Hello, ladies and gentlemen. Thank you for standing by. Welcome to Atour Lifestyle Holdings Second Quarter 2025 Earnings Conference Call. Today's conference is being recorded. I would now like to turn the conference over to Mr. Luke Hu, Senior IR Manager. Please go ahead, sir.

Thank you, operator. Good morning, and good evening, everyone. Welcome to our second quarter 2025 earnings conference call. Today, we will hear from our Founder, Chairman and CEO, Mr. Wang Haijun; and our EVP, Co-CFO, Mr. Wu Jianfeng. Before we continue, please be aware that today's discussion will include forward-looking statements under federal securities laws. These statements are subject to various risks and uncertainties, and actual results may differ significantly from what is stated or implied in our comments today. The company is not obligated to update any forward-looking statements, except as required by applicable laws. Additionally, during this call, our management will discuss certain non-GAAP financial measures solely for comparison purposes. For a clear understanding of these measures and a reconciliation of GAAP to non-GAAP financial results, please refer to the earnings release issued earlier today. Furthermore, a webcast replay of this conference call will be accessible on our website.

Thank you, Luke. Hello, everyone, and thank you for joining Atour's Second Quarter 2025 Earnings Call today. In the first half of the year, China's travel market experienced volatility and adjustments. While overall demand gradually recovered, the industry still encountered several challenges during this high-growth cycle. In this context, we believe that a true industry leader must not only validate its business model through scale but also establish a strong brand reputation based on customer trust. Therefore, Atour remains committed to our founding vision, focusing on our customers' needs and adhering to our philosophy of serving people. We are dedicated to innovating and improving our products across both our hotel and retail sectors, leveraging our unique strengths to create competitive advantages. This approach enables us to remain resilient through industry fluctuations and seek sustainable long-term growth. Now, I would like to share more details about our business performance for the second quarter of 2025, starting with our hotel segment. Our RevPAR was RMB 343 in the second quarter, which is 95.7% of the level from the same time in 2024. Specifically, our occupancy rate was 97.4% and ADR stood at 98.2% compared to the same period in 2024. For our mature hotels, in operation for over 18 months, RevPAR reached 94.4% of the previous year’s level, while occupancy and ADR were at 96.5% and 97.8%, respectively. As we expand our scale, we prioritize long-term growth with a focus on hotel quality. This commitment ensures that each new hotel embodies our brand values and provides consistent experiences, thereby supporting sustainable growth through quality. In the second quarter, we opened 118 hotels, bringing our total to 1,824 hotels in operation, which is a 29.2% increase year-over-year. By leveraging our strong brand and enhanced product offerings, we are systematically building competitive advantages with a variety of brands and product lines that accurately target different market segments. By the end of the quarter, we had 816 hotels under development, and this high-quality project pipeline is driving strong progress toward our strategic target of 2,000 premier hotels. In the upper mid-scale market, the simultaneous development of Atour Series 3 and Series 4 allows us to gain deeper insights into demand across different scenarios, facilitating further penetration into this segment. Atour Series 3 emphasizes our core brand in mainstream business travel situations, while the new Atour 3.6 version, grounded in timeless design and customer needs, is generating strong market recognition with its initial hotels opening successfully and achieving rapid signings momentum. Atour Series 4, as a next-generation product for the upper mid-scale market, focuses on prime locations in higher-tier cities, addressing the dual demands of business trips and urban leisure. Our inaugural Atour 4.0 hotel has received significant praise and will continue to grow its footprint. Increasingly, consumers are seeking experiences that satisfy their deeper needs, while traditional upscale hotels have struggled to adapt. The launch of SAVHE Hotel signifies our successful attempt to redefine upscale hotel experiences. With a guiding principle of Oriental Serenity, SAVHE offers immersive experiences related to sleep, healing, and wellness, transforming traditional guest care models. Looking ahead, we will prioritize site selection in key business districts and consistently refine our product model based on customer feedback, aiming for every SAVHE Hotel to become a lifestyle landmark in its city. Our Atour Light 3.3 has significantly upgraded its design and operational approach to better serve young business travelers and franchisees, ensuring sustainable returns while pursuing growth. Now, onto our retail business, which experienced substantial growth this quarter, driven by strong sales. Our GMV increased 84.6% year-over-year to RMB 1,144 million, and we are pleased with the significant contributions from our retail GMV. As we enhance our membership offerings, we will also deepen our emotional connection with customers. I will now hand the call over to our Co-CFO, Mr. Wu Jianfeng, who will go over our financial results.

Thank you, Haijun. Now I would like to present the company's financial performance for the second quarter of 2025. Our net revenues for the second quarter of 2025 grew by 37.4% year-over-year to RMB 2,469 million. Revenues from our manachised hotels for the second quarter were RMB 1,299 million, up 26.5% year-over-year. The year-over-year increase was primarily fueled by our ongoing hotel network expansion. The total number of our manachised hotels increased from 1,382 to 1,800. The quarter-over-quarter increase was mainly due to an increase in RevPAR. Revenues contributed by our leased hotels for the second quarter of 2025 were RMB 150 million, a decrease of 17% year-over-year, and an increase of 16.4% quarter-over-quarter, primarily due to a decrease in the number of leased hotels. Revenues from our retail business for the second quarter of 2025 were RMB 965 million, up 79.8% year-over-year. These increases were driven by growing recognition of our retail brands and effective product innovation. Hotel operating costs increased by 15.1% year-over-year to RMB 893 million. Gross margin of our hotel businesses expanded to 38.3% from 35.7% a year earlier. Retail costs rose by 70% year-over-year to RMB 451 million. Selling and marketing expenses for the second quarter of 2025 accounted for 15.9% of net revenues, compared to 12.5% a year ago. General and administrative expenses for the second quarter were RMB 90 million. Adjusted net income for the second quarter was RMB 427 million, representing a 30.2% increase year-over-year. We maintained a healthy cash position with cash and cash equivalents totaling RMB 2,716 million. Looking ahead for 2025, we currently expect total net revenues to increase by 30% compared with 2024. That concludes our financial highlights for the second quarter of 2025. Now let's open for Q&A.

