MINISO Group Holding Limited

Good day, everyone. Thank you for your patience and welcome to Minnesota Full Year 2024 Earnings Call. All participants are now in listen-only mood. We will conduct a Q&A session for the day management. Repel the remarks. Before joining the Q&A session, please identify yourself by stating your names and the institution you represent. Please make sure the call will be recorded. English simultaneous interpretation will be provided for this call. You can select your preferred language by clicking Interpretation in the toolbar of Zoom. We published our Q4 and 2-year financial result earlier today. Those materials are now available on our Investor Relationship website. Joining us here today is our founder and CEO, Mr. Ye Bo Fu, and CFO, Ethan Zhang. Before we proceed, I'd like to direct your attention to the Steve Harper statement in our earnings release, which also applied to this conference call, as we were making forward-looking statements. Please note that we were discussing non-IFRS financial measures today, which we have already explained in our company's earnings release and filing with U.S. Security and Exchange Commission, and the Hong Kong Stock Exchange, where we have already reconciled those measures with the most comparable metrics reported on the International Financial Reporting Standards or Monetary Account unless otherwise specified. In addition, we have prepared a set of the presentation slides containing financial and operational information for this call. If you are using Zoom, you will see it now. The presentation will also be available for your review on our website. Coming next, let's welcome Mr. Ye Guofu to begin his remarks. Hello everyone, welcome to join us for Miniso Group FuYe 2024 Early School. Look back to 2024. We not only continued to make progress in store expansion or revenue growth, but achieved a significant breakthrough in global market development and brand upgrading. By the end of December 2024, our global total account reached 7,780, with net increase of 1,290 stores of the year. Minusio China added 460 stores, Minusio Overseas expanded 631 stores, and Toktoy grew by 180. 28 stores all exceeding our opening target set by the beginning of 2024. our global expansion strategy began in 2015 will continue to serve as a key growth engine in 2024 we now operate 3100 stores in overseas market contributing nearly 40 percent of the group's revenue and helping drive overall revenue growth of 23% to approximately RMB 70 billion. So looking ahead, our confidence and determination remain unwavering, both for our accelerated growth in 2025 and our next five-year target from 2024 to 2028. I will give you a detailed brief of our business development in 2024 and the 2025 growth strategy including Minnesota China, Minnesota Overseas and Toktoy. In 2024, our domestic business achieved a double-digit growth. On top of the high growth rate of 36 in 2023, overall revenue growth will be 11%, offline growth by 10%, e-commerce growth by 25%. By the end of December, our stock currently in China reached 4,386 with a net increase of 460 stores throughout the year. We feel confident about accelerating our growth in 2025. Let me share with you a few growth drivers. The first one is channel and retail partner structure upgrading. Even the same store sales faced slight pressure in 2024, but average daily sales per store for newly opened stores in 2024 were no double-digit higher than those opened in 2023, indicating high store quality and healthy retail partner profitability. We have identified improvement opportunity among those longer-established stores with suboptimal location. In response, we optimize our channel and retail partner structure. On one side, we provide more product and operational support to partners with substantial market experience and strong resources. On the other side, we are also phasing out some long-term retail partners who can't meet our current management requirements. In the near future, we'll continue to improve our retail partner's structure and quality. At the same time, we implement a more precise product matching based upon the characteristics of the differentiated channel and consumer profile, which will become another powerful lever for improving theme store revenue. For example, we have served and featured IP and limited edition product exclusively at the Minnesota IP Land Store and Flagship Store, creating immersive playground experience and become a must-visit destination. For standard stores and O2O platform, by ensuring adequate stock of the best-selling IP product, we were also expanding our selection of everyday items to meet customer daily needs. Thirdly, we will leverage our platform advantage to extend our IP collaboration metrics, both on depths and deeps. Over the past few years, we have created iconic IP events, such as the Chicova China co-branded depart. And we also have the global recognized culture sample and the Chinese trend. This year, we have planned more than 90 IP launches covering the evergreen to potential to strongly characterized IP. Our very strong platform advantage. We can smoothen trend circles through an IP matrix, reducing dependence on single characters, and creating a relay race for growth opportunities. Finally, we enhance member loyalty and repurchase rate. In 2024, our global registered membership has already surpassed 100 million. Member spending has accounted for more than 60% of the total sales, representing a low single-digit growth. Our average members spend 2.2 times more than non-members and shop with us approximately four times annually. We are going to use large language and the data analytics to deliver more personalized product recommendation and market initiatives, further driving customer satisfaction and repeat purchase behavior. Coming next, let me discuss overseas business performance. In 2024, our overseas revenue reached RMB 6.68 billion, representing 42% growth. Our GFV reached 40.16 billion, grew by 27%. We added a net total of 631 overseas stores, the majority of expansion occurring in the United States and Indonesia. Same store of our overseas operations are in a mid single digit number. The U.S. market has emerged as a strategic stronghold