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Good morning and good evening, ladies and gentlemen. Thank you for standing by, and welcome to Chagee's first quarter 2026 earnings conference call. At this time, all participants are in listen-only mode. We will be hosting a question and answer session after management prepared remarks. Please note that today's event is being recorded. With that, I'll now turn the call over to the first speaker today, Ms. Alicia Guo, Investor Relations Director of the company. Please go ahead, ma'am.

Thank you. Hello everyone, welcome to Chagee's first quarter 2026 earnings call. With us today are Mr. Junjie Zhang, our CEO, Mr. Dengfeng Yin, our COO, and Mr. Hongfei 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 statement in the earnings 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 obligations 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 a GAAP measure. With that, I will turn the call to our CEO, Mr. Junjie Zhang. Please go ahead, sir.

Hello.

Hello everyone, welcome to Chagee's first quarter 2026 earnings call. As we enter 2026, our strategic direction is clearer than ever, and our execution is more focused. The reflections and adjustments of the past several months have allowed us to develop a way of working that is closer to our consumers and more committed to long-term value creation.

首先关于整体的战略重心，2026年我们把全部的精力投入到经营的本身，专注于做好用户真正关心的每一件小事。我们相信一家企业能够穿越周期，归根结底还是取决于用户发自内心的认可。因此我们今年的目标非常明确，就是把用户触点的每一个细节做到极致。

First, on our strategic priorities. In 2026, we are dedicating all our efforts to operations, focusing on executing every detail that truly matters to our consumers well. We believe that the ability of a company to navigate cycles ultimately depends on genuine consumer recognition. Therefore, our goal this year is very clear: to perfect every single consumer touch point.

其次，组织调整已经逐渐成效了，整体的效率我们现在还是有明显的提升的。过去几个季度，我们主动进行了组织优化。目前可以明确地说，这些调整给我们带来实质性的很多变化，无论是资源的配置更加精准了，策略的执行也更加高效了，团队围绕主业的凝聚力和战斗力也显著增强了很多，这为我们持续实现高质量的增长打下了坚实的内在基础。

Second, our organizational adjustments are delivering results, and overall efficiency has improved significantly. Over the past few quarters, we have proactively optimized our organization. These changes have delivered tangible results. Resource allocation is more precise, decision-making and execution are more efficient, and our team's cohesion and effectiveness around our core mission have strengthened significantly. This has laid a solid foundation for us to continue achieving high-quality growth.

第三点，产品和营销优化已经清晰成型，执行重心明确，高度确认。我们已经完成了一套清晰、完整、可落地的产品规划和营销的路线图。我们的出发始终围绕用户的需求，而不是从外部的竞争动向而来。所以接下来，所有工作将围绕产品、服务、环境、体验、价值主张而重点展开。把每一家门店，每一杯茶，每一次互动中落实到位，做到极致，这就是我们工作的全部重心。

Third, our product and marketing plans are now clearly defined, and our execution priorities are highly focused. We have completed a comprehensive and actionable roadmap for both products and marketing. Our starting point has always been consumer needs rather than external trends. Going forward, all of our work will center on five dimensions: product, service, environment, experience, and value proposition. Making every tea house, every cup of tea, and every interaction consistently well-executed is our only true priority.

那么随着一季度的业务回归稳健增长，运营效率也持续在提升。从资本市场的角度来看，我们认为公司当前的股价是被严重低估的，未能合理地反映其长期的发展前景。在此，我也请代表公司及管理层做出明确的一个承诺。公司董事会已经批准了一项股票的回购计划，授权我们在未来12个月内回购不超过1.5亿美元的美国存托股份ADS。我们希望通过这一实际的行动，给大家传递公司真正的信心，也切实地回馈我们股东的信任。

As our business returns to steady growth and operational efficiency continues to improve in the first quarter. From a capital market perspective, we believe our current share price is significantly undervalued and fails to properly reflect our long-term development prospects. At this point, on behalf of the company and the management team, I would like to make a clear commitment. Our board has approved a share repurchase program authorizing us to repurchase up to $150 million ADS during a 12-month period as a concrete way to demonstrate our confidence and reward shareholders' trust.

最后，我想再次强调，当前公司的战略方向还是非常清晰的，团队也开始进行高效的运转了，海外布局有序地推进，Chagee正在迈入一个成熟的、稳定的、可持续的高质量发展的增长阶段。我们对未来的每一步都是充满信心的。

Finally, I want to reiterate our strategic direction is clear and our team is operating with high efficiency. Chagee is entering a mature, stable, and sustainable phase of high-quality growth. We're confident in every step we take forward toward the future.

以上是我们整体的战略方向。下面请我们的COO为大家详细汇报一季度的执行层面的具体进展。谢谢大家。

That concludes our strategic direction. I will hand the call over to our COO, Dengfeng Yin, who will walk you through the specific operational progress in the first quarter. Thank you.

好，谢谢俊杰，也感谢大家参加我们的业绩发布会。

Thank you, Junjie, and thank you all for joining our earnings call today.

首先我来分享一季度整体的表现。总收入人民币35.46亿元，同比增长4.5%，环比增长19.2%，毛利率达到了55.6%。Non-GAAP净利润人民币5.07亿元，环比增长超过四倍。Non-GAAP净利率恢复至14.3%，总GMV达到了人民币79.18亿元，环比增长8.1%。中国区GMV环比增长了7.8%，海外GMV环比增长了14.6%，同比增长139%。从以上数据可以看出来，海外市场正在成为越来越重要的增长引擎。

Let me begin by sharing our overall performance for the first quarter. Total revenue reached RMB 3,546 million, representing a 4.5% increase year-over-year and a 19.2% increase quarter-over-quarter. Gross margin came in at 55.6%. Non-GAAP net income was RMB 506.7 million, increasing more than four folds sequentially. Non-GAAP net margin improved to 14.3%. Total GMV reached RMB 7,917.8 million, up 8.1% quarter-over-quarter. Greater China GMV grew 7.8% sequentially, while overseas GMV grew 14.6% sequentially, and 139% year-over-year. It is clear that overseas markets are becoming an increasingly important growth engine.

