Atour Lifestyle Holdings Limited

Ladies and gentlemen, thank you for standing by and welcome to the Ator Lifestyle Holdings First Quarter 2023 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a Q&A session. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Queenie Chin, Senior Manager of Investor Relations. Please go ahead, ma'am.

Thank you, operator. Good morning and good evening, everyone. Welcome to our first quarter 2023 earnings call. Joining us today are our founder, chairman, and CEO, Mr. Wang Haijun, and our co-CFOs, Mr. Orei and Mr. Wang Shoudong. Before we start, please note the discussion today will include forward-looking statements made under federal security laws that are subject to numerous risks and uncertainties. Actual results may differ materially from those stated or implied by our comments today. The company does not undertake any obligations to update any forward-looking statements except as required by applicable laws. During today's call, management will also discuss certain non-GAAP financial minerals for comparison purpose only. For a definition of non-GAAP financial minerals and the reconciliation of GAAP to non-GAAP financial results, please see the earnings release issued earlier today. In addition, a webcast replay of this conference call will be available on our website at ir.yaduo.com. Now, I will turn the call over to Mr. Wang, our CEO.

Thank you, Xiangzi. Thank you, Queenie. Hello, everyone, and thank you for joining Ator's first quarter 2023 earnings call today. Ator's first quarter 2023 earnings call today.

Ator's first quarter 2023 earnings call today.

continue to lead us to continuously improve and polish life products, providing excellent experiences for each guest and user. It is also our unceasing effort and pursuit of excellent determination that has promoted the strong recovery of hotel and long-term retail businesses in the first quarter. At the same time, the three-year development plan of China Experience's 2,000 good stores has been stable and has progressed smoothly. 我们相信亚朵将在以2023年为开端的后疫情发展格局中脱颖而出,不断巩固我们在中高端酒店行业的领先地位。 I'm pleased to share with you that Ator commenced the year 2023 on a strong note, achieving solid results in both our hotel and aerial-based retail businesses.

Our core value proposition to serve people with exceptional experience continues to guide our steps as we refine and polish our hotel services and lifestyle products to deliver a tour experiences to every customer. These uncompromising efforts combined with our dedication to excellence drove a robust recovery in both the hotel and retail businesses during the first quarter. We continue to execute our three-year development plan to open 2,000 premier hotels while establishing the Chinese experience at the industry benchmark, which we believe will solidify our leading position in the upper mid-scale hotel industry post-pandemic. 下面我将展开介绍一下各项业务的具体表现。 Now, let me go through our performance details across our business lines.

首先是酒店业务。 进入后疫情时代以来,市场在出行和住宿需求激增的推动下迅速回暖。 亚朵凭借高品质、高溢价、高效率的三高模式, 在第一季度实现了ADR和OCC的双增长。 In the first quarter, we recovered 118% from the same period of 2019, with the same level of ADR and entry rate exceeding the same period of 2019. This shows our continued recovery capacity. The recovery rate of the first three months of this year is 102%, 136% and 119%. In addition, our Roropar, which has been in business for more than 18 months, has also rebounded 118% in the first quarter to 19 years. It is consistent with the big plate and shows our strong recovery at the business level.

First, our hotel business development. As we enter into the post-pandemic era, we are seeing a rapid market recovery driven by surge in travel and accommodation demand. Embodying our three pronged mantra, high quality, high value, and high efficiency, a tour responded quickly to the first quarter's rising market opportunities and achieved a parallel growth in ADR and OCC. Our rev par for the first quarter rebounded significantly, to 118% of 2019's level for the same period, while both ADR and occupancy rates exceeded 2019's level, demonstrating our exceptional recovery capability. Looking at the first quarter in greater detail, our RevPAR recovery rate was 102%, 136%, and 119% of 2019's level for January, February, and March, respectively. Furthermore, same hotel RevPar for mature hotels in operation for more than 18 months recovered to 118% of 2019's level in the first quarter, showcasing a vigorous rebound of our business at the operational level. 刚刚过去的五一劳动节假期,

The sudden outbreak of travel and accommodation needs further promoted the improvement of Rollerpads. Compared to 2019, the recovery rate of Rollerpads in the five-day holiday period this year reached 133%. In multiple provinces such as Shandong, Fujian, Hubei, etc., Rollerpads have achieved a strong recovery of more than 160%.

For the five-day Labor Day holiday, explosive demand for travel and hotels stimulated further improvement in RAVPAR to 133% of 2019's level. Notably, RAVPAR's recovery rate soared to over 160% of 2019's level in various provinces, such as Shandong, Fujian, and Hubei, among others.

In terms of opening, the overall opening progress of the first quarter was affected by the outbreak in the second half of 2022 and the spring holiday in the beginning of 2023. However, with the improvement of the market and the confidence of the joint venture, the number of hotels we signed in the first quarter reached 94, creating the highest record of signing in a single season in history. Of which, the resumption rate of the joint venture has exceeded 40%, The pandemic during the second half of 2022

combined with the Chinese New Year holiday in the beginning of 2023, slightly impeded our overall progress with respect to new openings in the first quarter. However, alongside the market recovery, franchisees' engagement trends have continued to improve. The number of new hotels we signed in the first quarter reached 94, representing a new record high for single-quarter signings. Furthermore, among our newly signed hotels, the repurchase rate from our existing franchisees was more than 40%, highlighting our product competitiveness and brand premium. It's also worth mentioning that our Attour Lite 3.0 version has quickly gained market acceptance, achieving a remarkable performance with a total of 16 new projects signed by the end of Q1 since its release on February the 22nd of this year. Our hotel network continues to grow rapidly. As the end of first quarter this year, we had extended its coverage to 968 hotels, representing a year-over-year increase of 23%. Meanwhile, our pipeline remained healthy and continued to expand. Excitingly, we commenced the operation of our portfolio's 1,000th premier hotel today in Lanzhou, officially marking the inception of our 1,000th hotel era.

We are still expanding our portfolio. By the end of the first quarter, the number of hotels under development in our pipeline has reached 413. In the future, we will continue to track the changing market environment. as the end of the first quarter, we had 413 hotels under development. We will continue to peruse and analyze the ever evolving market prospects alongside opportunities to consolidate the hotel market.

as we mapped our course for opening a total of 280 hotels by the end of this year.

compared to the new increase of more than 2.8 million in the last quarter. Our members are young and active, representing China's largest consumer and development potential. Of the members who joined in the first quarter of 2023, the ratio of users aged 30 to 40 is 46%, and the ratio of users under 30 is 25%. Our loyalty program and central reservation system, or CRS, also maintained their steady growth momentum in the first quarter, benefiting from our high-quality services and premier customer experiences.

As of the end of Q1, our membership base surpassed 38 million, with an increase of over 2.8 million new members since the end of the previous quarter. Our members are young and engaged, representing the most energetic and promising consumer group in China. Among those members who stayed with us in the first quarter, about 46% of them were aged 30 to 40. and 25% were younger than 30. Meanwhile, the percentage of our nights sold through our CRS exceeded 60% in the first quarter of 2023, sustaining its healthy growth trend.

Long-term sales is our first long-term exploration from the business room to the business community In the past few years, we have successfully built the three major product series of Ado Planet, Z2Go, and SaHe, focusing on sleep, re-traveling, and the aesthetic and aesthetic fields, continuing to create a sense of life for users at home, and re-traveling.

