CHA — Q2 2026 Financial Report Analysis

Overview

Chagee, the Chinese premium milk-tea chain, reported second-quarter net income of RMB464.8 million (US$68.5 million), six times the RMB77.2 million of a year earlier. That jump is mostly an accounting comparison, not a better business. Last year's second quarter, when the company listed on Nasdaq, carried RMB552.5 million of one-off stock-based pay. Strip that out on both sides and profit fell 22%. The underlying problem is in the stores: sales at Chagee teahouses open for more than a year fell 16.1%, and total sales across the chain in Greater China dropped 9%. Revenue still edged up 2.5% to RMB3,414.6 million, but only because Chagee now owns and runs far more stores itself, and it books their full till receipts as revenue.

At a glance

• Same-store sales down 16.1%. In every one of the five quarters the release covers, existing Chagee teahouses sold much less than a year before. The release blames "economic headwinds as well as intense industry competition."
• Profit excluding stock pay down 22% to RMB488.7 million. The reported six-fold rise reflects a RMB552.5 million listing-related charge in Q2 2025 that did not recur.
• Company-owned stores up to 883 from 239. Revenue from them tripled to RMB940.6 million while franchise revenue fell 18%, which is why total revenue held flat even as chain-wide sales shrank.

The quarter in numbers

Source: Chagee Q2 2026 results release (Form 6-K, Exhibit 99.1). Each American depositary share (ADS) represents one Class A ordinary share, so per-share figures are also per-ADS. US-dollar conversions in the release use RMB6.7851 per dollar. "Operating margin" is the share of revenue left after running the business, before interest and tax. "GMV" (gross merchandise value) is the value of drinks sold at all Chagee teahouses, franchised and company-owned, before discounts. It is the best gauge of how the brand is doing with customers, because most of it never shows up as Chagee's own revenue.

Where sales went

Greater China is shrinking. GMV there was RMB7,156.3 million, down 9.0% from RMB7,867.9 million. Average monthly sales per fully-operating teahouse in Greater China fell to RMB338,259 from RMB404,352 a year ago (-16%), and also slipped from RMB356,080 in Q1. The decline in same-store sales did ease from -25% to -28% in the second half of 2025 to -16% in Q1 and Q2 2026, but it did not improve between Q1 and Q2. Active members, people who bought at least once in the quarter, fell to 47.1 million from 50.0 million in Q1.

Overseas is growing fast from a small base. Overseas GMV more than doubled (+114.3%) to RMB504.0 million, but that is still only 6.6% of the total. The overseas store count nearly doubled, from 208 to 399, almost all of the increase company-owned (75 to 259), and overseas same-store sales were still down 15.1%.

The store mix flipped toward company-owned. Franchised teahouses in Greater China fell from 6,666 to 6,616 while company-owned ones there rose from 164 to 624. The release attributes the company-owned revenue jump to "the change in the Company's teahouse composition in Greater China and the expansion of overseas teahouse network." Goodwill on the balance sheet, an asset that appears when a company buys a business for more than the book value of its assets, rose from RMB98.0 million to RMB167.8 million in the first half. That suggests some of these stores were bought rather than built, though the release does not break this out. For revenue, the effect is mechanical. A franchised store contributes only what Chagee sells it (ingredients, packaging, fees), while a company-owned store contributes every cup sold. Moving stores in-house raises reported revenue even when customers spend less.

Where costs went

Total operating expenses fell 10.4% to RMB2,889.9 million, and almost all of that came from overheads:

• General and administrative: RMB334.5 million vs RMB944.6 million. RMB482.7 million of the drop is lower stock-based pay. The rest is RMB48.0 million less payroll and RMB30.2 million less rent, office and travel from a "streamlined administration and research team," plus RMB28.6 million of 2025 IPO fees that did not recur.
• Sales and marketing: RMB301.5 million vs RMB385.0 million, from lower stock pay (RMB30.7 million), payroll (RMB31.1 million) and advertising (RMB14.0 million).
• Company-owned teahouse operating costs: RMB566.8 million vs RMB184.1 million (+208%), the payroll, rent and utilities that come with running 883 stores instead of 239. These costs equal about 60% of company-owned store revenue in both years, before counting ingredients.
• Ingredients, storage and logistics: RMB1,571.2 million, steady at 46% of revenue.

What the headline numbers hide

• The profit jump is a comparison effect. Q2 2025 carried RMB552.5 million of stock-based compensation, 16.6% of revenue, mostly granted around the listing. This quarter it was RMB23.9 million. Excluding stock pay in both years, operating profit fell 17% (RMB548.6 million vs RMB660.1 million) and the margin narrowed to 16.1% from 19.8%. Non-GAAP diluted EPS fell 23%. The direction that matters is down.
• Tax rate distorts the comparison too. Income tax was 62% of pre-tax income in Q2 2025, because the large stock-based charge was not tax-deductible, against 20% this quarter. That alone inflates the reported growth in net income.
• Fewer shares would help EPS, more shares hurt it. Diluted shares averaged 193.0 million against 171.1 million a year earlier, because the IPO happened partway through Q2 2025. A US$150 million buyback started on June 1, and Chagee had repurchased about 2.57 million ADSs for US$29.5 million by August 24. That will lift EPS modestly from Q3.
• Cash conversion weakened. Operating cash flow was RMB358.5 million in the quarter, 77% of net income, down from RMB611.1 million a year ago. Over six months it was RMB551.8 million against RMB912.4 million of net income (60%). Part of the gap is that contract liabilities (money franchisees and customers paid upfront for goods and services not yet delivered) fell to RMB288.4 million from RMB479.7 million at year-end. That is cash collected in earlier periods now being earned as revenue. Inventories rose 32% to RMB301.5 million in six months while revenue grew 2.5%, consistent with stocking the larger company-owned and overseas estate but worth watching.
• The cash pile moved but did not shrink. The headline "cash, restricted cash and time deposits" fell to RMB6,795.5 million from RMB7,892.4 million, but short-term investments rose to RMB1,405.8 million from RMB100.1 million. Counting both, liquid funds were about RMB8.2 billion, slightly up from RMB8.0 billion. Net financial income nonetheless fell to RMB3.1 million from RMB50.8 million, and the release does not explain the drop. The company also took on RMB185.7 million of new short-term borrowings.
• Guidance: the release gives none, so there is no prior target to measure against.

Takeaway: Chagee's reported six-fold profit increase is a base effect from last year's IPO stock-pay charge. Underneath, customers are spending markedly less per store in China (same-store sales -16%), profit before stock pay fell 22%, and revenue is propped up by bringing franchised stores in-house. The balance sheet, about RMB8.2 billion of cash and short-term investments with almost no debt, gives it time to fix that, but the store-level trend has not yet turned.

Outlook

Chagee did not issue numeric guidance. Our view: the comparisons get easier from here. Same-store sales were already falling 27.9% in Q3 2025, so a Q3 2026 figure closer to zero would not by itself mean recovery. The better test is whether average monthly sales per Greater China teahouse, RMB338,259 this quarter, stop falling against the previous quarter. Margins are likely to keep drifting toward the economics of running stores directly, with more revenue but higher rent and staff costs per renminbi of sales. That makes operating profit excluding stock pay the line to watch, not revenue. Overseas growth (GMV +114%) is real but too small to offset a 9% decline in the home market. The buyback, with US$120.5 million left as of August 24, will support per-share figures through mid-2027.