Q1 2023 MINISO Group Holding Ltd Earnings Call
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Ladies and gentlemen, thank you for standing by the work come through meaningful Group Holdings Limited earnings Conference calls with this first quarter.
Fiscal year 2023, that's ending September 13 2022.
At this time all participants are in a listen only mode.
After the prepared.
Remarks, we will conduct a question and answer session. Please note. The event is being recorded low IMAX with hand, the conference over to your host a speaker today.
And John <unk> President of capital markets. Please.
Please go ahead Lisa.
Thank you.
Hello, everyone and thank you all for joining us.
We haven't lost our quarterly financial results progress day.
This release is now available on our Investor Relations website at IR, <unk> Com and <unk> Dot com.
Joining us today are our founder and CEO Ms project yet.
And our CFO , Mr. Steven Chung.
Before we 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.
Also note that we'll discuss non <unk> financial measures today, which rehab extend are reconciled to the most comparable measures reported under international financial reporting standards in the company's earnings release and filings rates, but U S STC and Hong Kong stock exchange.
In addition, <unk>.
We have prepared a powerpoint presentation for today's call rich contents financial and operational information for this quarter.
Using a zoom meeting you should be seeing that right now they can also revisited our IR website later with that win.
Now turn the call over to Mr. Yang. Please go ahead.
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Thank you Hello, everyone and welcome to meaningful groups earnings call for the 10 to 22 September quarter.
Were kicked off fiscal year tends to industry reached an encouraging saddle results headlined by strong margin performance.
As part of the short term how rains brought by the pandemic in China, we remain focused on our long term strategic goals delivering on our globalization strategy bolstering the strength of our product offerings and optimizing our store network.
These efforts are yielding positive results and we continue to see our overseas operations and move further along the path of recovery, where our margin profile continue to beat expectations.
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Rehab repeatedly emphasized in your earnings call over the past several quarters.
That retailers are well positioned to weather economic cycles, our business model have demonstrated great resilience, despite the pandemic going on.
Our near term results during the quarter, we made progress on upgrading meaningful brand in China, and rolling out a portfolio of both products with gross margin increasing by about 4% year on year.
We continue to focus on driving the strong recovery of our overseas business.
<unk>, which has recorded 50% year on year revenue growth for two consecutive quarters and now accounts for 73% of our total revenue.
Benefiting from these two drivers our overall gross module reached 35, 7% a record high for Minnesota.
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Minnesota globalization strategy gives us greater flexibility in dealing with pandemic related uncertainty in China.
Our directly operated overseas business.
<unk> during the quarter as we continue to unleash its operating leverage.
Combined with our continued progress in cost cutting this how us increase our adjusted net profit by 127% year on year to Renminbi 417 million in the September quarter of.
Adjusted net margin reached its highest level at 15, 1%.
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Next I'll talk in more detail about the 2000 and seeing each business segment during this quarter.
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Let's start with meaningful China, which recorded a revenue of RMB. One 7 billion. This quarter revenue from so China's offline business was RMB 154 billion, which represents 9% year on year decrease.
20% quarter over quarter increase.
E Commerce revenue was RMB 163 million decreasing by 12% year on year, yet increasing by 23% quarter over quarter to account for 6% of our total revenue.
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Over the last three years in China. The pandemic has posed unprecedented challenges to offline retail business, whereas the ease of pandemic control policies. However, it is important to note that the most difficult time now are behind us and most municipal retail partners are financially stable.
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Inventory turnover has also recovered to the normalized pre COVID-19 level.
Going forward, we'll continue to communicate closely with our partners and respond to their concerns in a timely manner.
In order to provide our partners with additional support our product and operations team are conducting detailed research and analysis on different original markets in China aiming to help them improve the store performance from both a product and operational perspective.
During the quarter, we added 43 stores on that basis, most of which were located in lower tier cities.