Now, moving to our scenario-based retail business. As a leading lodging-centric lifestyle brand, the retail business is a natural extension of our expertise in hospitality, reaching beyond accommodation to harmoniously complement our value proposition to serve people who have diverse lifestyles. In the past few years, we have successfully developed three product lines namely Ator Planet, Z2Go, and SaHe, focusing on sleep, travel, and aroma aesthetics, respectively. Through these premium offerings, we deliver Ator's signature experience of comfort, ease, and relaxation to our customers when they are at home as well as on the go.

Our high-quality life-style products With the continuous improvement of brand influence Cooperation covers the multi-dimensional channels of the scene above and below the scene Promote the rapid growth of our scene retail business The second growth curve continues In the first quarter of 2023 The GMV of scene retail reached 1.42 billion RMB Increased by nearly 200% These high quality lifestyle products along with our diversified online and offline distribution channels and our continuously improving brand awareness

underpinned the robust growth of our innovative, scenario-based retail business during the first quarter, further solidifying its role as our second growth driver. GMV increased by almost 200% year-over-year to RMB 142 million in the first quarter of 2023, propelled by rapid growth in both our online and offline distribution channels. Revenues from our scenario-based retail business for the quarter reached the RMB 100 million milestone, reflecting its powerful growth momentum.

目前我们主要聚焦在睡眠品类,以亚朵星球作为核心的阵地。 第一季度亚朵星球的GMV的贡献占比近八成。 Currently,

We are purposefully focused on our sleep category. With Attour Planet products as our cornerstone, in the first quarter, Attour Planet contributed nearly 80% of our retail business's total GMV. In March, we launched the upgraded 2.0 version of our Attour Planet R90 Deep Sleep Pillow, following a comprehensive user feedback study. We creatively refined the pillow's design and construction to strike the optimal balance between comfort and functionality. Thanks to these luxurious features, the Attour Planet R90 2.0 version pillow became a popular product quickly after its release and has garnered enormous user recognition, with its sales performance significantly exceeding the level of the 1.0 version for the comparable period.

Our retail business is deeply rooted in our lodging-centric lifestyle brand philosophy.

Adhering to our original goal of bringing the Atour Hotel experience into our customers' homes, we remain committed to exploring deep sleep from every angle as we strive to deliver a comfortable and relaxing sleep experience. We are very optimistic about the massive potential and development opportunities in China's sleep market. Moving forward, We will continue to strengthen our insight into users' evolving needs and push the boundaries of product development, providing our users with premier sleep experiences through a diverse and growing suite of sleep-related products. We believe that our ongoing holistic improvements across our product development capabilities, operational efficiency, and brand awareness will establish a tour as an important player in China's sleep products market.

Since the establishment of Yaduo in 2013, we have been working tirelessly to provide users with a warm and interesting experience of traveling between people, At the same time, we continue to explore new possibilities, unlock new fields, and provide high-quality life-style products for the people who pursue quality life. The core concept of experience leading and managing the people is linked to our hotel business and long-term sales. We have achieved outstanding results and will continue to build on the difference and competitiveness of Adore. lead to sustainable health development in the future, and create greater value for our users, partners, partners, and shareholders.

Since our establishment in 2013, we have consistently endeavored to provide our customers with cultural, inviting, and interesting experiences throughout every step of their journeys, creating an intimate ambience where people can warmly connect. Meanwhile, we continuously explore new possibilities and expand our consumption scenarios, catering to the refined expectations of those who demand a high-quality lifestyle. Our value proposition originated with the goal to provide an exceptional experience to customers during their stay with us, which we further elevated to serve people who have diverse lifestyles. has not only elevated our strong performance across both our hotel and retail businesses, it has also become the driving force behind Ator's core competitiveness and our key differentiator. As we move forward, this value proposition will further empower us to drive long-term sustainable growth and create greater value for our customers, franchisees, employees, and shareholders.

Now, I'll turn the call over to our co-CFO, Mr. Wang Shoudong, to discuss our financial results. Thank you, Mr. Wang.

Now I would like to present the company's financial performance for the first quarter of 2023. Our net revenues for the first quarter of 2023 grew by 71.2% year-over-year to RMB 774 million. The strong increase in the first quarter was driven by growth in both the hotel business and the scenario-based retail business.

In the first quarter of 2023, the revenue from the management of Jiameng Hotel was 4.47 billion yuan. The same growth of 63.2%, mainly due to the rapid expansion and recovery of the adobe hotel network. In March 2023, the number of hotel managers increased to 935, the same growth of 24.3%. In the first quarter of 2023, Ruopar recovered to 331 yuan, exceeding the same level as in 2019.

Revenues from our monetized hotels for the first quarter of 2023 were RMB $447 million, up by 63.2% year-over-year. This increase was primarily driven by the ongoing expansion of our hotel network and the recovery of RevPar. As of the end of March this year, the total number of our managed hotels increased to 935, up by 24.3% year-over-year, while a rough part of our managed hotels surpassed the pre-pandemic level in 2019, increasing to RMB 331 for the first quarter of 2023. In the first quarter of 2023, the hotel revenue

The same growth of 67.9% is mainly due to the rapid rebound of customer traffic and consumer demand since 2023. In the first quarter of 2023, Ruapa recovered 464 yuan, exceeding the same level as in 2019.

Revenues contributed by our leased hotels for the first quarter of 2023 were RMB 187 million, representing an increase of 67.9% year-over-year. The increase was primarily due to the recovery of RevPar, driven by increased customer traffic and stronger consumption sentiment since the beginning of 2023. Rest part of our leased hotels surpassed the pre-pandemic level in 2019, increasing to RMB 464 for the first quarter of 2023.

Revenues from retail and others for the first quarter of 2023 increased by 109.5% year-over-year to RMB 140 million.

with scenario-based retail revenue growing by 174.3% year-over-year to RMB 113 million. The increase was attributable to the growing recognition of our retail brand and enhanced product capabilities. 二零二三年第一季度酒店运营成本三点八二亿元

Our hotel operating costs for the first quarter of 2023

increased by 18.1% to RMB 382 million year-over-year, mainly due to the increase in variable costs associated with the ongoing expansion of our hotel network and recovery of RevPar. Hotel operating costs accounted for 49.3% of net revenues for the first quarter of 2023, compared to 71.5% of net revenues for the same period of last year.

Other operating costs primarily consist of costs for our scenario-based retail business and costs of other revenues. Other operating costs for the first quarter of this year was RMB $72 million.

representing an increase of 124.5% year over year, driven by increased costs in line with the rapid growth of our scenario-based retail business. Other operating costs accounted for 9.3% of net revenues for the first quarter of 2023, compared to 7.1% of net revenues for the same period of 2022.

In the first quarter of 2023, the sales cost was 56 million yuan, with a growth of 135.6%. The main reason is the increase of the company's investment in scene sales, brand promotion and channel expansion in 2023. In the first quarter of 2023, the sales cost accounted for 7.2% of the total income, and the total income accounted for 5.3% in the same period of 2022.

Selling and marketing expenses for the first quarter of 2023 increased by 135.6% to RMB 56 million, primarily driven by the increased investment in branding initiatives and distribution channel development associated with our growing scenario-based retail business. Selling and marketing expenses accounted for 7.2% of net revenues for the first quarter of 2023 compared to 5.3% of net revenues for the same period of 2022.

