MNSO Q1 2026 Earnings Call
Operator: Hello, everyone, and thank you for standing by. Welcome to MINISO March Quarter 2026 Earnings Results Presentation. Please also be reminded the event will be recorded. We provide you English simultaneous translation for this call. Please select your preferred language by clicking interpretation in the Zoom meeting. We released our Q1 2026 results earlier this [ year ]. Please help to refer to our IR website. Joining us here today are Mr. Jack Ye, our Founder and CEO; and Mr. Eason Zhang. Right before we begin, please refer to the safe harbor statement in our earnings press release, which also apply for this call as we will be making forward-looking statements. Please also note that we are discussing non-IFRS financial measures. Those measures are explained and reconciled to the most comparable measures reported under IFRS and also in our filings with SEC and Hong Kong Stock Exchange. Unless otherwise stated, all figures are in RMB. We have already prepared a slide deck for financial and operating highlights for today's call. If you are joining through Zoom, you will see the slide now. You can also refer to our IR website after the call. Now let me just turn the call to Mr. Jack Ye.
Guofu Ye: Hello, everyone, welcome to MINISO March Quarter 2026 Earnings Call. In March quarter, the revenue reached close to RMB 5.7 billion, grew by 28.5%, exceeding the high end of our previous guidance. Adjusted net profit, excluding ForEx gain and loss comes at RMB 630 million, grew by 8%. Operating cash flow grew by 40%. Free cash flow was up by 36%. I'm not going to read through the financial items one by one. Eason will take you through the detailed numbers and outlook in CFO remarks. I'd like to focus on 3 areas: First of all, execution of our strategy, I may spend more time here because the details of execution can really tell you where our company is heading to. Secondly, an update on 2 overseas markets that are of your most concern, Indonesia and the U.S. And thirdly, my view on H2 of this year. Let me just start with strategic execution. Last year, I introduced store upgrade strategy. We are right on that. MINISO Brand store number grew by 318 in China, less than 10% growth, but offline store GMV grew by 25%. The 2 data tell the story best. First of all, the share of the profit for franchisees this quarter reached the highest level in recent quarters. Franchisees are putting their own money on the line, so their P&L is most honest signal that you can get. The fact that the profitability hit a new height tells you that large format store is not asking franchisees to take the risks but helping them to make money. Secondly, we received thousands of new store applications, half of that requesting for large format or flagship stores. In the past, we have to convince franchisees to open large stores. Today, they are competing for these trends. Such shift is the market's most direct vote for the confidence in our large store format. On April 18, MINISO SPACE and MINISO LAND opened simultaneously at CDF Mall in Sanya. Duty Free Mall has been traditionally taken for luxury and beauty brands with highest foot traffic density and spending power among the top-tier retail store. The fact that we can move in speak for the brand equity. Most importantly, we bring something that people won't be able to get. An immersive IP-driven experience, a pop culture to duty free malls and translate into incremental foot traffic and time for venue. The real barrier for running large store isn't capital, it is content density. In 1,000 square meter space, can you really make the customer want to stay without leaving? This comes to 3 things, we accumulated for 1 decade, licensing right over 150 global IPs, a network of 2,000 global suppliers and the supply chain that fast enough to refresh assortment every week. These are the 3 that can really make us stand out, but at the same time, with systematically closing underperforming stores, those open for many years with under 200 square meters. But at the same time, we upgrade our franchisee base, removing weaker partners to bring new strong ones. This is what our store and the channel strategy is really about. Many people want to know how we have our IP strategy done. This is quite important. In Q1 of this year, we launched an IP operation training program out of our Guangzhou headquarters, bringing together regional managers, store representatives from South China and functional teams. This isn't a classroom-style training. We use our MINISO LAND store as a live training ground breaking down operation in real store environment. The program covers our IP understanding, storytelling, operational execution and data capacity working through everything from underlying logic to hands-on experience. Why it is so important? Because IP operation is an organizational capacity. It is not a set of the SOP. No matter how well a menu is written, if franchisees and your staff just follow it mechanically, the result won't be good. Only when people genuinely understand where IP resonates consumer most that can help our right half the strategy. This can turn IP operations from a headquarter story into a muscle memory across the entire network. On April 8, we concluded our overseas trade fair. The star of this event was YOYO, a proprietary IP that we built from scratch in-house. The fact that proprietary IP took center stage is a signal. Our own IPs are now capable of standing on their own commercially. And the strong order volume from the distributors and overseas customers is the most honest vote of the confidence to our IP and our product that's more telling than any market results. YOYO surpassed RMB 100 million in sales within 6 months of launch. In April, it appeared on Met Gala, the so-called Oscar of the fashion, a stage that has been traditionally for luxury brands and international celebrities. A Chinese original TOP TOY IP appeared as accessory along with international stars and was featured as a gift at an event. This is not marketing. YOYO earned its place in the global fashion