更值得关注的是，我们的经营质量在持续改善。中国区同店增速环比改善了9.4%，整体同店增速也环比改善了9.5个百分点。这些数据表明我们聚焦用户价值的策略正在切实见效。围绕这一策略，本季度我们重点从四个方面推动了业绩修复。

More importantly, our operating quality continued to improve. Same-store GMV growth in Greater China improved by 9.4 percentage points sequentially. Overall same-store sales, same-store GMV growth improved by 9.5 percentage points sequentially. These results show that our strategy of focusing on consumer value is working in practice. This quarter, we concentrated our efforts on 4 key areas to drive performance recovery.

第一，组织效率的兑现。经过第一季度的持续优化，我们的组织效率实现了质的飞跃。在整体费用率下降的同时，推动了执行端变得更快、更准、更协同。一方面，组织调整显著提升了执行效率，另一方面，目标更加明确和坚定，从总部到门店，团队对执行重点形成了高度共识，将有限资源集中投放到最能创造用户价值的事情上。从数据上看，Non-GAAP的管理费用率环比下降了8.1个百分点，至11.6%。Non-GAAP的销售和营销费用率环比下降了3.6个百分点，至8.6%。

First, our improved organizational efficiency. Through continued optimization in the first quarter, our organizational efficiency achieved a qualitative leap, making execution faster, more precise, and more coordinated, while overall expense ratio declined. On one hand, organizational adjustments improved execution efficiency. On the other hand, our goals became clearer and more resolute, with teams from headquarters to tea houses forming a strong consensus on executing priorities, channeling limited resources into activities that best create consumer value. In the first quarter, our non-GAAP G&A expense ratio declined by 8.1 percentage points sequentially to 11.6%, and our non-GAAP sales and marketing expense ratio declined by 3.6 percentage points sequentially to 8.6%.

第二，产品的拓展。第一季度我们共推出了12款新品，更重要的是，我们的品类边界正在拓宽，逐步覆盖了茶拉茶、茶特调等系列，产品创新率与消费者的认可度持续提升。2月上线的大红袍系列销售表现优秀，首周GMV和杯量贡献占比、首周复购率、直接拉新人次等各项指标均高于历史新品均值。在千万活动中，该系列中的白雾红尘业绩环比真实输出成为强劲的拉动引擎。此外，云焦卡美罗凭借独特的焦糖风味和甜度DIY的参与感，创造了鲜明的记忆点与差异化优势，广受茶友欢迎，展现出成为长线畅销单品的潜力。

Second, our product expansion. In the first quarter, we launched a total of 12 new products. More importantly, our categories are broadening, gradually extending into tea lattes, Special Teas and others. Our product innovation and consumer recognition continues to improve. The Da Hong Pao series, launched in February, delivered strong performance with first-week GMV contribution, cup contribution, repeat purchase rate, and direct new customer acquisition all exceeding historical averages for new product launches. During the Qianwan campaign, the product Da Hong Pao tea latte from this series saw especially strong sequential growth and became an important growth driver. caramel oolong tea latte, with its distinctive caramel flavor and interactive sweetness customization, created a strong impression among consumers and was a clear point of differentiation. The product was well received by our consumers and shows strong potential to become a long-term bestseller.

第三，营销的精细落地。在营销层面，我们开展了早系列和晚系列活动，成功拓宽了早间和晚间的消费场景。早系列活动启动以来，晨间时段杯量占比呈现翻倍增长。同时，我们通过到店的买赠活动，持续巩固私域流量。活动期间，小程序渠道订单占比、新客占比均有提升。这表明了我们的私域能力和拉新能力都在持续增强。

Third, clearer and more effective marketing execution. On the marketing side, we introduced a morning buy one get one free campaign and launched a low caffeine beverage section for the evening, successfully expanding consumption scenarios in both the early morning and late evening. Since the campaign began, the share of cups sold in the morning has doubled. At the same time, we continue to strengthen our private domain traffic through in-store promotions. As a result, the share of orders from our mini program channels and the share of new customer both improved during the campaign period. This demonstrates steady progress in both private domain traffic conversion and new customer acquisition.

第四点，门店网络与质量优先。我们高度重视顾客体验和品牌标准，主动放缓了拓店节奏，聚焦单店经营质量，全面推进门店升级。同时，新的商业模式已全面启动，公司与加盟商利益更加一致。我们相信只有每一家门店都能传递一致的品牌价值，霸王茶姬才能真正赢得用户的长期信任。从数据上看，第一季度末，全球门店数总计7531家，其中中国区7157家，海外374家。

Fourth, growing our tea house network with quality remains our top priority. We place great importance on customer experience and brand standards, so we have deliberately slowed our pace of tea house expansion and focused on improving operating quality while comprehensively upgrading our tea houses. At the same time, our new business model has been fully implemented, further aligning the interests of the company and our franchisees. We believe that only when every tea house delivers a consistent brand value, can Chagee truly earn consumer long-term trust. At the end of the first quarter, our global tea house network totaled 7,531 locations, including 7,157 in Greater China and 374 overseas.

