Ladies and gentlemen, thank you for standing by, and welcome to MINISO Group Holding Limited Earnings Conference Call for the Third Quarter of Fiscal Year 2022 that ended March 31, 2022. At this time, all participants are in a listen-only mode. After the management's prepared remarks, we will conduct a question-and-answer session. 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. Hello, everyone, and thank you all for joining us. We have announced our quarterly financial results earlier today. The earnings release is now available on our Investor Relations website at ir.miniso.com. Joining us today are our Founder and CEO, Mr. Guofu Ye; and our CFO, Mr. Saiyin Zhang. Before continue, I'd 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 Standards in company’s earnings release and filings with the SEC. With that, I will now turn the call over to Mr. Ye. Please go ahead.

[Foreign Language] Thank you. Hello, everyone, and welcome to MINISO Group's March Quarter 2022 earnings conference call. In March quarter, the pandemic once again gripped China with major cities, including Shenzhen and Shanghai, consecutively adopting strict lockdown control measures since February. The domestic retail industry was challenged and stroke by the most stringent restrictive measures taken by local governments since 2020. According to our estimates, nationwide footprints to our MINISO stores decreased by about 2%, a 14% and 34% on a year-over-year basis from January to March, respectively, due to the strict control measures by local governments. Despite the ongoing challenges of the pandemic, we delivered another solid quarter with revenue reaching RMB2.34 billion, up 5% year-over-year. TOP TOY's revenue increased by nearly four times year-over-year, and MINISO's offline business delivered positive year-over-year growth, which again demonstrated the resilience of our business model. [Foreign Language] So as we have emphasized in our earnings conference call over the past few quarters, the pandemic will weigh on consumer demands and thus, our near-term results. However, our business model has demonstrated its great resilience and flexibility on the extreme market environment over the past two years, according to a report from Frost & Sullivan, MINISO's leadership position has been further consolidated. Our market share in global branded variety retail market has increased from 5.2% in 2019 to 6.7% in 2021. During the same time, our market share in China has also increased from 10.9% to 11.4%. [Foreign Language] I'm pleased to see several positive trends in our business, and let me share with you. Firstly, in China, we continue to execute MINISO's brand upgrade as plan by integrating the concept of interest-based consumption into product development. Our newly launched products, which feature appealing, useful and playful have higher gross margin compared with our…

Hello, everyone. Thank you for joining us. Today, I will start my remarks with a review of March quarter's financial results, and then provide additional color regarding June quarter. Please note that I will talk about the financials in RMB, and I will also refer to some non-IFRS measures, which have excluded share-based compensation expenses. Revenue for March quarter was RMB2.34 billion, including RMB1.82 billion in China and RMB520 million in overseas market. In China, revenue from off-line business of MINISO brand was RMB1.56 billion. Revenue from e-commerce of MINISO brand was RMB126 million, and the revenue from TOP TOY was RMB111 million. From a year-over-year perspective, our revenue increased by 5% year-over-year, primarily driven by 17% year-over-year growth in overseas market, but dragged by 2% year-over-year growth in China, which was caused by the linger effect of the Omicron vibrant. As we have mentioned in CEO's prepared remarks in China in this quarter, revenue from off-line business of MINISO brand grew by 1% year-over-year. The pandemic has negatively affected our revenue in China in two ways. Firstly, it caused the temporary closure of our stores. For example, more than 300 or 10% of MINISO store was temporarily closed in March. Secondly, for those store opened the lockdown measures taken by local government have significantly impact the traffic. We estimate the GMV loss for the month of March alone was around 300 million, which translates into a revenue loss of about 200 million. Our TOP TOY brand, although it recorded a year-over-year revenue growth rate of more than 300%, its operation was also negatively impacted by the Omicron, with more than 10% of the stores were temporarily closed in March. In overseas market, the year-over-year growth come from both distributor market and the subsidy market with a part of the…

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. Line is open. Please go ahead.

[Foreign Language] So I have two questions for management. The first one is regarding inflation and cost. So given some retailers calling or high pressure on the cost inflation. So what is the management observation on the cost inflation rate on our business? And how do we manage that? In particular, we have very strong margin expansion first - in the March quarter. So how sustainable it is? And my second question is regarding the store expansion. So can management give us some update regarding the extension plans for China and the overseas market? Thank you.

[Foreign Language] I will translate our CEO. So thank you for your question, Michelle. Yes, we have noted this situation. The recent cost pressure based by retailers concerns everybody in this industry. Let me share with you our views. So to sum up, the recent cost pressures of retail industry, I think they come from the following aspects. The first is the rising transportation and freight cost, including the rising oil price and the rising shipment cost. Second is to come from the supply chain side, including the rising price of raw materials and commodities. And also, we saw the transmission of cost pressures from suppliers. And the third is the impairment of inventory will lead to the reduction of gross profit. In the current turbulent market government, the real - the hotel retail industry has been facing more uncertain consumer demands and higher seasonalities. And this has to make many companies face the difficulty to reorder or phase a prolonged reorder lead time. And there is more and more freight pressures coming on the way. So some companies are choosing to keep more inventories. But because consumer demand nowadays it's more and more to predict. So at this time, - on the market, if your forecast goes around, it can be troublesome and can lead to inventory over store. So this has become a common challenge for the retail industry. For MINISO, we currently do not feel much pressure on the cost side, and it has been supported by our recent rising gross margin during the past quarters, and I think it's mainly due to the following reasons. First, I would like to expand our expense structure. So in the whole process, the freight cost paid [ph] by MINISO is from the supplier to MINISO’s warehouse. This part only…

[Foreign Language]

I will translate for CFO. Yes, for your question on store expansion. Let me start with the overseas market. Now we still maintain our guidance of net addition of 350 stores in calendar year 2022. For China, it's a more complicated story here because everyone has - everyone knows that what happens here and the whole restrictive measures has been for a while. And as Mr. Ye shared in his prepared remarks, we will dynamically adjust our store openings in China based on the pandemic control in China. And the basic - the transport here is that we will focus on the long-term tariffs of the whole MINISO system and grow based on that we adjust our store openings there.

