Ladies and gentlemen, thank you for standing by, and welcome to MINISO Group Holdings Limited Earnings Conference Call for the first quarter of fiscal year 2022 that ended September 30, 2021. [Operator Instructions]. Please note this event is being recorded. Now I'd like to hand the conference over to your host speaker today, Mr. Eason Zhang, Director of Capital Markets. Please go ahead, Eason.

Thank you, Mengru. Hello, everyone, and thank you all for joining us on today's call. The company has announced its quarterly financial results earlier today. An earnings release is now available on our Investor Relations website at ir.miniso.com. Today, you will hear from our Chairman and CEO, Mr. Jack Guofu Ye, who will start the call with an overview of our business. He will be followed by our CFO, Mr. Stephen Saiyin Zhang, who will address our financial results in more detail before we take your questions. Before continuing, I'd like to refer you to the safe harbor statement in our earnings release, which also applies to this call as we will be making forward-looking statements. Please also note that we will discuss non-IFRS measures today, which we have explained and reconciled to the most comparable measures reported under International Financial Reporting Standards in the company's earnings release and filings with the SEC. With that, I will now turn the call over to Jack. Please go ahead, sir.

Thank you. Hello, everyone, and welcome to MINISO's September quarter 2021 earnings conference call. During this quarter, we added 161 stores to our global store network, including 122 MINISO stores and 39 TOP TOY stores. Revenue reached CNY2.654 billion, up 28% year-over-year, exceeding the high end of our guidance range. Operating profit was CNY213.5 million. Operating margin of 8% was the highest in recent 7 quarters. Adjusted net profit was CNY184.2 million, up 80% year-over-year. Adjusted net margin of 6.9% was the highest in recent 6 quarters, since the pandemic broke out. In spite of the headwinds from the resurgence of pandemic, rainstorm disaster and weak consumption data in domestic market in this quarter, we focused on the elements of our business that are within our control, driving product innovation, enhancing inventory management, improving operating efficiency and executing our omnichannel strategy. These efforts yield positive results as we kicked off fiscal year 2022 with a solid performance, demonstrating the resilience of our business model and core competitive strengths. On this call, I'll share major developments we have made in MINISO brand's domestic operations, international operations and TOP TOY in this quarter. First, let's start with the operations of our flagship brand, MINISO, in China. Offline retailers and consumer confidence were challenged by the continued spread of the Delta variant nationwide since late July. This regional outbreak was reported as the most widely spread variant since the first quarter of 2020. Despite the shelter-in-place during this quarter, domestic operations of MINISO brand recorded a revenue of CNY1.87 billion, up 13% year-over-year, driven by a 16% year-over-year increase in average store count and a 58% year-over-year increase in our e-commerce business. MINISO added 96 stores on a net basis during this quarter and ended September with more than 3,000 stores in China,…

Thank you. Hello, everyone. I will start my remarks with a review of September quarter's financial results and then provide additional color regarding December quarter. Please note that I will be referring to non-IFRS measures, which have excluded share-based compensation expense and certain nonrecurring items. Revenue in September quarter was CNY2.654 billion, increased by 28% year-over-year and 7% quarter-over-quarter, above the high end of the company's guidance range of up CNY2.45 billion to CNY2.65 billion. The year-over-year increase was primarily driven by the growth of our domestic operations and the recovery of our international operations. Revenue generated from our domestic operations was CNY2.03 billion, increased by 18% year-over-year. Revenue generated from domestic operations of MINISO brand was CNY1.87 billion, increased by 13% year-over-year, mainly driven by a year-over-year increase of 16% in average store count and year-over-year growth of 58% in our e-commerce business. Revenue generated from TOP TOY was CNY109 million compared to nil in the same period of 2020. Revenue generated from our international operations was CNY623 million, increased by 78% year-over-year, reflecting an improved recovery of sales in certain markets and the restocking by distributors for the upcoming holiday season. From a quarter-over-quarter perspective, revenue from our domestic operations increased by 4%. As you may know that our business is subject to seasonality, typically, with a stronger performance in September quarter than in June quarter. For example, our domestic revenue increased by 16% sequentially in September quarter of 2019, which represented a normalized seasonality before pandemic. Apparently, the weak seasonality in this year was primarily due to the new wave of pandemic from late July. We estimate the GMV loss for those influenced stores in China during this quarter was north of CNY200 million. Revenue from international operations increased by 18% sequentially. According to National Bureau of…

Mashing Chen from Goldman Sachs.

