Earnings Transcript for MNSO - Q3 Fiscal Year 2024

Operator: Ladies and gentlemen, thank you for standing by, and welcome to MINISO's Earnings Conference Call for September Quarter 2024. At this time, all participants are in a listen-only mode. After the management's prepared remarks, we will conduct a Q&A session. [Operator Instructions] And please be kindly noted this event is being recorded. Simultaneous interpret in English will be provided during this call. You may choose a language by clicking the interpretation into Zoom meeting. We have announced our September quarter financial results earlier today and earnings release is now available on our IR website. Joining us today are our Founder and CEO, Mr. Jack Ye; and our CFO, Mr. Eason Zhang. Before we continue, I'd like to refer you to the safe harbor statement in our earnings press release, which also applies to this call, because we are going to make forward-looking statements. Please note that we're going to discuss non-IFRS financial measures today, which we have explained and reconciled to the most comparable measures reported under the International Financial Reporting Standard in the company's earnings release and filings with U.S. SEC and Hong Kong Stock Exchange. The currency units in Chinese yuan, unless otherwise stated. In addition, we have prepared the slide presentation for today's call, which contains financials and operational information. If you are using Zoom meeting, you will be able to see it right now. You can also revisit it on our IR website. Now I'd like to welcome Mr. Ye to deliver the speech.

