MINISO Group Holding Ltd (MNSO) 2025 Q1 法說會逐字稿

Good afternoon, everyone. Thank you for waiting, and welcome to join us for MINISO 2025 Q1 earnings conference call. (Operator Instructions) Please note, this event will be recorded. English simultaneous interpretation is available for this conference call. Please Click Interpretation in Zoom meeting to select your preferred language. We released our Q1 results earlier today, which are now available at our Investor Relationship website at ir.miniso.com.

Joining us today are Mr. Ye Guofu, our Founder and CEO; and Mr. Jingjing Zhang, our Chief Financial Officer. Before we continue, I'd like to refer you to the safe harbor statement in our earnings release, which also applies to today's call as we will be making forward-looking statements.

Please note, we will discuss non-IFRS financial measures today, which we have explained in our financial earnings release and filing to the US Securities and Exchange Commission and the Hong Kong Stock Exchange, which have reconciled the most comparable measures reported under IFRS or among our RMB, unless otherwise stated. Additionally, we have prepared a set of the slides that include financial and operational information for this call. If you're using Zoom, you should be able to see it now. You can also preview it later on our IR website.

Now I'd like to welcome Mr. Ye Guofu to begin his remarks.

Good afternoon, everyone. Welcome to MINISO Group 2025 Q1 earnings conference call. Today, I will share with you our quarterly performance highlights and our future development plans. First of all, let me review our overall performance for this quarter. In Q1 that just concluded, MINISO Group's overall revenue exceeded expectations, with total revenue of RMB4.43 billion, grew by 90% on a Y-o-Y basis.

MINISO China net revenue was RMB2.49 billion, grew by 9%. MINISO overseas revenue was RMB1.59 billion, grew by 30%. Coming next, please allow me to talk about our measures behind this growth and our future strategy for those domestic and international market.

Let's talk about domestic market first. We have continued optimization of same-store performance. Starting from the beginning of this year, domestic same-store sales has shown significant Y-o-Y improvement. In Q1, the Y-o-Y decline in domestic same-store sales narrowed significantly compared with Q4 last year, during holiday, in particular, we reached the positive [turning] point in our operational performance with same-store performance shifted from negative to positive.

We maintain our guidance on domestic same-store growth, came positive for this year. Starting from last year, we have established a same-store enhancement as our core strategy. We have broken down the vertical management model and continues to strengthen collaboration among operations, merchandise channels and market environment. Building a flexible and very efficient integrated organizational framework with enhanced coordination enabling faster and more agile decision-making and execution.

The company also set same-store metrics as our core KPI across our entire business trend. This matter effectively break down department of barriers greatly motivating different departments. To propose performance improvement solutions for their professional perspective and achieving cross-departmental resources integration through coordinated mechanism, driving the entire team to effectively collaborate with the unified goal of same-store enhancement.

The company has also developed a systematic implementation in merchandise and channel management, who are more precisely capitalized same-store attribute for the channel stratification, complemented by big data insights to accurately match the channel characteristics with inventory structure, making sure our sufficient product offering meet diversified consumer needs.

Going forward, we will continue to defend our refined operation further unlock market potentials and work with our franchise to advance high-quality developments with high store efficiency and high profitability. Secondly, we strengthened our IP strategy and enhanced product development precision. High-quality growth fundamentally depends on [accident] product.

A brand, a long-lasting competitive edge is embedded in every item we create. Each product investment to strengthen our market position. We significantly improve our resources at forefront of the product innovation, building a specialized team that track global trends and (inaudible) for new design concepts and functional application to keep our offerings at the industrial forefront.

Our IT collaboration have delivered exceptional results in this year, the ChiiKawa Lunar New Year collection, ChiiKawa Cherry Blossoms cereals and our recent Stitch collections, launched along with a movie release, which all received outstanding market response and the sales performance.

Our approach for Deep IP and creating heat products around them, continue proven to be successful. Moving forward, we're expanding our IP partnership. We will also focus on [dips] rather than just brakes, refining our product development procession to create truly distinctive merchandise.

From a strategic category perspective, during the May Day holiday, travel accessory grew by 45% compared with 2024 especially on May 1, it's setting a new historical high for this category. For the disposable product, we created immersive specialty display zoom and product [end caps] who are simultaneously showcasing professional third-party testing report to build consumers' impression that MINISO disposable products are safe enough.

