MINISO Group Holding Limited

Ladies and gentlemen, thank you for standing by and welcome to Minnesota's earning conference call for the first half of 2024. At this time, all participants are in a listen-only mode. After the management's prepared remarks, we will conduct a question and answer section. Before joining the question and answer section, pre-announce your name and institution and be kindly noted that this event is being recorded. We have announced our June quarter as an interim financial result earlier today. An earnings release is now available on our investor relations website at ia.miso.com. Joining us today are our founder and CEO, Mr. Jack Yeh, and our CFO, Mr. Yisheng Zhang. Before we continue, I would like to refer you to the safe hopper statements in our earnings press release, which also applies to this call as we will be making forward-looking statements. Please also note that we will be discussing on Aparla's financial measures today. which we have explained and reconciled to the most comparable measures reported under the International Financial Reporting Standard in the company's earnings press release and followings with the US SEC and Hong Kong Stock Exchange. The currency unit is Chinese yuan, unless that advice stated. In addition, we have prepared a PowerPoint presentation for today's call, which contains financial and operational information. If you are using Zoom meetings, you should be seeing it right now. You can also revisit it on our IA website later. Now, I'd like to hand over the conference over to Mr. Ye and Mr. Alex Chen from the Minnesota IR team to translate for Mr. Ye. Please go ahead, sir.

Hello everyone, welcome to Minisource Group's earnings conference call for the first half of 2024. During the reporting period, our global market footprints continue to expand.

we achieved a milestone of 7,000 stores globally, which is less than a year since we surpassed 6,000 stores.

In the first half of 2024, 502 stores in Yitan were opened. Among them, Hainan and Taobao were the fastest-opening stores in history. 266 stores and 47 stores were opened respectively. These two businesses have also maintained a slight growth in the sales of Tengdian. The growth of the three companies continues to grow. In China, there is a near growth of 189 stores. The sales recovery of Tengdian was 98.3% for last year. The company's revenue has increased by 27.6 billion RMB in the last half of the year. The average sales volume has increased by 19%.

In the first half of 2024, the group's store networks have seen 502 net units, with both Minnesota Oversea and TopToy experiencing their fastest store opening period in history, adding 266 and 47 new units on a net basis on the first half of the year, respectively. These two business segments also include double-digit building theme store sales, continuing to lead robot schools and act as growth engines in the world and in the world. Minnesota, Maryland, and China achieved steady growth by adding 189 net new stores, including a 1,000-class same-source sales performance of 98.3% of previous year's level. As a result, the group's revenue for the first half increased by 25% to RMB 7.76 billion, including a 7% same-source sales growth and a 90% growth in average store amount.

The product capability is our core capability. We continue to control the AP and power supply of our products. Effectively, we increased the horsepower rate from 39.6% to 43.7% and increased it by 4.1%. The ability of the channel is very important in the future competition, especially overseas, especially in the support market, especially in the United States. The channel expansion system in the United States continues to exceed expectations, and the number of stores has doubled, and the sales of stores has slightly increased. From our capability, it's our core competitive strengths.

We continue to focus on IP and strategic categories, increasing gross margin from 39.6% in the first half last year to 43.7% respectively, adding 4.1 percentage points. General probability is crucial for us to stand out in future competitions, especially in overseas markets, especially in direct operating markets, and especially in the United States. The pace of store expansion in the United States has exceeded expectations continuously, with double store counts and a double-digit same-store sales growth. Even though we are still at the investment stage in overseas markets, under our effective cost-control measures, the JustNet profit in the first half of 2024 still increased 80% year-over-year. Excluding next foreign exchange impacts, the JustNet profit increased 26% year-over-year. slightly faster than the growth of the revenue.

In this year's investment agenda, I would like to share with you the company's mission, vision, and future five-year development strategy and implementation. Our mission is to create a happy world, and our vision is to become the world's first AP design and sales organization. In order to achieve this vision, the company will insist on cost-efficiency, globalization, and product design. We have designed three On our investor day earlier this year, I shared our mission, vision, long-term strategy, and implementing paths in the next five years.

Our mission is lightest for fun, and our vision is to become the world's number one IP design retail group. To realize this vision, we adhere to affordability, globalization, and product innovation IP designs. We have established three targets, 900 to 1,100 net new stores in each year from 2024 to 2028, and a less than 20% CAGR for revenue and a higher CAGR for UGPS from 2024 to 2028. and having no less than 50% of IP product self-contribution by the end of 2028.

In the first half of 2024, even though the global market has changed dramatically, our business model continues to show strong resilience, and our performance has reached the expected annual level. In the future, our business model will continue to move steadily according to the five-year strategy.

