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spk00: Hello, everyone.
spk03: Welcome to Minnesota Group Holding Vintage Earnings Conference Call. for the first quarter of fiscal year 2023. Our conference call will begin at 7 a.m. Eastern Time or 8 p.m. Beijing Time. Please update your information with your name and company name in this Zoom meeting so that we can verify your identity. Thank you for your cooperation. Ladies and gentlemen, thank you for standing by and welcome to Minnesota Group Holding Limited Early Conference Call for the first quarter of fiscal year 2023 that ended September 13, 2022. At this time, all participants are in a listen-only mode. After the management will prepare 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, Vice President of Capital Markets. Please go ahead, Ethan. Ethan Zhang Thank you.
spk05: Hello, everyone, and thank you all for joining us. We have announced our quarterly financial results earlier today, and earnings release is now available on our investor relations website at ir.minnesota.com. Joining us today are our founder and CEO, Mr. Jack Yeh, and our CFO, Mr. Stephen Zhang. Before we continue, I'd like to refer you to the safe harbor statement in our earnings press release, which also applies to this call, as we'll be making forward-looking statements. Please also note that we'll discuss non-IFRS financial measures today, which we have explained and reconciled to the most comparable measures reported under international financial reporting standards in the company's earnings release and filings with the US SEC and Hong Kong Stock Exchange. In addition, we have prepared a PowerPoint presentation for today's call, which contains financial and operational information for this quarter. If you are using Zoom meeting, you should be seeing it right now. You can also revisit it on our website later. With that, I will now turn the call over to Mr. Ye. Please go ahead.
spk00: Hello, everyone. Welcome to the 930 quarter financial report call meeting. This quarter, we will take a strong profit performance to achieve the opening of the last year in 2023. Despite the unfavorable factors such as domestic epidemic, disruption, etc., we are still focused on long-term strategic goals, firm and comprehensive. Increase our product strength and optimize our door-to-door network. These efforts have achieved positive results.
spk05: Thank you. Hello, everyone, and welcome to Minnesota Group's earnings call for the 2022 September quarter. We kicked off fiscal year 2023 with an encouraging saddle results, headlined by strong margin performance. In spite of the short-term heavy rains brought by pandemic in China, we remain focused on our long-term strategic goals, delivering on our globalization strategy, bolstering the strengths of our product offerings, and optimizing our store network. These efforts are yielding positive results, and we continue to see our overseas operations move further along the path of recovery, where our margin profile continues to beat expectations.
spk00: As we have repeatedly emphasized in our earnings call over the past several quarters,
spk05: Value retailers are well positioned to weather economic cycles. Our business model has demonstrated great resilience despite the pandemic weighing on our near-term results. During the quarter, we made progress on upgrading means of brand in China and rolling out a portfolio of Vogue products, with gross margins increasing by about 4% year-on-year. We continue to focus on driving the strong recovery of our overseas business. which has recorded 50% year-on-year revenue growth for two consecutive quarters, and now accounts for 33% of our total revenue. Benefiting from these two drivers, our overall gross margin reached 35.7%, a record high for Minnesotan Group.
spk00: Minnesotan Group's global strategy is to ensure that The strategy is to have greater flexibility. In order to ensure that overseas support businesses will not suffer losses, overseas businesses will be able to operate in a more efficient way. Combined with our independent financial area, we will work towards the truth. After the adjustment of this quarter's company, the net profit has risen by 4.17 billion yuan, which is 127% of the total growth. The net profit has risen by 15.1%, which is a record high for the company.
spk05: Minnesota's globalization strategy gives us greater flexibility in dealing with pandemic-related uncertainty in China. Our directly operated overseas business turned profitable during the quarter as we continue to unleash its operating leverage. Combined with our continued progress in cost-cutting, this helps us increase our adjusted net profit by 127% year-on-year, to remain at 417 million in the September quarter. Our adjusted net margin reached its highest level at 15.1 percent.
spk00: Next, I'll talk in more detail about the developments in each business segment during this quarter. Let's start with Minnesota China.
spk05: which recorded a revenue of RMB 1.7 billion this quarter. Revenue from Minnesota China's offline business was RMB 1.54 billion, which represents a 9% year-on-year decrease, but a 20% quarter-over-quarter increase. E-commerce revenue was RMB 163 million, decreasing by 12% year-on-year, yet increasing by 23% quarter-over-quarter. to account for 6% of our total revenue.
