Chagee Holdings (CHA) Q1 2025 Revenue Soars 35.4% as Franchise Count Hits 6,681 with 98% LTM Growth

Chagee Holdings Limited, trading under the ticker CHA on Nasdaq, stands out as a compelling case in the consumer beverages sector, where rapid franchise expansion and robust financial metrics suggest a company poised for substantial growth, yet its market valuation appears disproportionately conservative. With a network exceeding 6,600 teahouses as of the first quarter of 2025, predominantly franchised, Chagee is capitalising on the surging demand for premium tea drinks across Asia and beyond. This model has driven impressive revenue acceleration, but questions linger over whether the current share price fully reflects the underlying operational strength and future potential.

Franchise-Driven Expansion Fuels Revenue Surge

The cornerstone of Chagee’s business is its franchise-heavy approach, with around 93% of its teahouses operated by franchisees. This structure minimises capital expenditure for the company while enabling swift scalability. As of March 2025, the total count reached 6,681 locations, marking a significant increase from the previous year, including a push into overseas markets with 128 stores. This expansion has been instrumental in offsetting challenges such as a 19% decline in same-store sales, compensated by the addition of approximately 2,600 new outlets over the past year.

Financially, this growth translated into a 35.4% year-over-year revenue increase to RMB 3.39 billion in the first quarter of 2025, as reported in the company’s unaudited results. Over the last twelve months, revenue growth has been even more pronounced at 98%, underscoring the effectiveness of the franchise model in capturing market share. The low closure rate of just 1.5% in 2024 further highlights operational resilience, suggesting that franchisees are achieving sustainable profitability amid competitive pressures in the tea drinks industry.

Chagee’s product focus remains tightly aligned with consumer preferences, with over 90% of gross merchandise value derived from core tea latte offerings. This concentration on high-margin, popular items supports gross margins consistently above 94%, contributing to strong profitability metrics. Net margins have hovered around 30%, reflecting efficient cost management and the benefits of a digitally integrated ecosystem that enhances customer engagement.

Membership Growth and Digital Ecosystem

A key driver of recurring revenue is Chagee’s expansive membership base, which totals over 192 million members, including 45 million active users. Quarterly additions of more than 15 million members indicate accelerating user acquisition, likely bolstered by digital marketing and loyalty programmes. This ecosystem not only drives repeat business but also provides valuable data for optimising product offerings and expansion strategies.

Financial Health and Valuation Disconnect

Chagee’s financial profile is bolstered by high return on invested capital (ROIC) exceeding 158%, indicating efficient use of resources to generate profits. Earnings per share (EPS) growth over the last twelve months stands at 52%, with trailing twelve-month EPS at $1.15. Long-term debt remains manageable, comfortably below five-year free cash flow levels, and share dilution has been negative at -5%, signalling shareholder-friendly capital management.

Despite these strengths, the stock trades at a price-to-book ratio of 0.66, with a market capitalisation of approximately $4.13 billion as of the latest close at $22.24 per share. This represents a 21.03% decline from the 200-day moving average of $28.16, and the shares are down from a 52-week high of $41.80. On a forward EV/EBITDA basis, the valuation sits at around 7x, a notable discount compared to industry peers in the consumer discretionary and beverages sectors, where multiples often exceed 10x for similar growth profiles.

Analyst models project continued momentum, with 2025 revenue guidance between $167 million and $175 million, net income above $40 million, and EPS greater than $1.15. Free cash flow is anticipated at around $18 million, implying a compound annual growth rate of approximately 46%. These forecasts, based on company guidance and sector trends, suggest that if Chagee sustains its expansion trajectory, the current valuation could prove conservative.

Risks and Market Sentiment

While the growth story is compelling, risks include potential saturation in core markets and the impact of economic slowdowns on discretionary spending. Same-store sales declines highlight vulnerability to consumer shifts, though the franchise model’s low closure rates mitigate some concerns. Broader sentiment from credible sources, such as analyst ratings averaging 1.1 (Strong Buy) on platforms like TipRanks, reflects optimism about Chagee’s ability to navigate these challenges through international diversification.

In overseas markets, early traction with 128 stores as of Q1 2025 points to untapped potential, potentially replicating the domestic success where franchised locations dominate. However, geopolitical tensions and currency fluctuations could temper growth.

Implications for Investors

For investors eyeing the premium tea segment, Chagee represents a blend of high-growth franchising and undervalued assets. The company’s ability to generate substantial free cash flow—$11.1 million in Q1 2025—positions it well for reinvestment or shareholder returns. If expansion continues at current rates, with overseas markets contributing more significantly, the valuation gap could narrow, potentially delivering returns exceeding 100% over the next four to seven years, based on earnings multiple expansion models.

Comparatively, peers in the quick-service restaurant and beverages space trade at premiums for similar franchise-driven models, suggesting room for rerating. As of 17 August 2025, with shares closing at $22.24 after a 3.34% daily gain on volume of 875,673 shares, the setup appears attractive for those betting on sustained execution in a booming Asian tea market.

In summary, Chagee’s franchise powerhouse potential, underpinned by explosive growth metrics and a loyal customer base, contrasts sharply with its current market pricing. Investors monitoring the premium tea drinks trend may find this disconnect an opportunity, provided the company maintains its trajectory amid evolving market dynamics.

References

• AINVEST. (2025). Chagee Holdings Q1 Surge: Rapid Expansion & Strategic Risk. Retrieved from https://www.ainvest.com/news/chagee-holdings-q1-surge-rapid-expansion-strategic-risk-2506/
• Investing.com. (2025). Chagee Holdings Ltd. Chart. Retrieved from https://uk.investing.com/equities/chagee-holdings-ltd-chart
• NASDAQ. (2025). Chagee Holdings Limited Reports Strong Q1 2025 Financial Results: 35.4% Revenue Growth. Retrieved from https://www.nasdaq.com/articles/chagee-holdings-limited-reports-strong-q1-2025-financial-results-354-revenue-growth-and
• PitchBook. (2025). Chagee Company Profile. Retrieved from https://pitchbook.com/profiles/company/482637-16
• Simply Wall St. (2025). Chagee Holdings Overview. Retrieved from https://simplywall.st/stocks/us/consumer-services/nasdaq-cha/chagee-holdings
• Stock Analysis. (2025). Chagee Holdings Financials. Retrieved from https://stockanalysis.com/stocks/cha/
• TipRanks. (2025). Chagee Holdings Reports Robust Q1 2025 Growth Amidst Expansion. Retrieved from https://www.tipranks.com/news/company-announcements/chagee-holdings-reports-robust-q1-2025-growth-amidst-expansion
• TradingView. (2025). Chagee Holdings – Income Statement. Retrieved from https://www.tradingview.com/symbols/NASDAQ-CHA/financials-income-statement/
• Yahoo Finance. (2025). Chagee Announces First Quarter 2025 Results. Retrieved from https://finance.yahoo.com/news/chagee-announces-first-quarter-2025-110000659.html
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