MINISO Group Holding Limited

Ladies and gentlemen, thank you for standing by and welcome to Minnesota Group Holding Limited Earnings Conference Call for the first quarter of fiscal year 2022 that ended September 13, 2021. At this time, all participants are in a listen-only mode. After the management prepared remarks, we will conduct a question and answer session. Please note this event is being recorded. Now, I'd like to hand the conference over to your host speaker today, Mr. Ethan Zhang, Director of Capital Markets. Please go ahead, Ethan.

Thank you, Manru. Hello, everyone, and thank you all for joining us on today's call. The company has announced its quarterly financial results earlier today, and earnings release is now available on our investor relations website, ir.minsol.com. Today, you will hear from our chairman and CEO, Mr. Jack Guo-Fu Ye, who will start the call with an overview of our business. He will be followed by our CFO, Mr. Stephen Tsai-Ying Zhang, who will address our financial results in more detail before we take your questions. Before continuing, I'd like to refer you to the safe harbor statement in our earnings release, which also applies to this call, as we'll be making forward-looking statements. Please also note that We will discuss non-IFRS measures today, which we have explained and reconciled to the most comparable measures reported on the International Financial Reporting Standard in the company's earnings release and filings with the SEC. With that, I will now turn the call over to Jack. Please go ahead, sir.

Hello, everyone. Welcome to the Financial Reporting Standard 2021 September 930. China has grown by more than 80% in the past seven seasons. China has grown by more than 80% in the past seven seasons. China has grown by more than 80% in the past seven seasons. China has grown by more than 80% in the past seven seasons. In today's phone call, I will follow the guidelines of the brand, domestic and overseas businesses, and whether or not they are suitable for

Thank you. Hello, everyone, and welcome to Minnesota September quarter 2021 earnings conference call. During this quarter, we added 161 stores to our global store network, including 122 Minnesota stores and 39 top toy stores. Revenue reached RMB 2.654 billion, up 28% a year, exceeding the high end of our guidance range. Operating profit was RMB 213.5 million, operating margin of 8% was the highest in recent seven quarters. Adjusting net profit was remaining 184.2 million, up 80% year-over-year. Adjusting net margin of 6.9% was the highest in recent six quarters since the pandemic broke out. In spite of the advent from the resurgences of pandemic, rainstorm disaster and weak consumption data in domestic market in this quarter, we focused on the elements of our business that are within our control. Driving product innovation, enhancing inventory management, improving operating efficiency, and executing our omni-channel strategy. These efforts yield positive results as we kicked off fiscal year 2022. with a solid performance, demonstrating the resilience of our business model and core competitive strengths. On today's call, I'll share major developments we have made in Minnesota brands, domestic operations, international operations, and top toy in this quarter.

First of all, let's look at the performance of Minnesota brands in domestic business. Recently, the development of the domestic epidemic has changed. Starting from the end of July, the spread of the new epidemic has been the most widely spread since March 2020, which has brought a lot of challenges to the offline retail industry and consumer confidence. In this context, the domestic business of Miso's brand achieved a revenue of 18.7 yuan, which increased by 13%. In this respect, the average volume of Miso's stores in Germany increased by 16%.

First, let's start with the operations of our flagship brand, Miniso, in China. Offline retailers and consumer confidence were challenged by the continued spread of the Delta variant nationwide since late July. This regional outbreak was reported as the most widely spread wave since the first quarter of 2020. Despite the shelter in place during this quarter, domestic operations of Minnesota brand recorded a revenue of maybe 1.87 billion, up 13% year over year, driven by a 16% year over year increase in average store count and a 58% year-to-year increase in our e-commerce business.