for our international operations, delivering triple-digit compound growth from 21 to 24. While maintaining this rapid expansion, we implement more targeted site selections and enhance store quality. In 2024, we added 154 stores in U.S., running our total to 275 locations across 47 states. we have already concentrated our expansion efforts on 24 states that represent 76% of the U.S. population. This will help us to further improve the warehouse efficiency, reducing logistic cost. We have also strengthened our merchandise operations through greater recession. Our headquarters established a dedicated product development team that tailor-made merchandise assortment based upon the U.S. store format's city tiers. We see that the overseas growth opportunity extends well beyond the US, with Europe ensuring tremendous potential. In 2024, UK market leveraged our IP strategy to drive the China upgrade, and our GMA has registered a triple-digit growth. More significantly, our UK experience has yielded replicable growth formulas for other European markets. First of all, we provide comprehensive support to our retail partners, strengthening coordination with headquarter, cross-ordering, distribution, merchandising and marketing functions. We collaborated with retail partners to secure primary commercial locations. Over the past year, we have our flagship store in key retail locations, for example, Oxford Street of London, creating high-performing locations, generating monthly sales exceeding 2 million RMB. The upgraded store enhanced our visibility and also helped Minnesota secure additional primary retail real estate overseas. Our global strategy go beyond simply open stores and selling product. We have a global strategy, and in 2024, we have our localized product design center in South Korea. Moving forward, our network design hub across China, U.S., Japan, and South Korea will establish recognized product development to address local needs. And then, we also focused on localizing Thailand and operation. As our global strategy continued to advance, Thailand localization has become a critical success factor in our overseas market. In 2024, we achieved 100% localization of the store managers in directly operated markets. In 2025, we will continue to further deepen our global localization strategy for Thailand to improve our operational efficiency. As global economy uncertainty increase, particularly the policy changes from the U.S. tariff, Minnesota as a globally operated and high system, we must respond with extraordinary resilience and agility. The world is constantly evolving. When there is a change, there are opportunities. Significant change always brings significant opportunities. First of all, we will further diversify our global supply chain. We reduce our dependence on mainland China as a single sourcing market through strategic global procurement initiative. To date, our U.S. team has achieved nearly 40% of the local direct sourcing, rapidly increasing procurement from Southeast Asia, Japan, South Korea. This can help to stable the supply chain and reduce the cost. Secondly, we remain committed to our interest-based consumption strategy. IP co-branded products such as Spinebox and Plush Toys carry unique emotional value, where consumers demonstrate low price sensitivity. We will continue to work with IP partners to introduce more limited edition exclusive products. to enhance aesthetic value and emotional resilience. We explore opportunities for local IP resource in overseas market, developing localized IP production and development capacities. Let's then go for TopToy. In 2024, TopToy delivered 45% to our growth, net increase of 128 stores, and a... We have already made a good profitability of the year. The result stands from effective implementation of our product differentiation strategy. The gross margin improvement was 7.3%. Key categories including building box and blind box saw significant margin improvement. Self-developed product increased the share by 3.5 percentage points. Regarding store extension, following the successful pilot of the TopToy Shopping Shop IP Land Store in Indonesia, Because of the very young demographic profile's rapid development, we will be able to continue to grow ourselves. 2024 marks TopToy's first year of full-year profitability. We reached a reflection point through enhanced product competitiveness, optimized operational efficiency. We believe in the near future, TopToy will secure a more important position in the trendy toy segment, bring more excitement and joy to the consumer worldwide. Finally, I'd like to touch upon the progress of YH. Acquisition of a 29.4% equity stake of the YH has already been completed, and at this week, YH extraordinary shareholder meeting, a resolution was passed approving municipal nomination of the three directors to YH board. Looking ahead, we'd like to take YH to allow us to capitalize on the quality retail opportunity. The essence of the quality retail is product excellence. Good product is a foundation for the business. Only superior products can build very strong brands. Moving forward, YH and Miniso will pursue deep synergies to continue to have the product competitiveness improvement. 2024 represents a typical chapter for Miniso's global strategy and a very important milestone in our journey towards becoming a superbrand. We were committed for interest-based consumption, IP-driven product innovation and a global extension strategy We have a very clear target to become the world-leading IP design retail group. As consumer demand shifted towards interest-based and quality consumption, China's supply chain and consumer market ventured its position continue to favor us. We will capitalize on those opportunities by continue to strengthen our IP collaboration product innovation and taking prominent positions in global retail landscape. MINUSO achieved ESG rating upgrades for three consecutive years with our... MSCI reading, Advated AA, this advancement truly recognized the international authority of institution regarding Minnesota's long-term development value and competitive strengths. In looking to the future, we want to continue to strengthen sustainable development, stick to long-term development, create