MINISO Group Holding Limited

from all our participants for English and Holy Language. For the management's being prepared for us, we will have Q&A session. Before starting the Q&A session, please mark your name and institution. Please note, this event will be recorded. English Signutaneous Interpretation is available via this conference call. Please leave interpretation in Zoom meeting to select your preferred language. We released our Q&A results earlier today, which are now available at our Investor Relationship website at .minnesota.gov. Joining us today are Mr. Yeh Guofu, our founder and CEO, and Mr. Zhang Jingting, our Chief Financial Officer. Before we continue, I'd like to refer you to the CIP upper statement in our Green 3Ds, which also applied to this call, as we will be making forward-looking statements. Please note, we will discuss non-IFRS financial measures today, which we have explained in our financials, earlier 3Ds, and filed into the U.S. Securities and Exchange Commission and Hong Kong Stock Exchange, which have reconciled the most comparable measures reported under High-Expanded RRs, more amongst RMB, unless otherwise stated. Additionally, we have prepared a set of slides that include financial and operational information for this call. If you are using Zoom, you should be able to see it now. You can also review it later on our IR website. Now I'd like to welcome Mr. Yeh Guofu to begin his remarks. Good afternoon, everyone. Welcome to Minnesota Group 2025 Q1 earnings conference. Today I will share with you our quarterly performance highlights and our future development plans. First of all, let me review our overall performance for this broadband. In Q1, that just concluded, Minnesota Group's overall revenue exceeds expectation, with total revenue of $4.43 billion RMB, grown by 90% on a worldwide basis. Minnesota China Mallet revenue was $2.49 billion, grown by 9%. Minnesota Oversight revenue was $1.59 billion, grown by 3%. Coming next, please allow me to talk about our future strategies behind the static growth and our future strategy for those domestic and international markets. Let's talk about the domestic market first. We have continued optimization of same-store performance. Starting from the beginning of this year, domestic same-store sales have shown significant YY improvement. In Q1, the YY decline in domestic same-store sales narrowed significantly compared with the YY decline in domestic same-store sales. We have continued to improve our sales and our sales performance. We have continued to improve our sales and our We have continued to improve our sales and our sales performance. We have continued to improve our sales and our We have continued to improve our sales and our sales performance. We have continued to improve our sales and our sales performance. We have continued to improve our sales and our We have continued to improve our sales and our sales performance. We have continued to improve our sales and our sales performance. We have continued to improve our sales and our sales performance. We have continued to improve our sales and We have continued to improve our sales and our sales performance. We have continued to improve our sales and our sales performance. We have continued to improve our sales and our sales performance. We have continued to improve our sales and our sales performance. We have rathergame heights. Our sales and sales performance have steeped below Eveting s in 20,000. Whether that's year 2, year 3, year 3, year 4, making sure our sufficient product offering meets diversified consumer needs. Going forward, we will continue to keep our refined operations, further on work on potentials, and work with our furniture dies to advance high-quality development with high store efficiency and high profitability. Secondly, we strengthen our IP strategy and enhance product development precision. High-quality growth fundamentally depends on excellent product. A brand long-lasting competitive edge is embedded in every item we create. Each product investment strengthens our market position. We significantly improve our resources at the forefront of product innovation, building specialized teams that track global trends and hold weeks for new design concepts and functional application to keep our offerings at the industrial forefront. Our IP collaboration has delivered exceptional results in this year. The Chicapa Lunar New Year Collection, Chicapa Cherry Blossom Series, and our recent Stitch collections launched along with the Ruby release, which all receive outstanding market response and sales performance. Our approach for deep, key IP and creating heat products around them continue proven to be successful. Moving forward, we are expanding our IP partnership. We will also focus on deeps rather than just brains, refining our product development precision to create truly distinctive merchandise. From a strategic category perspective, during the May Day holiday, travel accessories grow by 45% compared with 2024, especially on May 5. First, we started a new historical high. For this category, for the disposable product, we created immersive specialty display zoom and product hand gaps, while simultaneously showcasing professional third-party testing support to build consumers' impression that high-quality and more environmentally friendly material will help to bring consumers a more exceptional and reassuring user experience. We firmly believe that continued innovation with high-quality and value-driven