MINISO Group Holding Limited

I'd like to refer you to the Steve Harper statement in our earnings press release, which also applies to this call, because we are going to make a forward-looking statement. Please note that we're going to discuss non-IFRS 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 release and filings with U.S. SEC and Hong Kong Stock Exchange. The currency units in Chinese yuan unless otherwise stated. In addition, we have prepared the slide presentation for today's call, which contains financials and operational information. If you are using Zoom meeting, you will be able to see it right now. You can also revisit it on our IR website. Now I'd like to welcome Mr. Ye to deliver the speech. Hello everyone. Welcome to Minnesot Group's earning conference call for September quarter of 2024. As of September 30th of 2024, the Group added 859 stores on that basis, including 324 new Minnesot stores in China, 449 in overseas stores. and 86 new top toy stores. Both Minnesota Overseas and Top Toys Net Store in addition, in the first three quarters, has exceeded their respective full-year number from last year, as Minnesota Global Store Net would continue to extend. In the first three quarters, the company's revenue increased by 23% worldwide to RMB 12.28 billion, with average store count increased by 90%, with theme store sales growing in a low single digit. The world is changing, and global retail industry experiencing major reshuffle. Consumerist perception continue to evolve. In this time of the Great Transformation, China retail sector is facing opportunities for breakthrough. Minister Group will firmly grasp the two trends in the future, maintaining a focus on quality retail and interest-based consumption. The future will be characterized by a consumption model that combines product innovation and consumer experience. And you can see, in September, the company announced the acquisition of a 29.4% stake of Yonghui. Through this ongoing transformation, we aim to excel the quality retail, change traditional supermarket approach and deliver superior product, service and consumer experience. Then investors associated transformed Yonghui Store during this period, which should help us better understand our investment rationale. Moving forward, we will decide to dedicate more assets to study consumers and understanding the changing consumption trends, maintaining a people-centric approach, and returning to retail fundamentals. In the completion of Yonghui's stake acquisition, Minnesotans were in-campus three brands, Minnesotans Top Toy and Yonghui. Those brands complement each other while differentiating in product categories, target consumers, and price points, gradually building a unique multi-brand matrix in the retail sector. Meanwhile, Leveraging many years of accumulated supply chain resources and product design capacity as a shared platform, we will be able to empower those brands to improve the synergy and operational efficiency. We remain focused on the consumer retail industry. We believe by a steady-fast implementation of our multi-brand and globalization strategy, we will not only strengthen our existing competitive advantage but also help consumer market to navigate instabilities and diversify operational risks. Minnesota core business maintain our growing commitment for the three major five-year plans from 24 to 28, maintaining a compound annual revenue growth rate of no less than 20%, with earnings per share grow faster than revenue. Second, 8,900 new stores globally each year are a net basis, achieving IP product sales contribution over 50% by 28%. The dividend policy of distributing no less than 50% of adjusted net profit annually continued the dynamic share repurchasement, delivering predictable returns to our shareholders. Coming next, I'm going to share with you Minnesota-China, Minnesota-Grover Seas and the Toktoy development in the first three quarters of this year. Minnesota-China revenue growth in the first three quarters met the expectation of our five-year plan, including both up-store and e-commerce revenue growth by 12.3%, with offline store growth by 11.8% and e-commerce growth by 90%. And 11.8% for online store was primarily driven by 40.7% increase in average store's count, where same-store sales slowed amid single-digit decline in first nine months of this year. Fitting the challenging micro-consumption environment, we actively developed our auto business, which grew by nearly 80% on worldwide basis, helping us to stabilize seems-to-performance to some extent. According to the National Bureau of Statistics, domestic retail sales of the consumer goods increased by 3.8% in the first nine months of 2024. As an industrial leader, we achieved the growth rate of 12.3%, demonstrating greater resilience of our business. So, we feel optimistic about the Minnesota's China housing growth in 2025. In the first three quarters, we aided 324 net new stores in China, maintaining a steady expansion pace towards our annual target of 350 to 450 net new stores, 60% of those new stores being in Tier 1 and Tier 2 cities, which tells us we still have significant untapped market for store expansion in China. simple self-declined by meeting with a good number because the three quarters with transaction value showing a slight increase while why where transaction volume decreased by a single a mid single digit high-tier city outperform lower-tier cities in the same store performance in the near future we're going to have refined management over IP-centric product making sure IP-centric interest-based consumption strategy of our business and continue to further improve the sales efficiency. The IP consumer goods market is a trading-level market with great potential for Minnesota's IP strategy. According to Global Licensing Report in 2023, the top 10 global IP licenses accounted for nearly 70% of the global IP retail sales, while the top 20 licenses represent more than 80% of that, demonstrating a very strong concentration effect. Over the past few years, Mijiso has achieved significant success in IP. We have collaborated with more than 150 IP globally. We have partnered with 6 of the world's top 10 IP licensors and 9 of the top 20. Moving forward, we will forge deep bonds with those leading global IP licensors. leveraging our global store network, design capacity, and supply chain advantage to launch new products. We have already began