MINISO Group Holding Limited

Ladies and gentlemen, thank you for standing by and welcome to Minnesota Group Holding Limited September Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the management's prepared remarks, we will have a question and answer session. Please note this event is being recorded. Now I'd like to hand the conference over to your speaker host today, Mr. Jack Wang, Vice President of ICR and the company's investor relations partner. Please go ahead, Jack.

Thank you, operator. Hello, everyone. Thank you all for joining us on today's call. The company has announced its quarterly financial results earlier today. The earnings release is now available on our investor relations website at ir.minnesot.com. Today, you will hear from our chairman and CEO, Mr. Guo Fuye, who will start the call with an overview of our growth strategies and initiatives. We will be followed by our CFO, Mr. Steven Zhang, who will address our financial results in more detail before we take your questions. Before we continue, I would like to refer you to the Safe Harbor Statement in our earnings press release, which also applies to this call as we will be making forward-looking statements. Please also note that we will discuss non-IFRS measures today, which are more thoroughly explained and reconciled to the most comparable measures reported under the International Financial Reporting Standard in the company's earnings release and filings with the SEC. I will now turn it over to Mr. Ye, Chairman and CEO of Miniso. Please go ahead, sir.

Thank you, Jeff. Hello, everyone, and welcome to Miniso's first earning conference call as a U.S.-based company. This is Stephen Zhang, CEO of Miniso. I will now speak on behalf of our Chairman and CEO, Mr. Guo Fuyi. Despite the disruption caused by the outbreak of COVID-19, we successfully completed our listing on the New York Stock Exchange in 2020. Our transition to a publicly listed company will provide us with the necessary resources to fuel our growth energy, fortify our shareholder base, and ultimately deliver more of our design-led lifestyle products to customers from all over the world. On behalf of everyone here at MISO, I would like to express my gratitude to each and every one of our shareholders for their support of our business model, management team, future growth prospectus. Looking ahead, we remain confident in our ability to continue deliver shareholder value, attracting and enabling all people to better enjoy life's little surprise. Now turning to our quarterly results for the September quarter of 2020. During the period, the progressiveness of the COVID-19 continued to hinder our business growth in overseas markets, especially in Europe and North America. Nevertheless, in spite of this short-term headwind, We remain focused on our long-term goals, fortify our leadership at home, and optimize our sole network. Such effort is a positive result, helping us to not only improve our financial performance on a sequential basis, but also further augment our market share in turn. First, starting with our operation in China. During this quarter, we continue to focus on accelerating the recovery of our domestic business. With the expanding backlog of municipal retail partners that are eager to open and operate municipal stores, we are able to grow the total number of municipal stores in China to 2,633 as of September 30, 2020. from 2,053 as of June 30, 2020. In first and second tier cities, we continue to work diligently to maintain our industry-leading market share, refine our store network in order to further expand our market penetration and broaden our coverage over high tier cities. In addition, we also focus on penetrating low-tier cities during the quarter. So far in 2020, we have organized 14 business development conferences for potential municipal partners in low-tier cities across China. The positive reception we collected from our local retail partners during this event showcases a strong momentum of our partners' interest, which we will leverage to further expand our store network going forward. Now turning to our progress in international funds. During this quarter, the pandemic continued to negatively impact our international operations. As a result, we proactively adjusted our globalization strategy to speed accelerating our overseas store expansion and help our partner to mitigate their risk. The decision not to open more new stores during the pandemic will provide us with more time and resources to analyze the different region markets and we will be able to select the optimal location for new store opening by leveraging this insight once the pandemic is fully contained. Additionally, we also utilize the time to focus on reducing our inventory abroad Although winning down the speed of our overseas extension will delay our growth in short term, we believe that such measure will ultimately lead to more robust growth over the long term. In fact, our global brand influence and strong value proposition are recognized by an increasing number of overseas partners and distributors. During the December quarter, we successfully expanded into five additional countries and regions, bringing the total number of our overseas stores to 1,697 as of September 30, 2020, compared to 1,689 as of June 30, 2020. e-commerce front, we further accelerate the development of our online initiatives to supply and manage our store network in a proven manner. Through our WeChat mini program and other third-party e-commerce platforms, our customers are now able to place product orders which has helped to both decrease user purchasing friction and improve the customer overall shopping experience. The outbreak of COVID-19 in 2020 has highlighted the complementary nature of online and offline sales channels. As such, our e-commerce segment contributed to more than 5% of total revenue, in the same quarter of 2020, compared to less than 2% of our total revenue in the same quarter of 2019. Going forward, we will remain focused on increasing the thickness and repurchase rate of our only channel customers. Lastly, I would also like to provide everyone with an update on our new initiative. As many of you are now aware, we celebrated the launch of our top toy retail store brand today, and the grand opening of our flagship top toy store