product that meet evolving consumer needs is essential to our market success. Minnesota's journey to date has been built on exceptional merchandise. Going forward, we will further invest it as a cool competitive aperture to gain greater consumer recognition globally and continue to establish Minnesota as a truly household name worldwide. Thirdly, let's focus on -of-upgrade with larger stores driving growth. I'd like to share with you my thoughts on our domestic store expansion strategy. The brand has evolved from rapid land grabbing into an upgraded phase of larger store-driven growth. This year, we are focusing on high-quality channeled buy-out as our strategic goal, working on opening larger, better-performing stores. Since the beginning of this year, we opened five new Minnesota land locations, branding a total of eight with another 50 in preparation. We established 43 flagship stores with 150 more in that line. New store opened in Q1 have achieved a 27 higher average efficiency compared with new store from the same period of 2024. Since the ground opening of our first IP land store in Tianjin last August, IP land store in Shanghai, Chengdu and other cities has successfully opened with 19 and Guiyang locations also making impressive debars this year. Those stores not only enhance Minnesota's brand image, but also offering consumer a wider product selection and very unique shopping experience. We were delighted to see that after the store opening, all the stores continued to break single-scroll sales record, through refined operation and marketing campaign closely integrated with our IP strategy. Moving forward, we will continue to emphasize our IP land store's position as grand benchmark, prioritize IP and product resources to ensure priority product launches and customized limited editions. Currently, the performance contribution from the larger stores is gradually increasing. Single store models showing positive development trends. We will continue advancing our larger store strategy by optimizing store layouts and improving operational efficiency to further enhance our brand influence and profitability. Beyond actively expanding new stores, we equally focus on renovating and optimizing existing locations. Small to large conversion and old to new renovation are key initiatives. By increasing store size, we were expanding visibility area and consumer interaction space. Through upgraded decor style and optimized lighting design, we refreshed store with better align with our brand positioning. We also proactively and systematically closed some smaller outdated stores. Optimizing our store portfolio and further improving the overall operational efficiency lay a very solid foundation for the brand long-term development. Coming next, let's talk about international market. We have international market expansion. Our overseas revenue contribution continue to rise, increasing three percentage point on a worldwide basis. We implemented diversified strategy to address different market dynamics. In North America, improving store operational quality and controlling expenses ratio are our key priorities. We are going to focus on 24 states that represent 76% of the US population. Implementing cluster-based store openings and elaborate economics of style enable rapid inventory transfer between warehouse and stores, reducing logistics cost and improving weight inventory efficiency. We also enhance merchandise operations through a specialized product development team at headquarters that create a positive product assortment based upon US store format and positioning with emphasis in developing core best sellers. We believe the market opportunities are not only in US, in Europe, in Latin America, or even in Middle East. We are flexibly optimizing cooperation model and deepening partnership with our agents. We have strengthened control and headquarter coordination with our overseas partners on the ordering side. While at the same time, we also continue to explore new business models. For example, we continue to improve our store positioning, which can continue to further improve our opening potentials in the US and continue to leverage greater store models. In terms of the tariff, we also made some good preparation support. Last year, we continued to build inventories in the US market for reserve, despite some upfront cost. Ensuring sufficient stock availability and mid-tariff uncertainty can allow us to fully capitalize on sales potential. Furthermore, we enhance our overall cost competitiveness in the US market by increasing procurement from US and other overseas supply chains. We are also working with our partners to continue to improve our product competitive edge in the US. This April, we held our 2025 Global New Product Conneva at Chimlong in Guangzhou, featuring nearly 4,000 scrum meter of the exhibition space with 90 immersive themed special exhibitions showcasing over 6,000 new products. Through our headquarters strategic department, our QIP products and best sellers, we enhance product differentiation and competitiveness by creating more efficient innovative store model. We bring more engaging shop experience to local consumers to further strengthen our brand image with the tremendous potential in overseas market and will continue to push in high quality growth through increasingly refined and localized operations. Well, for TopToy, let me just make the following statement. TopToy business continues to maintain steady development through optimized product