Chagee's Q2 Earnings: Navigating Near-Term Risks Amid Strategic Expansion

Chagee Holdings Limited’s Q2 2025 earnings report revealed a stark contrast between its ambitious expansion and deteriorating profitability. While the company achieved a 10.2% year-over-year revenue increase to RMB3.33 billion, this fell short of analyst estimates by RMB338 million (RMB3.67 billion expected) [5]. The revenue shortfall, coupled with a 87.7% drop in GAAP net income to RMB77.2 million, underscores immediate operational challenges. Operating margins collapsed from 24.6% in Q2 2024 to 3.2%, driven by a 301.1% surge in general and administrative expenses, largely attributed to share-based compensation costs [1]. These figures signal heightened near-term risk, particularly as same-store gross merchandise value (GMV) in Greater China declined by 23% [6], reflecting domestic market saturation and competitive pressures.

Despite these headwinds, Chagee’s long-term strategic initiatives remain compelling. The company’s teahouse network expanded by 40.9% to 7,038 locations, with international GMV surging 77.4% year-over-year, fueled by new markets in Indonesia, the U.S., and the Philippines [1]. Strategic product launches, such as the Hojicha Gemini milk tea and Earl Grey series, have bolstered overseas sales, while automation plans—including 4.0 machines to reduce labor costs—aim to enhance efficiency [3]. These moves align with a shift from rapid market penetration to operational discipline, as CEO Junjie Zhang emphasized during the earnings call [2].

Analysts remain cautiously optimistic. CICC, Citigroup, and Morgan Stanley have all issued “Outperform” or “Buy” ratings, citing Chagee’s strong cash reserves (RMB8.89 billion) and long-term growth potential [3]. However, the stock’s 11.8% post-earnings decline reflects investor skepticism about short-term profitability [6]. The key question is whether Chagee can balance its aggressive expansion with margin preservation, particularly as delivery-platform subsidy wars and rising administrative costs persist [4].

For investors, the calculus hinges on two factors: the pace of international market adoption and the effectiveness of automation in reducing unit economics. While the near-term risks are clear, Chagee’s strategic pivot toward premium brand positioning and localized product innovation—such as the VICI Black Tea Milk launch—could differentiate it in crowded markets [2]. If the company can stabilize domestic GMV and scale its overseas operations profitably, the long-term value proposition remains intact.

Source:
[1] Chagee Announces Second Quarter 2025 Unaudited Financial Results [https://investor.chagee.com/news-releases/news-release-details/chagee-announces-second-quarter-2025-unaudited-financial-results]
[2] Chagee Holdings Limited (CHA) Q2 FY2025 Earnings Call [https://finance.yahoo.com/quote/CHA/earnings/CHA-Q2-2025-earnings_call-351852.html]
[3] Chagee Holdings Limited Reports Second Quarter 2025 Financial Results [https://www.quiverquant.com/news/Chagee+Holdings+Limited+Reports+Second+Quarter+2025+Financial+Results+and+Teahouse+Network+Expansion]
[4] Chagee's Q1-Q2 2025 Earnings Calls: Contradictions Emerge [https://www.ainvest.com/news/chagee-q1-q2-2025-earnings-calls-contradictions-emerge-strategic-priorities-international-expansion-store-sales-trends-2508/]
[5] Stock Track | Chagee Holdings Plunges 5.45% Pre-Market [https://www.itiger.com/news/1106719640]
[6] Chagee Holdings' Shares Plummet: Is Recovery In Sight? [https://stockstotrade.com/news/chagee-holdings-limited-cha-news-2025_08_29/]