We continue to pursue a low-end store strategy. New stores are about 80% from three-line sub-cities. As of the end of September, about 330 cities have entered China, including four first-tier cities, 46 second-tier cities, and about 280 three-stories and sub-cities. According to the statistics released by the government, China currently has nearly 2,200 cities, of which 300 are in the city, and nearly 1,900 are in the administrative area. In addition, China currently has 91 cities with a population of more than 5 million, There are more than 10 million people in 18 cities. As China's urbanization continues to advance, these cities will have a lot of new shopping centers open every year. Therefore, although the domestic epidemic will repeat in the short term, there will be no change in the long-term opening space.

Minnesota added 96 stores on a net basis during this quarter and ended September with more than 3,000 stores in China, marking a new milestone in our eight-year history. As we continue to penetrate into more and more tier three and below cities and unlock these new markets, approximately 80% of newly added stores in this quarter were thrown there. By the end of September, the geographic reach of Minnesota's stores spanned across about 330 cities in China, including four Tier 1 cities, 46 Tier 2 cities, and about 280 cities in Tier 3 and below. According to government statistics, there are about 2,200 cities in China, including 300 prefectural-level cities and nearly 1,900 countries. In addition, there are 91 cities in China with populations of more than 5 million and 18 cities with populations of more than 10 million. As China's urbanization continues, there will be a large number of new shopping malls suitable for new Minnesota stores every year. Although resurgences of the pandemic in China could bring short-term pressure, the long-term addressable market in China remains huge.

The success of the all-channel strategy is due to the increased brand power of Misao. User contact and recovery rate. From this year on, we will upgrade the all-channel project into a key project of the company. Relying on the layout of Misao, the whole country is more than 3,000 stores. We cooperate with multiple local living platforms. At the same time, we have a large number of private users. For example, Misao's official small program has more than 6 million active users in September. The number of private users has exceeded 12 million by the end of September. Moving to our online business, revenue from e-commerce was around RMB 186 million, up 58% year-over-year.

Revenue from O2O business was around RMB 90 million, up 126% year-to-year. In total, online business, including e-commerce and O2O, contributed 10% of our revenue. Minso is committed to defending consumer engagement and driving omni-channel experience. We firmly believe that. The success of our omnichannel strategy will help improve Minnesota's brand awareness, user retention, and repurchase. Starting this year, we have enhanced our omnichannel strategy to become a key focus and a growth engine of the company. Supported by our 3,000-plus offline stores nationwide, we have established stable cooperation with the O2O platforms. and accumulated a significant amount of private traffic. Let me give you some examples. Monthly active user of Minnesota's official WeChat Me program surpassed 6 million in late September, and private traffic of Minnesota brands surpassed 12 million by the end of September. In fiscal year 2021, there were a total of about 300 million orders in Minnesota's doors. With that figure in mind, we believe Minnesota's private traffic has huge potential for future growth.

接下来是美国海外业务的恢复情况。 总体来看,930季度海外门店销售情况比上一季度有明显的恢复。 整体GMV达到了2019年恒期的70%左右。 The GMV of the state market returned to 75% in 2019, and the GMV of the state market returned to 50%, which is in the middle of the market. According to the demand of Mexico's sales recovery and overseas dealers, the overall income of the company's overseas business is 6.23 billion yuan, with a growth of 78% and a return of 48%.

Moving to Minnesota's overseas operations, overall sales of Minnesota's overseas stores moved further along the path of recovery in this quarter, with overall GMB recorded to about 70 percent of the same period in 2019. GMV in distributed markets recovered to about 75% of the same period in 2019, and GMV of subsidiary markets recovered to about 50% of the same period in 2019. Revenue generated from international operations was currently 623 million, up 78% year-over-year, and 18% quarter-over-quarter. thanks to the improved sales recovery in important markets, such as Mexico, and restocking by distributors for the upcoming holiday season.