the deep collaboration with Disney and Xenreal on the important product innovation category. We also worked with Harry Potter IP, bringing new inspirations to Minisource's product design style, accumulating experience in developing new SKU categories, but also continue to stimulate Minisource's potential for future collaboration with more diversified IP still. We also improve product strength, striving to unlock the potential of the interest-based consumption through innovative store formats. The seven-layer store metric strategy announced at our brand-upgraded conference on October 29th has been implemented systematically. We're going to have the IP scenarioization and the capitalized scenarioization. The IP land store represents our IP scenarioization format. In August, our first Minnesota land opened in Binjiang Road, Tianjin, achieving nearly RMB 5 million in sales in its first month. Shanghai IP Land store opened in October, so IT products accounted for 70% of the sales during its first opening month. We hope we not only provide the experience, but also exclusive IT products, enhancing shopping uniqueness. For category, the novelizations, SIM store are our key format. Many stores were developed as sales for $800,000. to 600 categories in the stores, focusing on four major categories, plush toys, light boxes, pads, and ACG, challenging young consumers and emerging consumption trends. The plush themed store that opened in Times Square in Chongqing in December has become a landmark destination for the plush toy fans. And you can also see that our sales per scrubbing also continue to be improved. Going forward, Minnesota will combine product differentiation with store format differentiation, using different store formats to meet consumer variety needs, bring more joy to the global consumers. I mean, next, let's talk about overseas business. In the first three quarters of 2024, overseas revenue exceeds 4.5 billion RMB, representing worldwide growth of 41%, and especially for direct-operated markets, it's grown by 64%. Distributed market increased by 22%. GMV reached 9.7 billion RMB. in the first three quarters grew by 31%. The Directed Operated Markets, showing 56% growth. Distributed Markets grew by 22% on comparable basis. IP strategy continues to have a notable growth. The IP product accounted for over 40% of the overseas market sales in first three quarters, sales revenue growing by nearly 85% on worldwide basis. In the first three quarters, we see very good growth. The result is quite impressive, net addition of more than 449 stores. Direct operated markets contributed to 67% of the net new stores, primarily from the United States or Indonesia. We see the total net new stores for this year will reach 650 to 700, exceeding our previous forecast. Same-store growth in overseas markets shows a high single-digit growth number. We were going to keep a flexible store operation model, introducing franchise stores in direct operated markets for leverage expansion. We are deepening involvement in the distributor markets to better guide the store openings and operations. Italy ranked among the top 20 overseas markets in Europe in 2023. By 2024, we have four major European markets, UK, Italy, France, and Spain, showing rapid development. Those are all because of our deep guidance to the distributors to adjust the inventories and store operations, improving the efficiency and profits. In the near future, we aim to increase consumer stickiness in overseas market through continuous optimization membership system, in-depth consumer research. Take Indonesia and US market as an example, member consumption contribution grow by 97% and 244% respectively, significantly outweighs the membership growth in both regions. We will further develop localized product and adapt store operation strategy to local market. realizing Minnesotan from China's joy to the world. Regarding the potential U.S. tariff increase risks, we primarily view this as an industrial-wide impact. Compared to other retailers who mainly rely on buyer-sourced merchandise, our products are predominantly Minnesotan private brands, and through our IP collective store model, we maintain differentiation from other retailers. giving us stronger pricing power to offset potential cost increase. Nevertheless, we take the following measures to mitigate potential risks. Increasing local sourcing ratio. In U.S. market, now about 30% of the products being sourced from overseas supply chain. Establishing our backup overseas supply chain. We actively identify alternatives in South Asia, Japan, Korea, and within the U.S., expecting to cover an additional 50% of the US product category. We have the capacity to source over 80% of the products for US market through oversource supply chain. We optimize overseas inventory management strategies. Internally, we have a dedicated workforce to regularly assess global trade policy impact on our supply chain and be able to formulate responsive measures. By having a diversified supply chain, we will be able to further improve inventory management, continue to strengthen our global competitiveness. Let me also talk about Toptoy. In the first three quarters, Toptoy revenue grew by 43% on worldwide, theme store sales grew by 5%. Toptoy added 86 new stores, steadily progressing the annual target of 100 stores. In Q3 of 2024, Toptoy's self-advisor products continued to increase. For example, the pilot of Toptoy, shop-in-shop in the New Society Land Store in Indonesia opened the first overseas store in Thailand. And because I'm young, demographic structure, rapid economic development, young people become the target consumer of top toys. We believe by deep dive into the Southeast Asia market, top toy can achieve rapid growth, establish a solid foundation for its global expansion. We always believe AirFly retail has unlimited potential. Chinese brands have great opportunity ahead. The keys for innovation and retaining to the retail fundamentals focusing on consumer bring the good service and product of consumer. When more Chinese brands started to showcase its great advantage, all the brands are running forward, breaking through and advancing. Vinasol adhered to the long-term strategy. We are committed to steadily improve our product and service, contributing to the rise of the Chinese brands. That concludes my remarks. Coming next, I will have Ethan to present you the financial piece.

