in the overseas markets, demonstrating the strength of our premium brand positioning.
[Foreign language].
Domestically, we're pushing boundaries by integrating modern consumer experience with traditional cultural elements. In the second quarter, we introduced a themed concept store, such as the Samaric inlay art activity in Guangdong and the Kite Culture pop-up store in Shandong, successfully blending heritage tea culture with contemporary retail design. This demonstrates that our globalization strategy is not just about growing our footprint, but equally about reinforcing brand value and elevating operational quality.
[Foreign language].
Product innovation remains at the heart of our growth. In the second quarter, our new product, Lychee Black Tea Milk Tea, showcased strong first-week sales alongside other recent introductions. The two products drove a meaningful sequential increase in GMV during their launch period. Moreover, the time-limited return of Melon Oolong Milk Tea proved highly popular, ranking prominently among the quarter's most favorite products.
[Foreign language].
Driven by the dual engines of product innovation and user operations, our member ecosystem continues healthy development. By the end of the second quarter, the number of registered members achieved strong growth both sequentially and year-over-year. This reflects not only our ability to operate with efficiency at scale, but also the deep market renaissance of our mission to champion health-oriented tea beverages.
[Foreign language].
In the face of ongoing market challenges, we remain steadfast in our belief that quality is the foundation of lasting growth. As market conditions shift, our promise is clear: we will consistently offer tea that is both wholesome and promising in quality. Short-term results will never come at the expense of our enduring commitment to excellence. As a representative of modern tea, Chinese tea, our mission is twofold: to preserve the essence of Chinese tea culture and to modernize it for global consumers through innovation and creativity. We will honor our craft, truly hold to our values, and use every cup of high-quality tea as a gesture of sincerity. We firmly believe that genuine care for both our product and our customer is the key to earning market trust and sharing the authentic experience of Chinese tea with the world.
[Foreign language].
This concludes my remarks. Now, I will turn the call to our CFO Aaron Huang, who will provide detailed insights into our financial performance. Thank you.
Thank you, Jay, and good evening, good morning, everyone. Thank you for joining our earnings call. Before we dive into the details, please note that all amounts are in RMB, and all comparisons are on a year-over-year basis, unless otherwise stated. In the second quarter, our revenue reached RMB 3.3 billion, up by 10.2% year-over-year. GMV came in at RMB 8.1 billion, a year-over-year increase of 15.5%. Non-GAAP net income was RMB 629.8 million, up by 0.1% year-over-year. For the first half of 2025, non-GAAP net income rose by 6.8% year-over-year to RMB 1.3 billion. By the end of the second quarter, our total membership exceeded 200 million, increasing by 14.5 million from the first quarter and 42.7% year-over-year. These results underscore the resilience of our business model and strengthen our execution under dynamic market conditions. Now, let me provide some context around the market conditions we faced this quarter.
The intensified delivery platform subsidy competition in China created headwinds for our business, while we remained disciplined in protecting our pricing integrity and premium brand positioning. We recognized that this competitive environment weighed on near-term performance. At the same time, we are advancing our strategic expansion into international markets. This involves deliberate investments in organizational infrastructure, including talent acquisition, as Jay shared, and operational capabilities. While these initiatives are currently affecting profitability in the short term, they are very critical investments as we work towards achieving operational leverage in these new markets. Next, let me go through the financials. Our total net revenue for the second quarter increased by 10.2% year-over-year to RMB 3,331.9 million, mainly driven by the continued expansion of our tea house network. Among them, net revenue from franchisee tea houses grew by 6.1% to RMB 3,020.7 million, representing 90.7% of our total net revenue.
Net revenue from company-owned tea houses increased by 77.3% to RMB 311.2 million, accounting for 9.3% of the total revenue. The increase was primarily driven by the expansion of the company-owned tea house network. Our total GMV for the second quarter increased 15.5% year-over-year. The average monthly GMV per tea house in Greater China was RMB 404,352, a year-over-year decline, reflecting both high base from last year's outstanding quarter and a more severe competitive environment. Even so, our commitment to maintaining the premium position and brand integrity remains central as we navigate the current backdrop and prepare for improving market conditions. Meanwhile, our overseas markets have gained significant traction, with GMV increasing 77.4% year-over-year and 31.8% quarter-over-quarter. This growth is mainly driven by strategic store expansion and our growing brand awareness, positioning the overseas market as a key pillar of our future growth.
