MINISO Group Holding Limited

in 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 and fiscal year. If you are using Zoom meetings, you should be seeing it right now. You can also revisit it on our IR website later. Now, I would like to hand the conference over to Mr. Ye, and Mr. Zhang will translate for Mr. Ye. Please go ahead, sir.

Hello, everyone. Welcome to this financial news conference. This quarter, the overall performance of the company has improved. It has achieved historical breakthroughs in terms of revenue and profit. The first breakthrough of 3.4 billion yuan in revenue reached 32.5 billion yuan, which is 40% of the net profit. The net profit reached 39.8%, which increased by 6.5%. Hello, everyone, and welcome to our earnings conference call. Our overall performance once again reached new heights as we achieved big breakthroughs in both revenue and profitability.

Total revenues exceeded the 3 billion milestone for the first time, increasing by 40% year-over-year to 3.25 billion. GDP margin reached 9.8%, an increase of 6.5 percentage points year-over-year. Adjusted net profit surpassed 570 million, increasing by 156%. Adjusted net margin also hit a new high reaching 17.6%, an increase of 8 percentage points year-over-year.

Now I'll walk you through business updates for our three major segments, Minnesota China, Minnesota Overseas, and Top Toil. In the 630 system, which is full of challenges in the global consumer environment, China's domestic business has shown a very positive and strong toughness. The current sales have increased by about 40%. According to national statistics, the domestic product sales have increased by 10%. On a single chain, the average order volume has increased by 18%.

Minus China should resilience despite the challenging consumption environment. Offline sales of Minus China achieved 40% year-to-year growth in this quarter, whereas according to the National Bureau of Statistics China, domestic retail sales increased by only 10%. Average transaction volume increased by 18%. while average transaction value increased by more than 5% year-over-year.

Entering July, nearly one-third of Minnesota stores in China achieved new sales records, marking a strong start to the September quarter.

GMV increased by over 25% EU-EU, with GMV per store increasing by 14%. Average transaction volume and average transaction value increased by 10% and 3%, respectively. For the first seven months of 2023, GMV per store in China recovered to 2021 level, and around 85% of pre-COVID level in the same period of 2019 in line with our expectations at the beginning of the year. Notably, we opened a total of 221 new stores on net basis in China during the quarter, including more than 90 new stores in Tier 1 and Tier 2 cities. This not only set a quarterly record for store openings for Minnesota, but also represents the highest quarterly new store openings in Tier 1 and Tier 2 cities since the pandemic. Meanwhile, store closure rate in this quarter was only 1.0% below historical average. 开店数和关店数一高一低的背后, 反映的是加盟商很强的开店信心。 到6月末,NITO品牌加盟商超过1000个, 前50大加盟商门店数量,

More than 50% of the top 50 suppliers have 40 partnerships with companies that have maintained more than six years of cooperation. Of the more than four industries, more than 50 top suppliers have added more than 50% of the number of stores. They have an average of 27 stores in total. Our department has grown by 33. With the decline of Chinese stores, we are not only attracting more new suppliers, but the number of suppliers has always increased by 754 in early 2002. We are confident that we can achieve the target of 350 to 450 stores in China, and we are also confident that we can further expand our stores in all levels in China. Our initial plan is to increase our stores to 3,325 stores in China in 2022 and to 5,000 stores in China by the end of 2027.

What these two signs in store opening and closing reflect is the high confidence of our retail partners. As of June, Minnesota Brand had over 1,000 Minnesota retail partners with nearly 50% of stores owned by top 50 franchisees. Among them, 40 have been cooperating with us for more than six years. In the past four fiscal years, About 50% of new stores in China are owned by our top 50 partners. The average number of stores owned by them increased steadily from 27 to 33. We have been recruiting new partners as our store network penetrates into larger cities. The total number of retail partners increased from 754 at the beginning of 2020 to 1,022 as of now. We are highly confident that we will achieve our target of opening 350 to 450 stores in China on a net basis in 2023. We are also optimistic that we'll be able to expand our network in different tier cities across China. We now expect to have about 5,000 stores in China by 2027, compared to 3,325 stores we had at the end of 2022.