structure and improved operational efficiency. The proportion of self-divided products exceeds 40% for Q1 this year. Further, it enhances TopToy's market competitiveness and profitability. Going forward, we will continue to strengthen TopToy's brand-building and in-house product development, launching more products to meet consumer needs, increasing grand market share and influence. Looking to the future, we are confident in our performance in both second quarter and the full year. We will continue to advance our refined operational strategy, strengthen IP partnership, upgrade our channel, upgrade the store location, enhancing supply chain management, building brand influence to a solid solid foundation for our full year performance target. Meanwhile, we'll continue to implement our shareholder return policy, combining dividends and share repurchase. We paid out $740 million in dividend this April and completed nearly $260 million in share repurchase since the beginning of this year. We'll continue such a strategy to maximize shareholder value. We maintain a committed, -customs-centric, innovation-driven approach as we advance business upgrade and market expansion. In the IP collaboration space, we increasingly focus on the strategy of differently existing partnerships while driving new ones. Strengthening long-term IP partnerships, we are also exploring leading resources in niche marketing. These believe in the power of our business trajectories. In the interest-based and cultural consumption space, many of us feel it difficult to replicate competitive edge through our unique IP advantage. I look forward to witness our continued growth and success with all of you. Thank you very much. That concludes my remarks. Now I will invite Ethan to present you our financials in Q1 2025, please. Thank you. Thanks for your time. Yes. I would like to work through our financial result for Q1 2025. This note otherwise stated, all figures are in RMB. I will also refer to some non-IFRS financial measures that exclude stock-based compensation expenses as well as cost related to convertible bonds and acquisition loans. First of all, revenue. In Q1 this year, the overall revenue was 4.43 billion, up by 90%, making steady progress towards our expectations. 90% revenue growth exceeded the upper limit for 50-80 growth guidance. Looking at each brand, Minnesota's brand generated 4.09 billion revenue, up by 16.5%. Within days, Minnesota China's revenue was 2.49 billion, up by 9%. 9% growth is even closer to what we had compared with the previous quarter. Minnesota's overseas revenue was 1.59 billion, up by 30%. Also exceeding the upper limit of our -25% guidance to the market. The total of a brand to achieve 340 million revenue, up by 59%, continues its rapid growth. Well, from the revenue structure, in Q1 2025, China mainland revenue accounted for 56% of the total revenue. In same period of last year, the number used to be 61%. Overseas revenue was 36%. Used to be 33% last year, increased by 3% point for the same store performance. With the collective effort of everyone from our CEO to store staff, domestic mini-store sales has significantly improved in Asia. The Q1 same store sales declined only by mid-single digit number against the high base slide last year. The rate of the decline is substantially never done compared with Q4 last year. This improvement trend has continued since the Lunar New Year. Particularly impressive is that in April last year, featuring the Chicago lunch, which created a very high base slide last year. But still in April 2025, we will be able to continue the positive trends. During the May holiday, we continue working towards our goal of achieving positive same store growth for the full year. Overseas mini-store same store sales faced some base pressure. Q1 performance is similar to the domestic trends. However, it is worth noting that in the same period of last year, our overseas same store growth was 20%. Looking at the two-year compound rate, overseas same store sales still showed solid growth in Q1. For overseas same store performance, we were replicating successful practice from China market and already seen improvement in major markets like US and Mexico in Q2. Having proven our ability to enhance same store performance in China's intensively competitive market, we were even more confident in our overseas market performance. In terms of the store network, in Q1 this year, we aided 95 new overseas locations, steadily expanding our international network. In domestic China, we actively implemented strategic channel upgrades. In the past year, our approaches to close underperforming store were open better ones and replaced small locations with larger ones. Notably speaking, most of the stores closed in Q1 were low productivity locations on 200 square kilometers, with operating for over three years with average on-site sales no more than 200,000. In contrast, newly opened stores this year averaged 300 square kilometers, with average monthly sales approaching 400,000. This explains why we have nearly double digit revenue growths than in China, expect no net increase in domestic store compound Q1. Regarding the close margin, we saw an increase near one percentage point compared with same period of last year, reaching 44.2%. Beyond GPModule improvement driven by increased proportion of overseas revenue mentioned earlier, our effective IP strategy also contributed to the steady enhancement of our overseas market segment. Looking for the future, there