Jack Ye: [Foreign Language] [Interpreted] Hello, everyone. Welcome to MINISO Group's earnings conference call for September quarter of 2024. As of September 30, 2024, the group added 859 stores on a net basis, including 324 new MINISO stores in China, 449 in overseas and 86 new TOP TOY stores. Both MINISO overseas and TOP TOYs net store addition in the first three quarters has exceeded their respective full-year number from last year as MINISO global store network continued to expand. In the first three quarters, the company's revenue increased by 23% Y-o-Y to RMB12.28 billion, with average store count increased by 90% with same-store sales growing in a low-single-digit. The world is changing and global retail industry experiencing major reshuffle. Consumers perception continue to evolve. In this time of the great transformation, China retail sector is facing opportunities for breakthrough. MINISO Group will firmly grab the two trends in the future, maintaining a focus on quality retail and interest-based consumption. The future will be characterized by a consumption model that combines product innovation and the consumer experience. And you can see in September, the company announced the acquisition of the 29.4% stake of Yonghui. Through this ongoing transformation, we aim to excel the quality retail, change traditional supermarket approach and deliver superior product service and consumer experience and investors as we transformed Yonghui store during this period, which should help us better understand our investment rationale. Moving forward, we will decide, dedicate more efforts to study consumers and understanding the changing consumption trends, maintaining a people-centric approach and returning to retail fundamentals. In the completion of Yonghui stake acquisition, MINISO will encompass three brands, MINISO TOP TOY and Yonghui. Those brands complement each other, while differentiating in product categories, targeted consumers and price points, gradually building a unique multi-brand metrics in the retail sector. Meanwhile, leveraging MINISO's years of accumulated supply chain resources and product design capacity as a shared platform, we will be able to empower those brands to improve the synergy and operational efficiency. We remain focused on the consumer retail industry. We believe by steady fast implementation of our multi-brand and globalization strategy, we will not only strengthen our existing competitive advantage, but also help consumer market to navigate instabilities and diversify operational risks. MINISO core business maintained our commitment for the three major five-year plans from ‘24 to ‘28 maintaining a compound annual revenue growth rate of no less than 20% with earnings per share growing faster than revenue. Second 900 to 1,100 new stores globally each year on a net basis, achieving IP product sales contribution over 50% by ’28. The dividend policy of distributing no less than 50% of adjusted net profit annually, continued the dynamic share repurchase, delivering predictable returns to our shareholders. Coming next, I'm going to share with you MINISO China, MINISO overseas and TOP TOY development in the first three quarters of this year. First, MINISO China revenue growth in the first three quarter met the expectation of our five-year plan including both of store and e-commerce revenue grew by 12.3% with offline store grew by 11.8% and e-commerce grew by 90% and 11.8% for online store was probably driven by 40.7% increase in average stores count. While same-store sales slow a mid-single-digit decline in first nine months of this year, fitting the challenging micro consumption environment, we actively developed our auto business, which grew by nearly 80% on Y-o-Y basis helping us to stabilize same-store performance to some extent. According to the National Bureau of Statistics, domestic retail sales of the consumables increased by 3.8% in the first nine of 2024. As a industrial leader we achieved the growth rate of 12.3%, demonstrating greater resilience of our business. So we feel optimistic about the MINISOs China housing growth in 2025. In the first three quarters, we added 224 net new stores in China, maintaining a steady expansion pace towards our annual target of 350 to 450 net new stores. 60% of those new stores being in Tier 1 to Tier 2 cities, which tells us we still have significant untapped market for store expansion in China. Same-store sales declined by mid-single-digit number in first three quarters with transaction value showing a slight increase Y-o-Y, where transaction volume decreased by single -- mid-single-digit, high-tier city outperformed lower tier cities in the same-store performance. In the near future, we're going to have refine the management of our IP-centric product, making sure IP-centric interest-based consumption strategy of our business and continue to further improve the sales efficiency. The IP consumer goods market is a trading level market with great potential for MINISO's IP strategy according to global licensing report in 2023. The top 10 global IP licenses accounted for nearly 70% of the global IP retail sales where the top 20 license represents more than 80% of that, demonstrating a very strong concentration effect. Over the past few years, MINISO has achieved a significant success in IP, we have collaborated with more than 150 IP globally. We have partnered with six of the world top 10 IP licensors and the nine of the top 20. Moving forward, we will forge deep bonds with those leading global IP licensers leveraging our global store network, design capacity and the supply chain advantage to launch new products, we have already begun the deep collaboration with Disney and Sanrio, the important product innovation category. We also worked with Harry Potter IP for new inspiration to MINISO's product design style, accumulating experience in developing new SKU categories, but also continue to stimulate the MINISO's potential for future collaboration with more diversified IP still. We also improved product