Next, let me introduce the progress of overseas businesses. First of all, the overall revenue of overseas businesses is 11.1 billion yuan. Last year, it rose by 42% above the high-end price. It exceeded our previous most widespread expectation. It also refreshed the historical record of overseas business 630. Especially, the revenue of the operating market rose by 85%. The revenue of the operating market is over 45% compared to the foreign revenue. Last year, it rose by about 35%.

Let's move on to overseas. Firstly, revenue was 1.11 billion. A 42% year-over-year increase from the high base of last year, exceeding even our most optimistic expectations and setting a new record June quarter. Revenue from directly operated markets increased by 85%, accounting for more than 45% of our overseas revenue up from 35% in the same period last year. 其次是海外GMV成比增长41%, 其中指引市场成比增长69%, 代理市场成比增长32%, 整体来看, 海外单件GMV成比增长超过了35%, 平均门店数增加了11%左右, 主要海外市场仍然保持了GMV高势增长, 其中北美区域成比增长达到106%, 拉美市场, Secondly, GMV in overseas markets increased by 41% year-to-year, including a 69% growth in directly operated markets and a 32% growth in distributed markets. Overall, GMV per store in overseas markets increased by over 25% year-to-year, and registered accounting increased by about 11%. Major overseas markets maintain rapid growth momentum, including 106% growth in North America and 46% growth in Latin America. 第三,本季度海外单店GMV整体恢复到2019年, 同期92%的水平。 相比上个季度,77%和去年同期68%, 68%有了长足进步。 其中代理市场,

The single-seater GMV has returned to 95% in 2019. The direct market has returned to 85%. From the major markets overseas, North America's single-seater GMV has reached nearly double in 2019. The three markets, Latin America, Europe, China and North Africa, have returned to about 90%. Asia's single-seater has returned to about 65% and has reached the highest level since the pandemic. And it is still in the process of returning.

Sir, overseas GMV per store in the June quarter recovered to 92% of the same period in 2019. This is significantly higher than the 77% and 68% recovery rate we saw in the previous quarter and the same period of last year. The distributed markets recovered to 95% pre-COVID levels, while the DTC market recovered to 85%. In our top five overseas markets, GMV per store in North America was nearly twice the same period in 2019. GMV per store in Latin America, Europe, Middle East, and North Africa all recovered to about 90% of 2019 levels. Asian markets recovered to about 65%, which was the highest we have seen since the pandemic, and the recovery is still very fast.

From this country's point of view, Country-wise,

GMV per store in Mexico is 10% higher than pre-COVID level. In the first half of 2023, 4,000 new SKUs were launched in Mexico and became a major driver of its local sales. GMV per store in the U.S. was twice the pre-COVID level since the grand opening of our first global flagship store at Times Square on May 20th. It has consistently been setting new sales records. Fourth, profit margin of overseas business is substantially improving thanks to the operating leverage. In this quarter, overseas markets contributed more than 40% of total operating profit, meaningfully higher than approximately 25% in the last quarter. Margin expansion was especially apparent in U.S. markets. along with a rapid revenue growth and refined unit economics. About 9% of our stores there was already profitable in June, significantly driving up the operating profit margin for overseas directly operated markets.

In June 2023, the overseas market rose 72% and in the second half of the year, the overseas opening and sales went up. The recent overseas opening has significantly increased.

In the first half of 2023, 72 new stores will open in overseas markets on a net basis. The second half of calendar year tends to be a big season for store opening and sales. Recently, store opening have accelerated. In July, we added 38 overseas stores. We are still positive with the target of 350 to 450 addition in overseas markets in 2023.

Since the beginning of this year, I have spent the majority of my time in overseas markets.

During this period, I had a lot of deep thinking about the Minnesota value proposition, and I'd like to take this opportunity today to share with you. In the past 10 years since our inception, Minsol leveraged China's unmatched supply chains. We used to position our products as three highs and three lows, meaning high appealing, high quality, and high frequency, and low cost, low market, and low prices. We relied on this cost of leadership strategy for a very rapid growth.

This year is the first year of Minsol's brand growth. The value of Mingchao is becoming more and more clear in my mind. Facing the new changes and new trends in China and abroad, relying on the cost priority, only relying on the cost priority will no longer adapt to the new competitive pattern. We need to participate in the global process in terms of cost priority and product optimization. So we proposed to upgrade the brand positioning of Mingchao to the IP design. How to understand this positioning?