We continue to search for a high-quality and more environmental-friendly material or to bring consumer a more exceptional and reassuring user experience. We firmly believe that continued innovation with high-quality and value-driven products that meet evolving consumer needs is essential to our market success.

MINISO's journey to date have been built on exceptional merchandise. Going forward, we were further investing as a core competitive edge to gain greater consumer recognition globally and continue to establish MINISO as a truly household name worldwide.

Certainly, let's focus on China upgrade with large stores driving growth. I'd like to share with my thoughts on our domestic store expansion strategy. The brand has evolved from a rapid land grabbing into an upgraded phase of large store driven growth. This year, we are focusing on high-quality channel developments as our strategic core, working on open larger, better-performing stores.

Since the beginning of this year, we opened five new MINISO LAND locations, bringing a total to 8 with another 50 in preparation. We established 43 flagship stores with 150 more in pipeline. New stores opened in Q1 have achieved a 27% higher average efficiency compared with new stores from the same period of 2024. Since the grand opening of our first IP LAND store in Shenzhen last August, IP LAND store in Shanghai, Chengdu and other city has successfully opened with 19 (inaudible) location also making impressive [debuts] this year.

Those stores not only enhance MINISO's brand image but also offering consumer a wider product selection and a very unique shopping experience. We were delighted to see that after the store opening, [all the] store continued to break single-core sales record through refined operation and marketing campaign closely integrated with our IP strategy.

Moving forward, we will continue to emphasize our IP Land stores position as brand benchmark, prioritized IP and product resources to ensure priority product launches and customized limited additions. Currently, the performance contribution from the larger stores is gradually increasing. Single-store model is showing positive development trends.

We will continue advancing our large store strategy by optimizing store layouts and improving operational efficiency to further enhance our brand influence and profitability. Beyond actively expanding new stores, we equally focus on renovating and optimizing existing locations, small to large conversion and old to new renovation or key initiatives. By increasing store size, we were expanding disciplined (inaudible) and consumer interaction space through upgraded eco-style and optimized lighting design. We'll refresh store with better align with our brand positioning.

We also proactively and systematically closed some smaller outdated stores, optimizing our store portfolio and further improving the overall operational efficiency, laying a very solid foundation for the brand long-term development. Coming next, let's talk about international market. We have international market strategy expansion. Our overseas revenue contribution continued to rise, increasing 3 percentage points on a Y-o-Y basis.

We implemented a diversified strategy to address different market dynamics. In North America, improving store operational quality and controlling expenses ratio are our key priorities. We're going to focus on 24 states that represents 76% of the US population, implementing cluster-based store openings and the leverage economics of enable repeat inventory transfer between warehouse stores reducing logistics costs and improving inventory efficiency.

We also enhanced merchandise operations through a specialized product development team at headquarters that create targeted product assorted based upon US store formats and positioning with emphasis in developing core bestsellers. We believe the market opportunity on not only the US, in Europe, in Latin America or even in Middle East. We were flexibly optimizing cooperation model and a deepening partnership with our agents.

We will strengthen control and headquarter coordination with our overseas partners on the ordering side, while at the same time, we also continue to explore new business models. For example, we continue to improve our store positioning, which can continue to further improve our opening potentials in the US and continue to leverage greater.

Our store models in terms of the tariff, we also made some good preparations. Last year, we continue to build inventories in US market for reserves despite some upfront cost, ensuring sufficient stock availability, aiming the tariff uncertainty can allow us to fully capitalize on sales potential.

Furthermore, we enhanced our overall cost competitiveness in US market by increasing procurement from US local and other overseas supply chains to continue to improve our product competitive edge in US. This April, we held our 2025 global new product, Carnival at (inaudible) in Guangzhou, featuring nearly 4,000 square meter of exhibition space with nine immersive exhibitions showcasing over 6,000 new products.

Through our headquarters strategic deployment of [hot] products and the [best] sellers, we enhance product differentiation and the competitiveness by creating more efficient innovative store model, we bring more engaging shopping experience to local consumers to further strengthen our brand image.

