NEWS WRAP: Chagee posts double-digit growth, as global expansion advances

The premium tea chain’s revenue rose 10.5% in the second quarter, as it entered the U.S. with its first store in Los Angeles

By Doug Young

Premium tea chain operator Chagee Holdings Ltd. (CHA.US) reported double-digit revenue and GMV growth in the second quarter, as it continued its aggressive expansion both at home and abroad, including the opening of its first U.S. store in Los Angeles.

At the same time, the company felt the effects of fierce competition in its home China market, which showed up on its bottom line with flat quarterly growth for its adjusted profit. Chagee raised more than $400 million in its Nasdaq IPO in April, becoming the largest new listing by a Chinese company on Wall Street this year.

The company generated revenue of 3.33 billion yuan ($467 million) in the second quarter, up 10.2% from 3.02 billion yuan a year earlier. Its gross merchandise value (GMV) rose by a faster 15.5% year-on-year to 8.1 billion yuan, as its store count reached 7,038 by the end of June, up 40.9% from the total a year earlier. Most of the company’s business comes from franchised shops, with revenue from such teahouses supplying 3.02 billion yuan, or about 90% of the total.

Chagee has been expanding aggressively both at home and overseas, with 6,830 stores in its home China market, up about 40% from 4,881 a year earlier. Its smaller overseas network grew much faster, nearly doubling to 208 stores from 115 a year earlier. GMV from its overseas stores rose 77% during the quarter to 235 million yuan. While most of its overseas business to date is in Southeast Asia, the company recently opened its first store in the U.S. in Los Angeles and has plans for another store in the city. It also indicated it has big plans for the U.S. market.

It announced its hiring of a former chief marketing officer for Starbucks China as its new chief commercial officer for North America; and a food and beverage veteran with senior experience at Dutch Bros Coffee and Popeyes as its North America chief development officer.

“In the second half of this year, we will continue to invest strategically in overseas markets, steadily enhancing the development of a global talent pipeline and operational system,” said Chagee founder and Chairman Zhang Junjie on the company’s earnings call.

Founded in 2017, Chagee distinguishes itself in China’s crowded market for premium tea drinks with its focus on high-quality tea and ties to the country’s traditional tea-drinking culture. It prides itself on its classical-style store and product designs, as well as its use of only milk and sweetener in its products, unlike most of its rivals that also include modern extras like tapioca pearls, cheese foam and sliced fruit.

The company’s membership program had 206.9 million users at the end of June, up 42.7% year-on-year.

China’s premium tea drink market has become fiercely competitive in recent years as the top chains open thousands of new stores annually, putting pressure on everyone. Chagee has tried to avoid the bloody price wars that have plagued both the coffee and tea drink sectors by emphasizing its premium image. Still, the pressure showed up in Chagee’s non-GAAP net income margin, which dropped to 18.9% in the second quarter from 20.8% a year earlier. As that happened, the company’s adjusted net profit, which excludes non-cash costs related to share-based employee compensation, totaled 630 million yuan in the quarter, almost the same as a year earlier.

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