Our first question comes from Lydia Ling from Citi.

So congratulations on the solid results in the second quarter. And so I want to ask some questions on the RevPAR trend. So could you share the latest RevPAR trend performance in the third quarter to date and especially during the summer holidays? And what's your latest view on the full year RevPAR trend?

Thank you, Lydia. As we head into the summer season, the market continues to show characteristics like rotating travel hotspots and varying regional performances. Overall demand has not yet returned to last year's levels. However, we have seen some resilience in summer leisure travel. Therefore, we anticipate that RevPAR pressure in the third quarter will ease somewhat compared to the second quarter, while reducing the year-on-year decline in RevPAR recovery. Additionally, the full year RevPAR recovery is showing signs of gradual improvement. Looking ahead, we expect the industry to continue facing challenges due to an increase in market supply. Nevertheless, Atour will keep leveraging our unique experiential advantages by focusing on users and enhancing our product excellence and brand premium capabilities.

The next question comes from the line of Chen Xin from UBS.

Let me translate to English. I may have the management share whether there are any changes to the 2025 guidance on hotel openings and closures. Additionally, what is the recent trend in franchise signings? With the increasing competition in the market, will this impact the company's future development plans?

Thank you, Chen Xin. I will outline Atour's long-term development strategies. During the first half of this year, we opened 239 new hotels, and by the end of the second quarter, our hotel pipeline increased to 816. We are optimistic about achieving our goal of opening 500 new hotels by the end of the year and reaching our target of 2,000 premier hotels. Regarding closures, we will continually assess and end partnerships that do not align with our standards for consistent experiences. In the first half of the year, we closed 34 hotels, and we anticipate total closures for the year to be between 70 and 80. Moving forward, we will uphold rigorous standards for signings to ensure high-quality growth. These strategies will help us enhance our products and experiences, fostering sustainable growth for our brand and franchisees. We will continue to enforce stringent quality control throughout the entire lifecycle of our hotels.

The next question comes from the line of Sijie Lin from CICC.

Congrats for another strong quarter. So my question is on the retail business because we noticed that Atour's retail business continued its outstanding performance during Q2, which spans across the 618 Online Shopping Festival period. And that you have raised full year revenue guidance. So could you share with us what's the full year revenue guidance for the retail business? And additionally, could you please discuss more about the future development of the retail business, including the rollout pace of new sleep products? And are there any bottlenecks or challenges among development?

Thank you, Sijie. In the second quarter, Atour's retail business performed exceptionally well. For the full year, we will continue to launch new products as planned and further refine our product offerings. This month, we introduced the Deep Sleep Memory Foam Pillow Pro 3.0 and the Deep Sleep Thermo-Regulating Comforter Pro 2.0, both of which received positive feedback from the market. Due to the strong performance of the retail business, we have increased our full year guidance to a 60% year-over-year growth. We are focused on strengthening our foundational capabilities by optimizing our supply chain and enhancing our research and development innovation and quality control to improve industry standards.

Next question comes from Dan Chee of Morgan Stanley.

We observed the growth rate of the retail segment business. Revenue is a lot faster than the hotel segment. So there has been some structural change on the growth rate of the company's revenue outlook. The tax rate was also high this quarter. I would like to understand the company's latest view on the full-year adjusted net income margin. Can it still stay stable at 18% like last year as previously guided?

Thank you, Dan. In 2024, our group's adjusted net profit margin was around 18%. This year, the rapid growth of our retail business has altered our revenue structure. The contribution from retail revenue is increasing and is having a significant impact on our overall net profit margin. We have kept our pretax profit margin stable through better management efficiency and will be launching a shareholder return program this year that includes dividends and share buybacks. The adjusted comprehensive tax rate is expected to increase to 30% from last year's 25%, which will impact our full-year net profit margin. We foresee a decline in full-year net profit margin compared to the previous year.

Our next question comes from the line of Simon Cheung of Goldman Sachs.

Regarding the hotel brand, I have questions on the two hotel brands that they have recently launched. One is SAVHE, whereby they launched a Shenzhen new hotel and the market receptions have been excellent. Wondering whether they have any targets in terms of the number of hotel and the districts or regions where they're going to focus. Secondly, also on Atour Light, I think the number of hotel count is almost reaching 180 for this quarter. Wondering if there's any update on the feedback and if there's any information the management can share?

Thank you, Simon. Since its opening, SAVHE has received significant acclaim for its design and service quality. The flagship store reported a RevPAR exceeding RMB 800 in its first month. Currently, we have several high-quality projects set to open in key cities soon. We will maintain a quality-first strategy while enhancing the brand's presence. Atour Light 3.0 has demonstrated robust operational performance with a RevPAR recovery rate that is better than our group's average. We have strong confidence in Atour Light as a strategic focus and will allocate primary resources to improve operational efficiency and product quality in major urban areas, with a goal of establishing 1,000 Atour Light hotels.

There are no further questions at this time. That concludes today's question-and-answer session. I would like to turn the call back to Mr. Luke for any additional or closing remarks.

Thank you for joining us today. If you have any further questions, please feel free to contact our IR team, and we look forward to speaking with you again next quarter. Thank you, and goodbye.

This concludes today's conference call. Thank you for participating. You may now disconnect.