General and administrative expenses for the first quarter of 2023 were RMB 193 million,

Excluding share-based compensation expenses of RMB 141 million, adjusted general and administrative expenses increased by 13.8% year-over-year to RMB 52 million for the first quarter of 2023. General and administrative expenses excluding the impact from share-based compensation expenses accounted for 6.7% of net revenues for the first quarter of 2023, compared to 10.1% of net revenues for the same period of 2022. Our technology and development expenses for the first quarter of 2023 were RMB 17 million, which were generally in line with the same period of 2022.

In the first quarter of 2023, the net profit after adjustment is 1.6 billion yuan, which is 2114.3% in comparison with the growth. In the first quarter of 2023, the EBITDA after adjustment is 2.31 billion yuan, which is 584.8% in comparison with the growth.

Adjusted net income for the first quarter increased by 2,114.3% year over year to RMB 160 million. Adjusted EBITDA for the first quarter of 2023 was RMB 231 million, up by 584.8% year over year.

Notably, we have maintained a healthy cash position, ended Q1 with RMB 2.0 billion in cash and cash equivalents. Among them,

Net cash was RMB 1.8 billion, representing an increase of 24.5%, quarter over quarter.

That concludes our financial highlights for the first quarter of 2023. With that, now let's head it over to our Q&A session.

Thank you. To ask a question, you need to press star 1 and 1 on your telephone and wait for your name to be announced. Until we draw your question, please press star 1 and 1 again. So that's star 1 and 1 to ask a question. And for the benefit of all participants on today's call, if you raise your question in Chinese, please immediately repeat your question in English. And please limit your questions to one at a time. And if you wish to have follow-up questions, please rejoin the queue. Thank you. We'll now take our first question. Please stand by. This is from the line of Cijie Lin from CICC. Please go ahead.

Thank you, Guanlitong. Congratulations on such a strong recovery and performance of RevPath. I have a question about RevPath. Our EQ RevPath has recovered 118%. How is the recovery of our Q2 RevPath? So I'll repeat my question in English. Thank you, management, and congrats on the strong results. So I have one question about RevPAR. Our Q1 RevPAR recovery reached 118%. So how's the RevPAR recovery in Q2? And for the full year RevPAR recovery, will we adjust our guidance? Thanks.

Thank you very much for that question. In Q1, there were some partially due to the retaliatory rebound factors.

And we were not sure whether that trend was going to be long-term, so we needed to observe. That's why on last quarterly earnings call, we gave a cautiously optimistic guidance, which is single-digit positive growth for the whole year.

Yago is always located on the high-end track. We don't have structural factors that are good for recovery. We at Atour always position ourselves in the upper mid-scale segment.

in which there are no structural factors benefiting our recovery. As I said in the report, in the first quarter this year, our REVPAR recovery rate for all of our hotels, as well as for those mature hotels in operation for more than 18 months, were both 118%, showcasing a vigorous rebound of our business at our operational level, and that was a high-quality growth.

As for Q2, now that we see in April and the Labor Day holidays in May, the red part recovery trends were both quite good. So we are confident

to reach 110% recovery rate for the whole year. Thank you.

Operator, in that question, please. Thank you. We'll now take our next question.

Please stand by. This is from the line of Ronald Leung from Bank of America. Please go ahead. 管理層晚上好,公司人們有一個非常好的業績。

I just have a question about the recovery of ZAMEN and the timing of the opening. In fact, what do you think of the recovery of ZAMEN this year? If RAFPA maintains a better recovery in the next year, do you think there is a chance for the 280-day opening to exceed the expected? Thank you. Okay, let me ask the question in English. So, management, how do you think about the franchisee sentiment now? Do you think there is a good improvement since 2023? And also, if the Roth part can continue to improve and be better than expectations, do you think there is any chance that the $280 hotels opening. Do you think the overall openings can be better than the 280 number of guidance this year? Thank you very much.

Okay, thank you, Mr. Na. The progress of our Q1 signing is very fast, reaching 94. This is also the highest number of single-q signings we have ever had. So in the new contract project, the proportion of our current supply and demand has exceeded 40%. This also makes us very satisfied. We believe that with the warm-up of the market and our strong ability to recover, we are now in the reserves of the pipeline. In EQ, we have reached 413. I think there is such a plentiful pipeline reserve and this year's industry and the opportunity to link it is also enough to support our opening target this year.

Thank you very much for that question, Ronald. In the first quarter, in terms of signings, we made some rapid progress reaching 94 signings, which is the highest level of a single quarter signings in history. Among those new signings, we found that over 40% of them are actually repurchases from our existing franchisees, and that really gave us a lot of encouragement. We do believe that with the recovery of the market, and together considering our pipeline reserves, we have already 413 in pipeline in first quarter. And together with the chain hotel opportunities brought by the industry consolidation going on, we will be able to support the new hotel opening target of 280 this year.

The goal of this restaurant is to open a restaurant. Because all the time, we have been pursuing a quality number. Only if the quality is done well, then this can be a long-lasting and sustainable development. You may have seen it today. Our 1,000th restaurant in Zanying

we at TOR always prioritize quality over quantity.

We believe that quality is a prerequisite for long-term healthy development. Also, just now you have heard that today marks the landing of our 1,000 hotels in operation. That was in Lanzhou. And that marks we officially have entered 1,000 hotel era. And we will maintain this expansion speed while ensuring the quality of our products and those hotels and try to be robust and develop with more new hotels of that higher quality.

Next question, please.

Thank you. We'll now take our next question. Please stand by. This is from the line of Lydia Ling from Citi. Please go ahead.

Hi, I'm Lydia from Huaqi. I have a question for you. I want to know your opinion on the competitive market of high-end hotels. As the industry grows, many hotels are investing in high-end hotels. With the increase of high-end public hotels, does the company feel that the competition is increasing? How can we improve the competitiveness of high-end hotels? Hi, management. I'm Lydia from CEE, and I have a question regarding the competitive landscape in mid- to upscale hotels. So as the hotel industry gradually recovers, many hotel companies shift more focus and invest more in that mid- to upscale segment. And so with more hotel supply into the mid- to upscale segment, do you face more intense competition and how to further enhance your competitiveness in this segment? Thank you.

Okay. Thank you for Lydia's question. We think that the hotel industry is divided into two paths of growth, the cost-effective and the experiential. Yaduo's long-term commitment is the experiential path. Our experience-leading strategy has permeated the reputation of very good users, and has also improved our customer satisfaction and the repurchase of consumers. Yaduo's three high strategies, which are our high quality, high value, and high efficiency, ensure the long-term stable return of our partners, The hotel industry has two paths, either cost-oriented or experience-driven.

We, Ator, persist on experience since our establishment. Our strategy of focusing on exceptional experience has accumulated good reputation among our customers. That has enhanced their satisfaction and repurchase. Our three high mantras, namely high quality, high value, high efficiency, had helped us to ensure the long-term and stable returns for our franchisees. And that also has enabled us to gradually accumulate recognition and market share among our franchisee partners. According to Sullivan's industry research, in terms of the number of rooms, we at Ator had been maintaining the first position in the market share of the largest upper-mid-scale hotel chains in China. And our leading is still expanding.