spk00: The pandemic that has lasted for three years has brought challenges to the retail industry. But the current policy continues to open up. The difficult times are over. Our main financial accounts and returns are still at the healthiest level. Our profit and loss ratio has basically recovered from the normal situation before the pandemic. In the next step, we will have a close communication with the company to respond to their concerns. We will coordinate with the product team and the operating team to carry out more detailed research and analysis of the local and regional markets. From the product and operation of the two small companies to help the company to improve the electrical industry, we have added nearly 43 high-end products in China. Most of them are in the lower market. In the short term, we will continue to develop and develop
spk05: Over the last three years in China, the pandemic has posed unprecedented challenges to offline retail business. With the ease of pandemic control policies, however, it is important to know that the most difficult times are behind us, and most municipal retail partners are financially stable and generating a high rate of return. Our inventory turnover has also recovered to the normalized pre-COVID level. Going forward, we'll continue to communicate closely with our partners and respond to their concerns in a timely manner. In order to provide our partners with additional support, our product and operations team are conducting detailed research and analysis on different regional markets in China, aiming to help them improve the store performance from both product and operational perspective. During the quarter, we added 43 stores on that basis, most of which were located in lower tier cities. In the near future, we'll adjust our store opening pace based on pandemic dynamics in China to reduce Minnesota Retail Partners operational risk. 接下来来介绍民藏优品海外业务进展情况。
spk00: Moving on to our progress on the international front, revenue for the September quarter was about
spk05: 920 million, representing an increase of almost 50% year-on-year. Revenue from our distributed model increased by 42% year-on-year. Revenue from our directly operated model increased by more than 60% year-on-year. We are delighted to see that overseas markets sustained good recovery momentum during the September quarter, with overall sales increasing by 41 percent a year and nearly recovering to the 2019 pre-COVID level for two consecutive quarters. GMV in our distributed markets increased by 36 percent a year and were above the level from the same period in 2019. GMV in our directly operated markets increased by 64% year-on-year, recovering to the north of 80% of the 2019 pre-COVID level.
spk00: From the central region, the growth rate of 6% of overseas stores and 7% of sales in the North American market is nearly 50% compared to the level in 2019. The growth rate of 6% of overseas stores and 7% of sales in the European market It has increased by nearly 20% in 2021, which is about twice as much as it did in 2001. In the overseas market, it has increased by nearly 40% compared to the 35% in the Latin American market, which is 22% compared to the 30% in the Chinese market. In the overseas market, it has increased by nearly 20% compared to the 30% in the Chinese market. In the overseas market, it has increased by nearly 20% compared to the 30% in the Chinese market. In the overseas market, it has increased by nearly 20% compared to the 30% in the Chinese market. Breaking down by regions, North America, which accounts for 6% of our overseas stores and 7% of sales,
spk05: saw sales growth of nearly 50 percent a year, matching the level from the same period in 2019. Europe, which accounts for 9 percent of stores and 9 percent of sales, saw sales increase by 20 percent a year, doubling the level from the same period in 2019. Latin America, which accounts for 22 percent of stores and 35 percent of sales, increased by nearly 40% year-on-year and 20% from the same period in 2019. Middle East and North Africa, which accounts for 7% of stores and 14% of sales, increased by nearly 20% year-on-year and 50% from the same period in 2019. Asian countries, which accounts for about 50% of our overseas stores and 30% of sales, increased by 70% year-on-year, representing 65% of the level from the same period in 2019. Australia, which accounts for 2% of those of our overseas stores and sales, saw its year-on-year growth of more than three times, recovering to nearly 80% of the level from the same period in 2019.
spk00: Since 2022, overseas countries have been taking measures to eliminate the epidemic. The growth of Mingchang Youping overseas has also been restored and adjusted during the epidemic period, and has risen to a high growth model. This quarter, there will be an increase of 54 stores in the overseas store market, and there will be an increase of 26 stores last year. In addition to accelerating the opening of stores, Mingchang Youping overseas will continue to grow. More商品策略和精细化运营自然必行,
spk05: Since 2022, with many countries have gradually lifted lockdown policies, Minnesota's overseas expansion has shifted from recovery model to growth model. Minnesota added 54 overseas stores on a net basis during the quarter, compared to 26 in the same period last year. In addition to accelerating store expansion, more localized product strategies and sophisticated operations are imperative to our sustainable growth. In our last call, we talked about product strategies. Let me share some details about Minnesota's localized operation this quarter.
