MINISO Group Holding Limited

We released our Q1 result earlier today. which are now available at our investor relationship website at irf.minnesota.com. Joining us today are Mr. Ye Guofu, our founder and the CEO, and Mr. Zhang Jinting, our chief financial officer. Before we continue, I'd like to refer you to the sixth upper statement in our earnings release, which also replied 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. and filing to the U.S. Securities and Exchange Commission and Hong Kong Stock Exchange, which have reconciled the most comparable measures reported on the high-end R&B 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 website. by our website. Now, I'd like to welcome Mr. Yebofu to begin his remarks. Good afternoon, everyone. Welcome to the New South Wales 2025 Q1 earnings conference call. 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 quarter. In Q1, that just concluded, Minnesota group's overall revenue exceeded expectation, with total revenue of 4.43 billion RMB, grew by 90% on worldwide basis. Minnesota China mainland revenue was 2.49 billion, grew by 9%. Minnesota overseas revenue was 1.5 million, grew by 3%. Coming next, please allow me to talk about our measures behind the static growth and our future strategy for both domestic and international market. Let's talk about domestic market first. We have continued optimization of same-store performance. Starting from the beginning of this year, domestic same-store sales has shown significant Y1 improvement In Q1, the YY decline in domestic things to ourselves narrowed significantly compared with Q4 last year during May Day holiday. In particular, we reached a positive turning point in our operational performance, with things to performance shifted from negative to positive. We maintain our guidance on domestic same-store growth from 10 positive for this year. Starting from last year, we have established the same-store enhancement as our core strategy. We will break down vertical management and continue to strengthen collaboration among operations, merchandise, channels, and marketing departments, building a flexible and very efficient integrated organizational framework with enhanced coordination, enabling faster and more agile decision-making and execution. The company also sets its own metrics as our core KPI across our entire business chain. This measure effectively breaks down departmental barriers, greatly motivating different departments to propose performance improvement solutions for their professional perspective. and achieving cross-departmental resources integration through coordinated mechanism, driving the entire team to effectively collaborate with the unified goal of same-store enhancement. The company has also developed a systematic implementation The merchandise and the channel management were more precisely characterized same-store attribute for the channel stratification, complemented by deep data insights to accurately match the channel characteristics with inventory structure, making sure our sufficient product offering meet diversified consumer needs. Going forward, we will continue to deepen our refined operation. further unlock modern potentials, and work with our venture types to advance high-quality development with high store efficiency and high profitability. Secondly, we strengthen our IP strategy and enhance product development perception. 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 the product innovation, building specialized teams that track global trends and hopefully explore new design concepts and functional applications to keep our offerings at the industrial forefront. Our IP collaborations have delivered exceptional results in this year. The Chicago Lunar New Year Collection, Chicago Cherry Blossom Cereals, and our recent Stitch Collections launched along with a movie release, which all received 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 DIPs rather than just the grains, refining our product development precision to create truly distinctive merchandise. From a strategic category perspective, during the May Day holiday, travel accessories grew by 45% compared with 2024, especially on May 3. First, it set a new historical high for this category, for that disposable products were created immersive specialty display zones and product endgaps were simultaneously showcasing professional third-party testing reports to build consumers' impression that municipal disposable products are safe enough. We continue to search for the high-quality and more environmental-friendly material 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. Minnesot's journey to date have been built on exceptional merchandise. Going forward, we will further invest it as a core competitive asset to gain greater consumer recognition globally and continue to establish Minnesot as a truly household name worldwide. Thirdly, let's focus on channel upgrade with larger stores driving growth. I'd like to show this my source on our domestic store expansion strategy. The brand has evolved from a rapid land grabbing into an upgraded phase of large store-driven growth. This year, we are focusing on high-quality channel development as our strategic goal, working on open larger, better-performing stores. Since the beginning of this year, we opened five new Minnesota land locations, branding a total to eight with another 50 incorporation. We established 43 flagship stores with 150 more in deadline. New stores opened in Q1 have achieved 27 higher average efficiency compared with new stores from the same period of 2024. Since the grand opening of our first IP Lab store in Tianjin last August, I feel that stores in Shanghai, Chengdu and other cities have successfully opened, with Nanjing and Guiyang locations also making impressive debauches this year. Those stores not only enhance Minusos' brand image, but also offering consumers a wider product selection and very unique shopping experience. We were delighted to see that after the store opening, All the stores continue to break single-screen sales records through refined operations and marketing campaigns closely integrated with our IP strategy. Moving forward, we will continue to emphasize our FPLand stores position as brand 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 low to new renovation are key initiatives. By increasing store size, we are expanding discipline area and consumer