Chagee’s (CHA) Overseas Boom Masks A Bruising Home Market Fight

Chagee Holdings (CHA), a prominent tea chain, showcased a mixed financial performance in its latest quarterly report. While the company's overseas operations exhibited strong growth, its domestic market faced challenges. Overseas, gross merchandise value (GMV) surged by 114.3% year-over-year, reaching RMB 504.0 million, driven by a successful debut in South Korea.

Within the first three days of opening, three South Korean teahouses sold more than 16,000 cups, and over 46,000 users downloaded the company's mobile application. The BOYA Tea Latte series also contributed to a 52% increase in the average cups sold per teahouse across Asia Pacific in its first 15 days. Meanwhile, at home, Chagee's financials showed a more subdued picture.

Greater China GMV declined by 3.3% sequentially, and franchised teahouse revenue contracted by 18.1% due to economic headwinds and increased competition. Gross operating income increased by 387.6% to RMB 524.7 million, boosting the operating margin to 15.4% from 3.2%. The company managed to cut non-GAAP general and administrative expenses to 9.1% of revenue from 13.2%, attributed to cost-saving measures and a focus on core operations.

Despite these improvements, the fresh milk tea market is becoming increasingly competitive, with a broader range of players entering the fray. The company remains optimistic about its overseas expansion, particularly in South Korea, but cautions that growth in Greater China will require a turnaround in same-store sales and a stabilization of the crowded market.