Thank you, Mr. Ye.

Welcome everyone to our meeting. Coming next, Let me just go through Minister Group's financial data in the first nine months of 2024. Please note, unless otherwise stated, all figures are in RMB. I will also mention some non-RMB figures. IFRS financial metrics that exclude stock-based compensation expenses. In the first nine months of 2024, our total revenue reached 12.28 billion RMB, growth by 23% on a worldwide basis. According to the forecast of the year, we are progressing towards our target. Average stock count increased by 90%, with comparable theme store sales growth by a low single-digit number. Revenue from China region reached 7.4 billion, grow by 40% on worldwide basis. Within days, municipal brand China revenue was 7.03 billion, grow by 12%. Pop toy brand revenue was 700 million, grow by 43% on worldwide basis. Overseas revenue reached 4.54 billion, grow by 41%. Within days, revenue from direct operated overseas market was 2.45 billion, up by 64%. Distributed market was 2.1 billion, up by 22%. Take a look at the revenue structure. In the first nine months, overseas revenue accounted for 37% of our total group revenue, where in the same period of 2023, the number used to be 32%. The contribution from direct operated overseas market used to be 50% last year, but now it's already 20%. The change in the revenue structure is the key driver why we have a record high GP margin, which has also resulted in the operating profits being more concentrated to the second half of this year. Regarding the GP margin, in the first nine months of this year, GP margin grew by 3.7 percentage point, reaching 44.1%. Besides the adjustment in our revenue structure, the improvement also benefited from the IP strategy, which improved the GP margin for all business segments, especially the overseas operations and the top toy GP margin. They all improved by a high single-digit increase. Looking in the near future, with more overseas revenue and IP sales, our GP margin will continue to trend up. However, as been mentioned by Mr. Ye, we will continue to uphold our value for the price-to-performance product. In the first nine months of 2024, Combining selling and administrative expenses increased by 54% and selling expenses up by 63%. Administrative expenses up by 28%. Selling and administrative expenses accounted for 25% of the revenue, 5% higher than the same period of last year. Over 60% of those expenses increased was related to the newly opened directly operated stores. As privately communicated, our current investment in directly operated stores aimed at capturing more sales opportunities to ensure our future business success, particularly in strategic overseas markets like the US. At the end of September, we had 422 direct operated stores in overseas markets, double the number from the same period of last year. In the first nine months of 2024, Revenue from directed operated stores grow by 104%. Related selling and distribution expenses, for example like rent, depreciation and amortization, and personnel cost. grow by 75%. We are implementing effective measures to improve the operational efficiency of those directed operated stores and control the cost. We believe with refined operation and strict expenses management, we believe the operating expenses ratio will be stabilized or trending down, and we also expect those new open directly operated stores will unlock great sales potential in the near future. In the first nine months of Dacia, advertising and promotion expenses grow by 38%. There'll be 3% of the total revenue the same as last year. Licensing fee grow by 38%.

Accelerated compared with H1 of Dacia.