Of course, there is competition. But we believe that the development of the hotel industry is not a one-off game. For all industry participants, as long as your brand is strong, your operation is strong, your customer experience is strong, your model innovation is strong, Sure, there are competitions. While with the general trend of increasing hotel chain penetration,

this industry, the hotel industry, does not develop as a zero-sum game. For those players in this industry, whoever's got strong branding, operational capabilities, better customer experiences, as well as better model innovations, they can achieve high quality and sustainable development. Only when every player in this industry, they do... what they want to the extreme and also start to form a differentiated product and experiences, that's the time when our industry will develop with more diversification. And then a healthy competition pattern shall take place.

OK, operator, next question, please.

Thank you. We'll now take our next question. Please stand by. This is from the line of Andy Fu from Blue Lotus. Please go ahead.

Thank management for taking my question. Congrats on the good earnings performance at the net income in the first quarter. Can management break down the reasons behind the outperforming earnings? Also consider the quick recovery trend of travel consumption. Do we have any update on the expectation on the earnings for the second quarter in the four year 2023? Thanks.

Thank you for that question. I'll be taking this question.

Well, indeed, our company in the first quarter did achieve a good performance. Our adjusted net profit was RMB 160 million, and the adjusted net profit margin was 20%. First of all, in terms of gross margin, our Q1 gross margin was 41%.

which was 20% higher compared with Q1 of 2022. Mainly, there were two reasons. The first is that with our light asset mode, we benefited from the rapid recovery of RevPAR and economy of scale effect brought by the expansion of our hotel network.

The second is that the retail business of Gaomaoli continues to develop. The retail business accounts for the total revenue.

The second reason was due to the continuous development of our relatively higher gross margin retail business. The revenue contribution from our retail business have continued to increase, and its gross margin by itself also have increased, and those two reasons also have drove our overall gross margin higher.

In terms of costs, in the first quarter of 2023, three costs accounted for 16% of revenue, which is 3% lower than before. Among them, sales costs accounted for 7% of revenue, which is 2% higher than before. The main reason for this is that the company has increased the investment of scene sales in brand promotion and channel expansion. Management and R&D costs accounted for 9% of revenue, In terms of expenses, our three expenses accounted for 16% of revenue in the first quarter this year, down by 3% year-on-year, in which marketing expenses accounted for 7% of revenue.

That was up by 2% because we increased the investment in branding initiatives and developing distribution channels for our scenario-based retail business. The rest 9% of revenue were administrative and R&D expenses, down by 5% than last year since we improved on our management efficiency. The increasing of the management and R&D expenses were much smaller than the growth speed of our revenue. In the future, with our continuous expansion of our hotel network, along with the gradual kicking in of the economy of scale effects, plus the continuous development of our retail business, we expect that our overall profitability will maintain a stable growth in the longer term. Thank you. Thank you.

Next question, please.

Thank you. We'll now take our next question. Please stand by. And this is from the line of Xin Chen from UBS. Please go ahead.

Good evening, everyone. I'm Chen Xin from UBS. Thank you for giving me the opportunity to ask this question. I have a question about our long-term retail business. I'd like to know what the company thinks about the retail business of the second wave. How should we anticipate the future development and the impact of our financial statements? Let me ask a question in English. I'd like to read the question regarding the scenario of the future business. How does the management see the growth potential of the scenario of the future business? What can we expect from this future development? And what will be its impact to data's financials? Thank you.

Okay, thank you for the new question. Let me talk about the business situation of Ling Shou first, and then ask Shou Dong to add financial information. As a lifestyle brand group that is based on accommodation, Changjing Ling Shou is the first step for us from operating rooms to operating people. I think our offline hotel scene provides Ling Shou with a natural experience space and brings a lot of natural flow. And Ling Shou brings the Asian experience back to the user's home. It improves the user's perception of the Asian brand. At the same time, it also brings back traffic to our accommodation. Therefore, our retail and hotel ecosystem form a good interaction cycle.

Thank you for that question, Mr. Chen. I'll talk about the business condition of our retail business, and then we'd like to ask Mr. Wang Shoudong to supplement on the financial side. We as a lodging-centric lifestyle brand, our retail business is a very natural extension of our expertise in hospitality, reaching beyond accommodation to harmoniously complement our value proposition to serve people who have diverse lifestyles. Our offline hotel scenes can provide a natural experience space which also brings a lot of natural traffic to our retail businesses. Retail, on the other hand, can also help to bring our ATOR experience back to customers' homes, help to improve their perception of ATOR, and also bring them back to our hotels for more stays in the future. Retail business and hotel business, as you see in this way, can form a very nice loop. with that kind of synergy.

In terms of products, our focus is on the whole series of sleeping products. We will also use the Asian planet as our core product. In the first quarter, the Asian planet contributed about 80% to the sale of GMV. Our pillow, bed, quilt, and four sets are all selling very well. We are very optimistic about the huge potential and opportunities of the Chinese sleeping market.

Product-wise, we currently focus on a pen sleep category, taking Attour Planet as our core product. In first quarter, our Attour Planet contributed nearly 80% to our overall GMV of the retail sales. Pillows, mattresses, quilts, and four-piece sets also very well. We are very optimistic about China's sleep product market with massive potential, and we believe there are quite a lot of different development opportunities. We also believe we, Ator, will also stand a place in China's sleep economy in the future.

In terms of channels, in addition to the gradually expanding hotel network, we have provided a wide range of scenarios and constantly increasing customers. Channel-wise, apart from leveraging our expanding hotel network as both the consumption scenes and customer traffic sources, we also have been developing online third-party channels.

So that driven from both offline and online, these two channels have both been growing very fast.

So that driven from both offline and online, these two channels have both been growing very fast. So that driven from both offline and online, these two channels have both been growing very fast. So that driven from both offline and online, these two channels have both been growing very fast. So that driven from both offline and online, these two channels have both been growing very fast. So that driven from both offline and online, these two channels have both been growing very fast.

In the future, we will continue to strengthen our investment on customer insight and product development to create more high-quality sleep products to offer first-class sleep experiences for our customers and so that we can make more people sleep better.

Next, Shoudong will introduce some of our performance in retail and finance.

Now let me hand it over to Mr. Wang Shoudong to talk about scenario-based retail financials.

Our scenario-based retail business in last year have already reached a revenue of 254 million yuan and already achieved a positive bottom line. And for the first quarter of this year, our scenario-based retail revenue have already reached a milestone of 100 million yuan, and we expect

Our whole year revenue will reach above 400 million yuan, with an increase of more than 80% year-on-year, and the profitability will also increase accordingly.

At the same time, with the requirement of IOI and the security of profits, we will also increase the investment in the promotion and expansion of the market sales brand, ensuring that the market sales business's profit contribution to the corporation will increase year-on-year.

Meanwhile, on the basis of stringent requirements on ROI and reasonable profit, we also will increase the investment in branding initiatives and distribution channel extensions to make sure that our scenario-based retails contribution to the group's overall profit will increase year by year.

OK. Operator, the question maybe?

Thank you. That does conclude the question and answer session. I would like to turn the conference back over to Queenie Chin for any additional or closing comments.

Thank you, operator. Thank you, everyone, once again, for joining us today. If you have any further questions, please feel free to contact us. Have a great day. Goodbye.

Thank you. This does conclude the conference for today. Thank you for participating, and you may now disconnect. you Bye. Thank you.