trends, striving to unlock the potential of the interest-based consumption through innovative store formats. The seven later store metric strategy announced at our brand upgraded conference on October 29 has been implemented systematically. We're going to have the IP [standardization] (ph) and the Characterized standardization. The IP and store represent our IP standardization format in August, our first MINISO Land opened in Bingjiang Road, Tianjin achieving nearly RMB5 million in sales in its first month, Shanghai IP land store opened in October. So IP products accounted to 70% of the sales is soft opening month. We hope we not only provide the experience, but also exclusive IT products, enhancing shopping uniqueness. For category categories standardization same-store are our key format. MINISO were divided by service for 800 to 600 categories in the stores, focusing on four major categories, plus fluff toys, light boxes, pads and ECG packaging, young consumers and emerging consumption trends. The plush themed store that opened in Times Square in Chongqing in December has become a landmark destination for the plush toy fans and you can also see that our sales first scrubbing has also continued to be improved. Going forward, MINISO were come by product differentiation with store format differentiation using different store formats to meet consumer right needs, remote joy to the global consumers. Coming next, let's talk about overseas business. In the first three quarters of 2024, overseas revenue exceeds RMB4.5 billion, representing Y-o-Y growth of 41% and especially for direct operated markets grew by 64%. Distributor market increased by 22%. GMV reached RMB9.7 billion in the first three quarters, grew by 31%. The directed operated markets showing 56% growth. Distributor market grew by 22% on comparable basis. IP strategy continue to have a notable growth. The IP product accounted for over 40% of the overseas market sales in first three quarter, sales revenue growing by nearly 85% on a Y-o-Y basis. In the first three quarters, we see very good growth. The result is quite impressive, net addition of more than 449 stores. Direct operated markets contributed to 67% of the net new stores, primarily from the United States or Indonesia. We see the total net new stores for this year will reach 650 to 700, exceeding our previous forecast. Same-store growth in overseas market show a high-single digit growth number. We were going to keep a flexible store operation model, introducing franchised store in direct operated market to leverage -- for leverage expansion. We're deepening the involvement in the distributor markets to better guide the store openings and operations. Notably speaking, Italy ranked among the top 20 overseas market in Europe in 2023. By 2024, we have four major European markets, U.K., Italy, France and Spain, showing rapid development. Those are all because of our deep guidance to the distributors to adjust the inventories and the store operations, improving the efficiency and profits. In the near future, we aim to increase consumer stickiness in overseas market through continuous optimization membership system, in-depth consumer research. Take Indonesia and the U.S. market as an example. Member consumption contribution grew by 97% and 244%, respectively, significantly outpaced membership growth in both regions. We will further divide the localized product and adapt the store operation strategy to local market, realizing MINISO from China joy to the world. Regarding the potential U.S. tariff increase risks, we probably view this as an industrial wide impact. Compared to other retailers, who mainly rely on buyer sourced merchandise, our products are predominantly MINISO private brands. And through our IP collective store model, we maintain differentiation from other retailers, giving us stronger pricing power to offset potential cost increase. Nevertheless, we take the forward measures to mitigate potential risks. Increasing local sourcing ratio in U.S. market, now around 30% of the products being sourced from overseas supply chain. Establishing our backup overseas supply chain, we actively identify alternatives in South Asia, Japan, Korea and within the U.S., expecting to cover an additional 50% of the U.S. product category. We have the capacity to source over 80% of the products for U.S. market through over-source supply chain. We optimize overseas inventory management strategies. Internally, we have a dedicated workforce to regularly assess global trade policy impact on our supply chain and to be able to formulate responsive measures. By having a diversified supply chain, we will be able to further improve inventory management, continue to strengthen our global competitiveness. Let me also talk about the TOP TOY. In first three quarters, TOP TOY revenue grew by 43% Y-o-Y, same-store sales grew by 5%. TOP TOY added 86 new stores, steadily progressing the annual target of 400 stores. In Q3 of 2024, TOP TOY's self-developed products continue to increase. For example, the pilot of TOP TOY, shopping shop in MINISO's IP land! store in Indonesia opened the first overseas store in Thailand. And because of young demographic structure, rapid economic development, young people become the target consumer of TOP TOY. We believe by deep dive into the Southeast Asia market, TOP TOY can achieve rapid growth, establish a solid foundation for its global expansion. We always believe offline retail has unlimited potential. Chinese brands has great opportunity ahead. The key is for innovation and retaining to the retail fundamentals, focusing on consumer, bring the good service and product to consumer. More and more Chinese brands are starting to showcase its great advantage, all the brands are running forward, breaking through and advancing. MINISO adhere to the long-term strategy. We are committed to steadily improve our product and service, contributing to the rise of the Chinese brands. That concludes my remarks. Coming next, I will have Eason to present you the financials, please.