spk00: We celebrate Minnesota's 5,000th store in Boston last December. Recently, we celebrated the grand opening of our 2,000th overseas store, which locates in Lyons, France.
spk05: This is truly another milestone in the globalization of Chinese offline retail brands.
spk00: This is truly another milestone in the globalization of Chinese offline retail brands. This is truly another milestone in the globalization of Chinese offline retail brands. This is truly another milestone in the globalization of Chinese offline retail brands. The interior design, product development, and service experience of Li'an Gate are adjusted according to local consumption habits and needs. For example, the gate design is based on the local fans' favorite IP theme, and has many different areas. It provides a more interesting, more personal, and more diverse social environment for local young consumers. At the same time, the price of the gate is specifically set at 1.4 meters. We have to use the ability of the consumer to achieve an unparalleled shopping experience. Finally, relying on the strong supply chain ability, Mingchang Goods provides the French consumers with a series of quality, cost-effectiveness, and design products. This is the luxury product of ordinary consumers, not only is our product also includes the experience of Mingchang shopping and the sense of luxury for life. This is Mingchang Goods, so that every consumer
spk05: We are proud to position Minnesota as a globalized Chinese brand, together with more localized products and operations. And this is going to be a very standard strategy going forward. First of all, in order to promote traditional Chinese culture, the opening ceremony presented a fantastic Chinese line dancing and we plan to keep it for upcoming new stores. Secondly, the decoration, the product display, and service of Lion's Store have been tailored to local consumers' habits. For example, the store's layout is divided into several engaging areas with different IPs, allowing young people with more interesting, more personalized, and more diversified collection in one visit. Meanwhile, The store is wheelchair accessible with shelves spaced 1.4 meters apart for easy navigation. Finally, by leveraging our supply chain capabilities, we have brought quality, affordable, design-led products to French consumers, which are affordable luxuries to them. And it's not just our products, but also the experience of shopping at Minnesota and the comfort that it adds to life. That coincides with MINISO's mission of enabling everyone to enjoy life's deepest prize.
spk00: MINISO will continue to bring more beautiful, fun, and easy-to-use IP products to the global audience. Since the success of G-DEV in China last year, we have recently launched tomato IP products and G-DEV success in Vietnam and overseas markets. Through social media,
spk05: Minnesota will continue to bring more playful, more appealing, and more useful IP products to global fans. Following the success we had in China last winter, we recently launched new Lotso products in overseas markets such as Vietnam with initial success. We have been teasing the Lotso collection and exciting the launch on social media. And on the launch day, Customers flocked to means of stores and quickly filled the retail place. And the shelves were soon cleared. In the following three days, long queues continued to form as enthusiastic shoppers waited for restocking. At one of the stores in Ho Chi Minh, the daily sales broke Vietnamese, the store's history record, on launch day. Overall, the Vietnamese market, the debut of the loss of service drove up sales by nearly two times.
spk00: 接下来为大家介绍TopToy的进展。 本季度TopToy虽然按我们的既定战略继续稳步发展, 季度末会有109个TopToy线下航天, 反比增加12个,其中7个为孟宫航天。
spk05: Next, I would like to provide everyone with an update on top toy. We made significant progress on executing our established strategy for top toy during the quarter. At quarter end, we had 109 top toy offline stores, representing an increase of 37 year-on-year and 12 quarter-over-quarter. Seven of these were DreamWorks stores, and 102 were collection stores. . Merchandise gross margin of TopToy was about 42% in the quarter, a slight increase from the previous quarter. Revenue contribution of proprietary products stabilized at 20% for all channels and over 30% for online channels, with gross margin relatively stable. TopToys Nationals narrowed significantly on a sequential basis as we continue to optimize the business margin profile.
spk00: We have recently launched the first environmental social responsibility and company governance report. From governance structure, internal control, product interests related to green development and social responsibility, we have disclosed the company's relevant information. As a world-renowned enterprise, In addition, ESG information platform is more useful for all interest parties to better understand the value of the company and provide a more useful perspective. In the future, ESG will not only be reflected in the current company strategy, but will also be implemented in real-time business.
spk05: We recently released our first ESG report in which we have disclosed relevant information from governance structure, internal control, products, stakeholders, brain development, and social responsibilities. As a company with global reach, strengthening the disclosure of ESG information provides stakeholders a useful perspective to better understand the value of the company. In the future, ESG will not only be reflected in our strategy, but also be executing our daily operation.