Thank you. you

Ladies and gentlemen, thank you for standing by and welcome to the Ator Lifestyle Holdings first quarter 2023 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a Q&A session. Today's conference is being recorded. At this time, I would like to turn the conference over to Miss Queenie Chin, Senior Manager of Investor Relations. Please go ahead, ma'am.

Thank you, operator. Good morning and good evening, everyone. Welcome to our first quarter 2023 earnings call. Joining us today are our founder, chairman, and CEO, Mr. Wang Haijun, and our co-CFOs, Mr. Ray and Mr. Wang Shoudong. Before we start, please note the discussion today will include forward-looking statements made under federal security laws that are subject to numerous risks and uncertainties. Actual results may differ materially from those stated or implied by our comments today. The company does not undertake any obligations to update any forward-looking statements except as required by applicable laws. During today's call, management will also discuss certain non-GAAP financial minerals for a comparison purpose only. For a definition of non-GAAP financial minerals and the reconciliation of GAAP to non-GAAP financial results, please see the earnings release issued earlier today. In addition, a webcast replay of this conference call will be available on our website at ir.yaduo.com. Now, I will turn the call over to Mr. Wang, our CEO.

Thank you, Xiangzi. Thank you, Queenie. Hello, everyone, and thank you for joining Ator's first quarter 2023 earnings call today. Ator's first quarter 2023 earnings call today.

Ator's first quarter 2023 earnings call today.

continue to lead us to continuously improve and polish the products of the way of life, providing excellent experiences for each guest and user. It is also our unceasing effort and pursuit of excellent determination that has promoted the strong recovery of the hotel and long-term retail business in the first quarter. At the same time, the three-year development plan of China Experience's 2,000 good stores has steadily fallen and progressed smoothly. 我们相信亚朵将在以2023年为开端的后疫情发展格局中脱颖而出,不断巩固我们在中高端酒店行业的领先地位。 I'm pleased to share with you that Ator commenced the year 2023 on a strong note, achieving solid results in both our hotel and aerial-based retail businesses.

Our core value proposition to serve people with exceptional experience continues to guide our steps as we refine and polish our hotel services and lifestyle products to deliver a tour experiences to every customer. These uncompromising efforts combined with our dedication to excellence drove a robust recovery in both the hotel and retail businesses during the first quarter. We continue to execute our three-year development plan to open 2,000 premier hotels while establishing the Chinese experience as the industry benchmark, which we believe will solidify our leading position in the upper mid-scale hotel industry post-pandemic. 下面我将展开介绍一下各项业务的具体表现。 Now let me go through our performance details across our business lines.

首先是酒店业务。 进入后疫情时代以来,市场在出行和住宿需求激增的推动下迅速回暖。 亚朵凭借高品质、高溢价、高效率的三高模式, 在第一季度实现了ADR和OCC的双增长。 Our first quarter's RRPA recovered to 118% in the same period of 2019, and the ADR and the entry rate exceeded the same level in the same period of 19 years. This reflects our sustainable recovery capacity. The recovery rate of RRPA in the first three months of this year is 102%, 136%, and 119%. First, our hotel business development. As we enter into the post the pandemic era,

we are seeing a rapid market recovery driven by surge in travel and accommodation demand. Embodying our three pronged mantra, high quality, high value, and high efficiency, a tour responded quickly to the first quarter's rising market opportunities and achieved a parallel growth in ADR and OCC. Our rev power for the first quarter rebounded significantly to 118% of 2019's level for the same period, while both ADR and occupancy rates exceeded 2019's level, demonstrating our exceptional recovery capability. Looking at the first quarter in greater detail, our REVPAR recovery rate was 102%, 136%, and 119% of 2019's level for January, February, and March, respectively. Furthermore, same hotel RevPar for mature hotels in operation for more than 18 months recovered to 118% of 2019's level in the first quarter, showcasing a vigorous rebound of our business at the operational level. 刚刚过去的五一劳动节假期,

The sudden outbreak of travel and accommodation needs further promoted the improvement of Roppa Compared to 2019, the recovery rate of Roppa this year reached 133% In multiple provinces such as Shandong, Fujian, Hubei, etc. Roppa has achieved a strong recovery of more than 160%

For the five-day Labor Day holiday, explosive demand for travel and hotels stimulated further improvement in RAVPAR to 133% of 2019's level. Notably, RAVPAR's recovery rate soared to over 160% of 2019's level in various provinces, such as Shandong, Fujian, and Hubei, among others.

In terms of opening, the overall opening progress of the first quarter was affected by the outbreak in the second half of 2022 and the spring holiday in the beginning of 2023. However, with the improvement of the market and the confidence of the joint venture, the number of hotels signed in the first quarter reached 94, creating the highest record of signing in a single quarter in history. Of which, the return rate of the joint venture has exceeded 40%, The pandemic during the second half of 2022

combined with the Chinese New Year holiday in the beginning of 2023, slightly impeded our overall progress with respect to new openings in the first quarter. However, alongside the market recovery, franchisees' engagement trends have continued to improve. The number of new hotels we signed in the first quarter reached 94, representing a new record high for single-quarter signings. Furthermore, among our newly signed hotels, the repurchase rate from our existing franchisees was more than 40%, highlighting our product competitiveness and brand premium. It's also worth mentioning that our Attour Lite 3.0 version has quickly gained market acceptance, achieving a remarkable performance with a total of 16 new projects signed by the end of Q1 since its release on February the 22nd of this year. Our hotel network continues to grow rapidly. As the end of first quarter this year, we had extended its coverage to 968 hotels, representing a year-over-year increase of 23%. Meanwhile, our pipeline remained healthy and continued to expand. Excitingly, we commenced the operation of our portfolio's 1,000th premier hotel today in Lanzhou, officially marking the inception of our 1,000th hotel era.

Our pipeline project has been fully prepared and is still expanding. By the end of the first quarter, the number of hotels under development in our pipeline has reached 413. In the future, we will continue to track the changing market environment. As the end of the first quarter, we had 413 hotels under development. We will continue to peruse and analyze the ever-evolving market prospects alongside opportunities to consolidate the hotel market

as we map our course for opening a total of 280 hotels by the end of this year.

The number of new members has increased by more than 2.8 million in the last quarter. Our members are young and active, representing China's most active and developed community. Among the members who joined in the first quarter of 2023, the percentage of users aged 30 to 40 is 46%, and the percentage of users under 30 is 25%. Our loyalty program and central reservation system, or CRS, also maintained their steady growth momentum in the first quarter, benefiting from our high-quality services and premier customer experiences.

As of the end of Q1, our membership base surpassed 38 million, with an increase of over 2.8 million new members since the end of the previous quarter. Our members are young and engaged, representing the most energetic and promising consumer group in China. Among those members who stayed with us in the first quarter, about 46% of them were aged 30 to 40. and 25% were younger than 30. Meanwhile, the percentage of our nights sold through our CRS exceeded 60% in the first quarter of 2023, sustaining its healthy growth trend.

Long-term sales is our first long-term exploration from the business room to the business community In the past few years, we have successfully created the three major product series of Ado Planet, Z2Go, and SaHe, focusing on sleep, re-traveling, and the aesthetic and aesthetic fields. Continuously create for users a sense of life that is determined at home and tolerant at home.