interaction space. Through upgraded decor style and optimized lighting design, we refresh store with better align with our brand positioning. We also proactively and systematically close some smaller, outdated stores. optimizing our store portfolio and further improving the overall operational efficiency, laying a very solid foundation for the brand long-term development. Coming next, let's talk about international market. We have international market steady expansion. Our overseas revenue contribution continue to rise, increasing three percentage points on worldwide basis. We implemented a diversified strategy to address different market dynamics. In North America, improving stock operational quality and controlling expenses ratio are our key priorities. We are going to focus on 24 states that represent 76 percent of the U.S. population. Implementing cluster-based store openings and the leverage economics of scale enable rapid inventory transfer between warehouse and stores, reducing logistics cost and improving inventory efficiency. We also enhance merchandise operations through a specialized product development team at headquarters that create targeted product assortment based upon US store format and positioning, with emphasis in dividing core best-sellers. We believe the market opportunities are not only in U.S., 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 U.S. and continue to leverage greater store models. In terms of the tariff, we also made some good preparations. Last year, We continue to build inventories in U.S. market for reserve despite some upfront cost. Ensuring sufficient stock availability and immediate time with uncertainty can allow us to fully capitalize on sales potential. Furthermore, we enhance our overall cost competitiveness in U.S. market by increasing procurement from U.S. local. and other overseas supply chains to continue to improve our product competitive edge in U.S. This April, we held our 2025 Global New Product Carnival at Qimlong in Guangzhou featuring nearly 4,000 square meters of the exhibition space with 90 immersive themed special exhibitions showcasing over 6,000 new products. Through our headquarter's strategic deployment of IP products and best sellers, we enhance product differentiation and competitiveness. By creating more efficient and innovative store mode, we bring more engaging shopping experience to local consumers to further strengthen our branding edge. We see tremendous potential in overseas market and will continue to drive high-quality growth through increasingly refined and localized cooperation. While for TopToy, let me just make the following statement. TopToy business continued to maintain steady development through optimized product structure and improved operational efficiency. The proportion of self-developed products exceed 40% for Q1 of this year, further enhance TopToy's market competitiveness and profitability. Going forward, we will continue to strengthen top tourist brand building and in-house product development, launching more product to meet consumer need, increasing brand 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 foundation for our full-year performance target. Meanwhile, we'll continue to implement our shareholder return policy, combining dividends and the share repurchase. We paid out $740 million in dividends this April and completed nearly $260 million in share repurchase. since the beginning of this year. We will continue such a strategy to maximize shareholder value. We maintain committed for customer-centric innovation-driven approach as we advance business upgrade and market expansion in IP collaboration space. We increasingly focus on the strategy of different existing partnership for developing new ones. Stretching the long-term IP partnership, we are also exploring leading resources in niche marketing. Please believe in the power of our business trajectories. In the interest base and the cultural consumption space, Minnesota has built a 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 of 2025, please. Thank you. Sexual misdeeds. Yes. I'd like to work this through our financial result for Q1 of 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 costs related to convertible bonds and acquisition loans. First of all, revenue. In Q1 of this year, the overall revenue was 4.43 billion, up by 90 percent, making steady progress towards our expectation. 90% revenue growth exceeding the upper limit over 50 to 80 growth items. Looking at each brand, Minnesota brand generated 4.09 billion revenue, growth of 16.5%. Within this, Minnesota China men and revenue was 2.49 billion, growth by 9%. 9% growth is even tax-related, compared with the private quarter. Meaningful overseas revenue was 1.59 billion, growth by 30%, also exceeding the upper limit of our 20 to 25% guidance to the market. Top toy brand achieved 340 million revenue, up by 59%, continued its rapid growth. Well, from the revenue structure, In Q1 of 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 percentage points for the same stock performance. with the collective efforts of everyone from our CEO to store staff. Domestic minisource same-store sales has significantly improved in this year. The Q1 same-store sales declined only by mid-single-digit number against the high baseline last year. The rate of the decline substantially narrowed down compared with Q4 last year. This improvement trend has continued since the Lunar New Year. Particularly impressive is that during the May holiday. We continue working towards our goal of achieving positive theme store growth for the full year. Overseas Minnesota theme store sales faced some base pressure. Q1 performance is similar to the domestic trend. However, it is worth noting that in the same period of last year, our overseas theme store growth was 20%. Looking at the two-year compound rate, overseas theme store sales still show solid growth in Q1. For overseas same-store performance, we were replicating successful practice from China market and already seen improvement in major market like U.S. 