Operator
Ladies and gentlemen, welcome to Teams China fourth quarter and full year 2025 earnings conference call. All participants will be in listen-only mode during management's prepared remarks and there will be question and answer session to follow. Today's conference is being recorded. At this time, I'd like to turn the call over to Petty Yu, Teams China's public and media relations manager for prepared remarks and introductions. Please go ahead, Petty.
Hello, everyone, and thank you for joining us on today's call. KHI International Limited announced its first quarter and full year 2025 financial results are near today. A press release as well as a campaign presentation which contains operational and financial highlights are now available on the company's IR website at ir.teamschina.com. Today, you will hear from Yongchen Lu, our CEO Director, and Albert Li, our CFO. After the company's prepared remarks, the managed team will conduct a question and answer session. You will find the webcast of today's earnings call on our IR website. Before we get started, I'd like to remind you that our earnings presentation and the 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 those 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 findings 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 a substitute 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 Yongcheng Liu, our CEO Director. Please go ahead, Yongcheng.
Thank you, Patty. Good morning and good evening, everyone. Thank you for joining us today. As we just celebrated the 62nd anniversary of the globally renowned Tim Hortons brand and the 7th anniversary of Tim's China, We are excited to continue serving our innovative and local relevant offers to our fast-growing lowly gas. As of December 31, 2025, China stood as the largest international market in Tim Hortons' global system by a number of stores. We continue our growth trajectory, generating total system sales of IMD $1.57 billion in 2025, a 7.6% increase compared with 2024, fueled by mainly 25 new store openings and expanding our store network to 1,047 across 92 cities in China. Food sales as a percentage of the total revenues account for 33.4% in Q4. 2025 increased from 24% in Q1 2023. orders with food items account for 51% of total orders in Q4 2025, increased from 45.2% in Q1 2023. 2025 marks a critical transaction year for the company. We further solidified our differentiated strategic positioning in coffee plus freshly prepared foods, completely made-to-order renovations of over 74% of statewide stores, while while strategically proven certain underperforming stores, especially those non-MTO express stores. On same-store sales growth, we managed to achieve overall comparable transaction growth of 2.7% in 2025. But we had to apply higher discounts on delivery business to mitigate intensified competition due to aggregator platform dynamics, which led to a 2.4% decline in the same-store sales growth for system-wide wireless stores in 2025. Despite the headwinds of CS competitions, especially from low-priced local brands, our team demonstrated strong resilience and maintained our modules well at both store and corporate levels. 2025's full-year company-owned and operated store contribution margin was 7% compared with 7.4% in 2024, which was primarily attributable to the temporarily increased delivery related costs due to aggregator platform dynamics. 2025 full-year adjusted corporate EBITDA module actually improved by one percentage point. With further optimized store capital expenditures and enhanced store unit economics, our 2024 vintage-year company-owned and operated stores generate a store contribution margin of nearly 15% in 2025, and I expect to achieve a payback period within two to three years. Our 2025 vintage-year stores are still new but are ramping up right now. We believe they will have similar unit economics too. In the meantime, our company-owned and operated stores in Tier 1 cities, including Beijing, Shanghai, Guangzhou, and Shenzhen, and in those cities with 10-plus stores, generated over 10% and 7% store contribution margin in 2025, respectively, outperforming other tier cities with lower store density. We will continue adding more company-owned and operated stores in existing stores to achieve a high economy of scale. In Planet Planet 5, we strategically expand our store footprint while maintaining capital efficiency, delivering absolute convenience for our customers, leveraging sub-franchisees partnerships, we accelerated market penetration, entering 92 cities by the end, including the debut of our first stores in Nianyang, Shinchuan Province, Datong, Sanxi Province, and Xinxiang, Henan Province during the fourth quarter of 