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spk02: Hello, everyone. Before the course starts, please mark your name and your institution. Thank you very much. Ladies and gentlemen, thank you for standing by and welcome to Minnesota's Earnings Conference Call for the September quarter that ended September 30, 2023. At this time, all participants are in a listen-only mode. After the management prepare remarks, we will conduct a question and answer section. Before joining the question and answer section, please mark your name and institution and be kindly note that this event is being recorded. We have announced our quarterly financial result earlier today. An earnings release is now available on our investor relations website at ir.munisw.com. Joining us today are our founder and CEO, Mr. Jack Yeh, and our CFO, Mr. Ethan Zhang. Before we continue, I would like to refer you to the safe harbor statement in our earnings press release, which also applies to this call, as we will be making forward-looking statements. Please also know that we will be discussing on IFRS financial measures today, which we will have explained and reconciled to the most comparable measures reported under the international financial reporting standard in the company's earnings release and filings with the 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're using Zoom meeting, 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 the operator will translate for Mr. Ye. Please go ahead, sir. 大家好,欢迎参加本次全年财报电话会议。
spk00: The overall performance of this quarter's overall performance is rising again. In terms of revenue and profit, the quarter's breakthrough in the previous quarter continued to maintain high-quality development. Among them, revenue once again broke the single-quarter record of 37.9 billion yuan, a 37% growth ratio. The labor rate also broke 40% for the first time, reaching 41.8%. Last year, the share price increased by 6.1%. Hello, everyone, and welcome to Minnesota Group's September 11, 2023 earnings conference call.
spk02: Our overall performance once again reached new highs during this quarter. A sport of our revenue and profitability maintains high-quality growth. based on the breakthroughs we achieved in previous quarters. Total revenue hits RMB 3.79 billion and set a new record, increasing by 37% year-over-year. Growth margin exceeds 40% for the very first time, reaching 41.8 with an increase of 6.1 percentage points compared to the same period last year. Adjusted net profit exceeds RMB 640 million, representing a year-over-year increase of 54%. Adjusted net profit margin reached 16.9%, increasing by about 2 percentage points compared to the same period last year.
spk00: Now, I will walk you through business updates for our three major segments, Minnesota China, Minnesota Overseas, and TopToy. First, Minnesota's domestic business, In the summer, with the help of the sale forgetfulness, the domestic business, the current sales record, the single-segment GMV broke the 36-year-old record. According to the National Statistical Bureau data, the number of domestic goods in the past year has increased by about 5%. From a single chain point of view, the average order volume has increased by more than 17%. The average customer base has increased by more than 3%.
spk02: Let's start it with Minnesota, China. During the peak season of summer vacation, GMU, the Minnesota upline store in China, achieved RMB 3.6 billion, refreshed its historical report, compared with a year-over-year increase of 5% in domestic retail sales of the customer goods, according to National Bureau of Statistics of China. On a first-off basis, average transaction volume increased by over 70%, and average transaction value increased by more than 3% year-over-year.
spk00: From the overall performance of the company from January to October of 2023, the domestic single-storied GMV still maintains about 85% of the previous level in 2019 and about 100% in 2021. As expected at the beginning of the year, since the fourth quarter, a large number of investors have been worried about domestic consumption, but the performance of the private sector has remained consistent. According to the statistics of domestic sales in our surrounding units, the trend of domestic single-chain daily sales in July is consistent with the normal level before the epidemic in 2019, with more performance than the seasonality of sales. There is no weak trend. The company will continue to pay close attention to the trend of sales, and actively adopt measures to deal with the complex and multi-layered market environment.
spk02: During the first 10 months in 2023, GME per store of Minnesota China recovered to 100% of 2021 level and around 85% of the pre-calted level in the same period of 2019, consistent with our expectation at the beginning of the year. Entering into the fourth quarter of calendar year 2023, some investors worried about the weak domestic consumption environment. However, Minnesota has maintained resilience as always. According to our weekly sales data, the trend of per store sales Since July today, this year was consistent with the normalized pattern in the same period of 2019. No weaknesses were noticed. It is more about seasonality. We will keep tracking this trend and staying alarmed and taking positive measures to cope with the macro headwind.
