Q4 2022 MINISO Group Holding Ltd Earnings Call
Mr. Ethan job director of capital markets. Please go ahead.
Thank you.
Hello, everyone and thank you all for joining US we haven't lost our quarterly financial results Folio of say an earnings release is now available on our Investor Relations website at IR <unk> com.
Joining us today are our founder and CEO , Mr. Jack Yeah, and the CFO Mr. Steven Chung.
Before I continue I'd like to refer you to the Safe Harbor statements. 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 now five first measures today, which we have explained and reconciled to the most comparable measures reported listings.
The international financial reporting standards in the company's earnings press release and filings with the U S SEC and Hong Kong stock exchange.
With that I'll now turn the call over to Mr. <unk>. Please go ahead.
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Thank you Hello, everyone and welcome to municipal groups June quarter.
Two earnings conference call.
This marks the last quarter of fiscal year Since Institute and the first time, we have announced results as of do primary listed company in the U S.
And Hong Kong.
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Thanks to the efforts of our dedicated team were compensated all listing in Hong Kong on July 13th this year.
Listing in Hong Kong was an important arrangement from the perspective, we'll cross that protecting the interests of our existing shareholders and proactively responding to the evolving regulatory environment.
We believe it will also provide us with more broader financing financing channels to drive the company's future developments.
Expand our shareholder base and promote the sustainable housing development of our business.
On behalf of the company I'd like to express my gratitude to each and every employee for their dedication and to our investors who have always calc for his support in Minnesota going forward. We're confident that we will create long term value for shareholders by enabling everyone to better enjoy lunch.
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So as we have repeatedly emphasized in our earnings conference calls over the past few quarters that our retailers are capable of passing through economic cycles.
Our business model has demonstrated great resilience, despite the pandemic with our near term results.
This quarter, we have been promoting our brand upgrade accuracy in China and the gross margin of our domestic operations in the June quarter increased by about 3% from the same period of last year as we have launched a new portfolio of high gross margin consumption based products.
During this quarter at the domestic offline retail sector faced unprecedented challenges, which focused on driving the recovery of our overseas business, which achieved nearly 50% year over year gross.
Revenue and accounted for 34.
Percent of the company's total revenue the highest since the outbreak of the pandemic and fully 'twenty 'twenty Dennis bidding from these two drivers our overall gross margin reached a record high.
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Our recent business performance demonstrates that our globalized presence has given us much greater flexibility when endemic related uncertainty in China as we continue to our leash the operating leverage of our directly operated overseas business and furthered our efforts to.
Reduced costs and improved efficiency all adjusted net profit increased by 57% year over year to renminbi $220 million in the June quarter, which is double the figure from the prior quarter.
Adjusted net margin reached its highest level of the past 10 quarters at nine 6% returning to a level similar to what we have achieved before the pandemic.
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First I'll cover our domestic operations revenue in this quarter would be 141 billion of which revenue from offline business was <unk>, one 2 billion, which compared to RMB 182 bid in renminbi 1.63 billion in the same period.
Last year, respectively.
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We estimate that the chimney lost due to the impact of the pandemic was about seven.
700 million and the corresponding loss of accounting revenue.
Over the 400 million.
More specifically our sales decreased by nearly 30% year over year in April and May as a result of the reduced traffic to shopping malls.
Rich, we're unable to operate due to local government restrictions.
In April an average of 380, while 12% with meaningful store in China are able to operate.
Number was down by about 100, Meg plus deal accounted for nearly 90% of our stores.
Going into June as key key cities gradually reopen.
It will be more traffic recover rapidly and managed stores resume normal operations temporary store closures will further down to six 2% of our stores.
Our sales in June recovered to 94% level from the same period last year.
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90% in tier one and tier two cities, whereas in tier three and <unk>, we saw year on year growth of nearly 1%.
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e-commerce revenue in quarter versus renminbi $113 million as an important complement to our offline channels revenue itself is not the most important kpis for E Commerce, we stat, which focus more on profitability, which has been increasing over the past years through our reasonable control.
Traffic acquisition costs.
