MINISO Group Holding Limited

Hello, everyone, and thank you for standing by. Welcome to Minnesota March Quarter 2026 Earnings Result Presentation. At this time, all participants on enrolling leaves are moved. After the management prepared remarks, we will host the Q&A session. Before joining the Q&C, please state your name and institution. Please also be reminded the event will be recorded. We provide you English simultaneous translation for this call. Please select your preferred language by clicking interpretation in the Zoom meeting. We released our Q1 2026 results earlier this year. Please help to refer to our IR website. Joining us here today are Mr. Jack Hewitt, our founder and CEO, and Mr. Ethan Zhang, our CFO. Right before we begin, please refer to the Steve Harbour Statement in our earnings press release, which also applies for this fall, as we were making forward-looking statements. Please also note that we are discussing non-IFRS financial measures. Those measures are explained, reconciled to the most comparable measures reported under IFRS, and also in our fighting with SEC and Hong Kong Stock Exchange. Unless otherwise stated, all figures are in RMB. We have already prepared a slide deck for financial and operating highlights for today's call. If you are joining through Zoom, you will see the slide now. You can also refer to our IR website after the call. Now, let me just attend the call to Mr. Jack Yeh. Hello, everyone. Welcome to Minnesota March quarter 2026. Earnings score, in March quarter, the revenue reach close to 5.7 billion RMB, grow by 28.5%, exceeding the high end of our previous guidance. Adjusted net profit, excluding forex gain and loss, comes at 630 million, grow by 8%. Operating cash flow grow by 40%, free cash flow was up by 36%. I'm not going to read through the financial items one by one. Ethan will take you through the detailed numbers and outlook in CFO remarks. I'd like to focus on three areas. First of all, execution of our strategy. I may spend more time here because the details of execution can rarely tell you where a company is heading to. Secondly, an update on two overseas markets that of your most concern, Indonesia and US. And thirdly, my view on H2 of this year. Let me just start with strategic execution. Last year, I introduced store upgrade strategy. We are right on that. Minnesota brand store number grow by 380 in China, less than 10% growth, but offline store GMV grow by 25%. The two data tell the story best. First of all, the share of the profit franchisee this quarter reached the highest level in recent quarters. Franchisees are putting their own money on the line, so their P&R is most honest signal that you can get. The fact that profitability hit a new high tells you that large format store is not asking franchisees to take the risks, but helping them to make money. Secondly, we received thousands of new store applications, half of that requesting for large format or flagship stores. In the past, we had to convince franchisees to open large stores. Today, they are competing for this chance. Such shift is the market's most direct vote for the confidence in our large-store format. On April 18, Minnesota Space and Minnesota Land opened simultaneously at a CDF mall in Sanya. Duty-free mall has been traditionally taken for luxury and beauty brands, with highest food traffic density and spending power among the top-tier retail store. The fact that we can move in, speak for the brand equity, most importantly will bring something that people won't be able to take. An immersive IP-driven experience, add pop culture to duty-free malls, and translate into incremental food traffic and time for venue. The real barrier for running a large store isn't capital, it is content density. In a thousand square meter space, can you really make the customer want to stay without leaving? This comes to three things we accumulated for one decade. Licensing right over 150 global IPs, a network of 2,000 global suppliers, and a supply chain that fast enough to refresh assortment every week. These are the three that can really make us stand out. But at the same time, with systematically closing underperforming stores, those opened for many years, with under 200 scrum meters. But at the same time, we upgrade our franchise base, removing weaker partners to bring new strong ones. This is what our store and channel operating strategy is really about. Many people want to know how we have our IP strategy done. This is quite important. In Q1 of this year, we launched an IP operation training program at our Guangzhou headquarter, bringing together regional magic managers, store representatives from South China and functional team. This isn't the classroom-style training. We use our Minnesota land store as a live training ground, breaking down operations in well-stored environments, The program covers our IP understanding, storytelling, operational execution, and data capacity, working through everything from underlying logic to hands-on experience. Why it is so important? Because IP operation is an organizational capacity. It is not a set of the SOP. No matter how well a menu is written, if franchisees and your staff just follow it mechanically, the result won't be good. Only when people genuinely understand why IP resonates consumer most, that can help our right half the strategy. This can turn IP operation from a headquarter story into a muscle memory across the entire network. On April 8th, we concluded our overseas trade fair. the start of this event was usual a proprietary ip that we built from scratch in-house the fact that a proprietary ip took center stage is a signal our own ips are now capable of standing on their own commercially And the strong order volume from the distributor and overseas customers is a most honest vote of the confidence to our IP and our product. That's more telling than any market result. UU surpassed 100 million RMB in sales with six months of launch. In April, it appeared on Metacarta, the so-called Oscar of the fashion, a stage that has been traditionally