TH International Ltd (THCH) 2022 Q4 法說會逐字稿

Ladies and gentlemen, welcome to TH International Limited's Second Quarter 2023 Earnings Presentation. My name is Ting Zhou, Head of Investor Relations. TH International Limited announced its second quarter 2023 financial results earlier today. A press release as well, as an accompanying presentation which contains operational and financial highlights, are now available on the company's IR website at ir.timschina.com.

Today, you will hear from Yongchen Lu, our CEO and Director, and Mr. Albert Li, our CFO. You can also find the webcast of this presentation on our IR website.

Before we get started, I'd like to remind you that our earnings presentation and investor materials contain forward-looking statements, which are subject to future events and uncertainties. Statements that are not historical facts, including, but not limited to statements about the company's beliefs and expectations are forward-looking statements.

Forward-looking statements involve inherent risks and uncertainties and our actual results may differ materially from these forward-looking statements. All forward-looking statements should be considered in conjunction with the cautionary statements in our earnings release and risk factors included in our filings with the SEC.

This presentation also includes certain non-GAAP financial measures, which we believe can be helpful in evaluating our performance. However, those measures should not be considered substitutes for the comparable GAAP measures. The accompanying reconciliation information related to those non-GAAP and GAAP measures can be found in our earnings press release issued earlier today. With that said, I would now like to turn it over to Mr. Yongchen Lu, our CEO and Director. Please go ahead.

Thank you, Ting. We are very pleased with our accomplishments during Q2 2023 and believe that Tims China has never been stronger. On the top-line we delivered 129.7% year-over-year growth, achieving a record quarterly revenue of over RMB400 million. This was driven both by new store openings and continued strong same-store traffic and sales growth.

We also benefitted greatly from the rapid growth of our Loyalty Club, which now totals 14.7 million registered members, representing 95.4% year-over-year growth. We continued to pursue profitable growth. We have achieved positive store level EBITDA continuously and have increased store level EBITDA by 31.6 percentage points from Q2 2022 to 5% in Q2 2023.

From a store development standpoint, we continue to build density in our existing cities, while also penetrating new cities such as Shenyang, Yantai, Changzhou, et cetera. To highlight some of the new cities we entered recently, on the opening days of our first stores in Shenyang, Yantai and Changzhou, we generated RMB163,000, RMB204,000, and RMB68,000 in sales respectively, while scoring 132 million, 102 million and 4 million media impressions respectively.

We are also achieving greater capital efficiency via increasing franchise development, notably through the rapid expansion of Tims Express, our most compact store format. This is enabling us to enter into meaningful partnerships with reputable companies like Sinopec's Easy Joy, Century 21, Ling Ka, and Haier Sanyiniao, which have contributed to our network expansion.

On new product launches, Watermelon Cold Brew (Foreign Language), Grape Cold Brew (Foreign Language), Grape Iced Capp (Foreign Language), Watermelon Coconut Water (Foreign Language), and Cinnamon Roll (Foreign Language) were among our best-selling products during the quarter, demonstrating our ability to innovate and launch offerings that strongly appeal to our customers.

Recall also that our differentiated and highly successful Coffee Plus growth strategy is based upon offering creative and customized beverage and food combos at compelling values. This initiative has enabled us to further improve our labor and capital efficiency, as exemplified by the percentage of orders with food increasing from 43.7% in Q2 2022 to 50% in Q2 2023.

We have also seen increasing popularity of our Bagel products, with the number of bagels sold reaching 4.8 million in Q2 2023, tripling from the same quarter in 2022. The digital realm remains a crucial part of our business, as our e-commerce and retail sales grew by 210.5% from RMB10.4 million in Q2 2022 to RMB32.3 million in Q2 2023.

We also continue driving growth through new retail channels like co-branded coffee products and at-home coffee products, such as Tims & Oatly's ready-to-drink coffee, packaged liquid coffee and liquid freeze-dried coffee products.

Throughout the peak summer season, which falls in our Q3, we executed a series of fresh new products that are being supported by exciting marketing campaigns and ample resources to capture increased market opportunities.

More specifically, we are introducing a new beverage or food product at least every two to three weeks. These are all designed to attract new customers while keeping our loyal customers coming back.

Lastly, by leveraging Tims' infrastructure and operating expertise, we opened our first Popeyes restaurant in China on August 19, less than five months after we acquired the exclusive right to develop Popeyes brand restaurants in mainland China. We were thrilled to have achieved this major milestone in our longer-term strategy to establish a growing presence for this iconic brand across the country.

We believe that adding Popeyes to the Tims China portfolio will deliver economies of scale and supply chain synergies for both brands, driving further growth for our company. We plan to open at least 10 Popeyes restaurants in Shanghai in the coming quarter and 1,700 across China over the next decade.

Popeyes offers a fried-chicken recipe that Chinese diners will love, and a brand identity based on Louisiana's signature Joie de Vivre that will appeal to younger consumers increasingly seeking new dining experiences.

Our high-traffic location in Shanghai and our sensational grand opening, featuring a jazz band and lots of Louisiana flavor are already creating significant buzz around the brand, which is providing momentum for our upcoming expansion.

The Popeyes Shanghai flagship store features a select menu and store design tailored to the Chinese market. Its grand opening set an opening day record with 1,761 orders, generating RMB142,000 in sales and 110 million media impressions.