spk00: On November 11th, the National Health and Welfare Commission issued a more precise and scientific epidemic prevention policy. I believe that under the guidance of the government's positive policy, the current population will have a new recovery and development opportunity. We are still optimistic about the company's future income and profit growth.
spk05: On November 11th, China's National Health Commission released a new set of refined pandemic prevention control policies, which are more scientific and more precise. I believe that under the guidance of these new policies, the offline retail industry will see new opportunities for recovery and growth. We remain optimistic about our revenue and profit growth potential. Our profit outlook is based on our long-term confidence in China's economic development. Our steadfast commitment to our vision for the offline retail business and our determination to achieve a truly global reach.
spk00: This is my speech. Now, let me introduce the financial situation of the company.
spk05: This concludes my prepared remarks. I will now turn the call over to our CFO for financial review.
spk04: Hello, everyone. Thank you for joining us today. I will walk you through the financial results of the second quarter. Please be noted that all numbers are in RMB, unless otherwise studied, and I will also refer to some non-IFRS measures which have excluded share-based compensation expenses. Revenue in September quarter reached $2.77 billion, increasing by 5% year-on-year, primarily due to a 48% growth of our revenue from overseas markets, and partly offset by a 9% decrease of revenue from China. Revenue from China was $1.8 billion, including $1.7 billion from Minnesota Brands and $152 million from other businesses, including Top Toys. For Minnesota Brands, the year-on-year revenue decrease was also about 9% in this quarter, primarily due to the pandemic. During the peak summer sales season of July and August, when the pandemic situation was also relatively stable, our GMV in China recovered to 95% of level from the same quarter of last year. With the pandemic resurgence in September, our GMV declined to 80% of last year's level. During the quarter, an average of 2%, 5%, and 7% of stores were unable to operate due to the pandemic in July, August, and September, respectively. Excluding the impacted stores, we estimate that the average sales per store from July to September were about 85%, 90%, and 80% of the period last year, respectively. Revenue from overseas market was $920 million, accounting for 33% of our total revenue. The 48% revenue growth was primarily due to a year-on-year increase of 10% in average stock count and a year-on-year growth of 35% in average revenue per minute sold in overseas market. As we have presented in CEO's speech, we are certain to see strong sales recovery from across the border in overseas markets, which helps a lot to balance our pipeline growth trajectory. On a sequential basis, revenue from overseas markets increased by 17%, primarily due to 3% of store growth and 14% of growth in average revenue per store. Growth profit in September quarter was $989 million, representing an increase of 36% year-on-year. Growth margin was 35.7%, another record high for Meso group, and an increase by more than 800 basis points, from 27.3% in the same quarter of last year. The year-on-year increase was primarily due to three reasons. Number one, the shift of revenue mix. Revenue contribution from overseas markets, which typically has higher gross margin than domestic operations, increased to 33% from 24% a year ago. Number two, we launched a more profitable product in relating to Minnesota's strategic brand upgrade in this quarter. Number three, we have optimized the cost structure of certain products by leveraging our strong supply chain management capabilities. Selling and distribution expenses were $373 million. representing an increase of 16% year-on-year. The increase was primarily attributed to, number one, increase the rental and the related expense. Number two, increase the personnel related expense. Number three, increase the license expense in related to our enlarged IP product offering. and properly offset by reduced promotion and advertisement expense due to our deferred marketing activity in China to tackle the resurgence of COVID-19. General and administrative expense were $163 million, representing an increase of 18% year-on-year. The decrease was primarily due to the decrease of personnel-related expense. Other net income was $64 million, compared to $34 million in the same quarter of last year. Other net income mainly consisted of net foreign exchange gains, investment income from wealth management products and others. The year-on-year increase was mainly attributed to a net foreign exchange gain of 52 million RMB in this quarter, compared to 4 million RMB in the same quarter of 2021. We have experienced a strong U.S. dollar lately, but we are well positioned in dealing with foreign exchange risk related to this because the majority of our sales to overseas markets are settled in US dollar. Turning to profitability, operating profit in the September quarter was $510 million, representing an increase of 139% year-on-year. Operating margin was 18.4% compared to 8% in the same quarter of last year. Adjusted net profit was $417 million, representing an increase of 127% year-on-year. Adjusted net margin was 15.1% compared to 6.9% in the same quarter of last year. Adjusted basic and diluted earnings per ADS was $1.8 million. 36 MB in this quarter, compared to 60 cents in the same quarter of last year, increased by 127% year-over-year. Turning to the cash position, as of September 30, we had a strong cash position of $6 billion. Turning to working capital, turnover of inventories and trade receivables remain stabilized. Looking forward into December quarter, we expect our overseas market will continue to grow strongly. Meanwhile, our margin profile will improve on a year-on-year basis as we successfully execute our brand upgrade, see steady recovery in the overseas market, and a break even on our direct operated overseas business. Our financial strategy will remain disciplined in terms of budgeting, cost controls, and allocation of capital as we focus on consistent delivery of solid financial performance. Thank you, and this concludes our prepared remarks. Operator, we are now ready to take questions.