This year, in the 930 quarter, the total number of overseas stores increased by 26 to 1,836. Last year, the total number of stores increased by 8. More than 60% of new stores came from Europe. Our total number of overseas stores reached 1,836 by the end of September with a net opening of 26 new stores during the quarter.

compared to a net opening of eight stores in the same period of 2020. More than 60% of these new stores were located in Europe, Middle East, and North Africa, while sales recovery stabilized during the past several quarters at a level sufficient to support moderate expansion. There were 157 suspended stores in overseas markets by the end of September, down from 205 Water go.

Water go.

Moving to TopToy. During the quarter, we added 39 TopToy stores on a net basis, bringing total TopToy stores to 72 by the end of September, including nine DreamWorks stores and 63 collection stores. More than 90% of TopToy stores are opened by retail partners. With its rapid expansion this quarter, TopToy's revenue increased by 64% sequentially and exceeded RMB 100 million for the first time.

TopToy has insisted on multi-segment development since its inception. Because we always believe that the market is not blinded by the market, it should also include many high-priority segmented products. Only in this way can we satisfy This is one of the reasons why the market is growing. After many years of market education, Chimu has become one of the best in the domestic toy market. Currently, there are a number of excellent Chimu brands in the domestic market. But the market is in the process of commercialization, including channel commercialization, data commercialization, and production commercialization. Therefore, it is not appropriate to combine many Chinese Chimu brands TapToy has been committed to multi-category strategy since day one because we firmly believe that

Art toys should not be limited to blind boxes, and that there should be many other potential categories to meet diversified needs of Generation Z. One such category is toy breaks. After years of consumer education, the toy break category has become one of the most popular categories in China's toy market. Meanwhile, certain promising domestic brands have emerged But the challenge for these young brands is that they are facing a fragmented market in terms of channels, data, and productivity. Top Toy's solution for this problem is the launch of the first-ever Toy Break Festival in China, a major campaign launched by Top Toy together with several domestic brands. by leveraging TopToy's unmatched omni-channel capabilities. This activity combines online and offline channels to increase exposure of toy bricks with Chinese elements and boost sales.

未来我们还计划在TopToy店铺开辟中国积木专区, 并在闷工厂店为中国积木的大型产品提供展示空间, 设置与消费的互动的环节。 We hope to help consumers to have more contact with Chinese machines, to show and convey the charm and value of Chinese machines. The Chinese machine is a unique attempt to use its own all-round ability to complement traditional toy brands. We will continue to enhance the all-round ability of TopToy to reach the core of the store, to create online and offline, to explore more and more potential products to meet the more real needs of consumers.

Going forward, we plan to allocate mod top toy shelves for domestic brands to help them introduce their flagship products, especially in our DreamWorks stores. We also plan to encourage our consumers to engage more with toy brick products embedded with Chinese elements so they can learn more about the value of Chinese toy bricks. This campaign is a good attempt for TopToy to use its omni-channel capabilities to empower traditional toy brands. Going forward, we'll continue to focus on integrating online and offline channels to improve TopToy's omni-channel experience and explore more potential trendy toy categories to effectively meet customer demands.

Recently, we held the first Top Toy Show TTS in Guangzhou, an art toy carnival featuring approximately 200 brands and over 1,000 artists.

This two and a half day festival for art toy fans attracted more than 100,000 of live visits and accumulated 200 million clicks in Douyin and Weibo respectively. DTS was one of the largest art toy exhibitions in China during the second half of 2021. In terms of the scale and number of participating brands, Through this very successful exhibition, TopToy has deepened its customer insights, enhanced consumer retention, and expanded the influence of the TopToy brand.

自由产品开发方面, TopToy持续挖掘和扶持原创设计师。 这个季度推出的大力招签盲盒就是TopToy的国内知名原创设计师共创的一款产品。 销售期间这款产品的销售文具TopToy In terms of TopToy's proprietary products,

We have been continuously discovering talented designers and work with them. Take Dali Zhaocaimao, a co-branding IP as an example. Sales of its new blind box is stabilized within top three SKUs of TopToy during this quarter. TopToy is still in an early stage of building core capabilities and establishing brand awareness. This leaves its merchandise gross margin huge room for improvement. Going forward, we are confident that its gross margin will improve as its operating leverage is gradually released, driven by the expansion of its scale and the maturity of its proprietary IPs and products.