2025. This growth strategy not only further strengthened our brand presence, but also ensures sustainable scalability to optimize resource allocation. Since we launched our individual franchises in December 2023, we have received over 10,000 applications and successfully opened over 300 stores by the year end of 2025, showcasing continued market confidence in our franchise model. We have witnessed reasonable returns for our franchising stores. For instance, our franchising stores at special channels, including railway stations, hospitals, and highway rest areas, generate store contribution margin of high teams in 2025, and expect to achieve a payback period of approximately late two years, will accelerate opening franchise doors on this special channel. In the meantime, our sub-franchise business contributes steady cash flows and profitability. Profits from other revenues achieved year-over-year growth of 55.7% in 2025. Innovation has always been an important strategic focus for us. In 2005, Teams China accelerated product innovation across both beverages and food, launching a total of 178 new products, 96 new beverages, and 82 new food items, which contributed over 25% of our top-line sales. Standout offerings have run native journey with customers, seasonal beverages highlights during the first quarter including the Palmer Granate, Lowe's Cheese and Oat Latte series, offering a diverse and differentiated flavor portfolio. We also focus on adding non-cafe beverage offerings, complementary to existing product portfolio during the afternoon tea's day pass. The total number of non-coffee beverage cups accounted for approximately 18.3% of total beverage cups sold in 2025 compared to 14% in 2024. On the food side, we continue to strengthen breakfast day pass and launch several campaigns to promote lunch day part in 2020. For instance, we introduced a breakfast combo with expansion of our croissants line up with new offerings such as cheese chicken and roasted coconut cheese croissants, which suits the morning routine offering greater value. Building on our classic bagel breakfast to assess the croissant combo includes protein-rich options like meat, catering to higher energy needs in colder months. Meanwhile, the croissant itself is light yet satisfying, perfect for those wanting hardy but not overly, in addition, Tim Chuan continued to broaden its bagel sandwich range, introducing using new products, including the Black Shuffle Mushroom Bagel and the Spicy Pickle Cabbage Beef Bagel, further introducing its several menu. We continue to strengthen our leadership in the bagel platform, selling a total of over 80 million bagels and bagel sandwiches products, cumulatively as of the end of 2025. The fourth quarter, being the holiday season, saw us loading out a series of marketing campaigns designed for these special occasions. From Halloween to Thanksgiving and Christmas, we joined the festive spirit with creative promotions and themed activities to grab consumer attention. During the first quarter, Tim Stranger continued to enhance brand relevance and consumer engagement through a series of marketing and product innovation initiatives. The company is joined in cultural positioning through high-profile collaborations, including a limited edition partnership with the hit TV series of The Vendetta of N. Chang'an 24th, as well as a co-branded campaign with People's Daily to celebrate China's National Day and honor everyday heroes across the country. These initiatives narrowed cultural engagement, connections, and drive social engagement. In parallel, Team China advances sustainability initiatives by extending its Blueing Your Own Cup program and increasing the incentive to R&B 8 per cup. As of now, the program had had attracted over 200,000 participants, reducing carbon emissions by approximately 8 tons, equivalent to planting around 360 trees. The company also introduced eco-friendly stores in collaboration with Tencent's Carbon X-Mate program, using carbon capture technology to convert industrial carbon dioxide into sustainable materials. SGS certification confirms that every 100 stores stores 3.185 grams of carbon dioxide, reinforcing Team China's commitment to sustainable product innovation. As of December 31, 2025, our registered Florida Global members exceeded 31 million, reflecting a remarkable 79% year-over-year growth. The average number of members per store has now surpassed 29,600, serving as a strong catalyst for our growth and clearly demonstrating our consumers' ongoing support for Teams China's loading programs. At this time, I would like to turn it over to our CEO, Albert Li, to discuss our fourth quarter and full year 2025 financial performance in more detail.
