TH International Limited (THCH) Earnings

Management highlights

New CEO John Chen joined the company in mid-June 2026 after spending time engaging with stores, suppliers, staff and customers to assess the business, and acknowledged that Q2 2026 results were disappointing, with significant top-line and same-store sales decline and lost market share to competitors. Key operational achievements and strategic priorities are outlined below: - **Product Innovation**: Launched 27 new products (20 beverages and 7 food items) in Q2 2026 to expand the all-day menu offering. Moving forward, the company will accelerate customer-insight driven innovation: improving core product flavor and appearance, developing new promotions and meal bundles, tailoring coffee offerings to Chinese consumer preferences by working with suppliers and in-house coffee experts, and filling gaps in afternoon day-part offerings. - **Marketing and Customer Capabilities**: Registered loyalty club members exceeded 37.1 million as of June 30 2026, growing 41.7% YoY with an average of over 36,000 members per store. The firm will expand CRM and marketing outreach beyond existing loyalty members to acquire new customers and increase visit frequency, and boost investment in marketing and product innovation teams. - **Operational Excellence**: Reduced food and packaging costs as a percentage of company-owned store revenue by 1.8pp YoY via supply chain efficiencies and raw material cost reductions, and achieved a 5.2% YoY drop in comparable store rental costs via ongoing landlord negotiation for permanent concessions. Moving forward, the firm will increase focus on staff recruitment, training and labor scheduling to improve service quality and overall guest experience, and leverage AI technology to improve efficiency across inventory management, labor scheduling, marketing production and personalized member promotions. - **Store Network Strategy**: The company will continue closing underperforming stores while expanding to new locations under a disciplined strategy: prioritizing top-tier cities, high-traffic locations including office districts, trade zones, transportation hubs (train stations, airports) and universities, where sales projections have higher accuracy. The firm will pursue a more balanced new store mix between company-owned and franchised locations going forward. - **Profitability Improvement: Core near-term priorities include driving sustainable revenue growth, enhancing supply chain capabilities, expanding store-level profitability for both company-owned and franchised stores, optimizing corporate, marketing and G&A cost structures, and achieving corporate EBITDA breakeven.

Guidance

- Management did not provide explicit full-year financial guidance, but confirmed that marketing spending will increase significantly in the second half of 2026, starting from Q3 2026, to support customer traffic recovery and all-day part, all-channel growth, with a focus on measuring marketing return and effectiveness rather than just spending levels. - The company will pursue disciplined store expansion after its new product and operational improvements are proven, with no specific net new store target provided for H2 2026 or 2027; expansion will follow the prioritized strategy focused on top-tier cities and high-potential high-traffic locations. - Management expects to see visible signs of operational and financial improvement in the near term, but declined to provide a specific timeline for turning performance around. - The company plans to allocate the proceeds from the new $55 million financing round (with an initial $15.8 million tranche closed in July 2026) first to product innovation and marketing investment, then to disciplined balanced store network expansion.

Segment performance

Teams China operates a single restaurant business segment for its Tim Hortons branded stores in China. In Q2 2026, the firm reported total revenue of RMB 207.4 million and system-wide sales of RMB 347.8 million, representing year-over-year declines of 21.7% and 15.1% respectively. Same-store sales declined 17.8% YoY, driven by a 16.3% drop in comparable transactions and a 1.5% drop in average ticket size. Digital orders accounted for 91.8% of total orders in Q2 2026, up from 90.4% YoY. For company-owned and operated stores: food and packaging costs were 28.3% of revenue (down 1.8pp YoY); rental and property management fees were RMB 47.9 million (down 15.6% YoY) and represented 21.7% of revenue (up 1.5pp YoY); payroll and employee benefits were RMB 43.9 million (down 12.6% YoY) and represented 19.9% of revenue (up 2.1pp YoY); delivery costs were RMB 28.9 million (down 13.3% YoY) and represented 13.1% of revenue (up 1.3pp YoY); other operating expenses were RMB 17.4 million (down 14.7% YoY) and represented 7.9% of revenue (up 0.7pp YoY). Company-owned store contribution margin was 5.7%, down from 9.6% YoY. Marketing expenses were RMB 13.3 million (down 4.4% YoY) and represented 4.9% of total revenue (up 0.9pp YoY). Adjusted general and administrative expenses were RMB 39.6 million (up 14.4% YoY) and represented 14.5% of total revenue (up 4.6pp YoY). Adjusted corporate EBITDA margin was -7.6%, down from +0.6% YoY. As of June 30 2026, the firm held RMB 121.1 million in cash and restricted cash, down from RMB 129.7 billion at December 31 2025. Net new store openings totaled 2 in Q2 2026, consisting of a net 15 openings of made-to-order stores and a net 13 closures of non-made-to-order stores, leaving 544 company-owned stores as of quarter-end.