spotlight on its own merit. From CCTV Spring Gala to Paris Fashion Week, to Met Gala in New York, YOYO covered ground in 6 months that many IP won't be able to make in 10 years. It's a full stack of the IP capacity from incubation to design to operation and global rollout. YOYO's success is not a coincidence. It's a signal that proprietary IP strategy is going to get into the harvest stage. In Q1 of this year, total overall revenue of MINISO Group exceeded RMB 2 billion, and we also have a great way to extend our business. The success is whether our organizational capacity can keep the pace. Building organizational capacity is what we made in the last investment with. It won't immediately show up in financials but by our long-term development. We have advanced a few things. First of all, standardization. The headquarter has developed operation and merchandising menus, delivering a video case study and on-site training to ensure consistent understanding and execution across markets. Each market also set up regional management training with regular session for store managers and supervisors. Secondly, we build benchmark and rapid replication. When key pilot projects is selected, once they prove success, we roll out them quickly to other markets. Thirdly, a mentorship model, powering experienced operators who deliver results with newcomers and continue to have the generation pass on the information. This system means our overseas capacity no longer depends on a single individual. It becomes something that organization can grow on its own. The more market and the store we have, the greater the compounding effect might be deep organizational capacity along with IP-driven products. Those 2 things give us strong confidence for our long-term overseas growth. Indonesia and the U.S. are the 2 markets, many of you are focused on. Let me give you an update on both. Indonesia has been one of the markets we're most proud of in our international journey. It has to remain so going forward. When Indonesia isn't about market. It's young demographic and vibrant consumer environment is a market we're going to have a long investment. It also made a demonstration effect for confidence of our global team. We must make it right. However, the business reached a certain scale hitting some bumps is entirely normal. The most difficult time is already gone. We have already have a clear path forward. On channel, headquarter has set up dedicated negotiation team to proactively pursue primary location and select relocated stores. On assortment, we have the one-size fits all approach, school segmented. On the product operation, headquarter is providing direct support to strengthen local IP execution and the tailored merchandising plan. On the organizational side, we clearly define responsibility. Headquarters lead strategic development with a local team focusing on daily operation. And in terms of the membership, we noticed that we need to truly make the business from a traffic driven to repeat purchase driven. I'd like to spend a few words on membership piece. We noticed Indonesia consumers show a clear spike in-store visit at the end of each month, which [ climb ] with local payday circle. We made a payday wave membership benefits program. The result was clear. Membership participants was 80.5 percentage higher than during the normal member days. The repeat purchase rate and frequency are all improved. During the Ramadan, we saw participation climb even further, which tell us this has become a real habit for the consumer. Well, for the full year, Indonesia delivered a solid profit contribution. I believe with our adjustment to event, profitability in this year would be much better than last year. More importantly, when membership and repeat purchase become the primary engine for growth, and the growth would be even higher. I'm truly confident on Indonesia. Let's also talk about North America, which is another heat. I have already walked you through the store model and the strategic updates, but today, I'd like to address 2 questions, including tariff and consumer behavior under inflationary pressure. I believe those are opportunities for MINISO. First of all, our price brand give us the structural advantages. Our core price range in U.S. was around USD 5 to USD 25. In that range, what drives purchase emotional connection is IP, I love this so I buy it, while at the same time, USD 5 to USD 25 is quite alluring, while at the same time, a consumer looking for merchandise of specific IP won't walk away because of the small price increase. And the tariff and inflation translate directly into price elasticity. However, for us, we don't apply that the same way. Secondly, MINISO supply chain capacity has been further upgraded from building a localized and specialized merchandising team while improving the entire supply chain, including product, strategy and supplier development. With strong cross functional and supply chain collaboration, we have launched our first sell program, which can help to improve our supply capacity. Thirdly, our goal can really support the U.S. business development. We operate in 120 countries and regions worldwide. Any successful store model from one market, proven IP playbook could be quickly adopted worldwide but at the same time, the stable cash flow and scale economy can also give us the confidence and the resources to invest in the U.S. The global complementary framework is not there for our competitors. Thirdly, tariff and inflation are cyclical and short-term variable. They come and they go, where consumer demand over emotional IP experience is structural. It doesn't appear with micro volatility for strong companies. Steering core pressure is also the growth opportunity. This growth is going to accelerate industrial shakeout and let truly differentiated brands stand out. In U.S., we are that differentiated brand. Let me just turn to TOP TOY now. In first quarter of 2026, TOP TOY revenue grew by 51%. Net store grew by 21, reaching 355, 316 in China and 39 overseas. In Q1 of this year, we launched a new proprietary IP [indiscernible] along