Thank you, Yunchen. We continue to strive for excellence in delivering high-value for quality healthy products and sought-for services to our ever-growing customers. In the fourth quarter, we achieved positive net new store openings and continued our strong momentum in system sales, achieving a 4.0% year-over-year growth. Our overall monthly average transacting customers reached 3.43 million during the first quarter of 2025, a 14.3% increase from 3.01 million in the same quarter of 2024. Additionally, digital orders as a percentage of total orders rose from 86.1% in Q4 2024 to 89.3% in Q4 2025. We continue to enhance our digital capabilities to meet the growing demand for delivery and takeaway services. Total number of delivery orders increased by 33.7% year-over-year during the first quarter of 2025. Amidst microeconomic volatility and intensive market competition, our team demonstrated strong resilience and achieved profitability improvement through enhanced operational efficiencies, supply chain optimizations, and rigorous cost controls. In Q4 2025, our adjusted corporate EBITDA margin improved by 3.3 percentage points year over year. During the fourth quarter of 2025, our total revenues dropped by 7.3% year-over-year, which was mainly due to the closure of certain underperforming stores. Benefiting from the expansion of our franchise store network, with the number of our franchise stores increased from 446 as of December 31st, 2024, to 485 as of December 31st, 2025, our system sales increased by 4.0% year-over-year to RMB 359.4 million during the fourth quarter of 2025. We are committed to improving our financial performance by refining store unit economics and boosting operational efficiencies at both store and corporate levels, setting the stage for our long-term sustainable growth. Specifically, through refinements in our supply chain capabilities and economy of scale, we reduced 2025 full-year food and packaging costs as a percentage of revenues from company-owned and operated stores by 1.4 percentage points year over year. We continued to streamline our operations by pruning underperforming stores, optimizing unit economics, refining staffing arrangements and optimizing store managerial efficiency. These actions led to a reduction in 2025 full-year store labor costs and other operating expenses as a percentage of revenues from company-owned and operated stores by 0.8 percentage points and 0.1 percentage points year-over-year respectively. We expanded our branding initiatives and promotional offers to drive traffic. Our marketing expenses as a percentage of total revenues increased by 1.2 percentage points year over year. Our adjusted general and administrative expenses as a percentage of total revenues decreased by 7.4 percentage points year-over-year, which was mainly attributable to a R&B 9.7 million, U.S. dollar 1.4 million decrease in credit loss of accounts receivables. Turning to liquidity, as of December 31st, 2025, our total cash-on-cash equivalents, time deposits, and restricted cash were R&B $129.7 million, U.S. $18.5 million, compared to R&B $184.2 million as of December 31, 2024. The change was primarily attributable to cash disbursements on the back of the expansion of our business, partially offset by the drawdown of additional bank facilities. In the meantime, with the issuance of the US$89.9 million 2025 senior secured convertible notes and the amendment to our existing 2024 unsecured convertible notes in December 2025, we have successfully repurchased the entire outstanding amount due under our variable rate convertible senior notes due 2026. Looking ahead to 2026, with profitability being front and center of everything we do, we will continue to enhance our supply chain capabilities and efficiencies, roll out our differentiating made-to-order fresh and healthy food preparation model to drive traffic, optimize overall store unit economics and accelerate the expansion of our successful sub-franchising. I will now turn it over to Yung Chen for concluding remarks followed by Q&A.
Thank you, Apple. Before we turn to Q&A, I would like to take this opportunity to once again express my heartfelt gratitude to our customers, employees, business partners, and investors for your continuous support and dedication and trust. Together, we have created an overwhelming community of over 31 billion loyalty club members, a unique coffee plus freshly prepared healthy food business model offering the best value for quality products as an international coffee brand. Differentiated and comprehensive store formats with over 1,000 stores in 92 two cities, most of which are made to order stores with exact payback period between two to three years, and a unique advantage of offering franchising opportunities as an international coffee brand. With these milestones behind us, we are set first in our commitment to sustainable growth and to generating long-term value for our shareholders. I will now turn the call over to Patty for today's Q&A session. Patty.
Thank you, Yongcheng. We'll turn it over to Q&A session and open it up for our registered questions. Let's begin with our first question. Amber, please go ahead. Thank you.
Operator
To ask a question via the telephone, please press star one and one on your telephone keypad and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. To ask your question via the webcast, please use the Q&A box available on the webcast link. Once again, that's star 1 and 1 for questions. We will now take our first question from the phone line of Steve Silver of Agus Research Corporation. Please ask your question, Steve. Your line is now open.