2023 marks the first year of MinSource's brand upgrade. Its value proposition has never been clearer in my mind. Facing new changes and new trends both at home and abroad, we cannot survive by relying solely on cost advantages. In addition to that, we also need to differentiate our product offerings as much as we can to engage in global competition. So I have renewed Minnesota's brand positioning to a global value retailer offering livestock products featuring IP design. So how should we think about this positioning? The first message I want to deliver is that we attach great importance to the design of every single product. We have developed a lot of trendy lifestyle products that resonate with young consumers by focusing on creating more interest-driven contents. just like Nike has been doing in promoting better design in sportswear.

进一步看,美商优品应该像迪士尼一样持续地产出优质的AP作品, 以AP设计为特色,让生活好物更加时尚潮流, 利用需求到比产品设计,做到AP联名产品, 人物我有,人有我优的,持续设计出,

In addition to that, we should become IP powerhouse such as Disney and make lifestyle products more fashion by featuring IPs. By leveraging consumer demand to guide product design, we can always develop products that are truly unique or are believed to offer more value than similar IP products. Only in this way can we continuously design best-selling products that also resonate with our consumers. We are now cooperating with 80 IP licenses, compared to 17 when we listed in the US three years ago. Take the recent Blockbuster Barbie series as an example. A half of related SKUs we had in stock were sold out within the first five days of launch. The collaboration generated immense buzz on social media platforms, including Xiaohongshu, while related topics received over 13 million comments, as well as Weibo, while the topic accumulated nearly 300 million views, as it became another phenomenal article branding event for us.

Thirdly, Shilun insisted that the basic product of Xinjia is not different. Mingtao Youping is a happy philosophy for business. China's high-performance consumer chain has accumulated design capabilities and resources over the past 10 years. Ninsheng Youping has introduced new products with good prices to the whole world. With good prices, we can make good companies and create good brands. This kind of value is in the global economy.

Third, we will stick to value for money proposition. Minnesota believes in our happy philosophy as we offer creative and high-quality products to global consumers at affordable price. This is in line with our commitment to make it easy for consumers to enjoy a happy and quality life. Leveraging China's efficient supply chain and design capabilities we have accumulated, during the past 10 years. Minnesota is able to offer global consumers budget-friendly products and build our customer-friendly image. This value for money proposition enables us to create advantages in navigating through economic cycles.

We clearly have two major product strategies in the overseas market. Globalization strategy and AP strategy. We have to do two innovations. One is product innovation. One is design innovation. These two innovations are not only aimed at the concept of good-looking, fun, and useful products, but also bring more emotional value to consumers. Therefore, we have finalized the super-parameter of large cosmetics, large toys, and large IP in these three areas. Since this year, Samsung, AP,

We have identified two product strategies for overseas markets, globalization and IP strategy. To accomplish these two strategies successfully, we need to consistently drive product and design innovations. That means we need to offer emotional resonance with consumers by providing good-looking, fun, and useful products, among which we believe three categories will be key to our success. These are big beauties, big toys, and big IP products. In this year, perfumes, IP-related flash toys, and IP-related blind boxes acted as our killer categories. and have generated explosive growth in overseas markets, opening up new avenues for our future growth.

In addition, we must actively try to build a super power station. I believe that only a super power station can build a strong impression on the brand in terms of consumption, and create a great business. For example, the recent opening of Guangzhou Beijing Road Enterprise has released a record of Chinese power stations that have been in service for several years. This sales platform Lastly, we'll implement superstore strategy

I believe super stores play a key role in growing mindshare among consumers and strengthening our brand as they contribute to larger sales. For example, our recently opened flagship store on Beijing Road of Guangzhou refreshed the sales record of single store in China for years. This is particularly impressive given ongoing weakness of consumption in China, in particular The opening performance of Times Square flagship store was unbelievably strong and it has upgraded our understanding of our business, including for me and the whole management team. It helped us have a better understanding of the market potential in the U.S. and strengthened our confidence in further developing and making investments there. The superstore concept is potentially a new path towards improving personal sales for us.

Now, let me brief you on recent developments from top four. Hopefully, revenue increased by 81% every year, with an increase of 46% every year in personal sales.

an increase of 24% of average stock count.

