Ladies and gentlemen, thank you for standing by and welcome to MINISO Group Holding Limited Earnings Conference Call for the Second Quarter of Fiscal Year 2022 that ended December 31, 2021. At this time, all participants are in a listen-only mode. After the management prepared remarks we will conduct a question and answer session. Please note this event is being recorded. Now, I like to hand the conference over to your host speaker today, Mr. Eason Zhang, Director of Capital Markets. Please go ahead, Eason

Thank you. 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. Guofu Ye, who will start the call with an overview of our business. He will be followed by our CFO, Mr. Steven Zhang, who will address our financial results in more detail before we take your questions. Before continue, I would like to refer you to the Safe Harbor statement in our earnings press 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 the International Financial Reporting Standard in the company’s earnings release and filings with the SEC. With that, I will now turn the call over to Mr. Ye. Please go ahead, sir.

Thank you. Hello everyone and welcome to MINISO’s December quarter 2021 earnings conference call. On today's call I will share major developments of our business, and then talk about the strategic upgrade of MINISO brand. I will begin with business review. During this quarter, we added 191 stores to our global store network, including 174 MINISO stores and 17 TOP TOY stores. Revenue reached RMB 2.77 billion, up 21% year-over-year, exceeding the high end of our guidance range. Adjusted net profit was RMB 214 million, up 155% year-over-year, adjusted net margin of 7.7% was the highest in recent seven quarters since the pandemic broke out. During calendar year 2021, we added 615 stores to our global store network, including 531 MINISO stores and 84 TOP TOY stores. Revenue reached RMB 10.13 billion, up 34% year-over-year. Adjusted net profit was about RMB 619 million, up 90% year-over-year, adjusted net margin was 6.8% compared to 4.8% in calendar year 2020. In December quarter, MINISO brand recorded revenue of RMB 2.6 billion, up 17% year-over-year. Revenue from China was RMB 1.88 billion, up 6% year-over-year. Revenue from overseas market was RMB 717 million, up 55% year-over-year. In China, our off-line stores recorded a higher recovery rate than industry average in October. Total sales increased by 9% year-over-year from the high water mark of last October and increased by 16% from the same period in 2019. Sales recovery rate is about 97% of the same period in 2019, among which Tier 1 and Tier 2 cities recovered to 95%, and Tier 3 and below cities recovered to more than 100%. However, this growth was interrupted by the new wave of the pandemic in November. And total sales was down 6% year-over-year and 7% compared to the same period in 2019 separately. Total sales in…

Thank you. Hello, everyone. I will start my remarks with a review of December quarter's financial results, and I then provide additional color regarding March 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 the second quarter was RMB 2.77 billion, increased by 21% year-over-year and 5% quarter-over-quarter, above the high end of our guidance range of RMB 2.5 billion to RMB 2.7 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 RMB 2.06 billion, increased by 12% year-over-year. Revenue generated from the domestic operation of MINISO brand was RMB 1.88 billion increased by 6% year-over-year. Revenue generated from TOP TOY was RMB 131 million compared to RMB 3 million in the same period of 2020. Revenue generated from our international operations was RMB 717 million, increased by 55% year-over-year, reflecting a consistent improvement of our sales recovery in overseas market as a whole. From a quarter-over-quarter perspective, revenue from our domestic operations remain flat. We estimate that the GMV loss follows influence store in China during this quarter was comparable to that in the previous quarter. Revenue from international operation increased by 15% sequentially. Gross profit was RMB 863 million increased by 34% year-over-year and 19% quarter-over-quarter. Gross margin was 31.1% compared to 28% a year ago and the 27.4% a quarter ago. Both of the year-over-year and quarter-over-quarter increase was primarily due to; one, revenue recognition, a contribution of international operations increased from 20.1% in the same period of 2020 to 25.9% in this quarter. As you know, international operations typically has higher gross margin than domestic operations; and number two, our expanding co-brand IP…

Thank you. We will now begin the question-and-answer session. Your first question today comes from the line of Michelle Cheng from Goldman Sachs. Your line is open. Please go ahead.

I have two questions for management. One is for the brand upgrade. Chairman just mentioned that they are focusing on the brand upgrades. Specifically, 70% of the products will be still with stable price, but 30% of the product is likely to have a more premium offering. So what exactly are these product lines? And also since we are penetrating lower-tier cities. So how do we balance these penetration strategies versus the brand upgrade strategy? And second question is about overseas expansion. So we have 350 stores opening target this year. So which areas will be the focus? And specifically in the U.S., what kind of model are we focusing on? And also, what will be the impact on the margin?

In terms of your questions, how to balance the brand upgrade and maintain all valid points? Here's my answer. I think brand upgrading is not incompatible with maintaining the cost performance while maintaining our product affordability. Basically the strategic upgrade of MINISO brand, you should not -- it shouldn't be simply interpreted as product price increase. For MINISO, I think it is necessary to maintain our affordability to consumers, especially in offline channels. But simply emphasizing affordability and cost performance will fill into homogeneous competition and especially in China's online channels, e-commerce, landscape, so which is detrimental to our long-term development of MINISO brand. So we must differentiate MINISO brand from the competition. So what differentiates can differentiate MINISO brand? I think we believe that all value lies in providing, as we mentioned, more appealing, more useful and more playful products and offer consumers wonderful lifestyle that our products represents. And in terms of your questions on the pricing strategy in low-tier cities. The answer is, we will not reprice across all the boards. As we mentioned, currently, we only expect about 70% of our products will remain stable in price. And for other new products, we will focus on interest-based consumption and we will have different pricing strategy. So what we want to stress here again that we were not -- we are still adhere to our affordability of products. So we'll now significantly increase the price. But we'll appropriately adjust pricing strategy for some products. For example, we have adjusted the price of our IP products in 2021. And the preliminary results in the past several quarters is very satisfactory. And for our stock category, for example, such as [indiscernible], consumers of these products are less sensitive to price and have higher recognition of IP or either brands. And we have shared for a few times that MINISO stores in the low-tier cities market have -- now in terms of cross-selling rate, in terms of ASP, we have no significant difference in Tier 1 and Tier 2 cities. So that means that consumers in the lower tier city market, they choose MINISO's products, not simply because our products are cheap, but because they like the products themselves. So in the implementation process of the strategic operate, we'll conduct partial test and the quick test for trial and error. And in this whole process, we will constantly adjust and optimize the pricing strategy. So we hope that after brand upgrade is completed when consumers come to MINISO stores we will not see that we are getting more expensive, but we are getting more -- we offer more value than we used to. And in terms of second question about the overseas development. So based