We see tremendous potential in overseas market and will continue to drive in high-quality growth through increasingly refined and localized corporation. Well, for TOPTOY, let me just make the following statement. TOPTOY business continued to maintain steady development through optimized product structure and improved operational efficiency, the proportion of self-divided products exceed 40% for Q1 of this year, further enhanced TOPTOY's market competitiveness and profitability.

Going forward, we will continue to strengthen TOPTOY's brand building and in-house product development, launching more products to meet consumer needs, increasing brand market share and influence. Looking to the future, we are confident in our performance in both second quarter and the full year. We'll continue to advance our refined operational strategy, strengthen IP partnership, upgrade our channel, upgrade the store location, enhancing supply chain management, building brand influence to solid foundation for our full year performance target.

Meanwhile, we'll continue to implement our shareholder return policies, combining dividends and share repurchase. We paid out RMB740 million in dividend this April and completed nearly RMB260 million in share repurchase since the beginning of this year. We'll continue such a strategy to maximize shareholder value. We maintain committed for customer-centric innovation-driven approach as we advance business upgrade and market expansion in IP collaboration space.

We increasingly focus on the strategy of keeping the existing partnership with developing new ones, strengthening long-term IP partnerships, we're also exploring leading resources in each market. Please believe in the power of our business trajectories. In the interest base and the cultural consumption space, MINISO has built a difficulty to replicate competitive edge through our unique IP advantage. I look forward to witness our continued growth and success with all of you. Thank you very much.

That concludes my remarks. Now I will invite Jingjing Zhang to present to you our financials in Q1 of 2025, please.

Thank you. Thanks Mr. Ye. Coming next, I'd like to walk you through our financial results for Q1 of 2025. Please note, otherwise stated, all figures are in RMB. I will also refer to some non-IFRS financial measures that exclude stock-based compensation expenses as well as costs related to convertible bonds and acquisition loans.

First of all, revenue. In Q1 of this year, the overall revenue was RMB4.43 billion, up by 90%, making steady progress towards our expectation. 90% Revenue growth exceeding the upper limit of our 50% to 80% growth guidance. Looking at each brand, MINISO brand generated RMB4.09 billion revenue, grew by 16.5%. Waiting days, MINISO China managed revenue was RMB2.49 billion, grew by 9%.

9% growth is even accelerated compared with the previous quarter. MINISO overseas revenue was RMB1.59 billion, grew by 30%, also exceeding the upper limit of our 20% to 25% guidance to the market. TOPTOY brand achieved RMB340 million revenue, up by 59%, continued its rapid growth. From the revenue structure, in Q1 of 2025, China mainland revenue accounted for 56% of the total revenue. In the same period of last year, the number used to be 61%.

Overseas revenue was 36% used to be 33% last year, increased by 3 percentage points for the same-store performance. With the collective efforts of everyone from our CEO to store staff, domestic MINISO same-store sales has significantly improved in this year. The Q1 same-store sales declined only by mid-single-digit number against the high base slide last year.

The rate of the decline substantially narrowed down compared with Q4 last year. This improvement trend has continued since the Lunar New Year, particularly impressive is that in April last year, featuring the Chiikawa launch, which created a very high baseline last year. But still in April of 2025, we will be able to continue a positive trend during the May holiday.

We continue working towards our goal of achieving positive same-store growth for the full year. Overseas MINISO same-store sales faced some base pressure. Q1 performance is similar to the domestic trend. However, it is worth noting that in the same period of last year, our overseas same-store growth was 20%.

Looking at the two-year compound rate, overseas same-store sales still show solid growth in Q1. For overseas same-store performance, we were replicating successful practice from China market and already sent improvement in major markets like US and Mexico in Q2.

Having proven our ability to enhance same-store performance in China's intensively competitive market, we were even more confident in our overseas market performance. Well, in terms of the store network, in Q1 of this year, we added 95 new overseas locations, steadily expanding our international network. In domestic China, we actively implement a strategic channel upgrade.

Our approach is to close underperforming store, will open better ones and replace small locations with larger ones. Notably speaking, most of the stores closed in Q1 were low productivity locations on the 200 square kilometers with operating for over three years with average monthly sales lower are than [RMB200,000] In contrast, newly opened a store this year averaged is 300 square kilometers with average monthly sale approaching [RMB400,000] This experience why we have nearly double-digit revenue growth in Mainland China despite no net increase in domestic store [comp] here in Q1.