might be some fluctuation from the seasonal factors, but the upward trend continues to have momentum to room for further growths. Let's also talk about the expenses. I'd like to highlight our expense in this report. In Q1 of 2025, combined selling and administrative expenses grow by 45%. Sales expenses are by 51%, administrative expenses are by 22%. Selling and administrative expenses represent 28% of the revenue, 5% higher than the same period of last year. Most of these wild wild increases are due to the sales. The majority of those wild wild increases relate to our newly opened direct operated stores, including labor costs, rental expenses, depreciation and amortization. In Q1 of 2025, directly operated store contributed 22% of our revenue, up from 40% in the same period of last year, with revenue growing 86% on one basis. The gross rate of direct rate of revenue continued to outpace the growths of the related expenses. As I continue to talk to the market, our existing investments for the directly operated store are capturing more sales opportunity to ensure our future business success, especially our strategically important markets like the United States. Where at the same time, we will be effectively control headquarter related management expenses with their overall proportion decreasing, in Q1 of this year, it's been reduced by 1%. We firmly believe focusing our spending where it matters most. We believe with continued refined operation and strict expenses management, our operating expense ratio will continue to improve. In the mid and long run, those newly opened directly operated stores will unlock greater sales and profit potential. Regarding profitability, our adjusted EBITDA margin for Q1 of 2025 was 23.4%, up by 7.5%. The adjusted operating profit margin was 60.6%, down by .2% compared with same period of last year. Let me just break down the reason behind this decline by business segment and explain to you why I'm still confident for margin improvement. The operating profit margin of many China franchise business remain stable compared to the same period of last year. Well, the operating profit margin of our overseas agency business slightly improved. Those business are pretty stable. As you can see, these two business segments are performing very well. The decline in the group's overall operating profit margin is primary due to the changes in the revenue structure. The proportion of the high margin franchise and agency business has decreased, while the rapid growing direct operating business has increased, diluting the overall profit margin. Of course, we believe there is significant room to improve our profit margin of the directly operated business. Going forward, we aim to increase efficiency and refine operation to improve the operating margin of the directly operated business. Additionally, investment in new business will surely cause some short-term fluctuations in profit margin. In mid and long run, 20% profit margin will be a reasonable target, but during our growth phase, we need to give new business sufficient space and time to develop. In Cuba, our adjusted net profit was only 590 million, with our adjusted net profit margin set at 0.3%. Beyond operating expenses, the key factor affecting our profit margin in this quarter is increase in financial expenses, primarily coming from the three resources. First of all, the seven-year convertible bonds of USD 550 million with .5% coupon rate issued in January 6 of this year. Since these convertible bonds incorporate financial derivatives, it generates quarterly fair value valuation and accurate interest cost under the effective interest method, which are counting standards required to record as financial expenses. Secondly, the bankrolls expenses related to our investment in YH, which include borrowing interest expenses at an annualized rate below 3%. The third one is financial expenses related to stories for increased number of directly open stores. As Mr. Yeh just stated, we are committed for long-term thinking, even if we save short-term pressure, but they lay solid foundation for long-term revenue and profit growth. In Q1 this year, our effective rate, tax rate, was 26.6%, primarily because of the convertible bonds and YH-related financial expenses reducing pre-tax profit without generating actual tax liabilities, resulting in a higher effective tax rate. Excluding those in tax, the actual operational tax rate was 21.2%, in line with what we saw last year. Going forward, we are going to maintain the very stable effective tax rate for our regular operation. Regarding capital allocation, in March of this year, 714 million, 2024 final dividend has already been paid to the shareholders. Meanwhile, starting from the trading window opened in March, the company continued its share repurchase program. As of now, we have repurchased nearly 260 million worth of shares in 2025, totalling 8 million shares, representing .7% of the total outstanding shares. In the near future, we are going to finance the rapid business growth and our commitment to providing shareholders with stable and predictable returns. Looking ahead to 2025, our expectations remain largely consistent with those at the beginning of this year. Due to the compression base from 2024, the overall revenue pattern was slower in H1 and has surrried in H2. We believe our operating profit growth will be housing 2025 as we will be more focused on expenses control. But improvement in operating profit margin still depends on the