Good morning, and good evening, ladies and gentlemen. Thank you for standing by, and welcome to Chagee's Fourth Quarter 2025 Earnings Conference Call. Please note that today's event is being recorded. With that, I will now turn the call over to the first speaker today, Ms. Alicia Guo, Investor Relations Director of the company. Please go ahead, madam.

Thank you. Hello, everyone, and welcome to Chagee's Fourth Quarter 2025 Earnings Call. With us today are Mr. Junjie Zhang, our CEO; Mr. Dengfeng Yin, our COO, Global Executive President and CEO of Greater China region; and Mr. Aaron Huang, our CFO. The company's financial and operating results were released by the newswire earlier today and are currently available online. Before we continue, I refer you to our safe harbor statements in the earnings press release, which applies to this call. Any forward-looking statements that we make on this call are based on assumptions as of today, and Chagee does not undertake any obligation to update these statements. Also, this call includes discussions of certain non-GAAP financial measures. Please refer to our earnings release, which contains a reconciliation of non-GAAP measures to GAAP measures. With that, I will turn the call to our CEO, Mr. Junjie Zhang. Please go ahead, sir.

Hello, everyone. Thank you all for joining Chagee's Fourth Quarter 2025 Earnings Conference Call. Over the past year, the market has experienced significant volatility and the competitive landscape has grown even more complex. As a newly listed young company, we indeed encountered some ups and downs on our 2025 journey, took a few detours and at times faced moments of uncertainty in our decision-making. The management team has conducted a deep review and reflection on these, viewing them as vital nourishment to drive the company's evolution and build long-term competitiveness. Looking back at our journey, 2023 to 2024 was a period of rapid expansion in the Greater China market. Our primary strategy was quality tea house expansion with the core objective of securing prime locations across major commercial districts nationwide, leveraging a standardized business model to achieve rapid scale. This strategy delivered significant results. We now have over 7,000 core tea house locations across Mainland China. And through Boya Tea Latte, our blockbuster product, we successfully pioneered the fresh tea leaf category and accumulated a total of nearly 240 million members registered with our membership program. These achievements have formed the foundation of our durable competitive moat. Over the past year, the market entered a new shape and consumers have shown a K-shaped divergence in spending habits: one side chasing extreme value, the other seeking premium experiences through superior products and service. The ongoing price war among the third-party delivery platforms has further intensified this divergence. For Chagee, we have a strong foundation in premium experiences with over 7,000 prime offline locations, a core fresh tea leaf latte driving over 90% of revenue and a loyal membership base. We underinvested here before. Now we are ready to expand categories and fully unlock our offline potential. Last year, Chagee's foundation solidified and we entered high-quality development. We recognize that expansion phase inertia no longer met the demands of refined management and operational excellence. Starting in the second half of 2025, we advanced a series of internal adjustments, including organizational restructuring and business model transition while strategically slowing down the pace of new product launches. This had a measurable impact on our revenue. We also underestimated delivery platform price impact on offline sales. We stayed true to our long-term strategy, avoiding short-term trends. Today, I would like to share the clear insights from these experiences and our definitive 2026 direction. We believe a team that faces problems head on, learns from them and sharpens its thinking deserves long-term trust. In this way, we aim to deliver enduring value to our