Thank you. The next question is from the line of Lucy Yu from Bank of America Merrill Lynch. Line is open. Please go ahead.

[Foreign Language] The market is concerning about China spending power deterioration. In the near term, we might face consumption downgrade or more conservative spending, it might take some time to restore consumer confidence. Meanwhile, MINISO has raised the price for certain products since second half of last year. How should we think about potential impact on sales in the consumption down cycle? And will you consider to adjust this strategy? And second question is on the sales situation in both China and overseas during the second quarter so far. And following that, China sales has been quite soft lately, how should we think about the inventory destocking pressure in the second quarter or third quarter? Thank you.

[Foreign Language] I'll translate for CEO. So thank you for the question, Lucy. One thing I want to point out here is that so many countries are facing the inflationary pressure at this moment. And consumers, they tend to look for value more in such a high inflation impairment, which is a very good opportunity for us because that is our advantage. With our experience and core capabilities in supply chain, inventory management and our pricing strategy will continue to leverage our value proposition and cost advantage and get more capacity position in this downturn for consumer. For a long time, MINISO has always all of our pricing strategy of taking around 50% merchandise gross margin. And starting in 2021, our new product pricing margins are represented by these IP products have increased by at least 5%. But it needs to be emphasized that this price increase are just for the 30% interest-based products. For the rest, 70% of MINISO products, we will stick to our value proposition. And I can share a saddle numbers. In the past 3 or 4 years, the average selling price per MINISO product in China market has been slowly decreasing from RMB12.5 to less than RMB12. And during the same time, our margin in China market stabilized. So we won't raise MINISO product price completely, but we'll do that based on our value proposition and do some differentiated pricing to meet the more diversified to events. As of today, I think this strategy, it influenced our gross margin is positive. And in the future, there will be not many changes for our promotion strategy - so it will still be for the 30% interest based products and only for new products. And as we communicated in the last quarter's earnings call, I really hope that after the brand upgrade when consumers come to our store, we want to feel that we get more expensive, but we have more value.

[Foreign Language]

I'll translate for CFO. I will answer your second question. So your first part on the recent recovery in April and May. So first of all in China, currently, April is even worse than the situation in March because we had a more stricter measures. So sequentially, the GMV in April has down 10%, mainly due to number one, the temporary store closure is even higher. So in April, there was about 380 stores closed and number two, good traffic in and to our stores also decreased in April. And for the - the operations in May in China, we saw some kind of recovery versus some kind of recovery. But our judgment is that it's more related to seasonality or made it's traditionally a strong month for resold - but on the other side, we also saw that the store closures May in China [Technical Difficulty] is much better than in China. If we look at the first - the March quarter's year-over-year growth rose 30% or so, entered into the June quarter, we have seen apparently acceleration in the whole recovery in overseas markets. For example, India and Indonesia, our average saw more than 60% year-over-year growth, especially in the Indian market, so more than 100%. And for your second part question on the inventory. My first guess, my first impression here, is based on the situation, we observed here is that we're justifying are good on the inventory because during the past 2 years, we have fund every chance every chance we get to control our imagery team over days. And we also very spend in our whole inventory management for sales. So in the - in March due to COVID and matters our inventory was negatively affected a little bit. But the inventory turnover days for China was still at the low level of 60 days. In fact, I want to express here that our whole control of the inventory level is quite good. So we are very confident for this side. Thank you.

[Foreign Language] Thank you. The next question is from the line of [indiscernible] from Credit Suisse. Your line is open. Please go ahead. Q – Unidentified Analyst: [Foreign Language] So how is our latest development in our overseas market, especially in North America? Have we seen a stabilizing store economics in the U.S. And also in which overseas countries have we enter at the stage of having a stabilized or economics and ready for further mass expansion. Thank you.

[Foreign Language] Thank you, Meradco [ph] So generally speaking, since we only officially launched our net tenant under program in North America since the last - faster year in the fourth quarter. Everything went quite well in North American market. I would take America, to the U.S. market, as an example, since has taken the majority part of the Kenan [ph] business. But as of the end of March, we had before MINISO stores in America and mostly directly operated and the store number increased by 70% year-on-year. In terms of average store performance, average store sales in March quarter, we have seen 100 recovery to the pre-COVID level. And if we look at the high season, the peak season of December quarter last year, the average store performance was 10% higher. And of course, it has a large part of the whole recovery of the U.S. retail - the U.S. retail market. But beyond that, we also have accomplished a lot of internal management improvement such as the localization of our products such as the solution to our supply chain and so on. So during the past seven quarters, we have seen more and more profitable stores in the U.S. market, and we are more and more close to see relatively stable store model. And we really hope we can have this job down in the year of 2022. So except the U.S., we will also try Canada market in the second half of. And except the North American market, we also had other several subsidiary markets. I would say that many of them have already had a store model there, especially in the next year. So for the whole Southeast Asian market, including in this year, the major problem of them is the pandemic. It's still there. So it has still lingering effect on our sales there. So we do really hope that in 2022, the impact of the COVID in this market will be - will fade eventually so that we can improve substantially our P&L for the subsidiary markets. Thank you very much.

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