with proprietary IP themed stores, with Nommi, TOP TOY portfolio of proprietary IP stand out. The portfolio product become more mature. Our proprietary IP is being validated by the market. By the end of this month, we announced Zhao Lusi as TOP TOY's global brand ambassador for influence and recognition among young consumers will help us to accelerate and reach more young consumer. Coming next, let me just walk you through my H2 outlook. There are 4 drivers First of all, membership is the most important lever for our same-store sales growth. The data tells a clear story. For full year 2026, member contributed 60% of the total sales. In Q1 of 2026, this number rose to 73%. In other words, nearly 3/4 of MINISO China business are coming from our members. There are 2 structural shifts behind that. And I see that consumer accounted for 79% of the total sales for us. Two highlights. First of all, contribution from repeated purchase continued to grow. In Q1 of this year, repurchase has already accounted for 60% of the member sales. New member acquisition is also accelerating. In the first -- first purchase contribution from the new members rose from 6% to 11% in Q1 which tells us when we convert new consumers into members, the quality of those new members are also improving. When more than 70% of our business revenue are coming from the consumers, you can directly reach and engage. The growth shift from being opportunity-driven to system driven. That's the underlying logic behind our confidence why we are there for repeat purchase and [indiscernible] expansion in H2. Secondly, benefit of our channel upgrades only started to come through. For the full year, we plan to open a closed 500 large store -- open close to 500 large format stores with MINISO LAND and flagship store making up increasing share. Thirdly, North America and Europe is set to enter into harvest space in H2. The new store we opened in U.S. and Canada was of high quality. This cohort will reach maturity and deliver high-quality same-store sales growth and margin improvement. Fourthly, 2026 is a year with highest density of IP. As we move into summer peak season, we have a very strong pipeline of major IP production launched lined up. Finally, while, we did see some return this quarter from our earlier investment in the AI space. I firmly believe that bigger prize lies in the efficiency gain AI can bring to our core business. Strong management capacity get amplified by AI. And the technology dividend from AI will flow first to organizations that already have high execution discipline and a very strong learning capacity, and I surely believe we're going to continue to leverage AI to really support organizations who already have a very strong learning capacity. So for me and for my team, we are improving our understanding over AI and also continue to develop AI. What is MINISO? MINISO is a high-density operating organization launched thousands of new SKUs every year, manage over 8,000 stores and spans more than 100 markets and regions. For an organization like us, the drive for efficiency is our DNA. On the product development side, AI supporting the trend forecasting and assortment decision. Our marketing AI can improve our efficiency in content production and customer stratification. On operations side, our smart floor system are helping us managing foot traffic by time and day. We approach change with a sense of humility. We see AI as an amplifier, amplifying the supply chain advantage, product development speed and operational precision that MINISO already has. Recently, we also would like to leverage AI to forecast the product needs. In that way, we will be able to improve the customer loyalty. Those are the 2 prepared remarks I have for you. Now I'm going to welcome Eason to walk you through the financials.
Eason Zhang: Thanks, Jack. Welcome, everyone, to today's call. Please allow me to walk you through our financial results of this quarter. Unless otherwise noted, all figures are in RMB. First of all, let's take a look at the completion of guidance. Let me just start by reviewing how we performed against the guidance we provided on March earnings call. We delivered on every metric we guided for this quarter. First of all, revenue. Group revenue was grown by 28.5%, which is higher than 25% we made for the previous call. I will break down the growth driver by business unit later in my remarks. Next, on same-store sales. In Q1, MINISO China Mainland delivered high single-digit same-store sales growth, while North America delivered mid-double-digit same-store growth. The 2 strategic priority market maintained a very strong momentum we saw in Q4 of 2025, driving group same-store growth to a mid-single-digit number. It is worth mentioning Europe and Latin America also delivered positive same-store sales growth in Q1. The trend would be continued in Q2. Let's also take a look at the top line. In Q1 of 2026, group GMV reached RMB 10.1 billion, grew by 26%. Total revenue grew by 28.5%, reaching RMB 5.7 billion. Let's break down by brand. MINISO brand revenue was RMB 5.17 billion in Q1, up by 26.6%. MINISO China Mainland was RMB 3.23 billion, up by 29.6%. MINISO China Mainland continued to perform exceptionally well. This was the [indiscernible] flat year-over-year growth rate in the past 9 quarters and the fifth consecutive quarter of accelerated growth following Q4 of 2025. The success of our China business validates our strategic direction is right. Our operating playbook is solid. We will use China experience as our benchmark, users proven operating experience to drive breakthroughs in international business, turning China's success to a powerful engine for overseas growth. MINISO overseas revenue was RMB 1.94 billion, grew by 22%. TOP TOY revenue was RMB 510 million, grew by 51.4%, continue a very strong growth trajectory. Let's take a look at same-store sales. In Q1 of this year, Mainland China delivered strong same-store sales growth with high single-digit growth number. MINISO overseas, including the third-party distributor, also delivered solid low