shareholders, our consumers and society at large. I can now share with confidence that our internal realignment is largely complete, and we have returned to steady operations in order. Looking ahead to 2026, our core strategy will remain centered on high-value brand positioning and consumer value with focus on refining every day, every detail that shapes the consumer experience. Specifically, we will focus on five key areas: brand upgrade, product innovation, scenario expansion, experience enhancement and organizational improvements. These initiatives will bring us closer to our customers and support sustainable high-quality growth. At the brand level, we will launch new formats for regular and personalized tea houses, complemented by varied product lines to fill diverse occasions and emotions. We will elevate the offline experience, creating a true first space that connects emotionally with customers and showcases Chagee's unique tone. We will stay true to the logic of product people. We will innovate across categories by anchoring our 18 to 30 demographic core demand and develop new offerings in special deals, tea latte and more, aligning our portfolio with consumers' multi-scenario lifestyle. We will penetrate new scenarios with morning and evening specific products such as energizing morning and evening low-caffeine drinks. To complete our all-day lineup, we will also grow into workplaces, celebrations, birthdays, schools and weddings, leveraging scenario marketing to win lasting mind share and weave strategy into everyday and special occasions. Consumer experience and organizational strength underpin our strategy. We will enhance the tea-house environment through improved ambience and differentiated designs for flagship, landmark and boutique tea houses. On service, we will overhaul after-sales systems, roll out company-wide training, launch an SVIP hub line and create feedback channels that directly shape improvements based on real consumer input. Strong organizational capability is essential to delivering our core strategic goals. In 2026, we will advance digital tools, optimize processes and standardize best practices in operation, R&D, supply chain and beyond. This will create a leaner, more agile structure perfectly linked with our brand expansion and consumer needs. We understand that high-quality growth is a long-term process requiring patience and results, and we must consistently do what is right for the long term. In 2026, all of our strategic execution and resource allocation will be centered on consumer value. We believe that only by truly understanding consumers, meeting their needs and creating value that exceeds their expectations can a brand achieve long-term steady development. We also look forward to working with all partners to advance these strategies and build on an even more vibrant future. Over eight years, Chagee expanded from one tea house to 7,453 tea houses. This growth reflects the strength of our sustainable business model, adaptive organization and commanding brand equity. In 2025, due to the comprehensive organizational adjustments in the second half of the year and a deliberate pause in new product launches, we experienced slower growth in the top line. Our same-store sales in the fourth quarter declined by 25.5% year-over-year. This was indeed our biggest challenge in 2025. But what I want to emphasize is not just this number, but also the fact that despite short-term pressure, we did not resort to short-term tactics. Instead, we held firmly to our long-term plan. In 2023, recent domestic same-store sales showed sequential improvement, reinforcing our confidence in a full-year trajectory of stabilizing in the first half and improving in the second. From a long-term perspective, we will continue to make overseas operations a powerhouse growth driver, and we are unwavering in our goal to evolve Chagee into a global leader originating from China but resonating universally. With that, I will now turn the call over to our CFO, Aaron, who will provide detailed insights into the financials. Thank you.

