In its first quarter following a high-profile strategic pivot, Chagee chose to stabilize its system through a heavier operational approach, which in turn placed greater pressure on its profit statement.
For the first quarter of 2026, Chagee achieved net revenue of 3.546 billion yuan, representing a year-over-year increase of 4.5%. However, operating profit dropped to 547 million yuan from 821 million yuan in the same period last year.
Excluding share-based compensation expenses, the Non-GAAP net profit margin declined to 14.3% from 20.0% a year earlier.
This shift is not merely a fluctuation in profits but the result of a change in operational focus.
Since entering 2026, Chagee has shifted from pursuing store expansion to stabilizing same-store performance, supporting franchisees, and improving operational quality. It is underpinning the system through increased direct operations, new product launches, and adjustments to franchise policies.
During the quarter, Chagee launched 12 new products, introducing items at a frequency of nearly one per week, covering its product matrix of fresh leaf milk tea, tea lattes, specialty tea drinks, and light beverages.
Marketing activities during the Spring Festival period, combined with the high-frequency new product launches, drove an increase in user engagement. The number of active members reached 50 million in the quarter, up 11.7% sequentially. The average monthly GMV per store in Greater China was 356,100 yuan, a sequential increase of 5.5%.
Nevertheless, year-over-year pressures remain significant. Same-store GMV for Chagee fell 16.0% in the first quarter, with a 16.1% decline in Greater China and a 12% drop in overseas markets.
Against this backdrop, the company accelerated its transition to direct operations. As of the end of the first quarter, franchise stores numbered 6,741, a decrease of nearly 100 from the end of 2025. In contrast, self-operated stores increased from 615 to 790, with a net addition of 175 stores in the quarter.
The move to direct operations is not merely an adjustment in store structure but a crucial means to strengthen headquarters control.
In an environment of intensified competition and pressure on franchisees, increasing the proportion of directly operated stores helps reinforce operations in core commercial districts and key cities, while maintaining uniform standards in products, services, and pricing systems.
However, the costs are equally evident. Operating expenses for self-operated stores reached 497 million yuan in the first quarter, surging 216.6% year-over-year. With per-store sales not yet fully recovered, the rise in costs directly compressed profit margins.
Another significant change came from the adjustment to the franchise royalty mechanism.
Starting in 2026, Chagee shifted from a supply and sales model, where it profited from selling raw materials to franchisees at a markup, to a fixed-percentage commission based on store GMV.
Additionally, the brand now covers the discount differentials for marketing campaigns, with the discount cost borne by franchisees capped at 10% of their gross merchandise volume.
This helps alleviate operational pressure on existing stores, but in a context where same-store growth has not yet recovered, it also reduces the revenue and profit flexibility for the headquarters.
The new tea beverage industry has entered a stage of competition for existing market share, with price wars, store densification, and product homogenization continuously compressing per-store efficiency.
For Chagee, maintaining per-store profitability and franchisee confidence presents a greater challenge than continuing store expansion.
If same-store GMV remains under persistent pressure, the shift to direct operations and profit-sharing measures may merely redistribute the strain. Only when store turnover resumes growth can the investments in direct operations and franchise reforms potentially translate back into profit flexibility.
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