single-digit growth. Looking ahead, we will continue to strengthen our same-store across 3 dimensions: people, product and stores. First of all, people. We leverage in-store traffic data to capture peak hours, regularly run in-store engagement activities, capitalizing on gift occasions like Mother's Day, 520 and Children's Day and the Dragon Festival to drive traffic through online to offline activation. On the other side, we use internal mechanisms such as inter-store competitions for the best-in-class mentoring to continue to improve our operation capacity. While at the same time, as Jack Ye has already mentioned, the value of our domestic membership system continued to be unlocked. In Q1 of 2026, members' contribution to the sales rose from 60% to 73% this quarter. Empowered by our largest store and IP strategy, we continued to acquire new customers and use refined operations to close the loop from acquisition to retention and repeat purchasement. In the near future, we will leverage AI capacity plus membership data to make sure we continue to have the demand forecast, precision targeting and the channel iteration continue to rise the same-store growth number. Second, let me talk about the product. We continue to align tightly with seasonal and holiday consumption trend, use hero [indiscernible] SKUs to drive a structural upgrade in the per-store sales mix. In H1 of this year, our IP collaboration has broke through across diversified categories, covering high-value IP for K-pop superstar Jennie, the Setwear brand Glock and classic lifestyle aesthetic [indiscernible]. This fully validates the connectivities of our global IP platform. In H2 of this year, we're going to have launched the World Cup collections, [indiscernible] Sanrio collaborations and the Toy Story movie. The hero IP will help to drive the high attachment rate. Thirdly, on store, we continue to upgrade the store display and visual identity. In Q1 of this year, we completed renovation to around 80 stores. The average daily sales improved by more than 50% post renovation. The result validates the effectiveness of the model strategy. We will continue to make it right. Let me also talk about our store network. At the end of this quarter, we have already more than 8,500 stores. MINISO, we have 8,210 stores worldwide, a net increase of 722 stores. MINISO China store number grew by 318, where overseas, we net added 404 stores, reaching 3,617 stores by the quarter end. TOP TOY have 75 stores with 355 stores by the quarter end, 39 are located outside China. In Q1 of this year, we opened a high-quality themed-park, for example, MINISO LAND and MINISO SPACE in Sanya CDF Mall. MINISO LAND in Grandview in Guangzhou, MINISO LAND in Dongmen and Shenzhen as well as MINISO FRIEND in IAPM in Shanghai. By the end of this quarter, the SPACE, LAND, FRIEND store reached 44 in total. In this quarter, we're going to have the Super MINISO, a new themed park lined up, bringing the total to 61 by the quarter end, covering 32 cities across China, Together, themed-park schools, flagship ones and the large store ones accounted for 12% of the total store count contributed 30% of the sales. We expect to roll out more better themed-park stores by the end of this year and the deliver a joyful and unique shopping experience to our user. Let's talk about the GP margin. GP margin was 43.3% for Q1 compared with 44.2% in the same year last year. We have a 0.9 percentage point decline due to 3 reasons. First of all, high-margin overseas business represent a small share of the total group revenue. Secondly, the return of the value for money assortments in China, disciplined pricing has translated into higher volume. And thirdly, an increasing mix from our new domestic product like the quick commerce stores, which are still in a margin ramp-up stage. Let's also take a look at expenses. The total operating expense, excluding SBC, grew by 34% in Q1. The total expense ratio was 29.2% compared with 28% in Q1 last year. Within that, selling expense grew by 37.7%. The selling expense ratio was 24.5%, up by 1.6 percentage points. G&A expenses grew by 17.4% slower than the revenue growth, representing 4.7% of the revenue, a decline of 0.4 percentage points. The growth of the selling expense was primarily driven by investment in operating store, licensing fees and advertising and promotion activities. First of all, in Q1, the revenue from direct operated stores grew by 50% Y-o-Y, while related expense grew by 35% demonstrating an ongoing optimization in our DTC store level economics, direct-to-store-related investments include staffing, rent-related expenses, depreciation and amortization. Secondly, advertising and promotional expenses grew by 74%, accounted for 3% of the revenue. That was mainly because of the brand upgrade initiative and proprietary IP marketing. We invest in brand awareness to reach a broader consumer base, reflecting our strategic investment in building brand equity. Thirdly, logistics expense grew by 43.5%, stably representing between 1.5% to 2% of the revenue, and fourthly, licensing fee grew by 42% in this quarter, in line with our strategic investment in IP development, stably representing 2.4% to 2.6% of the revenue. The growth of the G&A expense was primarily due to higher staffing costs aligned with our business expansion, G&A grows slower than revenue. Let's also take a look at other net gains. As been talked with many of you for the previous quarter call, in Q1, we recorded a large investment gain with other net income related to our direct investment in an AI company. Following the company's recent IPO and meaningful share price appreciation, we recorded RMB 870 million in fair value gains. I'd like to remind all of you, the management doesn't view this type of gain as reflective of our profit and the core operating business. So it's been excluded from our adjusted operating profit and adjusted net profit. In addition, the line item also includes net foreign exchange gains and losses. With ForEx volatilities in Q1, we recorded a net ForEx loss of more than RMB 8 million in