In the first half of 2024, despite involving global markets, our business model demonstrates strong resilience, and our financial performance met our earlier expectations. Going forward, all of our businesses will make firm progress in accordance to a five-year strategic plan.

Next, I would like to introduce three major business models for domestic, domestic and overseas businesses, and provide you with a detailed overview of the development of the above business models.

Now, I will walk you through 2020 for our first half business update for our three major segments, Minnesota, Mid-Lake China, Minnesota Overseas, and Top Toy.

First of all, in terms of domestic business and offline business, on the basis of high-quality and low-cost channels, the sales performance of Punggye continues to maintain a good performance. The income has increased by 16%, and according to the data of the National Regulatory Bureau, the sales volume of domestic goods has increased by 4.1%. The supply and demand has returned to 98.3% last year, with growth of 0.9% in the western region and a decline of 2.5% in the eastern region. The transition rate of large-scale stores has remained stable. Considering the hot sales of Q2, the domestic supply and demand sales in the first half of the second half of the second half of the second half of the second half of the second half of the second half of the second half of the second half of the second half of the second half of the second half of the second half of the second half of the second half of the second half of the second half of the second half of the second half of the second half of the second half of the second half of the second half of the second half of the second half of the second half of the second half of the second half of the second half of the second half of the second half of the second half of the second half of the second half of the second half of the second half of the second half of the second half of the second half of the second half Firstly, diesel mill in China continue to achieve a robust and resilient things ourselves based on high-quality channel expansions.

with a 60% year-over-year increase in offline GMB. According to National Bureau of Statistics, the growth rate of domestic retail sales of goods was 4.1% during the same period last year. In particular, same-store sales were at 98.3% of the priors levels, with a 0.9% increase in ticket size and a 2.5% decrease in profits. Meanwhile, purchase conversion rates have remained stable. If including the Q2 hot sales of Chicago products in our pop-up stores, the infrastructure for H1 in domestic markets would have a positive growth year-over-year, which would be an impressive performance in the domestic offline retail industry. Offline-to-online models also developed rapidly, with a nearly 80% increase in GMV for the first half years. Entering the third quarter, our year-to-date domestic sales have continued to maintain a double digital growth. We expect Minnesota Mill in China will continue to grow by 10% to 15% in line with our earlier expectation.

We expect Minnesota Mill in China will continue to grow by 10% to 15% in line with our earlier expectation. In the second-tier cities, the competition is close to 60%. In this context, we saw that in the first half of the year, the high-tier cities, especially the first-tier cities, have recovered better than the low-tier cities, close to 100%. On the one hand, it shows that there is a wide opening space in the high-tier cities. On the other hand, it proves that our AP fighters perform significantly in the high-tier cities, and the performance of the high-tier industries is very obvious. On the other hand, the three-tier cities of China There are 2,000 of them in the city. There are more than 1,000 of them in the city. There is still a lot of space to buy and sell. Our structure is very stable. For the past four years, the top 50 companies have been maintaining 50. More than 600 companies have been working together for more than three years. The development of Mingtao has not been able to separate these partners from each other. However, we will continue to cooperate to build more and better stores.

The expansion of our store network is healthy. In the first half of 2024, we had 189 net new stores, maintaining a steady pace towards our annual target of 350 to 450 net new stores. The proportion of new stores in the first and second tier cities was close to 60%. Meanwhile, we are thrilled to see that in the first half years, the themes of recovery of higher tier cities, especially first tier cities, nearly 100% of the previous year's level. which recovered better than the lower-tier cities. On one hand, this indicates that Minnesota still has sufficient space for store openings in higher-tier cities. On the other hand, this also indicated that our IP strategies have been notably effective in higher-tier cities, significantly driving the performance of Sims ourselves. There are a total of nearly 2,000 cities and towns in China's lower-tier area, and Minnesota have entered over a thousand of them, indicating that there is still a significant uncapped market for future penetration. Our retail partner's structure is also very stable. In recent four years, Store concentration rate for top 50 retail partners remain at 50%, and more than 600 of them have been in cooperation with Minnesota for more than three years. The development of Minnesota is inspirable from the support of our partners, and we will continue on a win-win cooperation for more and better Minnesota store. Next, let's discuss the Minnesota's overseas business update.

In the first half of 2024, revenue from overseas exceeded $2.7 billion, a year-over-year increase of 43%.

In particular, revenue from the direct operation market increased by 70% year-over-year in a comparable basis. The direct operation market accounted for 56% of overseas revenue in the first half of this year, surpassing the distributors market.

