Chagee delivered a sharply stronger profitability profile in the second quarter of 2026 despite only modest revenue growth, highlighting a strategic shift from rapid expansion toward efficiency and stabilization. Revenue increased 2.5% year over year to RMB 3.41 billion, while GAAP net income surged to RMB 464.8 million, lifting the net margin to 13.6% from 2.3% a year earlier. The results also underscore a widening contrast between softer demand in Greater China and accelerating international expansion.

Profitability Becomes the Central Story

Chagee’s second-quarter performance showed that tighter cost management is beginning to have a meaningful impact on earnings. Operating income reached RMB 524.7 million, producing a 15.4% operating margin compared with just 3.2% in the prior-year period. Non-GAAP sales and marketing expenses fell to 8.8% of revenue from 10.6%, while general and administrative expenses declined to 9.1% from 13.2%.

The improvement is notable because revenue growth remained restrained. Gross profit was RMB 1.84 billion, with a 54% gross margin unchanged from a year earlier. Management described the efficiency improvements as durable rather than temporary, suggesting the company is attempting to establish a stronger earnings base while navigating a more competitive consumer environment.

China Weakens as Overseas Markets Accelerate

The main challenge remains Chagee’s Greater China business. Total GMV declined 3.3% sequentially to RMB 7.66 billion, while Greater China GMV fell 4.5% to RMB 7.16 billion. Average monthly GMV per tea house in the region also declined to RMB 338,259 from RMB 356,080 in the first quarter.

International operations, however, are moving in the opposite direction. Overseas GMV increased 18.2% sequentially and 114.3% year over year to RMB 504 million. Chagee ended June with 399 overseas tea houses across eight international markets, including its new South Korean operation.

The Seoul launch provides an early indication of the company’s international ambitions. Its first three locations sold more than 16,000 cups during their opening three days, while pre-opening app downloads exceeded 46,000. These figures do not yet establish long-term demand, but they demonstrate the potential for Chagee’s brand model to travel beyond its core market.

Products, Membership and the Path Ahead

Chagee introduced 17 products during the quarter as it sought to stimulate demand and broaden customer engagement. The relaunched Melon Oolong Tea Milk averaged 110 cups per tea house per day during its first week, while Geelato had reached more than 190 stores by August and was associated with increased traffic in pilot locations.

Its large membership ecosystem also remains strategically important. Registered members reached 257 million, with the active-member repurchase rate above 43%. More than 78% of orders came from members making at least two purchases, indicating significant repeat engagement.

Management is framing 2026 as a year of adjustment and stabilization rather than aggressive expansion. July same-store sales still declined by a low-single-digit percentage year over year, although management expects the metric to turn positive in August. Investors will therefore be watching whether improving same-store trends can validate the stabilization strategy while overseas growth continues. Chagee has also repurchased approximately $30 million of shares and is evaluating regular dividends, adding shareholder returns to the company’s evolving capital-allocation strategy.