The key reason is because We do have a few IP reserves more and launched a new IP product service. The overall IP sales proportion notably increased, especially in overseas markets. Logistics expenses increased by 52%, partially reflecting the higher shipping costs due to international shipping constraints in the first nine months of 2024. However, we have observed a clear trend in the growth of these expenses. Regarding the profitability, in the first nine months of 2024, an adjusted operating profit grew by 60%, and an adjusted operating profit margin was close to 20%. An adjusted net profit margin was $1.93 billion, up by 40%. An adjusted net profit margin was 50.7%. and will also maintain a relatively fast growth for our directed sales model. Adjusted EBITDA earnings before interest tax depreciation and amortization increased by 21% with an adjusted EBITDA margin of 25.3%. Adjusted basic and diluted earnings per ADS increased by 40.1% and 40.2% respectively. Regarding the working capital, our channel inventory turnover remains efficient. At the end of September 2024, 30% of the Minnesota brand inventory was located overseas. One year before, that number used to be 21%. Inventory turnover days was 85 days. China market 71 days unchanged on YY basis. Minnesota Brand Overseas Directed Operated Market turnover was 173 days, used to be 135 days last year. It's because we are advancing the stocking to address potential tariff breaks and also accelerated store openings. However, the average inventory level per overseas store decreased on one-one basis. Structurally speaking, Inventory aged over 180 days accounted for 12% of our total inventory. Going forward, we will further optimize our overseas inventory management strategy to improve the turnover efficiency, reduce the risks. Regarding the capital allocation, we will also maintain a dividend payout ratio of no less than 50% in the coming period. Our capital allocation strategy will also balance rapid business growth with our commitment to delivering stable and predictable returns to our shareholders by the end of September. We have already distributed cash dividends exceeding 600 million RMB. Year-to-date, the company has returned approximately 1.6 billion to the shareholders through dividends and share buybacks. Starting from 2020, we have returned more than 3.7 billion RMB to shareholders. In the first nine months of 2024, we generated operating cash flow of 2.03 billion, free cash flow 1.47 billion, At the end of 2024, September, we maintain cash reserves of nearly 6.3 billion, including 1.72 billion in cash and cash equipment, 4.23 billion in wealth management products recorded under other investments and restricted cash on the balance sheet, around 340 million in deposits. The company's interest borrowing That ratio remains lower than 1%, leaving empty room for our balance sheet. Last but not least, I also would like to share with you the latest progress of Yonghui transaction. The Yonghui acquisition requires satisfying the five great conditions. To date, the transaction circular has received non-objection confirmation from the Hong Kong Stock Exchange. The Market Supervision and Administration Authority has completed a public notification period for the simplified merger filing. This means we have essentially completed two of the five preconditions. The overall progress is meeting our expectation. We anticipate the transaction will be completed in first half of 2025. As previously communicated, after completion, Mediaso Group will become the largest shareholder of Yonghui. Going forward, we will take investment by using equity method. We are positive about its future development. The current valuation is quite attractive. The investment will better leverage both parties' supply chain and channel integration advantage to create more value to Chinese consumers. We expect to finance at least 60% of the investment account through external borrowing, in other words, equals to RMB 3.76 billion, allowing us to further optimize our capital structure and improve return on capital while maintaining sufficient cash reserves.

So all in all,

Our performance in the first nine months of 2024, again, demonstrated our strength and the resilience of our business model, which also reflect our effective execution and development potential for the IP strategy looking to the future. Our full-year target remained unchanged from the beginning of this year. Revenue growth would be 20% to 30% on a one-way basis. The adjusted net profit target was 2.8 billion. I'm confident in achieving the full-year targets, and I have every reason to remain positive about our future business development in 2024. Our financial strategy will continue to keep vigorous in budgeting cost-control capital allocation, committed to achieving stable profit growth and healthy cash flow. Okay, that's all for the prepared remarks. Moderator, we can now start the Q&A session. Okay, the first question is coming from... Hello. The first question is coming from Annie Lin, please. Hello, Ethan, can you hear me? Yes, great.

Thank you very much.