Eason Zhang: [Foreign Language] [Interpreted] Thank you, Mr. Ye. Welcome everyone to our meeting. Coming next, let me just go through MINISO Group's financial data in the first nine months of 2024. Please note, unless otherwise stated, all figures are in RMB. I will also mention some non-IFRS financial metrics that exclude stock-based compensation expenses. In the first nine months of 2024, our total revenue reached RMB12.28 billion, grew by 22% on a Y-o-Y basis. According to the forecast of the year, we are progressing towards our target. Average store count increased by 90% with comparable same-store sales growth by a low-single-digit number. Revenue from China region reached RMB7.74 billion, grew by 40% on a Y-o-Y basis. Within this, MINISO brand China revenue was RMB7.03 billion, grew by 12%. TOP TOY brand revenue was RMB700 million, grew by 43% on a Y-o-Y basis. Overseas revenue reached RMB4.54 billion, grew by 41%. Within this, revenue from direct operated overseas market was RMB2.45 billion, up by 64%. Distributor market was RMB2.1 billion up by 22%. Take a look at the revenue structure. In the first nine months, overseas revenue accounted for 37% of our total group revenue, where in the same period of 2023, the number used to be 32%. The contribution from direct operated overseas market used to be 50% last year, but now it's already 20%. The change in the revenue structure is the key driver why we have a record high GP margin, which has also resulted in the operating profit being more concentrated to the second-half of this year. Regarding the GP margin, in the first nine months of this year, GP margin grew by 3.7 percentage point, reaching 44.1%. Besides the adjustment in our revenue structure, the improvement also benefited from the IP strategy, which improved the GP margin for all business segments, especially the overseas operations and the TOP TOY GP margin, they all improved by a high-single-digit increase. Looking in the near future, with more overseas revenue and IP sales, our GP margin will continue to trend up. However, as being mentioned by Mr. Ye, we will continue to uphold our value for the price to performance product. In the first nine months of 2024, combining selling and administrative expenses increased by 54% and selling expenses, up by 63%, administrative expenses, up by 28%. Selling and administrative expenses accounted for 25% of the revenue, 5% higher than the same period of last year. Over 60% of those expenses increase was related to the newly opened directly operated stores. As previously communicated, our current investment in directly operated stores aimed at capturing more sales opportunities to ensure our future business success, particularly in strategic overseas market like the U.S. At the end of September, we had 422 direct operated stores in overseas markets, double the number from the same period of last year. In the first nine months of 2024, revenue from direct operated stores grew by 104%. Related to selling and distribution expenses, for example, like rent, depreciation, amortization and personnel costs, grew by 75%. We are implementing effective measures to improve the operational efficiency of those directly operated stores and control the cost. We believe with refined operation and strict expenses management, we believe the operating expenses ratio will be stabilized or trending down and we also expect those new open directly upgraded store will unlock great sales potential in the near future. In the first nine months of this year, advertising and promotion expenses grew by 38%, still be 3% of the total revenue, the same as last year. Licensing fee grew by 38%, accelerated, compared with H1 of this year. The key reason is because we do have a few IP reserve more and launched a new IP product service. The overall IP sales proportion notably increased, especially in overseas market. Logistics expenses increased by 52%, partially reflecting the higher shipping costs due to international shipping constraints in the first nine months of 2024. However, we have observed a clear trend down in the growth of these expenses. Regarding the profitability, in the first nine months of 2024, our adjusted operating profit grew by 60% and then adjusted operating profit margin was close to 20%. Our adjusted net profit margin was RMB1.93 billion, up by 40%. Our adjusted net profit margin was 50.7% and we also maintained a relatively faster growth for our direct sales model. Our adjusted EBITDA, earnings before interest, tax, depreciation and amortization increased by 21% with an adjusted EBITDA margin of 25.3%. Our adjusted basic and diluted earnings per ADS increased by 40.1% and 40.2%, respectively. Regarding the working capital, our channel inventory turnover remains efficient. At the end of September 2024, 30% of the MINISO's brand inventory was located overseas. One year before, that number used to be 21%. Inventory turnover days was 85 days. China market, 71 days, unchanged on a Y-o-Y basis. MINISO brand overseas direct operated market turnover was 173 days, used to be 135 days last year. It's because we are advancing the stocking to address potential tariff risks and also accelerated store openings. However, the average inventory level per overseas store decreased on a Y-o-Y basis. Structurally speaking, inventory aged over 180 days accounted for 12% of our total inventory. Going forward, we will further optimize our overseas inventory management strategy to improve the turnover efficiency, reduce the risks. Regarding the capital allocation, we will also maintain a dividend payout ratio of no less than 50% in the coming period. Our capital allocation strategy will also balance rapid business growth with our commitment to delivering stable and predictable returns to our shareholders. By the end of September, we have already distributed cash dividends exceeding RMB600 million. Year-to-date, the company has returned approximately RMB1.6 billion to the shareholders through dividends and share buybacks. Starting from 2020, we have retained more than RMB3.7 billion to shareholders. In the first nine months of 2024, we generated operating cash flow of RMB2.03 billion free cash flow RMB1.47 billion at the end of 2024 September. We maintained cash reserve of nearly RMB6.3 billion including RMB1.72 billion in cash and cash equivalents, RMB4.23 billion in wealth management product recorded under other investment and restricted cash on the balance sheet, around RMB340 million in deposit. The company's interest borrowing debt ratio remained lower than 1%, leaving empty room for our balance sheet. Last but least, I also would like to share with you the latest progress of Yonghui transaction. The Yonghui acquisition requires satisfying the five preconditions to-date. The transaction secular has received non-objection confirmation from the Hong Kong Stock Exchange. The market supervision and administration authority has completed a public notification period for the simplified merger filing. This means we have essentially completed two of the five preconditions. The overall progress is meeting our expectation. We anticipate the transaction will be completed in first-half of 2025. As previously communicated, after completion, MINISO Group will become the largest shareholder of Yonghui. Going forward, we will take investment by using equity method. We are positive about its future development. The current valuation is quite attractive. The investment will better leverage both party supply chain and the channel integration advantage to create more value to Chinese consumer. We expect to finance at least 60% of the investment account through external borrowing. In other words, equals to RMB3.76 billion, allowing us to further optimize our capital structure and improve return on capital, while maintaining sufficient capital reserves. So all in all, our performance in the first nine months of 2024 again demonstrate our strength and resilience of our business model, which also reflect our effective execution and the development potential for the IP strategy. Looking to the future, our full-year target remained unchanged from the beginning of this year. Revenue growth would be 20% to 30% on a Y-o-Y basis, but adjusted net profit target was RMB2.8 billion. I'm confident in achieving the full-year targets, and I have every reason to remain positive about our future business development in 2025. Our financial strategy will continue to keep vigorous roles in budgeting, cost control, capital allocation committed to achieving stable profit growth and healthy cash flow. Okay. That's all for the prepared remarks. Moderator, we can now start the Q&A session.