So I have two questions for the management. So, the first one is the company has been turning more aggressive, expanding in U.S. and European markets. In U.S., we are also seeing a new concept like 10 Below. So can management share the strategies regarding the overseas expansion? And my second question is about the IP development, so we are seeing that for MINISO brands, there are some price adjustments for the IP products. And can management share whether we are aggressively expanding the IP products contribution for MINISO brand? And for TOP TOY, management just mentioned that the proprietary IP development has been quite successful. So can you share with us what's the outlook at development stage?

Okay. Hi, Michelle, this is Jack, CEO of MINISO Group. And thank you very much for your questions. And for your first question about our strategies in the U.S. market, specifically on the 10 Under new concept, here's my answer. Now, we opened 4 10 and Under concept MINISO stores in the U.S. in October, and 3 in California and 1 in Virginia. The company now has some recent business development plans in the U.S. market. That is based on our observation that the U.S. market has a relatively good recovery in terms of sales in the last consecutive 3 months with same stores in the U.S. market in this quarter are reaching nearly around 90% compared with the same period in 2019. And in terms of this concept of 10 and Under, you're right that according to our customer insights, local consumers in the United States market, they have a great demand for household products under $10. But their demand is not well met at the moment. So with MINISO's supply chain strength, we decide to give the concept a try. So this 10 and Under concept is still in its early stages, and we will definitely share more in due course. Thank you. Okay. For your second question on the company's IP strategy, Michelle, I will introduce the IP strategy separately for our MINISO and TOP TOY brand. First, for MINISO brand, the company has recently gradually adjusted our pricing strategy of the newly launched IP products. And the gross profit margin of these newly launched IP products is higher than that of the non-IP products. And after a period of observation, we have found that MINISO's conversion rate and our cross-selling rate remains stable after this new IP pricing strategy was adopted several months ago. And the…

Lucy Yu from Bank of America-Merrill Lynch.

So my question is regarding fourth quarter quarter-to-date sales momentum in both China and overseas market? And the second question is regarding the guidance for the next quarter of CNY2.50 to CNY2.7 billion, and could you please give some quick breakdown by China, overseas as well as TOP TOY?

Okay. Lucy, thank you for your question. This is Steven, CFO of MINISO. I will answer questions about the update of operations. As you guys may know that the latest resurgence of the pandemic is reported to be most widely spread since March 2020. And the cold weather and rains has definitely increased the difficulties for the government to slow the pandemic. At MINISO, we currently estimate that this influence will be smaller than that of the Nanjing pandemic in late July. So -- but considering that it has spread to about [indiscernible] provinces, so our best estimate is that there will be some well between -- the loss in the GMV growth of somewhere between CNY15 million of the Guangzhou pandemic in late May and CNY300 million of Nanjing pandemic in July. And in terms of overseas market in October, the number of suspended stores by the end of October was 118 compared to, as we mentioned earlier, about 157. And in terms of sales recovery, it has absolutely a sequential improvement compared to that of September. And the overall GMV of this market has recovered to 70% to 75% of that in the same period of 2019, including 80% recovered in our distributor markets and 60% recovered in our subsidiary markets. Thank you. So Lucy, for your second question on the revenue guidance, so let me just give you a simple breakdown. Actually, we have made this estimation based on the current recovery in our domestic operations and overseas operations in terms of December quarter revenue. Absolutely, our current estimate that it will be pressured by the pandemic recovery, especially in the mass market. In terms of overseas, domestic, in terms of overseas operations, traditionally, due to the holiday season, especially the Christmas, so, for the overseas market, it will be probably stronger sequentially. And for TOP TOY business, because it's a number -- strong numbers has kept -- has been increasing and we call it effective store, that means the store has opened for a while that is increasing. We estimate that the revenue of TOP TOY will also improve sequentially. But here, I want to stress that due to the pandemic resurgence in China, it has some narrow [indiscernible] increase. So based on these factors, we have given this revenue guidance for the next quarter.

