Ladies and gentlemen, thank you for standing by, and welcome to MINISO's Earnings Conference Call for the First Half of 2024. At this time, all participants are in a listen-only mode. After the management's prepared remarks, we will conduct a question-and-answer section. [Operator Instructions] And be kindly noted that this event is being recorded.

We have announced our June quarter and interim financial results earlier today. An earnings release is now available on our Investor Relations website at ir.miniso.com. Joining us today are our Founder and CEO, Mr. Jack Ye, and our CFO, Mr. Eason Zhang.

Before we 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 Standard in the company's earnings press release and filings with the US SEC and Hong Kong Stock Exchange.

The currency unit is Chinese yuan, unlike that advice stated. In addition, we have prepared a PowerPoint presentation for today's call, which contains financial and operational information. If you are 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 over the conference over to Mr. Ye. And Ms. Allis Chen from MINISO IR team will translate for Mr. Ye. Please go ahead, sir..

they're new models, new store types, and new series. [Foreign Language] [Interpreted] Firstly, in the first half of 2024, GMVs of the IP-themes models increased by about 400% year-over-year, contributing to more than 30% of the IP product sales compared to less than 10% contribution in the same period last year.

Secondly, our store -- new store formats, the IP pop-up stores, were launched in the first half years. They provide consumers with brand new shopping experience and have become a new channel for IP product sales.

Lastly, the upgraded and development of product series of the same IP brands will prolong the promotion fees, extend the IP operation sales cycles and create more sales opportunities to a greater extent.

[Foreign Language] [Interpreted] In overseas markets, we replicated our IP operation strategies and to create momentum for the popular IP, BT21, continuously setting new records for IP sales in multiple overseas markets.

The great success of such IP series operations not only brought us a better product sales and stronger brand exposure, but more importantly, allowed our global commercial rental partners to fully perceive the potentials of IP consumption and the brand values of MINISO. We are grateful for the support from our partners during these events.

I believe that with in-depth cooperation with them in the future, there will be opportunities to create more marketing [indiscernible]. [Foreign Language] [Interpreted] Thanks to the effective implementation of our IP strategies, as of June 30, the numbers of registered members of MINISO worldwide exceeded 100 million.

Gradually improving global membership system will help convert more IP events into our brand members and vice versa, during business growth of MINISOs in the future. [Foreign Language] [Interpreted] The superstore strategy is also steadily advancing globally.

Taking advantage of all of these momentums, we opened a global flagship store at the most famous Champs-Élysées Avenue in Paris. With brand promotions and cheering for Chinese Olympics athletes attracted countless consumers from all over the world to get to know more about the products and cultures from MINISO via -- China via MINISO stores.

MINISO has over 300 stores located in Indonesia as of June 30. And the largest MINISO flagship store in the world, covering an area of 3,000 square meters will also be unveiled in Jakarta, Indonesia tomorrow.

We hope that these global flagship stores are not just shopping destination, but also magical paradise in a wonderful land that captivated global consumers and lead them with a sense of wonder, allows everyone to be treasure hunters in our stores. We believe that happiness is a force that can be passed on.

We are committed to creating this force for every consumer who enters MINISO stores. [Foreign Language] [Interpreted] Meanwhile, we are also actively deploying the overseas supply chain with the efforts in the first half years.

Most of the core categories we saw in the United States markets can be fully replaced by the supply chains from Southeast Asia, Japan, South Korea and United States. Operating a highly-edged supply chain is a must-have approach for the global companies to cope with the evolving and challenging global markets.

[Foreign Language] [Interpreted] Let's move on to TOP TOY. [Foreign Language] [Interpreted] In the first half of 2024, TOP TOY revenue increased by 38% year-over-year, including a high-quality same-store sales growth of 14%, coupled with a net increase of 47 TOP TOY stores in the first half of 2024.

[Foreign Language] [Interpreted] TOP TOY self-developed products continue to have breakthroughs, with a proportion of self-developed products exceeding 35% in the first half years. The average merchandise gross profit margin of self-developed products is about 60%, which undoubtedly plays positive roles in improving the overall gross profit margin.