Now, moving to our scenario-based retail business. As a leading lodging-centric lifestyle brand, the retail business is a natural extension of our expertise in hospitality, reaching beyond accommodation to harmoniously complement our value proposition to serve people who have diverse lifestyles. In the past few years, we have successfully developed three product lines namely Ator Planet, Z2Go, and SaHe, focusing on sleep, travel, and aroma aesthetics, respectively. Through these premium offerings, we deliver Ator's signature experience of comfort, ease, and relaxation to our customers when they are at home as well as on the go.

Our high-quality life-style products With the continuous improvement of brand influence Cooperate with the diversification channels of the scene on and off the line Promote the rapid growth of our scene retail business The second growth curve continues to rise In the first quarter of 2023 The GMV of scene retail reached 1.42 billion yuan Increased by nearly 200% These high-quality lifestyle products, along with our diversified online and offline distribution channels and our continuously improving brand awareness,

underpinned the robust growth of our innovative, scenario-based retail business during the first quarter, further solidifying its role as our second growth driver. GMV increased by almost 200% year-over-year to RMB 142 million in the first quarter of 2023, propelled by rapid growth in both our online and offline distribution channels. Revenues from our scenario-based retail business for the quarter reached the RMB 100 million milestone, reflecting its powerful growth momentum.

At present, we focus mainly on sleep products, with the Asia-Pacific as the core position. In the first quarter, the contribution of the Asia-Pacific is nearly 80%. Currently,

We are purposefully focused on our sleep category. With Attour Planet products as our cornerstone, in the first quarter, Attour Planet contributed nearly 80% of our retail business's total GMV. In March, we launched the upgraded 2.0 version of our Attour Planet R90 Deep Sleep Pillow, following a comprehensive user feedback study. We creatively refined the pillow's design and construction to strike the optimal balance between comfort and functionality. Thanks to these luxurious features, the Attour Planet R90 2.0 version pillow became a popular product quickly after its release and has garnered enormous user recognition, with its sales performance significantly exceeding the level of the 1.0 version for the comparable period.

Our retail business is deeply rooted in our lodging-centric lifestyle brand philosophy.

Adhering to our original goal of bringing the Attour Hotel experience into our customers' homes, we remain committed to exploring deep sleep from every angle as we strive to deliver a comfortable and relaxing sleep experience. We are very optimistic about the massive potential and development opportunities in China's sleep market. Moving forward, We will continue to strengthen our insight into users' evolving needs and push the boundaries of product development, providing our users with premier sleep experiences through a diverse and growing suite of sleep-related products. We believe that our ongoing holistic improvements across our product development capabilities, operational efficiency, and brand awareness will establish a tour as an important player in China's sleep products market.

Since the establishment of Yaduo in 2013, we have been working tirelessly throughout the user's journey to provide them with a human-friendly, warm, and interesting experience. We want to create a warm connection between people, At the same time, we continue to explore new possibilities, unlock new fields, and provide high-quality life-style products for the people who pursue quality life. The core concept of experience leading and managing the people is linked to our hotel business and long-term sales. We have achieved outstanding results and will continue to build on the difference and competitiveness of Adore. lead to sustainable health development in our future, and create greater value for our users, partners, partners, and shareholders.

Since our establishment in 2013, we have consistently endeavored to provide our customers with cultural, inviting, and interesting experiences throughout every step of their journeys, creating an intimate ambience where people can warmly connect. Meanwhile, we continuously explore new possibilities and expand our consumption scenarios, catering to the refined expectations of those who demand a high-quality lifestyle. Our value proposition originated with the goal to provide an exceptional experience to customers during their stay with us, which we further elevated to serve people who have diverse lifestyles. has not only elevated our strong performance across both our hotel and retail businesses, it has also become the driving force behind Ator's core competitiveness and our key differentiator. As we move forward, this value proposition will further empower us to drive long-term sustainable growth and create greater value for our customers, franchisees, employees, and shareholders.

Now, I'll turn the call over to our co-CFO, Mr. Wang Shoudong, to discuss our financial results. Thank you, Mr. Wang.

Now I would like to present the company's financial performance for the first quarter of 2023. Our net revenues for the first quarter of 2023 grew by 71.2% year-over-year to RMB 774 million. The strong increase in the first quarter was driven by growth in both the hotel business and the scenario-based retail business.

In the first quarter of 2023, the revenue from the management of Jiameng Hotel was 4.47 billion yuan. The same growth of 63.2% is mainly due to the rapid expansion and recovery of the adobe hotel network. In March 2023, the number of hotel managers increased to 935, the same growth of 24.3%. In the first quarter of 2023, Royal Park recovered to 331 yuan, exceeding the same level as in 2019.

Revenues from our managed hotels for the first quarter of 2023 were RMB $447 million, up by 63.2% year-over-year. This increase was primarily driven by the ongoing expansion of our hotel network and the recovery of RevPar. As of the end of March this year, the total number of our managed hotels increased to 935, up by 24.3% year-over-year, while a rough part of our managed hotels surpassed the pre-pandemic level in 2019, increasing to RMB 331 for the first quarter of 2023. In the first quarter of 2023, the hotel revenue

The same increase of 67.9% is mainly due to the rapid rebound of customer traffic and consumer demand since 2023. In the first quarter of 2023, the recovery to 464 yuan exceeded the same level as in 2019.

Revenues contributed by our leased hotels for the first quarter of 2023 were RMB 187 million, representing an increase of 67.9% year-over-year. The increase was primarily due to the recovery of RevPar, driven by increased customer traffic and stronger consumption sentiment since the beginning of 2023. Rest part of our leased hotels surpassed the pre-pandemic level in 2019, increasing to RMB 464 for the first quarter of 2023. 二零二三年第一季度,零售及其他收入1.40亿元,同比增长109.5%,其中零售收入1.13亿元。

Revenues from retail and others for the first quarter of 2023 increased by 109.5% year-over-year to RMB 140 million.

with scenario-based retail revenue growing by 174.3% year-over-year to RMB 113 million. The increase was attributable to the growing recognition of our retail brand and enhanced product capabilities. 二零二三年第一季度酒店运营成本三点八二亿元

Our hotel operating costs for the first quarter of 2023

increased by 18.1% to RMB 382 million year-over-year, mainly due to the increase in variable costs associated with the ongoing expansion of our hotel network and recovery of RevPar. Hotel operating costs accounted for 49.3% of net revenues for the first quarter of 2023, compared to 71.5% of net revenues for the same period of last year. Other operating costs primarily consist of costs for our scenario-based retail business and costs of other revenues. Other operating costs for the first quarter of this year was RMB $72 million. representing an increase of 124.5% year over year, driven by increased costs in line with the rapid growth of our scenario-based retail business. Other operating costs accounted for 9.3% of net revenues for the first quarter of 2023, compared to 7.1% of net revenues for the same period of 2022.

In the first quarter of 2023, the sales cost was 56 million yuan, with a growth of 135.6%. The main reason is the increase of the company's investment in scene sales, brand promotion and channel expansion in 2023. In the first quarter of 2023, the sales cost accounted for 7.2% of the total income, and the total income accounted for 5.3% in the same period of 2022.

Selling and marketing expenses for the first quarter of 2023 increased by 135.6% to RMB 56 million, primarily driven by the increased investment in branding initiatives and distribution channel development associated with our growing scenario-based retail business. Selling and marketing expenses accounted for 7.2% of net revenues for the first quarter of 2023 compared to 5.3% of net revenues for the same period of 2022.