Thank you. That's all for my speech. Next, I'd like to ask the CEO of the company to review the financial performance of this quarter.

This concludes my prepared remarks. I will now turn the call over to our speaker, Steven Zhang, for financial review.

Thank you. Hello, everyone. I will start my remarks with a review of September quarter's financial results and then provide additional color regarding December quarter. Please note that I will be referring to non-IFRS measures, which have excluded share-based compensation expense and certain non-recurring items. Revenue in September quarter was 2.654 billion RMB, increased by 28% year-over-year and 7% quarter-over-quarter, above the high end of the company's guidance range. of 2.45 billion MB to 2.65 billion MB. The year over year increase was primarily driven by the growth of our domestic operations and the recovery of our international operations. revenue generated from our domestic operations was 2.03 billion RMB, increased by 18% year-over-year. Revenue generated from domestic operations of Minnesota brand was 1.87 billion RMB, increased by 13% year-over-year, mainly driven by a year-over-year increase of 16% in average stock count and year-over-year growth of 58% in our e-commerce business. Revenue generated from POPTOY was 109 million MB compared to NEO in the same period of 2020. Revenue generated from our international operations was 623 million MB increased by 78% year-over-year, reflecting improved recovery of sales in certain markets and the restocking by distributors for the upcoming holiday season. From a quarter-over-quarter perspective, revenue from our domestic operations increased by 4%. As you may know that our business is subject to seasonality, typically with a stronger performance in September quarter than in June quarter. For example, Our domestic revenue increased by 16% sequentially in September quarter of 2019, which represented a normalized seasonality before pandemic. Apparently, the weak seasonality in this year was primarily due to the new wave of pandemic from late July. we estimate the GMV loss for those influencer stores in China during this quarter was north of 200 million RMB. Revenue from international operation increased by 18% sequentially. According to National Bureau of Statistics in China, in the first three quarter of 2021, Retail sales of supermarket, convenience stores, department stores, and specialty stores increased by an average of 16% compared to the same period of 2020. On an Apple-to-Apple basis, mini sales groups domestic sales increased by 40% during the same period. demonstrating the resilience in our business model and core capabilities. Gross profit was 728 million RMB, increased by 39% year-over-year and 14% quarter-over-quarter. Gross margin was 27.4%, as compared to 25.2% a year ago and 25.8% a quarter ago. Both of year-over-year and quarter-over-quarter increase in growth margin was primarily related to change of revenue mix. Our more profitable international operation accounted for 24% of our revenue in this quarter, the highest percentage in recent six quarters compared to 17% a year ago and 21% a quarter ago. Selling and distribution expense were 323 million RMB increased by 40% year-over-year and 22% quarter-over-quarter. The year-over-year increase was primarily attributed to increased personnel-related expense, logistic expense, and marketing expense, as with the year-over-year revenue growth and the brand awareness improvement for both Minnesota and the top toy. And to a lesser extent, increased license expense as with the increased revenue contribution from IP products. The quarter-over-quarter increase was primarily attributed to logistic expense and the personnel related expense. G and A expense were 200 million MB increased by 29% year-over-year and 6% quarter-over-quarter. The year-over-year increase was primarily due to increase the personnel-related expense and IT expense for our new initiatives, such as TopToy, partly offset by decreased potential service fee related to our IPO in the same period of 2020. The quarter-over-quarter increase was primarily due to increase the personnel-related expense. Turn into our profitability. Operating profit was 214 million MB compared to a loss of 2 million MB a year ago and a profit of 188 million MB a quarter ago. Operating margin of 8% was the highest in the recent seven quarters. Adjusted net profit was 184 million MB, increased by 80% year-over-year and 27% quarter-over-quarter. Adjusted net margin was 6.9%, the highest in recent six quarters, compared to 4.9% a year ago and 5.9% a quarter ago. Adjusted basic and diluted earnings per ADS were $0.60 IMB in this quarter compared to $0.40 IMB a year ago and $0.48 a quarter ago. Turning to our balance sheet, as of September 30, 2021, The combined balance of our cash equivalents, restricted cash, and other investment was 6.14 billion RMB compared to 6.88 billion RMB as of June 30, 2021. Turning to working capital, turnovers of inventory and trade receivable remain flat sequentially. Looking ahead into December quarter of 2021, we expect our total revenue to be between 2.5 billion RMB to 2.7 billion RMB, which represent an increase of 9% to 18% year over year. Looking ahead, we remain confident in our ability to continue to deliver shareholder value, attracting like-minded stakeholders, and enable our consumer to better enjoy life's little surprise. This concludes our prepared remarks for today. Operator, we are now ready to take questions.

