Ladies and gentlemen, thank you for standing by, and welcome to MINISO's Earnings Conference Call for the Third Quarter of Fiscal Year 2023 that ended March 31, 2023. 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. We have announced our quarterly filing results early today. An earnings release is now available on our Investor Relationship website at ir.miniso.com. Joining us today are our Founder and CEO, Mr. Jack Ye; and our CFO, Mr. Eason Zhang. Before I 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 financial measures today, which we have explained and reconciled to the most comparable measures reported under the International Financial Reporting Standards in the company's earnings release and filings with U.S., SEC and Hong Kong Stock Exchange. In addition, we have prepared a PowerPoint presentation for today's call, which contains financial and operational information for this quarter. If you're using Zoom meetings, you should be seeing it right now. You can also revisit it on our IR website later. Now I'd like to hand the conference over to Mr. Ye and Mr. Zhang will translate for Mr. Ye. Please go ahead, sir.

[Foreign language]

Hello, everyone, and welcome to our earnings conference call. We delivered a strong start to calendar year 2023 with the best March quarter performance in our history, shaking off 3 years of uncertainty caused by the pandemic. Driven by the strong recovery of our offline operations in China and the continued development of our overseas business, our revenue for the March quarter increased by 26% year-over-year and reached RMB 2.95 billion. I'm also pleased to see that our margin profile continue to beat expectations. Gross profit margin of all business segments saw healthy year-over-year improvement, bringing the overall gross profit margin to 39.3%, which is 9 percentage points higher than the same period last year. Adjusted net profit exceeded RMB 418 million, an increase of 336% year-over-year. Adjusted net profit margin expanded 16.4%, a 12 percentage point increase compared to same period last year. Both figures set new records for MINISO.

[Foreign language]

I now walk you through business updates for our three major segments it's China, is overseas and TOP TOY.

[Foreign language]

I will start with MINISO brand China business. which recorded RMB 2 billion in revenue for the March quarter, a year-over-year increase of 19%. Within MINISO China business, revenue from offline stores totaled RMB 1.83 billion, a year-year increase of 12% -- of 25%.

[Foreign language]

As we shared during the last earnings conference call, January was the best month in terms of domestic offline sales in MINISO's history. In February and March, as the pent-up demand from the pandemic gradually dissipated and the Chinese New Year holiday ended, the pace of recovery in retail industry moderated to a certain extent. That said, our performance continued to outperform the industry according to data from the National Bureau of Statistics. Retail sales consumer goods in China increased by 4.9% year-over-year in the March quarter, while MINISO China's offline business recorded over 25% year-over-year. Our per store GMV in March quarter has essentially returned to the same level of the period in 2021, reaching around 85% of the pre-COVID level in 2019.

[Foreign language]

Entering April, we have seen sustained strong performance and even marginal improvement in store level performance. Total offline GMV increased by 80% year-over-year, higher than the 16% of sales growth in retail sales of consumer goods reported by the National Bureau of Statistics just today while per store sales increased by 50% year-over-year, reaching 85% of pre-COVID level in 2019, representing a substantial sequential improvement from the previous 2 months February and March. During the Labor Day holiday, total offline GMV increased by 75% year-over-year, per store GMV increased by 45% year-over-year and to a comparable level of 2019.

[Foreign language]

We opened 58 new stores on a net basis during the March quarter, double the figure from the same period last year. More than 53% of new stores were in Tier 1 and Tier 2 cities. In addition, store closure reach was 0.6%, a record low. The strong performance further bolstered the confidence of our regional partners, and we are quite confident now that we will meet and exceed our strong -- our store opening target of 250 to 350 in calendar year 2023.

[Foreign language]

We are firmly committed to pursuing high-quality growth as we stressed in our previous quarters in addition to maintaining steady pace of store openings. We continue to improve store performance with better merchandise and operations in 2023.

[Foreign language]

From a merchandise perspective, we adhere to our IP strategy as a core and focus our efforts in strategic categories. This [indiscernible] in the past quarter and our merchandise gross margin increased by nearly 7 percentage points from a year ago. Let me first address our IP strategy. As scheduled, we launched a highly anticipated series [Pokemon] IP products in March quarter. We collaborated with Pokemon to design multiple high-quality products featuring classic characters. This product generated a great response from consumers and sold out soon after their release. As we emphasized last quarter, we are going to surprise and delight our consumers with an exciting series of IP collaborations in 2023. In upcoming quarters, we will be unveiling collaborations with blockbuster IPs.