Thanks, operator, and thanks for taking my questions. So over the past few quarters now, you've highlighted franchise stores in special channels, such as the railway stations, hospitals, and highway rest areas, and you've cited their strong contribution margins and the two-year payback periods.
So while you've mentioned in your prepared remarks that you see openings under this model accelerating, can you quantify at all how much of a part of the future store mix you expect these channels to comprise and really what impact you expect us to have on future operating results yeah sure i thank you steve for your question yeah i mean the beauty of you know the stores on special channels especially on railway stations and highway rest areas you know it's purely dying business so they don't rely on deliver and also now we don't need to give discounts on those stores in those special channels so those stores have very high gross margin and no delivery costs despite okay the line might be higher but still those stores are generating high teams and not storing contribution margin and the payback is very attractive, around two years, even lower than two years. So I mean, in China, there are thousands of stations. We have generated the momentum in those channels. As we mentioned, essentially, we are the only international coffee brand that open to individual franchises. So we are checking a lot of interest from those franchisee partners. So this year we're going to celebrate.
And so company-owned and operated store contribution margins have now been negatively impacted by the higher delivery costs over the past few quarters. Is the company doing anything specifically to mitigate these risks in 2026 to improve same-store sales growth as well as the store contribution margins?
Okay. Steve, thank you for the question. I think I will take this one right so as you have mentioned you know due to you know those aggregator platform dynamics in 2025 you know which led to very aggressive subsidize that we have been seeing so that I think on one hand drive higher delivery orders and also higher percentage of our delivery revenue mix And in the meantime, you know, we have also like suffering from actually increased delivery costs because of this. So, you know, I think overall it's within our expectations because we want to manage our top line growth, our same store sales, our margins and also our pricing well. So, actually, we are taking every step to maintain or even expand our store contribution margin. So, as you can see, even though I think the whole year 2025 store contribution margin for company-owned stores was slightly decreased from 7.4% to 7%, And I think overall, we have in the meantime actually increased our gross margin. So the food and packing cost as a percentage of revenue, you know, actually has decreased by 1.4 percentage points. And in the meantime, you know, we are still in the process of pruning some of the underperforming stores and achieving better economy of scale labor costs. And, you know, as you can see, the full year 2025 labor cost has also improved and as well as store other operating expenses. So we will do everything we can to actually to mitigate potential delivery costs. And I think in the meantime, we are also negotiating with those delivery aggregator platforms to actually strike a better cost on the delivery cost. So in terms of the delivery cost per order, we want to improve the cost structure to streamline the delivery cost per order as well. And I think lastly, we are also actually increasing some of the pricing on the deliverable products. So that is true to mitigate the potential headwinds from higher delivery costs. So overall, I think our goal is to at least maintain and even achieve certain margin improvement on our store contribution margin. Despite, you know, in terms of the aggressive subsidized from those delivery aggregated platforms might still continue in 2026, but we expect that trend might be mitigated or might be, like, slowed down this year. Thank you, Steve.
Yeah, that's helpful. And one more, if I may. So in 2025, net store growth was positive, but it was a little more modest than maybe what previous thoughts might have been around store expansion. Yet at the same time, the franchise applications sounds like it continues to be very, very strong. And the loyalty membership continues to expand significantly, almost 30% in 2025. So I'd love to hear your thoughts in terms of the underlying demand in terms of what we might think about for system sales growth in 2026.
Yeah, I mean, we are in the process of pruning the underperforming past two years, and we'll do so this year as well. So, as you know, we opened a lot of high rent during 2019 to 2022 and even 2023. High rent, a larger store format for the building and also the rent back then was very high, much higher than the current situation. So we are in the process of continuing pruning those underperforming stores. So that's why you see the revenue for company owned and operate stores has dropped last year and this year, probably for the last two years. So I mean in this year we will continue to prune some underperforming stores but as we mentioned the newer vintage of our stores 24 store margin around 15 percent so now this newer vintage of store format has been approved so we'll continue to open such format for both common-owned and franchising stores so we target to achieve net open next to openings this year of at least 100, might even more capital. That's kind of the process. We'll continue to expand the network and that's the plan for now.