I have a few questions. I'd like to ask about the Q4 outlook. At least now, we see that in China, the market was not looking very well. So I'd like to ask you, in Q3 of this year, the performance also seems to decline, and the growth is only a single-digit number. So how are you going to comment on the Q4 performance? What about the Double 11 sales festival? What situation may look like? Would you mind to be more elaborative on Q4 updates? And what would be your growth opportunities in China market? This is my first question. My second question, you did a very good job for overseas business. that I'd like to ask you, in your direct operated market, how you're going to comment on the acceleration of the store expansion, for example, in US or in European countries? Is there any measures we're going to take in order to further grow our business in overseas markets? I think you have already experienced the Black Friday, then how you're going to comment on the south in festival occasions how it's going to contribute or drive your q4 performance thank you okay thank you thanks for n thanks for your question let me just answer your question for the outlook of q4 i will ask mr yen to share with you our comments on the u.s market in 2025 as we mentioned by me We are still very confident in accomplishing the target we set by the beginning of this year. In Q4, we believe our top-line growth would be around 25% to 30%, within which the overseas market growth would be 45% to 50%. 45% to 50% growth direct sells Direct-operated model going to be 70% to 75%, where for distributor market, it's going to grow by a 20% number, while for toy stores, we're going to have a 50% to 55% growth. While in China, the growth would be a low-teens number, including e-commerce. I'd like to emphasize again, even if after having Q3, we see a big pressure for the offline retail business, but I think for miniature brands in China, we can still have a low-teens growth. which is achievable. That is also our guidance for Q4. Where for store expansion, in overseas market, all the data we're going to have 650 to 700 stores. So in Q4, the overseas store expansion net growth would be 200, 250. For top toy, and in the previous three quarters, we have 86 new stores. For the full year, we managed to make it more than 100 stores. where we can say for domestic China, we're going to have around 400 new stores in 2024. So for the full year, we are going to have 700 overseas new stores, 100 toy, pop toys, and around 400 municipal stores in China, altogether 1,200 new stores. Where in China, we have on track performance of the store expansion, accelerated store growth in overseas countries for the profit, As I have already mentioned last year, our net profit target would be 2.8 billion, remain unchanged. Net profit would be highest in Q4, where for the guidance, we also would like to keep our net profit margin between 16 to 16.5%. In 2024, According to the guidance, we believe our growth will be accelerated compared with 2024. Our direct operated business has been divided for a while. It can help us to better control the cost and be more capable of the same store growth. Your next question is regarding US and Europe, right? So, Mr. Ye, we'll take over the floor to answer your question. Okay. What's the question about European market? You know that I heard from your presentation you hope you can have a better business development in Europe, taking UK as your base camp, right? Okay, great. I'd like to know if there's any progress there. Okay, let's ask Mr. Ye to talk about the U.S. market. Well, for U.S., the YTT growth is actually a mid-single-digit number in line with our expectation, and the channel expansion is being accelerated. Those stores are going to release great sales potential, especially in Q4. We're going to have more store expansion in U.S. to take care of the best sales season. Well, for this year, in U.S. stores, the OPM will continue to go up. We will have more revenue from U.S., and we also adopt measures to improve the operational efficiency of our direct-operated stores. We will continue to improve the operating leverage, improving the profit rate. We also organize local management team, control the cost on warehousing logistics, rents, and labor costs. I do believe with refined operations, and the operational cost will be stabilized or even trending down. We have very strong confidence for our Q4 U.S. profit and the profit for 2025. Do you have any OPM target, Mr. Ye?

We don't have it yet.

Well, let's talk about the UK. For UK, the same-store performance growth was 35%. We have already been effectively supporting the distributors to adjust their product and operationals. We have already improved the interior decorations of the UK stores, optimizing the consumer experience. We also have some very popular IP products and SQL. And the APS has been greatly improved. And at the same time, attachment rate is being further improved. That is for UK market. Okay, great. Thank you. Next question comes from Wei Xiaobo from Citi, please. Can all of you hear me?

Hello?

Thank you. Thanks for Ethan. Thanks for Jack. I just have one question. That is a question. I'd like to direct to Mr. Ye. Yonghui is indeed a transaction that has been spotlighted by the whole capital market, and especially there are some transactions regarding the super-hyper business. And the announcement has been made for one to two months. I know you're also making research. In your opening remarks, you already shared with us some of the strategies of your operation Would you like to elaborate on some executables? How are you going to improve the performance of Yonghui? Are there any concrete measures you have in place?

A few points I can share with you.