In the first half of 2025, we expanded our overseas presence by adding a net of 52 stores compared to year-end 2024, bringing our total to 208 stores as of June 30, 2025. The opening of a store in Indonesia attracted approximately 35,000 new members' registration during the launch week. In Thailand, the average daily cup sales rose by 54% following our grand openings, with 15,000 new members joining in just the first three days. Our Los Angeles store in the United States set a record with 5,000 cups sold in a single day. Turning to margin, our gross profit, calculated by excluding costs of material, storage, and logistics from net revenue, reached RMB 1.8 billion this quarter, resulting in a strong gross margin of 53.9%.
This marks solid improvements both year-over-year, up from 48.4% in the second quarter of last year, and sequentially from 53.1% in the first quarter of 2025. This margin expansion was primarily driven by two key factors. First, we continue to benefit from a growing economy of scale as our businesses expand. Second, lower purchasing costs achieved through our ongoing procurement optimization initiatives have played a significant role. On operating expenses, share-based compensation expenses rose significantly this quarter, which is reflected across our expense categories. The significant amount of share-based compensation expenses recognized in the second quarter of 2025 were related to the vesting of share-based awards, with the performance conditions related to IPO success. The breakdown includes RMB 505.6 million in G&A, RMB 31.1 million in sales and marketing expenses, and RMB 15.8 million in other operating costs.
To provide greater clarity on underlying performance, we will also reference non-GAAP operating results, with full reconciliation available in our earnings release and Form 6-K. Operating income was RMB 107.6 million. Excluding share-based compensation expenses, operating income was RMB 660.1 million, representing a 19.8% margin. This margin change reflects a step-up investment in the brand building and marketing to support a new product launch, R&D to ensure our offering, digital infrastructure, and to elevate customer experience, and talent recruitment for global expansion. Operating costs for the company-owned tea house were RMB 184.1 million, up 72.8% from a year ago, and up 17.2% from the first quarter of 2025. As of June 30, 2025, we operated 239 company-owned tea houses, up from 191 at the first quarter of 2025. On a per-store basis, operating costs have decreased compared to the first quarter of 2025, showing improved efficiency at the store level.
The other operating costs increased by 36.2% to RMB 173.7 million, largely due to higher payrolls supporting the expansion of the franchisee network. On a non-GAAP basis, other operating costs account for 1.7% of revenue compared to 1.2% a year ago. Sales and marketing expenses for the quarter were RMB 385 million, up 54.6% from a year ago, reflecting higher advertising costs tied to new tea product launch and related campaigns, along with payroll growth and to support the business expansion. On a non-GAAP basis, sales and marketing represented 10.6% of revenue compared to 8.2% a year ago. G&A expenses reached RMB 944.6 million, up 301.1% year-over-year, driven by SBC costs I just mentioned, related to the IPO, and expanded the team to support global operations, increased R&D for product upgrades and innovation, and higher IT service costs to enhance operational efficiency.
On a non-GAAP basis, G&A expenses represented 13.2% of revenue compared to 7.8% a year ago. Income tax expenses represented 62.1% of income before tax, significantly higher than 20.1% a year ago. This was primarily driven by the impact of share-based compensation expenses recognized during the quarter. We achieved our 10th consecutive quarter of profitability, with a net income of RMB 77.2 million. Non-GAAP net income, excluding share-based compensation expenses, was RMB 629.8 million, with a non-GAAP net margin of 18.9% compared to 20.8% last year. The margin decline reflects our continued investment in new products and overseas markets, and the net losses from overseas operations that are still ramping up. Our Greater China business remains healthy, delivering profitability growth from last year. During the quarter, basic net income per ordinary share was RMB 0.0036, and the diluted net income per ordinary share was RMB 0.0035.
We ended the quarter with RMB 8.9 billion in cash and cash equivalents, receipt cash, and time deposit, up from RMB 4.9 billion at the end of 2024. While near-term headwinds persist, we are confident in our strategic trajectory. Our overseas operations are gaining encouraging consumer traction, and we are building the organizational and operational foundation to sustain our long-term growth. The investments we are making today in people, infrastructure, and capabilities will position us to capture significant opportunities as these markets mature and operational leverage takes hold. At this time, we will not be providing the formal financial guidance for the whole year. Our priority is to execute our long-term growth strategy and deliver lasting value to our shareholders. We may revisit the possibility of offering guidance in the future as the condition evolves.