[Foreign language]

Second, we remain focused on strategic categories, which we define as categories with marginal revenues, global peer and high growth potential. Take perfumes as an example, we believe this category exemplifies MINISO value proposition of Betterlife and has strong emotional resonance with consumers. In China, we have identified perfumes as our most important strategic category in the March quarter. Sales of perfume products increased by 60% year-over-year. Sales contribution increased by 1 percentage point. Furthermore, sales of 70% of perfume related SKUs met our internal standards of best sellers, indicating a significant increase in the success rate of product development.

[Foreign language]

Accessories and another strategic category, we devoted a lot of resources to this year and we believe it has strong global peer. We had a solid foundation in this sector, and we continue to strengthen it by setting up a new warehouse in [indiscernible] and strengthen our designer team, and we hope to forge this category into a signature category in overseas markets by high-frequency product launch and more efficient logistics. The preliminary results have been very promising with its sales increasing by over 80% year-over-year, and sales contribution increased by 2 percentage points.

[Foreign language]

Let's move on to our overseas business, which continued to maintain strong momentum in March quarter in the following aspects.

[Foreign language]

Firstly, revenue from overseas market was RMB 800 million, an increase of 55% year-over-year, another record for the March quarter.

[foreign language]

Secondly, GMV in overseas markets increased by 45% year-over-year with both the direct operated and distributed models achieving a similar GMV growth rate of around 45%, primarily driven by a 30% growth in personal GMV and an increase of 12% in our store number. All of our major overseas markets continue to experience rapid year-over-year growth in GMV including 100% in North America, over 60% in Latin America and about 30% in both Europe and Asian countries, excluding China.

[Foreign language]

I want to stress that per store GMV increased by about 30% year-over-year in March quarter, recurring to around 80% of where it was in the same period of 2019. North America increased by 9% year-over-year and was 50% higher than in the same period of 2019 as we continue to see impressive growth in this region, the U.S. market has been our largest overseas market in terms of revenue contribution for two consecutive quarters, while Canada is also among our top 10 markets.

[Foreign language]

In North America, we continue to enjoy tailwinds from merchandise, brand and operations. That said, as a company which operates globally will inevitably face geopolitical challenges. However, I'm pleased to see that our business in North America is increasingly integrated into or communities, providing value for money products to local consumers in such a high inflation environment and contributing to local employment and the tax revenue.

[Foreign language]

I believe that only through sufficient globalization can complete in our position exactly mitigate country-specific rest. I'm pleased to see that in March quarter, per-store GMV recovery was also quite positive in the range of our overseas markets. For example, Latin America market saw year-over-year growth of over 40%, including a 60% growth in Mexico, and Asian market recorded a year-over-year growth of 15%, including a 90% growth in Singapore and 50% of both the Philippines and Thailand.

[Foreign language]

Finally, let me provide an update on TOP TOY. revenue was RMB 114 million, a 24% year-on-year increase. As of quarter end, there were 116 TOP TOY offline stores, up 24 from a year ago.

[Foreign language]

In the March quarter, our exclusive products made greater sales contribution and helped increase TOP TOY's gross profit margin by more than 2 percentage points year-on-year. China Bricks, the most important strategic category for TOP TOY, continued to play a key role in driving sales and accounted for more than 25% of TOP TOY's total sales during the period. The strong performance of China Bricks was the key driver of the increase in TOP TOY's gross profit margin during the quarter.

[Foreign language]

Our design and talent pool continue to enlarge and mature, turning out a string of highly popular products in toy bricks category, including co-branding products with Sanrio's Kuromi. Rapid Bricking the future, Dawn Astronauts, [indiscernible] and others, we are particularly excited about on Dawn Astronauts, the latest IP product of TOP TOY's core operation with China aerospace. This self-developed series is designed to educate young consumers about space and cultivate pride in China's strong national aerospace industry. We are as firm as 2 years ago in long-term prospects of toy market, especially in China Bricks, which is TOP TOY's #1 strategic category. We are long-termists on TOP TOY business and will work very hard in product innovation as its key focus. We aim to grow this business further and establish it into an influential brand in this industry.