The most exciting thing is the 266th door of the overseas market in the first half of the year. This is also the first half of the year that Mingtao Youping has opened its store for the first time in nine years. In order to achieve the goal of 550 to 650 in the whole year, the competitive door shop has reached 105 stores in the history of the door shop. More than half of them are from the United States. Last week, we were just in California. It is the 200th open-air store in Macau, Hainan, China. It is also one of the most valuable consumer brands in the U.S. In the first quarter of this year, the number of stores in the U.S. has increased rapidly, while the number of stores has also grown healthily. From now on, we will pay more attention to the management of store operations, localization of goods, localization of operations, and localization of customers, to achieve sustainable store sales growth.

Excitingly, the overseas market added a net of 266 stores in the first half year, which marked the fastest store opening pace for the first half of the year since Minnesota's globalization nine years ago, boosting our confidence in our wealth up 550 to 650 net new stores for the whole year. Amongst these net new stores, the numbers of directly operated stores have been set at a record of 105, with more than 50% of them are from the United States. Last week, we celebrated the opening of the 200th Minnesota store at the Santa Monica beach in California, turning Minnesota as the Asia's consuming brand with the lastest store network in the United States. And we have entered 40 states in the United States, along with the rapid growth in the numbers of the US stores. Teams ourselves have also achieved healthy growth in the first half of 2024. Going forward, we will pay more attention to our store operation management aiming to achieve sustainable, seamless, and soft growth through product localization, operations localization, and consumer localization.

In the last 100 years, the APG product sales have exceeded 30%, of which the domestic APG price has risen by 30%. The growth rate is nearly 40% compared to the previous year. In addition, the growth rate has increased by nearly 50% in the previous year. The growth rate has increased by nearly 50% in the previous year. The growth rate has increased by nearly 50% in the previous year. The growth rate has increased by nearly 50% in the previous year.

The IP strategies have been further deepened and implemented in 2024. In the first half years, IP products' sales contribution exceeded 30%. In our domestic market, IP products' contributions have been further increased nearly to 30%, with a nearly 40% year-over-year growth. In our overseas markets, IP products' contributions have been increased to nearly 50%, and the revenues have been doubled. We uphold IP strategy as a core of the brand and continuously explore innovative IP corporations. To summarize the three news of IP operations in the first half of 2024, there are new models, new store types, and new series.

First, in the last 100 years, the sales performance has increased by about 400% compared to the previous year, but the overall sales of AP increased by more than 30%. Last year, it was less than 10%. Second, in the last 100 years, we have provided a new shopping experience for consumers by introducing the AP fast-charging chain. It is also a new channel for the sales of AP products. Finally, we will carry out a product series for the AP image. Firstly, in the first half of 2024, the GMV of the IP themes models increased by about 400% year-over-year.

contributing for more than 30% of the IP product sales compared to less than 10% contribution in the same period last year. Secondly, our new store format, the IP pop-up stores, were launched in the first half years. They provided consumers with brand new shopping experience and have become a new channel for IP product sales. Lastly, the upgraded and development of product series of the same IP brand will prolong the promotion piece. extend the IP operations cycles, and create more SaaS opportunities to a greater extent.

The success of the large-scale operation of the IP series not only brings us better product sales and stronger brand exposure, but also allows us to fully appreciate the potential and brand value of IP consumption in the global market. Thanks to our channel partners for giving us knowledge in the process. I believe that with the future and the deepening of the channel, we will have the opportunity to create more marketing and sales mechanisms.

In overseas markets, we replicated our IP operation strategies and created momentum for the popular site BT21 continuously, setting new reports for IP sales in multiple overseas markets. The great success of such IP series operations not only brought us better product sales, and stronger brand exposure, but more importantly, allowed our global commercial rental partners to fully perceive the potentials of IP consumption and the brand values of Minnesota. We are grateful for the support from our partners during these events. I believe that with in-depth cooperation with them in the future, there will be opportunities to create more marketing timelines and sales miracles.

As a result of the effective implementation of the IP strategy, more than 100 million IP METRO global members will be selected on June 3 to improve the global member system, which will further realize the mutual transformation of IP fans and brand members, and also contribute to METRO's future performance growth.

Thanks to the effective implementation of our IP strategies, as of June 30, the numbers of registered members of Minnesota worldwide exceeded 100 million. Gradually improving global membership system will help convert more IP fans into our brand members and vice versa, curing business growth of Minnesota in the future.

With the help of the European Union, we launched a global flagship store in Paris, France. And because of the Chinese Olympic Games, it has attracted a lot of global consumers. With the opening of the store, we know more about Chinese products and culture. The number of stores in Indonesia has exceeded 300 this year. and the largest flagship store in the world, which will be held tomorrow at 3,000 square meters, will also be held in Jakarta, Indonesia. We hope that these global flagship stores will not only be a place to shop, but also a place full of magic, which will allow global consumers to have a magical space to shop, so that everyone will be surprised when exploring the store. We believe that happiness is an advantage that can be passed on. We are determined to create this advantage for every consumer today.