Regarding the gross margin, we saw an increase near 1 percentage point compared with same period last year, reaching 44.2%. Beyond GP margin improvement driven by increased proportion of the overseas revenue mentioned earlier, our effective IP strategy also contributed to the steady enhancement of our overseas market segment.

Looking for the future, there might be some fluctuation from the seasonal factors, but the upward trend continues to have momentum, the room for further growth. Let's also talk about expenses. I'd like to highlight our expense in this report.

In Q1 of 2025, combined selling and administrative expenses grew by 45%. Sales expenses up by 51%, administrative expenses, up by 22%. Selling and administrative expenses represent 28% of the revenue, 5 percentage higher than the same period of last year.

Most of these Y-o-Y increase are due to the sales. Majority of those Y-o-Y increase relates to our newly opened direct operated stores including labor cost, rental expenses, depreciation and amortization. In Q1 of 2025, directly operated stores contributed 22% of our revenue, up from 40% in the same period of last year, with revenue growing 86% on Y-o-Y basis. The growth rate of retail revenue continued to outpace the growth of the related expenses.

As I continue to talk to the market, our existing investment for the directly operated store are capturing more sales opportunity to ensure our future business success, especially our strategic important market like the United States, while at the same time, we will effectively control headquarter-related management expenses with the overall proportion decreasing in Q1 of this year. It's being reduced by 1%.

We firmly believe focusing our spending were it matters most. We believe with continued refined operation and strict expenses management, our operating expense ratio will continue to be improved. In the mid and the long run, this newly opened directly operated store will unlock greater sales and profit potential.

Regarding profitability, our adjusted EBITDA margin for Q1 of 2025 was 23.4%, up by 7.5%. Adjusted operating profit margin was 60.6%, down by 4.2 percentage points compared with same period of last year. Let me just break down the reason behind this decline by business segment and respond to you why I'm still confident for margin improvement.

The operating profit margin of MINISO Mainland China franchised business remained stable compared to the same period of last year. Well, the operating profit margin of our overseas agency business slightly improved. Both businesses are pretty stable.

As you can see, these two business segments are performing very well. The decline in the Group's overall operating profit margin is primarily due to the changes in the revenue structure. The proportion of the high-margin franchise and agents business has decreased, while the rapid growing direct operated business has increased, diluting the overall profit margin.

Of course, we believe there is significant room to improve our profit margin of the directly operated business. Going forward, we aim to increase efficiency and refine operation to improve the operating margin of directly operated business. Additionally, investment in new business will surely cause our short-term fluctuations in profit margin. In mid and the long run, 20% profit margin would be a reasonable target. But during our growth phase, we need to build new business, sufficient space and the time to develop.

In Q1, our adjusted net profit was only RMB590 million with adjusted net profit margin of 30.3%. Beyond operating expenses, the key factor affecting our profit margin in this quarter is increase in financial expenses primarily coming from the three resources. First of all, the seven-year convertible balance of USD550 million with 0.5% coupon rate issued in January 6 of this year.

Since its convertible balance in corporate financial derivatives, it generated quarterly sales revenue fluctuation and accrued interest cost under the effective interest method, which accounting standards required to record as financial expenses.

Secondly, the bank loans expenses related to our investment in YH, which includes borrowing interest expenses at an annualized rate below 3%. The third one is financial expenses related to store lease for our increased number of directly opened stores.

As Mr. Ye just stated, we are committed for long-term thinking, even if we see short-term pressure, but they lay solid foundation for long-term revenue and profit growth. In Q1 this year, our effective rate -- tax rate was 26.6% primarily because of the convertible bonds and related financial expenses, reducing pretax profit without generating actual tax liabilities, resulting in a higher effective tax rate.

Excluding those impacts, the actual operational tax rate was 21.2%, in line with what we saw last year. Going forward, we're going to maintain a very stable effective tax rate for our regular operation. Regarding capital allocation, in March of this year, RMB740 million, 2024 final dividend has already been paid to the shareholders. Meanwhile, starting from the trading window opened in March, the company continued its share repurchase program.