This is Steven, CFO. Based on the latest development of the current overseas pandemic recovery, we expect a net increase of 350 MINISO stores overseas in calendar year 2022. And about 35% of this will come from Asia, which will we have heavily affected by the pandemic in 2021. But we noted improved recovery in the December quarter. And Asia is also our biggest overseas market. So these countries like India, we have continued to open new stores in the past year and about 30% of them are from Europe, the Middle East and North Africa. So the number of stores in these two regions have grown very fast in the past two years -- in the past two years. And the recovery of the pandemic is also better than other areas. And another 30% well from America, including 20% from Latin America and 10% from North America. And yes, we will open more directly operated stores in the 10 and under new concept in North America, especially in the U.S., and the remaining 5% of this new addition plan will be from other markets. And in terms of your questions on the U.S market. So in terms of GMV, North American market was up more than 10% in December quarter sequentially. And on a per store basis, average sales per store, and it was up 10% from the same period in 2019, including the United States market up 11% from the same period in 2019. And in terms of the store opening, so in the December quarter, we added 18 stores in the U.S. market. And by end of December, we had about 53 stores opened at the U.S. So the performance of the 10 and under stores in the past several months has exceeded our expectation. And so combined the positive impact of how this spending in December, for example, the sales of this month in U.S. market, it exceeded our original plan by nearly 60%. But let's say, we'll still we didn’t see -- we need to look over a longer period and refine the business model. And we at the present stage, we are not in a hurry to make profits in this market base, is strategically important to us.

The next question is from the line of Lucy Yu from Bank of America. Your line is open. Please go ahead.

So first question is on a year-to-date recovery rate for both domestic and overseas market. And could you please give us some guidance on 2022 revenue growth? Second question is on the competitive landscape. So the COVID has been going on for two years. Have we seen any changes in competitive landscape in both online and off-line markets?

This is Steven. Thank you for your first question. Yes, we have now given this store opening guidance in our prepared remarks. So to conclude, we will -- we estimate to open 400 new stores in Mainland China on net basis and 350 stores in overseas market on net basis. And meanwhile, we also currently estimate that in the calendar year 2022, no matter it is in China on overseas markets. It will still continue to recover from the pandemic. Although there may be some fluctuations, but I think the big trend here is the recovery. The topic here is recovery. And at the same time -- we also believe that our e-commerce business can maintain a high double-digit annual growth rate in next year. And TOP TOY business, it will be TOP TOY's second full year, and we'll now have a growth rate at more than 100%. So based on all these assumptions, I think in calendar 2022, our top line will have a double-digit growth compared to calendar year 2021. But I want to stress here that we usually do not give the annual guidance on revenue. So this is basically an estimate based on the assumptions I mentioned. And according to that, based on our business model that is quite clear and quite forceful. So I think if we can deliver that kind of top line growth, our bottom line growth will be absolutely will be a very good result in calendar year 2022. In terms of your questions on the recent development of our business. So in terms of overseas markets, basically, it's stabilized with the recent quarters. But considering in December quarter, we have holiday seasons and holiday spending, and in the March quarter, we absolutely will see a sequential decline in the overseas market. But compared to normalized years before pandemic, I think the current situation we saw obviously observed in overseas market is quite stable. And in terms in China market, and I think, as all you may have realized that in recent months in China, the resurgences of local cases of pandemic has influenced the whole offline retail industry and many cities have reported increasing cases. And we have got full prepared for these -- the pandemic resurgence in domestic operations. So that is why we gave this -- the top line guidance for the March quarter. I will be pretty much based on all these operations.

And Lucy, this is Mr. Ye, answer your second question about the competition. So during the pandemic, I think we did three things right. The first is that we adopted a more robust business -- a more robust business strategy and control the expansion rate of overseas, and we did not pressure our overseas distributors. But instead, we took various measures to actively help distributors to clear their inventory image. And secondly, we also have actively expanded our online channels. And we have made it clarify that the omni-channel strategy will be one of the -- one of our key driver in future, and online now account for about more than 10% of company's revenue for several quarters. And the third thing that we began to penetrate into low-tier cities in China. And while the pandemic impact is less severe compared to Tier 1 and Tier 2 cities. And we continue to bring stable returns to our retail partners. So getting these three things down right help us in China, we continue to make sure a relative healthy store growth rate every year. And at the same time, we make sure that our retail partners have a good return on their investment. Over the past two years, our retail partners -- the total numbers -- the total numbers of our retail partners has continued to increase, and the average number per store -- average numbers of store per retail partners has remained stable as we mentioned in previous quarters. And so, in terms of overseas, we have seen that some competitors in some overseas markets have exited the markets. We have created our business, create the competition because the pandemic has seriously affected their business and operations there. So I think after the pandemic, we will undoubtedly gain a larger market share in these markets.

There are no more questions. 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.