profitability of our directly operated stores and also investment into the new stores. These stores are currently in rapid growth phase and temporarily speaking lowest profit margin, but it has significant room for further improvement in the mid and long run. Looking into the future, we believe our reasonable operating profit margin should be around 20%. Our financial strategy will continue to maintain discipline in budgeting, cost control and capital allocation, committed to achieve stable and sustained profit growth and housing cash flow. Thank you very much. Let's conclude our presentation. We are now ready for Q&A. First question, let's welcome Michelle Chen from GoTenSox, please. Thank you. Thanks for Mr. Yeh and thanks for Ethan for giving me an opportunity to raise a question. I have three questions. My first question is regarding Minnesota domestic China business. There are some things you've improved recently. Could you be more elaborated on that? Why we have the same store improvement? Is it because the format of the stores has been changed? Is it because of the metrics of the stores being changed in different tiered cities? My second question, what would be the payback period for your franchise seats? Another point you mentioned is the store adjustment strategy. So do you have any guidance regarding the store opening plan or strategy? This is my first question. My second question is targeting U.S. market. Tariff is still with huge fluctuation as the market is seeing. So with very different tariff potentials, do you have any strategies or plans? What about the supply chain adjustment, especially for the U.S. market? My third question, for YH. Starting from Q2 of this year, there will be some P&L impact from YH, right? Can you please elaborate on how YH is going to impact on the profit and growth of Minnesota? YH has already rolled out some adjusted super-highers. Are there any updates on the progress now? Thank you. Thank you. Thanks, Michelle. I have many questions. I rolled out five. Let me just respond to your question one by one. The first three questions, I think you really want to know more about our domestic business. You want me to elaborate on the specifics of the same store performance in China. And in Cuba, in domestic market, we do have a mixed-sum percentage decline. For those investors who follow us, this is indeed a huge improvement compared with Q3 and Q4 last year. Internally, from the initial, we were quite inspired by only having a decline to meet single-digit numbers. Until yesterday, we have already narrowed this number to a low single-digit number. In 2025, we still have a heavy possibility of improving our positive growth. But let me just tell you, the microconsumption in China has not yet been fully restored. In such a challenging background, Minnesota can guarantee a positive growth, which can truly showcase our business resilience. If you further break down the Q1 same-store performance, especially for the clients and the customer flow, the value per order is still the same as what we saw last year. But for the same-store decline, because the traffic of the physical store continued to showcase low and single-digit decline. But starting from Q2, value per order and the traffic continued to be improved. In terms of the region, especially in eastern China and south China, in the tier 1 and tier 2 cities, the same-store improvement showed very nice progress. Or even some of them have positive growth from the beginning of Asia to now. But in northern part of China, especially in northeastern and northwest part of China, we do see some pressure for same-store improvement. We made some region-specific plans and we have periodical follow-up for those plans. So, overall speaking, we are very confident. Probably for our inter-race of Asia, we are very close to Greek and even. Well, let me just also share with you the franchisee business. Starting from 2025, the ROI has already seen nice improvement along with same-store improvement. We do have five minis or end in operational and 43 flagship stores. All of them must be operated by franchisees. So franchisees, they still have a very deep emotional bond with minis or they are still positive on us. We also have IPLM flagship stores in Pekai. Majority of them must still be owned by the franchisees. So we surely notice franchisees, they are quite interested in this new store format and they have every confidence. Third question, regarding the store opening guidelines in China. In Q1, the same-store performance delivered a very high-end performance. Even we adjusted the number of the stores, but still we will be able to register a double-digit growth by improving the same-store improvement and single-store improvement, especially those stores being operational within 12 months, which showcases a very healthy store metrics. For this year, we are confident we can achieve double-digit growth. Besides that, we also surely optimize our store network. The fourth question is regarding tariff. With existing tariff, let me see, compared with 2080, we do have some early preparations. For the cost of one year, we are intentionally building up our stock in the US, especially the inventory preparation. We do have more inventories in overseas market. In that way, it can help to be ready for the sales peak season in overseas market. In short run, it may bring some pressure on expenses. But now, it can actually help to further play the potential of our overseas sales. US inventory can still