64% Loss! Behind Tims China's NASDAQ Listing Lies Massive Capital Deficit

Tims China's Nasdaq debut: a challenging start

Today marks one month since Tims China listed on Nasdaq. So far, the performance of this coffee company, which set out to become the second Starbucks on the US stock market, still looks disappointing.

On September 29, 2022, the Tim Hortons China business, abbreviated as Tims China, listed on the US Nasdaq under the ticker symbol "THCH." It is the second Chinese coffee company to reach Nasdaq after Luckin Coffee. Tims China broke issue immediately, with its first-day closing price at $7.29, already down 8.76%. The downward trend was visible from day one, and trading after the listing has been rocky.

According to Sina Finance, on October 28 Tims China (THCH) was priced at $3.55, a discount of approximately 64% against the $10 SPAC shell company at the time of listing. A decline of that magnitude is likely disappointing not only to ordinary market investors but also to the capital behind Tims China, Cartesian Capital Group.

Background and market position

Tim Hortons was founded in Canada in 1964. In 2018, Tim Hortons' parent company RBI and Cartesian Capital jointly established Tims China, with Cartesian Capital Group as the largest shareholder. In 2019, Tim Hortons officially entered China and opened its first store in People's Square, Shanghai. That is right: just as Luckin Coffee and Starbucks China were locked in fierce competition, Tims China had only just obtained its entry ticket.

Tims doesn't offer 62% discount coupons. Relying solely on small red cups printed with maple leaves paired with cheese-covered bagels, it has still drawn a large wave of young people. Some consumers feel Tims is more of a bakery than a coffee shop, since the texture of its bagels far exceeds that of its coffee. On Xiaohongshu, some netizens have even joked: "My breakfast is from them every day. I usually go to Tims to buy bagels and to Manner to buy coffee."

Financial performance analysis

According to online data, from 2019 to 2021 Tims China's revenues were 57.257 million yuan, 210 million yuan and 640 million yuan respectively, mainly derived from product sales at self-operated stores, franchise fees, other franchise businesses and e-commerce businesses. In 2021, the revenue proportions of these four businesses were 95.9%, 0.3%, 1.5% and 2.2% respectively.

From the data above, it is clear that 2021 was Tims China's fastest-growing year, with revenue surging by 203%, more than three times that of 2020. Net losses, however, multiplied as well. From 2019 to 2021, Tims China's net losses were 87.828 million yuan, 140 million yuan and 380 million yuan respectively. The 2021 net loss expanded more than two times over 2020, bringing the three-year total to more than 600 million yuan.

Strategic challenges and future outlook

The situation bears a striking resemblance to a certain new-style tea brand: the more stores opened, the greater the losses. On the question of its severe losses, Tims China explained that this was due to rising raw material prices and the impact of the pandemic. Indeed, after Tims China was established, global coffee bean prices kept climbing, and this year weather, the pandemic and other factors pushed prices up particularly sharply.

Despite continuous losses, Tims China is still burning money for scale. According to the plan of Lu Yongchen, head of Tims China's marketing department, the company will keep expanding into second- and third-tier cities. It is expected that by 2026 the number of Tims stores will increase to 2,750, which may lead to more efficient strategic deployments.

For now, however, Tims, with 500 stores, is still far from holding a scale advantage. The listing is only the beginning. For Tims, which has seen frequent stock market declines since listing, there is no need for excessive pessimism. After all, in this booming Chinese coffee market, it remains to be seen who will last until the end.

Image source: Internet

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