Actually, four points. First of all, On both sides, Yonghui and the Minnesota team has already started to talk and engage each other, and we also have a Minnesota team to help Yonghui to further optimize their procurement cost. This is the first thing. Minnesota is supporting Yonghui to build self-owned brands, improving the contribution from the self-owned brands to improve the GDP margin. As I mentioned, in the near future, for SuperHyper, the most important thing is to have the self-developed product. For example, like Costco and Sam's Club, they all have great contribution from the self-made product. So that's the reason why supporting Yonghui of building their self-branded product. The third one is to optimize the product and service of the store, improving store operational efficiency to reduce the cost while improving the human efficiency. After three months, we hope that we can improve the labor efficiency. This is indeed what we hope to make sure that each of the improvement store need to make positive profit. If the pilot store can make a very good performance improvement, then we can ask the landlord of providing a concession on the rent. Nowadays, for the store, the highest cost is still the labor cost, so that's a reason We're going to follow the professional service to further improve the professional service efficiency. After two to three months, we can schedule more new people to new stores, improving the operational efficiency of the store by having the skilled labor force. Resource concentration and also adjusting the store metrics. Just keep shut down those profit-losing stores. We'd like to stick to the high-quality development, only work on those well-performed stores, keeping an eye on the primary sources, the best primary location to open stores. So for Yonghui, in the near future, all the adjusted stores need to make positive money. We don't need so many numbers of the stores. Here now, for Yonghui, they have 790 stores. We're going to close those financially-losing stores. For those ones with severe financial losses, they're going to be 10 off. We're going to keep an eye on those best performing Yonghui stores. Even if we have less stores, but the performance of each store has been further improved, in the near future, if we only keep 400 to 500 stores, if the efficiency has been good, then even the total output is better than the 100 low-performing stores. I think those are the four measures we have regarding the procurement cost, labor efficiency, the metrics of the store to further improve Yonghui's future performance. Mr. Ye, I just summarize in this way. Both teams are already talking to each other. So financially speaking, right after the transactions being completed, we're going to see the immediate performance of Yonghui on your Biden sheet, right? We have to complete the transaction then to show you the performance. We're still in the early stage. There are some transitional arrangements. You know that especially for procurement, for brands, it takes time for both parties to talk to each other. It's still time-consuming. We're still in the early stage, preliminary discussions, business alignment, and the communication. We foresee in H1 of 2025, we will be able to complete this transaction. The sooner the better, then both parties will be able to have material cooperation on business. Okay, great. Thank you both. Okay, great. Next question coming from Goodland Thoughts. Thank you. Thanks for giving me the opportunity to raise a question. I come from Goldman Sachs. I have two questions to you. The first question is regarding same-store performance in China. From Q4 to now, what would be the overall trend? What about the overall trend in 2025? You mentioned that China is going to be a great driver. Last month, when you have the brand strategy upgrading conference, you mentioned they're going to have the brand metrics and the store metrics, how you're going to see its future growth. The second part is regarding IP. What is the contribution from Harry Potter IP recently in overseas and the domestic market? What would be your key IP in next year in your pipeline? And what would be your key strategy?

Thank you.