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. Well, in terms of the store network, in Q1 of this year, We aided 95 new overseas locations, steadily expanding our international network. In domestic China, we actively implement a strategic channel upgrade. Our approach is to close underperforming stores, where open better ones, and replace small locations with larger ones. Notably speaking, most of the stores closed in Q1 were low-productivity locations on the 200 square kilometers. with operating for over three years with average monthly sales lower than 200,000. In contrast, newly opened store this year averaged 300 square kilometers, with average monthly sale approaching 400,000. This explains why we have nearly double-digit revenue growth in China, despite no net increase in domestic store . Close margin, we saw an increase near 1 percentage point compared with the same period of the last year, reaching 44.2%. Beyond GDP margin 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 these seasonal factors, but the upward trend continues to have momentum to room for further growth. 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% each higher than the same period of the last year. Most of these YY increases are due to the sales. Majority of those YY increases relates to our newly opened direct operated stores including labor cost, 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 worldwide basis, the growth rate of direct retail revenue continued outpace the growth of the related expenses. As I continue to talk to the market, our existing investment for the directly operated store are capturing more sales opportunity. to ensure our future business success, especially in our strategically important markets like the United States. While at the same time, we will be effectively controlling headquarter related management expenses, with their overall proportion decreasing, In Q1 of this year, it has 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%. Adjusted operating profit margin was 60.6%, down by 4.2% 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 Minnesot, Man and China franchise business remains stable compared to the same period of last year. Well, the operating profit margin of our overseas agency business has slightly improved. Those businesses are pretty stable. As you can see, these two business segments are performing very well. The decline in the group's operating profit margin is primarily due to the changes in the revenue structure. The proportion of the high margin franchise and agents business has decreased, while the rapid growing direct operated 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 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 would be a reasonable target, but during our growth phase, we need to give new business sufficient space and time to develop. In Q1, our adjusted net profit was RMB590 million, with our adjusted net profit margin of 3.3%. 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 USD550 million with 0.5% coupon rate issued in January 6 of this year Since these convertible bonds incorporate financial derivatives, it generates quarterly fair value fluctuation and accurate interest cost under the effective interest method, which accounting standards require to record as financial expenses. Secondly, the bank loans, 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 store lease for an increased number of directly open stores. As Mr. Ye just stated, we are committed for long-term thinking. Even if we see short-term pressure, but they lay solid foundation for long-term revenue and profit growth. In Q1 of this year, our effective rate tax rate was 26.6%, primarily because of the convertible bonds and wide-related financial expenses reducing pre-tax profit without generating actual tax liabilities, resulting in a higher effective tax rate. Excluding those impacts, the actual operational tax rate was 21.2%, in line with what we saw last year. Going forward, we're going to maintain a very stable effective tax rate for our regular operations. Regarding capital allocation, in March of this year, 740 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, totally 8 million shares, representing 0.7% 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 expectation remains largely consistent with those at the beginning of this year. Due to the comparison base from 2024, the overall revenue pattern was slower in H1 and accelerated in H2. We believe our operating profit growth will be housing 2025 as we will be more focused on expenses from June. 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 are 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 healthy cash flow. Thank you very much. Let's conclude our presentation. We are now ready for Q&A, please. First question, let's welcome Michelle Chen from Goldman Sachs, please. Thank you. Thanks for Mr. Yeh and thanks for Ethan giving me the opportunity to raise a question. I have three questions. My first question is regarding the Minnesota domestic China business. There are some things for improvement recently. Could you be more elaborate about that? Why we have the same store improvement? Is it because the format of the store has been changed? Is it because of the metrics of the store has been changed in different tiered cities? My second question, what would be the payback period for your franchisees? 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 the U.S. market. Tariff is still with huge fluctuation as the market sees. 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. And starting from Q2 of this year, there will be some P&L impact from YH, right? Can you please elaborate on how YH going to impact on the profit and loss of Minnesota? YH has already rolled out some adjusted super hydrants. Is there any update on the progress now? Thank you. Thank you. Thanks, Michelle. Many questions. I wrote down five. Let me just respond to a 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 Q1, in domestic market, we do have a mid-simple-digit decline. For those investors who follow us long enough, this is indeed a huge improvement compared with Q3 and Q4 last year. Internally, from Minnesota, we were quite inspired but only have a decline to meet single-digit number. Here yesterday, we have already narrowed this number to a low single-digit number. we still have every possibility of improving our positive growth. But let me just tell you, the micro-consumption in China has not yet been fully restored. In such a challenging background, the new soil can guarantee a positive growth which can truly showcase our business resilience. If you further break down the Q1 same-store performance, especially for EPS 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 