海外市场也在稳步扩张。目前我们的门店在新加坡36家，马来西亚221家，泰国32家，印尼41家，菲律宾13家，越南22家，美国9家。保持稳健的增长节奏，运营表现也符合我们的预期。

Our overseas markets continue to expand steadily. Currently, our tea house presence includes 36 in Singapore, 221 in Malaysia, 32 in Thailand, 41 in Indonesia, 13 in Philippines, 22 in Vietnam, and 9 in the U.S. Our overseas tea house network maintains a steady growth pace with operating performance in line with our expectations.

最后，我想回到俊杰刚才提到的战略方向上。我们的战略核心是把用户关心每一件小事做到极致。而用户是否真正认可，不看我们说了什么，而看我们做了什么。一季度末，我们的会员总数已经达到了2.48亿。活跃会员接近5,000万人。环比四季度增长了超过11%。更让我们感到踏实的是，活跃会员的复购率保持在42.3%。购买两次以上的会员贡献了超过76%的订单量。每一次回购都是茶友对霸王茶姬产品和体验的真实认可。2.48亿茶友用一次次回购告诉我们，他们信任这个品牌，愿意一次又一次回到我们的门店，这是我们最宝贵的资产，也是我们穿越周期最坚持的底气。战略已经清晰，执行正在兑现，用户的信任就是我们最好的答案。

Finally, let me return to the strategic direction that Junjie laid out earlier. Our strategic core is to perfect every small detail that consumers truly care about. Whether consumers genuinely recognize this is not measured by what we say, but by what they do. At the end of the first quarter, the number of our total registered members reached 248 million with nearly 50 million active members, an increase of over 11% quarter-over-quarter. What gives us even greater confidence is that the repurchase rate among active members remained stable at 42.3%, and members who made two or more purchases contribute over 76% of total orders. Every repeat purchase is generating recognition from our Chagee friends. 248 million Chagee friends are telling us through their repeated purchases that they trust this brand and are willing to return to our tea house again and again.

This is our most valuable asset and our strongest foundation for navigating market cycles. Our strategy is clear, our execution is delivering, and consumer trust is our best answer.

展望未来，我们的战略方向依然清晰坚定。在产品上，我们会保持稳健的上线节奏，持续拓展茶特调等更多的新品类。在服务上，继续优化会员体系和用户体验。在环境上，持续升级门店的差异化设计。在体验上，让第三空间真正成为用户愿意停留的地方。在价值主张上，坚持以茶会友，与用户形成情感共鸣。在门店运营上，中国区继续以质量优先，海外稳步扩大。

Looking ahead, our direction remains unwavering. On product, we will maintain a steady launch cadence while continuing to expand into new categories such as Special Teas. On service, we will continue to optimize our membership system and consumer experience. On environment, we will continue to upgrade tea house differentiation through design. On experience, we will make the third place a place where consumers genuinely want to spend time. On brand value proposition, we will continue to embrace the spirit of connecting through tea, creating emotional resonance with our customers. On tea house operations, we will continue to prioritize quality in our Greater China market while steadily expanding overseas.

我的发言就到这里。接下来有请我们CFO为大家详细解读本季度的财务细节。谢谢大家。

That concludes my remarks. Let me turn the call over to our CFO Aaron, who will walk you through the detailed financials. Thank you.

Thank you, Dengfeng Yin. Hello, everyone. Excuse me for my voice. Thank you for joining our earnings call. Before we begin, please note that all amounts in RMB and all comparisons are on year-over-year basis unless otherwise stated. As Junjie Zhang and Dengfeng Yin just outlined, 2026 was about disciplining the execution, a sharper operating focus, and visible progress in restoring growth quality. I'm delighted to say that this strategy is already translating into improved financial performance. For the first quarter of 2026, our total GMV was RMB 7,917.8 million and 8.1% sequential increase from RMB 7,322.9 million in the fourth quarter of 2025. As of March 31st, 2026, our teahouse network totaled 7,531 locations across Greater China and overseas, up 12.7% from 6,681 a year ago.

Of these, 6,741 were franchisee teahouses and 790 were company-owned teahouses, reflecting the continued conversion of selected locations into company-owned stores as a part of our networking optimization strategy. In Greater China, average monthly GMV per teahouse was CNY 356,080 in the first quarter, representing a quarter-over-quarter increase of 5.5% from CNY 337,358 in the fourth quarter of 2025. At the same time, overseas total GMV for the first quarter grew 139% year-over-year and 14.6% quarter-over-quarter to CNY 426.4 million. On the revenue line, our net revenues for the first quarter of 2026 were CNY 3,546 million, compared to CNY 3,392.7 million in the same quarter of 2025, and up 19.2% sequentially. Net revenue from franchisee teahouses were CNY 2,743.9 million, representing 77.4% of total revenue, compared to CNY 3,149.9 million a year ago and up 12.7% sequentially.

Net revenue from company-owned teahouses were CNY 802.1 million, up 230.4% from CNY 242.8 million a year ago, mainly as a result of our continued development of company-owned teahouses network across Greater China and overseas markets. Turning to margin. Our gross profit, calculated by excluding cost of materials, storage, and logistics from net revenue, reached CNY 1,971.5 million this quarter, resulting in a gross margin of 55.6%. This marks an improvement from 53.1% a year ago. This improvement was primarily supported by increased revenue contribution from company-owned teahouses, which generate a higher gross margin. Operating expenses remained well controlled relative to scale of business. Share-based compensation expenses this quarter were CNY 59 million, reflecting our commitment to long-term employee engagement and aligning their goal with shareholders.

To provide greater clarity on underlying operational performance, we will continue to reference non-GAAP operating results with full reconciliation available in our earning release and the Form 6-K.