TOP TOY has been profitable for three consecutive quarters, reconfirming its shipping point. [Foreign Language] [Interpreted] As for the products, the self-developed [indiscernible] series launched in Q2 have topped the sales of all categories in TOP TOY this year.

We recently launched [indiscernible] had exceeded 100,000 units of sales within just 50 days we launched it, achieving over 10 million sales. In the future, we will continue to increase the proportions of self-developed brand products and further optimize the product profit margins.

[Foreign Language] [Interpreted] In 2024, while focusing our business, we also laid more emphasis on fostering our corporate culture, I repeatedly emphasize, with right strategy and dynamic teams internally. Looking back at 11-years development history of MINISO, talent is the most solid strength for our enterprise development.

As for June 30, the numbers of our global employees have exceeded 5,200. Over 2,800 of which are from the overseas. In March, we launched a marriage and a fatality rework plan, with over RMB10 million initial funding. On Qixi Festival, we held a very first MINISO group wedding ceremony for 17 couples, sending our sincere blessings.

[Foreign Language] [Interpreted] I have always emphasized the values with passion and persistence within the group. In our pursuit of success, those align within our career, in addition to the correct values and sufficient rational capability, we also need a strong passion and persistence.

Passion and persistence are also in accordance with MINISO employees to create industrial and promote enterprise development continuously.

[Foreign Language] [Interpreted] Given the huge potential for development and profitability in retail industry, we commit ourselves to [indiscernible] to seeking truth from facts, to operating with good faith and strong ambitions.

MINISO helps to provide playful, appealing and useful products to our global consumers in the future continuously, offering competitive career development opportunities to our employees and bring long-term and sustainable returns to our shareholders. [Foreign Language] [Interpreted] That concludes my remarks.

Next, please allow Eason to introduce the company's financial situation in the first half of the year..

Okay. Thank you, Jack, and welcome, everyone, for joining us today. I'm pleased to see that our business have made firm progress in accordance with the five-year strategic roadmap. And our performance has met the expectations at the beginning of the year.

Our business model has demonstrated great resilience despite the softening of massive consumption market.

In overseas market, where we doubled our directly operated store network, we managed to balance growth and margin, and we can surely do better in the second half because the initiatives we adopted recently to improve operational efficiency has begun to pay off.

Although the economic data remains mixed, we see structural opportunities in IP retailing and globalization. We have full confidence to deliver our new beginning targets. Now, let me walk you through our financials for first half. Please note that all numbers are in renminbi, unless otherwise stated.

And I will also refer to some non-IFRS measures, which have excluded share-based compensation expenses or SBC expenses. So, revenue saw a robust increase of 25% on last year's high base and at high end of our expectation. We are thrilled to see those drivers of revenue performed very well in the first half.

In terms of store network, we've delivered record net addition in overseas and TOP TOY, and we expect acceleration in the second half in mainland China. And in mainland China, we are on track to deliver our guidance of 350 to 450 net new units, while making necessary training to our existing store formats and franchisee structure.

When it comes to same-store sales, we've delivered a 7% year-on-year growth at group levels. So, we are particularly encouraged by our achievements in China mainland. While SSG was 98.3% from previous year level, outperforming domestic retail sector, our product team kept introducing best-selling SKUs, as they have been doing during the past 11 years.

Our operation team has launched several initiatives to make sure MINISO's same-store sales is best in class. For example, our O2O business or instant retail increased by nearly 80% in the first half because our 4,115 stores are easily accessible to our customers.

And we have right products and a comprehensive set of fast and convenient digital fulfillment solutions. In overseas, same-store sales growth was 16%. We are still at very early stage to uncover sales potentials for overseas stores. It will grow very fast, but inevitably fluctuates. The mission critical here is localized products and operations.

Although MINISO is a pioneer in Chinese consuming brands going overseas, our attempts at retail localization are nearly at the beginning stage. In addition, TOP TOY same-store sales growth was remarkably at 14% in the first half. Next, let me talk about channel mix.

Overseas DTC market is now 20% of our total revenue compared to 14% in the first half last year. The revenue contribution from MINISO training offline stores decreased by 4 percentage points.

This shift in revenue mix is one of the reasons why we had another record high GP margin, and it also changed operating profit distribution within a year, a small profit will be made in the second half.