TopoToy will enter the high-quality growth stage. Since this quarter, TopoToy's product structure has continued to optimize. It has sold nearly one-third of its products. You should remember that one-third of its exclusive products are exactly what I set my goal two years ago. This quarter, TopoToy's product margin has increased by 5%, which is more than 46%. I believe that high-quality growth is just ahead of us. In the June quarter, TopToy's product mix has been optimized.

as our exclusive products accounted for one-third of total sales, reaching the goal we set about two years ago. Merchandise GP margins was about 46 percent, five percentage points higher than the same period last year. Accounting GP margins continued to increase to a comparable level with China one year ago. This is a reasonable comparison as those business employees and analog business model Well, we mainly attract partners to invest in stores. So when sales reach a certain scale, operational leverage will kick in and drive our profit.

Another time to call over to Ethan for a review of our financial performance in June quarter and fiscal year 23. Thank you, Jack.

Hello, everyone. Thank you again for joining us today. I walk you through our financial results for the June quarter. Please note that all numbers are in RMB unless otherwise stated. And I will also refer to some non-IFRS measures, which have excluded share-based compensation expenses. Revenue is $3.25 billion, representing an increase of 40% a year. Revenue from China was $2.14 billion, up 39% year-over-year. The increase was driven by a growth of 42% in revenue from Minnesota's offline stores and the growth of 81% in revenue from TopToy. The 42% year-over-year growth of Minnesota offline business was the result of a 9% growth in average store count and a 31% of growth in personal sales. However, on a more comparable basis, personal sales increased by about 25%, excluding the impact of store closure last year. The 81% EOU growth of TopToy was a result of 24% growth in average store count and a 46% growth in personal sales. On a more comparable basis, personal sales increased by about 30%, excluding the impact of store closure last year. Revenue from overseas markets was 1.11 billion, up 42% year-over-year, driven by an increase of 11% in average store count and a growth of about 28% in average revenue per minister's store in overseas markets. Revenue from distributed markets was about 609 million, an increase of about 20% year-over-year. Revenue from directly operated markets was about $506 million, an increase of about 85% year-over-year, accounting for 45% of overseas revenue, as compared to 35% last year. For the fiscal year 2023, revenue was $11.5 billion, up 14% year-over-year. Of this, revenue from overseas markets was about $3.82 billion, up 45% year-over-year. Gross profit in the June quarter was 1.3 billion, up 68% year-over-year. Gross margin was 39.8%, compared to 33.3% in the same period of last year. The year-over-year increase was due to three reasons. One, GDP margin in China increased by about six percentage points, thanks to our continuous effort in brand upgrade. Two, GP margin in overseas markets increased by another six percentage points thanks to product optimization and higher revenue contribution from directly operated markets. And three, GP margin of top toy increased by 10 percentage points due to product optimization. SG&A expense as a percentage of revenue was 19%, down from 22.7% in the same period of last year. Selling and distribution expense was about $458 million, increased by 33% every year, driven by, one, increased IP licensing expenses, number two, increased personnel-related expenses, and number three, increased marketing expenses, mainly in connection with our strategic brand upgrade of Minnesota in China. Going forward, we will continue to see marketing expense increase for a while, but we are highly confident to make sure the total SG&A expense maintained at a reasonable and controllable level of revenue. G&A expense was $161 million, decreasing by 10% year over year. Turning to profitability, operating profit was $690 million, increasing by 154%. Operating margin in this quarter was 22%, the first time ever for us to reach such a high level. For fiscal year 2023, operating margin has reached nearly 20% too. Adjusted net profit in this quarter was $571 million, increasing by 156% year-over-year. For full fiscal year, adjusted net profit was about $1.85 billion, up 155% year-over-year. Adjusted net margin in this quarter was 17.6%, compared to 9.6% in the same period of 2022. For fiscal year, adjusted net margin was 16.1%, compared to 7.2% in last year. As of June 30, 2023, we had a strong cash position of $7.3 billion. compared to RMB 5.8 billion one year ago. Turning to capital allocation strategy, we have established a dividend policy of paying out no less than 50% of adjusted net profit in the future. For fiscal year 2023, the board of directors approved a cash dividend in a month of 0.412 US dollar per ADS. about 50% of our adjusted EPS of 0.81. The aggregate amount of cash to be paid is approximately 128.5 million US dollars or 931.7 million RMB. Minnesota aims to be a world-class company. Our capital allocation strategy in the future will balance new growth opportunities and our commitment to bring they will return to shareholders. So June quarter has witnessed too many breakthroughs and new hits in each major aspect of our operations. Looking forward into the September quarter, we expect our sales will continue to grow strongly on a year-over-year basis, driven by better store level performance and store network expansion. Meanwhile, our margin profile will continue to optimize on a year-over-year basis. Thank you. And this concludes our prepared remarks. We are now ready to take questions.