Operating income was CNY 547.2 million, representing an operating income margin of 15.4% and marking a sequential turnaround from an operating loss in the previous quarter. Excluding share-based compensation expenses, Non-GAAP operating income was CNY 606.2 million, representing a 17.1% margin compared to a 1% margin in the previous quarter. This sequential improvement reflects both stronger operating leverage and the benefit of organization adjustment and strategic investment we have made to support future growth. Operating costs for company-owned teahouses were CNY 497.2 million, up 216.6% from CNY 150 million a year ago. As of March 31st, 2026, we operated 790 company-owned teahouses, up from 615 in the fourth quarter of 2025 and 191 in the first quarter of 2025. Other operating costs decreased by 7.8% to CNY 159 million, largely due to lower payroll expenses driven by organizational restructuring and the continued headcount optimization.

On a non-GAAP basis, other operating costs accounts for 4.3% of revenue compared to 5.1% a year ago. Sales and marketing expenses for the quarter were CNY 306.2 million, up 2.3% from CNY 299.3 million a year ago, mainly due to our investment in strategic brand activities, new product launches, and marketing campaigns. On a non-GAAP basis, sales and marketing expenses representing 8.6% of revenue, compared to 8.8% a year ago and 12.2% in the previous quarter. General and administrative expenses reached CNY 462 million, up 30.9% year-over-year from CNY 352.8 million.

The increase in G&A primarily reflecting our continued investment in global corporate infrastructure as we've further expanded our international business footprint. On a non-GAAP basis, G&A expenses represented 11.6% of revenue, compared to 10.4% a year ago and 19.7% in the previous quarter. Income tax expenses represented 21.2% of income before income tax, slightly higher than 19% a year ago.

This was primarily driven by the impact of share-based compensation expenses recognized during the quarter. Notably, we continued to deliver profitability on both GAAP and Non-GAAP basis, extending our track record of 13 consecutive quarters of positive net income. GAAP net income was CNY 447.7 million. Non-GAAP net income, excluding CNY 59 million of share-based compensation expenses, was CNY 506.7 million, with a Non-GAAP net margin of 14.3%, compared to 20% a year ago and a 3.4% in the fourth quarter of 2025. For the first quarter, basic and diluted net income per ordinary share was RMB 2.36 and RMB 2.34 respectively. On a Non-GAAP basis, basic net income per ordinary share was RMB 2.67, and the diluted net income per ordinary share was RMB 2.65. Turning to liquidity, we ended the quarter with CNY 7,146.3 million in cash and the cash equivalent, restricted cash and time deposit.

Compared to CNY 7,892.4 million as of December 31st, 2025, we maintained a robust balance sheet, which provides us with the flexibility to fund expansion plan and continue to return value to our shareholders. As we move through 2026, we remain focused on executing our established strategy, strengthening our brand value, and maintaining disciplined investment to support sustainable growth. We are always committed to creating long-term value for our shareholders. With that, I will turn the call back to the operator to begin Q&A. Operator, please go ahead.

Thank you. We will now begin the question and answer session. To ask a question, please press star one one and wait for your name to be announced. When asking a question in Chinese, please translate your question in English for the convenience of everyone on the call. Our first question comes from the line of Lillian Lou of Morgan Stanley. Please go ahead.

Let me translate my question. Thanks everyone, management of the detailed explanation of first Q performance. I just want to follow up on the more detailed factors that has driven the good sequential improvement on the unit GMV improvement in China and overall. Trying to understand what factors has been putting in place in terms of the new product, the traffic, pricing etc., and what can be sustained. Thank you very much.

谢谢Lillian。我来回答这个问题吧。非常好的问题。第一季度的话，我们同店数据整体是负的16%，但相较去年第四季度的话就收窄了大约10个点左右，整体也呈现了明显的修复趋势。主要我们也做了一些复盘，然后归结为几个动因吧。

Thank you Lillian for the question. In Q1, our overall same store GMV growth was down 16%, that was about 10 percentage points better than Q4 last year. The trend has clearly improved. The recovery was mainly driven by a few things.

另外一个呢，是千万活动带来的增量，我们在春节周期，可能在2月6号到10号，尽管时间很短，这个活动高峰期间，整个千文渠道的话，日均大概贡献了300万单给到我们这个品牌。我们团队非常厉害，能够有效地快速响应，承接该部分的流量，并实现业绩的转化。整个的过程也是得益于我们组织变革以后的更敏捷的响应。另外一方面，我们在执行效率上，在落地机制上也得到了持续的改善。

First, we got an incremental lift from the Tianwen campaign. During the peak period from February six to 10, the Tianwen channel contributed about 3 million orders per day on average. Our ability to effectively capture this traffic and convert it into performance results was driven by two factors: first, a more agile response mechanism; and second, the continuous improvement in executing efficiency following the earlier adjustments.

第二个更关键的就是我们的新品。就像刚才Aden讲的，我们一季度上了12款新品，整个对杯量和GMV的环比增长都有明显的拉动。那另外呢，近期我们也在做早间和晚间的场景的拓展，比如刚才提到的云焦卡美罗和醒世春山。活动期间，早间时段的杯占比都达到了45%，形成了较为显著的增量贡献。

Second, our new product launch helped as well. As Dengfeng Yin mentioned, we launched 12 new products in the first quarter, which helped to drive sequential growth in both cup volume and GMV. In addition, recently we continue to expand morning and evening consumption scenario, taking caramel oolong tea latte and Longjing Tea Latte as examples. Their combined cup contribution during morning hours reached 45% during the campaign period, representing a relatively significant incremental contribution.