more value to the shareholders. For the foreseeable future, we will remain committed to distributing 50% of the adjusted annual net profit as dividends. We will continue to implement dynamic share repurchase, delivering predictable returns to our shareholders. Coming next, I will welcome Ethan to walk you through the financials of 2024, please. Thank you. Thanks for Mr. Yin. Welcome to join us for the call. Coming next, please allow me to help you to work you through our financials of 2024. Please note, all figures are in RMB unless otherwise stated, and I will also refer to certain non-IFRS financial measures. that exclude shell-based compensation expenses let's first go for revenue in 2024 for the full year our total revenue reached 70 billion rmb row by 23 percent row by 23 percent in line with our expectations that by the beginning of the year, the growth was driven by 80% growth, average store account, where our comparable same-store sales declined by a low single-digit number compared with the previous year. And you can also see, therefore, that $70 billion, Minnesota brand revenue totaled $60 billion, up by 22%, within which Minnesota, Maine, and China revenue was $9.3 billion, growth by 11%, while municipal overseas revenue reached 6.7 billion, increased by 42%. Among our overseas markets, directly operated revenue was 3.8 billion, growth by 66%. Data market contributed RMB 2.9 billion, growth by 90%. From our revenue composition, overseas revenue accounted for 39% of our total revenue, This number used to be 34% in the previous year. Specifically, directly upgraded overseas market increased their contribution from 60% in 2023 to 22% in 2024. The evolution of our revenue structure represent a key driver behind our record high gross margin. will also result in a great concentration of the operating profit in H2 of last year. Regarding GP margin, we achieved a 3.7% improvement in 2024, reaching 44.9%. Besides revenue structure adjustment I mentioned earlier, our effective IP strategy also contribute to margin improvement across all business segments, particularly strong mid to high single digit increase in our overseas and top toy business. Notably speaking, our GPA margin has been climbed for eight consecutive quarters, repeatedly setting new records. Look into the future, the quarterly margin may fluctuate due to seasonality reason. As our overseas revenue and IP product continue to go up, we still have huge room to continue to grow our GDP margin. Recently, you may notice the tariff policy. We have the following countermeasures. First of all, we will accelerate supply chain globalization. The proportion of the Chinese sourcing of our overseas directly operated market has already increased from 25% to 30%. This hit them, approaching 40% in the US. Secondly, working backward from our profit target, we were considering price and adjustment while maintaining certain GPA margin objective. Thirdly, one of our largest retailer in our segment, we maintain strong negotiation leverage with the suppliers. Even if the entire industry facing heavy impacts and raising cost, our product remain highly competitive in terms of the value and the differentiation. helping us continue to gain market share amid challenges as we all face a very complicated geopolitical landscape. With accumulated substantial experience navigating evolving tariff policies, Okay, let's also talk about the fees. In 2024, our combined sales and administrative expenses increased by 52%. With sales expenses grow by 59%, administrative expenses raised by 29%. Sales and administrative expenses accounted for 26% of the revenue, 5% higher than the same period of last year. Majority of those expense grows are related to the newly opened directed revenue. operated stores, especially in overseas market. As been discussed before, our existing investment in directed operated stores are aimed at capturing more sales opportunities to ensure our future business success, particularly the strategically important overseas market like U.S. By the end of fiscal year 2024, we operated more than 500 directly directed operated stores in U.S. market, representing a double the amount from the previous year. In 2024, the revenue from the direct operated store also doubled, where the related sales and distribution expenses increased by 72%. When we entered into Q4, our cost control measures and operational efficiency improvement began to show good results. The gross rate of the directly operated store-related expenses was 75% in the first nine months, but moderated to 66% in the fourth quarter. We believe, through continued refined operation and strict expense management, our operating expenses ratio will continue to be improved. In the mid- and long-term, those newly opened direct open stores will unlock significant sales and profit potential. Additionally, marketing and promotion expenses grow by 38%, but remain stable at around 3% of the revenue. Licensing fee increased by 29%, slightly faster than the first half growth rate, primarily due to significant higher proportion of IP product sales in H2, especially in overseas market. Logistics expenses rose by 51%, similar to the growth rate then in H1 and first nine months of 2024, mainly driven by the increase in overseas stores and the rising international freight cost. Let's also talk about profitability. Adjusted operating profit increased by 70% in 2024, with an adjusted operating profit margin stabilized around 20%. Adjusted net profit reached $2.72 billion, grew by 15%. The adjusted net profit margin was 16%, maintaining healthy profitability level despite rapid overseas expansion. our adjusted EBITDA grow by 21%, with an adjusted EBITDA margin of 25.5%. which is essentially flat compared with 2023. The both adjusted basic and diluted earnings per ADS increased by 16%, outpacing the growth of adjusted net profit. This was primarily due to our share repurchase program, through which we canceled more than 11 million ordinary shares in 2024, accounted for around 9% of our total shares, further enhancing shareholder value. Regarding the working capital, Our channel inventory turnover remained robust and efficient. At the end of 2024, 33% of the municipal brand