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The mini so retail Panama, although as demonstrated great resilience during pandemic helps bridge as minister retail partners with minimal inventory risk and always received a revenue share on time, there working capital pressure is much lower than the other franchisee models.
This quarter, despite the tremendous pressure of pandemic our business development team added 29 stores on net basis and contend the Barclays store closure ratio to about one 1% the lowest level for the past eight quarters in the fiscal year 'twenty two.
Number of store closure in China decreased by.
40, compared with the prior year.
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The control measures with stricter in tier one tier two cities, new <unk> stores in China in this quarter came entirely from tier three and below cities.
All of the remaining four months of 2022, we will dynamically adjust the stalled and pays according to the pandemic developments in China to lower operational risk, Minnesota retail partners.
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$780 million, an increase of almost 50% year on year revenue from our distributor business model increased by more than 30% year on year revenue from our directly operated business model increased by about 70% year on year.
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During the June quarter, the overseas markets down the recovery momentum in all of our sales increased by 52% year on year and recover to over 90% over same period in 2019.
So seeing our distributor markets increased by 45% year on year and have already recovered to nearly 100% over the same period in 2019, while sales in our directly operated markets increased by nearly 80% young Yoon and how recovered to 80% over the same period in 2019.
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By regions sourcing Europe increased by nearly 40% year on year.
More than double that in the same period in 2019 sales in North America increased by nearly 170% year on year up 13% from period same period in 2019 sales in Latin America increased by nearly 60% year on year up more than <unk> from the same period in 2019.
So in the Middle East and North Africa increased by nearly 30% year on year up 60% from the same period in 2019 and sourcing Asian countries is.
Excluding China increased by over 50% year on year.
Recovering to nearly 60% of the same period in 2019 eastern countries. Excluding China is so far the only market that has not fully recovered to pre COVID-19 levels in Soc.
Our country sourcing Bose.
The U S and Canada increased by nearly 170% year on year, Mexico increased by over 50%, while India nearly tripled.
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Municipal entered its 100 and the best market in June quarter, and added 57 overseas stores on net basis compared to 35 stores in the same period last year. The overseas market has entered that know the post pandemic era and with the strong demand grows from distributors.
We have to be the opposite.
This pace of opening overseas stores this year, although due to the Russia, Ukraine conflict and the geopolitical tension, which has delayed some of our distributors the store opening plans.
We are confident that the number of new overseas stores opened in the calendar year 2022 on net basis will be significantly higher than in 2021.
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Although the current five inflationary valmont overseas markets consumers tend to look for more value, which creates great opportunities for us.
We adhere to the product is king philosophy, and we will continue to enhance our overseas design capacities by sending our domestic product teams overseas to further strengthen our product design capabilities and develop localized products as presence we have viewed preliminary capabilities to launch.
Products in seven one while manner major overseas markets on.
Our next focus is on Latin America, North America, Southeast Asia, and Europe , where our goal was to provide more and more localized product to consumers. There will continue to leverage China's strong supply chain capabilities and benefit from exporting the Chinese supply chain overseas.
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As we continue to cultivate them overseas markets, we have launched the Minnesota.
That's a great point, while we project to improve the visual competitiveness with our stores and some of these markets.
We also proactively assist overseas distributors in refining their operating strategies.
Taking all distributions band as an example has achieved improved performance by shifting brokers from tourist areas to local communities to reduce reliance on tourists.
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In response to the pandemic in China top Tories stepped off some promotional components as a result, <unk> merchandise gross margin was about 42% in June quarter.
Which although lower than the previous quarters is still a house level one.
More importantly, the Soc mixed between top towards proprietary products and third party products has been moving to work towards a more reasonable level.
And our consistent product strategy.
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514 stores on nap issues, representing 11% year on year gross revenue exceeded our remaining be Tim did end up 11% year on year gross profit accident and wouldn't be rebid.
Up 26% year on year gross margin rich, so two 4% up three six percentage points.
Adjusted net proceeds renminbi 702 million up 51% year on year and net margin was seven 2%.
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China <unk> CFO .
Intelligent homes.
Looking forward to 2020 fiscal year.