Let me help to respond the first question regarding the same-store performance. I will ask Mr. Ye to respond to a second question. For same-store performance, the overall trend, because we used to have a high baseline in Q3 of 2023, in 2023, in the summer holiday, there's very strong demand for travel and the popular sales of Barbie IP. So in the first three quarters, indeed, same-store results being pressured. ASP saw a slight increase, but the traffic's been reducing for 6%. Take a look at Q4, and still traffic being the key source of the pressure. According to our monitoring, our same-store performance is even better. than other peers in the same industry. We're looking to the future. As I have already shared with you, in the next five years, our revenue growth target already builds the uncertainties of the microenvironment and the uncertainties of the offline retail store into our forecast. In the near future, if consumption's been trending off, we're going to be benefited. for a higher growth. But even if the micro-environment has not been improved a lot, our business model will still be full of resilience. We still have many other drivers to grow our theme store performance. We will continue to optimize our operations to further improve our target, achieving performance. First of all, we're going to have refined management on IP allocation. For this year, in the higher tier cities, the same-store performance is better than the lower-tier cities. A big difference is because in higher-tier cities, the ASP sees a mid-single-digit number improvement compared with last year because there are more IP allocation in higher-tier cities. So IP-based strategy and interest-based consumption be a key driver for our future performance. In the near future, we'll make IP product allocation more refined and more tagged. facing IP products to those stores with interest-based consumption. Continue to improve the sales efficiency. My second point, that is regarding the key categories we have, Especially recently, we keep an eye on the military economy. We take ACG as a very important category to go for. We see the great momentum of ACG. We're working with some very strong ACG IP in dedicated store and have the ACG in special areas. For example, we have Identity V Halloween service in October of this year with great positive feedback. The selling rate for Shanghai No.1 store reached 93%. In Q3 of 2024, And we have 300 new stores with ACG-dedicated full space. The sales of the ACG product increased by 50% a month, quarter over quarter. And in December, we're going to have ACG-dedicated space of more than 100 square meters in Chuanxi Lou store in Chengdu, providing the large number of popular ACG IPs and check-in installations. Regarding the IP reserves, we have already worked with some Japanese manga IP for licensing cooperation, and in the near future, we're going to have more derivative merchandise by having the art commissions and also the derivative creatives to create differentiated products. The flash stores and also think stores, that's a very interesting place. will also be provided to improve interactive experience. We are also going to work with Bandai to launch more January Japanese AMI peripherals and merchandise to provide a very immersive ACH experience to more users. But let me just tell you, talent is a key. In a front-end city representing ACH culture in China, we do have a seasoned IP operational team with great talent to solidify our basis there. Same-store performance always been grown by O2O contribution. We see our O2O business was still developing very fast. In the past three quarters, it was growing by 80%. With our brand power continue to strengthen, we're going to reach more customers through the Army channel rather than from the offline stores for sales. That can also help us to improve the same-store performance. Mr. Ye, please help to respond to the second question regarding Harry Potter. Harry Potter co-branded product is our first pilot to have the Omnichannel presence, which has already made some sales record in overseas market. Very great response from the China market. But it seems that our inventory has been more efficient in overseas market. It actually helped to further improve our Q4 sales in overseas countries. in Indonesia, and we also continue to launch the IP. Its single month sales has already more than 30.85 million by leveraging Harry Potter IP, which again takes a new historical record. Harry Potter IP product sales accounted for 85% in Minnesota land stores. for 95%. And in Hong Kong, seven days of Harry Potter IP-related product has already been more than 5 million Hong Kong dollars. A single-day sales accounted for 850,000. Even in one month, the fractional sales is already more than 12 million Hong Kong dollars. Where in Malaysia, a 30-square-meter flash store. The single-day sales is 430,000 RMB. US is about to enter the Black Friday shopping season. We do see IP-related products register very good growth. We're going to have more classic IP in our pipeline and ready to be launched next year. Besides Harry Potter, we also have IP resources. We have 150 IP in our pipeline and reserve. In the near future, you're going to see more IP product to emerge in the market. Now the corporation is still in the confidential stage. When time comes, we're going to make the announcement. Over-speaking, for IP strategy, we work horizontally and vertically. We leverage more IP to improve the IP co-branded success. We're also vertically to improve the IP operation to further expand the revenue. Thank you. Okay, next question. Coming from UBS. You're allowed to raise your question. Hello, Mr. Ye and Mr. Zhang. My name is Samuel Wang from UBS. I have a question to you regarding TopToy overseas business. 2024 is the first year for TopToy to go for international expansion. You also have the TopToy store in Thailand, and you can notice in Southeast Asia, the trend towards being very popular. What about your operationals of TopToy in overseas market? What would be the future strategies you may have? That is a question regarding top toy. I have another question. You mentioned about the horizontal and vertical cooperation for IP. I'd like to ask a follow-up question. In your media press, you mentioned you're going to have the flash toys and the packed products. If there are any more details you can share with us. The third question, that is O2O business. This is indeed a very popular topic in the industry. You invested a few in the O2O in Q3. So, what about the predictability of O2O?

What about its future process?

Thank you, Samuel. Let me just try to answer the first two questions. The third question will be taken by Mr. Ye, regarding top toy international expansion. First of all, maybe one point has been not mentioned in our presentation. For top toy, the business, the trend is looking very good. I mentioned the top line grows 43%, but it is worth mentioning it was making positive profit for four consecutive quarters. In the near future, top toy is going to take a very prudent attitude. We're going to improve profitability, optimize product structure, improve the margin, and go for international expansion. TopToi has a store-in-store in the Indonesia IP land, and in Singapore, we also have some dedicated shelf for TopToi, its first store being opened in Thailand. In Southeast Asia market, the demographic is pretty young, economy is doing very well, and with ever-increasing consumption power, all those advantages take TopToi As the first global expansion of having Southeast Asia market, I do believe with the Southeast Asia market further improvement, Toptoy is going to register a bigger growth to lay a solid foundation for global international development. As you mentioned about the flash and also the pad product, the same as ACG, they're also going to be the key categories we keep an eye on for 2025. and especially TopToy have some exclusively licensed product with Senville. We did two patch of the product with very good sales results. The third question will be responded by Mr. Ye regarding Meituan Warehouse Store. Meituan Warehouse Store is still in the first development stage. It's a strategic development for our retail business. 24-7 warehouse store can stand make a stand out in the differentiated environment. It's very different from the Walmart or from the Bopo. You know that we have more fast consumables along with 40% of the daily necessaries and other fresh foods. Well, for Meituan, many of the stores are the white labor grocery stores. The product quality is inconsistent. So, somewhat, we would like to work with me time fresh pickets as a very good to work with to improve the brand power we're going to leverage our very strong supply chain and the product power to continue to improve differentiations between the 24 super stores and the regular stores to have a very refined product allocation. We also continue to improve the transportation network. Regular stores being located in the shopping malls, which is going to limit the business hours. But the superstore or the warehouse store by Meituan is going to be a great complementary. So we will be able to realize the incremental growth. Here now, Meituan Warehouse Store, its profitability and ROI also demonstrated our and we're going to have more announcement when the business model be more stable in the near future. Next question. Let's welcome You Sen Yu, please.