As of now, we have repurchased nearly 260 million worth of the shares in 2025, totaling 8 million shares, representing 0.7% of the total outstanding shares. In the near future, we're going to finance the rapid business growth and our commitment to providing shareholders with stable and predictable returns.

Looking ahead to 2025, our expectation remained largely consistent with those at the beginning of this year. Due to the comparison base from 2024, the overall revenue pattern was slower in H1 and accelerate in H2. We believe our operating profit growth would be housing in 2025 as we will be more focused on expense control. But improvement in operating profit margin still depends on the profitability of our directly operated stores and also investment into the new stores.

These stores are currently in rapid growth phase and temporarily speaking, lowest profit margin but it has significant room for further improvement in the mid and the room range. Looking into the future, we believe our reasonable operating profit margin should be around 20%. Our financial strategy will continue to maintain discipline in budgeting cost control and capital allocation. committed to achieve stable and sustained profit growth and healthy cash flow.

Thank you very much. This concludes our presentation. We are now ready for Q&A, please.

Michelle Cheng, Goldman Sachs.

Thank you. Thanks to Mr. Ye, and thanks to Mr. Eason of giving me the opportunity to raise the question. I have three questions. My first question is regarding MINISO domestic China business. There are some same-store improvement recently. Could you be more elaborative on that? Why we have the same-store improvement? Is it because the format of the store has been changed? Is it because of the metrics of the stores being changed in different tiered cities?

My second question, what would be the payback period for your franchisees? Another point you mentioned is the store adjustment strategy. So do you have any guidance regarding the store opening plan or strategy? This is my first question. My second question is targeting US market. Tariff is still with huge fluctuation as a market. So with very different tariff potential, do you have any strategies or plan? What about the supply chain adjustments, especially for the US market?

My third question for YH, starting from Q2 of this year, there will be some P&L impact from YH, right? Can you please elaborate on how YH going to impact the profit and growth of MINISO? YH has already rolled out some adjusted super hypers. Are there any update on the progress now? Thank you.

Thank you. Thanks Michelle. Many questions. I wrote down five. Let me just respond to a question one by one. The first three questions. I think you rather want to know more about our domestic business. You want me to elaborate on the specifics of the same-store performance in China. And in Q1, in domestic market, we do have a mid-single-digit decline. For those investors who follow us on enough, this is indeed a huge improvement compared with Q3 and Q4 last year.

Internally from MINISO, we were quite inspired but only have a decline to mid-single-digit number. Here yesterday, we have already narrowed this number to a low single-digit number. In 2025, we still have every possibility of improving a positive growth. But let me just tell you, the micro consumption in China has not yet been fully restored. In such a challenging background, MINISO can guarantee positive growth, which can truly showcase our business resilience.

If you further break down the Q1 same-store performance, especially for APS and the customer flow, the value per order is still the same as what we saw last year. But for the same-store decline because the traffic of the physical store continued to showcase low- and single-digit decline.

But starting from Q2, value per order and the traffic continue to be improved. In terms of the regional, especially in Eastern China and South China, in the Tier 1 to Tier 2 cities, the same-store improvement showed very nice progress or even some of them have a positive growth from beginning of this year to now.

But in northern part of China, especially in Northeast and the Northwest part of China, we do see some pressure for same-store improvement. We made some original specific plan, and we have periodical follow-up for those plans. So overly speaking, we are very confident probably for our interim of this year. We are very close to breakeven. Well, let me just also share with you the franchisee business.

Starting from 2025. Their ROI has already seen nice improvement along with same-store improvement. We do have 5 MINISO LAND being operational and 43 flagship stores, all of them are most being operated from franchisees. So franchisees, they still have a very deep emotional bond with MINISO. They are still positive on us. We also have IP LAND flagship stores in (inaudible) majority of them are still be owned by the franchisees.

So we surely noticed franchisees, they are quite interested in this new store format, and they have every confidence in it. Third question, regarding the store opening guidelines in China. In Q1, the same-store performance delivered every ideal performance. Even we adjusted a number of the stores, but still, we will be able to register a double-digit growth by improving the same-store improvement and a single store improvement, especially those stores being operational within 12 months, which showcases a very healthy store metrics.

For this year, we are confident we can achieve double-digit growth. Besides that, we will also surely optimize our store network. The fourth question is regarding tariff. With existing tariff, let me see, compared with 2018, we do have some early preparations. For the past one year, we are intentionally building up our stock in US, especially the inventory preparation.

