Chagee's All-In on Fundamentals Is Starting to Pay Off
Same-store sales guidance turns positive, gelato and new categories re-ignite product velocity, and the capital-return mechanism matures — even as China's milk-tea market shifts to a fixed-base fight.
CHA · Earnings Call · 2026-08-28
From "Detours" to a Visible Inflection
Six months ago, Chagee's CEO was in apology mode, conceding the company "took some detours" and misjudged both competitive intensity and its own organizational complexity. On this call, the tone is markedly different — the detours are behind, and the numbers are starting to corroborate the turnaround. The single most important signal is guidance on the metric the company itself designated as its top KPI: same-store growth. “Same-store sales in July showed a low single-digit decline, representing a meaningful improvement from the first half. Based on trends so far, we expect same-store sales in August to turn positive year-over-year.” — Dengfeng Yin, COO · 2026-08-28That August positive read-through would be the first year-over-year same-store increase since the slide began — the exact threshold management set when it framed 2026 as a stabilization year. In March, the CEO said the company would accept roughly flat revenue and profit as long as “same-store growth trend stabilize at the operating level. And we believe in the second half, the overall same-store sales and operation will be healthier.” — Junjie Zhang, CEO · 2026-03-31 That second half is, in effect, arriving on schedule. Contrast the trajectory with Q1, when same-store GMV was still down 16% year-over-year (though already 10 points better than Q4), and the arc becomes clear: the strategic reset — a "return to fundamentals" framed explicitly around high-quality growth — is translating into measurable traction.A Durable Cost Base and a Product-Led Comeback
The profitability story is arguably the strongest evidence that the efficiency gains are structural, not one-off. GAAP operating margin expanded to 15.4% from 3.2% a year ago (the prior-year figure was dragged by IPO-related and share-based compensation), and the company extended its streak to 14 consecutive quarters of positive net income. Non-GAAP G&A expense ratio fell to 9.1% from 13.2%, while sales and marketing narrowed to 8.8% from 10.6%. The CFO was explicit: “We view this as evidence that our cost structure and organizational efficiency gains are durable, not a onetime” — Hongfei Huang, CFO · 2026-08-28 — a claim that matters because the company is choosing not to buy growth with discounts in an intensifying market.What is buying growth — or at least restoring momentum — is product velocity. Chagee launched 17 new products in the quarter, its highest single-quarter count, and is deliberately broadening beyond its loose-leaf fresh milk tea core into new formats. The most distinctive addition is Gelato — the single biggest keyword-momentum gainer for the company — already in 190+ teahouses and lifting average offline-channel GMV by more than 20% in pilot stores, while driving new-customer acquisition and dormant-member reactivation. Weekend-oriented specialty tea deals averaged 124 cups per teahouse per day in their first three days and contributed double-digit weekend GMV growth. The BOYA Tea Latte series lifted average cups per teahouse across Asia-Pacific by 52% in its first 15 days. This is a meaningful category-expansion story, though the top-line effect remains modest: total revenue rose just 2.5% year-over-year to RMB 3.41 billion, with GMV down 3.3% sequentially — the growth is being steered toward quality and mix rather than raw scale.Overseas as the Growth Engine, and a Maturing Capital-Return Framework
The cleanest headline on the call is overseas: GMV grew 114.3% year-over-year and 18.2% sequentially to RMB 504 million, as the company entered its eighth market, South Korea, where three teahouses sold 16,000+ cups in their first three days. The overseas markets story remains the clearest growth engine — notably against a domestic backdrop where the CEO describes a structural, not cyclical, shift: the competitive landscape has "shifted from shared growth in an expanding market to competition over a fixed base, raising the intensity of competition." That framing — and the choice to hold premium positioning rather than chase low-price traffic — is the through-line of the whole call. Notably, while this week's retail reporters (ANF, BBWI, BBY, DG, DLTR, BURL, WSM) banked IEEPA-tariff refunds into their P&Ls, Chagee's recovery is entirely organic: products, service, and members. With 257 million registered members and an active-member repeat purchase rate above 43%, the brand has a defensive moat to lean on.On capital returns, the framework is quietly maturing into something recurring. After last year's special dividend and the USD 150 million buyback (roughly USD 30 million executed to date), the CFO now says the board is “actively and prudently reviewing different options, including regular dividends” — Hongfei Huang, CFO · 2026-08-28 — a step toward a sustained return mechanism, underpinned by healthy free cash flow. Cash still stood at RMB 6.8 billion at quarter-end even after buyback and teahouse investment. The question for the rest of 2026 is whether the August same-store positive can hold through the competitive noise — but a year that began with an apology looks increasingly likely to end with a turn.