Great. Thanks for taking the questions and best of luck throughout the year. Thank you. Thank you, Steve.
Operator
Thank you. Our next question comes from the phone line of Fu Li He from TF Securities. Please ask your question. Fu Li, your line is open.
Thanks for taking my question. I have three questions. The first one is about growth margins. Your growth margin improved by 1.4 percentage points in full year 2025. This is quite impressive. Can you explain more on the factors behind this, and how would you expect your growth margin in 2026?
Thank you, Fuli. I think I would take this question related to gross margin. So as you have mentioned, our food and packaging cost as a percentage of revenue from company-owned and operated stores actually decreased from 31.5% in 2024 to 30.1% in 2025, representing an improvement of 1.4 percentage points. And in the meantime, I also want to highlight that if you take a look on the fourth quarter of 2025, the cost percentage was 29.4%. Actually, it represents a two percentage point margin improvement from the first quarter of 2024. So I think the overall improvement was mostly because of the following factors. The first one is a better economy of scale, you know, as our overall GMV has increased and our overall store network has expanded. And two, we have tried actually many ways in terms of on the supply chain optimization projects, especially on existing food and packaging materials. So we have almost renegotiated the unit cost in terms of the overall pricing for each of the supply chain vendors. And I think, thirdly, we have optimized our discounts program, actually, so that basically we have improved the average pricing a little bit, Especially, we have increased the pricing on delivery products, which definitely would help on the margins. And firstly, we have also seen higher margin on our new product launch. You know, as we have mentioned, we have actually launched nearly 180 new products in new LTO products in 2025. and most of these new LTO products had higher margins. And I think lastly, we have also optimized the recipe of existing core products and some other material costs, and also in terms of the transportation and the freight costs. This has also contributed to our overall margin expansion in 2025. So going forward, I think we will continue to implement the above measures and plans. And we're targeted to further reduce our food and packaging costs as a percentage of revenues by another one to two, at least one to two percentage points in 2026. So that would be our target for this year. Thank you, Fuli, for your question.
Very clear. The second one is about margin profile. You mentioned company-owned and operated stars in Tier 1 cities, and in those cities with 10-plus stars generated over 10% and 7% star contribution margin in 2025, respectively. outperforming other tier cities with lower star density. Can you explain more details about the differences on margin profile of these stars? Thank you.
Okay, I'll take this one. Thank you for your question. I mean, it's a great question. I mean, the density really matters. I mean, the more stores we have in the city, the more awareness we have in the city, and the more efficiency on the marketing campaign, and the lower cost on delivery and supply chain, and more efficiency on the management. So I mean, that really matters. I mean, the data clearly shows that we have the highest margin on tier one cities. And as we mentioned earlier, for the 2024 and 2025 vintage stores, our store margin is up about 15%, and most of the stores are open in the tier 1 tier and not high tier cities. So we'll continue to add more company-owned and even franchisee stores in the existing to add density. And that really helps on everything.
Okay. And the last one is about store count target. What's the store opening and closure target for 2026 and expected mix between company-earned and operated stores and franchised Yeah, we would just answer the question, the similar question from Steve.
So we target to achieve less open of at least 100, including both company-owned and franchise stores. And we are very happy to see our new open issues have very high margins, so we'll continue to open and although we'll continue to prove some underperforming stores, we should be able to achieve the next door openings again at least 100 this year.
Operator
All right, thank you. I'll now hand back to Patti to read any questions coming through via the webcast.
It seems that we have no questions online. Is that right, Emily?
Operator
That's correct. So at this time, there are no further questions. So with that, we conclude today's question and answer session. I'd like to hand the call back to Yung Chen for his closing command.
Thank you all for your time. I know it's been a challenging year, but we have been able to improve our margins and achieve less stock openings, and we expect to even improve our margins further this year and achieve the accelerated openings this year so stay tuned we'll see you soon thank you thank you thank you that does conclude today's conference call thank you for your participation you may now disconnect your lines