Thank you, Junjie, and hello, everyone. Thank you for joining our earnings call today. And as Junjie outlined, we have gained valuable clarity from 2025 that position us well for 2026 execution. I will focus my remarks on the metrics that support this outlook. Before we begin, please note that all amounts are in RMB and all comparisons are on a year-over-year basis, unless otherwise stated. For the full year 2025, total GMV reached RMB 31.6 billion, representing a 7.2% increase from RMB 29.5 billion in 2024. In the fourth quarter, total GMV was RMB 7,322.9 million, reflecting the challenging environment in our home market, but also strong growth momentum overseas. As of December 1, 2025, our tea house network totaled 7,453 locations across Greater China and overseas, a 15.7% increase from 6,440 a year ago. Specifically, our franchisee tea houses account for 6,838 compared to 6,971 in the third quarter, while company-owned tea houses reached 615, representing a net increase of 248 sequentially. This change was primarily because we converted some of our franchisee tea houses into company-owned ones in China. In Greater China, average monthly GMV per tea house was RMB 337,000 in the fourth quarter of 2025 and RMB 387,000 for the full year, consistent with the same-store and mix dynamics that Junjie discussed. At the same time, overseas GMV for the fourth quarter grew 84.6% year-over-year to RMB 371.9 million. And for the full year, our international market made an increasingly meaningful contribution to overall growth. On the revenue line, fourth quarter 2025 net revenue was RMB 2,974.5 million compared to RMB 3,334.4 million in the same quarter of 2024. For the full year 2025, net revenue increased by 4% to RMB 12.9 billion. In the fourth quarter, net revenues from franchisee tea houses were RMB 2,434.9 million, representing 81.9% of total net revenues compared to RMB 3,095.9 million a year ago. This reflects the cadence of the new product launches and the impact of subsidy competition on the delivery platforms. Net revenue from the company-owned tea houses was RMB 539.6 million, up 126.2% from RMB 238.6 million in the fourth quarter of 2024, mainly as a result of our deliberate development of the company-owned tea house network in both Greater China and overseas markets. Turning to margin. Our gross profit calculated by excluding cost of material, storage and logistics from net revenue reached RMB 1,581.9 million this quarter, resulting in a gross margin of 53.2%. This marks an improvement from 51.6% last year. The margin improvement results primarily from lower packaging material costs, equipment and supply chain costs. On operating expenses, share-based compensation expenses this quarter were RMB 66.1 million. This reflects our commitment to long-term employee engagement and aligning their goals with stakeholders. To provide greater clarity on underlying operational performance, we will reference non-GAAP operating results with full reconciliation available in our earnings release and the Form 6-K. We recorded an operating loss of RMB 35.5 million compared to operating income of RMB 642.5 million last year. Based on management accounts, the operating loss was mainly attributable to the operational changes in the fourth quarter with an impact of approximately RMB 320 million, which includes organizational structure optimization and business model transition costs. Excluding share-based compensation expenses, non-GAAP operating income was RMB 30.5 million, representing a 1% margin. The above-mentioned margin differences reflect our step-up investment in talent recruitment for global expansion, including brand building to support new product launches, R&D to enhance our offering and digital infrastructure to elevate customer experience. Operating costs for company-owned tea houses were RMB 376.8 million, up 130.8% from RMB 163.2 million a year ago. As of December 31, 2025, we operated 615 company-owned tea houses, up from 169 at year-end 2024. Other operating costs increased by 26.9% to RMB 231.4 million, largely due to higher payroll supporting the expansion of our global tea house network. On a non-GAAP basis, other operating costs account for 7.6% of revenue compared to 5.5% a year ago. Sales and marketing expenses for the quarter were RMB 373.6 million, down 5.6% from RMB 395.7 million a year ago. On a non-GAAP basis, sales and marketing expenses represented 12.2% of revenue compared to 11.9% a year ago. General and administrative expenses reached RMB 635.6 million, up 89% year-over-year from RMB 336.3 million. This includes costs associated with a targeted organizational restructuring to position the company for more efficient, leaner operation going forward. The higher G&A reflects our continued investment in global corporate infrastructure and to support international expansion, alongside costs associated with ongoing initiatives to optimize internal processes and resource allocation. On a non-GAAP basis, G&A expenses represented 19.7% of revenue compared to 10.1% a year ago. Beyond operating income, we generated positive financial income, reflecting interest earned on our current cash and investment balance as well as positive other income, which was mainly comprised of government grants largely in line with the prior year period. On a non-GAAP basis, excluding share-based compensation, our full year 2025 tax rate was 18.4%. Importantly, we delivered another profitable quarter on both GAAP and non-GAAP basis, marking our 12th consecutive quarter of profitability at the net income level, even during this transitional period. GAAP net income was RMB 33.9 million. Non-GAAP net income, excluding RMB 66.1 million of share-based compensation expenses, was RMB 100 million, with a non-GAAP net margin of 3.4% compared to 9.3% last year. For the full year 2025, GAAP net income was RMB 1,186.3 million and non-GAAP net income was RMB 1,909.9 million. For the fourth quarter, basic and diluted net income per ordinary share were both RMB 0.15. On a non-GAAP basis, basic net income per ordinary share was RMB 0.50 and diluted net income per ordinary share was RMB 0.49. For the full year 2025, basic net income per ordinary share was RMB 6.27 and diluted was RMB 6.18. On a non-GAAP basis, basic was RMB 10.21 and diluted was RMB 10.70. Turning to liquidity. We ended the quarter with RMB 7,892.4 million in cash and cash equivalents, restricted cash and time deposits, up from RMB 4,868.7 million at year-end 2024. This robust balance sheet provides ample flexibility to execute our growth investment while delivering shareholder returns. In closing, our fourth quarter and the full year 2025 results demonstrate our durable profitability and our commitment to returning value to shareholders through disciplined capital allocation. This positions us strongly as we execute our 2026 priorities. With that, I will turn the call back to the operator to begin the Q&A. Operator, please go ahead.