Asked youre optimistic about future revenue and profit growth. Despite continued uncertainty from the pandemic. This positive all load comes from our long term confidence in China's economic environments.
Unchanged ambition for all of our retail business and our consistent determination to achieve globalized depalma.
Lastly, as you may have noticed we issued it hoss field lateral apology last week.
We moved over the appropriate marketing tactic in my early days before becoming a holistic company.
No not a correction plan.
In the future as we do.
Primaries logistic company.
Strictly complying with the regulations, so both exchanges, which creates a greater level of compliance requirements for the company going forward will continuously raise our compliance standards that govern our operations to guarantee the downhole successful for core business.
That concludes my prepared remarks, I will now turn the call over to yourself well for financial review.
Hello, everyone. Thank you for joining us today.
I will walk you through the financial results and June quarter as well.
Full fiscal year 2022.
Please be noted that all of the numbers I E RMB unless otherwise stated.
I will also refer to some non <unk> tomatoes, which have exclude the share based compensation expenses.
Revenue in June quarter reached the two partners to re bidding.
Above the mid point of our guidance range, which was two one to one meetings with $2 4 billion.
Which implies a better their expertise of performance.
Our domestic operation in June .
Revenue from China was 1.5 billion, including $1 four beating saw meaningful brand and the 95 and meeting from <unk> Brian .
The 28 and meeting from others.
All of these revenue from meaningful brand experienced a year over year decline of 23% consistent with the decline trains or DMV and offline traffic to show up in malls.
Revenue from <unk> increased by 33% year over year.
The only this quarter.
Pulp volumes of sales was significantly impacted by the outbreak of Omi chrome vibrant.
Due to the concentration of installed each year in the tier two cities.
As we have 10 crews in the previous call in May although the impact of the pandemic. Our short term performance is inevitably.
We continued to follow our establishes gravy and made us data pro forma eight refined pop colleagues have been intermodal products and Omi channel sexy.
For our overseas market.
<unk> revenue increased by 14, 9% a year over year towards selling Henry and $85 million.
If we look at the financial year <unk> 'twenty the year over year increase in revenue was also about a 50%.
We showed demonstrated a recovery trend.
Our overseas the operation is very clear.
For full fiscal year 2022.
Total revenue reached $10 to 1 billion increased over 11% from fiscal year 2021.
Revenue from our domestic operation was seven point of $4 billion.
<unk> increased by 2% from a year ago.
Although this revenue from domestic operation increased by 15% in the first half of fiscal year 2022.
<unk> decreased by 10% in the second half due to a spread of <unk> in China.
Revenue generated from publicly was full Henrietta and the 47 million, representing an increase over 70, Henrietta and 55% year over year.
Gross profits in June quarter was <unk> <unk> seven and the seven.
$72 million, representing an increase of over 21% year over year.
Gross margin was.
33 point us, 3% compared to 10 five points, 8% in the same period in 2021.
There were three reasons of Hollywood a year over year increase in gross margin.
First it was primarily due to a revenue makes a change.
These color we have seen almost hit the market contributed <unk>, 4% over total revenue is the highest level since a disarm will cause our over 2019.
Secondly, we launched a more profitable profitable product and even adding to a meaningful strategic a brand upgrade in this quarter.
And no further leader <unk> inventory clearance activity about a year not amdocs will take over the negative impact of the pandemic in one loan.
For full year gross profit was three points of $1 billion.
Up 10, 6% at year over year.
Gross margin was 38 point of 4% compared to $2 86, 8% in the fiscal year 2021.
Yes.
Saturday and the distribution expense in June quarter was.
$346 million.
Representing an increase of over 31% year over year.
The year over year increase was primarily attributed to firstly increase the logistic expenses relating to our recovering international operations.
Second increase of plus a narrow relaxing that gets passed and a third increase increase that light things that you just pass it Ian read into our newly launched the IP products.
Really offset by our savings in promotion and advertising expense due to our reduced marketing effort in China to take all of those resurgence of the COVID-19.
For the full year Saturday and distributions as was approximately one point of 4 billion.
Representing an increase of over 29% year over year.
The year over year increase was primary attributable to increased personnel related to date. This past second increased life things that gets passed through.