support ourselves for another three to six months. We have another countermeasure for US tariff activation. We are adjusting our supply chain. We hope we can translate Minisul as Chinese supply chain going global to global supply chain integration. In other words, we are going to be less dependent on mainland China as a single market and supply chain. In order to further improve our supply chain efficiency, we did a lot of jobs for direct sourcing from the US market. We make sure we have a controllable cost and a stable inventory of the US product. We have a deep bond with our international supplier to adapt to the new landscape. In Q1 this year, US direct sourcing accounted for 40% of the local product. In 2025, we are also going to adjust the sourcing and making sure we improve the diversities and qualities of the direct sourcing to improve the GP margin of the US business. At the same time, we also have the tax planning tools that can help us to effectively reduce our tariff burden in the US, making sure our commodity to the US market can generate a higher profit. The final question is around YH. So starting from Q2 of 2025, YH is going to be consolidated into our overall performance. For YH, its overarching goal is to reduce financial losses with efficiency and demand power and GP margin improvement and also cost expenses reduction. YH business has its similarities. Q1 is a peak time. From Q2 to Q4, we are going to confirm the profit and losses of the investment, especially starting from Q2. For YH adjustment, I think we do have a dedicated team to talk to the capital market. Over speaking, for YH retrofitted store, the performance is truly in line with our expectations. The team is also well performing. By 90th of May, 78 stores have been adjusted. We are going to close another 250 to 350 stores for YH. With an adjusted store of more than 200, the adjusted store showcases very good performance with nice profit. From January to May, the top quality YH store after adjustment, the profit is already more than 100 million. The future profit growth will come from efficiency and management efficiency improvement. YH performance is truly in line with our expectation, but YH business is a huge one. It really takes time to make the business right. Thank you. Thank you. Thanks for your very clear response. Thank you. Next question. Let's welcome Samuel Wang from UBS. Please. Thank you. Samuel, thank you. Can I just make one suggestion in order to make sure everyone has the equal opportunity to raise questions? No more than two questions for each, shall we? Great. Okay. Thank you. Thanks for your insight. So I have a question regarding overseas market. Recently, especially in April and May, what would be the same store performance trend in the overseas market, especially cost performance in U.S.? We noticed in 2024, you have the new management team for the U.S. market. What would be the outlook of the same store's performance for U.S.? What kind of strategy and advantages you take in order to improve the same store performance in U.S.? My second question is IP partnership. IP started to become a rising market with many players. There are some new entrants into the market that take very unique place. For example, they do have the celebrity ambassador promotion. So, if there are any differentiated strategies for IP, are you going to incubate your own IP, or did you ever consider acquiring other IP and develop your own IP in-house? Or are you still going to follow the third-party IP licensing to build a partnership to advance the IP business? Those are the two questions I have. Thank you. Thank you. Thanks for the sixth store performance in the overseas market. As I have already mentioned, the two store performance is very much like what we saw in China, but the base size is very different. In Q1 last year, overseas same store growth was 21 percent, more than 10 percent for agent market, directory sales more than 30 percent for off-shore, off-line chain retail store. Growth more than 20 percent for single-mounds. They are very high solid line. So, if you take it as a two-year compound growth rate, the international, especially overseas same store growth was quite good. Starting from April, in Mexico and the U.S. market, we do see some -a-one improvement. So, generally speaking, we are still very confident for the same store performance improvement in overseas market. But you have to notice there used to be a very fast growth for network stores. In overseas market, for example, the rapidly upgraded store before 2024, we only have 900. But last year, all of the sudden it jumped to 1,300. With 1,300 stores, half of them can be accumulated, accounted with same store performance. Another half will not be taken with same store improvement. In U.S., we have more than 300 stores. But in Cuba, the same store performance only accounted for 90 of that. In other words, 30 percent of the store can be taken on the same store improvement baseline. So, another growth drive would be the now same store inventory business, which has been operational for the 12 to 15 years. And the performance is going to be further improved. It's single-store output is going to have a teams, or should I say, a low WGD growth for this year. I have already mentioned in the propelled remarks, we're going to adopt the successful experience from China for overseas market. In China, we have so many competitions. There are so many competitions, but still we'll be able to grow in China. We're still