The superstore strategy is also steadily advancing globally. Taking advantage of Olympus' momentum, we opened the global flagship store at the most famous Champs-Élysées Avenue in Paris. The brand promotions of cheering for Chinese Olympus athletes attract countless consumers from all over the world to get to know more about the products and culture from China via Minnesota stores. Minnesota has over 300 stores located in Indonesia, that's up to 30. And the largest Minnesota pleasure store in the world, covering an area of 3,000 square meters, will also be unveiled in Jakarta, Indonesia tomorrow. We hope that these global pleasure stores are not just a shocking destination, but also a magical paradise and a wonderful land that captivates global consumers and leaves them with a sense of wonder, allowing everyone to be treasure hunters in our stores. We believe that happiness is a force that can be passed on. We are committed to creating this force for every consumer who enters Minnesota's stores.

Meanwhile, we are also actively deploying the overseas supply chain.

Through the efforts in the first half years, most of the core categories results in the United States markets can be fully replaced by the supply chains from Southeast Asia, Japan, South Korea, and United States. Operating a highly edged supply chain is a must-have approach for the global companies to probably evolving and challenging global markets.

Let's move on to top 20. In the first half of 2024, TopToys revenue increased by 38% year-over-year, including a high-quality same-store sales growth of 14%, coupled with a net increase of 47 TopToys stores in the first half of 2024. TopToy's self-employed products continue to take the lead. In the first half of 2024, self-employed products accounted for more than 35%. The average gross profit of self-employed products is about 60%, which has only played an active role in the overall gross profit. For gross profit inheritance and operating leverage, TopToy has completed three consecutive seasons of implementation, and the fifth period has been completed.

TopToys' self-developed products continue to have breakthroughs, with the proportions of self-developed products exceeding 35% in the first half years. The average merchandise gross profit margin of self-developed products is about 60%, which undoubtedly plays a positive role in improving the overall gross profit margin. TopToys has been profitable for three consecutive quarters, reconfirming its tripping point.

As for the product, the Salsa Gala Flaming Ditch Series

launched in Q2 have topped the sales of all categories in top 20 this year. The recently launched Sanrio vinyl series had exceeded about 100,000 units of sales within just 50 days and launched it, achieving over 10 million sales. In the future, we will continue to increase the proportions of self-developed brand products and further optimize the product's profit margin.

In 2024, while we focus on our business, we will make this a more enterprise-oriented reality. I strongly emphasize in the internal defense that the strategy is generally correct, and the team must be fully active. For example, Mingtao can adapt to the development process, and the talent is the most insistent part of the development of our company. Since June 3, our global staff has surpassed 5,200, and more than 2,800 are our foreign employees. In March this year, we announced the launch of the housing bonus. In the same period, we invested RMB10 million in the workers' housing fund. In the past seven weeks, we have also held the first Mingtao Youping collective wedding to send our best wishes to the 17 new employees.

In 2024, while focusing on business, we also made more emphasis on fostering our corporate culture. I repeatedly emphasized right strategy and dynamic teams internally. Looking back at the 11 years development history of Minnesota, talent is the most solid strength for our enterprise development. As for June 30, the numbers of our global employees have exceeded 5,200. Over 2,800 submodels which are from the overseas. In March, we launched a marriage and fatality work plan with over 10 million initial funding. On Xixi Festival, we held the very first Minnesota wedding ceremony for 17 couples, sending our sincere blessings.

I have always emphasized the values of passion and persistence within the group. In our pursuit of success,

Built alive in our career, in addition to the correct values and sufficient professional ability, we also need a strong passion and persistence. The passion and persistence are also the core of the Minnesota employees to create industrial records and promote enterprise development continuously.

The limited huge potential for development and profitability in retail industry

We commit ourselves to long-termism, to seeking truth from facts, to operating with good faith and strong ambitions. Minso hopes to provide playful, appealing, and useful products to our global consumers in the future continuously, offering competitive career development opportunities to our employees, and bringing long-term and sustainable returns to our shareholders. Bashar concludes my remarks. Next, please allow Yixing to introduce the company's financial situation in the first half of the year.