Operator: [Foreign Language] [Interpreted] Okay, the first question is coming from Anne Ling, please.

Anne Ling: [Foreign Language] [Interpreted] Hello? Hello, Eason. Can you hear me?

Eason Zhang: [Foreign Language] [Interpreted] Yes.

Anne Ling: [Foreign Language] [Interpreted] Thank you very much. I have a few questions. I'd like to ask about the Q4 outlook. At least now we see that in China, the market was not looking very well. So I'd like to ask you, in Q3 of this year, the performance also see same-store decline. And the growth is only a single-digit number. So how you're going to comment on the Q4 performance? What about the Double 11 sales festival, what the situation may look like? Would you like to be more elaborative on Q4 updates? And what would be your growth opportunities in China market? That is my first question. My second question. You did a very good job for overseas business that I'd like to ask you in your direct operated market. How you're going to comment on the acceleration of the store expansion? For example, in U.S. or in European countries. If there any measures we're going to take in order to further grow our business in overseas market. I think you have already experienced the Black Friday, then how you are going to comment on the sales in festival occasions, how it's going to contribute or drive your Q4 performance? Thank you.

Eason Zhang: [Foreign Language] [Interpreted] Okay, thank you. Thanks for Anne. Thanks for your question. Let me just answer your question for the outlook of Q4. I will ask Mr. Ye to share with you our comments on the U.S. market in 2025. As been mentioned by me, we are still very confident in accomplishing the target we set by the beginning of this year. In Q4, we believe our top line growth would be around 25% to 30% within which the overseas market growth would be 45% to 50%. 45% to 50% growth, direct sell -- direct operated more are going to be 70% to 75%, where for distributor market, it's going to grow by a 20% number, were for TOY [Indiscernible], we're going to have a 50% to 55% growth. Whether in China, the growth would be a noting number, including e-commerce. I'd like to emphasize again. Even if after having Q3, we see a bigger pressure for the Earthly retail business. But I think for MINISO brand in China, we can still have a low-teens growth, which is achievable that is also our guidance for Q4. Where for store expansion in overseas market, altogether, we're going to have 650 to 700 stores. So in Q4, the overseas store expansion net growth will be 200, 250. For TOP TOY and in the previous three quarters, we have 86 new stores. For the full-year, we managed to make it more than 100. What we can say for domestic China, we're going to have around 400 new stores in 2024. So for the full-year, we are going to have 700 overseas new stores, 100 TOP TOYS and around 400 MINISO stores in China altogether, 1,200 new stores, where in China, we have on track performance of the store expansion, accelerated store growth in overseas countries. For the profit, as I have already mentioned last year, our net profit target would be RMB2.8 billion remain unchanged. Net profit will be highest in Q4, where for the guidance, we also would like to keep our net profit margin between 16% to 16.5%. In 2024, according to the guidance, we believe our growth will be accelerated, compared with 2024. Our direct operated business is being divided for a while, it can help to us to better control the cost and be more capable of the same-store gross. Your next question is regarding U.S. and Europe, right? So Mr. Ye will take over the floor to answer your question.

Anne Ling: [Foreign Language] [Interpreted] Okay. What's a question about European market. You know that I heard from your presentation, you hope you can have a better business development in Europe, taking U.K. as your base camp, right? Okay. Great. I'd like to know if there's any progress there?

Eason Zhang: [Foreign Language] [Interpreted] Okay. Let's ask Mr. Ye to talk about the U.S. market.

Jack Ye: [Foreign Language] [Interpreted] Well for the U.S. the YTD growth is actually a mid-single-digit number in line with our expectation. And the channel expansion is being accelerated, those stores going to reduce great sales potential, especially in Q4, we're going to have more store expansion in U.S. to take care of the best sales season. Well for this year, in U.S. stores, the OPM will continue to go up. We will have more revenue from U.S. And we also adopt measures to improve the operational efficiency of our direct operated stores. We will continue to improve the operating leverage, improving the profit rate. We also organized a local management team control the cost of warehousing logistics, rents and labor cost. I do believe with refined operation, and the operational cost will be stabilized or even trending down. We have very strong confidence for our Q4 U.S. profit and the profit for 2025.

Anne Ling: [Foreign Language] [Interpreted] You have any OPM target Mr. Ye?

Jack Ye: [Foreign Language] [Interpreted] We don't have it yet. Let's talk about the U.K. For U.K., the same-store performance growth was 35%. We have already been effectively supporting the distributors to adjust their product and operational’s. We have already improved the interior decorations of the U.K. stores, optimizing the consumer experience. And we also have some very popular IP products and SQL and the API has been greatly improved. And at the same time, attachment rate has been further improved, that is for U.K. market.

Anne Ling: [Foreign Language] [Interpreted] Okay, great. Thank you.

Operator: Next question from Xiaopo Wei from Citi, please.

Xiaopo Wei: [Foreign Language] [Interpreted] And all of you hear me. Hello? Thank you. Thanks for Eason. Thanks for Jack. I just have one question, that is a question. I'd like to direct Mr. Ye. Yonghui is indeed a transaction that has been spotlighted by the whole capital market. And especially, there are some transactions regarding the super hyper business. And the announcement has been made for one to two months. I know you're also making research -- in your opening remarks, you already shared with us some of the strategies of your operation. Would you like to elaborate on some executables? How you're going to improve the performance of Yonghui? Is there any concrete measures you have in place?