Hello.

I'm Lucy from Bank of America. I have two questions to you, You mentioned in Q4 in China, The expected growth would be a low teens, still be accelerated compared with the mid and higher single digit number in Q3 of this year. Do you believe you're going to have more growth on ASP or more traffic compared with Q3 of this year? My second question is regarding 2025. You mentioned growth would be faster than 2024. Is it revenue growth or profit growth or both? The third question, for store expansion, if we take a look at 2024, store expansion in line with expectation in China, but overseas market go beyond your expectation. In the next two to three years, for that 900 to 1,010 store expansion plan, are you going to have more in overseas countries but tend to be more conservative in China? Thank you. Thank you. Thanks for Lucy. Q4 of this year, or should I say in H2 of this year, the off-line retail has been greatly challenged in China. Why should I say so?

The reason is because in China, the full year would be a low-teens growth.

High-teens in H1 and in H2, in Q3 and Q4, For the full year, we believe the growth would be a low-teens growth. I have already mentioned, Minnesota continues to upgrade our brand. We provide such a guidance to the market, including the e-commerce business. Our low-teens growth includes the e-commerce business. In China, for the full year, it's going to be a low-teens growth. Whereas for 2025, the guidance is going to be more clear by the beginning of 2025. We're still in the budgeting stage. But let me just tell you, we have every confidence to be so. We have many store expansion in overseas market, which lay a solid foundation for top-line growth next year. Secondly, our U.S. market is being well-tracked, and the expenses control also going to be more refined. In other words, we're going to control expenses better. In 2025, no matter for top-line or bottom-line, we're going to have a faster growth compared with 2024. for store expansion. This is actually a unique point of Minnesota. We have Minnesota-China, Minnesota-overseas. We have distributor markets and self-operated markets. We also have top toys. So every year, we can dynamically adjust our new store allocation in different markets. Thank you.

Thank you, Ethan.

Thank you. Thanks, Ethan. Next question is Shidi from Huatai Securities, please.

Hello, I'm Shidi from Huatai Securities.

Thanks for giving me the chance to raise the question. I have two questions. The first question is regarding the US market. Your self-operated market was expanding very fast. In the near future, you may also have the retail partners to work with, right? Would you like to update us on the retail partner model? What about the progress now? If in the near future you have self-operated model plus the retail partner model in U.S., how it's going to impact your profitability in U.S.? My second question, you mentioned about the immediate economy was developing very fast, but I think in the market, there are also some new players who started to be very aggressive for the channel expansion. How are you going to comment on the competition landscape and the competition pressure? Thank you.

Thank you very much.

First question, there is a timeline for retail partners in the U.S. Right now, we don't have a timeline to share with you, but I can confirm with you, for Minnesota, we're still going to keep the asset-line business model, no matter in China or in the overseas market. In the near future, we're going to take a very flexible, slow, to operate our business, we can, in some direct operated market, introduce third-party stores to improve our leverage. But internally, we'll still review our store expansion experience to optimize our strategy in 2025. We're going to make the due announcement when time comes. Well, for mid-economy, it was a very popular concept recently. But I think no matter what Minis will do, we will always be the most professional and dedicated one, especially for ECG. you have to be professional. Otherwise, you're going to end up with a high pulse of the stocks. So no matter the IP partners or the Thailand building, I do believe Minnesota has already enjoyed great advantage. Well, for the more specifics, as I have already showed you, In 2025, every month, we're going to launch a new product. We're going to have more elaborations next year. Thank you.

Okay.

Thank you. Ladies and gentlemen, here comes to the end of our earnings call. Thank you very much for your time. Let's meet next.