Thank you, Jack, and welcome everyone for joining us today. I'm pleased to see that our business has made firm progress in accordance with the five-year strategic roadmap, and our performance has met the expectations at the beginning of the year. Our business model has demonstrated great resilience despite the softness of the domestic consumption market. In overseas market, where we double our directly operated store network, we managed to balance growth and margin, and we can surely do better in the second half because the initiatives we adopted recently to improve operational efficiency has begun to pale. Although the economic data remains mixed, We see structural opportunities in IPO retailing and globalization. We have full confidence to deliver our new beginning targets. Now, let me walk you through our financials for the first half. Please note that all numbers are in year-end B unless otherwise stated. And I will also refer to some non-ITRS measures which have excluded share-based compensation expenses or SBC expenses. So revenue saw a robust increase of 25% at last year's high base and at high end of our expectation. We are thrilled to see those rises of revenue performed very well in the first half. In terms of store network, we delivered record net addition in overseas and top point and we expected acceleration in the second half in many points. And in Main China, we are on track to deliver our guidance on 350 to 450 net new units, while making necessary training to our existing store formats and franchisee structure. When it comes to single store sales, we delivered a 7% yearly growth at the group level, so we are particularly encouraged by our achievements in China Mainland. Well, SSSG was 98.3% in 3 years by level, outperforming domestic retail sector. Our product team kept introducing best selling SKUs as they have been doing during the past 11 years. Our operation team has launched several initiatives to make sure MinSource SimpleSales is best in class. For example, our O2O business, or Instant Retail, increased by nearly 80% in the first time. Because our 4,112 M15 stores are easily accessible to our customers, and we have right products and a comprehensive set of fast and convenient digital fulfillment solutions. In overseas, things for sales growth was 16%. We are still at very early stage to uncover sales potentials of overseas stores. It will grow very fast, but inevitably fluctuate. The mission critical here is localized products and operations. Although Minnesota is a pioneer in Chinese consuming brands going overseas, our attempts at retail localization are merely at the beginning stage. In addition, top-poor same-store sales growth was remarkably at 14% in the first half. Next, let me talk about channel mix. Overseas DPC market is now 20% of our total revenues, compared to 14% in the first part last year. The revenue contribution from sub-China online stores decreased by 4%. This shift in revenue mix is one of the reasons why we had another record high GP margin, and it also changed operating profit distribution within a year, as more profit will be made in the second half. In terms of GP margin, the EUA hike of 4.1% in points is a result of not only revenue mix shift, but also improvements in GP margin at every single line of business, not only in top oil and overseas. Going forward, we have enough reasons to believe our GDP margin can be optimized further because of above reasons. Yet we will keep an eye on value proposition and make dynamic adjustments. SG&A expense increased 56% in total, including a 66% increase in selling and distribution expenses, and a 27% increase in general and administrative expenses. SG&A represents 24% of our total revenue. 5 percentage points higher than the same period last year, among which 3 percentage points were directly related to our new DTC stores opened in the past 12 months, including Rains, DNA, and Payroll. As we discussed in the press release, the investment into DTC stores is to make sure the future success of our business especially in strategic overseas markets such as the U.S. market. As of June 30, 2024, the number of DTC scores in overseas markets was 343, nearly doubling such figures compared to a year ago. In the first half, revenue from DTC scores increased by 111%, while related S&P expenses such as rents, D&D expenses and payroll excluding SBC expenses increased 83%. These new scores are expected to contribute to more substantial sales in the second half of 2024. We are taking effective measures to improve operational efficiency in these DTC scores and control costs. The initial result is very good, so we believe the hike in operating expense ratios won't last too long. Promotion and advertising expenses increased by 46% in the first half. P&A expenses as percentage of revenue stabilized at around 3% in both periods. License expense increased 24% consistent with our revenue growth. Logistics expenses increased by 54% compared to 45% for revenue growth in overseas. Reflecting to a certain extent, the rising rate costs caused by tension in international treatment during the first half. Turning to profitability, operating profit increased 18% year-over-year. OP margin was 19.3%. compared with 20.4% in the first half of last year. Notably, there was a 12 million net foreign exchange loss in this first half, compared with a 55 million net foreign exchange gain in the same period of last year, excluding SBC expenses and FX impact. Adjusted OP margin was 20.3%. compared with 20.1% last year. Adjusted net profit was remaining 1.2 billion, up 18% yearly. Adjusted net margin was 16%, compared with 17% last year. Excluding FX impact, adjusted net margin was 16.2%, compared with 16.1% last year. imply our stable profitability under scalable growth. Adjust EBITDA increased by 26% every year. Outpacing the growth in revenue, Adjust EBITDA margin was 25.4% compared to 25.2% in the same period last year. Adjust basic and dilute earnings per ADS increased by 18% and 19% respectively. Turning to cash. So by end of June, we maintained a strong cash position of 6.9 billion. Net cash flow generated by our patient in the first half was about 1.3 billion. Cap house was 303 million and free cash flow was about 1 billion. Turning to working capital. The China inventory turnover remains efficient. By the end of the first half, 26% of Minsu's brand's inventory were located in overseas DTC markets, compared to 21% a year ago. Inventory turnover days were 81 days, including 70 days in China and 147 days for Minsu overseas DTC markets. Structurally, inventory over 180 days accounted for about 12% on group level. Turning to capital allocation, we are committed to a dividend payout ratio of no less than 50%. Our capital allocation strategy will also continue to balance fast growth and our commitment to bring stable and foreseeable returns to shareholders. The follow-up company has approved an interim cash dividend for the first half of 2024 with a total amount of approximately RMB 621 billion. Upon the payment of the interim dividend, the company will have retained RMB 1.4 billion in cash to shareholders through dividends and share repurchase from year-to-date. Since 2020, we have retained 3.6 billion to our shareholders upon the payment of the interim dividend, accounting for 62% of adjusted net profit accumulated from 2020 until the first half of this year. We are confident in accomplishing our 3-year business plan and 5-year strategy and believe that our share price has been trading below its intrinsic value. Approximately, the board of companies has approved the share repurchase program to make the best of the general mandate granted at our general meeting held in June this year. Under this general mandate, the company may repurchase its shares and ADS in the next 12 months, not exceeding 10% of the total outstanding shares, and execute share repurchase in the open market, subject to market conditions. We believe that the share repurchase program is in the best interest of the company and its shareholders as a whole and creates value for shareholders. Our performance for the first time once again demonstrates the strength and resilience of our business model and reflects our ability to execute on our IP and globalization strategy. I am very confident that we will once again meet our full-year targets. Our financial strategy will continue to remain disciplined in terms of budgeting, cost control, and allocation of capital as we commit to delivering stable profit and healthy cash flows. Our target for the year of 2024 remains unchanged from our expectations at the beginning of the year. The revenue is expected to increase by 17% on a yearly basis, and the Japanese net profit target is remaining 2.8 billion or higher. Thank you, and this concludes our prepared remarks. We are now ready to take questions.