Thank you. We are now beginning the question and answer session. Your first question today comes from the line of Michelle Chen from Goldman Sachs. The line is open. Please go ahead, Michelle.

Thank you. Mr. Ye, Steven, Ethan, can you hear me?

Yes, Michelle.

Hello, thank you for the detailed introduction. I have two questions for you. The first is, I recently saw that the company's layout in the U.S. and the European market seems to be more active. The U.S. seems to have also introduced the Ten Below concept. Can you please share with us your new ideas for overseas strategies? The second question is about IP. Mr. Ye mentioned that TopToy has developed quite well in terms of proprietary IP. Recently, we have also seen that Miniso has adjusted its price in terms of IP. Can you share with us the future strategy of two brands in terms of IP development? Especially in terms of Mingchang, will there be an increase in the proportion of IP products? I have two questions for the management. For the first one is the company has been turning more aggressive expanding in U.S. and European market. In U.S., we are also seeing the new concept like 10 Below. So can management share the strategies regarding the overseas expansion? And my second question is about the IP development. So we are seeing that for mini-cell brands, there are some price adjustments for the IP products. And can management share whether we are aggressively expanding the IP product contribution for mini-cell brands? And for top toy, management just mentioned that the proprietary IP development has been quite successful. So can you share with us what's the outlook and development stage? Thank you.

Okay, let me answer your first question. In October, we opened four T&R-based store in the U.S., three of which are in California and one in Virginia. The company has recently developed some new business plans in the U.S. Based on the recovery of the U.S. store sales in the last three months, the sales were good, and the store sales reached about 90% in 2019. According to our users, local consumers in the U.S. have a large demand for household goods under $10, but have not achieved good satisfaction. As a result, we decided to try this concept. This concept is still in the early stages. We will share more content at the right time.

okay hi michelle this is jack the ceo of minnesota group and thank you very much for questions and for your first questions about our uh you know strategies in the in the u.s market specifically on the 10 under new concept and here's my answer you know we opened or 10 and under concept minstrels in the U.S. in October, three in California, and one in Virginia. And the company now has some recent business development plan in the US market. That is based on our observation that the US market has a relative good recovery in terms of sales in the last consecutive three months. with same scores in the U.S. market in this quarter reaching nearly around 90% compared with the same period in 2019. And in terms of this concept of 10 and under, you are right that according to our customer insights, Local consumers in the United States market, they have a great demand for household products under $10. but their demand is not well met at the moment. So with Minnesota supply chain strains, we decided to give the concept a try. So this 10 and under concept is still in its early stages, and we will definitely share more in due course. Thank you.