Thank you, sir. The first question today comes from the lines of Michelle Chen from Goldman Sachs. Line is open. Please go ahead.

Hello, Mr. Ye. First of all, congratulations to the company for having a very good performance. I have three questions to ask. The first question is about IP. The performance of IP is very good this year. Mr. Ye mentioned that these IP strategies are a center of development for the future. Can you share more about the sales contribution of these IP-related products this year? Is there a goal in the future, which is the contribution of IP-related products? In addition, in some strategies and cooperation modes, when we cooperate with IP partners, the market is different. This is the first question about IP. The second question is about the domestic market. The overall GNV of the domestic market and the expansion of the door stores are doing very well. However, we can see that the GNV of the single store has a gap of about 15 points compared to the 2019 epidemic. We understand that the overall domestic consumption recovery is still very slow. In this environment, are there any other new strategies to further drive the recovery of single-storey sales to the level before the epidemic? This is the second question. The third question, I would like to ask Ethan about the OP margin. In fact, overseas, we have mentioned that sales have reached about 35% of the group, but OP has reached about 40%. Can you share with us the difference in the profit and loss mode, or the source of progress in the past? How do you look at the space of the overseas margin in the future? These are my three questions. I have three questions. First two is for Mr. Yan. The first one is the IT performance has been very strong this year. Can you share with the sales contribution for IT products this year and whether we have any target for the future? Regarding the cooperation method with partners, is there any difference between the domestic market and also the overseas market? And my second question is about the China per store GMB upside. Given it's still around 15% gap versus pre-COVID level, and do we have any specific strategies to drive further improvement? And third question is about the OP margin for overseas. And this quarter, we have 35% revenue from overseas and 40% contribution from operating profits for overseas business. So can you share with us what is the drivers for DTC and also the distributor model? And how do we think about the margin upside for the overseas business? Thank you. Okay.

First, thank you for your question. In the future, the development strategy of AP We want to continue to expand the AP authorization cooperation, which has global influence and is in line with the direction of brand promotion. Especially in the overseas market, we continue to deepen the development strategy of large APs. We continue to look for those global APs, including APs with influence in local countries in each overseas country. This is also the focus of our cooperation and development. The consumption and contribution of AP-related products is not our clear goal. China China China China China China China China China The way we cooperate with IP is the same in the foreign market and domestic market. We found that the biggest IP in the world is the American IP and the Japanese IP. They are very influential all over the world. So, Mingtaoyuping and all the other IP partners are doing a lot of work Michelle, thank you for your first question. So we will continue to continue to enlarge our cooperation with strong IPs with global influence and in line with our

strategic direction of brand upgrade and will be helpful in expanding our sales. Specifically in overseas markets, we will stick to our big IP product strategy and we will continue to fund the strong IPs in each important market we are in and that will be one of our focus too. For the target of IP sales, we do not have specific numbers at this moment. But my personal estimate is that in the near future, it will be stabilized at about 25 percent to 30 percent. In the first half, the IP contribution was about 25 percent, about one percentage point higher than the same period last year. But compared to 2019, it has been 10 percentage higher. And I would say, at least for a while, the percentage contribution will be 25% to 30%. But in the future, we will dynamically change the contribution from IP based on the market change. And there is no significant difference between our cooperation model in China and overseas market. We specifically found that IPs in the US or from Japanese has global appealing among our customers. And we will cooperate with our IP licenses in terms of product authorization, in terms of marketing, in terms of shopping experience and store experience and in all these aspects. We will leverage IP to empower us in terms of branding power and product power. Thank you.