Our in lodging IP library, and the in reaching offering of IP products.
And a third increase the promotion and the advertising minutes past, mainly connecting to a strategic a brand update although meaningful in China.
G&A expense in June quarter were $180 million.
Representing an decrease over 5% year over year.
The year over year decrease was primarily due to decreased personnel related expenses.
For full year G&A to get past.
Selling henrietta and $85 million.
Representing an increase of over 19% at year over year.
The year over year increase was primarily due to increased.
Increased depreciation and amortization expense, mainly related to the land use rights of the company and the headquarter building project.
And the second increased personnel related to take us past, which were partly offset by decreases of <unk> operating expense as a result of expanse of control manner, taking by the company.
Who take hold in the resurgence of COVID-19 in China.
Turning to our profitability.
Operating profit profit in June quarter.
We're at $272 million.
Presenting on increased over 45% in the year over year.
Operating margin was 11, 7% compared to seven 6% a year ago.
For full fiscal year 2022.
Operating profit was at Henry to end.
<unk> 2 million.
Revenue increased over one Henrietta and 10, 8% at year over year.
Operating margin was eight points a 7% comp.
Compare that to a full points of 4% in the fiscal year 2021.
Adjusted net profit that in June quarter was $223 million.
Presenting on increased over 57% a year over year.
Adjusted net margin was nine point of 60% compared to a five points of 7% in the same period over 2021.
For full year adjusted net profit was seven Henrietta and then <unk> remaining.
Representing an increase of 15, not 51% year over year.
Adjusted net margin was seven.
2% compared to $5, 3% in fiscal year 2021.
Adjusted basic and diluted earnings per ads in June quarter.
72 cents up 50% year over year.
While full year adjusted our basic agenda.
Diluted earning per ads were 2.2 faulty ended two point to 36.
Respectively, representing an increase of over 43% and 40% year over year, respectively.
Turning to our cash position as of end of June we had a cash position of over five points H a beating.
On August 17, 2022, our board of Directors approved a special cash dividend is amongst over approximately.
<unk>.
Safety is 3.5, meaning U S dollar all three Henry that and 60 me Amit.
Up 20% year over year.
Our capital allocation strategy in the future, we will balance a new growth opportunity and our commitment to bringing in stable returns to shareholders.
Okay.
Turning to working capital.
<unk> inventory and the trade and receivable remains stabilized.
And the newly listed the company on Hong Kong Stock Exchange.
We followed with a common practice adopted a buy and a public company in the Hong Kong market and we will no longer provide a guidance on revenue growth going forward.
That being said as we approach the last amounts over the September quarter, we have observed encouraging sales and recovering in China.
Which has a stabilized at a housing level during the past several weeks.
Looking forward into the coming quarter.
Aspect to our bottom line performance, we will further our normalized <unk>.
Because of our disciplined execution and overall brand upgrade.
And the steady recovery.
Overseas operations.
Thank you and this concludes our prepared remarks.
Operator, we are now ready to take questions.
Okay.
Thank you.
A question and answer session.
The first question today comes from on the line of Michigan's hands-on Goldman Sachs. Please go ahead.
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Okay. Thank you Michelle for questions. This is Jack.
For questions is no.
As we have communicated.
Last quarter backing in March.
Our Minnesota.
<unk> strategic upgrade we are <unk> in product and channel and marketing in terms of products, we will continue to.
Improved gross margin of newly launched products, especially those consumer.
The interest engine based consumption products in a record based app pens as mentioned just now known as far our domestic gross profit margin increased by about 3% year on year.
<unk> this quarter from about <unk> to about to about 54%.
Probably the only for Q1 last year.
So our current plan is that by the end of fiscal year 2023.
Which is this time next year, we plan to have improved our gross merchandize margin by another five percentage points to close to 60%.
In terms of channels, we plan to systematically optimize offline business and the profitability in the tier one tier two cities and to help our retail partners to reduce operational risk and.
In terms of our marketing.
We originally had.
Marketing plan in the September quarter, as we communicated and that budget was around RMB 50 million or so.
However, considering the orange domestic saturation of the tenge image and hospital off right.