AP product price adjustment and subsequent strategy relationship. Now, the company is focusing on the AP product. The company is gradually making some adjustments to the AP product pricing strategy. The current AP product price will be higher than non-AP products. After a period of observation, we found that after the AP product uses a new pricing strategy, the conversion rate is stable in the next generation. The sales value of IP products is currently around 20% to 25%. Compared to Microsoft's large number of non-IP products, we will still insist on providing high-performance products. Microsoft will not become a pure IP store. The third is about TopToy. In the 930 system, TopToy's free product list includes eight SQs, and the 630 system has two more. We expect to reach nearly 100,000% by December. We started to launch a series of one-off co-branded products in the last few weeks, and the one-off features on small programs have received a lot of attention from fans. At present, there are three to four SQs launched every month on small programs. On average, the number of SQs contributed to each SQ is three to four in total. Okay, for your second questions on the company's IP strategy, Michelle, you know, I will introduce

the IP strategy separately for our Minnesota brand and TapToy brand. First for Minnesota brand, the company has recently gradually adjusted our pricing strategy of the newly launched IP products. And the gross profit margin of these newly launched IP products is higher than that of the non-IP products. After a period of observation, we have found that Minnesota's conversion rate and our cross-selling rate remain stable after this new IP pricing strategy was launched. adopted several months ago. And the sales contribution of IP products now is at about 22, 25%. And for Minnesota, the majority of our products is still non-IP products. So we're definitely committed to our value points at this moment. And in terms of top toy, By the end of September, Taptoy has launched a total of eight SKUs for its proprietary products, and two more than that in the quarter of June. So this includes the blind box, as we mentioned in your prepared remarks, blind box. And the second is, you know, the badge blind box of Twinkl. And among which, the blind box series, it sells, well, it sells was quite encouraging and ranked in the top three SKUs in the whole categories of top toy. And for the twinkle badge blind boxes, it was introduced until September 30th. And the gross margin gross margin of our top toys proprietary products now has stabilized about 60%, above 60%. And in September quarter, our proprietary has contributed 5% of total sales of top toy and 50% of them is from our proprietary IP and co-branding IP and another 50% Yeah, respectively. And, you know, We also launched our function in our top toy mini program in last quarter, and it was a huge success and was warmly welcomed by the fans. For example, this mini program, it launched three to four SKUs every month with each of the sales tripled the average sales of top toys. on average. Although products of this Yi Fan Shan have a relatively lower gross margin than ours, but it's turnover is much faster than it can be, that every time it can be nearly sold out within 10 minutes after its launch. Thank you.

Thank you. The next question is from the line of Lucy Yu from Bank of America, Mayor Lynch. Line is open. Please go ahead, Lucy.

Thank you for the opportunity. I'm Lucy. I have two questions about numbers. First, can you share with us the situation in China and overseas since October? And in addition, for the next quarter's revenue forecast of 25 to 27 billion, can you also explain the situation of Chinese overseas and Chao Wan store's revenue forecast? Thank you. So my question is regarding fourth quarter quarter to date sales momentum in both China and the overseas market. And the second question is regarding the guidance for the next quarter of 2.5 to 2.7 billion. And could you please give some breakdown by China overseas as well as TopToy? Thank you.

Okay, let me answer. Let's talk about the situation in October. In October, first of all, at the domestic end, Recently, we have seen that there is still an epidemic in the north, and the impact of this epidemic has spread to about 20 cities overall. But we think that the impact of this epidemic compared to the one in July is still a little bit lower. Of course, because it has spread to many cities, OK.

Hi, Lucy, thank you for your question. This is Steven. I will answer questions about the update of October operations. As you guys may have known that the latest resurgence of the pandemic is reported to be most widely spread with things since March 2020. And, you know, the cold weather event has definitely increased the difficulties for government to control the pandemic. But for Minnesota, we are currently asking that that its influence will be smaller than that of the Nanjing pandemic in late July. So, but considering that it has, you know, spreaded to about 20 provinces. So our best estimate at the moment that there'll be some well between the loss in the Gen B will be somewhere between You know, there may be 15 million of, you know, Guangzhou pandemic in late May, and there may be 200 million of the pandemic in late July. 国外的情况。

At the end of October, the number of stores that have stopped operating overseas has dropped to 118. At the end of September, we mentioned 157. The number of GMVs in October is still increasing. The total number has returned to 70-75% in October 2019. The number of agent countries has returned to 80% in 2019. The number of overseas leading countries has returned to 60% in 2019.