for luxury brands and international celebrities. A Chinese original pop toy IP appeared as an accessory along with international stars and was featured as a gift at the event. This is not marketing. UU earned its place in the global fashion spotlight on its own merits. From CCTV's Spring Gala to Paris Fashion Week to Met Gala in New York, UU covered the ground in six months that many IPs won't be able to make in 10 years. It's a full stack of the IP capacity from incubation to design to operation and robot rollout. UU's success is not a coincidence. It's a signal that proprietary IP strategy is going to get into the harvest stage. In Q1 of ASEAN, total overall revenue of municipal group exceed 2 billion RMB, and we also have a great way to extend our business. The success is whether our organizational capacity can keep the pace. Building organizational capacity is what we made the last investment with. It won't immediately show up in financials, but it's by our long-term development. We have advanced on a few things. First of all, standardization. The headquarter has developed operation and merchandising menus, delivering video case study and on-site training to ensure consistent understanding and execution across markets. Each market also set up regional management training with regular session for store managers and supervisors. Secondly, we built benchmark and rapid replication. When key pilot projects are selected, once they prove success, we roll out them quickly to other markets. Thirdly, a mentorship model, powering experienced operators who deliver results with new commerce and continue to have the generation pass on the information. This system means our overseas capacity no longer depends on a single individual. It becomes something that organization can grow on its own. The more market and the store we have, the greater the compounding effect might be. Deep organizational capacity along with IP-driven product, those two things give us strong confidence for our long-term overseas growth. Indonesia and U.S. are the two markets many of you are focused on. Let me give you an update on both. Indonesia has been one of the markets we are most proud of in our international journey. It has to remain so going forward when Indonesia isn't about market. Its young demographic and vibrant consumer environment in the market we are going to have a long investment. It also made a demonstration effect for confidence of our global team. We must make it right. However, the business reached certain scale, hitting some bumps. It is entirely normal. The most difficult time is already gone. We have already have a clear path forward. On channel, headquarter has set up dedicated negotiation team to proactively pursue primary location and select relocate stores. On assortment, we have a one-side feasible approach. Score are segmented. on the product operation headquarter is providing direct support strength and local ip execution and the taylor merchandising plan on the organizational side we clearly define responsibility hot credit water leads strategic development for local team focusing on daily operation and in terms of the membership we notice that we need to truly make the business from traffic driven to repeat purchase driven I'd like to spend a few words on membership piece. We notice Indonesia consumer show a clear spike in store visit at end of each month, which climb with the local payday circle. We made a payday wage membership benefits program. The result was clear. Membership participants was 80.5% higher than during the normal member days. The repeat purchase rate and frequency are all improved. During the Ramadan, we saw participation climb even further, which tells us this has become a real habit for the consumer. Well, for the full year, Indonesia delivered a solid profit contribution. I believe without an adjustment to the event, profitability in this year would be much better than last year. More importantly, when membership and repeat purchase become the primary engine for growth, and the growth would be even higher, I'm truly confident on Indonesia. Let's also talk about North America, which is another heat. I have already worked you through the stock model and strategic updates, but today I'd like to address two questions, including tariff and consumer behavior under inflammatory pressure. I believe those are opportunities for Minnesota. First of all, our price bound gave us the structure advantages. Our core price range in US was around 5 to 25 USD. In that range, what drives purchase emotional connection is IP. I love this, so I buy it. While at the same time, 5 to 25 USD is quite alluring. While at the same time, a consumer looking for merchandise of specific IP won't work away because of the small price increase. And the tariff and inflation translate correctly into price elasticity. However, for us, we don't apply that the same way. Secondly, municipal supply chain capacity has been further upgraded from building a localized and specialized merchandising team while improving the entire supply chain, including product, strategy, and supplier development. With strong cross-functional and supply chain collaboration, we have launched our first SAL program, which can help to improve our supply capacity. Thirdly, our goal can readily support the US business development. We operate in 120 countries and regions worldwide. Any successful store model from one market proven IP playbook could be quickly adopted worldwide, while at the same time, the stable cash flow and scale economy can also give us the confidence and resources to invest in the U.S. The global complementary framework is not there for our competitors. Thirdly, tariff and inflation are cynical and short-term, reliable. They come and they go. Where consumer demand over emotional IP experience is structural, it doesn't appear with micro-volatility. For strong companies, Sitting core pressure is also the growth opportunity. This growth is going to accelerate industry, ship out, and let truly differentiated brands stand out. In US, we are