In terms of GP margin, the year-over-year high of 4.1 percentage points is a result of not only revenue mix shift, but also improvements in GP margin at every single line of business, notably in TOP TOY and overseas.

Going forward, we have reason to believe our GP margin can be optimized further because of above reasons, yet, we will keep an eye on value proposition and make dynamic judgments. SG&A expense increased 56% in total, including a 66% increase in selling and distribution expenses, and a 27% increase in general and administrative expenses.

SG&A represented 24% of our total revenue, 5 percentage points higher than the same period of last year. Among which 3 percentage points were directly related to our new DTC stores opened in the past 12 months, including rents, D&A and payroll.

As we discussed in the press release, the investment into DTC stores is to make sure that future success of our business, especially in strategic overseas markets such as the U.S. markets. As of June 30, 2024, number of DTC stores in overseas markets was 343, nearly doubling such figure compared to a year ago.

In the first half, revenue from DTC stores increased by 111%, while related S&D expenses, such as rents, D&A expenses and payroll, excluding SBC expenses increased 83%. These new stores are expected to contribute more substantial sales in the second half of 2024.

We are taking effective measures to improve operational efficiency in these DTC stores and control costs. So, the initial results is very good. So, we believe the hike in operating expense ratios won't last too long. Promotion and advertising expenses increased by 46% in the first half.

P&A expenses as percentage of revenue stabilized at around 3% in the first periods. License expense increased 24%, consistent with our revenue growth.

Logistics expenses increased by 54% compared to 43% of revenue growth in overseas, reflecting to a certain extent the rising freight costs caused by tension in international shipping during the first half. Turning to profitability. Operating profit increased 18% year-over-year. OP margin was 19.3% compared with 20.4% in the first half of last year.

Notably, there was a RMB12 million net foreign exchange loss in this first half compared with a RMB55 million net foreign exchange gain in the same period last year. Excluding SBC expenses and FX impact, adjusted OP margin was 20.3% compared with 20.1% last year. Adjusted net profit was RMB1.2 billion, up 18% year-on-year.

Adjusted net margin was 16% compared with 17% last year. Excluding FX impact, adjusted net margin was 16.2% compared with 16.1% last year, implying our stable profitability and the scalable growth. Adjusted EBITDA increased by 26% year-over-year.

Outpacing the growth in revenue, adjusted EBITDA margins was 25.4% compared to 25.2% in the same period of last year. Adjusted basic and diluted earnings per ADS increased by 18% and 19%, respectively. Turning to cash.

So, by end of June, we maintained a strong cash position of RMB6.9 billion, Net cash flow generated by operations in the first half was about RMB1.3 billion. CapEx was RMB303 million and free cash flow was above RMB1 billion. Turning to working capital. The channel inventory turnover remains efficient.

By the end of first half, 26% of MINISO's brands inventory were located in overseas DTC market compared to 21% a year ago. Inventory turnover days were 81 days, including 70 days in China and 147 days for MINISO overseas DTC markets. Structurally, inventory over 180 days accounted for about 12% at group level.

Turning to capital allocation, we are committed to a dividend payout ratio of no less than 50%. Our capital allocation strategy will also continue to balance fast growth and our commitments to bring stable and foreseeable returns to shareholders.

The Board of company has approved an interim cash dividend for first half of 2024, with a total amount of approximately RMB621 million. Upon payments of the interim dividend, the company will have returned RMB1.4 billion in cash to shareholders through dividends and share repurchase from year-to-date.

Since 2020, we have returned RMB3.6 billion to our shareholders upon payment of the interim dividend, accounting for 62% of adjusted net profit accumulated from 2020 until the first half of this year.

We are confident in accomplishing our full year business plan and five-year strategy and believe that our share price has been trading below its intrinsic value. The Board of company has approved a share repurchase program to make the best of the general mandate granted at our Annual General Meeting held in June this year.

Under this general mandate, the company may repurchase its shares in ADS in the next 12 months, not exceeding 10% of the total outstanding shares and execute share repurchase in open market, subject to market conditions.

We believe that the share repurchase program is in the best interest of the company and its shareholders as a goal and create value for shareholders. Our performance for the first half once again demonstrates the strength and resilience of our business model and reflects our ability to execute on our IP and globalization strategy.