You can see that with the continued work of Mingchao's brand promotion, we continue to promote large-scale strategy. As of the end of June, the average area of Mingchao's products in China is 180 bottles. This number has been stable for the past few years. But with the improvement of our brand power and product power, in order to create conditions for large-scale strategy, I just shared that only super-stable stores can build strong brand impressions in the mind of consumers, and large-scale businesses can create large-scale businesses. At the same time, through the opening of major stores, the sacrifice of single-store performance is also our active, active European and American advanced retail companies' experience to make this judgment. In the last hundred years, we have opened a group of major stores with a market share, such as Guangzhou Beijing Road, Chengde Chongqing Road, etc. Currently, we have about 100 major stores in our store combination. In general, the number of stores that have opened are twice as many as ordinary stores. In the first six months of 2023, these major stores showed very good single-store performance. In average, the sales of single stores In terms of the second question, you are right that with the progress of our brand upgrade, we will stick to our big store strategy or flagship store strategy.

By the end of June, the average store size of Minnesota China Store is about 180 square meters, and this number has been stabilized during the past several years. But with the improvement of our branding power and our product, it has created some preconditions of our big stores opening. As I shared earlier, Only by opening big stores can we increase our mindshare among our customers as these big stores contribute to larger sales. And by opening big stores or flagship stores, it's also a common experience that we have learned from the big retailers, the advanced retailers from European countries and the U.S., In the first six months, we have opened dozens of big stores that have demonstration effect. For example, the flagship stores of Beijing Road and the Trans-Shi Road. Now, in our store portfolio, we have about 100 flagship stores or big stores, large stores. On average, the initial capex is about two times of ordinary stores. In the first six months, the personal sales have been very great of these big stores because they are, you know, personal sales is three times of that of ordinary stores with ASP 7% higher and the inventory turnover days with inventory turnover days of about 30 days. It's about 20 days less than the ordinary stores. So in general, In terms of ROI and payback, these large stores will be far better than ordinary stores. And Michelle, this is about your third question about the OP margin of improvement. I think, first of all, you have to know that this percentage, you know, OP margin contribution is the one before the allocation of, you know, headquarter overheads. because there's always some overheads in headquarters that is allocatable to HPU. And for the OP margin of overseas business, I would say now, currently, it's between the 22% of the group level and about nearly 30% of Minnesota China. It's between them. I would say Whenever the OP margin of overseas business is above the average, the group level, its profit contribution will be higher than its revenue contribution. And if you look at the comparison between this quarter and last quarter, I would say the source from the improvement is mainly from the operating leverage. If we look at the expense structure in both directly operating markets and the distributor markets in this quarter. We will see that the expense ratio, the OPEX ratio, you know, they decreased about, you know, several percentage points compared to last quarter. So, in general, the OP margin of overseas market in this quarter has improved by about five percentage points on a quarter over quarter basis. And the last point I would add is, I'm saying it's not the first time that we have seen OK margin contribution of overseas markets surpassed 40%. As we shared earlier, before the pandemic, when the overseas market contributed about 35 or nearly 40% revenue contribution, then we already saw a nearly 40% or over 40% of margin contribution. And I would say because the directly operating markets of our overseas business is still picking up operational leverage. So the overall profit contribution from overseas market, I would say you will not surprised to see it will fluctuate for a while.

Thank you.

Thank you. The next question is from the lines of Anne Ling from Jefferies. Line is open. Please go ahead.

Hello, can you hear me? Yes, we can. Okay, thank you. I still have a follow-up question, which is also about our major stores. I see that our current branch only has about 15 stores, right? If this is a big store, is it still a model of the franchise? If so, is there any difference in the proportion of our division? And then in the future, we have a goal of how many big stores do we want to open? How many big stores do we have in that 350 to 400 plus stores? Whether it's domestic or foreign, this is my first question. My first question is on the superstore strategy. Just a follow-up question. regarding whether we will be opening self-owned superstore or how many of these stores in the future will be operated by the franchise? And in the future, what is our target for these superstore in our 300 to 400 you know, store opening for this year for both China as well as for the overseas market. And the second question is coming out from, it's actually for the U.S. market. How much of the sales contribution is it, you know, from the U.S., you know, as a percentage from the overseas sales? And in terms of the store performance, How different is it so far versus the China market? I remember that in the past, and it's been gradually building up, which in the future will help drive the sales as well as the profitability.