spk00: At the domestic opening level, this quarter, we continued to continue the good opening system last quarter. Domestic competition We have completed the previous planned We expect to have 100 to 200 stores in China in 2023.
spk02: We opened a total of 198 new municipal stores on a net basis in China during September quarter, continuing on the trend of our store expansion, including 80 new stores in Tier 1 and Tier 2 cities and around 60% new stores in Tier 3 and lower tier cities. While the numbers of stores is growing rapidly, we continue on a focus on unique economics of our operating stores, proven by the healthy closure rate of municipal stores of only 1.4% in this quarter. long history average. As of September 30, we have accomplished our target of opening 350 to 450 stores in China on a net basis in calendar year 2023. Meanwhile, we celebrate the milestone of 6,000 municipal stores worldwide in this quarter. We do well in both space and quality in growing a healthy global store network for municipal brands. Going forward, we continue Currently expect to add another 100 and 200 new stores in China in the remaining calendar year 2023 on a net basis. Moving on to our progress on the international front. Firstly, overseas revenue was about RMB 1.3 billion, representing a year-over-year increase of nearly 41% from a high base of last year and setting a new report. Notably, revenue from directly operated markets increased around 89% year-over-year, contributing around 46% of overseas revenue, compared to around 34% in the same period last year.
spk00: 其次,海外GMV成比增长48%, 其中直营市场GMV成比增长80%, 代理市场成比增长39%, 整体来看,海外单件GMV成比增长超过27%, 平均门店数增加了13%左右, 最后海外市场仍然保持GMV的 Exactly. GMV in overseas markets increased by 48% year-over-year, including an 80% year-over-year growth in the directly operated markets and 39% year-over-year growth in the distributors' markets.
spk02: Overall, GMV per store in overseas markets increased by over 27% year-over-year, and average store counts increased by about 13%. Major overseas markets maintain rapid growth momentum, including a 160% growth in North America, a 60% growth in Latin America, and a 50% growth in Europe. 第三,特别令人欣喜的是, 本季度海外单店GMV整体恢复已经超过了20亿元成绩水平,
spk00: The U.S. single-chain GMV has reached nearly twice as much as the U.S. single-chain GMV. The U.S. single-chain GMV has reached nearly twice as much as the U.S. single-chain GMV.
spk02: Firstly, we are encouraged that GME per store in oversea markets during September quarter recovered to 103% of 2019 level and achieving 27% year-over-year increase. The distributor markets recovered to 107% of pre-COVID level in 2019, while the directly operated markets recovered to 93%. In our major overseas markets, GME per store in North America nearly doubled that in the same period in 2019. GME per store in Latin America and Europe recovers to about 110% and over 100% of 2019 net levels, respectively. We continue to focus on the domestic and overseas markets.
spk00: GME, the top 20 overseas markets, China. China. Thank you. Indonesia, India, the Philippines, Thailand, and Kobe have recovered more than their average. Third, from the number of stores, the number of stores in the first 20 overseas markets is nearly 70% of the total number of stores in overseas markets. In 2023, the number of stores in the first three seasons contributed nearly 75% of the performance.
spk02: On key oversea markets, 80% of oversea GMV were generated in top 20 markets. Hence, their performance largely represents the overall business performance of our oversea markets. Let me tell you three things about it. Firstly, in terms of GMV, first-order sales in the top 20 markets increased by an average of 34% year-over-year, outpacing the average of 27% year-over-year growth for the oversea market as a whole. compared with the same period in 2019, per-store sales in the top 20 markets have recovered to 98%. Secondly, 80 of the top 20 markets achieved positive same-store sales growth in this quarter, with an average growth rate of about 38%, outpacing the average growth rate of 32% for the overseas market as a whole. Among top 20 markets, 15 have comparable stores in 2019. Among them, Six markets, including the U.S., Mexico, Canada, Spain, Kazakhstan, and Vietnam have recovered to more than 100% same-store sales. For Southeast Asia countries such as Indonesia, India, the Philippines, and Thailand, same-store sales numbers were better than per-store sales numbers. Thirdly, top 20 overseas markets account for nearly 70% of the total overseas stores. and contribute nearly 75% of the new store years today. entering the second half of calendar year 2023, door openings in oversea markets have accelerated. During September quarter, we added 126 stores in the oversea markets on a net basis, making it the best quarter since 2020. As of September 30, 2023, we accumulated 198 new stores in the oversea markets on a net basis, we will strive to deliver our target of opening 350 to 450 stores in the overseas market. In October, the Disney 100th anniversary of the Ming Chao You Pin was completed.