Our first question comes from the line of Lillian Lou of Morgan Stanley.

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Thank you for your question. We conducted a deep review of our same-store performance, and we think it reflects both external challenges and our internal strategy adjustment pace. As you mentioned, we underestimated the complexity of a company that has over 3,000 employees, which has delayed our strategy rollout for the year of 2025. For that, I apologize and I feel sorry for the market. Market competition in 2025 exceeded our expectation. The intense third-party platform competition impacted offline operations and our short-term market tactics were not as strong as they needed to be. In this environment, we chose not to chase low-price traffic blindly. Instead, we stuck to our premium brand positioning. At the same time, we were very focused on internal adjustments and slowed our new product cadence, which did create short-term pressure on cup volume. Even so, we believe growth based on a healthy business model is sustainable. Meanwhile, we are reflecting on how to actively adapt to market changes with flexible short-term tactics, while maintaining our high-value brand positioning. Honestly, we took some detours in new product launch rhythm and marketing execution, and we did not fully keep pace with how fast the market was moving. The positive side is that these lessons have made us more alert and agile. You can already see this in our Tianwen campaign in February, where we responded quickly and captured the opportunity, which shows the team's agility has returned to a normal level. For 2026, we're not going to pursue growth for its own sake. We want to get back to a cycle of higher-quality operations with same-store recovery as our top KPI. We will focus on four things: store operation, consumer experience, product innovation and organizational efficiency. First, on operations, we will focus on existing tea houses. We will slow new openings, moderate this year's expansion pace and prioritize healthy operations at current tea houses. For underperforming ones, we will keep optimizing and upgrading. In parallel, we are building a full-chain quality management system from sourcing all the way to after-sales to lay a solid foundation for long-term operations. Second, on consumer experience, we are focused on enhancing brand value. We won't trade price cuts for traffic. Instead, we will attract consumers through high-quality product innovation and superior in-store service experiences. Third, on innovation. On the one hand, we will keep innovating across multiple categories while reinforcing our core fresh leaf milk tea franchise. Our new product, Signature Four Tea launched in December, provides a strong example with a dormant membership reactivating rate as high as 51%, meaning that for every two dormant members, one reactivated to buy this product compared to members who had not consumed in the previous month. It drove a 15.2% week-over-week GMV increase in the launch week, significantly exceeding the historical average for all new products. This example proves that our product innovation capability is a driver for navigating cycles and that our products are strong sellers. On the other hand, we are exploring more consumer scenarios such as gatherings, weddings, birthdays and other moments and extending to all occasions to deepen the brand presence and relevance in consumers' lives. Last, on efficiency, we have now completed the major organizational adjustments, and we will continue to refine the structure so that we can maximize efficiency. Overall, we expect 2026 to be a year where we are very focused on high-quality growth rather than rapid expansion for scale. Our goal is to keep revenue and profit broadly flat year-on-year, while seeing same-store growth trend stabilize at the operating level. We believe in the second half, the overall same-store sales and operations will be healthier. Also, we want to emphasize that our priority for this year is to secure market share rather than maximize net profit. So if we face a conflict between market share and profitability, we will choose the former. To sum up, the priority for 2026 is both to elevate user experiences and to get same-store sales back to a healthy level.

Our next question comes from the line of Xiaopo Wei of Citi.

In your prepared remarks, you briefly touched base on the business model transition. Could you share with us what has been motivating you to execute such a business model transition? And could you give us more update on the status of the transition?

Our model transition has one core motivation: to build true shared-risk, shared-reward strategic partnerships with franchisees. Last year, industry price competition intensified. Franchisees faced the dual pressure of sales decline and rising costs. The old model offered insufficient buffer in downturns. So we restructured incentives, shifting from traditional supply relationships to a GMV-based revenue sharing model. In the new model, brand fees do go up slightly, but those fees come with two strong offsets. First, we offer enhanced discount management through marketing intelligence and targeted campaigns. Second, we cut the raw material cost ratio for franchisees sharply. Now our revenue moves up and down with their GMV sales. When they succeed, we succeed. From 2026, we fully rolled out the new model. This unites our interests and goals. We look forward to even tighter collaboration to drive sustained GMV growth.

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

Can you provide an update on the performance of our overseas markets? And what are your expansion plans in 2026 for domestic and overseas markets?