最后就是在海外市场方面的话，我们也很鲜明地看到同店下滑幅度也在比较有意义地收窄，尤其是在马来西亚市场。其实整体在各个市场层面上都因地制宜地推出了本土的限定产品，比如说新加坡的三茶乌龙，活动期间杯量占到了18%，3月在马来和其他市场上新的古香北茶，包括新加坡在内，整个首周店均日杯销量都达到400多杯。这些对整体同店表现改善都起到了非常积极的作用。

Lastly, in the overseas markets, the decline in same story GMV growth has also narrowed significantly. We launched locally tailored products in different markets. For example, the caramel oolong tea latte in Singapore captured an 18% cup share during the campaign period. The Houji Cha Zhenmai, launched in multiple markets in March, generated an average of 440 daily cups per teahouse in Singapore during its first week of launch. These initiatives all played a positive role in improving overall same store performance. Thank you. Next question, please.

Next question. The next question comes from the line of Sijie Lin from CICC. Please go ahead.

谢谢俊杰总、林总、Aaron总，我是中投证券的林思洁，也恭喜咱们取得了逐步稳下来的不错的业绩表现。那我想请教的是，刚才管理层提到我们启用和落地了新的商业模式，就是这个GMV抽成那个模式，想问这个对公司的利润是否有影响？有什么样的影响？因为看到我们Q1的毛利率还是很好的。那我来翻译成英文。So thank you management, congrats on stabilizing earnings results again.

My question is, will the new business model, which is a take rate based on GMV, affect profitability and how to evaluate the impact? Thank you.

谢谢思洁你的问题。就像我们刚才在上次年报中披露的，在年初的时候，我们正式启用了新的商业模式，切换到基于GMV的收入分成模式。然后我们品牌公司就抽取的费率有提升，但对物料的加价率就大幅地减少，同时也有一个折扣率的保障对加盟门店。那在新模式下面，我们的收入结构也发生了变化。我们的原料产品销售这一块，包括食品原料、包装原料，包括门店设备、其他耗材，这部分收入肯定是明显地占比下降，然后加盟服务费的收入的占比上升。那需要说明的是，这个收入结构的变化，我们在设计上之前讲过，我们是平移的模式，所以并未对公司在利润上产生直接的短期影响。那从一季度的业绩来看的话，我们的毛利率维持在了55.6%，环比略有上升。

Thank you Sijie for the question. As previously disclosed in our annual report, since the beginning of the year, we officially switched to a GMV based revenue share model for our franchise teahouse in Greater China. Under the new model, the brand takes a higher fee rate based on the franchise teahouse GMV, but the markup on materials has come down significantly and also lock up or secure the discount rate for our franchisees. As a result, our revenue mix has changed accordingly. The proportion of revenue from product sales, including raw materials and packaging, teahouse equipment, and other supplies has declined, while the proportion of revenue from franchising services has increased. However, this change in revenue mix does not affect the company's profitability. Based on our Q1 results, our gross margin remained at 55.6% with a slight sequential increase.

我先做一些说明，这个的环比略有提升，最主要的贡献还更多地在于我们直营门店的比重的上涨，因为直营门店的毛利率是比较高的，因为不涉及到收取分成之类的处理。那并不是来自于跟加盟商之间的更多的收入charge。所以我想更好地能够理解，我们在加盟商的门店模式上，基本上是跟第四季度持平的情况，略有下降。就是能够有一部分的利益因为在折扣上我们让给了我们的加盟商。

Let me further explain the reason of the gross margin increase, which is the result from the increase of the self-owned teahouse GP margin increase. If we exclude the self-owned teahouse GP margin, the franchisee teahouse GP margin is flat sequentially versus Q4, or a little bit slightly decrease from the previous GP margin.

我们认为新模式下面公司和加盟商真正实现的是利益共同体。对于加盟商而言，原材料及设备采购成本大幅下降，且集团共担风险，有助于提升门店的盈利能力和抗风险能力。那对于公司而言，收入和门店业绩深度绑定，当门店销售提升，也有利于公司的收入和毛利率的提升，从而达到双赢的效果。那我们也希望持续通过更紧密地与加盟商的合作，持续优化我们的模式，打造长期可持续的盈利模式。

Lastly, we believe that under the new model, the company and its franchisees truly become a community of shared interests. For franchisees, lower raw material and equipment procurement costs, along with shared risk with the brand, should help improve teahouse profitability and resilience. For the company, our revenue is now more closely tied to teahouse performance. When teahouse sales improves, both our revenue and gross margin can benefit, creating a win-win outcome. Our goal is to build a long-term, sustainable profit model through closer collaboration. I hope this answers your question. Next question, please. Operator, next question please.

Yeah, one moment please. For the next questions. Our next question comes from Jessie Xu from J.P. Morgan. Please ask your question.

谢谢。俊杰总，各位管理层早上好，感谢接受我的提问。我是摩根大通的Jessie Xu。恭喜公司在一季度取得了还不错的开门红，今年以来确实能够感受到公司在产品推新和运营上面都下了不少的功夫。那活跃度和声量跟去年感觉相比也是有明显的改善，能够看得出这个组织变革后我们运营效率的提升。然后特别是这次1.5亿美元的回购额度也是非常大的惊喜。那能够请管理层分享一下我们决定做回购的原因，以及未来在股东回报方面，包括回购或者分红这些想法。Thanks for taking my question.

This is Jessie Xu from J.P. Morgan. Very happy to see visible improvement in product launches, consumer engagement and also market impact in the first quarter.

The $150 million repurchase program is indeed a positive surprise. What's your thought behind this decision? Would you prefer repurchase or cash dividend in the future? Anything you can share on shareholder return would be great. Thank you. [Foreign language] 好的，谢谢 Jessie，麻烦这个问题我们请俊杰回答一下.