We will continue to open large stores. In the future, we will I hope that in China, we will open 500 major stores in every district and every social city. There are no standards for companies to open major stores. There may be some companies that open and some companies that don't. Yes, this is us. Because we will be in every global, every country, every market, we have to set up a major store strategy to build the brand's height through major stores. They can be one. Yet you're going to do it. But I'm going to talk to you. But I gave me a good job. You want to get food. Get a good job. So what would it be? I'm going to tell me what I'm going to tell me. I'm going to tell you what I'm going to tell you what I'm going to tell you what I'm going to tell you what I'm going to tell you what I'm going to tell you what I'm going to tell you. Thank you.

For your first question about the large store strategy, I say we'll stick to this strategy. In my design, we have a blueprint that in the future, we do believe that each city or each provincial city in China has a flagship store that represents Minnesota's brand image. So my best guess is we should have 500 such stores. And there's no such thing that this store should be directly operated or franchisee operated. the first and foremost important thing is we should fund the optimal location. And we will suggest every of our Minnesota's overseas markets to open, you know, suitable flagship stores. Because, as I said, the big store strategy is critical for our future success because it can bring our It brings Minnesota's brand image and our store performance to a new height. And it will also have a demonstration effect for its peer stores among the same markets. So, for example, in the U.S. markets, our flagship stores there, you know, we can deliver like, you know, 1.3 to 1.4 million sales record. And for our, you know, Guangzhou, Beijing Road flagship stores, we may have, you know, 5 million sales per month. And all these are new sales records for Minnesota Universe. And for a second question about the U.S. market specifically, I'll say the U.S. market for the past three quarters, it has two quarters ranked the first amongst revenue contribution in overseas market. And in June quarter, it's the second largest in terms of revenue contribution. And its revenue contribution of our overseas market is high teens. And its revenue contribution of our total sales is like mid-single digits during the past several quarters. And you are right that we have a lot of potential in terms of store operations, in terms of product optimizations, in terms of unit economics in the U.S. in the near term. And as I shared in our prepared remarks, the unit economics of the U.S. stores has been improved a lot. For example, the OPEX ratio of U.S. stores during the past 12 months decreased by about 20 percentage points. And that is one big thing that turned this business into a profitable one. Thank you.

Thank you. Thank you. The next question is from the line of the CEO from Bank of America, Marine Lynch. The line is open. Please go ahead.

Thank you for the opportunity. Hello, Mr. Ye. I'm Lucy from Maine. I have two questions. First, we also mentioned in the announcement that China's opening target in 2027 is 5,000 homes. I want to ask, in terms of layout, which kind of market will we focus on? In addition, there is more room for imagination overseas. Do we have an overseas mid-term opening plan? And which countries will the new stores be distributed in? This is the first opening question. The second is that investors are now very concerned that after the epidemic is over, we have an advantage in Chinese stores, including the specific price of the stores, and some categories of operating costs, including the current capital recovery period. Can you share this? Thank you. So there has been mentioned in the announcement that China is targeting for 5,000 stores in 2027. So what's the allocation or geography allocation of those new stores? And do we have any mid-term plan for the overseas market, which may have greater potential in the long term? And the second one is on the China store unit economics post-COVID. So what's the detailed GP margin of the expense breaking down as well as payback period. Thank you.

Thank you. Okay, thank you, Lucy.

For the first question about the store opening potential, in China, our target is to have 5,000 stores by year end of 2027. We have strong track record, and we have high confidence to achieve that goal. And in terms of our overseas potential, I would say from my perspective, we do not have any worry or concern about the store opening in the overseas market for at least the next 10 years. My personal observation in this year, I have spent a lot of time in the overseas market, is that in a lot of countries in the overseas market, we can open at least one Minnesota store for each 100,000 people in overseas markets. And this is for your second question about the payback of the domestic stores. We strongly believe that the payback period for most of our franchisees has been shortened during the past several months. There are several reasons. The first is our better store performance during the the first half of this year. And the second reason is the optimization of their expense structures, i.e. the rent level decreased, the staffing costs optimized, and there are other, you know, savings in their costs too. So I'll estimate that our, you know, franchisees average, their margin profile has improved significantly compared to, you know, one year ago, two year ago. especially in Tier 1 cities. In this year, we have observed that in Tier 1 cities, our Minnesota stores, their sales per store increased by 30%, more than 30% on year-over-year basis. It's higher than 20% of the average year-over-year growth. And for the new stores in Tier 1 cities in this year, we observed that their average rent level has decreased by a single digit compared to the last three years. As Misty just shared, in the first half, we have opened a batch of demonstrated big stores. So the big stores, their average payback period is far, far less than the ordinary stores. So I would say As my last point to your question, that the big stores will also help increase the ROI of our franchisees. Thank you.