In the near future, we would adjust our store opening pace based on pandemic dynamics in China to reduce municipal retail partners operational risk.
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Moving on to our progress on the international front revenue for the September quarter was about.
910, 2 million, representing an increase of almost 50% year on year revs.
Revenue from our distributor model increased by 42% year on year revenue from our directly operated model increased by more than 60% year on year.
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We are delighted to see that overseas markets tend good recovering momentum during the September quarter with overall sales increasing by 41% year on year and the only recovering to the 2019 pre COVID-19 level for two consecutive quarters.
Jim V in our distributor markets increased by 36% year on year and we're above the level from the same period in 2019.
<unk> in our directly operated markets increased by 64% year on year recurring to use them north of 80% of the 10 to 19 pre COVID-19 level.
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Breaking down by regions, North America, which accounts for 6% of our overseas stores and 7% Hall Soc.
Store sales growth of nearly 50% year on year.
The level from the same period in 2019.
Europe , which accounts for 9% of stores.
In the 9% of sales saw sales increased by 70% year on year doubling the level from the same period in 2019 Latam.
Latin America, which accounts for 22% of our stores and 75% top sales increased by nearly.
40% year on year and 20% from the same period in 2019.
Middle East and most of Africa, which accounts for 7% of stores and 40% of sales increased by nearly 20% year on year and 50% from the same period in 2019.
Asian countries, which accounts for about 50% of our oversea stores and 30% of sales increased by 70% year on year, representing 65% of the level from the same period in 2019.
Oceania Richard accounts for 2% of both of our overseas tours and sales. So it's beyond year growth of more than three times recovering to nearly 80% of the level from the same period in 2019.
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Things tend to turn into risk men countries have gradually lifted lockdown policies ministers overseas expansion has shifted from recovery model to growth model.
Municipal added 54 oversea stores on a net basis during the quarter compared to 26 in same period last year.
In addition to accelerating our store growth expansion.
More localized product strategies, and a sophisticated operations I'm Carter Charles sustainable gross.
Our last call, we talked about product strategies.
We share some details about munis was localized operation this quarter.
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Thousands of store in Boston last December recently, we celebrated the Grand opening of our two Sullivan's overseas store, which locates in Lyons, France versus Trillium another milestone in the globalization of our Chinese offline retail brands.
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So first on the video game done lately here with the charter was similar to last year, our China cabinet modalities yet.
We're proud to position meaningful as a cough globalize, the Chinese brand together with more localized products and operations.
And this is going to be a very standard strategy going forward.
First of all in order to promote traditional Chinese culture. The opening ceremony presented a fantastic Chinese line dancing and we plan to keep it all.
Upcoming new stores.
Secondly, the decoration of the product display and survey salt life store have been tailored to local consumers habits. For example, the store's layout is divided into several of our engagement areas different ip's, allowing young people with more interesting more personalized and more.
Diversified traction in one visit.
Meanwhile, the store is wheelchair south pole with shelf space, one four meters apart for easy navigation.
Finally by leveraging our supply chain capabilities, we have broad quality affordable design that product to French consumers, which are affordable luxuries today.
And it's not just our products, but also the experience of shopping at municipal and the comfort that it's at two lines there.
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Municipal will continue to bring more playful more appealing and more years for IP products to global fans. Following the success, we had in China last winter.
Recently launched new lots of products in overseas markets, such as Vietnam with initial success, we have been testing and lasso collection and exciting to launch on social media and on the launch day customers flocked to means of stores and quickly filled the retail pace.
And the chefs for assumed clear that in the following three days long queues continued to form as enthusiastic sugars waited for restocking.
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Next I would like to provide everyone with an update on top toy.
We made significant mid con progress on executing our established strategy with top toy during the quarter at quarter end, we had 109 top toy offline stores.
Representing an increase of 37 year on year and 12 quarter over quarter.
Seven of these for Dreamworks stores, and 102, where collection stores.