In closing, I want to reaffirm our unwavering commitment to our premium brand strategy in today's dynamic competitive landscape. We remain focused on delivering healthy, high-quality tea offerings that our customers trust and value. We are deeply grateful for the continued support of our team, Chagee friends, and valued shareholders. Through disciplined capital allocation and our commitment to strengthening and diversifying our global business, we will continue creating sustainable long-term value for our shareholders. Our focus remains on protecting margin and delivering profitable growth that stands the test of time. With that, I will turn the call back to the operator to begin the Q&A session. Operator, please go ahead.
Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one one again. We will now take the first question from the line of Lillian Lou from Morgan Stanley. Please go ahead.
Hello. Thank you for the opportunity to ask the question. Thanks a lot for Junjie Zhang and Aaron's detailed introduction, and I look forward to a big step forward in the global expansion. I have a question, actually, on China right now. Obviously, we saw it in the second quarter results as there was an impact from the delivery platform subsidy program. My question is related. One is, what kind of operational impact we've been seeing? For example, the impact on general ASP, the franchise work on stores' profit margin and stability. Related to that, what company strategy going forward related to dealing with platforms' subsidy program, how we defend our positioning in the industry, and how we look at the second half general operation focus? Then I'll translate my question. Since Junjie Zhang [Foreign language].
[Foreign language].
[Foreign language].
[Foreign language]. Thank you so much for your question. We see our delivery platform competition keeping up quite a bit in the second quarter and attract a lot of attention globally. Competition can be really good for the market, and the heavy reliance on the subsidy right now isn't really sustainable for the industry as a whole. We don't really count on the platform or the discount to attract more customers. It might help us with the GMV in a short period of time, but it doesn't really help with the profitability to our partners or to our franchisees as well. We believe that it puts a lot of pressure on the merchant margin and shakes up delivery platforms' income instability and creates financial stress for the platform as well.
The key issue with the subsidy is that they mainly attract price-sensitive customers who don't have strong brand loyalty and will switch quickly to whoever offers the lowest price. That makes it really hard to build lasting customer relationships. For the company, we have three principles. The first principle is to build around we stay firmly committed to delivering high-quality products and services. We're not going to get pulled into price wars. Instead, our focus is on offering superior product quality and an outstanding customer experience. Secondly, we're not doubling down on our premium brand positioning. We believe real long-term value comes from brand building trust and delivering greater user experience, not from short-term price cuts or discounts or coupons. Our strategy is all about enhancing the high-value brand image. Thirdly, we are focusing on optimizing operational efficiency to boost our competitiveness.
Without relying on subsidies, we keep investing in technology and process improvements to improve efficiency. For example, the 4.0 automated machine will be rolled out at the end of the year. It will largely lower the labor cost and increase the efficiency of the operation at the store level. When we pass those savings onto the customers and partners who truly appreciate our quality, we can stay reasonably competitive on price without compromising our core value. Also, at last, our product R&D will have something different at the end of the year, and the menu will be changed totally. We welcome you guys to look forward to our changes at the end of the year. Thank you for your question.
Thank you. We will now take the next question.
[Foreign language].
From the line of Xiaopo Wei, please go ahead.
Sorry, Sandra, can we hold on for a second? The CEO has a little comment to add.
My apologies, of course.
[Foreign language].
We believe right now China has been transferring from the Chinese manufacturing or made-in-China mode to the brand positioning mode at the moment. We believe the lower pricing strategy doesn't really consist with the high-quality life experience or branding positioning for the Chinese market overall trend at the moment. Keeping the lower voice does not really help with the higher value positioning. We firmly believe that we're going to stick to the high-quality brand positioning and also offer a high-quality product to our customers. Thank you. Sandra, please go ahead with the next question.
Thank you. We will now take the next question from the line of Xiaopo Wei from Citigroup. Please go ahead.
Hi, can you hear me?
Yes.
Hello?
Yes, please.
Okay, good. Yeah, I have two questions on overseas business. In the prepared remarks, you mentioned a very exciting new hire in the U.S. leadership and also many exciting new products in the overseas market locally. Could you update us on the expansion plan for overseas and China in the next few quarters? Secondly, in the operation of overseas market, did you observe anything you want to share with us? How could you translate those observations into the future strategy for the overseas business? [Foreign language].