inventories are located overseas, compared to 24% a year ago. Our inventory turnover days was 91 days. Specifically, in mainland China, this was 75 days. up from 70 days in same period of last year with increased primary due to the earlier stalking for the chinese shrimp festival minnesota overseas directly operated market recorded 187 days up by 131 days in the previous year is because we have a nearly a net age 450 directly operated stores my wife From the structural perspective, inventory age over 180 days accounted for approximately 11% of our total inventory, around 1% lower than the first nine months of 2024. Looking ahead, we will continue to optimize our overseas inventory management strategy, flexibly responding to tariff rates and reducing inventory risks by improving our store operational efficiency. Regarding the capital allocation, today we announced a final dividend of the fiscal year 2024 for approximately RMB 740 million, representing 50% of our adjusted net profit for the H2 of 2024. The dividend expected to be paid in our shareholder in April this year. For the full year of 2024, the company has distributed approximately $1.24 billion in cash dividends, representing 50% of the corresponding adjusted net profit. Combined with the share purchase, we returned a total of $1.57 billion to shareholders. Looking ahead, we will remain a dividend payout ratio of 50% in the near future. Our capital allocation strategy will also balance rapid business growth and our commitment to deliver stable and predictable returns to our shareholders. For the full year of 2024, our company generated a net operating cash flow of $2.17 billion. rate cash flow was around $1.4 billion. At the end of the fiscal year 2024, we still maintained a very healthy cash reserve of nearly $6.7 billion, including $6.33 billion cash and cash equivalents, approximately $100 million financial product recorded on the ARDA investment and the restricted cash on the balance sheet, and approximately $270 million in terms of the deposit. Our interest-boundary liability ratio was 3.15, indicating our balance sheet remained very healthy. In January 6 of this year, we issued a seven-year convertible bond with a value of USD 550 million. The convertible bond carried a coupon rate of just 0.5%, payable semi-annually, representing a relatively low financing cost. The conversion period began after the sixth year from the insurance, and through a core spread nearly structured, the conversion price has been set at HK$102.1, which significantly minimized the risks of the equity dilution. The insurance makes the company's first convertible bonds financing, helping our broaden our investor base, increase coverage from the long-term capital, and further enhance our cash reserve and financial flexibility. 50% of that will be used for overseas market expansion, 50% will be used for shareholder return. By so doing, we aim to support rapid development of overseas business while enhancing shareholder returns through share repurchasement. Finally, I'd like to show the latest progress of YH transaction. Requisite of the YH acquisition has been fully met. The deal has been successfully completed. In YH transaction, our external borrowing accounted for approximately 55% of the investment amount, with average interest rate less than 3%. We will use equity method of accounting for this transaction. Calculating our share of YH net profit based on our 29.4 ownership state, we expect YH will begin impact on financial statement from Q2 of 2025. Look into 2024. Our holding performance reflect on the strength and resilience of our business model and the effective execution and development potential of our IT strategy and global initiative. Our steady development strategy and ample cash reserve have maintained our flexibility and quickly seized market opportunities to respond to the microeconomic uncertainties. Looking to 2025, we will continue our due-prolonged approach. On one side, we drive high-quality growth in China by enhancing theme-store sales, and we also continue to improve the member repurchase rate. channel structural upgrades. On the other side, we will maintain our focus on overseas market development, implementing a more disciplined cost control, while sustaining rapid performance growth. Regarding the store expansion, we are progressing according to our five-year strategy, with plans to double our store account by the end of 2028 compared to the end of 2023, The number of the new stores in 2025 is expected to be slightly less than what we have achieved in 2024 due to our own operational pacing. We believe it is important to focus on the store quality rather than just quantity. We hope in the near future, more growth will come in from our sync store sales. Based upon the assessment of the current market environment and the execution of our growth strategy, we are optimistic about the accelerated revenue growth in 2025. However, considering the base effect from 2024, the pace of the revenue growth will likely be lower in H1 and higher in H2. We expect healthy growth in operating profit in 2025 as we focus more on expenses control, but improvement in operating profit margin still depend on the profitability of our directly operated stores. The directly operated stores are still in high growth period. The related revenue is going to have a triple-digit growth in 2025. The store currently has the lowest GP margin, but significantly optimization potential in the mid and long run. Look ahead. We believe our reasonable operating profit should return to be around 20%. Our financing strategy will continue to maintain discipline in budgeting, cost control, and capital allocation committed to achieve stable and sustainable profit growth and healthy cash flow. Thank you very much. Here concludes our presentation. We cannot stop the Q&A. The first question coming from Michelle Chen from Goldman Sachs. You can now raise your question. Thank you. Thanks for Mr. Chen and thanks for Ethan. Thanks for giving the chance of raising the question. Congratulate on the company for your robust performance in such a volatile market environment. I have two questions. The first question is the same stable performance in China. I do see huge