We do have more inventories in overseas market. In that way, it can help to be ready for the sales peak season in overseas market. In the short run, it may bring some pressure on expenses. But now it can actually help to further play the potential of our overseas sales. US inventory can still support ourselves for another three to six months. We have another countermeasure for US tariff fluctuation. We are adjusting our supply chain.

We hope we can translate MINISO as Chinese supply chain going global -- to global supply chain integration. In other words, we are going to be less dependent on Made in China as a single market for supply chain. In order to further improve our supply chain efficiency, we did a lot of job for direct sourcing from US market. We make sure we have controllable cost and stable delivery of the US product. We have a deep bond with our international supplier to adapt to the new landscape.

In Q1 of this year, US direct sourcing accounted for 40% of the local product. In 2025, we're also going to adjust the sourcing and making sure we improved the diversities and the qualities of the direct sourcing to improve the GP margin of the US business. At the same time, we also have the tax planning tools that can help us to effectively reduce our tariff burden in US, making sure our commodity to the US market can change a higher profit.

The final question is around YH. So starting from Q2 of 2025, YH is going to be consolidated into our overall performance. For YH, its overarching goal is to reduce financial losses with efficiency and the manpower and the GP margin improvement and also cost expenses reduction.

YH business has seasonality. Q1 is a peak time. From Q2 to Q4, we're going to confirm the profit and losses of investment, especially starting from Q2. For YH adjustment, I think we do have a dedicated team to talk to the capital markets. Overall speaking, for YH retrofitted store, the performance is truly in line with our expectation. The team is also well performing. By May 9, 78 stores has been adjusted. We're going to close another 250 to 350 stores for YH with an adjusted store of more than 200.

The adjusted store showcase very good performance with nice profit from January to May, around top 40 white store after adjustment, the profit is already more than RMB100 million. The future profit growth will come from efficiency and management efficiency improvement. YH performance is truly in line with our expectation, but YH business is a huge one. It already takes time to make the business right.

Thank you. Very clear response.

Samuel Wang, UBS.

Thank you.

Can I just make one suggestion in order to make sure everyone was the equal opportunity to raise questions. No more than two questions for each, shall we? Great. Okay.

So I have a question regarding overseas market. Recently, especially in April and May, what would be the same-store performance trends in overseas markets, especially how the performance in US. We noticed in 2024, you have the new management team for the US market. What would be the outlook of the same-store performance for US? What kind of strategy and the measures you take in order to improve the same-store performance in the US?

My second question is on IP partnership. IP started to become a Red Sea market with many players. There are some new entrants into the market that take very unique ways. So for example, they do have a celebrity ambassador promotion. So there are any differentiated strategies for IP?

Are you going to incubate your own IP? Or did you ever consider acquire other IP and develop your own IP in-house? Or are you still going to follow the third-party IP licensing to build a partnership to advance in the IP business? Those are the two questions I have. Thank you.

Thanks, Samuel. For the same-store performance in overseas market, as I have already mentioned, Q1 performance is very much like what we saw in China, but the baseline is very different. In Q1 last year, overseas same-store growth was 21%, more than 10% for Asian market, directly sells more than 30%. For shoreline can retail store grows more than 20% for single months lay a very solid, high solid line. So if you take it as a two-year compound growth rate, the international especially overseas same-store growth was quite good.

Starting from April, in Mexico and the US market, we do see some turnaround improvement. So generally speaking, we're still very confident for the same-store performance improvement in overseas market, but you have to notice, there used to be a very fast growth for network of the stores in the overseas market. For example, directly operated store before 2024, we only have 900. But last year, all of a sudden, we jumped to 1,300 with 1,300 stores, half of them can be accumulated accounted with same-store performance.

Another half will not be taken with same-store improvement. In US, we have more than 300 stores. But in Q1, the same-store performance only accounted for 90% of that. In other words, 30% of the US store can be taken on the same-store improvement baseline. So another growth driver would be the non-same-store inventory business, which has been operational within 12 to 15 years.