I'm very confident that we will once again meet our full year targets. Our financial strategy will continue to remain disciplined in terms of budgeting, cost control and allocation of capital, as we commit to delivering stable profits and cash flows. Our target for the year of 2024 remain unchanged from our expectations at the beginning of the year.

The revenue is expected to increase by 20% to 30% on year-over-year basis, and adjusted net profit target is RMB2.8 billion or higher. Thank you, and this concludes our prepared remarks. We are now ready to take questions..

Thank you. The first questions are coming from Ms. Lucy Yu from Bank of America Merrill Lynch. Please go ahead..

Hi, management. Thanks for taking my question. So, two questions here. Firstly is on the domestic market. In July and August, we have witnessed some weakness in the domestic demand.

So, could you please update us how is your performance in the first two months of -- in July and August? And how should we think about the pop-up store contribution to these two months as well as for the rest of the year? So that's the first question.

And the second one is for the selling and distribution expense as a percentage of revenue, which has exceeded 20% this quarter. So, this is the highest since we have listed. So, I believe this is due to a faster overseas DTC expansion during low season.

But how should we think about this ratio going forward in the second half? Should we expect that to go back to maybe, like, first quarter level or last year level? Thank you..

[Foreign Language] So, I will translate for Mr. Ye quickly.

[Interpreted] So, about your questions on the performance in the recent -- in recent months, so, first, MINISO's same-store sales in China in the first half was about 98%, [indiscernible] increased by 0.1% and traffic down by 2.5%, and our conversion rate from store visit to purchase stabilized.

Now, we are facing and challenged by a very soft domestic consumer market, but MINISO has very, very high confidence to keep the best-in-class same-store service in China, specifically in [indiscernible] same-store sales above 97% year-to-date, and we will see a relatively lower base entering into September.

And we also are working on our IP products, improving the operational and investment in instant retail. So, our target for full years is to stabilize our same-store sales with 100% of recovery or higher or lower than -- on that base.

And our target for the whole year for our MINISO offline trend business remain unchanged, with 10% to 15% year-over-year growth. And about the same-store sales in China, we have more initiatives going forward.

The first is improving our product capabilities, and which is how very profitable it is and we'll focus on IP and strategic pathways to improve our -- to optimize our product structure.

And we will have a lot more and more interest-driven product categories going forward, which will help our increase in same-store sales, including blind box, collectible dolls, [indiscernible] and other products. The second is increase -- improve our capabilities in channel expansion as we have talked in the past several quarters.

Now, we have in thousands of stores in China that we have -- we can improve by structurally operate the store format or inside and so on. So, since last year, we have been executing this improvement. Our plan is to finish this improvement in next coming years. And the third is to improve MINISO brand awareness, including our strategic brand upgrade.

And we want to build lots of flagship stores with better image and better performance. For example, two weeks ago, we have a newly launched [IP event] (ph) opened in Tianjin, and we have received very, very positive initial feedback from consumers there. And we have also [indiscernible] this new kind of store formats launched in this year.

And going forward, we will have another store format trial and experiment, which we are looking forward to see that. And with regards to the second question about DTC store selling and distribution expense, a quick answer is, will decrease.

As I mentioned, the hike of our expense, especially those expenses with DTC stores won't last long, because, if you remember, we have talked that MINISO stores in the U.S. now already -- in 40 states already. Considering that we have like 200 stores, that means our stores in United States are very [indiscernible].

That means, we will need to open more stores before we can get these logistics expenses or related expenses to leverage. So because our store expansion back in the U.S. is very quick. For example, by the end of this year, we will have doubled our store base compared to one year ago.

So, we think that when we have 300 stores or 400 stores, even 500 stores, we can fully leverage these logistic expenses and other expenses such as the store rents and labor costs are also to be optimized. So, I think in the second half, you will see that our operating expense ratio being significantly reduced. Thank you..

The next questions are coming from Ms. Michelle Cheng from Goldman Sachs. Please go ahead..

[Foreign Language] [Interpreted] So, I have two questions for management. For the first one is on U.S. market. Given the volatile consumption market in U.S. in the past few months, do we see any new opportunities or risk? And how this will impact strategic expansion and store format? And also, the second question is about Europe market.