East China and South China, in the Tier 1 and Tier 2 cities, there seems to be improvement, show very nice progress. Or even some of them have positive growth from the beginning of this year to now. But in northern part of China, especially in northeastern and the northwest part of China, we do see some pressure for things to improvement. We made some original specific plan and we have periodical follow-up for those plan. So overly speaking, we are very confident. Probably for our inter-ray of Asia, we are very close to break 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 Minnesotans 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 Minnesotans. They are still positive on us. We also have IPLAN flagship stores in Pekai. Majority of them are still being owned by the franchisees. So we surely notice franchisees, they are quite interested in this new store format and they have every confidence in it. Third question regarding the store opening guidelines in China. In Q1, the same store performance delivered a very high deal performance. Even we adjusted the number of the stores, but still we will be able to register the double-digit growths. by improving the same-store improvement and the single-store improvement, especially those stores being operational within 12 months, which showcases a very healthy store matrix. For this year, we are confident we can achieve double-digit growth. Besides that, we will also surely optimize our store network. The fourth question is regarding tariffs. With existing tariff, let me see, compared with 2018, we do have some early preparations. For the past one year, we are intentionally building up our stock in U.S., especially the inventory preparation. We do have more inventories in overseas market. In that way, it can help to be ready for the sales fixation 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 sources. U.S. inventory can still support ourselves for another three to six months. We have a lot of countermeasures for U.S. tariff population. We are adjusting our supply chain. We hope we can translate Minnesota 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 supply chain. In order to further improve our supply chain efficiency, we did a lot of job for direct sourcing from U.S. market. We make sure we have a controllable cost and a stable delivery of the U.S. product. We have a deep bond with our international supplier to adapt to the new landscape. In Q1 of this year, U.S. direct sourcing accounted for 40% of the local product. In 2025, we're also going to adjust the sourcing and making sure we improve the diversities and the qualities of the direct sourcing to improve the GDP margin of the U.S. business. At the same time, we also have the tax planning tools that can help us to effectively reduce our tariff burden in U.S., making sure our commodity to the U.S. market can generate a higher profit. The final question is around wide-edge. 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 GDP margin improvement and also cost expenses reduction. YH business has seasonalities. 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 wide-range adjustment, I think we do have a dedicated team to talk to the capital market. Over the speaking, for YH retrofitted store, the performance is truly in line with our expectation. The team is also well performing. By 90th of May, 78 stores have been adjusted. We're going to close another 250 to 350 stores for YH. With adjusted store of more than 200, the adjusted store showcased very good performance with nice profit. From January to May, Talk for the 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 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 performance for U.S.? What kind of strategy and measures you take in order to improve the same-store performance in U.S.? My second question is on IP partnership. started to become a market with many players. There are some new entrants into the market that take a very unique place. For example, they do have the celebrity ambassador promotion. Are you going to incubate your own IP, or did you ever consider acquire 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, Ms. Samuel. As I have already mentioned, Q1 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. Directly sells more than 30 percent for offshore, offline chain retail store. more than 20 percent for single months. They are very solid, high solid line. So if you take it as a two-year compound growth rate, the international, especially overseas, sales growth was quite good. Starting from April, in Mexico and the U.S. market, we do see some 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 of the stores. In overseas market, for example, directly operated store before 2024, we only have 900. But last year, all of a 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% of the store can be taken on the same store improvement baseline. So another gross drive would be the non-same store inventory business, which has been operational within 12 to 15 years. And the performance is going to be further improved. Its single-storey output is going to have a huge, or should I say, a low double-gigit growth for this year. I have already mentioned in the prepared remarks we're going to adopt the successful experience from China, the progress is wanted. In China, we have so many competitions. There are so many competitions, but still we will be able to grow in China. who are still very confident of having a successful store before this is marketed. 