Eason Zhang: [Foreign Language] [Interpreted] A few points I can share with you, actually four points. First of all, the both sides, Yonghui and the MINISO team has already started to talk and engage each other. And we also have a MINISO team to help Yonghui to further optimize their procurement cost. This is the first thing. The second thing, MINISO is supporting Yonghui to build self-owned brands, improving the contribution from the self-owned brands to improve the GP margin. As I mentioned, in the near future, for super hyper, the most important thing is to have the self-developed product. For example, like Costco and Sam's Club, they all have great contribution from the self-made product. So that's the reason why supporting your way of building their self-brand product. The third one is to optimize the product and service of the store, improving store operational efficiency to reduce the cost. We're improving the human efficiency. After three months, we hope that we can improve the labor efficiency. This is indeed what we hope to make sure that each of the improvement store need to make positive profit. If the pilot store can make a very good performance improvement, then we can ask the landlord to provide a concession on the rents. Nowadays, for the store, the highest cost is still the labor cost. So that's the reason we're going to follow the professional service to further improve the professional service efficiency. After two months to three months, we can schedule more new people to new stores, improving the operational efficiency of the store by having the skilled labor force. Fourth point, resources concentration and also adjusting the store metrics. Just to keep -- shut down those profit losing stores, we'd like to stick to the high quality development, only work on those well performed stores, keeping an eye on the primary resources, the best primary location to open stores. So for Yonghui, in the near future, all the adjusted stores need to make positive money. We don't need so many numbers of the stores. Here now for Yonghui, they have 790 stores. We're going to close those financially losing stores. For those one with severe financial losses, they're going to be turned off. We're going to keep an eye on those best performing Yonghui stores. Even if we have less stores, but the performance of each store has been further improved in the near future. If we only keep 400 stores to 500 stores, if the efficiency has been good, then even the total output is better than the 100 low-performing stores. So I think those are the four measures we have regarding the procurement cost, labor efficiency, the metrics of the store to further improve Yonghui's future performance.

Xiaopo Wei: [Foreign Language] [Interpreted] Mr. Ye, I just summarize in this way. Both teams are already talking to each other. So financially speaking, right after the completions -- the transaction has been completed, we're going to see the immediate performance of Yonghui on your balance sheet, right?

Jack Ye: [Foreign Language] [Interpreted] We have to complete the transaction then to show you the performance. We're still in the early stage. There are some transitional arrangements. You know that especially for procurement, for brands, it takes time for both parties to talk to each other. It's still time consuming. We're still in the early stage preliminary discussions, business alignment and the communication. We foresee in H1 of 2025, we will be able to complete this transaction, the sooner the better. Then first party will be able to have material cooperation on business.

Xiaopo Wei: [Foreign Language] [Interpreted] Okay, great. Thank you both.

Operator: Okay, great. Next question coming from Goldman Sachs, please.

Unidentified Analyst: [Foreign Language] [Interpreted] Thank you. Thanks for giving me the opportunity to raise the question. I come from Goldman Sachs. I have two questions to you. The first question is regarding same-store performance in China. From Q4 to now, what would be the overall trend? What about the overall trend in 2025? You mentioned the channel going to be a great driver. Last month when you have the brand strategy upgrading conference, you mentioned you're going to have the brand metrics and the store metrics? How you're going to see its future growth? The second part is regarding IP. What is the contribution from Harry Potter IP recently? In overseas and the domestic market, what would be your key IP in next year in your pipeline? And what would be your key strategy? Thank you.

Eason Zhang: [Foreign Language] [Interpreted] Let me help to respond the first question regarding the same-store performance. I will ask Mr. Ye to respond to your second question. For same-store performance, the overall trend, because we used to have a high baseline in Q3 of 2023. In 2023, in the summer holiday, there's very strong demand for travel and the popular sales of Barbie IP. So in the first three quarters, indeed, same-store sales has been pressured. ASP saw a slight increase, but the traffic's been reducing for 6%. Take a look at Q4 and still traffic being the key source of the pressure. According to our monitoring, our same-store performance is even better than other peers in the same industry. We're looking to the future. As I have already shared with you, in the next five years, our revenue growth target already built the uncertainties of the micro environment and the uncertainties of the offline retail store into our forecast. In the near future, if consumption has been trending up, we're going to be benefited from a higher growth. But even if the micro environment has not been improved a lot, our business model still be full of resilience. We still have many other drivers to grow our same-store performance. We will continue to optimize our operationals to further improve our target achieving performance. First of all, we're going to have refined management on IP allocation. For this year, in the higher tier city, the same-store performance is better than the lower tier cities. A big difference is because in higher tier city, the ASP made single-digit number improvement, compared with last year because there are more IP allocation in higher tier cities. So IP-based strategy and interest-based consumption be a key driver for our future performance. In the near future, we'll make IP product allocation more refined and more tagged, pacing IP product to those stores with interest-based consumption continue to improve the sales efficiency. My second point, that is regarding the key categories we have. Especially recently, we keep an eye on the [millet] (ph) economy. We take ACG as a very important categories to go for. We see the great momentum of ACG. By working with some very strong ACG IP in dedicated store and have the ACG in spatial areas. For example, we have Identity V, ordering servers in October of this year with great positive feedback. The selling rate for Shanghai number one store reached 93% in Q3 of 2024 and we have 300 new stores with ACG dedicated floor space. The sales of the ACG product increased by 50% on month -- quarter-over-quarter. And in December, we're going to have ACG dedicated space of more than 100 square meters in Chunxi Road store in Chengdu, providing the large number of popular ACG IPs and the check-in installations. Regarding the IP reserves, we have already worked with some Japanese manga IP for licensing cooperation. And in the near future, we're going to have more derivatives, merchandise by having the art commissions and also the derivative of creatives to create a differentiated product. The flagship stores and also same-stores. This very interesting place will also be provided to improve the interactive experience. We're also going to work with Bandai to launch more generally Japanese army peripherals and merchandise to provide a very immersive ACG experience to more users. But let me just tell you, Thailand is a key. In a frontier city, representing city culture in China, we do have a seasoned IP operational team with great talents to solidify our bases there. Same-store performance always been grown by O2O contribution. We say our O2O business was still developing very fast. In Q -- past three quarters, it was growing by 80%. With our brand power continue to strengthen, we're going to reach more customers through the omni channel rather than from the offline stores for sales. That can also help us to improve the same-store performance. Mr. Ye, please help to respond to the second question regarding Harry Potter.