And the performance is going to be further improved. It's single-store output, you're going to have teams or should I see a low double-digit growth for this year. I have already mentioned in the prepared remarks, we are going to adopt the successful experience from China for overseas market. In China, we have so many competitions. There are so many competitions, but still we'll be able to grow in China.

We're still very confident of having a successful story for overseas market. US new management team is doing right. US is the world's largest consumer market. It's also going to be a key destination for MINISO's future global strategy. From 2021 to 2024, we have 100% full year CAGR, which is truly impressive. Single-store performance also make us -- we're top 2 in a faster-growing market. The short-term individual sales and fluctuation may be impacted by different factors. We believe retail business is a long swap business. Where for the US market, what we're going to focus on, including the following two.

The first one is channel optimization. The second one is merchandise improvement. For channel last year, we opened 150 stores with more experience accumulated. In 2025, we're going to be more focused for store opening in the 24 states with 76% of the US population to leverage the [scale] effect. In those areas, if we open new stores, we can really pay the scale effect, making sure we can have faster deliveries between warehouse and stores, reducing the store shortage, improve customer satisfaction.

And we're also going to optimize the route of our logistics, reducing logistic cost and improving efficiency, which has already proved to be right in Q1. Thirdly, we can also predict the demand, reducing the inventory backlog, where for merchandise, we're going to be more refined and precise. Our headquarter merchandise center have already established the tariff task force and high growth task force for US.

We did some specific R&D to US market demand of, especially we followed in our new store formats in the US and positioning of the stores we have in the US to have dedicated resources and R&D for US market only. And we also made some of best sellers. We will continue to further improve our membership system by enhancing our IT technology.

Through the membership system, we'll be able to see the high demand and repeatedly purchased product, making those products into our best center, just as what we did for the past one year, by improving the supply chain of those best center, leveraging our in the global supply chain and guarantee a stable delivery of those best sellers.

Suddenly was going to be very much targeted for customer profiling that is more insights from the user. The question regarding IP is indeed a hot topic in the consumption market. There are three observations I can surely share with you.

The global most well-known top IP licensing resources are still the resource as we continue to further expand our market coverage, the way for us to work with top IP or the frequency for our IP partnership, will continue to be -- we will be able to get good resources. For example, exclusive licensing and that can help us to get more (inaudible) image resources, which can help us to further expand our presence in IP market.

Secondly, for IP product design and IP product quality would also be the key criteria to decide whether a consumer contact you or not? There are many interest-based consumptions. People just wash to bid. But many of those demands are non-effective ones. Why should I say so? Because for MINISO, we have a very good expertise that is to converge on the IP.

Our IP conversion capacity has been built based upon our 8,000 stores worldwide with seven to eight years' experience for IP development. We have already paid the lessons. All those could become our expertise to protect our IP business. Secondly, we also have more than 1,000 people product team, more than 1,500 global merchandise suppliers, pipelines with very effective supply chain management, which could be used for IP business.

Thirdly, we are also working on our in-house IP. For MINISO, our in-house IP. Right before 2025, we used to have some IP with sales of more than RMB100 million, for example, like Penpen and Dundun chicken. But for this (inaudible) we also started to have the Chip 'n' Dale. This IP will generate sales of more than RMB400 million to RMB500 million and someone who started to do in-house IP indeed really surprised us.

But for sure, it already takes time for us to build our in-house IP. I surely believe that in the next three years, we're probably able to generate good performance, which is going to be very much inspiring for the whole team.

Thank you.

Next question. Let's welcome Justin.

Thank you. I have a question. I'd like to ask the management team for MINISO Mainland China business. If we just take a look at MINISO Mainland China, whether your GP margins to 38% to 40%. If we only take a look at the MINISO Mainland China business? What is the GP margin now?

We also clearly noticed, many of your merchandise are being sourced from the third party, which can actually help to mobilize more customer base and also improving your store sales. So how you're going to finance the same-store performance improvement and the GP margin enhancement of the commodities or the merchandise from the third party, how much it contributed to your overall sales?

Do you have any target? I see you store started to dissipate drinkable water or even some [drinkable] products. I saw that in MINISO (inaudible) store, how you're going to balance your GP margin if you source from the third party for third-party products, the GP margin would be low. But for sure, it's going to mobilize more customer base for same-store improvement. Thank you.