pressure in H2 of 2024. But I do see that in Q3 and Q4, there are some great contributions from the famous IP. How are you going to comment on the same-store performance in China? Is there any clear growth driver to improve your performance for the same-store sales? Another question that you also mentioned a different format of the stores. Do you have any specific target? That is regarding the domestic business. I have a second question regarding your business in US. I noticed that there are some pressure for the same store sales last year in a few quarters. What about the profit per store in U.S.? And how you're going to comment on the same store sales in U.S. in 2025? You also mentioned in the overseas market, Ethan, a directly operated market is still going to face huge pressure on the expenses. How we're going to comment on the GP market improvement in overseas market? Thank you. Thank you very much. From January to February, the revenue growth of the offline store was high, and also we see some good improvement. There are few data for your reference in improving our safe store performance. First of all, we can see the larger GFA the store is, the better the recovery the business would be, especially for store covers 300 square meters. The recovery was pretty nice for small stores. They do have some pressure. So in the near future, we may consider of rectifying those small stores into larger stores. For some small stores, even they are under pressure, but they have some good performance, we are going to make a comprehensive adjustment. Well, starting from this year, you can see that our same-store performance improved compared with Q4 last year. And especially, we see the loss continued to be narrowed down. We will keep an eye on the same-store performance in the near future. Then, at the same time, you can see that in 2024, in August, we already have the IP land. We now have three in operation, and here now the performance of the IP land is exceeding our expectation. Compared with traditional stores, the IP land store actually have very nice designs while working with internationally renowned architecture design companies. It actually building a very immersive environment with a wide portfolio of IP with a space of more than thousands of square meters. We do have different zoomings regarding the and also the global limited edition. And we also continue to improve its presence. We have already taken the IP land as our key strategy in the near future. And we're also going to launch the signature stores along with Zypi Land in the premier cities and best locations. We have already have it in Shanghai 90. And those stores will be located in the premier locations in the top tier cities, for example, in Beijing, Guangzhou, Chengdu and Hangzhou. And then we will also consider of having those stores in Jinan, Kunming, Guiyang, Shijiazhuang, Harbin with more than 10 net aids. But at the same time, we are also going to divide by the flagship stores with efficacy double the normal stores. and continue to focus on the well-performed cities for site selection. And we're also going to continue to improve the existing stores. We can see that we're going to have foreseeable 100 to 200 flagship stores. Well, regarding the margin of the overseas directly operated stores, they are now in rapid growth stage. In 2025, we foresee a triple-digit growth. The GP margin of the directly operated stores has the lowest margin, but it has huge room for further progress in the near future. In mid and longer run, operating profit would be around 20%. There are some fluctuations due to seasonalities and utilization rate, but still it's going to continue to be improved. Globalization means a lot for the company. We have to be patient with long-term and sustainable growth strategies. Globally speaking, we have 8 billion people, and in China the number was just more than 1 billion. The global market is a huge market. I know that for investors, we pay much attention on the returns, but for me as an entrepreneur, I don't want to see the short-term immediate effect. We have to be forward-looking. If you do any business, you have to invest, and then you're going to harvest. In the early days, we make investment in the market, continue to improve our brand awareness. We build our sales network and operating mechanism, lay a solid foundation for the future. Profit growth. US market has always been a very important part of the global strategy. From 21 to 24, the US market was growing with a triple-digit compound rate, one of the highest output countries in our overseas market. In 2025, we hope that we can have more research. and targeted store opening strategies to improve the quality of the stores. In 2024, we have a net store of 154 in U.S. and covered around 54 states in the U.S. Starting from this year, we're going to have the refined strategy. And we're going to focus our new stores in the key state, covering 76% of the population. Leveraging the stores, we're going to play the scale effect, making sure we best utilize the resources to continue to take care of the product shortage, improve the customer satisfaction, optimize logistics and distribution routes, reducing transportation costs, improve logistics efficiency. Through the concentrated management, we can foresee the demand, reducing the backlog, improve the turnover, and we also have the following measures to improve the efficiency. We're going to have a special product R&D task force evaluating the product according to the market preference of the U.S. All those products we're targeting the U.S. market, we're globally speaking, we're going to leverage the dealer and the retail partner Cooperation model to continue to optimize our cooperation model. We know marketing may have diversified the needs. We take a diversified strategy to guarantee the successful execution of our strategy and business growth for long-term growth. We will continue with four major initiatives in U.S., especially our membership system. Especially, we identify those products with a high purchase rate built into the best-selling product. We're going to have a targeted customer profile analysis, improving our service to the customer. That's all for my answer. Thank you.