spk00: With Disney's four IPV core elements installed in the car, Ming Chao You Pin's super power, Wink, was built into the existing IP scene. The Ming Chao You Pin, which is based on the flower scent, Thank you very much. The high-performance, high-performance sales and profit double growth of AP joint products become new profit growth breakthroughs, real-time realization, and profit double collection.
spk02: In September, Minnesota cooperated with Disney to create a Disney-themed train to celebrate the 100th anniversary of Disney by decorating the carriages with the Disney's first famous eyepiece and integrating Minnesota's sister symbol, Minnesota Wings, to create an immersive environment for the passengers. We also launched a market campaign to promote awareness of our flagship fragrance and perfume products, which combined a master fragrance series product with the traditional festival culture to cater for social behaviors and consumption preference of our young target customers. As the industry-leading IP powerhouse, the key difference between our IP strategy from other companies like in our continuous effort in developing IP products to elevate our brand equity and capitalize on cultural phenomenon or influential trends by featuring their elements in our product design and adding exciting diversity to our product, which is different from the occasional marketing efforts of other players. Meanwhile, with more favorable margin profile of IT products, We are positioned well to leverage their huge fan base to grow both our top line and bottom line.
spk00: We are positioned well to leverage their huge fan base to grow both our top line and bottom line. Meanwhile, by leveraging our capability in capturing customer insights in our fast supply chain, our highly refreshed involvement and continuous innovations
spk02: have created huge sales opportunities. During this quarter, we have witnessed the birth of 100 million sales products and a new bench of best-selling products with more than 10 million sales. For example, we see the trend of offline travel recovery to quickly launch a new disposable travel category, generating more than 100 million sales in this quarter. In addition, about 60% of our best-selling products A strategy category such as our interest-driven product with improved hit rate.
spk00: We are also gradually starting to market in overseas markets. The UK's first blind store, the UK's first blind store, has opened in London. The store has more than 50 series of blind stores with famous AP companies such as Disney, Sanrio, Xiong, Weining, and so on. The store is only 30 square meters. But its opening, current performance, and trend have exceeded our expectations. Misao is the first to open its own shopping center in Indonesia with a limited number of AP stores with the theme of 365. The store is a wide-ranging 365 AP joint venture. The opening is the first to sell and open a store in the Southeast Asia region. We expect that with the implementation of the strategic income of the super store, it will greatly improve overseas performance and influence the global impact of Misao brands.
spk02: In this quarter, Minnesotans will also make progress in superstore initiatives. Our newly opened Xi'an Datang all-day mall stores and Wuhan Chuhe Hanjie Wanda stores gain a positive response from customers. In the future, we will encourage and prepare for more superstores to test different store formats and improve store unit economics. With initial success in China, we test the water in some oversea markets, In this quarter, the very first mini-zone blind box store in the UK randomly opened in Chinatown, with more than 50 kinds of IP-related blind boxes co-branding with Disney, Sanrio, Winnie the Pooh, and other popular IPs. Although only 30 square meters, its total sales and sales per square meters on its first day far exceeds our expectations. Miniso's first Sanrio-themed IP store opened in one of the most popular shopping centers in Indonesia, featuring a spacious Sanrio IP's co-branding display area. The sales on its first day set a new record in Southeast Asia. We'd expect that with the implementation of the Superstore strategy, it will strongly promote overseas performance and enhance the global influence of the Miniso brand.
spk00: Today, I would like to introduce the progress of TopToy. Let's move on to top four. Quarterly revenue achieved a 46% year-over-year increase with an about 30% year-over-year strong growth in GME per store and a 70% year-over-year growth in average store counts. Next month, we will celebrate the 35th anniversary of TopToy. In the past three years, despite the unfavorable external environment such as the epidemic, TopToy has not only explored the development direction of Taiwan's business, but has become a new consumer brand with a annual sales of nearly 1 billion yuan. In September, we and our important partners such as WanZai, NanMengGong, WorldToy, etc. have reached a new cooperation. TopToy will celebrate its third anniversary next month. Although most of the past three years was covered by the pandemic, TopToy managed to beat a unicorn with an annual GME approximated to $1 billion.