All right, thanks for the question. Let me answer it. Let me first just go through a little bit more detail on the overseas development market by market. That would give you a full picture of where we are now in the overseas market. I will not talk about domestic growth, but more focus on the overseas market. In the international market, now we have 208 stores in total, including 178 in Malaysia, 16 in Singapore, eight in Indonesia, five in Thailand, and one in the U.S. Overall, we have 39 new stores added in the second quarter. We also successfully entered Indonesia, first ever with new eight stores in one quarter. At the same time, we made new strides in North America too. We opened our very first store in Los Angeles in May, with the second U.S. store now self-opening in August.
Overall, from a GMV perspective, the international markets keep up the strong course, as I just mentioned that in the quarter we have a 77.4% growth year-over-year. To break it down by market, we see a lot of very good signals in the performance country by country. In Singapore, we see the daily sales stayed very strong in the second quarter, holding steadily above 1,500 cups a day a store. We are still continually optimizing the single store model to really maximize our potential in Singapore. By June, our average payback period of a mature store in Singapore improved to less than 12 months. We see, as soon as an overall country, we will be going break even in the coming quarter. That's really a very robust business development in Singapore.
In Malaysia, we have 178 stores now running very smoothly, and overall, the profitability performance of our store exceeded our plan, our internal plan. In Thailand, we relaunched the market with three net new stores in the quarter. Average store performance very well, and at a daily basis, it's 800 cups a day a store. We see a very welcome by the local customers. In Los Angeles, our first store opening, I just mentioned that, with the 5,000 cups sold a day, it's a very long line, like three, four hours, and now still keep at 1,000 cups a day for the first store. Going forward, we'll push hard on two fronts, strengthening our presence in those mature markets like Malaysia, and we will continue to have rapid growth in those markets. In the meantime, we prepare to enter in more countries.
Like today is the first grand opening day in the Philippines. We see that more and more exciting news coming in. For the second half, the first one that, you know, the Philippines will be the last country in this year as a new market we enter into. For the BNM as well, as just I mentioned. In Q4 and Q3, we definitely, you know, we've established a team there. We were ramping up the growth, and we estimated that for the full year, we will open more than 200 stores as all in the total overseas markets. That's, you know, for the overall overseas market expansion. As from a business perspective, there are some highlights that, you know, Jay mentioned as well. For example, we have a lot of local product launch.
You know, it's not a product that actually, you know, launched before in China, like, you know, Hojicha Jemai milk tea. That's very popular in Singapore. We see, you know, a lot of local relevant campaigns well received by local customers. I think that, as Jay just mentioned, that, you know, we are played as a very important lifestyle brand, and we are focused on, you know, building a relevant experience to local customers, not just like simply say it's a Chinese, you know, brand. I think that that's something that we see very well felt, you know, by the different markets.
Operator, next question, please.
Thank you.
Thank you. We will now take the next question from the line of Sijie Lin from CICC. Please go ahead.
Thank you, management, for taking my question. My question is on same-store sales. Could you please provide more color on the same-store sales performance in Q2? What's your view of the same-store sales growth trend going forward? [Foreign language].
Thank you, thank you. It's a good question. Yeah, the same store GMV continues softening this quarter, mainly due to two reasons. The first reason that we talked about before is because we've compared against a very strong second quarter in last year. Secondly, of course, the overall delivery platform price war intensified. We chose not to engage heavily to protect our brand positioning. That's definitely where we have a little more market share challenges leading to temporary customer diversion and impacted the sales a little bit. Given the high base from the comparable period last year, we expected continued pressure on the same store GMV in the second half of 2025. We are moderating store expansion in 2025, which eases growth pressure on the same stores. Also, we believe that a subsidy-driven price war will not last indefinitely, right? Its impact will gradually fade.
As Junjie Zhang just mentioned, we will do what we are strong at. We will focus on the product quality elevation, and we will continue to improve better sugar, better milk, and better tea. Really providing the high-quality product to our customers and to bring the customer back, focus on the customer experience, right? Stay away from those price competitions and really focus on our customer long-term strategy. Delivering high-quality product and experience to build a premium brand and earning the customer trust through the consistent excellence. I think we believe that that is something that Chagee should play, and we are very confident that that would be appreciated by customers as well. Thank you.
Thank you. I would like to hand the conference back to our management for closing remarks.
Thank you. Thank you again for joining our call today. Because we're short of time, if you have any other further questions, please feel free to contact us or request through our IR website. We look forward to speaking with everyone in our next call. Have a good day. Thank you.
All right. Bye-bye.
Thank you. Bye.
This concludes today's event. Thank you for participating. You may now disconnect.