Jack Ye: [Foreign Language] [Interpreted] Harry Potter co-branded product is our first pilot to have the omnichannel presence, which has already made some sales record in overseas market, very great response from the China market. But it seems that our inventory has been more efficient in overseas market. It actually helped to further improve our Q4 sales in overseas countries. In Indonesia and we also continue to launch the IP, it's single-month sales has already more than RMB30.85 million by leveraging Harry Potter IP, which again take the new historical record. Harry Potter IP product sales accounted for 85% in MINISO land stores for 95%. And in Hong Kong, seven days of the Harry Potter IP related product has already been more than HKD5 million, a single day sales accounted for 850,000 or even in one month, the fresh store sales is already more than HKD12 million, where in Malaysia, a 30 square meter flagship store, the single day sales is RMB430,000. U.S. is about to enter the Black Friday shopping season. We do see IP-related product to register very good growth. We're going to have a more classic IP in our pipeline and ready to be launched next year. Besides Harry Potter, we also have IP resources. We have 150 IP in our pipeline in the reserve. In the near future, you're going to see more IP product to emerge in the market. Now the corporation is still in the confidential stage. When time comes, we're going to make the announcement. Obviously speaking, for IP strategy, we work horizontally and vertically. We leverage more IP to improve the IP co-branded success. We also vertically to improve the IP operation to further extend the revenue.

Unidentified Analyst: [Foreign Language] [Interpreted] Thank you.

Operator: Okay. Next question coming from UBS. You're allowed to raise your question.

Samuel Wang: [Foreign Language] [Interpreted] Hello, Mr. Ye and Mr. Zhang. My name is Samuel Wang from UBS. I have a question to you regarding TOP TOY overseas business. 2024 is the first year for TOP TOY to go for international expansion. You also have the TOP TOY store in Thailand. And you can notice in Southeast Asia, the Trendy Toys being very popular. What about your operationals of TOP TOY in overseas market? What would be the future strategies you may have? That is a question regarding TOP TOY. I have another question. You mentioned about the horizontal and vertical cooperation for IP. I'd like to ask a follow-up question. In your media press, you mentioned you're going to have the plush toys and the pad product? Is there any more details you can share with us? The third question, that is O2O business. This is indeed a very popular topic in the industry. You invested a few in the O2O in Q3. So what about the predictability of O2O? What about its future prospects?

Eason Zhang: [Foreign Language] [Interpreted] Thank you, Samuel. Let me just try to answer the first two questions. The third question will be taken by Mr. Ye. Regarding TOP TOY international expansion, first of all, maybe one point has been not mentioned in our presentation. For TOP TOY, the business, the trend is looking very good. I mentioned the top-line growth 43%, but it is worth mentioning it was making positive profit for four consecutive quarters. In the near future, TOP TOY is going to take a very prudent attitude. We're going to improve profitability, optimize product structure, improve the margin and go for international expansion. TOP TOY has a store in store in the Indonesia IP land. And in Singapore, we also have some dedicated shelf for TOP TOY. Its first store has been opened in Thailand. In Southeast Asia market, the demographic is pretty young. The economy is doing very well and with our increasing consumption power, all those advantage takes TOP TOY as the first global expansion of having Southeast Asia market. I do believe with the Southeast Asia market further improvement, TOP TOY is going to register a bigger growth to lay a solid foundation for global international development. As you mentioned about the plush and also the pad product, the same as ACG, they're also going to be the key categories we keep an eye on for 2025. MINISO and especially TOP TOY have some exclusively licensed product with Sanrio. We did two patch of the product with very good sales result. The third question will be responded by Mr. Ye regarding Meituan warehouse store.