spk02: and enlarge influence in this sector. During its partner conference in September, TopToy renewed its collaboration relationship with important partners such as Bandai Namco and 52 Toys, which laid a solid foundation to future optimize its product structure. Meanwhile, the grand opening of TopToy store in Shanghai, Disney, becoming the only new customer brand to settle here in 2023. I will now turn the call over to Ethan for a review of our financial performance in September quarter of 2023. Thank you, Jack.
spk06: Hello, everyone. Thank you again for joining us today. I will walk you through our financial results for the September quarter. Please note that all numbers are in remaining unless otherwise noted. And I will also refer to some IPERS measures, which have excluded share-based compensation expenses. Revenue was $3.8 billion, representing an increase of 37% a year. Revenue from China was around $2.5 billion, up 35% a year. The increase was driven by Number one, a growth of 41% in revenue from offline stores. And number two, a growth of 46% in revenue from . About 1% worldwide growth of business was a result of 14 growths in average store count and 24% growth in personal sales. The 46% year-over-year growth of top four was the result of high-teens growth in average store counts and mid-20s growth in personal sales. Revenue from overseas markets was remaining 1.3 billion, up 41% year-over-year, driven by an increase of low-teens in average store counts and a growth of mid-20s in personal sales in overseas markets. Revenue from distributed market was RMB 304 million, an increase of 16% every year. Revenue from directly operated market was RMB 592 million, an increase of 90% every year. Accounting for 46% of overseas revenue as compared to 34 during the same period of last year. Gross profit in September quarter was $1.6 billion, up 61% every year. Gross margin was 41.8%, increasing by about six percentage points from the same period of last year. The EOE increased due to three reasons. Number one, GDP margin in overseas market increased as we made meaningful progress in optimizing our product structure and saw revenue contribution from IP products increased from less than 30% to more than 40%. In addition to that, GP margin in overseas markets in this quarter also benefited from increasing revenue contribution from our directly operated markets, which contributed 46% of revenue. As we enter the peak season of our directly operated markets, we may expect its revenue contribution surpassing 50% for the first time in the coming December quarter. And number two, GP margin in China increased by low single-digit percentage points thanks to our continuous growth of merchandise GP margin and a better control of promotional discounts. Number three, GP margin of top toy continued to increase as planned. SG&A expense as a percentage of revenue was around 20.8% up from 19.3% in the same period of last year. Selling and distribution expense were maybe 220 million, increasing by 67% year-over-year. driven by, number one, increased personnel-related expense. Number two, increased marketing expenses related to brand upgrade projects, as we mentioned in last earnings conference call. As we are executing our brand upgrade strategy both in China and overseas markets, we expect to see marketing expenses increase a little bit for a while. But this is totally controllable. Marketing expense as percentage of total revenue just increased by one percentage points in this quarter, compared to the same period of 2021. And number three, increased IP licensing expenses. Licensing expenses more variable costs, as we offer more IP products. IP licensing expense as percentage of revenue increases by less than 1 percentage points in this quarter compared to the same period of 2022. G&A expenses were RMB 167 million flat year-over-year, turning to profitability. Operating profit in the September quarter was RMB 788 million, representing increase of 55% year-over-year, Operating margin was nearly 21% compared to 18% in the same period of last year. Adjusted net profit in September quarter was maybe 642 million, increasing by 54% year-over-year. Adjusted net margin was 16.9% compared to 15% in the same period of 2022. On a quarter-over-quarter basis, our margin profile improves because we enjoyed a significant foreign exchange gain in June quarter. If we exclude foreign exchange impact, adjusted net margin in this quarter would be 7.1% compared to 15.5% in the previous quarter. Turning to cash position, As of September 30, we have strong cash position of $36.7 billion. September quarter has once again witnessed breakthroughs and new hits in each major aspect of our operations. Looking forward into the December quarter, we expect our sales 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 that concludes our prepared remarks. Operator, we are now ready to take questions.
spk02: Thank you, sir. Your first question today comes from the line from Michelle Chen from Goldman Sachs. Line is open. Please go ahead.