Thank you for your question. Let me start with our overseas performance in 2025. In the fourth quarter, our international markets showed strong and healthy growth. We added a net 83 tea houses, bringing the total to 345 in the overseas market. GMV grew 23.9% quarter-over-quarter and 84.6% year-over-year. More importantly, the average monthly GMV of overseas tea houses outperformed the domestic ones, preliminarily demonstrating the replicability and strong vitality of our business model overseas. In 2025, we entered four new markets: Indonesia, the United States, Vietnam and the Philippines. Currently, our overseas footprint covers seven countries: Singapore, Malaysia, Thailand, Indonesia, Vietnam, the Philippines and the United States. In Vietnam, our first tea house openings generated over 20,000 cups across three tea houses in the first three days with brand voice rapidly climbing to second in the local tea category. At year-end 2025, our Hello Kitty IP co-branded Coco Oolong launched across five Southeast Asian countries, achieving a 75% new product sales share on launch date in Thailand and 38.3% in the Asia Pacific region over the first three days, helping regional brand awareness. This achievement has demonstrated that Chagee's brand power can transcend borders. We break our 2026 strategy into domestic and international markets. For the domestic market, we will prioritize existing store quality. This year, we will moderate domestic expansion pace and shift our focus to same-store sales growth and ensuring store-level health and profitability. We plan about 300 net new tea house openings in strategic locations in Mainland China. The number is not the goal. We prioritize healthy profitability for each new tea house while supporting existing same-store growth through optimizing and reinforcing key location resources. Additionally, we may make strategic adjustments to our expansion pace based on our performance this year. Overseas expansion will continue at a steady pace. In the fourth quarter, we added 21 tea houses in Malaysia, 19 in Indonesia, 13 in Thailand, 12 in Vietnam and 11 in Singapore. This momentum carries into 2026. Thailand is now expanding from Bangkok to Chiang Mai, and our Korea debut is planned for the second quarter, making it our eighth overseas market. 2026 is our foundation-building year. We target about 200 net new tea houses overseas. More importantly, in every market we enter, we will continue to refine the business model and build a replicable template for future scale. Lastly, on globalization, this is a must but difficult. We are investing in overseas markets for the next several years and the next decade. We are not talking about a short-term sprint, but a long-lasting marathon for our global expansion. The priority for our overseas market is to refine the business model as we go and to keep healthy unit economics, especially for the U.S. market, which is the second largest market after China. There are a lot of business models we can adopt like licensing or franchising, but we chose to build out directly because we not only want to open dozens or hundreds of stores in the U.S., but we want to bring the drinking habit of tea into the U.S. market similar to what Starbucks did years ago in China. So we chose a route that is more difficult and requires higher CapEx, and we might make mistakes. But I'm here to ask the capital markets to give us more confidence and understanding about our overseas market expansion. Chagee is not adopting the normal way to grow, especially as a listed company, but we believe we want to build a higher-value, brand-oriented company in the future. In the short term, we might see volatility from our financial performance. But in the long term, we believe Chagee has the possibility to evolve from a freshly brewed maker to a lifestyle changer worldwide for global consumers. So hopefully, we have the investors' long-term support, and we welcome your comments and advice as well. Thank you.

Our next question comes from the line of Jessie Xu of JPMorgan.

2025 was a tough year, but I think it's fair to say that the most difficult time seems already behind us. Investors have been looking forward to a marginal improvement in same-store sales trend. I think fourth quarter trends already provide some reasons for investors to turn more positive from here. Management mentioned cost reduction initiatives on the earnings call last quarter. Could management introduce the concrete measures? What did we do? How is it progressing? And any initial feedback or efficiency gains from these initiatives? Lastly, how should we think about the OpEx ratio for this year?

Thank you for your question. Our cost reduction and efficiency efforts are not short-term fixes for a single quarter performance. They're part of a bigger long-term push to make the organization healthy overall. Things are moving forward well, and we are already seeing some early results. On the organization side, we've wrapped up Phase 1. That means combining mid- and back-office functions and cutting out duplicate work. As Junjie just mentioned, we opened a lot of new stores during 2023 and 2024. In 2025 alone, we opened more than 800 stores as well. So now we are focusing on same-store sales and shifting more resources to the front lines for better execution and faster response. This is not about a smarter structure or just training headcount. For expenses, we've put in stricter controls and better budgeting. It covers everything from targeted marketing spending down to daily operations. Looking at 2026, we expect our overall fee rate to stay stable, especially for sales and marketing where we'll keep investing. And also, we'll keep investing in efficiency and controls without hurting core growth areas. The game is better quality inputs, leading to stronger output no matter the environment. For the G&A expenses, our goal is to keep optimizing overall efficiency with the precondition of not impacting our overseas market expansion.

As there are no further questions, I'd like to hand the conference back to management for closing remarks.

Thank you again for joining our call today. If you have any further questions, please feel free to contact us or request through our IR website. We look forward to our next call with everyone. Have a great day ahead. Thank you.

This concludes today's event. Thank you for participating. You may now disconnect. Portions of this transcript that are marked as 'Interpreted' were spoken by an interpreter present on the live call.