this quarter -- RMB 80 million in this quarter and -- which is going to impact our margin by 1.5%. Generally speaking, our ForEx exposure may coming from the holding foreign currency-denominated assets, for example, cash, cash equivalents or receivables, or carrying foreign currency-denominated liabilities such as our USD-denominated convertible bonds. In Q1, the ForEx losses mainly come from the intercompany receivables from our subsidiaries in the U.S., Canada, Europe and Indonesia. The ForEx gains and losses don't reflect the true operational performance of our core business. As the share of our DTC business continued to grow, the impact of the ForEx were also increased. So the guidance we're going to provide you will exclude the ForEx impact. While for non-IFRS, there will be some items need to be adjusted. I listed it here for you, including 6. The first one is equity settled share-based compensation, SBC. SBC expense in Q1 was RMB 110 million, an increase of RMB 84 million because of the TOP TOY. And the second one is gain from the indirect investment in our AI company. This is actually a non-IFRS with an investment of RMB 870 million, represents unrealized and mark-to-market gains arising from the change in the fair value. And the third one is losses from the fair value change in derivatives and the issuance of the costs related to convertible bonds. By the beginning of last year, there will be a onetime issuance fees. It won't occur this quarter. And in Q1, the interest expense on convertible notes was RMB 50.4 million, of which RMB 45.7 million are noncash. The actual cash interest paid by the company for these convertible notes was only RMB 4.7 million. Interest expense on the loan used to acquire our stake in YH was RMB 23 million. In Q1 for YH, the performance was truly good. The net profit was RMB 290 million as we hold a 29.4% of the equity stake in YH. Then we recognized approximately RMB 77 million in income from YH in Q1. And we also have the change in carrying value of the redemption liabilities arising from the preferred shares. All those items would be excluded from adjusted net profit. Effective tax rate was 24.9%, which was 20% last year. Let's take a look at the profitability. I was talking about adjusted operating profit. Adjusted operating profit, excluding the net ForEx loss grew 14.3%, reaching RMB 840 million in this quarter. The adjusted operating margin, excluding the net ForEx loss was 14.7% compared with 16.6% in the same period of last year. Let me just walk you through the gap. First of all, gross margin declined by 0.9% Y-o-Y. The total operating expense, excluding SBC, grew by 1.2 percentage Y-o-Y. The above, partially offset by other items, resulting in a total impact of 1.8 percentage points on the -- but adjusted operating margin has been declined from 16.6% to 14.7%. As you can see that for this quarter, the increase in our overall expense ratio was decreased significantly compared with the previous quarters. Well for the full year, we aim to well control the expense ratio and continue to stabilize the GP margin. In other words, we are going to stabilize the operating profit margin of the company as a whole. So in H2 of this year, as the peak sales season of the overseas market continue to approach, we're going to honor our commitment for this goal. Regarding working capital, by the end of Q1 of 2026, the inventory turnover was 101 compared with 102 days in the same period of last year. MINISO China Mainland inventory turnover was 67 compared with 83 last year. MINISO Overseas inventory was 254, that was 208 last year. The increase of the overseas inventory was primarily driven to the inventory buildup ahead of the store opening. The second one is due to the logistics instabilities. In some strategic markets, we have a more flexible supply chain management strategies, increased safety stock in overseas market. Over the time, there will be significant room to optimize overseas inventory turnover. Let's also take a look at the cash flow, liquidity and capital allocation. By the end of this quarter, our cash position stood at RMB 7.05 billion, remaining healthy in upper end of May of this year. We distributed dividends over USD 116 million, bringing our accumulated shareholder return to RMB 6.23 billion. We believe our share price is currently significantly below its intrinsic value. Jack has already announced by the end of April, he intend to increase his shareholding. The company also plan to conduct share buybacks based upon the market condition. Going forward, we will continue to maintain disciplined cost control and prudent budget management, while balancing the growth within -- with a delivering stable and predictable returns to the shareholders. Last but not least, let me just give you the outlook. Standing here by the end of May, we are highly confident in achieving the full year target. We expect for the full year of 2026, the revenue, we're going to have a high double-digit growth. 3-year compound growth rate would be no less than 22%. Full year net store addition would be 450 to 500. Jack has already mentioned. We are going to pay more attention to the quality of the development. 450 to 500 net store increase would be adjusted as we continue to balance the quality of the store. However, overall speaking, and we are still very confident in hitting our target. Regarding the same-store performance. MINISO China and North America, we hope we can continue a positive same-store sales growth. Excluding ForEx gains and losses, we expect adjusted net profit growth to accelerate compared with 2025 on a full year basis. While the overseas macroenvironment present significant challenges, our expectation for the first half operating results remain unchanged. And we believe the revenue will grow by 20% to 22%. Net store addition will be 210 to 230. The MINISO China same-store sales maintained a mid-single-digit positive growth. North America same-store sales maintained a high single-digit to low double-digit growth. That concludes my prepared remarks. I'm happy to take your questions.
