Chagee Holdings Limited (CHA) saw its stock price plummet 5.42% in pre-market trading on Friday, following the release of its first quarter 2025 financial results. Despite reporting strong revenue growth, investors appear concerned about declining profitability and same-store performance.

The company announced that its total net revenues increased by 35.4% year-over-year to RMB3,392.7 million (US$467.5 million). However, this growth was overshadowed by several concerning factors. The average monthly GMV per teahouse in Greater China declined to RMB431,973 in Q1 2025, down from RMB549,432 in the same quarter last year. Moreover, Chagee reported a negative same-store GMV growth of 18.9% in Greater China, indicating challenges in maintaining growth at existing locations.

While Chagee's net income increased by 13.8% to RMB677.3 million (US$93.3 million), the company's profitability metrics showed signs of pressure. The operating margin decreased to 24.2% from 28.2% in the same quarter of 2024, and the net income margin fell to 20.0% from 23.7%. These declines can be attributed to a significant increase in operating expenses, particularly in sales and marketing, which rose by 166.0% year-over-year. The market's negative reaction suggests that investors are concerned about the company's ability to maintain profitability as it continues its rapid expansion, with the total number of teahouses growing by 63.6% year-over-year to 6,681.