very confident of having successful story from overseas market. U.S. new management team is doing right. U.S. is the world's largest consumer market. It's also going to be a key destination for Minnesota's future global strategy. From 2021 to 2024, we have 100 percent four-year cake, which is truly impressive. Single-store output performance also makes us world top two. In a faster-growing market, the short-term individual sales and fluctuation may be impacted by different factors. We believe retail business is a long-sought business. Wherefore, the U.S. market, what we're going to focus on, including the product. The first one is China optimization. The second one is merchandise improvement. For China, last year, we opened 150 stores with more experience accumulated. In 2025, we're going to be more focused for store opening in the 24 states with 76 percent of the U.S. population to leverage the clustering effect. In those areas, if we open new stores, we can really pay the sale effect, making sure we can have fast deliveries between warehouse and stores, reducing the store shortage, improve customer satisfaction. And we're also going to optimize the route of our logistics, reducing the cost and the pre-efficiency, which has already proved to be right in Q1. Thirdly, we can also predict the demand, reducing the inventory backlog. Wherefore, merchandise, we're going to be more refined and precise. Our headquarters, merchandise center, have already established the tariff cost and high gross cost for the U.S. We did some specific warranty to U.S. market demand only. Especially, we're following on new store formats in the U.S. and positioning of the stores we have in the U.S. to have a dedicated resource in warranty for U.S. market only. And we also make some best sellers. We will continue to further improve our membership system by enhancing our IT technology. Through the membership system, we'll be able to see the high demand and repeatedly purchased product, making those products into our best seller, just as what we did for the past one year. By improving the supply chain of those best sellers, leveraging our tariff cost in the global supply chain, and guaranteeing a stable delivery of those best sellers. Thirdly, we're also going to be very much targeted for customer profiling, getting more insights from the user. The question regarding IP is indeed a hot topic in the consumption market. There are three observations I can surely share with you. The global most well-known and top IP licensing resources are still the scarce resources. As we continue to further expand our market coverage, the way for us to work with top IP or the frequency for the IP partnership will continue to be forged. We'll be able to get good resources, for example, exclusive licensing, and that can help us to get more gallery image resources, which can help us to further expand our presence in IP market. Secondly, for IP product design and IP product quality will also be the key criteria to decide whether the consumer will come back to you or not. There are many interest-based consumptions people just wish to build, but many of those demands are non-effective ones. Why should I say so? First of all, we have a very good expertise, that is to convert the IP. Our IP conversion capacity is being built based upon our 8,000 stores worldwide with seven to eight years experience for IP development. We have already paid the lessons. All those could become our expertise to protect our IP business. Secondly, we also have a more than 1,000 people product team, more than 1,500 global merchandise suppliers, with very effective supply chain management, which could be used for IP business. Certainly, we are also working on our in-house IP. For Minnesota, our in-house IP. Right before 2025, we used to have some IP with the sales of more than 100 million, for example, like Pan Pan and the Dun Dun Chicken. But for this year, we also started to have the Chipped Bell. This IP will generate the sales of more than 400 to 500 million. As someone who started to build in-house IP, the Chipped Bell indeed really surprised us. But for sure, it really takes time for us to build our in-house IP. I surely believe that in the next three years, we will be able to generate good performance, which is going to be very much inspiring for our team. Thank you. Next question. Let's welcome Justin. Thank you. I have a question. I'd like to ask the management team. For Minnesota Man & China business, if we just take a look at Minnesota Man & China, whether your GP margins are 38 to 40 percent, if we only take a look at the Minnesota Man & China business, what is the GP margin now? We also clearly noticed many of your merchandise are being sourced from the third party, which can actually help to mobilize more customer base and also improving your same-store sales. So how are you going to balance the same-store performance improvement and the GP margin enhancement? For the commodities, for the merchandise from the third party, how much is contributed to your overall sales? Do you have any target? I see your stores are starting to dissipate drinkable water or even some liquor products. I saw that in Minnesota Chin Dao store. How are you going to balance your GP margin if you're sourcing from the third party? For third-party products, the GP margin would be low, but for sure, it's going to mobilize more customer base for same-store improvement. Thank you. Thank you. A very good question. Thanks for the hand. I think what