spk03: Hello, Mr. Ye. First of all, congratulations to the company for having such a good performance. I have three questions for you. The first question is about the trend of copper power or GMB per store. We know that this year is actually the return of the epidemic after the pandemic. Some countries in China and Asia actually have a very good performance. Can you share with us, if you look at 4Q or next year, Because recently, everyone is worried about domestic consumption pressure. What do we see in the future? Coal is now about to recover to 85% before the epidemic. What do we see in 2024, or a relatively long-term GMB per store, or the trend of coal? This is the first question. Then the second question, I would like to ask about the overseas opening. We just mentioned that the goal of this year's opening is that the plan will be achieved. Indeed, in the first half of the year, we still saw that the opening speed was a little slower. Can you share with us what the current situation is like? If we look at the future, we know that there are more opportunities overseas. But are there any, for example, market areas or The third question is about the product side. This year, the IP and Samsung products have good feedback. Can you share with us if there are any highlights or expected directions for this product next year? So I have three questions for management. First one is regarding the GMV store versus central sales growth upside. Given this year, we already benefited from the post reopening. So how do we think about the 2024 and long term central sales growth? And secondly, regarding the overseas store expansion, given we are a little bit left behind in the first half, but we still target to achieve the guidance for the fourth year. So, can you share with us where do we see the improvement and how should we think about the focus for expansion overseas next year? And thirdly, on the product, so we have a very good progress on IP and the fragrance product, et cetera. So how do we think about or is there anything we can expect for next year's product? Thank you.
spk00: Let me answer that. Thank you for your question. First of all, let me introduce the latest supply and demand recovery situation. I think there are a few key factors. One is the flow rate. Our performance and the flow rate are different in size. For example, the domestic supply of electricity has been recovering at about 93%. But this recovery is obvious in the workday, weekend, and holiday. This year, the supply of electricity in the workday is about 90%. The weekend is higher, at about 95%. As for May 1st, the supply of electricity in the 11-day holiday even has a low growth rate. The reason behind this is that on the holiday, Okay, thank you, Michelle. This is Lisa. I'll translate for Mr. Ye, and then I will make some add-up.
spk06: uh uh first mister introduced the latest update of our same store sales so for this this year year to date in china our same store sales has recovered to 93 compared to 2019 level so compared to 2021 same store sales has you know increased by nine percentage points and compared to 2022 same store has more than 20% of year-on-year increase. And for overseas market, as we mentioned in our prepared remarks, the same store sales has recovered to about 94% as a whole in overseas markets, among which top 20 overseas market has positive same store sales growth. In the long term, Our major target here is if we want to have a sustainable same-store sales growth, I think there are a few, several key factors here. Number one is the traffic. Our business performance is positively related to traffic. Take this year as example. As I mentioned, in China, we reached 93% of same-store sales recovery But this recovery varies among weekdays, weekends, and holidays. So in this year, in weekdays, the same-store sales was 90%. In weekends, it's a little bit higher at 95%. But when we have public holidays, such as Labor Day, National Day, and so on, our same-store sales have low single digits. positive growth compared to 2019 level. The reason behind this is that when we have public holidays, we have more traffic. When we have weekends, the traffic is obviously higher than weekdays. So that is why we promote, we launch the Superstore strategy. I repeated a lot of times internally, only by opening Superstore can we make better performance. So with the brand upgrade strategy, we want to improve and optimize our store network by continuously introducing more superstores. And second, I think the key here lies in the innovation of products. By introducing brand upgrade during the past year or so, our ASP has improved a lot while we had a stabilized cross-selling rate. So this has been very key in supporting our same-store sales growth. And the third is all about the branding. Only by becoming a super brand So we can, you know, get more market share from the traffic under the background of the reducing traffic in China's shopping mall. So, and I also want to add one point that, you know, just now Ms. Tia talked about the same-store sales growth, but before that, Michelle, you know us. We disclosed our GMB per store. So GMB per store is more an average, but the same score sales is more related with comparable sales. So if you look at a year to date, the GMB per store in China recovered to 85% of pre-COVID level. Because we have opened a lot of new schools in lower-tier cities in China, which has some dilution to our average school performance. But if you look at the comparable cells, our same-store cells have recovered 93%, which is very encouraging to us.