Operator: Let's, first of all, welcome Michelle from Goldman Sachs to raise the first question.
Michelle Cheng: Congratulations for the company of having a good performance despite the challenges. So my question was regarding overseas market. They're being touched upon by Jack Ye. However, you see the crude oil price have risen and stay elevated. Could the management team share with us what is the demand from the key overseas market? What would be the distributor order, pricing, cost pass-through and transportation and the logistics? What are the impacts on your business? And what would be your response strategies? If in the next few quarters, there are some key upside and downside risks, which are the market and factors that you are most associated with? Is there any market who's going to have a huge fluctuation? And what are the market you are confident on?
Guofu Ye: Thank you very much A very good question. Let me help to address this question. First of all, product mix was systematically lifting out the share of the high-margin categories. Proprietary IP product and IP collaboration limited addition are a key focus. We also started to pursue narrowing, but deeper strategy, concentrating on the true hero product and proactively on the tailor and SKUs fewer categories, but a greater operating depth and efficiency in each. This is in itself the most direct way to hedge against cost pressure. On the supply chain, we have extended the raw material stocking circle from the key SKU from 2 months to 3 to 4 months, looking the cost ahead of the time. End-to-end stocking price is still stable, give us sufficient buffer. For U.S. market over the past 2 weeks, we started the differentiated price test, taking price first on high frequency, high velocity items for example, [indiscernible] and T-shirts. On the data now, we see May gross margin already improved compared with April. The price increase roll out further, and we believe the U.S. GP margin would continue to stay stable or even go up. Looking ahead into the next few quarters, the upside risks include successful execution of the pricing adjustment, structural margin improvement, the rising mix of proprietary IP as well as the logistics cost pressure from the sustained high crude oil and potential pressure on the ticket size, if the consumer sentiment is certain continue to go weaken. Overall speaking, we're still very proactive for cost management.
Operator: Next, let me just welcome Samuel from UBS.
Samuel Wang: I have a question regarding your Indonesia and Mexico market. I heard a few remarks from Jack Ye regarding the Indonesian market outlook. But let me just ask you a follow-up question. What are the same-store sales and overall sales trends in Indonesia and Mexico over the past 2 months in April and May? And what is your strategy for both markets, especially in Mexico? And how should you comment on the sales and profit growth outlook for both markets in 2026?
Guofu Ye: Thank you. I think I have already covered Indonesia market. Let me talk about Mexico. The Mexico trend was positive. Same-store sales already came positive. Latin America are also delivering positive growth. From April to May, same-store sales improved meaningfully. And strategically speaking, we're going to work on channel upgrade. Mexico used to be dominated by small stores under 300 square meters. This year, we're going to roll out Land store. Larger store not only means [ larger square footage ]. It represents a comprehensive upgrade on IP, density and dwell time to improve with the higher ticket size and repeat purchase. Our large store practice in China is truly validated. We're going to have it in Mexico now. Looking to the full year, Mexico, the same-store sales should maintain positive. New store benefit of the channel upgrade would be visible in H2. Latin America has substantial consumption power and the fragmented competitive landscape. As long as we open [ Land ] store and execute IP operation well, the market is still quite promising because for Mexico, we're going to have large stores starting from H2 of this year. We really look forward to its performance.
Operator: Thanks Samuel, and thanks Jack. Then let's hear from Anne from Jefferies.
Kin Shun Ling: I have a question regarding the Mainland China market. As you can see, that generally speaking, the social retail data is not looking right. However, as I was talking to the expert, we found out MINISO store, your performance is much better than other peers. Is it possible for you to share with us are there any strategic updates that you can share with us? What are you going to do next? Just now, we have already mentioned some of our franchisees, they're happy to open the large stores. But can I just kindly ask you, are there any capital support we provide to our franchisees? Any strategies you have on the China market? Would be happy to hear.
Guofu Ye: Thank you very much. Let's talk about renovation progress. We renovated around 80 stores this quarter with clear results. Average daily sales increased by 50% post renovation, validating the effectiveness of our store upgrade strategy. For 2026, we plan to renovate more than 300 stores, and we need to do it in a phased paced and proactive intervention way. In other words, open big, close small, open good and close weak, and transferring those aging undersized stores into new store formats. We placed strong emphasis on evaluating the visual identities standard display, IP experience mix and to have an efficient renovation strategy. Let's also talk about franchisee profitability and paybacks. From Q1 2025 to Q1 2026, the share of the profit franchisee store continued to go up. The GP margin continued to expand. On payback period, large stores are meaningfully higher than the store level profitability for some of the best-performing themed-park store can even achieve a payback within 6 months compared with around [indiscernible] months for the standardized stores. In 2026, we continue to reinforce the franchisees, their understanding over the large stores. We received some positive feedback from many of our large store franchisees. Around 50% of the new store application received by the headquarter for large store format. The feedback indicates franchisees are increasingly willing to invest in large store renovation. It also reinforced the importance of our strategic shift towards improving per store quality.