Thank you. The first questions are coming from the CEO from Bank of America Merrill Lynch. Please go ahead.

Hi, management. Thanks for taking my question. So two questions here. Firstly is on the domestic market. In July and August, we have witnessed some weakness in the domestic demand. So could you please update us? How is your performance in the first two months of July and August? And how should we think about the pop-up store contribution to these two months as well as for the rest of the year? So that's the first question. And the second one is for the selling and distribution expense as a percentage of revenue, which has exceeded 20% this quarter. So this is the highest since we have listed. So I believe this is due to faster overseas DTC expansion during low season. But how should we think about this ratio going forward in the second half? Should we expect that to go back to maybe like first quarter level or last year level? Thank you.

In terms of domestic consumption, we are confident that we will continue to maintain the top-of-the-line industry in terms of energy consumption. In fact, from July, the recovery rate of energy consumption rose by more than 97%. After September, the technology will change in the second half of the year. In addition, we will implement a strategy for AP products. In fact, in all aspects, our goal is to continue to restore energy and maintain the growth rate. China's annual sales growth target share is between 10% and 15%. In the future, we will continue to carry out economic operations to improve China's economy. The first is to increase product power. Product power is our core component. We focus on AP and power generation. If product structure adjustment can be realized, sales will increase, especially with the performance of fast power. In terms of consumer consumption, the production of products will have a positive effect on the sales of the whole store, including the case, supply and demand products, and other IP products. The second is the body channel. This is a record of the previous few seasons. There are only 4,000 stores on the market, and they are in the process of structural design. Since the end of last year, small stores have changed to large stores, old stores have changed to new stores, and the bad stores have changed to good stores, and they are in the process of promotion. Thirdly, we want to enhance the brand power, including the continued promotion of the brand application process to build a range of high-performance, well-designed, and well-operated flagship stores. To be honest, we are also actively promoting the process of building a brand channel and scale. In the last two weeks, we had a very good sales response from the AP brand in Tianjin. There is also a new batch of new products in the future, which will continue to be used in the supply chain of Chinese famous stores.