spk00: For your third questions about the product innovation,
spk06: in this year have traveled around the major overseas markets of Minsu, and I brought out an idea that we should focus on three strategic categories. That is big beauty, big IP, and big toys. For these three strategic categories, they are now contributing about 60% of overseas sales. And hopefully we may see increase to more than 70% in the new future. And for these three categories, I think there are three products, three products can represent them. That is blind box, plush toy, fragrance, and perfumes. So our next step is that we want to, you know, cooperate with more, you know, famous IPs, more, you know, big IPs to enhance our ability in product development in these three areas. So hopefully next year you can expect our new cooperation relationship with a lot of new IP partners. Among these three categories, Plush Toy has always been one of our best sellers in overseas markets and we shall you know, continuous enhance our leadership position. For Blindbox, during the past several quarters, no matter in China or in overseas markets, it's increasing is fabulous. So our, you know, key strategy here in Blindbox is that by cooperating with this established IP licenses, we are gaining market share. And Michelle, this is Ethan. Let me answer your second question about the overseas store expansion. Yes, we have mentioned, talked about the overseas store opening strategy. So for the first half of this year, because, you know, when we just reopened, when our people, our team come to overseas market, we realized that in some overseas market need to know uh need to some you know upgrade of the operations so we post a little bit of our store expansion plan but during the past september quarter we have been accelerating of our store expansion in overseas markets and hopefully in the fourth quarter in the december quarter uh we are we will strive to achieve the 350 to 450 a year beginning plan and then next year Hopefully, because the directly operated market has been a key driver, not only in overseas business, but also for the whole core municipal business. So we'll see strengths in in regions like North America, including the U.S., including Canada. We also see Indonesia gaining strength in opening new stores because we are kind of one country more into larger cities in these countries. So next year, in general, our big opportunities will lie in overseas directly operated markets. But that doesn't mean our distributed market will not open new stores. We still see a lot of chances in distributed markets because we have so many markets. We have so many distributed partners. So next year, hopefully, we are very confident that we will open more stores in overseas markets than this year. Thank you.
spk03: Thank you, Mr. Ye. Thank you, Ms. Ye.
spk02: Thank you. So the next question is from the line of Lucy Yu from Bank of America, Marine Lynch. The line is open. Please go ahead.
spk05: Thank you, Mr. Ye. Thank you, Ms. Ye. I'm Lucy. I have a few questions. First of all, if you look at the overseas income, the direct income has grown very well. But if you look at the agent market, the income increase this quarter is about 16%. So we can understand that since there are fewer stores opening in the first half of the year, so the supply may be slower. But considering that the third quarter is actually already in the process of opening and accelerating, how do we consider the fourth quarter, especially in the overseas market, what level will the increase in the agent market become in the fourth quarter? The second question is about the profit rate. Can you tell us about the profit rate of various products in China? If you look back, how much profit is there in China? The third question is about the sales fee. If you look at the same or even ratio, the sales fee is quite fast. As Dr. Wang mentioned, some of them are related to marketing expenses, and some of them are related to labor costs. Could you please explain in detail how many of them are caused by one-off factors or temporary factors? If we look at the fourth quarter and next year, how should we consider the increase in sales costs? Thank you. I'll do the translation first. So, the overseas distributor revenue this quarter growth is lagging behind the direct sales growth, partially because of the slower store opening in the first half of the year. So, with the third quarter store expansion started to accelerate, how should we expect the growth in the fourth quarter for distributed market in the overseas market? And secondly, it's about the productivity margin in China. Could you please give a little bit breakdown by category, and how should we think about the GDP margin in China going forward? And lastly, it's on the selling expense, which has been increased a lot on both YOY and a Q and Q basis. Could you please elaborate the breakdown? Thank you.
