TH International Q3 2023 Earnings Call Transcript

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November 15, 2023

There are 3 speakers on the call.

Operator

Ladies and gentlemen, welcome to T. H. International Limited Third Quarter 2023 Earnings Presentation. My name is Ting Zhou, Head of Investor Relations. T.

Operator

H. International Limited announced its Q3 2023 financial result 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. Teamstrinet.com. Today, you'll hear from Mr. Yongchun Liu, our CEO and Director, and Mr.

Operator

Albert Li, our CFO. You can also find the webcast of this presentation on our IR website. Before we get started, I would 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.

Operator

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.

Operator

Yunqing Liu, our CEO and Director. Please go ahead.

Speaker 1

Thank you, Yuting. In Q3 2023, we delivered 42.7 percent year over year top line growth and set a record quarterly revenue, Adjusted store EBITDA and adjusted store EBITDA margin. We want to express our sincere gratitude to our 16,900,000 registered loyalty club members, their continued support and patronage from our teammates, friends Zhou. Our goal of delivering absolute convenience for our guests, both building density in our existing cities Q1 include Yibing, Handan and Lanzhou, etcetera. Continuing our strong track record, These new city openings were highly successful.

Speaker 1

We generated RMB97000, 93,000 92,000 in sales on the opening days of our first stores in Yibing, and HanDan and Lanzhou respectively. Another key pillar of our strategy is continuous innovation, And this quarter was no exception. We launched 21 new beverages and 11 new food products in Q3 2023. Some hero products have emerged from this recent batch of innovations, including Buffalo Milk Lactate, which has sold 528,000 cups during the quarter. From our rigorous new product development process And subsequent guest surveys, we know this block is popular for its smooth and light mouthfeel with high protein percentage.

Speaker 1

We have continued to develop our successful CodeBlue platform, And we have sold more than 4,000,000 cups of CodeBlue during the quarter. A key driver of that growth Zhou. Our watermelon Code Blue series using 100% single origin watermelon juice, which has been popular with our guests. Our strategy of driving guests visits during off peak coffee hours And using food as a key differentiator is bearing good results. The percentage of orders with food increased from 43.8 percent in Q3 2022 to 54.5 percent in Q3 2023.

Speaker 1

Touching again on hero products, we should mention our bagel platform. We have launched a combo bagel and blue coffee campaign in Q3 With significant success, we have sold more than 7,000,000,000 bagels so far during the course of the campaign. In September, we launched the Smile Bagel Blueberry series made up of real blueberry, cream cheese and oatmeal, Zhou. Despite launch towards the end of the quarter, we sold 236,000 units in Q3. The digital realm remains a crucial part of our business as our e commerce and retail sales grew by 123.3 percent From RMB9 1,000,000 in Q3 2022 to RMB20.1 million in Q3 2023.

Speaker 1

We also continue driving growth through new retail channels like co branded coffee products And at home coffee products such as teams and owners related to drink coffee, packaged liquid coffee and liquid freeze Dry coffee products. Throughout the summer season, which falls in our Q3, We execute a series of fresh new products that are being supported by exciting marketing campaigns and ample resources to capture Includes market opportunities and gain attention from the younger population. More specifically, we are introducing A new beverage of food product at least every 2 to 3 weeks. These are all designed to attract new customers While keeping our loyal customers coming back. Last but not least, let me touch briefly on Popeyes.

Speaker 1

In August, we brought this fantastic brand to China in a 1st day launch that set a record for the brand in the world. No other country in the world has had as many first aid guests as we welcome, over Zhou. And are on track to open a total of 10 stores by year end. Popeyes' Innovative, low quality relevant menu, appealing store design and environment and warm Guest experience have been highly recognized by many customers as evidenced by over 29,000 average daily sales per store year to date. At this time, I would like to turn it over to our CFO, Mr.

Speaker 1

Albert Li to discuss our Q3 2023 financial performance in more detail. Albert?