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Merchandise gross margin and a top toy was about 42% in the quarter, a slotting, Chris from the previous quarter.
Revenue contribution of propulsion products stabilized at 20% for all channels.
And over 30% for online channel risk.
MS gross margin relatively stable top tourist NASA loss narrowed significantly on a sequential basis as we continue to optimize the business margin profile.
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With our gene level.
We recently released our first ESG report in which we have disclosed relevant information from governance structure internal control products stakeholders grin development and social responsibilities.
As a company with global reach strengthening the disclosure of ESG information provides stakeholders it used for perspective to better understand the value of the company.
In the future, yes, you will not only be reflected in our strategy, but also be executing our daily operation.
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On November 11th China's National Health Commission released a new set of refined the pandemic prevention control policies, which are more scientific and a more precise.
I believe that on the guidance of this new policies. The offline retail industry, we are seeing new opportunities for recovery and growth, we remain optimistic about our revenue and profit growth potential.
Profit outlook is based on our long term confidence in China's economic development.
Our staff fast commitment to our vision for the offline retail business and our determination to achieve a truly global rich.
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After that I'll, let you go.
This concludes my prepared remarks, I'll now turn it over to our CFO for financial review.
Hello, everyone.
Thank you for joining us today.
I'll walk you through the financial result, also came a quarter.
Please be noted is that all numbers I E. R M B a.
Otherwise steady and I will also refer to some non <unk> measures, which have exclude the share based compensation expenses.
Revenue in September quarter reached $2 77 billion.
Increasing by 5% year on year, primarily due to.
<unk> 48 per cent of growth all of our revenue from overseas market and partly offset by a 9% decrease although revenue from China.
Revenue from China.
1.85 billion, including a one point to seven bidding from meaningful brand and the $152 million from other business, including upon.
While a meaningful brand the year on year revenue decrease was also about 9% in the quarter, primarily due to the pandemic.
During the peak summer sales to Teva of July and August while the pandemic situation was also relatively stable our red <unk> in China, we carload of 295% of level from the same quarter of last year.
The pandemic has the 13th in September our <unk> decline to 80% over last year's level.
During the quarter.
Average one.
2%.
5% and 7% over thought.
Naval to operate due to the pandemic in July August and September respectively.
Excluding the impact of impact we estimate that the average sales per store from July to September were about 85%, 90% and 80% over same period last year, respectively.
Revenue from overseas the Marquis.
900, and attending meetings account.
Accounting for 33% all our tech led with revenue.
48% of revenue growth was primarily due to flat year on year increase.
10% in average store count and the year on year ago over 35% aggregate revenue per minute of dull in overseas market.
As we have presented in the old the beach.
We are too.
To see strong sales and recovery from across the border in overseas market, which helped a lot to balance our topline growth.
Category.
On a sequential basis revenue from overseas market increased by 17%.
Primarily due to a 3% almost all goes and the 14% over coal.
Every day revenue portal.
Gross profit in summer time, we'll quarter was $989 million, representing an increase of over 36% year on year.
Gross margin was 35, 7% another record high for Maple Grove, and the increased by more than eight Henry the basis points from 27.4.
<unk>, 4% in the same quarter of last year.
The year on year increase was primarily due to three reasons.
Number one the shift of our revenue mix.
Revenue contribution from overseas market, which is typically has higher margins than domestic operation.
Increased to 33% from 24% a year ago.
Number two we launched a more profitable.
Product product <unk> relating to many of the strategic brand upgrade in the quarter.
Number three we have optimized the cost structure over 13 product by leveraging our strong supply chain management and their capability.
Selling and distribution expenses was $373 million.
Representing an increase of 16% year on year.
The increase was primarily attributed to number one increase the rental and the related patent number to increase their personnel.
Nonetheless, the week increase the license that you have.
In related to our enlarge the IP product offering.