General and administrative expenses for the first quarter of 2023 were RMB 193 million,

Excluding share-based compensation expenses of RMB 141 million, adjusted general and administrative expenses increased by 13.8% year-over-year to RMB 52 million for the first quarter of 2023. General and administrative expenses excluding the impact from share-based compensation expenses accounted for 6.7% of net revenues for the first quarter of 2023, compared to 10.1% of net revenues for the same period of 2022. Our technology and development expenses for the first quarter of 2023 were RMB 17 million, which were generally in line with the same period of 2022.

In the first quarter of 2023, the net profit after adjustment is 1.6 billion yuan, which is 2114.3% in comparison with the growth. In the first quarter of 2023, the EBITDA after adjustment is 2.31 billion yuan, which is 584.8% in comparison with the growth.

Adjusted net income for the first quarter increased by 2,114.3% year-over-year to RMB 160 million. Adjusted EBITDA for the first quarter of 2023 was RMB 231 million, up by 584.8% year-over-year.

Notably, we have maintained a healthy cash position, ended Q1 with RMB 2.0 billion in cash and cash equivalents. Among them,

Net cash was RMB 1.8 billion, representing an increase of 24.5%, quarter over quarter.

That concludes our financial highlights for the first quarter of 2023. With that, now let's head it over to our Q&A session.

Thank you. To ask a question, you need to press star 1 and 1 on your telephone and wait for your name to be announced. Until we draw your question, please press star 1 and 1 again. So that's star 1 and 1 to ask a question. And for the benefit of all participants on today's call, if you raise your question in Chinese, please immediately repeat your question in English. And please limit your questions to one at a time. And if you wish to have follow-up questions, please rejoin the queue. Thank you. We'll now take our first question. Please stand by. This is from the line of Cijie Lin from CICC. Please go ahead.

Thank you, Guanlitong. Congratulations on such a strong recovery and performance of RevPath. I have a question about RevPath. Our EQ RevPath has recovered 118%. How is the recovery of our Q2 RevPath? So I'll repeat my question in English. Thank you, management, and congrats on the strong results. So I have one question about RevPAR. Our Q1 RevPAR recovery reached 118%. So how's the RevPAR recovery in Q2? And for the full year RevPAR recovery, will we adjust our guidance? Thanks.

Thank you very much for that question. In Q1, there were some partially due to the retaliatory rebound factors.

and we were not sure whether that trend was going to be long-term, so we needed to observe. That's why on the last quarterly earnings call, we gave a cautiously optimistic guidance, which is single-digit positive growth for the whole year.

Yago is always located on the high-end track. We don't have structural factors that are good for recovery. We at Atour always position ourselves in the upper mid-scale segment.

in which there are no structural factors benefiting our recovery. As I said in the report, in the first quarter this year, our REVPAR recovery rate for all of our hotels, as well as for those mature hotels in operation for more than 18 months, were both 118%, showcasing a vigorous rebound of our business at our operational level, and that was a high-quality growth.

As for Q2, now that we see in April and the Labor Day holidays in May, the relative recovery trends were both quite good, so we are confident

to reach 110% recovery rate for the whole year. Thank you.

Operator, in that question, please. Thank you. We'll now take our next question.

Please stand by. This is from the line of Ronald Leung from Bank of America. Please go ahead. 管理層晚上好,公司人們有一個非常好的業績。

I just have a question about the recovery and the timing of the opening. In fact, this year, what does the management think of the recovery of Zha Mengshan? If RAFPA maintains a better recovery in the next year, does the company think that the opening of 280 will have a chance to exceed the expected? Thank you. um okay let me ask the question uh in english so um so uh management how do you think about the franchisee sentiment now do you think there is a good improvement uh since 2023 and also uh if the rough part can continue to improve and be better than expectations uh do you think there is any chance that uh the 280 hotels opening. Do you think the overall openings can be better than the 280 number of guidance this year? Thank you very much.

Okay, thank you, Mr. Na. The progress of our Q1 signing is very fast, reaching 94. This is also the highest number of single-signature signings since then. So in the new contract project, the proportion of our current home improvement is already more than 40%. This also makes us very satisfied. We believe that with the warm-up of the market and our strong ability to recover, we are now in the reserves of the pipeline. In EQ, we have reached 413. I think there is such a conflict of pipeline reserves and the opportunity of this year's industry-level coalescence is also enough to support our opening goal this year.

Thank you very much for that question, Ronald. In the first quarter, in terms of signings, we made some rapid progress, reaching 94 signings, which is the highest level of a single quarter signings in history. Among those new signings, we found that over 40% of them are actually repurchases from our existing franchisees, and that really gave us a lot of encouragement. We do believe that with the recovery of the market, and together considering our pipeline reserves, we have already 413 in pipeline in first quarter. And together with the chain hotel opportunities brought by the industry consolidation going on, we will be able to support the new hotel opening target of 280 this year.

we at TOR always prioritize quality over quantity.

We believe that quality is a prerequisite for long-term healthy development. Also, just now you have heard that today marks the landing of our 1,000 hotels in operation. That was in Lanzhou. And that marks we officially have entered 1,000 hotel era. And we will maintain this expansion speed while ensuring the quality of our products and those hotels and try to be robust and develop with more new hotels of that higher quality.

Next question, please.

Thank you. We'll now take our next question. Please stand by. This is from the line of Lydia Ling from Citi. Please go ahead.

Hi, I'm Lydia from Huaqi. I have a question for you. I want to know your opinion on the competition of high-end hotels. As the industry is growing, many hotels are investing in high-end hotels. With the increase in the number of high-end hotels, does the company feel that the competition is increasing? How can we improve the competitiveness of high-end hotels? Hi, management. And I have a question regarding the competitive landscape in mid-to-upscale hotel. So as the hotel industry gradually recovers, many hotel companies shift more focus and invest more in that mid-to-upscale segment. And so with more hotel supply into the mid-to-upscale segment, do you face more intense competition and how to further enhance your competitiveness in this segment? Thank you.

Okay. Thank you, Lydia, for the question. We think that the hotel industry is divided into two paths of growth, the cost-effective and the experiential. What Yaduo has been insisting on for a long time is the experiential path. Our experience-leading strategy has permeated the reputation of very good users, and has also improved our customer satisfaction and the repurchase of consumers. Yaduo's three high strategies, which are our high quality, high value, and high efficiency, ensure the long-term stable return of our joiners, The hotel industry has two paths, either cost-oriented or experience-driven.

We, Ator, persist on experience since our establishment. Our strategy of focusing on exceptional experience has accumulated good reputation among our customers. That has enhanced their satisfaction and repurchase. Our three mantra, three high mantras, namely high quality, high value, high efficiency, had helped us to ensure the long-term and stable returns for our franchisees. And that also has enabled us to gradually accumulate recognition and market share among our franchisee partners. According to Sullivan's industry research, in terms of the number of rooms, we at Ator had been maintaining the first position in the market share of the largest upper-mid-scale hotel chains in China. And our leading is still expanding.