Operator: Let's welcome Yang Runbo from CICC, please.
Runbo Yang: I have a question regarding Mainland China business. As we can see in April and May, the micro consumption data in China is still fluctuating. I'd like to ask the management team, in terms of the foot traffic and the willingness to spend, is there any change? What trends are you observing across different city tiers and consumer cohorts?
Guofu Ye: Same-store average daily order volume and average ticket size are both going up. The ticket size is approaching RMB 40. There is one driver that is becoming more important for our China growth, that is membership operation, its most important strategy we have, a high-quality, highly engaged membership system, provide more predictable growth with strong resilience going through the industrial cycle. The data tell us very clearly members spend at a meaningful higher than the nonmembers. The higher the share of the member sales, the higher the quality and the productivity of the overall business might be for the past few months. Our membership ratio increased from 60% to more than 70%, driven primarily by new consumer acquisition. In H1 of this year, we'd like to work on the member acquisition. In H2, we will focus on repeated purchase. When the 2 are combining together, it can help to complete a membership growth flywheel. Taking a look at the city tiers, we observed some positive trend consumption potential being unlocked for all tiers. Same-store sales are all positive for all city levels. Provincial capitals are driven by large stores as well as top-level IP, new tier cities are driven by potential penetration and customer acquisition. The growth was pretty healthy. During the Chinese New Year, we rolled out the trendy toys to the countryside strategy, bringing MINISO IP product and themed-park experience to country-level market, which can help us to have a same-store sales in country-level reach, double-digit number. This tells us emotional demand for IP and the trendy toys cover much broader audience. Young people in country, they also have the same demand. They simply don't have the [indiscernible] and adequate supply before. These can also see MINISO brand has already covered different consumer cohorts. The depth of the China market is far greater than what has been generally appreciated by the market.
Operator: Coming next, let's welcome Xu Xiaofang from Citic, please. We may move to the next question first. Let's welcome Shi, Di from Huatai Securities first.
Di Shi: Can all of you hear me?
Guofu Ye: Yes, great. Loud and clear.
Di Shi: I'm Shi Di from Huatai Securities. I have a question regarding the same-store sales in China. We see in Q1 of this year, the company did a good performance on same-store sales. In the next few quarters, the baseline was being elevated. So how are you going to comment on the same-store base rising and the subsequential quarter performance? What strategies and tactics are in place for sustained same-store growth?
Guofu Ye: You're right. The baseline is indeed rising, but we have a clear and systematic strategy in place. Let me just share with you a few data during the May Labor festival. Domestic sales grew by a high double-digit number, outpacing major competitors. Average daily sales hit all-time holiday high, even higher than daily average during the Chinese New Year holidays earlier this year. We see some third-party data show us. Foot traffic was under pressure during the May Labor holiday but our store, the entry level improved by 4.1 percentage. Average per store traffic also grew, means we drove traffic against the headwinds. By categories, toys, digital accessories and travel categories delivered 25% growth, which is hard earned result. For sustaining same-store growth, we have the following strategy. For IP collaboration, we continue to deliver differentiated and high frequency launches. For example, with secure global exclusive license for F1 plus Disney collaboration and May through June, there will be a few gifting seasons with Mother's Day, Children's Day, Father's Day and 520, I Love You Day. And we have already built a dedicated assortment and event plan according to the gifting data to improve the average ticket size. For operating, we also roll out the foot traffic contest at the store and to further empower our store. The supply chain also continued to improve. Even during the May Day holiday, we can unlock the sales window. So even if the baseline is going up, we have a diversified toolkit, and we are confident in continue to deliver strong same-store performance.
Operator: Thanks Jack. Madam Xu, are you there from Citic? Can you unmute yourself for questions?
Xiaofang Xu: Yes. I have to say sorry, there might be some technical issue with my line. I have a question regarding your proprietary IP. For the past few -- 6 months, we see that your proprietary IP started to show up in your store medium and lower-tier cities, the designs have been quite interesting. So is it possible for you to share with us your proprietary IP, for example, YOYO as well as [indiscernible] and Kumaru.