And in terms of overseas market in October, the number of suspended stores by the end of October was 118, compared to, as we mentioned earlier, 157. And in terms of sales recovery, you know, it has absolutely a sequential improvement compared to that of September. And the overall GMV in overseas market has recovered to 70 to 75% of that in the same period of 2019, including 80% recovered in our distributor markets and 60% recovered in our subsidiary markets. Thank you. 第二个问题,关于下一个季度的一个拆解。

In fact, our prediction is mainly to combine the current situation of the recovery of the domestic and foreign epidemics. We expect that the next quarter of the country, the income of 1231 this quarter, will still be affected due to the epidemic we just mentioned. For overseas, traditionally, due to the existence of Christmas, overseas income should exceed domestic. Due to the continuous growth of the store, and the increase in the opening time of the store, we expect that its income will normally increase by three quarters. However, due to the epidemic, we have also made some countermeasures. As a general factor, we will make an income guidance for the next quarter.

So Lucy, for your second question on the revenue guidance, so let me just give you a simple breakdown. Actually, we have made these estimations based on the current recovery and our domestic conditions and overseas operations in terms of December quarter revenue. Absolutely, and our current estimate that it will be pressured by the, you know, the pandemic recovery, especially in the domestic market. In terms of overseas domestic, in terms of overseas operations, traditionally, due to, you know, the holiday season, especially the Christmas, so the... for the overseas market will be stronger sequentially. And for top toy business, you know, because it's numbers, score numbers is kept, has been increasing. And we, you know, this, we call the effective score, that means the score has opened for a while, that is increasing. we estimate that the revenue of Taotui will also improve sequentially. But here, I want to stress that, you know, due to the pandemic, and then precedence in China, and it has some . So based on these factors, we have given this revenue guidance .

Thank you. The next question is from the line of Wenhui Song from CICC. The line is open. Please go ahead, Wenhui.

Hello, can you hear me? Please go ahead. Hi, Mr. Ye and Ms. Zhang. I'm Song Wenhui from Zhongjin. I'd like to ask two questions. The first one is, we saw that in July to October, overseas performance was better. I'd like to ask about the management level for next year, which is 2022, and the expectation of overseas opening. Good evening, management. I have two questions. The first is that we can see that the overseas business improved month by month. So what's your store opening plan for the next year? I mean, 2022. And to what extent can the overseas business to be breakeven or profitable? And the next question is that are the newly opened overseas stores mainly from old franchisees or new franchisees? Thanks.

Let me answer this question. The first question. Traditionally, when the company is ending the calendar year, I will make a detailed summary of the whole year's work. Based on this summary, I will make a specific work plan or budget for the next year or even a longer one in the future. So today, I can't give you a very specific number of stores that will grow next year. But today, we actually have a strong recovery ability that the company has shown in the past few seasons. We are very confident that we can still grow very quickly according to our previous strategy, both domestically and internationally, including the growth of TopToy. We are very confident about this. As for the overseas stores next year, we believe that, especially for some relatively weak areas of epidemic control, OK.

Hi, Wenhui. This is Steven. So I'll answer your first questions. Traditionally, Minnesota will review our whole year performance at the end of calendar year. And based on that review, we will make a detailed working plan or budget for the next year. So as of today, we do not have a specific plan at our mind. But what I want to stress here that Minnesota has listed as a public company for several quarters and from our past performance during the past several quarters, we have shown that our, you know, resilience in our business model and our core capabilities, and that gives the whole management confidence. So we can stick to our, you know, strategy and in both at home and abroad, and this included you know, the rollout and the rapid growth of portfolio. And we are very confident about that. And in terms of, you know, the overseas stores, here's what we think. For those areas that, you know, the COVID is controllable, and maybe in the first half of next year, we will, We do not have the time to make a very rapid development at these areas because the pandemic resurgence will be very harmful to our business in that market. But for those countries and markets that the COVID is well controlled, such as Europe and the U.S., as we have shared earlier, that we have now began some of our business development as we are doing in the U.S. market. Thank you.