Restrict control measures will continue for some time, so we have decided to no delay.
I'll postpone these market compares and to save a part of the cost and this we all have positive impact on profits in September quarter.
I Hope this answer your question. Thank you.
Yeah, Sean.
Yes.
Thank you. The next question is from the line of.
And Neely.
Jefferies.
Thanks.
Yes.
Please state your question.
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Our strategy, even though we got it.
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Our concern is that you know whether or are these changes impacting that.
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You put on the Oh youre different equity.
So I'll pass on to consumers Anklebone opposite that's why I said domestic client so I would like to get more information about what's your what is your plan. Thank you.
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Thank you and one question. This is Jack so in terms so.
Customer awhile about the correction plan of these events. So we have three.
Specific measures the first is on <unk>.
Strengthening the internal control environment.
Sure.
Distributors overseas markets and is specially.
In relation to the political sensitive issues and we will establish a.
Our headquarters a globalized.
Our globalized cat quarter of branding center and we have all of these.
<unk> person in overseas market report two headquarters and this headquarters they will rapidly.
Organize related trainings for the frontline personnel nurse and second is on the operational side.
And we have you know.
Given a timeline and the action plan that the rectification shall be completed before the March end of March next next to you and assert is from product level. So we will explore.
<unk> more Chinese cultural or Chinese traditional.
Adamant embedded products and plan to launch a series of Chinese IP products to overseas markets.
For your second question about.
The impact on.
Our sales.
In Chinese market and domestic markets.
We have offices have ultimately.
Have not observed and impact from both China and overseas market in China in July the total Jimmy was about 95% of last.
Last June of last year, and if you look at the first three quarters of August .
Tourists.
Flat year over year.
And as we mentioned earlier.
Lots of several quarters this recovery from sales in China, many come from the the recovery from the food traffic to shopping Morris well our asps.
Men.
Gross or low single digit.
And in terms of overseas markets. If you look at the July and the first three weeks August .
The bulk of the <unk>.
Total journey in our overseas distributors.
Each increased by about 30% to 40% on a year over year basis.
And if you look at our directly operated business a business that.
<unk> growth was even higher at about 50%.
Thank you for question.
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That will enable the PCI.
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Maturity that you can show to you.
Okay.
Thank you and this is Steve let me quickly traffic both Stephen so for their control internal control measures.
There will be some.
Some but we do not think that each growing Chris our related expense significantly and were not in.
Impact on earnings Thank you.
Thank you.
Yeah.
Thank you. The next question is from the line is new Cds zone.
Mayo NIS 90 open. Please go ahead.
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What's your minimum when you see it playing you off line.
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Thank you congratulations.
Thank you Omar.
How do you feel about what we're going to talk to you do you mean.
The digital inks.
So are we are facing potential recession in U S and in Europe should we worry about impact of recession of all of that.
And whether that will impact our overseas expansion pack. Thank you.
Sure Yeah, Hi, this is Tom.
Sure and changing the PCL attendant.
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So it gets a lot easier.
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Earnings are opinion.
Thank you Lucy this is Jack.
Cover. This question so in terms of pressure on the store expansion in overseas market, we have to say that.
Normally we see a strong demand from our overseas distributors and the pipeline is also strong but we also.
Have to be frankly speaking that.
The Russia, Ukraine complex and.
Evolving.
Joe Paul it's for risks and Osama over six markets.
All impacting.
In different ways and aspects for our fall two hours as distributors store opening plan and some of them have delayed.
I'll start.
<unk> plan in this quarter, but if you look at the past several years.
Fiscal year 'twenty to 'twenty two to fiscal year 'twenty.
<unk> Q2 fiscal year 'twenty to 'twenty two.
Our overseas markets net added 275, 110 to one and 163 stores. So we are now quite confidence that in.
For fiscal year 'twenty to 'twenty three the net addition of our stores in overseas market has or.
It will be significantly higher than that.
2022 thank you.
Hey, Phil.
Thank you Lindsey Afghanistan, joining us today, if you have any further questions. Please contact us.
At least monthly relationship.
Okay.
Nation, and finally, they own today <unk>.
See you next quarter.
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