spk06: This is Lee Sim. So for your first question about the upcoming growth of distributed markets, I'd say hopefully we can see an improvement in the December quarter compared to the past two quarters. At this moment, I cannot comment too much because, you know, for the first half of this year, the distributor market as a whole, its net new stores was apparently fewer than our expectation. So we will wait and see how the distributor market, how the need from our distributors ramp up during the first quarter. But hopefully we can reasonably expect that it will improve on a quarter of a quarter basis. And for the GP margin by categories, I'd say we now have more than 11 product categories, but we categorize them into three words. The first is big beauty. The second is big toys. And the third is, you know, big IPs, as we mentioned. So for the IP-related products, so it's a high single digits and the average of, So our average GP margin is like 60%. So for toys, it's the same case. It's just the same case with this, you know, IP product. And we have small parts of our products. We call them general merchandise. General merchandise is the products including, you know, home cleaning products, seasonal food, snacks, stationery, and gifts, some small electronics, and lifestyle products, and so on. For these general merchandise products, it now accounts for about 40% of our total sales. And apparently, it's merchandise GP margins lower than IP products and points. And now we also have about 40% of our sales in China comes from Big Beauty. Big Beauty's GP margin is low single digits, higher than general merchandise. And our big toys account for about 18%, including blind box, including plush toys, including children's toys, and so on. So these three together accounts for about 20% of total sales. And its GPU margin is low single digits, higher than the previous two categories. And for your questions about the selling and distribution expenses. So in this quarter, S&D expenses was about 16% of our revenue. The major part of our selling and distribution is staffing. which is about 5% of revenue. Next, buy marketing expenses, about 3%. And then depreciation, another 3%. Licensing expense, it was about 2% to 3%. So the year-over-year increase in S&D expense was related to three business updates that is noticeable. The first one is a rapid growth of our directly operated markets. So we have increases in staffing, you know, in terms of, you know, staffing and so on, and including carrying more people in overseas directly operated stores. And a bonus accrued, an increase in depreciation and amortization related to these new directly operated stores. And the second is related to our brand upgrade. So we invested a little bit more in branding, but it's total controllable. And the third is our IP offering. So it's with IP licensing expenses. This licensing expense, as I said, is more variable, and it will increase with the increase of our IP sales. So going forward, if you look at the next few quarters, as we open more direct stores in overseas, some expenses will increase, such as staffing, such as depreciation of, you know, our OU in PPE and so on. But in general, as we promised, we are confident that the total S&D expenses is controllable because in overall, we are still enjoying a significant operating leverage. So thank you.
spk05: Thank you, Ethan. Thank you.
spk02: So the next question is from the lines of Samuel Wong from UBS. The line is open. Please go ahead.
spk01: Thank you for the opportunity to ask questions. Congratulations to the company for achieving such a good performance in a situation where the market is fluctuating. My first question is about our American business. I don't know if it's convenient for our management to update investors on the situation of the September quarter of the U.S. and how to improve some of the plans in the future, including some of the next year's expansion plans and some of the strategic issues in this regard. This is my first question. My second question is about TopToy. This year, I don't know what the goal of top toy is. And I saw that in the 930 quarter, the free brand ratio of our top toy is a bit down. I saw that we also cooperated with these free brand companies like Wartoy. So I don't know if your company has some adjustments in terms of free IP. So, I will translate briefly on my questions. My first question is regarding U.S. markets. So, could you update on the U.S. market's profitability for September quarter and also introduce about the strategies how to improve in the future and also the opening plans next year? And my second question is regarding TopToy. What's the management's target on profitability this year for TopToy business? And also, what's the strategies going forward? I saw that in September quarter, the phone brands mix has been a little bit lower than June quarter. Also, I saw cooperation with other brands like 52 Toys. So, is there any strategy changes on self-developed IP percentage point in the future? So, thank you. Thank you, Guanchao.