so i will translate for mr quickly so about your questions on uh the performance in the recent in recent months so first minso's steam store sales in china in first half it was about 98 with afp increased by 0.1 and traffic down by 2.5 and our conversion rate from stop visit to purchase stabilized Now we are facing and challenged by a very soft domestic consumer market, but Minster has very, very high confidence to keep the best-in-class same-store sales in China, specifically in the 37-month same-store sales, above 97% year-to-date. And we will see a relatively lower base entering into September. And we also are working on our IT products, including operational and investment in instant resale. So our target for the whole year is to stabilize our central sales with 100% recovery or higher or lower than 2% on that base. And our target for the whole year for our Chinese business remains unchanged with 10% to 15% yearly growth. And about the simple sales, in China, we have more initiatives going forward. The first is improving our product capabilities, which is our very core capabilities. And we'll focus on IP and strategic categories to improve our, you know, to optimize our product structure. And we will have a lot more and more interest driven product categories going forward, which will help our increase in simple sales, including blind box or lucky draw box and, you know, and plush toy and other items. The second is increase, improve our capabilities in channel extension, as we have talked in the past several quarters. Now we have thousands of stores in China that have, you know, we can improve by Structurally, you know, operate the school format or inside and so on. So since last year, we have been executing this improvement. Our plan is to finish this improvement in the next couple of years. And the third is to improve means of brain awareness. including our strategic brand upgrade. And we want to build lots of flagship stores with better image and better performance. For example, two weeks ago, we had a newly launched IP lane opened in Tianjin. And we have received very, very positive initial feedback from consumers there. And we have also Zhongguo Nunchang, this new kind of store format launched this year. And going forward, we will have another store format by an experiment, which we are very looking forward to see that. And this is about the second question about DTC stores selling and distribution expense. A quick answer is, well, as I mentioned, the hike of our expense, especially those expenses with DTC stores, won't last long. Because if you remember, we have talked that minso stores in the US now are already in 40 states already. Considering that we have only 200 stores, that means our stores in the United States are very separated. That means we will need to open more stores before we can get these logistics expenses or related expenses to be leveraged. Because our store expansion plan in the U.S. is very quick. For example, by the end of this year, we will have doubled our store base compared to one year ago. So we think that when we have 300 stores or 400 stores or even 500 stores, we can fully leverage these logistic expenses and other expenses. and other expenses such as store rents and labor costs are also on the way to be optimized. So I think in the second half, you will see that our operating expense ratio will be significantly reduced.

The next questions are coming from Ms. Michelle Chen from Goldman Sachs. Please go ahead.

叶总,Eason,你们好。 那我这边也是很快两个问题。 那第一个问题是关于美国市场这一块。 那我们这几个月其实也看到说有一些美国零售公司像Buy Below这些的同店压力也变得比较大嘛。 那能不能分享一下我们现在看到的一些机会跟挑战在美国这边。 那这个怎么会影响到我们的这个拓展策略跟门店模型。 So I have two questions for management. For the first one is on U.S. market. Given the volatile consumption market in the U.S. in the past few months, do we see any new opportunities or risk? And how this will impact the strategic expansion and store format? And also the second question is about Europe market. This is one of the key focus we mentioned earlier of the year. And can you update us the key, any development for different markets and in terms of the store format partnership with different partners and also the store format, et cetera. And any good progress we are seeing so far and any room for further improvement. Thank you.

As for the U.S. market, the overall overseas market capital has still been growing slightly. Because we are still in the early stages of localization in the overseas market, there are still a lot of work to be done in terms of brand recognition, localization of products, and localization of operations. I believe that overseas capital will also go through a period of rapid growth, but there will be many changes in the growth between sectors. The second is that in 2023, the growth of U.S. business is expected to come from the growth of the power supply. This year, our U.S. goal is to double the size of our business, and the growth is expected to be open. In the first half of the year, the U.S. power supply has grown by 14%, and the power supply has doubled. At the end of July, the U.S. market is expected to compete with 69 U.S. power stores in the next 24 years. In 2024, there will be more than 100 competitors in the whole year. In the future, we will see that the opening of the US market will gradually accelerate, and we will actively explore the operation model of multi-models, such as leading, joining, and managing. This model will also ensure that the profit margin will fluctuate within the control range to maintain a relatively stable profit margin. In the last half of the year, the U.S. supply chain growth rate has been 14. In the future, in terms of supply chain growth, In terms of products, we are actively adjusting the supply chain and expanding the supply chain. On the one hand, the local supply chain can improve our overall efficiency and reduce the supply cycle. On the other hand, it can increase the local financial support. The focus is on the local IP snacks, IP cosmetics, and IP toys. The second is to expand other global supply chain products, including Japanese and Korean AP products. The third is to enhance AP product research to provide customers with better AP product experience in order to achieve the global AP alliance. In terms of door-to-door, the door-to-door upgrade includes two parts of the power supply upgrade, from the power supply image upgrade to enhance the power supply product experience and product image, and the front-end upgrade of the digitalization system to enhance the door-to-door operation efficiency. In terms of member systems, the front-end upgrade of the member system increases the growth of consumption, and the expansion plan for the future of consumption, the door-to-door operation, etc., increases the number of customers, and the increase of supply and demand. In terms of local construction, localization of local construction is increased. For example, the local construction of the two-storey building is localized. In addition to the training of overseas businessmen and local operators, there is also professional guide training. The training courses are divided into sections according to the level of training, and the training courses are gradually built. More courses are allowed to repeat the examination at the scene, watch the examination to estimate the cost of training. Taiwan.