we're trying to do is that we shelve the -third-party product, whether it's going to burden our GP margin, but let me reassure you it won't. In Q1, for GP margin, especially in the China business, it has flat graphs compared with last year. We indeed shelve the -third-party product in our store, but those are the products in specific category. From the nature perspective, Minnesota is still the Earth-wide store. Would you like to provide the consumer with treasure-hunting experience? In other words, you provide whatever the customer likes. In such a way, when you convert organic traffic into your well-customer, it doesn't mean the product has to be your self-owned commodities. For example, let me give you an example like toys. In China, in the shopping malls, the traffic structures are fundamentally changed. The household, consumers, especially children, become the key. Kids are needed. The consumer of the toys. In shopping malls, we don't have any very stable supply nationwide. If Minnesota would be able to provide the household customers with diversified average of the toys, which is quite cost-effective, that would be great. To do this, we need to engage many toy producers, especially those professional ones. We don't need to develop our toy supply chain. We can leverage the existing toy suppliers, engage them in our channel, and convert the organic traffic into actual sales. But at the same time, we will surely be able to build our own IP for consumers who come to Minnesota. Some of them are organic traffickers. They just come naturally to come to your store, and they can be converted into actual sales. But there are also some other consumers who know our brands. Or some of them see your advertisement in the social media, they see the advertisement, and come to your store to purchase certain products. For example, travel products, blind boxes, and the dolls. You have to make it right, but we don't give up organic traffic conversion opportunities. That is the reason we shelf the third-party merchandise. We're going to have a dynamic control, but still the GP margin is very stable. A follow-up question. Imagine if you have a third-party product, but if some of them don't have a very good sales in your store, the matter is for toys, or for drinking water, or something else. Are you going to refund the product to the third-party, or is it just a buyout? Thank you. We do have some of the piloting initiative now, but let me just tell you, for any of the single batch of procurement, we have 4,000 stores in China. We have every capacity to digest those inventories. We don't have too much third-party procurement. It's only in certain specific categories. We leverage our data insights and experiments, make sure we make the right decision to de-risk ourselves. Secondly, we have 4,000 stores. We are safely digested those inventories. Thirdly, we just make sure we have a faster turnover of a third-party product. We're not going to build too much inventories. We always do it -to-face. Thank you. Next question, Wei Xiaobo from City Security. Thank you. And Mr. Wei from Citibank. I have one question regarding your stores. If we take a look at Q1, -the-quarter store, you have a net closure of 111 stores in China. By closing down standard performance stores, it's going to improve your same-stopper performance. I believe for your annual guidance, you're going to have 200 to 300 net openings. When you change the target of the net openings, if it remains the same, when you're going to have a net increase of the stores, what would be the time frame? Imagine in Q1, if you already have net openings, what would be the net closing time for net opening? Thank you. Thank you. Thanks for your question. Last question, I think I have already shared with many of you. We do channel upgrading in China. The reason is because if we blindly seek for the store number graphs, it won't be a good fit for our long-term development. So that's the reason we do the channel upgrading initiative. And always our same store enhancement. There will be some net store opening in H2 of this year. But we're not going to indeed do 200 to 300 net openings. We're just going to keep a dynamic adjustment. If it is 200 to 300 net opening, then it means our same-stopper performance is more than what we expected. But even if we don't make 200 to 300, there we will be able to maintain double digit graphs. Thank you. One more comment I'd like to make for this question. Closing store doesn't help for same-store enhancement. Because our definition for the same-store performance means you have complete closure of the store. There will not be content for the same-store performance. For the operational stores, the store closing should be no more than one month. So that's the reason for this quarter we do see same-store performance improvement. Okay. Of course, we did some merchandise strategy and operational strategies for those inventory stores. It's a part of the question. No matter for same-store or for the new openings, as long as your men and China sells reach the target, you don't bother whether it's being driven by same-store or new openings, right? As long as you guarantee a good revenue size and high-quality revenue growth. Yes, you are right. This is the premise we have. But for sure, in 2025, we hope more graphs from China are coming from same-store performance improvement. Okay, great. Okay. Ladies and gentlemen, thanks for all the investors for your time. And thanks for supporting Minnesota Group.