experienced a blast of food traffic, resulting from a balance of the customer enthusiasm and excitement. Specializing in blind box action figures, And more, PopToy is our new retail store brand dedicated to PopToy. The grand opening of PopToy further demonstrates our platform's capabilities to incubate our business initiatives with strong growth potential. In summary, we achieved solid progress at home as China has successfully eliminated all but the last trace of the COVID-19 virus. Consequently, we further expand our store network coverage across more low-tier cities and further boost our market share leadership in high-tier cities. Internationally, we remain focused on reducing our inventories and helping our overseas partners to mitigate the risk from the resurgence of the pandemic. Meanwhile, our new growth initiatives has also yield encouraging results, and we plan to continue cultivating this initiative going forward. Overall, as we continue to see positive news concerning the vaccine for the COVID-19, we believe that the world of the pandemic is behind us. Our potential growth has illustrated the speed of our recovery, and our efforts over this quarter has laid a solid foundation for us to sustain our growth, fortify our market leadership, and deliver more lasting value to our shareholders over the long term. This concludes the remarks of the CEO, Mr. Ye. Now, as the CFO of Minnesto, I will provide an overview of our September quarter financial results. Before I start, please note that all numbers are in RMB terms, unless otherwise noted. Revenue in the September quarter of 2020 decreased by 30.7% year-over-year to $2.07 billion from $2.99 billion in the same quarter last year. The decline was mainly due to a 70.5% decrease in our revenue generated from the international market as a result of the COVID-19. On a sequential basis, our revenue grew by 33.4% as our strategy to boost our revenue per minute of store and accelerate our store network expansion start to year result. In fact, as our overseas operating continue to recover from the impact of the pandemic, our revenue generated from international market increased by 85.7%. and our revenue per minute sold increased by 31.9% quarter over quarter. Cost of revenue was 1.55 billion compared to 2.05 billion in the same quarter of 2019 and 1.17 billion in the previous quarter. Growth profit was 522.4 million, representing a year-over-year decrease of 44.3% from 937.2 million in the same quarter of 2019, and a sequential increase of 37.7% from 379.4 million in the previous quarter. Additionally, Growth margin was 25.2% compared to 31.4% in the same quarter of 2019 and 24.4% in the previous quarter. The year-over-year decline in growth margin was mainly a result of lower revenue contribution from our overseas business in this quarter, which has a relatively high margin. In addition, we also record an impairment loss of inventory as a result of a decrease in value of personal protective equipment. Other income was 36.0 million compared to 3.1 million in the same quarter last year and 33.7 million in the previous quarter. The year-over-year increase was driven by a sequential amount of government grants that we received in September 2020. Selling and distribution expense was $286.7 million compared to $306.1 million in the same quarter of 2019 and $273.2 million in the previous year. Excluding share-based compensation expense, our selling and distribution expense was $230.4 million compared to $283.5 million in the same quarter of 2019 and $230.1 million in the previous quarter. Due to the impact of the COVID-19, we had a low logistic expense as well as payroll and employee benefits, which results in a year-over-year decrease of our selling and distribution expense during the September quarter of 2020. General and administrative expense was $252.1 million, compared to $212.8 million. in the same quarter of 2019 and $175.9 million in the previous quarter. Excluding share-based compensation expense, our general and administrative expense increased to $155.3 million from $151.4 million in the same quarter of 2019 and $118.4 million in the previous quarter. The year-to-year increase was primarily attributed to the increase in accounting and the legal service fee related to our IPO. Other net loss was $15.7 million compared to other net income of $14.2 million. $8 million in the same quarter last year, and the net income of $18.5 million in the previous quarter due to the appreciation of RMB against the U.S. dollar, which resulted in a net foreign exchange loss. As a result, our operating loss was $2.1 million compared to an operating profit of $426.6 million in the same quarter of 2019 and an operating loss of $29.7 million in the previous quarter. Loss from continued operations was $1.68 billion compared to $20.3 million in the same quarter of 2019 and a $74.6 0.8 million in the previous quarter. Our loss from continued operations in this September quarter of 2020 includes fair value change of paying capital subject to induction and other presidential rights, which is resulting in a quarterly loss of 1.63 billion. Excluding fair value change of paying capital, subject to redemption and other presidential rights, as well as share-based compensation expense, loss from discontinued operating and impairment, loss of non-current assets, our adjusted net profit from continued operations in the September quarter of 2020 was $102.1 million. compared to $402.5 million in the same quarter of 2019 and $42.4 million in the previous quarter. Basic and dilute loss from continual operations per ADS were both 7.08 RMB compared to 0.12 RMB in the same quarter of 2019 and 0.36 MB in the previous quarter. Adjusted basic and dilute net profit per ADS were both MB 0.4 compared to 1.52 MB in same quarter of 2019 and 0.12 MB in the previous quarter. Turning to our balance sheet, as of September 30, 2020, we had a cash and cash equivalent of $2.96 billion. Looking ahead into December quarter of 2020, we expect our revenue to be between $2.2 billion and $2.4 billion. Please note that this is the forecast. reflects our current and preliminary view on the market and the operational conditions, which are subject to change. This concludes our prepared remarks for today. Operators, we are now ready to take questions. Thank you.