Jack Ye: [Foreign Language] [Interpreted] Meituan warehouse store is still in the faster development stage. It's a strategic development for our retail business, 24/7 warehouse store can stand -- make us stand out in the differentiated environment. It's very different from the Walmart or from a POPO. You know that, we have more faster consumables along with 40% of the daily necessaries and other fresh fruits. Well, for Meituan, many of the stores are the white label grocery stores. The product quality has been inconsistent. So somewhat, we would like to work with Meituan fresh purchase as very good partners to work with to further improve the brand power. We're going to leverage our very strong supply chain and the product power to continue to improve differentiations between the 24 superstores and the regular stores to have a very refined product allocation. We also continue to improve the transportation network, regular stores being located in the shopping malls, which are going to limit the business hours. But the superstores or the warehouse store by Meituan going to be a great complementary. So we will be able to realize the incremental growth here now Meituan warehouse store, its profitability and ROI also demonstrated our belief. And we're going to have more announcement when the business model will be more stable in the near future.

Operator: Next question. Let's welcome Lucy Yu, please.

Lucy Yu: [Foreign Language] [Interpreted] Hello. I'm Lucy from Bank of America. I have two questions to you, Eason. You mentioned in Q4, in China, the expected growth would be a low-teens, still be accelerated, compared with the mid and the highest single digit number in Q3 of this year. Do you believe you are going to have more growth on ASP or more traffic compared with Q3 of this year? My second question is regarding 2025. You mentioned growth would be faster than 2024. Is it revenue growth or profit growth or both? The third question, for store expansion, if we take a look at 2024, store expansion in line with expectation in China, but overseas market go beyond expectation. In the next two to three years, for that 900 to 1,010 store expansion plan, are you going to have more in overseas countries, but tend to be more conservative in China? Thank you.

Eason Zhang: [Foreign Language] [Interpreted] Thank you. Thanks for Lucy. Q4 of this year or should I say in H2 of this year, the offline retail has been greatly challenged in China. Why should I say so? The reason is because in China, the full-year would be a low-teens growth, high-teens in H1 and in H2 of this year in Q3 and Q4. For the full-year, we believe the growth would be a low-teens growth. I have already mentioned, MINISO continued to upgrade our brand. We provide such a guidance to the market, including the e-commerce business. Our low-teens growth include the e-commerce business. In China for the full-year, it's going to be a low-teens growth. Where for 2025, the guidance is going to be more clear by the beginning of 2025. We're still in the budgeting stage. But let me just tell you, we have every confidence to be so. We have many store expansion in overseas market, which lay a solid foundation for top-line growth next year. Secondly, our U.S. market is being well tracked and the expenses control also going to be more refined. In other words, we're going to control expenses better. In 2025, no matter for top line or bottom line, we're going to have a faster growth compared with 2024. Thirdly, for store expansion. This is actually a unique point of MINISO. We have MINISO China, MINISO overseas. We have distributor markets and self-operated markets. We also have TOP TOY. So every year, we can dynamically adjust our store -- new store allocation in different markets. Thank you.

Lucy Yu: [Foreign Language] [Interpreted] Thank you. Thanks for Eason.

Operator: Next question is Shiyu from Huatai Securities, please.

Shiyu Zhang: [Foreign Language] [Interpreted] Hello. I'm Shiyu from Huatai Securities. Thanks for giving me the chance to raise a question. I have two questions. The first question is regarding the U.S. market. Your self-operated market was expanding very fast. In the near future, you may also have the retail partners to work with, right? Would you like to update us on the retail partner model? What about the progress now? If in the near future, you have self-operating model plus the retail partner model in U.S., how it's going to impact your profitability in U.S? My second question, you mentioned about the middle economy was developing very fast. But I think in the market, there are also some new players who started to be very aggressive for the channel expansion, how you're going to comment on the competition landscape and the competition pressure? Thank you.

Eason Zhang: [Foreign Language] [Interpreted] Okay. Thank you very much. First question, that is a timeline for retail partners in U.S. Till now, we don't have a timeline to share with you, but I can confirm with you for MINISO, we're still going to keep the asset-light business model no matter in China or in the overseas market. In the near future, we're going to take a very flexible store to operate our business. We can, in some direct operated market, introduce third-party stores to improve our leverage. But internally, we'll still review our store expansion experience to optimize our strategy in 2025. We're going to make the due announcement when time comes. Well, for middle economy, it was a very popular concept recently. But I think no matter what MINISO do, we will always be the most professional and dedicated one, especially for ACG. You have to be professional. Otherwise, you're going to end up with a high pulse of the stocks. So no matter the IP partners or the Thailand building, I do believe MINISO has already enjoyed great advantage.

Jack Ye: [Foreign Language] [Interpreted] Well, for the more specifics, as I have already showed you, in 2025, every month we're going to launch new product. We're going to have more elaborations next year. Thank you.

Shiyu Zhang: [Foreign Language] [Interpreted] Okay. Thank you.

Operator: Ladies and gentlemen, here comes to the end of our earnings call. Thank you very much for your time. Let's meet next.