spk06: Samuel, this is Jason. So for your first question about the U.S. business, I'd say everything is evolving very fast and is very encouraging. For example, in the September quarter, we saw GMV in this market increased by more than 180 percent on a year-over-year basis. And The best part, personally, I think that it's accelerating from 120% UVU growth from the June quarter and entering in the holiday season for the past several weeks. We still see this market maintain triple-digit growth on a UVU basis. So we can expect a fruitful holiday season this year in June. the U.S., and we also just celebrated the 100 new stores in the U.S. market. But next year, although we are still making internally plans and budgets for next year, but we do believe that the major driver of the overseas business will come from DTC market, and the DTC market's major driver will be in North American market, including the U.S. market, and we also include the Canada market here. It's more like, you know, U.S. market one year ago. So it's in the door of ramping up, and everything is very promising. And for TopToy, to be frank, last year, you know, TopToy, you know, it was last making in CY22, right? If you can remember, its net loss margin is nearly about, you know, more than 20%. So for this year, I would say top toy is hopefully it will close, very close to breakeven, to be breakeven, or, you know, significantly reduce its net loss status. So if you look at CY23, As Misty just mentioned in his prepared remarks, TopToy in the past three years has become, you know, a unicorn with, you know, annual sales of $1 billion. So increasing by nearly 50% compared to last year. And if you look at the bottom line, hopefully the net loss for TopToy this year will be like, you know, 1% or 2%, something like that. And you are right that in the September quarter, the exclusive products of TopToy decreased a little bit. When we talk about exclusive products of TopToy, we mean our in-house designed China rigs or our in-house developed blind box and so on. We are in the middle way in building an internal designer team and the product manager team and so on. So it takes time for this whole team to get mature, to get more connected. So we have enough patience to wait this business to get more mature And we do not have any adjustment in terms of our self-branded strategy in TopToy. In the next couple of quarters, we are planning to launch more exclusive products. Thank you.
spk02: Next question is from the line of Anne Lin from Jefferies. Line is open. Please go ahead.
spk04: Hi, thank you. Thank you, management team. Excuse me, manager. I would like to ask about the overseas market. I would like to understand, for example, we know that one-third of our sales are from our private market. Can you explain to us that in the private market, I understand that there is no way to separate the domestic and foreign markets of the operating margin. But is it possible to say that there is a general concept, for our system, our operating margin, what are the changes in China and abroad? I also want to understand this situation. Then I would like to ask, in 2024, we should shoot a video So I'll translate in English. The first question is on the overseas market. If we are looking at the overseas direct operated market, are there any additional markets that we have for this quarter? And, like, you know, can we also provide a breakdown in terms of, like, you know, within the direct operated markets, what is the sales mix between the franchise sales or wholesale sales versus the direct operated store sales? Secondly, it's on the operating margin side. Is there any, like, you know, like, granular trend in terms of, like, you know, how this quarter performed for mainland China's OP margins versus the overseas market? And then my last question is on the year 2024, calendar year 2024, in terms of the sales to store or same-store sales, you know, What sort of growth rate we should be expecting, given the fact that we're likely to still opening more stores? Thank you.
spk06: Thank you, Anne. This is Jason. So for your first questions about the DTC market, are there any new members? I'd say no. in the past two quarters. So there is no reclass between the distributor markets into our DTC market in the past one quarter or two. So the 80% year-to-year growth you have seen in this quarter was substantially all organic growth. Of course, in this year, we have some small markets such as hong kong china reclassed from you know the distributor market to our dtc market but its revenue contribution is insignificant but going forward as we talked a lot right in general we believe if we want to penetrate more and do better in overseas markets, we should involve more into local markets. So one of the ways to turn them into direct operating market, the other is to invest in them or get ourselves more involved into the operation decisions. So I would say I'm not surprised if we are going to see more distributed markets, you know, turning to DGT market in the upcoming few quarters. And for the revenue contribution of our directly operated stores in overseas market, I'd say now we have about 700 stores in our directly operated markets. Among them, about 200 stores are directly operated. So considering the average store performances, there's no such significant difference. So you can calculate the contributions about 6%. We do not have the exact number. That's my rough estimate. And for the OP margin of overseas market, I'd say investors' big concentration is for our overseas direct operating markets. I'd say its margin profile has been improving in this quarter. So in this quarter, the OP margin for our DTC market, it was mid-teens, so on OP level. So compared to last year, one year ago, it was just breakeven. So it's a significant improvement. And compared to last quarter, it increased by low single digits on quarter-over-quarter basis. And in the long term, I think it's too early at this moment to decide to project the OP margin of our direct model. So it's all dependent on our store model in the DTC market, i.e., if we adopt more franchisee model or if we adopt more directly operating model. So it's too early to project. And for the first question about the same store sales growth in next year in China, I would say, as we answer Michelle's question, in long term, our target should be maintaining both
spk02: uh store network expansion and reasonable same store sales so we will strive to achieve that goal thank you okay thank you thank you so now the conference calls come to an end thank you all for joining our call today we look forward to seeing you in the next quarter have a nice day and goodbye
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