And partly offset by reduced promotion and the advertisement that you plan due to our broad marketing activity in China to take hold a resurgence of COVID-19.
General and administrative expense worldwide Henry.
The $3 million.
Representing an ink decrease of 18% a year on year.
The decrease was primarily due to decreased personnel related.
Although net income was.
64 million compared to $34 million in Sam Coetzer overlap.
Other net income mainly you can see the old Navy falling it could change the game.
Investment income from where with demand in our products and others.
The year on year increase was mainly attributed to a net foreign exchange again.
Two meaning RMB in this quarter comp.
Comparable to full meeting and be in the same quarter over 2021.
We have experienced a strong U S dollar lately, but we are aware of our position in dealing with foreign exchange rate related volatility.
Because the majority of our sales to overseas market are settled in U S. Dollar.
Turning to our profitability.
Operating profit in the quarter was.
$510 million.
Representing an increase of 139% year on year.
Operating margin was 18 point of 4% compared to 8% in the same quarter of last year.
Adjusted net profit was full Henry the end, the 70 million, representing an increase over where Henry the end of 'twenty.
7% year on year.
Adjusted net margin was 15, 1% compared to six 9% in the same quarter of last year.
Adjusted basic and diluted diluted earning per ads.
One third.
<unk> 36.
And in this quarter compared to 60 cents in the same quarter of last year.
Increasing by 127% year over year.
Turning to the cash position as.
As always the Panama 30, we had a strong cash position of one 6 billion.
Yes.
Turning to working capital turnover of our inventory and the trade receivable remain stabilized.
Looking forward into December quarter, we expand our OLED hit the market. We continue to grow strongly Meanwhile, our margin profile will improve.
Year on year basis, as we successfully execute our brand upgrade.
These data recovery in the OLED at the marquee and the breakeven on our director operated overseas to build it.
Our financial strategy, we will remain disciplined in terms of budgeting caused the controls and the allocation of capital as we focus on Penn station and the delivery almost solely the financial performance.
Thank you and believe that concludes our prepared remarks.
We are now ready to take your questions.
Thank you we will now begin the question and answer session.
Question today comes from the line of Michelle Cheng from Goldman Sachs Line Open. Please go ahead.
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Sales couple months in the past few quarters. So can you share with us the retail partners, our cash flow and the confidence in opening next door. So basically what is done through our expansion.
Outlook in that short time, but I think my.
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Thank you for question Michelle This is Mr. <unk>.
Because of the uncertainty of the pandemic developments in China.
We have been quite cautious in terms of opening new stores on the current situation.
We also have managed to make sure the store closure rate remained at a relative currency level for us.
Before the pandemic the normalized store closure rates.
It was about 5% to 6% annually from Minnesota.
During the past two years in pandemic there was some increase however around 8% to 9% in calendar year 2000, 2010 to 20, and some four 5% in 2010 tier one and it decreased to 6.4.
<unk> percent in the first two straight quarters of tinted tinted too.
Annualized basis.
And last week, the government updated as prevention policies to minimize the impact to economic and social development.
Link, which has played a positive role in the recovery and the developments of the offline industry, but in the short term the impact of pandemic will continue for sure well.
Under the guidance of the positive policy background, our store network will continue to grow at a relatively healthy level.
In addition, the performance of our stores.
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Thank you Michelle for a question on the gross margin.
First off for our gross margin in this quarter increased about 8% compared to the same period last year I think there are several reasons.
First resilience at power.
Our merchandise gross margin.
It was 4% higher than last year and the second reason is.
The revenue mix from overseas business in this year is sort of 3% compared to 4% last year.
And if you look at the overall gross margin of overseas cooperation.
It is higher than last year so.
If you quantify this.
The impact to the gross margin is about 2%.
The remaining increase.
I see.
It can be attributed to the cost.
Cost accounting.
Measures we have taken.
To reduce the cost of our certain products.
Since this year we have.