Thank you, Mr. Ye. Thank you, Ethan.

Thank you.

Thank you. The next question is from the line of Samuel Wong from UBS. Line is open. Please go ahead.

Thank you, Mr. Ye. Thank you, Mr. Ethan. Thank you, Mr. Ye. Thank you, Mr. Ye. I have a question here. In July, we announced that the domestic growth rate is 25% and the overseas growth rate is 50%. This is still a very high growth rate. May I ask, in July, what is the driving force behind the high growth rate in China and overseas? Why? Because last year, the domestic growth rate was more normal in July. What is the driving force behind this growth? The overseas growth rate is also the same. So we saw from the announcement that our July sales is also very strong with domestic growth above 25%, overseas growth 50%. So what are the reasons and drivers behind that? Thank you. Thank you, Samuel. This is Yisheng.

Yes, our domestic sales increased by more than 25% in July months. It's between 25% to 30% driven by two drivers. The first is the personal sales of Minnesota China increased by many things during the same period. And we have also a decent store number growth So on a single-store basis, the mid-teens personal sales increase was major from low single-digit or ASP hike and a high single-digit or about 10% of traffic improvement. And the overseas market, we also mentioned in the earnings release that the GMV increased by about 50%. And I'd say the overseas, you know, directly operated markets still have, you know, see continued high growth rates, you know, comparable to the June quarter. And in overseas market, we also see, you know, the drivers also come from the traffic and PSP height. Thank you.

Thank you. The next question is from Jingru Song from Industrial Securities. Line is open. Please go ahead.

谢谢叶总,谢谢Ethan的提问机会。 然后我这边有两条问题想请教一下关于, 主要是第一条想看一下, 就是我们在未来的时间内, 怎么样有提升海外的供应链能力的一个计划。 Because I see that, especially since this year, the growth of overseas copper electricity has been very fast. And it is also expected to have a continuous increase in maintenance. So I want to see what kind of corresponding actions we will make on the supply chain or the capacity of the supply chain. Then the second one is to ask about our judgment on the price of goods. You also shared that we have increased by 3% this year. And I will have two questions. The first question is about how to improve our supply chain and about the overseas supply speed and control inventory. And the second question is How do we forecast the ASP? It seems like it increased by 3% year-on-year this time, but how do we forecast about the overseas ASP on the next year and the domestic ASP on the next year? Thank you.

In terms of the supply chain, we are still based in China. Then, there is a layout. Okay. Thank you for your questions. In terms of our overseas supply chain expansion plan,

We have two points to add here. The first is that, you know, we will stick to, you know, our, you know, accumulated resource in China. So China will definitely, will be the major supplier, supply chain base. But we are still exploring new, you know, new partners in Southeast Asian countries, such as, you know, Vietnam and so on. Second, we will increase the percentage of direct sourcing in local markets, such as the U.S. market. For example, we have been proactively increasing the percentage of IP-related snacks in U.S. markets. And for the second question about ESP in overseas markets, I'd say in China it's around 35 RMB, right? And now it's about 37 in the June quarter. For overseas market, I'd say we have a rough number that our average ASP overseas market is about two times or a little bit higher of China's ASP. But in specific countries like in European countries, in the US, I'd say this number is about three times or even higher than that of China. In our rapid growth markets such as the U.S., in Canada, and so on, we still see OSP increasing at a very fast speed. Thank you.

Thank you once again for joining us today, and our conference call now comes to an end. If you have any further questions, please contact the Minnesota IR team. Our contact information can be found on today's press release. We will see you in the next quarter. Have a nice day. Goodbye. Goodbye.