Thank you. Thanks, Mr. Yin.

Next question come from from City, please. Thank you. Thanks for giving me a chance to raise a question. Good afternoon. I have two questions. My first question is targeting your prepared remark. Ethan, you mentioned about the outlook of the margin in 2025. It seems that your margin performance is truly dependent on your directly operated stores. Ethan, you have already mentioned in 2025, revenue growth would be accelerated. But this means that the certainty of the profit growth is not as confirmed as what you stated in November last year. I have the second question. And Mr. Yeh, congratulate on completing the transaction with YH. I see you are entering into the YH reform task force and be the team leader. Do you have any business indicator you can share with us? I know YH is an Asia-listed company. If you can't share the statistics, is it possible for you to give us some color to see how the business progress of YH? Thank you. Thank you. Thanks for Mr. Ye. I'm Ethan. Let me just repeat the guidance I provide to the market. We have every confidence that no matter for revenue or profit growth in 2025 will still remain healthy, and especially the revenue growth would be accelerated. The source of our confidence is because we say that almost every of our BU and every business will have the possibility of outperforming the performance in 2024, especially in China. In 2025, we see the online business in China is going to boom. So it's going to continue to drive the overall sales. And even if you see that our offline business grow by limited number, but I do believe we're going to register a double-digit growth for offline business in 2025. For overseas business, from 21 to 24, the compound growth rate was 43%, which is pretty significant. But considering our business model and a huge addressable market in overseas market, we maintain our forecast of the growth in overseas market as 35 to 40%. We'll talk about the profit growth. In my prepared remarks, I have already mentioned our adjusted operating profit grew by 70% compared with last year. Net profit rate was up 20%. So, excluding YH business, at least for Minnesota core business, our operating profit will continue to grow. But for sure, as I have already mentioned, net profit or the profit margin is truly dependent on the profit of the directly operated stores. The number of the directly operated stores being improved a lot. We have many newly added directly operated stores. the profit of the existing directly operated stores would be significantly improved in 2025 at least for me they're going to have a low single digit to the mid single digit profit improvement for the existing stores let me just give you an example in 2024 we have the directly operated store for example ip land in shanghai even if the cost is pretty high. But still, in the past four to five months, the store can still keep a high double-digit profit rate and continue to be optimized. In 2025, we will continue to invest in those new directly operated stores. In the first year, because of the early-stage investment, their profit or margin might be low because they are in the high-growth period. But let me just draw your attention. You see that for the three formats of the stores, the direct operating stores, even if it has a lower margin, or probably lowest margin among the three categories, but in the mid and the longer round, we hope that the margin of the directly operating stores can reach 20%. I do believe Our long-term operating margin can reach 20% for the directly operated stores. The second question regarding YH, let me have Mr. Ye to respond to it. Well, for YH, they have three increase and two reduction. The first increase is to improve the manpower efficiency. We are optimizing the team in improving the productivity and efficiency. And the second increase is that performance and efficiency of the stores need to be doubled, even tripled. And the third increase is that for YH, we hope that the triple performance or efficiency would at least be the upper line or the bottom line for any stores to achieve. Where at the same time, we are also initiating the reduction initiative for YH. 80 to 90 billion, but around one-fourth are the daily necessities, which enjoy a very low margin. So we're going to support YH, further improving the margin. Well, at the same time, the YH will also continue to develop its self-owned brand product, which can also help to further improve the competitiveness of YH. The second reduction initiative is cost reduction, for example, reducing all the possible sourcing cost. And the third reduction is regarding reducing the labor cost. YH is going to optimize its team in 2025. So we do have the initiative to continue to help YH to further reduce its financial losses. By the end of 2026, for the existing store of YH, we even close those underperformed ones, only reserve those well-performed ones. So by the end of 2026, we're going to make sure that all YH stores would be retrofitted into the new ones. improving the GPA margin, the business efficiency, the performance, then in 2026, you see YH going to register a good performance by then.

