Chagee’s Teahouse Footprint Jumps 25.9%, But Margins Tighten as Competitive Pressures Rise

Chagee Holdings Limited (NASDAQ:CHA), the fast-growing premium tea drinks brand, just released its unaudited Q3 2025 results—and the story is one of impressive expansion mixed with the challenges of a shifting market landscape. The company’s teahouse network grew nearly 26% year-over-year, but profits and margins faced headwinds as subsidy competition ramped up among food delivery platforms and per-store sales slid.

Special Dividend of $0.92 per Share Underscores Shareholder Focus

One immediate bright spot: Chagee’s board declared a special cash dividend of $0.92 per ordinary share or ADS, totaling around $177 million, payable mid-December. This signals management’s intent to return value to investors even as it navigates an evolving market and reinvests in physical expansion.

Network Growth Accelerates, Led by Company-Owned Teahouses and Overseas Markets

By the end of September, Chagee’s teahouse count reached 7,338—a 25.9% increase versus a year earlier. Much of this was fueled by an ambitious expansion of company-owned stores, particularly overseas. Company-owned locations nearly doubled to 367 (from 191 at the end of March), with international stores surging to 127.

Average Per-Store Sales Decline Reflects Tough Delivery Competition

Despite its growing footprint, Chagee’s total GMV dipped to RMB7.93 billion (from RMB8.30 billion a year prior). Most of this decline stemmed from Greater China, as intensified subsidy battles among food delivery apps squeezed store-level volumes. Same-store GMV growth in Greater China dropped to -27.9%. Yet, overseas GMV leapt 75% to RMB300.3 million, showing clear traction outside China.

Profitability Slips as Cost Controls Battle Rising Overheads

Chagee posted Q3 2025 net revenues of RMB3.21 billion ($450.7 million), down about 9% from last year. Operating margin fell from 22.4% to 14.2%, and GAAP net income dropped to RMB397.9 million ($55.9 million). Non-GAAP net income, which adjusts for share-based comp, was RMB502.8 million ($70.6 million)—still well below the prior-year level.

The culprit? Franchise revenue was down as fewer cups were sold per store in China, and operating costs increased for new company-owned locations, particularly overseas. Notably, company-owned store revenue rose 63.8%, now comprising 12.4% of the mix (versus 6.8% last year), hinting at a deliberate pivot toward more direct control and branding overseas. Sales and marketing spend fell by 13.4% as Chagee dialed back on advertising, but administrative expenses rose sharply, mainly from share-based comp and added staff to support growth.

Cash Balance Doubles, Fueling Flexibility and Payouts

One reassuring sign is Chagee’s strengthened liquidity. The company closed the quarter with RMB9.14 billion ($1.28 billion) in cash, restricted cash, and time deposits—up nearly 90% from year-end 2024. This positions Chagee well to support its global expansion and special dividend payout.

Key Takeaways for Investors: Growth Continues Amid Market Challenges

Chagee is clearly executing on an aggressive growth strategy—especially with company-owned and overseas teahouse expansion. The rapid growth in registered mobile members (now 222 million, up 36.7% year-over-year) reflects ongoing consumer engagement.

Yet, the realities of market competition in China—especially intense discounting and consumer promotion battles—are squeezing store-level sales and profit margins. The substantial shift toward company-owned locations overseas may help balance this over time, and the robust cash balance means the company is not constrained on this front. Meanwhile, the special dividend demonstrates management’s focus on returning value as the business model evolves.

For those following global retail food and beverage brands, Chagee’s performance in the coming quarters will provide key insight into whether direct ownership, international diversification, and consumer digital engagement can offset the current challenges facing franchise-heavy growth in China’s fiercely competitive delivery ecosystem.

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