Speaker 2

Thank you, Yongchen. As said earlier, total revenues grew by 42.7 Ting Zhou. The growth was primarily driven by an increase in the number of system wide stores from 486 As of September 30, 2022, to 763 as of September 30, 2023. As we scale our business, we have demonstrated meaningful expansion in store profitability and leverage In general and administrative expenses during Q3 2023, with adjusted store EBITDA margin and Adjusted general and administrative expenses as a percentage of total revenues, improving by 2.2 percentage points and 1.3 percentage points year over year, respectively. Overall, monthly average transacting customers or $3,400,000 during Q3 2023, representing an increase of 75.3 percent From RMB1.9 million in the same quarter of 2022.

Speaker 2

Overall ticket count Was 57.2 percent higher year over year, driven by the rise In both dial 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 79.8 percent in Q3 2022 to 82.6% In Q3 2023, while our delivery and takeaway orders, including those from Meituan, Ele. Ma and our own WeChat Mini program increased by 62.7% in Q3 2023 from the same quarter of 2022. Concurrently, we have attracted More dining customers to enjoy our welcoming environment as the number of dining customers increased by 52.0 percent from the same quarter of 2022. Our food and packaging costs as a percentage of revenues Ting Zhou. Company owned and operated stores increased by 1.9 percentage points from 33.3 percent In Q3 2022 to 35.2% in Q3 2023 since we offered higher discounts and more Ting Zhou.

Speaker 2

Our rental and property management fee as a percentage of revenues From company owned and operated stores increased by 4.2 percentage points from 15.6% In Q3 2022 to 19.8% in Q3 2023. This is primarily due to The one time rent concessions that we received during the Q3 of 2022. Payroll and employee benefits as a percentage of revenues from company owned and operated stores Decreased by 2.5 percentage points from 22.8% in Q3 2022 To 20.3 percent in Q3 2023. This was primarily due to the continuous refinement Of the staffing arrangement of our store operation personnel and optimization of our labor structure, including the hiring of more part time employees with the deployment of our intelligent scheduling system. Delivery cost as a percentage of revenues from company owned and operated stores increased by 0.6 percentage points from 8.1% in the Q3 of 2022 to 8.7% in the same quarter of 2023.

Speaker 2

Other operating expenses as a percentage of revenues from company owned and operated stores decreased by 3.9 percentage points From 13.1 percent in Q3 2022 to 9.1% in Q3 2023. This was due to our continuous efforts to optimize our cost structure and drive operating leverage Through revenue growth and strong network expansion, marketing expense as a percentage of total revenues decreased by 0.2 percentage points from 8.1% in Q3 2022 to 7.9% in Q3 2023. Our adjusted general and administrative expenses As a percentage of total revenues decreased by 1.3 percentage points from 15.8% in Q3 twenty twenty Zhou to 14.5 percent in Q3 2023. We expect our operating leverage to continue improving And our general and administrative expenses as a percentage of total revenues to decline over time. Turning to liquidity.

Speaker 2

As of September 30, 2023, our total cash and cash equivalents and short term investments Ting Zhou. RMB461.8 million compared to RMB611.5 million As of December 31, 2022, the change was primarily attributable to the settlement with investors who entered into an equity support agreement with us and cash disbursements as a result of the rapid Managing our cost structure effectively is very important to us. We continue to implement various Cost expenditure control and cost reduction measures targeting to achieve A shorter payback period and further optimizing our store unit economic model. Looking forward, our top near term priorities are to continue rolling over our successful store formats Into more white spaces, expanding franchised store network, delivering robust Ting Zhou. Revenue growth, improving profitability at both the store and corporate level and generating positive operating cash Zhou.

Speaker 2

By leveraging TIMSS China's strong brand recognition along with our members' growing brand loyalty And our ever growing store network, continuous innovation in product R and D and marketing campaigns And our disciplined execution, we truly believe in our capability to further optimize our cost structure, Zhou. 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 TIMSS China.

Operator

Thank you, Yunchan 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.

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TH International Q3 2023
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