[Foreign language]

2023 marks MINISO's tenth anniversary as well as the first deal of our journey to become a super brand. On May 20, we will celebrate the grand opening of MINISO's global flagship store in New York City marking another milestone in our history as MINISO will become the first Chinese consumer brand to open a flagship store in Times Square global crossroads. We remain committed to executing our roadmap to transfer MINISO into a great Chinese brand -- a consumer brand. We will firmly anchor our focus on the transformation and continue to serve every consumer with the happiness philosophy. Thank you all very much. That concludes my prepared remarks. And now I turn the call to Eason for a review of our financial performance in March quarter. Thank you, Mr. Ye. Hello, everyone. Thank you again for joining us today. I will walk you through our financial results for the March quarter. Please note that all numbers are in RMB unless otherwise stated, and I will also refer to some non-IFRS measures, which have excluded share-based compensation expenses. Revenue in the March quarter was RMB 2.95 billion, an increase of 26% year-over-year, driven primarily by an 80% year-over-year increase in revenue from China and a 55% year-over-year increase in revenue from overseas markets. Revenue from China was RMB 2.15 billion, including RMB 2 billion from MINISO Brands and RMB 152 million from our business, including TOP TOY. Revenue from MINISO brand increased by about 19% year-over-year, driven by a year-over-year increase of 25% in revenue from offline store, but a year-over -year decrease of 23% in other smart channels. The 25% year-over-year increase in offline revenue was primarily due to a 19% year-over-year increase in per store revenue and 5% increase in store number. On a single-store basis, the…

The first question comes from the line of Michelle Cheng from Goldman Sachs.

So, I have two questions for management. Firstly is for gross margin. Given gross margin continues to be driven by brand upgrade strategy, so can management comment on the gross margin upside and also the product mix adjustment progress? And related to this question is for the IP products. Can management share the IP products contribution right now and also the future target? That's my first question. And second question is regarding the overseas operation. So can management comment a different market, the [indiscernible] also the improvement progress. For some countries like North America. So what are the key drivers that we can do better? And also for certain regions, especially Asia, where is the pressure is coming from and also how we are going to adjust this?

It's Jack here. Now maybe you still remember, we firstly introduced our MINISO brand strategic upgrade in last March. And then we give the market outlook that about 30% of MINISO's products will be interest based and the other 70% of our products will still be of high value proposition. In terms of the whole project progress and we estimate that by the end of June quarter this year, our merchandise gross margin were close to 60%. So if we look at the March quarter, I would say that we are a little bit ahead of this estimated timetable. [Indiscernible] our product is upgraded different from the past. Our margin -- growth -- our gross margin of different product categories now varies. That said, our future growth room of gross margin will come from the change of the product categories. For example, I just mentioned accessories. This product categories sales contribution increased by about 2 percentage points in the March quarter. But on the other side, for accessories, this category, its gross margin increased high single digits compared to the same period last year. So it contributed positive contribution to our increase of GP margin as a whole. So this is the first part. And the second part, don't forget that we still have the efficiency improvement project from our [no ho] supply chain. So I currently estimate that we still have some reducing or optimizing our in-product cost structure going forward in this year. So this is the answer to your first question. And to your question about IP product contribution. Obviously, the March quarter, we still see about 20-ish IP-related product contribution. I would say it's flat quarter-over-quarter and a little bit higher than last year, and we do not have a specific sales target of IP-related products,…

The next question is from the line of Lucy Yu from Merrill Lynch.

So domestically, we mentioned that store opening is going to exceed our previous expectations. So how many stores have we opened in the second quarter so far or year-to-date so far? Which part of China are we seeing accelerating expansion pace? Second question is on the domestic consumption pattern. Have we seen any change in terms of shopping frequency, track of consumer products, ASP as well as consumer -- normal shopping consumer in our stores? And lastly is on the overseas. Although we are not revising our full year guidance at the moment, but we have seen in the first quarter, store opening still lagging -- it's largely lagging behind our expectations. So could you please share the reason behind that as well as second quarter-to-date store opening in the overseas market.

This is Eason and I will answer your question. So for the first question, Yes, you are right, and we are highly confident that we will surpass our previous guidance of 250 to 350. Currently, we estimate that we can open 350 to 450 stores in China market on a net basis in calendar year 2023, and we will absolutely adjust dynamically according to the recovery of the home market in China. And if you look at the structure, I would say, Tier 1 and Tier 2 will have a lot of opportunities in this year. Maybe you have read from news report. We have opened a lot of flagship stores in China's top tier cities in recent months. So if you look at first quarter -- if you look at March quarter, about 53% of new stores come from Tier 1 and 2 cities. This is a new things that we have never seen during the past 3 years. And if you look at our retail partners, yes, we are highly confident we can tell from our strong pipeline in terms of new stores and both new and our old retail partners have open stores in this quarter. And especially in March quarter, we see a lot of our old partners. They have opened a lot of new stores because of their store recovered quite well. But by the end of the quarter -- by quarter end, our average -- our retail partners have 3.4 MINISO stores in China, and that is comparable to historical average. But to your second question about the customer behavior, let me take April as an example, as Mr. Ye just shared. Total GMV increased by about 8%. Personal GMV increased by about 50%. I would see this 50% yearly increase come from high…

The next question is from Anne Ling from Jefferies.