Next question. Andy from Jefferies, please.

Thank you. Thanks, Ray. Hello, Manage 20. I have a few questions. I'm not sure I missed the information or not. Did you actually talk about your store opening target in 2025? I heard you may have less new stores open compared with 2024. Do you have any data, or quantitative ones you can share with us. How many new stores we are going to have in China, how much are for directly operated stores, the same as the overseas market. For example, the new store target in US, Mr. Ye, you also mentioned, In Europe, you are also going to open new stores. So how many you are going to open? This is my first question. Thank you. Let me also bring my second question up. If we take a look at the stores in China, I find out there are some now self-upgraded products. For example, the blind box or the pop toys. I find out in your store, you also have a product from other brands, the same as a beauty product. So, it seems that for Miniso, in the past, you have other products produced by your own brand, but now it seems you also introduce brands and products from other brands. Will it help your same-store sales? Whether it's going to have any impact on the GP margin or profitability? Thank you. Let me have Mr. Yeh to answer the first question regarding new store opening plan. Do you have any quantitative data? In 2025, the new store number would be flat compared with 2024. But for directly operated stores, we hope we can operate more in U.S. and Indonesia. If we blindly seek for the store quantity growth, it won't help to serve our long-term growth of the brands because consumer needs being further diversified, and we also need to improve the customer experience. So we are handpicking the right resources, having the right handpick of the locations, designers, do the right product selection and the service optimization, hope that we will be able to make sure each new store would become a model in its own region, to continue to lay a solid corner store for its future development. Thank you. So how many directly operated stores are going to open in 2025? Hello, I'm Ethan.

Let me hope to answer this question.

And you can actually refer to the new store number in 2024 to see how we're going to have in 2025. From 23 to 24, the net age of the store is around 250 to 300. Majority of those net age stores are in the following markets. For example, some are in China market, not many in China. We have some satellite model. For example, like IP land. Now we have three IP lands in operation. The model proved to be very successful, bimodal success. We're going to continue to roll out more IP land. We're going to have... Conservative speaking, 10 IP lands in China were for US. I think for our store expansion plan was still very positive and optimistic. We full say in US. We will have around 350 to 400 stores in total. Then in U.S. in the next one year, we're going to have a few dozen stores be newly added. We're also going to have a new store expansion plan in other countries, including in Canada. In Southeast Asia countries or in European countries, those are all the emerging markets with very significant growth for the past one year. That's our new stock plan. Okay, thank you. Well taken. The question is regarding the third-party product. So starting from H2 of 2024, you'll probably notice in Minnesota store, we do have some beauty product or cosmetic product at our store entrance shelving the third-party product. We have two reasons for that. Because their targeted consumer is highly aligned with ours. We are also targeting those young ladies. So that's the reason we place on a third-party brand cosmetics product. And it can also help to further improve the diversity of our portfolios and offerings. So for those products, no matter from profitability or from the attachment rate, can help to further improve the sales to sales a lot. Thank you.

Next question, Samuel Wong from UBS. Thank you. Thanks for Mr. Yeh. Thanks for Ethan.

My first question. Is it possible for you to share with me if you have any new IP plan in 2025? I see that last year in Q2, you have Chicago, which had a very high baseline in Q2 last year. Do you have any new plan for new IP? My second question, I also would like to ask you. You mentioned you have deep bond with Sunreal as well as Disney, especially on the vinyl product and the plush product. So how's the progress now with Sunreal and Disney? The company was kept emphasizing on the high turnover. If you really want to have a differentiated design, how are you going to balance the high turnover and the differentiated design? My third question, as you're talking about the dealer integration, then I have a follow-up question on that. You do have the reform over your dealers. So how the reform's been progressed? Are you going to complete the dealer integration within 2025? Thank you.

Thank you very much. Thanks, Samuel, for the question.

