TH International Ltd. Q3 FY2024 earnings call

• Maintained adjusted corporate EBITDA profitability despite industry price competition. - Completed made-to-order renovation of 539 new and existing stores, adding working stations for fresh food preparation. - Launched low-sugar, high-fiber and plum-based products, with transparency in nutrition info. - Chibaobao Cards sold over 120,000 in Q3, with card holders showing 4.6 times increase in purchase frequency. - Registered Loyalty Club Members reached 22.8 million, a 35.3% year-over-year growth. - Introduced 10 new beverages and 9 new food items, integrating healthy ingredients. - Collaborated with Menglan the panda for the Bagel Festival, generating over 63 million media exposures.

In the third quarter of 2024, Tims China maintained adjusted corporate EBITDA profitability. The company-owned and operated store contribution margin reached a highest-ever 13.3%, with a year-over-year margin expansion of 5.8 percentage points. Digital orders as a percentage of total orders rose from 82.6% in Q3 2023 to 86.6% in Q3 2024. The monthly average transacting customers were 3.3 million in Q3 2024, a 2.4% increase from the same quarter in 2023.

• Focus on profitable, capital-efficient growth. - Bolster brand by offering great value with fresh and healthy food selections. - Collaborate with sub-franchisees to boost customer traffic and optimize supply chain efficiency to enhance store economics and profitability.

No significant risks discussed in detail during the call.

Q: How much room do you see for continuing expense leverage moving forward as a percentage of sales?

A: Major cost items include front paper, rent, labor, and office G&A. Fixed costs will be allocated as revenue increases, leading to margin improvement when revenues grow.

Q: Is there a timeline for converting sub-franchise applications to granted and operating status?

A: Extremely careful in choosing partners and locations, using third-party background checks, interviewing applicants, and vetting locations. Progress is strong with 43 opened and 94 signed as of September 30, 2024, with faster progress expected in the fourth quarter and next year.

Q: Impact of loyalty program on repeat customers and transaction size?

A: Loyalty members have much more purchase frequency than non-members. Chibaobao Card holders had a 4.6 times increase in purchase frequency in Q3.

Q: Status of franchising, types of applications, and pricing competition?

A: Strict in vetting franchise partners and locations. Avoid direct price war, price products competitively with combos like breakfast combos starting at RMB14.9 and lunch combos at RMB21.9, using Chibaobao Cards for discounts.

Q: Importance of renovated open kitchens for franchises?

A: Open kitchens allow guests to watch staff craft fresh meals, differentiating Tims from peers and helping expand into more day parts to drive sales growth.

Q: Capital required for company-owned stores vs sub-franchise and payback?

A: CapEx for a typical company-owned store is around RMB450,000 to RMB500,000 (US$70,000) with a payback period between two to three years, which is attractive.