Let me quickly translate. So overall, in the overseas market, the same-store sales was doubled in growth in the first half. And we're at that early stage, as I mentioned. We have a lot of improvements in brand awareness, product authorisation, professional authorisation. and so on. So we strongly believe that we will still have a lot of room to grow. But it will grow fast, but it will inevitably fluctuate, especially on a quality basis. In last year, 2023, the major driver of our U.S. business was same-store sales growth. But in this year, I think our target is to double this business. So I think our major driver will be the store network extension. So in the first half, the U.S. same-store sales growth increased by 14%. and the stone network, the stone numbers double, and which is in light of our expectation. And by the end of July, we already added about 69 new stores in the United States, and we'll have about 100 for three years in this year. And in the future, we'll see that the United States will accelerate in terms of open. And we will open to discuss uh to have you know more franchisees or distributors come to join us to have a very rapid slow network expansion while maintaining a healthy profit in the united states and since we increased uh 14 in terms of single sales growth in the united states the future we will have in the server side to increase But the first is product side. We will adjust our product structure to increase the local supply chain and increase our inventory turnover and reduce the product lead time. And on the other side, we want to increase more local sourcing. especially in IP-related snacks, IP-related cosmetics products, and IP toys. We will also introduce best-in-class blockchain suppliers in other parts of the world, including systematic and beauty tools in japan and korea and we will also increase our you know ip related product research and developments which will increase our international experience with it products and in terms of storefront We will upgrade our stores there, including image and product experience. We will upgrade our digital system to improve the store efficiency as we did in China several years ago. And loyalty program, we will increase our loyalty program as we mentioned. We will improve our customer insight capabilities and we will tailor products with our product structure and tailor our store operation measures to increase the customer's thickness and increase repurchase. We will have a strong team overseas, especially in the US. We will have a lot of our team, including the buyers, and we will have a business doing overseas. including training localized operational staff, operational team, and we will have a lot of online course and training course. And we are now building our department in Southeast Asia to train new staff, new overseas team in Malaysia. And the first batch of this project has finished. And this new team will be the core team of our expansion in the United States. And in the next two years, I mean in 2024 to 2025, we will also set up a training center in North America and get fully prepared for our

Second, in the first half of the year, the U.K.' 's total daily sales increased to 20,000 a day, with a growth rate of more than 50%. According to the U.S. market, there are 30,000 a day, and the Mexican market has a significant increase every day. The U.K. market will become the benchmark of the European market in the future. We believe that the European market will have a scale of at least 1,000 companies in the future. The European market also has a very large development potential. The second one is called AP. It is a product that is not in line with the European market in terms of AP differentiation. From the perspective of the European market, it is a large-scale AP product. AP products have increased from 49% to 65% in the past year, and have exceeded 85% in the past year in France. There is also a significant increase in the market share of large-scale products. The third is to focus on core frequency. More than 90% of the products produced in more than 100 industries have good performance in each industry. In the future, the strategic trend of core frequency operation will be very strong, and it will gradually become more and more professionalized, and the current shopping limit and frequency structure will be effectively improved.

On your second question, so we have three measures. The first is to upgrade our store formats. Let's take UPI as an example. Well, we have been, you know, proactive, you know, proactive helping to increase and upgrade their channels to open bigger stores and to open better stores. So, you know, first of all, it seems to have increased by 50%, 5-0. and its total sales increased by 150%. And that has once again demonstrated that our super strong strategy has helped increase the overall performance of the market. And in terms of personal sales per day, UK now is about 20K or even more, and it increased by 50% every year. so it still has room uh you know compared with the united states compared with mexico market but it's already a huge jump for itself and it's the best in europe already and in the future uk will be the benchmark in the europe for minsole and i think the europe market with athletes open one thousand The second is we want to still reiterate our focus on IP. And differentiated IP is a key to our future success in the era. From our data, IP is now 49% of total sales in there, and area increases by 65%, especially our flagship stored in the front. sense of IP sales. And this has robustly helped the overall distributed market to increase its GP margin. And the third is stakeholder Our top 100 SQ contributed about 90% of our total sales in Europe, and each segment has performed very well. In the future, our key product categories In this, we are making the stores in Europe getting more professional and provide more immersive shopping experience to our customers. That helps us to increase our store conversion rate. Thank you.

Thank you, Ye Zong. Thank you, Yifan.

Thank you, Michelle.

Thank you. We shall conclude our call now. Thank you all for joining us today. We will see you in the next quarter. Goodbye.