Achieved a remarkable results in our reduction cost efforts our product team has systematically checked nearly 10000 skus internally.
At home and abroad, especially in certain categories, such as beauty tours.
Skincare products.
Posh tourists and socks, and so basically we lowered costs of these products by different ways.
First way is to simplify the excessive or redundant.
In our products.
It does not affect the consumer experience.
So this helps us to eliminate unnecessary waste.
One example is our efforts to simplify the packing material of our munis or hand sanitizer.
Loss towards successfully reduced by adjusting the thickness of the plastic bottle and the weight of the pumping had.
Customer barely noticed the change, but it saved some cost for us.
In addition, we also reduced the use of outer packing boxes in the whole supply chain processes to reduce costs.
The second way is.
I think as to optimize the production process or material for some products. It has design or production process or even material were slow consumer sensitive too. So we just replace them with lower cost alternatives.
For example, we used to have a calm.
Just moves ash in overseas markets, which needs to use an expensive Technicolor.
Electroplating.
In the new product developments, we replaced the electrode pricing process with a new design elements that.
That help us reduce the cost.
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Most important goal.
The third way is to leverage meaningful scale advantage to negotiate price freeze our suppliers. So many so as I think as the kind of customer about suppliers Nowadays wanted.
Because of our large volume of orders because of our highest capability because of our timely payments. So whenever our suppliers want to continue this relationship with us.
I think they are willing to cooperate with us to reduce costs and offer more competitive prices.
For example, a supplier of wildfire Polaris has replaced more efficient new equipment for Mirasol. So thus, reducing the production costs of its own raw material and ensuring no process. So generally speaking that is the.
The room for our cost reduction.
In this quarter.
Thank you.
Alright, thank you.
Ladies and gentlemen.
Thank you.
Okay.
Thank you. The next question is from the line of <unk>.
From Bank of America Merrill Lynch Light open. Please go ahead.
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I have two questions here first of all operating expense savings is also one of the key reasons that we achieved a record high quarterly net profit for this quarter could you. Please elaborate what we have done to achieve these cost savings how much that is one of how much that is temporary savings and how much of that will be sustainable.
Well into the future.
Second question is on double 11 shopping holiday.
Noticed that you have done some.
More promotions and more activities during double 11, this time seller how much <unk> we have achieved.
Achieved and what is our strategy on the e-commerce. Thank you.
Yeah.
Okay.
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Mitchell children Nokia in Asia.
Yes.
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Thank you Ricky how mission.
Hi, Rahul.
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Or maybe if you're looking back thank you Zach and good day, Andrew witty to acuity along with extra shoot.
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Okay. Thank you Bo cross rather see this develop.
In terms of question.
Sure.
Expense so first of all for in terms of.
G&A.
<unk> Express to Chris. The main reason here is the decline in labor cost so.
We have also these coasting all annual reports our current <unk>, which is 3370.
Two at the end of June this year.
The headcount worse since 2648 at the end of June .
<unk> to 'twenty, one so that is reflecting our.
Stock turnover.
And it has some decrease.
Yes.
However reflect many source.
Our ability and control our cost under uncertain environment and second in terms of.
Selling expense.
Yes.
We have been.
Promoting our in our MISO brands strategic upgrade same space here.
And.
As you would have asked you have seen that.
The result has been.
The initial result has been quite encouraging and we plan to continue to.
Execute the strategic brands upgrades.
And in this quarter.
There were some savings in <unk>.
Advertising expense in December quarter.
Currently asking with that there will be about renminbi for committed.
Advertising expense on this project.
It's larger than the September quarter, and this increase.
General speaking.
I think if you look at it.
You look at the expense or annual basis I think.
It's under our control and the.
The expense ratio can be.
Quite stable.
In the long term.
Thank you.
Okay.
Deborah can you remind me in your factory.
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If it all go to work.
Okay.
In terms of second question on double 11.