Risks & headwinds

- The company has experienced significant year-over-year declines in total revenue, system sales, same-store sales and customer transactions, driven in part by reduced delivery subsidies from aggregators, prior underspending on marketing, discount controls, underperformance of existing stores, and lost market share to growing competition, including new entrants from tea chains expanding into the coffee category. - Liquidity pressure exists: cash and restricted cash declined from RMB 129.7 billion at end-2025 to RMB 121.1 million at end-Q2 2026 due to operating cash outflows, partially offset by new bank borrowing. The company relied on new financing from its brand owner and majority shareholder to fund ongoing operations and investment. - All forward-looking improvement plans carry inherent uncertainty, and actual results may differ materially from management expectations due to competitive market dynamics and shifting consumer preferences. - Most operating cost categories as a percentage of company-owned store revenue increased YoY, putting pressure on already low contribution margins, which declined nearly 4pp YoY to 5.7%.

Analyst Q&A

• Q: What are the top corporate strategic priorities to return Tim's China to profitability, and what is the timeline for implementing these changes?

  A: The three core priorities are: 1) accelerating product innovation to deliver more competitive products and customer experiences, with a focus on strengthening core day-part offerings and filling gaps in afternoon service; 2) improving store economics by continuing cost efficiency efforts for rent, labor and food costs, closing underperforming stores, and expanding new locations per the disciplined network strategy; 3) building internal capabilities in innovation, marketing, operations and new store development to enable the first two priorities. Management is allocating full resources to drive progress and expects to see visible improvement soon, but declined to share a specific public timeline.

• Q: With the new $55 million financing from RBI, what is the updated net new store target for H2 2026 and 2027, and how has the company-owned/franchise store mix changed?

  A: The new financing arrived at a critical needed time, and resource allocation will prioritize product innovation and strengthened marketing performance first. The company will pursue disciplined expansion only after its new offerings are proven, so no specific net new store number is provided. Expansion will follow the strategy of prioritizing top-tier cities and high-potential trade zones. Going forward, the firm will target a more balanced mix, with company-owned and franchised stores contributing roughly equally to new store openings.

• Q: Marketing spending was lower than last year in the first half of 2026; what is the plan for marketing spending in the second half going forward?

  A: Marketing spending will increase significantly in the second half of 2026 starting in Q3, to support planned seasonal promotions (the annual brew coffee and bagel festival), rebuild customer traffic, and drive sustainable revenue growth. First half underspending was due to the team building and talent recruitment process for marketing and product innovation teams. The focus will be growing all day parts across all channels, expanding outreach beyond existing loyalty members to acquire new customers, and increasing visit frequency and average spend, with a core focus on marketing return and effectiveness rather than just spending levels.

• Q: Many tea chains are now expanding into the coffee category, how does increased competition change your business strategy?

  A: The company's core strategy to compete is delivering superior customer value through a combination of product quality, customer experience and affordable pricing. The firm will continue investing in innovation to deliver superior coffee products (from basic black coffee to limited time offerings) across all price points, improve in-store and delivery customer experience, and work on cost efficiency to maintain affordable pricing for core products, with tailored offerings to meet different customer needs across day parts.