Russ Cohen

TH International’s Expansion Results Analysis TH International Reaches Popeyes Goal, But Falls Short On Tim Hortons

Main Highlights

  • Record growth in new store openings for TH International in last year’s fourth quarter
  • Progress marked by the opening of the 10th Popeyes store in China
  • Company’s store count for Tim Hortons chain falls noticeably short of expansion goals

By Doug Young

The Chinese fast food operator TH International Ltd. (THCH) achieved significant growth in new store openings in the fourth quarter of last year. The company recently marked the milestone of the 10th Popeyes store opening in the Mainland market. However, the performance of its core Tim Hortons chain fell noticeably behind its previously disclosed expansion objectives.

At present, TH International boasts 919 stores in its network, including 10 Popeyes outlets, with the rest under the Tim Hortons brand. The company’s fourth-quarter performance was particularly impressive, with the opening of about 156 stores, surpassing the total for the previous three quarters combined.

Expansion Performance Analysis

Despite this progress, TH International fell short of its anticipated 1,000 stores in operation by the end of last year. This disparity underscores the challenges faced by the company, which will likely be addressed in its upcoming official fourth-quarter results announcement.

The stock market response to the announcement indicated lukewarm reaction, with limited impact on trading volumes. Though the company’s fourth-quarter store openings demonstrated resilience, investors remain cautious amidst concerns over the company’s rapid expansion in a challenging economic climate.

Market Landscape and Investor Sentiment

TH International is competing in a market where several Western fast-food giants, including Yum China (YUMC) and DPC Dash (1045.HK), are aggressively expanding to capitalize on the growing middle-class consumer base in China. However, the company’s struggle to match the successes of established brands like KFC, McDonald’s, and Starbucks has led to investor skepticism.

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The company’s underwhelming stock performance, reflected in a price-to-sales (P/S) ratio of 1.22 and a notable decline of about 80% since its backdoor listing in 2022, underscores the prevailing lack of confidence among institutional investors. This subdued valuation is compounded by TH International’s inability to turn a profit, a growing concern for investors amidst China’s economic slowdown.

Financial Analysis and Outlook

Despite registering a 42.7% year-on-year revenue increase in the third quarter, the company’s growth rate notably decelerated, owing to its shift towards relying more on franchise partners for new store openings. While this strategy enhances store counts, it yields lower revenue compared to self-operated stores.

However, TH International has made progress towards profitability, with an improvement in its adjusted store EBITDA and a narrowing net loss. The company has also demonstrated agility in its expansion efforts, particularly in its swift progress with the Popeyes brand, setting ambitious store targets for the future.

Conclusion and Future Prospects

The tepid stance of major investors towards TH International stems from a wait-and-see approach, as they seek evidence of sustained profitability amidst China’s economic headwinds. The company’s ability to navigate these challenges and replicate the success of established fast-food chains in China remains a key determinant of its future stock performance.