In short the total jewelry exceeded 100 minute room can be this year and with sales on taobao and tmall growing by 6% year on year.
Some of our key products, such as <unk> increased by more than 200%.
Plush taurus by more than 400% and buying books by more than.
It's about 12 times.
Thank you.
Yeah.
Hi, This is Steven Chan.
Thank you the next question.
Earnings from Jefferies. Your line open. Please go ahead.
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There's no doubt renminbi gentlemen, with us not.
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Curious on what the holiday. This is how go a little slower.
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This is available just yet so my question is the first one is that with pneumonia depreciate a lot either.
Yes, it means that an alternate.
Since we are sourcing from mainland basically it doesn't mean that we're able to benefit from D. A.
Depreciation now versus in the other market, where with bleach, we get foreign currency.
Second question is on the GP margin for mainland China.
The plant upgrade strategy do you think that.
GP margin these cases already above 60% overall or in other words is there any particular targets.
Our GP margin in China moving forward. Thank you.
Yeah.
Okay.
Okay.
Yeah.
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Okay you bet.
Even though you can include hydro.
Hydrotheca Omnichannel do what you do considering that you made on the regulatory update on Asia.
AG 200 issued on a multi year initiative.
So it will be improvement.
But you are including some of the whole thing was went down with ultra high rather than go to year over year.
I'll say addressing that I'll ask your talent.
Thank you Patrick.
So it will be more critical Dakota, we've worked hard at managing meters.
Yes, sure if you can help me.
Can you help me kind of breakeven with lot of the bigger model.
You saw that vehicle.
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Okay.
Okay. Thank you and this is Steven so for your first question about the OLED.
Gross margins, yes. This quarter, we are seeing.
Overseas gross margin.
Hold was about 40% is quite high.
Of which the distributor model.
Which accounts for 60% of our revenue gross margin was about 33% and the.
The directly operated model.
It's gross margin can be as high as 60%.
55% and the positive effect of direct countries breakeven to the company. It's more about this improvement of the company's overall profitability.
During the past three years seeing a pandemic, but gross margin of the directly operated business has been stable. However.
Because of this service for impacted Cup holders.
Existence, our fixed cost and expense so thats, why we incurred loss and direct all creative business.
And with the gradual amortization or is this market and the expansion of this part of business in the future we're quite optimistic about this improvement as well.
The the.
Urban based depreciation against U S. Dollar I think is not relevant to the GP margin overseas.
Okay.
Okay.
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Two other gain with GBM.
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Jonathan.
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Sure.
Thank you Pat.
In terms of a second question on the GP margin of GP margin potential.
I think it can last for a while for the for the three reasons. The first is that as we mentioned we have down logging, reducing the costing of our certain products and this works best efforts the results of them can be reflected in.
Our financial statement in upcoming quarters.
And is that.
We have opening approach in the holiday season overseas market as I just mentioned.
Gross margins are relatively high and we expected that.
Sales.
Contribution in December quarter, we are still maintain above 30% or higher and that will help and Chris the overall gross margin.
And third is the.
Are the rebate from our strategic suppliers.
As we.
Approaching the year end and as we have surpassed the threshold.
Have a great agreement.
We we can record more rebates by year end.
Or in the second half of the year.
But all in all we are very cautious assai, just SaaS, Robert just cautious about raising.
<unk> margins through <unk>.
Increasing our price so.
In the past few quarters, we have communicated as we have communicated we have achieved the GP margin improvement through cost reduction cost of saving through our product innovation or through the adjustment of our product structure.
No.
At the same time, our price of Minnesota.
Products as Nintendo at a very very reasonable price band and we have kept our value proposition, which is very competitive.
Compared to peers.
Peers. Thank you.
Thank you.
Yeah.
Okay.
Thank you once again for joining us today, if you have any further questions. Please contact <unk> investor relation team our contact information can be found on today's press release.
See you next quarter have a nice day.
Yeah.
Yeah.