好，谢谢您的提问。其实这个就像我们刚才也分享过的，第一是董事会已经审批了这一项股票的回购计划，也授权我们在12个月内能够回购高达1.5亿美金的ADS。那公司在这个现在对于市场情况与估值水平，这个首先肯定是动态地回来做调整，授权期内的回购的节奏，我们会看情况而定。

Thank you for the question. As we just shared, the board has approved a share repurchase program authorizing the company to purchase up to $150 million of the ADS over the next 12 months. We will adjust the pace of repurchases depending on market conditions and valuation during the authorization period.

那么第二个是公司目前的资产和负债的结构情况是非常健康的，我们资金也比较充裕。截至3月底，现金、受限的资金和定期存款加起来大概有71.5亿人民币，折合这个是10.04亿美元左右。

Second, our balance sheet structure remains healthy and our liquidity position is strong. As of the end of March, we had about RMB 7.15 billion in cash, restricted cash, and time deposits, or roughly $1.04 billion.

那么第三呢，我们认为公司当前的股价绝对没有充分反映我们公司的业务的基本面和持续修复的这个趋势，以及长期增长的空间，也没有体现出来。因此我们此次回购，也希望可以传递给无论是董事会以及管理层，对于公司未来的前景的坚定信心，以及持续为股东创造价值的信心，提升长期的回报。这个也是我们做这件事情的关键。

Thirdly, we believe the current share price does not fully reflect the continued recovery in our business fundamentals or our long-term growth potential. Through this buyback, we want to show the board and management strong confidence in the company's future growth prospects, as well as our commitment to create value and delivering better long-term results for shareholders.

那么展望未来，我们将会在保证核心业务健康发展的前提下，持续优化资产的配置策略，切实地去提升所有股东的回报，并且确保市场能够充分理解我们的价值。

Looking ahead, we will continue to optimize our capital allocation strategy while ensuring the health development of our core business. We aim to deliver tangible improvement in shareholder returns and ensure that the market fully understands our value.

那么我就先说这么多，再次感谢诸位股东以及线上所有的听众，谢谢你们。

That's my answer. Thank you all the shareholders and investors to join our call today.

Thank you. As there are no further questions, I would like to hand the conference back to management for closing remarks.

Thank you. As there are no further questions, I'd like to hand the conference back to the management and thank you for the call today. We look forward to speaking with everyone again on our next call. Have a great day. Thank you.

Thank you all. Have a great day.

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

Good morning and good evening, ladies and gentlemen. Thank you for standing by and welcome to Chagee's fourth quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. We will be hosting a question-and-answer session after management's prepared remarks. 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 news wire 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 obligations to update these statements. Also, this call includes discussions of certain non-GAAP financial measure. Please refer to our earnings release, which contains a reconciliation of non-GAAP measure to GAAP measure. With that, I will turn the call to our CEO, Mr. Junjie Zhang. Please go ahead, sir.

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Hello, everyone. Thank you all for joining Chagee's fourth quarter 2025 earnings conference call.

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Over the past years, the market has experienced significant volatility, and the competitive landscape has grown even more complex. As a new 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 a reflection on these, reviewing them as vital nourishment to drive the company's evolution and build long-term competitiveness.

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Looking back at our journey, 2023 to 2024 were a period of rapid expansion in Greater China markets. Our primary strategy was quality tea house expansion, with the core objective of securing prime location 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. 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.

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Over the past year, the market entered a new phase, 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 platform 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 base, driving over 90% of revenue, and a loyal membership base. We under invested here before. Now we are ready to expand categories and fully unlock our offline potential.

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Last year, our foundation solidified and we entered high-quality development. We recognized that exponential faith inertia no longer met the demands of refined management and operational excellence. Starting 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 wars' effect on offline sales. We stay 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 develops long-term trust. In this way, we aim to deliver enduring value to our shareholders, our consumers and society at large.

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I can now share with confidence that our internal realignment is largely complete and we have returned to steady operations and order. Looking ahead to 2026, our core strategy will remain centered on high value brand positioning and consumer value, with full 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 improvement. These initiatives will bring us closer to our customers and support sustainable, high quality growth.

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At the brand level, we will launch new formats for regular and personalized tea houses complemented by various product lines to suit diverse occasions and emotions. We will elevate the offline experience, creating a true third space that connects emotionally with customers and showcases Chagee's unique charm.

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On product, we will stay true to the logic that product equals people. We will innovate across categories by anchoring our 18-30 demographics core demands and develop new offerings with Special Teas, Tea Lattes and more, aligning our portfolio with consumers multi scenario lifestyle.

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We will penetrate new scenarios with morning and evening specific products, such as energizing morning tea lattes 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 mindshare and weave Chagee into everyday and special occasions.

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Customer experience and organizational strength underpin our strategy. We'll enhance tea house environments through improved ambiance and differentiated designs for flagship, landmark, and boutique tea houses. On service, we will overhaul after-sales systems, rolling out company-wide training, launch a SVIP hotline, and create feedback channels that directly shape improvements based on real consumer input.

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Strong organizational capability is essential to delivering our core strength: strategic growth. 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 synced with our brand's expansion and consumer needs.

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We understand that high-quality growth is a long-term process requiring patience and resolve, and we must consistently do what is right for the long term. In 2026, all of our strategic execution and resource allocation will center 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 an even more vibrant Chagee.

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Over eight years, Chagee extended 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.