As for the second question you asked, which specific countries are mainly operating overseas? Are they agents or are they our leading countries? According to the data from the third quarter, our leading countries have opened more. For example, India has opened six stores this quarter. The U.S. has opened four stores. Indonesia has opened one store. Of course, the partners of our agents are also opening stores. For example, our Spanish agent has opened three stores. Italy has also opened three new stores. Overall, as the epidemic in overseas countries gradually reverses, we believe that in the next few months and the next few months, the countries that support us overseas, or the countries that distribute us, will gradually reach a stage of rapid development as a result of the epidemic.

Hi, Wenhui. This is Steven for a second question about the store opening of overseas markets. In the September quarter, our subsidiary countries, there were some of them have opened a lot of stores. I will give you some examples, such as India. We opened six stores in that. And as we have mentioned earlier, that in the US market, we opened four stores in this quarter. And in Indonesia, we opened one store. Absolutely, our distributor countries, our distributor partners, they are also opening new stores as they did in the past several quarters. For example, Spain, the distributor in Spain opened three stores this quarter. three in Italy. So in general, with the recovery of overseas markets, we have high confidence that in the coming quarters, overseas markets, our distributed partners will gradually recover to a modest expansion.

Thank you. The next question is from the line of Xiaofang Xu from CITIC. The line is open. Please go ahead, Xiaofang.

Hello, Mr. Ye. Hello, Mr. Zhang. Good evening, everyone. I'm Xiaofang Xu from CITIC. I have only one question. I'd like to know more about the top-tribe situation. Can you give us more information about the top-tribe cost, whether it's the cost of the backstage or the cost of the front-end operation? Could you please give us more detailed information about the expenses of TopToy together with the operating expenses and other expenses? When can they make profit on TopToy in the coming half year? a year or it may be need one year or more years. Thank you.

or the supply chain. Therefore, the current cost of TopToy is relatively high. For example, in the past 930 period, the cost of TopToy was around 40 million RMB. TopToy is still a loss, but we believe that with TopToy We have already shared that in the beginning of this year, its product efficiency rate is about 40% from a direct sales point of view. From October, it has reached 45%. We are very confident that it will reach about 50% in the middle of next year. Thank you. Okay. Hi, Xiaofang. Thank you. Thank you for your question. This is...

Hi, Xiaofang. Thank you for your question. This is Stephen. I will answer your questions about the TapToy's margin profile. For TapToy, it's still at its early stage of rapid growth, so we are continuously make some investment of top toy, including its team building, including its marketing to improve its brand awareness, and including in the IP side. If you look at the operating expense ratio of a top toy, it's at a relative high level at this moment. For example, in the past September quarter, the top toys operating expense was about $40 million. And now, absolutely, Taptoe is in a lost status. But we do believe that with the development of Taptoe's scale and the maturity of its proprietary products, Taptoe's merchandise growth margin will improve. As we have shared earlier, at the early of 2021, Apto's merchandise gross margin was about less than 40%, but its merchandise gross margin has reached about 45% by the end of September and at the beginning of October. So we are highly confident that by the mid of next year, its merchandise growth margin can reach as high as 50%. So if we can do that, and based on its development in next year, we do believe that Tapoy can reach breakeven on a monthly basis at some time point in second half of next year. Thank you very much.

Very clear. Thank you.

Thank you once again for joining us today. If you have any further questions, please contact Minnesota Investor Relations team. Our contact information can be found on today's press release. We will see you next quarter. Have a nice day.