This is one of the key focus we mentioned earlier in the year. And can you update us the key -- any development for different markets in terms of the store format partnership with different partners and also the store format, et cetera? And any good progress we are seeing so far and any room for further improvement? Thank you..

[Foreign Language] Let me quickly translate. [Interpreted] So, overall, in overseas market, the same-store sales was double-digit growth in the first half, and we're at that early stage in our [cycle] (ph). We have long-term influence in brand awareness, product authorization, operational authorization and so on.

So, we strongly believe that we will have -- we'll still have a lot of room to boost our same-store sales growth, but it will grow fast, but it will inevitably fluctuate, especially [indiscernible] basis. In last year, 2023, the major driver of our U.S.

business was same-store sales growth, but in this year, since our target is to double this business, so I think our major driver will be in store network extension. So, in the first half, the U.S. same-store sales growth increased by 14%, one-four. And the strong network store numbers doubled, and which is in line with our expectation.

And by the end of July, we already added about 69% -- or 69 new stores in United States, and we'll have about 100 for -- in this year. And in the future, we'll see that the United States will accelerate in terms of store opening.

And we will open to discuss to have more franchisees or distributors currently joining us have very rapid store network expansion, while maintaining a healthy profit in United States. And since we increased 14% in terms of same-store sales growth in the United States, in the future, we will have the [same-store sales] (ph) to increase further.

The first is the product side. We're going to adjust our product structure to increase the local supply chain and increase our inventory turnover and reduce the product lead time. And on upside, we want to increase more local sourcing, especially in IP-related snacks, IP-related cosmetic products and IP voice.

And we will also be introducing best-in-class supply chain -- suppliers in other parts of the world, including cosmetic and beauty tools in Japan and Korea, and we will also increase our IP-related product research and developments, which will increase our [indiscernible] with IP products.

And in terms of store fronts, we will upgrade our stores there, including image and product experience. We will upgrade our digital system to improve the store efficiency as we've been in China several years ago. And our loyalty customer -- our loyalty program, we will increase our loyalty program, as we mentioned.

We will improve our customer insight capabilities and we will tailor product -- our product structure and tailor our store operation measures to increase the customer stickiness and increase repurchase. We will have a strong team in the overseas, especially in the U.S.

We will have localized team, including the buyers, and we will have a business in overseas, including training localized operational staff, operation team, and we will have a lot of online course and training course.

And we are now building our department in the Southeast Asia to train new staff, new overseas team in Malaysia, and the first of this -- the first batch of this project has been finished. And this new team will be the core team of our expansion in the United States.

And in the next two years, I mean, in 2024 to 2025, we will also set up training center in the North America and will prepare for our expansion there..

[Foreign Language] [Interpreted] On your second question, so we have three measures. The first is to upgrade our store formats. Let's take U.K. as example, where we have been [indiscernible] helping to increase and upgrade their channels to open bigger stores and to open better stores.

So, in the first half, its same-store sales increased by 50%, five-zero. And its total sales increased by 150%. And that has once again demonstrated that our superstore strategy has helped increase the overall performance of the market. And in terms of personal sales per day, U.K. now is about RMB20,000, an increase by 50% year-on-year.

So, it still has room [in recoveries] (ph) to United States and probably with Mexico market. But it's already a huge jump for itself, and it's the best in Europe already. And in the future, U.K. will be the benchmark market in Europe for MINISO. And I think the Europe market is the pathway to open 1,000 stores in the future, so it's huge potential.

The second is, we want to still reiterate our focus on IP and differentiate IP is a key to our future success in the Europe growth out there. IP is now 49% of total sales in there, and year-over-year increase is about [65%] (ph), especially our flagship store in [France] (ph), which has an 85% of our IP sales.

And this has remarkably helped the overall distribution market to increase its GP margin. And the third is stay core. Our top 100 SKU contributed about 90% of our total sales in Europe, and each segment has performed very well.

In the future, our key product categories in this will make MINISO stores in Europe getting more professional and more -- and provide more immersive shopping experience to our customers. That's helped us to increase our store conversion rate. So, thank you..

[Foreign Language].

Thank you, Michelle..

Thank you. We shall conclude our call now. Thank you all for joining us today. We will see you in the next quarter. Goodbye..