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In 2025, due to the comprehensive organizational adjustments in the second half of the year and a deliberate pausing new product launches, we experienced a slower growth in top line. Our same-store sales in the fourth quarter declined 25.5% year-over-year. This was indeed our biggest challenge in 2025. 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 principles. In 2026, recent domestic same-store sales show sequential improvement reinforce 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're unwavering in our goal to evolve Chagee into a global key leader originating from China but resonating universally.

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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. Hello, everyone. Thank you for joining our earnings call today. As Junjie outlined, we have gained valuable clarity from 2025 that position us well for 2026 execution. I will focus on remarks on the metrics that support this outlook. Before we begin, please note that all amount are in RMB and all comparisons are on 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 first, 2025, our teahouse network totaled 7,453 locations across Greater China and overseas. A 15.7% increase from 6,440 a year ago. Specifically, our franchisee teahouses account for 6,838 compared to 6,971 in the third quarter, while company-owned teahouses reached 615, representing a net increase of 248 sequentially. This change was primarily because we converted some of our franchisee teahouses into company-owned ones in China. In Greater China, average monthly GMV per teahouse was RMB 337 thousand in fourth quarter of 2025, and RMB 387 thousand for the full year, consistent with same store and the mixed dynamic that Junjie discussed.

At the same time, overseas GMV for the fourth quarter grew 84.6% year-over-year to CNY 371.9 million. For the full year, our international market made an increasingly meaningful contribution to overall growth. On the revenue line, fourth quarter 2025 net revenue were CNY 2,974.5 million compared to CNY 3,334.4 million in the same quarter of 2024. For the full year 2025, net revenue increased by 4% to CNY 12.9 billion. In the fourth quarter, net revenues from franchisee teahouses were CNY 2,434.9 million, representing 81.9% of total net revenues, compared to CNY 3,095.9 million a year ago.

This reflects the cadence of the new product launch and the impact of specific competition on the delivery platform. Net revenue from the company owned teahouse 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 teahouse network in both Greater China and overseas markets. Turning to margin. Our gross profit, calculated by excluding costs of materials, 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 are primarily from low packaging material costs, equipment and supply chain costs. On operating expenses, share-based compensation expenses this quarter were CNY 66.1 million. This reflects our commitment to long-term employee engagement and aligning their goal with stakeholders. To provide greater clarity on underlying operational performance, we will reference non-GAAP operating results with the full reconciliation available in our earnings release in the Form 6-K. We recorded an operating loss of CNY 35.5 million compared to operating income of CNY 642.5 million last year. Based on management accounts, the operating loss was mainly attributable to the operational change in the fourth quarter, with an impact of approximately CNY 320 million, which includes organizational structural 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 reflects 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 the 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 high payroll supporting the expansion of our global tea house network.

On a non-GAAP basis, other operating costs accounts for 7.6% of revenue, compared to 5.5% a year ago. Sales and marketing expenses for the quarter were CNY 373.6 million, down 5.6% from CNY 395.7 million a year ago. On a non-GAAP basis, sales and marketing expenses representing 12.2% of revenue compared to 11.9% a year ago. General and administrative expenses reached CNY 635.6 million, up 89% year-over-year from CNY 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 this to support international expansion, alongside costs associated with ongoing initiatives to optimize internal process and the resources 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 a positive financial income reflecting interest earned on our current cash and investment balance, as well as a positive other income, which was mainly comprised of government grants largely in line with prior year periods. On non-GAAP basis, excluding share-based compensation, our full year 2025 tax rate was 18.4%. Importantly, we deliver another profitable quarter on both GAAP and a non-GAAP basis, marking our 12th consecutive quarter of profitability at the net income level, even though 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 the 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 yuan. 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 yuan, and diluted was RMB 6.18 yuan.

On a non-GAAP basis, basic was CNY 0.21. Diluted was CNY 0.17. Turning to liquidity, we ended the quarter with CNY 7,892.4 million in cash and cash equivalents, restricted cash and time deposits, up from CNY 4,868.7 million at year-end 2024. This robust balance sheet provides ample flexibility to execute our growth investment while delivering shareholder return. In closing, our fourth quarter and 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 operator to begin the Q&A. Operator, please go ahead.

Thank you. As a reminder, to ask a question, you will need to press star one one on your telephone. To remove yourself from the queue, you may press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Lillian Lou of Morgan Stanley. Your question, please, Lillian.

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Thank you for your question. We conducted a deep review of our same-store sales performance, and we think it reflects both external challenges and our internal strategy adjustment pace. As you mentioned, we underestimate the complexity of a company who has over 3,000 employees, which has delayed our strategy rolling out for the year of 2025. For that, I apologize, or I feel sorry for the market.

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of market competition in 2025 exceeded our expectations. 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 healthy business models 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.

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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 Qwen campaign in February, where we reached quickly and captured the opportunity, which shows the team's agility has gotten back to the normal level.

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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'll focus on 4 things, store operation, consumer experiences, product innovation, and organizational efficiency.

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First on operations, we will focus on existing tea houses. Slow new opening. We will 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 food chain quality management system from sourcing all the way to after sales to lay a solid foundation for long-term operations.

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Second, on consumer experience, we are focused on enhancing brand value. We won't trade price cuts for traffic. Instead, we attract consumers through high-quality product innovation and superior in-store services experiences.

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Third, on innovation, on the one hand, we will keep, you know, innovating across multiple categories while reinforce our core fresh leaf milk tea franchise. Our new product, Returning to Yunnan, launched in December, provides a strong example with a dormant membership reactivating rate as high as 51%, meaning one in every two members buying this product has been old members who hadn't consumed the previous month. It drove a 50.2 week-over-week GMV uplift in the launch week, significantly exceeding the historical average for all new products. This example proves that our product innovation capability is our core driver for navigating cycles and reinforcing store sales. On the other hand, we are exploring more consumer scenarios such as gatherings, weddings, birthdays, and other moments, and extending to all day occasions to deepen the brand warmth and texture in customers life.