Now my question is first thing is on what is the mix of the best-selling items? What is the definition of the background item for MINISO and what is the mix for this quarter versus in the previous quarter? And then the second question is regarding the overseas as the domestic market. What is the operating margin mix for this quarter? What has been driving these improvement in terms of margins? And also this lead to another question is regarding the selling expense, the SG&A. Moving forward, are we going to increase our selling expense ratio so as to drive higher sales when the market is fully opened?

This is Eason. In terms of best-selling items, yes, we have internal definitions and standards that we have a certain threshold that when a certain SKU sales contribution in a certain time period surpassed that threshold, we call it best sellers. In March quarter, we still see that a lot of our best-selling SKUs comes from the strategic product categories, as Mr. Ye mentioned. Let me share some numbers. So in this quarter, about 40% of our total sales in China comes from these strategic categories. And in terms of year-over-year growth, these best-selling SKUs achieved about 120% year-over-year growth. These best-selling SKUs. So I say these results are quite promising. And in terms of your question about segment margin, I would say we now have different distinct business segment, including MINISO China and MINISO overseas. If you look at MINISO China, I would say, it's above the company level operational margin, as you can see in our P&L in this quarter. But for MINISO overseas market as a whole because we still have the directly operated [indiscernible] in hand and it's ramping up. So we still see that overseas market as a whole. Its OP margin is lower than the corporate level. And hopefully, we have seen that TOP TOY's margin profile increased significantly as Mr. Ye just shared. Its gross margin increased by 9%, right? And it's bottom line, its loss ratio significantly narrowed compared to last year. So the third question is about the OpEx trend, right? Yes, if you look at the OpEx historical average, we are highly confident that we can still control OpEx ratio to about -- raising about -- raising all around 20%, as you can see in this page of PPT. If you look at the pre-COVID times, right, our SG&A ratio is below 20%. And during the 3 years in the COVID, we have some flags. But during the past 3 quarters, we still managed the whole OpEx ratio within or around 20%. In the future, we still target to control our OpEx ratio around 20% or so.

Okay. Just a follow-up, Eason, if we have like overseas market growing a lot faster and then half of it is like a wholesale order. Does it mean that we have more operating leverage for the overseas market versus the domestic market? Or is that real matter?

This is still no way to be safe because during the past 2 or 3 quarters, we have seen the more significant operational leverage in China business because we are running our business in a unified market, right? A lot of cost that you can share, right? But for overseas market, especially for distributor business because we have distributors in different markets, different countries, a lot of costs that we cannot share with, but I probably agree with you that in the long term that with the increase of the sales of this business overseas market as a whole, we still have some potential in terms of operational leverage.

The next question is from the line of Veronica Song from Credit Suisse.

My first question is about MINISO's directly operated overseas markets, mainly Indonesia, India and U.S.A. So what's the current store [UEM] profitability? Is there anything you can share? And also what kind of profitability shall we expect in the coming quarters? And my second question is regarding TOP TOY. So the company has been adjusting its store model in the past quarters. You also mentioned that we've been [nearing] losses as well for TOP TOY. So in the coming year, what will be our key focus for this brand? And also what kind of profitability shall we expect in the coming quarters?

Yes -- no, we have some major countries in terms of -- in our direct operational model, including the U.S. market, including the Indonesia and India market, as we mentioned. Compared to the U.S. market, our business in India and Indonesia is more mature and has a longer history, right? So for these two markets, we now are running in a very ideal status. If you look at it operationally, if you look at its bottom line, I would say it's very solid even under such a circumstance in which its sales recovery rate is about 60% or even something like that. For our U.S. market, if you look at its margin profile, I would say it's still too early to make judgments or to share with investors this kind of information. But as I mentioned, the U.S. market as a whole increased by more than 100% and its personal sales increased by nearly 6%. And we are very positive about our future growth in this market, and we still need some time to ramp up the store unit economics and see -- and make plans for next stage of growth. For TOP TOY I'll say we do not have a specific target in terms of store opening, in terms of topline or in terms of bottom line for it in this year because, as Mr. Ye just mentioned, China Bricks it's #1 priority in this year. So we want TOP TOY to make as much as it can in terms of product innovation and the whole team building and so on, but that doesn't mean it will still making loss this year. That's not necessarily the case. If you look at the top 4 business, I would say it's topline growth as a new business will still be higher than the company's overall revenue growth in calendar year 2023. And because of its sales leverage and its exclusive product, getting more and more sales. We will reasonably estimate that TOP TOY will significantly narrow its loss status in the coming year.

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