The Tims China team has leveraged its deep local expertise in China's quick-service restaurant industry to adapt Popeyes' menus, restaurant design and dining experience for the Chinese consumers.

The localized menu features new options that blend Cajun traditions with local Chinese tastes, including Sweet Chili Chicken, Golden Cheese and Chicken Nuggets, and a Long Jing tea-based pomelo milkshake.

It also features Popeyes' signature items, including New Orleans-style Spicy Chicken, Louisiana-style seafood such as Cajun Popcorn Shrimp, and sides including mashed potatoes with Cajun gravy. Popeyes chicken is marinated in a unique blend of Louisiana Cajun spices for 12 hours, then battered, breaded, and slow-cooked to perfection, enhancing its rich and savory flavor. At this time, I would like to turn it over to our CFO, Mr. Albert Li, to discuss our Q2 2023 financial performance in more detail. Albert?

Thank you, Yongchen. As said earlier, total revenues grew by 129.7% year-over-year to a record RMB411.7 million. The growth was primarily driven by an increase in the number of system-wide stores from 440 as of June 30, 2022 to 700 as of June 30, 2023, and a 20.4% quarterly same-store sales growth for company owned and operated stores.

Overall monthly average transacting customers were 2.8 million during Q2 2023, representing an increase of 167.2% from 1.0 million in the same quarter of 2022. Overall, our ticket count was 181.3% higher year-over-year, driven by the rise in both dine-in and delivery and takeaway orders.

We continue to strengthen our digital capabilities to meet the growing demand for delivery and takeaway services. Digital orders as a percentage of total orders increased from 80.2% in the second quarter of 2022 to 80.6% in the second quarter of 2023 while our delivery and takeaway orders, including those from Meituan, Eleme and our own WeChat Mini Program, increased by 182.9% in the second quarter of 2023 from the same quarter of 2022.

Concurrently, we have attracted more dine-in customers to enjoy our welcoming environment, as the number of dine-in customers increased by 193.9% from the same quarter of 2022.

As we continue to scale, we have also demonstrated meaningful expansion in store profitability and leverage in general and administrative expenses. Adjusted store EBITDA margin and adjusted corporate EBITDA margin improved by 31.6 percentage points and 56.1 percentage points year-over-year, respectively.

Our food and packaging costs as a percentage of revenues from company owned and operated stores decreased by 1.8 percentage points from 35.8% in Q2 2022 to 34.0% in Q2 2023 as we continue to benefit from greater economies of scale and higher efficiencies in our supply chain. We expect further cost improvements on the back of our strong bargaining power with suppliers and RBI's initiative to open a Tim Hortons Coffee Bean Roastery in Malaysia this past June.

Our rental and property management fee as a percentage of revenues from company owned and operated stores decreased by 14.1 percentage points from 34.9% in Q2 2022 to 20.8% in Q2 2023. This is because we took advantage of lower rent levels during COVID, secured more favorable lease terms, and built a strong pipeline for the future.

Payroll and employee benefits as a percentage of revenues from company owned and operated stores decreased by 17.2 percentage points from 39.1% in Q2 2022 to 21.9% in Q2 2023. This was primarily due to the refined staffing arrangement of our store operational personnel and the optimization of our labor structure, including hiring more part-time employees.

Delivery costs as a percentage of revenues from company owned and operated stores remained flat at 8.1% in the second quarters of 2022 and 2023. Other operating expenses as a percentage of revenues from company owned and operated stores decreased by 1.5 percentage points from 10.5% in Q2 2022 to 8.9% in Q2 2023. This was due to our continuous efforts to optimize our cost structure and drive operating leverage through revenue growth and store network expansion.

Marketing expenses as a percentage of total revenues decreased by 4.4 percentage points from 10.7% in Q2 2022 to 6.3% in Q2 2023. Our adjusted general and administrative expenses as a percentage of total revenues decreased by 21.9 percentage points from 35.2% in Q2 2022 to 13.3% in Q2 2023. We expect our operating leverage to continue improving and our general and administrative expenses as a percentage of total revenue to decline over time.

Turning to liquidity, as of June 30, 2023, our total cash and cash equivalents and short term investments were RMB392.0 million USD54.1 million, compared to RMB611.5 million as of December 31, 2022. The change was primarily attributable to the settlements with investors who entered into an Equity Support Agreement with us, and cash disbursements as a result of the rapid expansion of our business and store network nationwide.

Managing our cost structure prudently is very important to us, but particularly as it relates to new store development expenses, as we are seeking to achieve a shorter payback period. Given the traction we have already made to-date, we are highly confident in executing our long-term new store development plan.

Looking ahead, our top near-term financial priorities are to continuously deliver robust revenue growth, improve profitability at both the store and corporate level, and achieve operating cash flow breakeven. By leveraging Tims China's strong brand recognition and positive consumer perception along with growing brand and loyalty, continuous innovation, ever-expanding store network, and disciplined execution, we are confident in our ability to further optimize our cost structure, improve operational efficiency and achieve profitable growth.

We are sincerely thankful to our shareholders and investors for your continuous support, and we are committed to delivering long-term value to our shareholders. We look forward to updating you on our progress in the coming quarters and continuing to build a bright and successful future for Tims China.

Thank you, Yongchen and Albert. That concludes our earnings presentation for today. We thank you for your participation and look forward to providing you with regular business and financial updates again next quarter.