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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.

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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 profits broadly flat year-over-year, while seeing same store growth trend stabilize at the operating level. We believe in the second half the overall things for ourselves and our operation will be healthier. Also we want to focus as our priority for this year is to secure the market share rather than for the net profit. If we have a conflict, if we see a conflict between market share versus profitability, we will choose the former one.

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To sum up the priority for this year 2026 is to both elevate the user experiences and keep the things for ourselves getting back to the healthy level.

Operator. Next question please.

Thank you. Management asks that all who ask their questions in Chinese please translate your questions to English for the convenience of everyone on the call. Thank you. Our next question comes from the line of Xiaopo Wei of Citi. Your line is open. Xiaopo.

[Non-English content] Uh, in your prepared remarks you briefly touch base on the business model transition. Could you share with us what have been motivating you to execute such a business model transition? Could you give us more update on the status of transition? Thank you.

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Thank you. Our model transition has one core motivation. That is to build true shared risk, shared reward strategic partnership with franchisees.

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Last year, industry price wars intensified. Franchisees faced the dual pressure of sales decline and rising costs. The old model offered insufficient buffer in downturn, so we restructured incentives shifting from traditional supply relations to a GMV based revenue sharing model.

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In a 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 raw material cost ratio at franchisees and sharply. Now our revenue moves up and down with their GMV sales. When they succeed, we succeed.

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From 2026, we fully roll out the new model. This unites our interests and goals. We look forward to even tighter collaboration to drive sustained GMV growth. Thank you.

Operator. Next question please.

Our next question comes from the line of Sijie Lin of CICC. Your line is open, CJ.

[Non-English content] So thank you management. My question is that, can you provide an update on the performance of our overseas markets? What are your expansion plans in 2026 domestic and overseas markets? Thank you.

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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 per tea house for overseas tea houses outperformed the domestic one. Preliminarily proving the replicability and strong vitality of our business model overseas.

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In 2025, we entered 4 new markets Indonesia, the United States, Vietnam, and Philippines. Currently, our overseas footprints cover 7 countries Singapore, Malaysia, Thailand, Indonesia, Vietnam, Philippines, and the United States. In Vietnam, our first tea house opening 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 Cocoa Oolong launched across 5 Southeast Asian countries, achieving a 75% new product sales share on launch day in Thailand and 38.3% in the Asia Pacific region over the first three days, topping regional tea brand voice. These achievements have demonstrated that Chagee's brand power can transcend borders.

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I'll break 2026 strategy into domestic and international markets. For domestic markets, we focus on existing stores, prioritizing 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 opening 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.

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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 business models and build replicable templates for future scale.

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Lastly, in terms of globalization, I have to add on a little bit touch. We are doing something that is a must and this is something we have to do, but it's difficult.

We're not only investing in the overseas market in the next several years, we are actually investing in the next decades, especially the U.S. markets. We're not talking about a short-term sprint, but a long-lasting marathon for our global expansion. We believe the priority for our overseas market is to refine the business model as we go. The priority is to keep a healthy and unique economics, especially for the U.S. markets, which is the second largest market except for China. We believe there are a lot of business models that we can adopt, like license or franchise, but we choose the hard way to bring it out, because we not only want to open dozens or hundreds of stores in the U.S., but we want to bring the drinking habits of tea into the U.S. market, like Starbucks has been doing for the past several years when they entered into the Chinese market. We chose a road and a route that is more difficult and requires higher CapEx, and we might make mistakes. I'm here to ask the capital markets to give us more confidence and understanding about our overseas market expansion. Thank you.

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Lastly to add on a little bit, Chagee is not adopting the normal way to grow, especially as a listing company, but we believe we want to bring the higher value, and make Chagee only that high value branding oriented company in the future. In the short term, we believe most of the capital markets or investors is focused on PNL, but in the long term, Chagee wants to grow the company as a new category pioneer, which not only provides freshly brewed drinks to our customers, but also to bring a new lifestyle to our customers, such as RTD and also different scenarios of consumption. 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 to the global consumers. Hopefully we have you all the investors long term support, and we welcome your comments and your advices as well. Thank you.

The operator, next question, please.

Our next question comes from the line of Jessie Xu of JPMorgan. Your line is open, Jessie.

[Non-English content] Thanks for taking my question. Jessie Xu from J.P. Morgan. 2025 was a tough year, but I think it's fair to say that the most difficult time seems already behind us. Investors had been looking forward to a marginal improvement in same-store sales trend. I think 4Q print already provides 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? You know, what did we do? How's 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.

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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.

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On the organization side, we've wrapped up phase one. That means combining mid and back office functions and cutting out duplicate work. As Jinjie just mentioned, we opened a lot of new stores during the year of 2023 and 2024. In 2025 alone, we opened more than 800 stores as well. Now we're, you know, focusing on the same-store sales and shifting more resources to the front lines for better execution and faster response. This is not about a smarter structure, not just trimming headcounts.

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For expenses, we've put in stricter controls and better budgeting. It covers everything from targeted marketing spending down to daily operation.

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Looking at 2026, we expect our overall fee rates to stay stable, especially for sales and marketing. We'll keep investing in this area. Also we'll keep investing in efficiency and controls without hurting core growth areas. The game is better quality inputs leading to stronger outputs no matter the environment.

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For the G&A expenses, our goal is to keep optimizing the overall efficiency with the precondition that without impact our overseas market expansion.

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Thank you.

Operator. Next question, please.

Thank you. 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.

Thank you.

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