Of course, there is competition. But we believe that the development of the hotel industry is not a one-off game. For all industry participants, as long as your brand is strong, your operation is strong, your customer experience is strong, your model innovation is strong, Sure, there are competitions. While with the general trend of increasing hotel chain penetration,

This industry, the hotel industry, does not develop as a zero-sum game. For those players in this industry, whoever's got strong branding, operational capabilities, better customer experiences, as well as better model innovations, they can achieve high quality and sustainable development. Only when every player in this industry, they do... what they want to the extreme and also start to form a differentiated product and experiences, that's the time when our industry will develop with more diversification and then a healthy competition pattern shall take place.

Okay, operator, next question please.

Thank you. We'll now take our next question. Please stand by. This is from the line of Andy Fu from Blue Lotus. Please go ahead.

Thank management for taking my question. Congrats on the good earnings performance at the net income in the first quarter. Can management break down the reasons behind the outperforming earnings? Also, consider the quick recovery trend of travel consumption. Do we have any update on the expectation on earnings for the second quarter in the four year 2023? Thanks.

Thank you for that question.

I'll be taking this question. Well, indeed, our company in the first quarter did achieve a good performance. Our adjusted net profit was RMB 160 million, and the adjusted net profit margin was 20%. First of all, in terms of gross margin, our Q1 gross margin was 41%.

which was 20% higher compared with Q1 of 2022. Mainly, there were two reasons. The first is that with our light asset mode, we benefited from the rapid recovery of RevPAR and economy of scale effect brought by the expansion of our hotel network.

The second reason is that with our light asset mode, we benefited from the rapid recovery of RevPAR

The second reason was due to the continuous development of our relatively higher gross margin retail business. The revenue contribution from our retail business have continued to increase and its gross margin by itself also have increased and those two reasons also have drove our overall gross margin higher.

In terms of costs, in the first quarter of 2023, three costs accounted for 16% of revenue, which is 3% lower than before. Among them, sales costs accounted for 7% of revenue, which is 2% higher than before. The main reason is that the company has increased the investment in the marketing and channel expansion of the scene sales business. The ratio of management and development costs accounted for 9% In terms of expenses, our three expenses accounted for 16% of revenue in the first quarter this year, down by 3% year-on-year, in which marketing expenses accounted for 7% of revenue.

That was up by 2% because we increased the investment in branding initiatives and developing distribution channels for our scenario-based retail business. The rest 9% of revenue were administrative and R&D expenses, down by 5% than last year since we improved on our management efficiency. The increasing of the management and the R&D expenses were much smaller than the growth speed of our revenue. 未来随着酒店网络的持续扩张,规模效应的足够释放,以及零用业务的不断发展,我们预计集团整体盈利能力从长期来看会保持稳定增长。 In the future, with our continuous expansion of our hotel network, along with the gradual kicking in of the economy of scale effects, plus the continuous development of our retail business, we expect that our overall profitability will maintain a stable growth in the longer term. Thank you. Thank you.

Next question, please. Thank you. We'll now take our next question. Please stand by. And this is from the line of Xin Chen from UBS. Please go ahead.

Good evening, everyone. I'm Chen Xin from UBS. Thank you for giving me the opportunity to ask this question. I have a question about our long-term retail business. I'd like to ask how the company sees the second wave of retail business. how we should anticipate the future development and the impact of our financial statements. Let me ask a question in English. I'd like to read the question regarding the scenario of the future business. How do you see the growth potential of the scenario of the future business? What can we expect from this future development? And what will be its impact to ATO's financials? Thank you.

Okay, thank you for the new question. Let me talk about the business situation of Lingshou first, and then ask Shoudong to add financial information. As a lifestyle brand group that is based on accommodation, Changjing Lingshou is the first step for us from operating rooms to operating people. I think our offline hotel scene provides Lingshou with a natural experience space and brings a lot of natural flow. And Lingshou brings the Asian experience back to the user's home. It increases the user's perception of the Asian brand, and it also brings back traffic to our accommodation. Therefore, our retail and hotel ecosystem have formed a good interaction cycle.

Thank you for that question, Mr. Chen. I'll talk about the business condition of our retail business, and then we'd like to ask Mr. Wang Shoudong to supplement on the financial side. We as a lodging-centric lifestyle brand, our retail business is a very natural extension of our expertise in hospitality, reaching beyond accommodation to harmoniously complement our value proposition to serve people who have diverse lifestyles. Our offline hotel scenes can provide a natural experience space which also brings a lot of natural traffic to our retail businesses. Retail, on the other hand, can also help to bring our ATOR experience back to customers' homes, help to improve their perception of ATOR, and also bring them back to our hotels for more stays in the future. Retail business and hotel business, as you see in this way, can form a very nice loop. with that kind of synergy.

In terms of products, our focus is on the whole series of sleeping products. We will also use Asia Star as our core product. In the first quarter, Asia Star contributed about 80% to the sale of GMV. Our pillow, bed, quilt, and four sets are all sold very well. We are very optimistic about the huge potential and opportunity of the Chinese sleeping market.

Product-wise, we currently focus on a tent sleep category, taking Attour Planet as our core product. In first quarter, our Attour Planet contributed nearly 80% to our overall GMV of the retail sales. Pillows, mattresses, quilts, and four-piece sets also very well. We are very optimistic about China's sleep product market with massive potential, and we believe there are quite a lot of different development opportunities. We also believe we, Ator, will also stand a place in China's sleep economy in the future.

In terms of channels, in addition to the gradually expanding hotel network, we have provided a wide range of scenarios and constantly increasing customers. At the same time, we also expanded our third-party online channels. Our sales are both online and offline. And both of these parts have achieved rapid growth.

Channel-wise, apart from leveraging our expanding hotel network as both the consumption scenes and customer traffic sources, we also have been developing online third-party channels. So that driven from both offline and online, these two channels have both been growing very fast. 未来我们也会持续加强在用户洞察和产品研发上的投入,打造更多符合用户需求的高品质的睡眠产品,也不断地持续提升我们的品牌影响力,给消费者提供一流的睡眠体验,能够让越来越多的人可以睡得更好。 In the future, we will continue to strengthen our investment on customer insight and product development to create more high-quality sleep products to offer first-class sleep experiences for our customers and so that we can make more people sleep better. 下面也让寿东给大家介绍一下我们在零售财务方面的一些表现。 Now let me hand it over to Mr. Wang Shoudong to talk about scenario-based retail financials.

Our scenario-based retail business in last year have already reached a revenue of 254 million yuan and already achieved a positive bottom line. And for the first quarter of this year, our scenario-based retail revenue have already reached a milestone of 100 million yuan, and we expect

our whole year revenue will reach above 400 million yuan, with an increase of more than 80% year-on-year, and the profitability will also increase accordingly.

At the same time, with the requirement of IOI and the security of profits, we will also increase the investment in the promotion and expansion of the scene sales brand, ensuring that the profit contribution of the scene sales business to the corporation will increase year-on-year.

Meanwhile, on the basis of stringent requirements on ROI and reasonable profit, we also will increase the investment in branding initiatives and distribution channel extensions to make sure that our scenario-based retails contribution to the group's overall profit will increase year by year.

OK. Operator, any question maybe?

Thank you. That does conclude the question and answer session. I would like to turn the conference back over to Queenie Chin for any additional or closing comments.

Thank you, operator. Thank you everyone once again for joining us today. If you have any further questions, please feel free to contact us. Have a great day. Goodbye.

Thank you. This does conclude the conference for today. Thank you for participating and you may now disconnect.