Guofu Ye: A rather good question. Let me elaborate on that. Third-party licensed IP and proprietary IP seems selling the same product, but the logic would be different. Let's talk about the GP margin. Proprietary IP products have a high margin compared with licensed IP, but the underlying logic matter the most. Proprietary IP is most exclusive and absolutely differentiated. If you want to sustain the GP margin, you need to have a proprietary IP. The pricing power operating authenticity and the entire value chain of the proprietary IP its fully in our hands. It also provides long-term high-margin moat. However, you need to think about how to diversify the monetization model. A mature proprietary IP isn't sell product. You can sublicense it to the third party, you operate across multiple formats and it can also drive content production and upgrading the IP capacity. Those are all extreme high-margin business model that compound over time. YOYO appearance on the Met Gala and entry into fashion week reflect [indiscernible] of the brand value rather than sell product only. We are building our proprietary IP. We're building a business model on an entirely differentiated scale. That is most important upgrade for MINISO long-term profit structure.
Operator: Thanks for Jack. Coming next, let's welcome [ Mr. Jin ] from Changjiang Securities.
Unknown Analyst: I'm [indiscernible] from Changjiang Securities. I have a question regarding Europe business. It seems that the business growth in Europe is quite fast, and they are still in the investment phase. And Europe is a big market for you to explore. So can I ask Jack here. Can you share your view on the long-term opportunities in Europe and the specific strategy plan? And for the mid- and short run, what would be the pace of the store investment in Europe this year, the profit quality of the new stores? And what would be the change of the margin for the store?
Guofu Ye: Thank you. Europe has delivered continued positive same-store sales growth this year with the leading category being trendy toys categories, for example, like the [indiscernible]. This is also the reason for us to go for international expansion. We're not bringing in product others already selling, we'd rather bringing the consumption scenario of IP trendy toys, open new demand. Channel upgrades are progressing in parallel. The LAND store will roll out in H1 of this year. Regarding the profitability, Poland and Germany are strong proof points. Both directly operated stores have outperformed expectation and the store level and market level operating margin reached double digits. The Germany overall operating margin across more than 10 stores has already stabilized with double digit. Other markets are ramping up. Q1 is traditionally [indiscernible] season for retail. It is also the best window to prepare for new store openings. And our long-term profitability target for Europe DTC is clear. Germany has already achieved that. Other markets will follow up. Europe is a market with a long-term cultivation. We have the patience and we have a clear pathway there.
Operator: Thanks for Jack Ye. Coming next, let's welcome [indiscernible] Guotai Haitong.
Unknown Analyst: I have a question regarding U.S. It seems that you operate the largest format in U.S. for quite a while. Is it possible for you to walk us through the operational details as well as the operational results? And you can see that what would be the purchase frequency of your U.S. members? Is it improved as you roll out large stores?
Guofu Ye: Thank you, Ms. [ Wu ]. As I was emphasizing again and again, that is what we're doing now. For the past 2 to 3 years, MINISO continue to build up our non-U.S. consumer goods, the largest DTC network in the local area. So starting from January of 2024, we started to explore the last store. Before that, you see that we entered into U.S. market in 2017. By then, majority of our stores are located in U.S. shopping malls. But from January of 2024, we started to have our garden roof stores being opened, and we started to build our understanding of [indiscernible]. By beginning of this year, Jack Ye went to U.S. to tour around our stores. We find out our [indiscernible] store has already moved into a 2.0 version time. What does 2.0 version means? And our 2.0 version store is not picky about the business district at all. You can see that for our good and large [indiscernible] stores, even in an average business district, its store sales and efficiency per square meter is still been looking right. Compared with 1.0 version [indiscernible] store, the 2.0 version are actually showing better profitabilities. So we have already provided you a single store profit model in the U.S. Generally speaking, for a single store, the payback takes around 1 year in the U.S. Well, for the 2.0 version store, the payback period has been controlled within 1 year. Well, for MINISO, we are committed for the long-term business, and we stick to the long-term investment. So for the 2.0 version store, and it provides above expectation same-store performance, and it is also sustained and continued with improvement. In other words, in the near future, our U.S. 2.0 version store can be rolled out to more cities and more business districts. It's a proven success, which can help us to continue to unlock its potential in the U.S. market. The second question, you were talking about the sales data from our members. In China, we have a very mature and well-established CRM operation system. In that way, we will be able to extend our success China membership management to the U.S. For the past 1 year, the sales growth from our U.S. members has been quite significant. And China started to do membership in 2018. And in 2021, the membership sales exceed half of our total business. And we made 5 years making the membership spending accounted for half of our revenue. Where in the U.S., we only spent 1 year to make that happen. And you can also see the repurchasement rate of the U.S. consumer is no less than that of the Chinese members. So that's the reason. And we believe we're going to have a very healthy store efficiency this year and we have every confidence for that.
Operator: Thanks for Jack Ye and thanks for Eason. Thanks for all the investors and analysts for your questions. Thanks to everyone to be a part of our earnings call. If you have any further questions, feel free to contact my team. Thanks for your attention and support for MINISO. See you next quarter.