The first two questions are all related to IP. Let me hope to respond to the first two questions. Yes, indeed. In 2025, we have already planned more than 90 IP-related events and products covering IP of different styles and different journals. Starting from the Golden Week in May to the summer vacation or even to the national holidays, we're going to have the S-level project in our pipeline. The IP is truly... Worth of high expectations. So every year, we're going to roll out our product, for example, on ACG. And every month, we're also going to develop a new product. We're also going to focus on the co-branding. For example, we're going to work in with Bandai of releasing more the mango-related product. You also mentioned about the vinyl product. It is indeed a very good feed to IP. So that's the reason on this category we have deep bond with IP. For example, we're working with Disney for that vinyl product. And flash products, for example, on 30th March, we need a poorly vinyl and flash light box being approved in US for launch. And we actually have to set a record high sales in our New York I'm Square store. Through such events, we will help to build the customer awareness of our product, lay a solid foundation for the future vinyl product development, and continue to improve our brand influence and consumption and penetration in the market. We upgraded IP for many years. Every year, we continue to literate our IP product, improving the customer wellness. So let me just share with you what is our interpretation of the life circle of IP. And we do believe there are different IPs. For example, for evergreen IP, the life circle of the IP should be further extended much more than other product. IP product from the essence perspective, it showcase different product design style. But indeed, they have the same carriers. So in the mid and the longer run, especially in a product life circle, I believe the IP or non-IP product sales won't be truly decisive by IP sales. I think the fundamentals still rest with IP design. So that's the reason you ask about the balance between the high turnover and the design. I think, let me just respond to you in this way. You have to consider your product need to take the customer's functional needs and emotional needs at the same time. This is indeed something we would like to address. Well, you also have a question regarding the integration of the retail partners. I have already mentioned we continue to optimize the structure of our retail partners. In 2024, we have 80 commercial systems with a total sales of more than 50 million, where at the same time, in the top tier, commercial shopping malls, and will continue to grow these cells with significant number, especially the cells with the China Resources shopping malls and hypers. In the near future, we are just going to continue following two ways. First of all, for those retail partners who have extensive experience more resources and a deep coefficient bonds we're going to supply them with more product and operational support continue to improve our brand awareness in the south in the higher tier cities and the key and primary locations those retail partners can understand execute our brand strategy improve the opinions to the customer our product and resources would be invested to those highly potential retail partners while willing to work with us. This is also an initiative of resources allocation optimization. This not only improve the resources utilization rate, but also further improve our brand presence in the market. Second mention, we are also going to have some periodically visit to the long-term retailers who won't catch up with our high-quality development need in the near future. In our daily operation, there are indeed going to have some short-term, small store number reductions or regional retail partner withdrawal. But looking to the future, I think we're doing the right things to achieve the high-quality growth. We're going to continue to optimize our product portfolio and improve operational efficiency to mitigate the negative impact from the integrated retail partners. After one year integration, our existing structure is more streamlined and efficient, be able to be more agile in response to the changes in China market, but adjusting our portfolios and offerings and marketing events to continue to improve our competitive edge. We are still going to continue this integration strategy over the rate of our net. Next question from Lucy from Bank of America, please. Thank you. Thanks for the opportunity. I have a question regarding the online business in China. Ethan, just now in your prepared remarks, you mentioned in 2025, you hope the online sales in China could be further accelerated. Can you briefly tell me what is the online sales contribution to your total revenue in 2024? How are you going to plan it in 2025 and how are you going to achieve it? The second question is regarding the China offline business. We hope you can register a double-digit positive growth. But you mentioned the total new store number would be lower than that of 2024. Then I believe the growth rate, naturally speaking, should be lower than 2024. but I do see you may have some plan of having more IP land being available. The revenue contribution from IP land would be higher than normal stores.

So how should I... How can I make sure you will be able to continue to have a good growth? Thank you very much. Thanks for your question.

Well, our online business in China has been divided in two parts. The first one is a traditional e-commerce business. The second one is auto business. Both businesses have been developing very fast in 2024. E-commerce grew by 25% to 30%. Auto close to 50% to 60% growth. Both businesses together accounted for around... 15% of the total China business. Well, in 2025, we believe we will continue to accelerate the business growth. The reason is because we identify new opportunities in certain categories. For example, in 2024, the offline channel we organized to cover branded product. And you can see that to cover the Dutch product, also register very good sales on the online channel. Only the Dutch toys... Just one single category accounted for 20-25% of the total sales for the online channel in 2024, a significant contribution even compared with the offline channel. So I think for online channel, we will continue to make our product stand out, be a highlighted product with core brand to further expand our sales for the online channel, while for the offline channel, the double-digit growth. First of all, in my prepared remarks, I have already mentioned. In 2024, the China business growth is indeed not easy to be achieved because in 2023, the growth used to be 36%, but still in 2024, we made a double-digit growth. So still, even against the high baseline from 2023, we still registered a very good growth.

And we also need to make sure

the competition of the stores could continue to be improved, especially on the same-store sales improvement. Same-store sales improvement would be the key priority we are going to go for. We do see some opportunities. Now, let's review in 2024 for our same-store sales. You see, there are some good opportunities here. For example, we can leverage the positioning data to see that in 2024, besides the external environment changes, there are another factors, for example, site selection or some of the retail partners they need to further improve themselves for the shell things for the product quality improvement and service and certainly we need to have a more refined product distribution those are all rooms for improvement we have already identified this problem so in 2025 we surely believe we're going to have the solution to those problems of continue to improving our theme store sales Structural speaking, you see we do some nice opportunities. Mr. Yan has already elaborated on that. For all different store sizes, especially the store at different locations, we clearly notice the higher the GFA the store has, the better the performance it would be. If a store covers more than 300 square meter GFA, its profit would be positive. If the store GFA is 100, 200, or less than 100, its same store sells still a negative gross number, which is truly in line with what will be noticed in China. Because people have a statement, if you're going to run the store well, you have to open large stores. So that's the reason we believe we still have further room to improve our performance.

Okay? Thank you very much.

Thanks for all the investors of joining us for 2024 annual earnings call. Here comes the end of this meeting. See you next quarter. Thank you.