Wenhui Song from CICC. Anhui.

I have two questions. The first is that we can see that the overseas business improved month by month. So what's your store opening plan for the next year, I mean, 2022? And to what extent can the overseas business to be breakeven or profitable? And the next question is that are the newly opened overseas stores mainly from old franchisees or new franchisees?

Okay. Hi, Wenhui, this is Steven. So I'll answer your first questions. Traditionally, MINISO will review our whole year performance at the end of calendar year. And based on that review, we will make a detailed working plan or budget for the next year. So as of today, we do not have a specific plan at our mind. But what I want to stress here that MINISO has listed as a public company for several quarters, and from our past performance during the past several quarters, we have shown that our resilience in our business model and our core capabilities. And that gives the whole management confidence, so we can stick to our strategy in both at home and abroad. And this included the rollout and the rapid growth of TOP TOY, and we are very confident about that. And in terms of the overseas stores, here's what we think. All those areas that the COVID is unstable, and maybe in the first half of next year, we will -- we do not have detailed plan to make a very rapid development at these areas. Because of the pandemic resurgence, it will be very harmful to our business in that market. But for those countries and markets that the COVID is well controlled, such as the Europe and the U.S., as we have shown earlier that we have begun some of our business development, and there as we are aggregating the U.S. market. Thank you. For the second question about the store opening of overseas market, in the September quarter, our subsidiary countries, there were some of them have now opened a lot of stores. I will give you some examples such as India, we opened 6 stores in that. And as we have mentioned earlier that in the U.S. market, we opened 4 stores in this quarter. And in Indonesia, we opened 1 store. Absolutely, our distributor countries -- our distributor partners, they are also opening new stores as they did in the past several quarters. For example, Spain, the distributor in Spain opened 3 stores this quarter and 3 in Italy. So in general, we see recovery of overseas market. We have high confidence that in the coming quarters our overseas market, our distributor partners will gradually recover to now a modest expansion. Thank you.

Xiaofang Xu from Citic.

Could you please give us more detailed information about the expenses of TOP TOY, at least the operating expenses and other expenses? When can they make profit, TOP TOY, in the coming half year or it may be need 1 year or more years?

Okay. Hi, Xiaofang. Thank you for your questions. This is Steven. I will answer the questions about the TOP TOY's margin profile. For TOP TOY, it's still at its early stage of rapid growth. So we are continuously making some investments of TOP TOY, including its team building, including its marketing, to improve its brand awareness and including in the IP side. So if you look at the operating expense ratio for TOP TOY, it's at a relative high level at this moment. For example, in the past September quarter, the TOP TOY's operating expense was about by CNY14 million, and now absolutely, TOP TOY is in a loss status. But we do believe that with the development of TOP TOY's scale and it's the mature of its proprietary products, TOP TOY's merchandise gross margin will improve as we have showed earlier that -- at the -- early of 2021, TOP TOY's merchandise gross margin was about less than 40%, but its merchandise margin has reached about 5% by the end of September and at the beginning of October. So we are highly confident that by the mid of next year, its merchandise gross margin can reach as high as 50%. So if we can do that, and based on its development in next year, we do believe that TOP TOY can reach breakeven amongst a monthly basis at some point in second half of next year. Thank you very much.

Thank you once again for joining us today. If you have any further questions, please contact MINISO Investor Relations team. Our contact information can be found on today's press release. We will see you next quarter. Have a nice day.