spk03: Thank you. We will now begin the question and answer session. Your first question today comes from the line of Michelle Chen from Goldman Sachs. Line open, please go ahead.
spk02: Mr. Ye, Stephen, Ethan, hello. First of all, congratulations to the company for having such a good performance in this environment. I would like to ask two questions. The first question is in China. Mr. Ye also mentioned that we need to make some close contacts and cooperation with the joint venture companies. In the past few seasons, the domestic epidemic has been very frequent. Can you share with us whether the cash flow and opening information of the joint venture companies have been affected? How do we see the opening opportunities in the short term and the medium term? When can we see a more normal opening situation? This is the first question about domestic opening. Then the second is about the interest rate. In the past few seasons, it is also obvious to see that the increase in interest rates is actually better than we expected. Now, if we look at the future seasons, how do we look at the space for the interest rate to go up? Overall, the price adjustment strategy, the current progress, and the company's original expectations. I want to say that the interest rate is doing relatively well now. Under the situation, how big is the space to go up? I have two questions here. The first one is regarding the domestic business. Given the volatile sales performance in the past two quarters, can you share with us the retail partners' cash flow and the confidence in opening the stores? So basically, what is the store extension outlook in the short-term versus mid-term? And second question is regarding GP margins. So GP margin expansion has been performing pretty well. So how should we think about the upside for the GP margin, given the brand upgrade strategy has been quite successful? Thank you.
spk00: In the first three seasons of the second year, it was about 6.4%. Last week, the government updated the defense policy and proposed greater restrictions to reduce the impact of the epidemic on economic development. Therefore, the recovery and development of the current retail industry is extremely important. The impact of the epidemic in the short term will continue for a short period of time, but under the guidance of the economic policy background, our store network will continue to grow at a relatively healthy level. The performance of the store will also Okay.
spk05: Thank you. Thank you for the question, Misha. This is Mr. Ye. You know, because of the uncertainty of the pandemic development in China, we have been quite cautious in terms of opening new stores on the current situation. But we also have managed to make sure the store closure rate remained at a relative healthy level for us. Before the pandemic, the normalized store closure rate was about 5% to 6% annually for Minnesota. During the past two years in pandemic, there was some increase, however, around 8% to 9% calendar year 2020, and 7.5% in 2021. And it decreased to 6.4% in the first three quarters of 2022 on an annualized basis. And last week, the government updated its prevention policies to minimize the impact to economic and social development, I think which has played a positive role in the recovery and development of the offline retail industry. In the short term, the impact of the pandemic will continue for ShopWell, but under the guidance of the positive policy background, our store network will continue to grow at a relatively healthy level. In addition, the performance of our stores is expected to be restored. Thank you.
spk00: In terms of the trend and analysis of the net profit, the first is that the net profit of goods has increased by more than 4% compared to the net profit of goods. The second is that the total overseas contribution is 33% this year, and it was 24% last year. The overall net profit of overseas goods is also higher than last year, and the impact on the net profit is about 2%. The domestic product net profit has increased by about 4% compared to last year. Since 2022, Our sales work has achieved significant results. The商品团队系统的梳理了国内和海外近万个SKU, 商品团队系统的梳理了国内和海外近万个SKU, 商品团队系统的梳理了国内和海外近万个SKU, 商品团队系统的梳理了国内和海外近万个SKU, 商品团队系统的梳理了国内和海外近万个SKU, 商品团队系统的梳理了国内和海外近万个SKU, 商品团队系统的梳理了国内和海外近万个SKU, 商品团队系统的梳理了国内和海外近万个SKU,
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