Thank you. A very good question. Thanks for [that] I think what we're trying to do is that we share the many third-party product, where it's going to burden our equity margin. But let me reassure you, it won't. In Q1, for GP margin, especially Mainland China business, it has a flat growth compared with last year. We indeed show many third-party product in our store, but those are the product in specific category. From the major perspective, MINISO of life store would like to provide consumer with a treasure hunting experience.

In other words, you provide whatever the customer like in such a way when you convert organic traffic into your customer, it doesn't mean the product has to be your self-owned commodities. For example, let me give you an example, like toys.

In China, in the shopping malls, the traffic structure has been fundamentally changed. The household consumer, especially children become the key. Kids are indeed the consumer of the toys. In shopping malls, we don't have any very stable supply nationwide. If MINISO would be able to provide the household customer with diversified agri of the toys, which is quite cost effective. That will be great.

Toy department means we need to engage in employee producers, especially those professional one. We don't need to develop our toy supply chain. We can leverage the existing toy suppliers, engage them in our channel and convert the organic traffic into actual sales, while at the same time, we will surely be able to build our own IP for consumers who come to MINISO.

Some of them are organic traffic. They just come naturally to come to our store, and they can be converted into actual sales. But there are also some other consumers who know our brands. Some of them see your advertisement in the social media, they see the advertisement and come to your store to purchase certain products, for example, travel product, Blind Box and the toys. You have to make it right, but we don't give organic traffic conversion opportunities.

That is the reason we show the third-party merchandise.

We're going to have a dynamic control but still, the GP margin is very stable.

A follow-up question. Imagine if you have a third-party product, but if some of them don't have a very good sales in your store, the matter is for toys or for drinking water or something else, were you going to refund the product to the third party? Or is it just a buyout?

Thank you. We do have some of the piloting initiative now. let me just tell you for any of the single batch of the procurement, we have 4,000 stores in China. We have every capacity to digest those inventories. We don't have too much third-party procurement. It's only in certain specific categories.

We leverage our data insights and experience, make sure we make the right decision to derisk ourselves. Secondly, we have 4,000 stores. We are safely digested of these inventories. Certainly, we just make sure we have a faster turnover of a third-party product. We're not going to build too much inventories. We always do it [phase by phase] Thank you.

Xiaofang Xu, CITIC Securities.

Mr. Wei from Citibank.

I have one question regarding your stores. If we take a look at Q1 end of the quarter, you have a net closure of 111 stores in China. By closing those underperforming stores is going to improve your same-store performance. I believe, for your annual guidance, you're going to have 200 to 300 net openings where you change the target of the net openings, if it remains the same, when you're going to have a net increase of the stores? What would be the time frame? Imagine in Q1, if you already have net openings, then what would be the net closing and the net opening? Thank you.

Thanks for your question. Last quarter, I think I have already shared with many of you. We do channel upgrading in Mainland China. The reason is because if we lightly seek for the store number grows, it won't be a good fit for our long-term development. So that's the reason we do the channel upgrading initiative.

Along with our same-store enhancement, there will be some net store opening in H2 of this year. But we're not going to indeed to 200 to 300 net openings. We just keep a dynamic adjustment. If it is 200 to 300 net opening, that means our same-store performance is more than what we expected. But even if we don't make 200 to 300, still we will be able to maintain a double-digit growth.

One more comment I'd like to make for these questions. Closing store doesn't help for same-store enhancement because our definition over the same-store performance means you have complete closure of the store that were not recounted for the same-store performance. For the operational stores, the store closing should be no more than one month. So that's the reason for this quarter, we do see same-store performance improvement is because we did some merchandise strategy and operational strategies for those inventory stores.

A follow-up question. No matter for same store or for the new openings, as long as your Mainland China sales reached the target, you don't bother whether it's being driven by same-store or new openings, right? As long as you guarantee a good revenue size and high-quality revenue growth.

Yes. You are right. This is a promise we have. But for sure, in 2025, we hope more growth from China are coming from same-store performance improvement.

Okay. Ladies and gentlemen, thanks for all the investors for your time, and thanks for supporting MINISO Group. Here comes to the end of the earnings conference call. See you next quarter. Thank you.

Statements in English on this transcript were spoken by an interpreter present on the live call. The interpreter was provided by the company sponsoring this event.