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 of four-year peak, which is truly impressive. Our performance also make us world top two. In a fast-growing market, the short-term individual sales and fluctuation may be impacted by different factors. We believe retail business is a long-slot business. We are for the U.S. market. What we're going to focus on include the following. The first one is channel optimization. The second one is merchandise improvement. For channel, last year we opened 150 stores with more experience accumulated. In 2025, we're going to be more focused on store opening in the 24 states with 76 percent of the U.S. population to leverage the cross-touring effect. In those areas, if we open new stores, we can really pay the scale effect. making sure we can have faster deliveries between warehouse and stores, reducing the store shortage, improve customer satisfaction, and we are also going to optimize the route of our logistics, reducing logistics cost and increasing efficiency, which has already proved to be right in Q1. Thirdly, we can also predict the demand, reducing the inventory backlog. where for merchandise, we're going to be more refined and precise. Our headquarter merchandise center have already established the tariff hospitals and high-growth hospitals for U.S. We did some specific warranty to U.S. market demand only. especially with our new store formats in the U.S. and positioning of the stores we have in the U.S. to have a dedicated resources for the 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 the 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 in the global supply chain, and guarantee a stable delivery of those best sellers. certainly was 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 or the frequency for our IP partnership will continue to be forged, or 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 marketing. Secondly, for IP product design and IP product quality will also be the key criteria to decide whether consumer will come back to you or not. There are many interest-based consumptions people just rush to build, but many of those demands are non-effective ones. Why should I say so? Because for Miniso, we have a very good expertise, and that is to convert of the IP. Our IP conversion capacity has been built based upon our 8,000 stores worldwide with seven to eight years' experience for IP development. And we have already paid the lessons. 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. Thirdly, we are also working on our in-house IP. For Miniso, our in-house IP, right before 2025, we used to have some IP with a 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 shift about this IP will generate a sales of more than 400 to 500 million. As someone who started with your in-house IP, The Jet 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'll be able to generate good performance, which is going to be very much inspiring for the whole team. Thank you. Next question. That's from Justin. Thank you. I have a question I'd like to ask for the management team. For municipal man-in-China business, if we just take a look at municipal man-in-China, whether your GP margins are 38 to 40 percent. If we only take a look at the municipal man-in-China business, what is the GP margin now? 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 you're going to balance the same-store performance improvement and the GP margin enhancement? For the commodities or the merchandise from the third party, how much it's contributed to your overall sales? Do you have any targets? I see your store started to dissipate drinkable waters or even some liquor products. I saw that in the store. How you are going to balance your GP margin if you source from the third party? For third-party product, the GDP margin would be low, but for sure, it's going to mobilize more customer base for things to improve it. Thank you. Thank you. A very good question. Thanks for that. I think what we're trying to do is that we shelf the many third-party product whether it's going to burden our GDP margin. But let me reassure you, it won't. In Q1, for JP margin, especially in China business, it has a flat growth compared with last year. the product in our store, but those are the product in specific category. From the nature perspective, we would like to provide consumer with a treasure-hunting experience. In other words, you provide whatever the customer likes. In such a way, when you convert organic traffic into your well-cost demand, it doesn't mean the product have 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 have fundamentally changed. The household consumers, especially children, become the key. 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 customer with diversified average of the toys, which is quite cost-effective, that would be great. Toy development means We need to engage the new 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 traffic. They just come naturally to come to your store, and they can be converted into actual sauce. 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 product, for example travel product, blind box and the dolls. You have to make it right, but we don't give up organic traffic conversion opportunities. That is the reason we shelve 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 the third-party product, but if some of them don't have very good sales in your store. The matter is for toys. or for drinking waters or something else. Were 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 the 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 experience, 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 first-hand number of a third-party product. We're not going to build too much inventories. We always do it based on this. Next question, Wei Xiaobo from Citi Securities. Thank you. I'm Mr. Wei from Citibank. I have one question regarding your stores. If we take a look at Q1, end of 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-store 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, then what would be the net closing and net opening? Thank you. Thank you. Thanks for your question. Last quarter, I think I have already shared with many of you, we do channel upgrading in mainland China. The reason is because if we blindly seek for the store number growth, it won't be a good fit for our long-term development. So that's the reason we do the channel operating initiative. But 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, that means our same store performance is more than what we expected. But even if we don't make 200 to 300, there we will be able to maintain a double digit growth. 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 over the same-store performance means you have complete closure for the store that will not be complete 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 because we did some merchandise strategy and operational strategies for those inventory stores. Ethan, a follow-up question. No matter for same-store or for the new openings, as long as your Made in China sales 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 growth from China are coming from seems to performance improvement. Okay? Ladies and gentlemen, thanks to all the investors for your time, and thanks for supporting the municipal group.