that differentiated brand. Let me just tend to talk to it now. In first quarter of 2026, TopToi revenue grow by 51%, net store grow by 21%, reaching 355, 360 in China and 39 overseas. In Q1 of this year, we launched a new proprietary IP Xiaoyu, Duidui and Baorong. Along with proprietary IP themed stores, together with Nomi, TopToi portfolio of proprietary IP stand out. The portfolio products become more mature. Our proprietary IP is invalidated by the market. By the end of this month, we announced Zhao Lusi as TopToys Global Brand Ambassador. Her influence and recognition among young consumers will help us to accelerate and reach more young consumers. Coming next, let me just walk you through my H2 outlook. There are four drivers. First of all, membership is the most important lever for our same-store sales growth. The data tells a clear story. For full year 2026, member contributed 60% of the total sales. In Q1 of 2026, this number rose to 73%. In other words, nearly three-quarters of Minnesota China business are coming from our members. There are two structural chiefs behind that, and I see that consumer accounted for 79% of the total sales for us. Two highlight. First of all, contribution from repeated purchase continue to grow. In Q1 of this year, repurchase has already accounted for 60% of the member sales. New member acquisition is also accelerating. The first purchase contribution from the new members rose from 6% to 11% in Q1, which tells us when we convert new consumers into members, the quality of those new members are also improving. When more than 70% of your business revenue are coming from the consumers, you can directly reach and engage. The growth shifts from being opportunity-driven to system-driven. That's the underlying logic behind our confidence while we are there for repeat purchase and ROP expansion in H2. Secondly, benefit our channel upgrades only started to come through. For the full year, we plan to open close to 500 large-format stores with Minnesota Land and Flagship Store making up increasing share. Thirdly, North America and Europe set to enter into harvest space in H2. The new store we opened in US and Canada was of high quality. This cohort will reach maturity and deliver high-quality same-store sales growth and margin improvement. Fourthly, 2026 is a year with highest density of IP. As we move into summer peak season, we have a very strong pipeline of major IP collection launched lined up. Finally, well, we did see some return this quarter from our earlier investment in the AI space. I firmly believe that bigger price lies in the efficiency gain AI can bring to our core business. Strong management capacity got amplified by AI. the technology dividend from AI will flow first to organizations that already have high execution discipline and a very strong learning capacity. And I surely believe we're going to continue to leverage AI to really support organizations who already have a very strong learning capacity. So for me and for my team, We are improving our understanding over AI and also continue to develop AI. What is Minisol? Minisol is a high-density operating organization, launch thousands of new SKUs every year, manage over 8000 stores and dispense more than 100 markets and regions. For an organization like us, The drive for efficiency is our DNA. On the product development side, AI is supporting the trend forecasting and assortment decision. On marketing, AI can improve our efficiency in content production and customer stratification. On operation side, our smart floor system are helping us managing food traffic by time and day. We approach change with a sense of humility. We see AI as an amplifier, amplifying the supply chain advantage, product development speed, and operational precision that Minnesota already has. Recently, we also would like to leverage AI to forecast the product need. In that way, we will be able to improve the customer loyalty. Those are the two prepared remarks I have for you. Now I'm going to welcome Ethan to work you through the financials. Thank you. Thanks for Jack. Welcome everyone to today's call. Please allow me to work you through our financial result of this quarter. Unless otherwise noted, all figures are in R&B. First of all, let's take a look at the completion of guidance. Let me just start by reviewing how we perform against the guidance we provided on the March earnings pool. We deliver on every metrics we guided for this quarter. First of all, revenue. Group revenue was grow by 28.5%, which is higher than 25% we made for the previous fall. I will break down the growth driver by business unit later in my remarks. Next, on theme store sales. In Q1, Minnesota, China, and mainland deliver high single-digit theme store sales growth, while North America deliver mid-double-digit theme store growth. The two strategic priority market maintain a very strong momentum, we saw in Q4 of 2025, driving group same-store growth to amid a single-digit number. It is worth mentioning, Europe and Latin America also deliver positive same-store sales growth in Q1. The trend would be continued in Q2. Let's also take a look at the top line. In Q1 of 2026, Group GMV reached 10.1 billion, grew by 26%. Total revenue grew by 28.5%, reaching 5.7 billion RMB. Let's break down by brand. Minnesota brand revenue was 5.17 billion in Q1, up by 26.6%. Minnesota China mainland was 3.23 billion, up by 29.6%. Minnesota-China managed to continue to perform exceptionally well. This was the 40th year-over-year growth rate in the past nine quarters, and the fifth consecutive quarter of accelerated growth following Q4 of 2025. The success of our China business validates our strategic directions right. Our operating playbook is solid. We will use China experience as our benchmark. Use those proven operating experience to drive breakthroughs in international business, turning China's success into a powerful engine for overseas growth. Minnesota overseas revenue was $1.94 billion, growth by 22%. Top toy revenue was $510 million. growth by 51.4% continue a very strong growth trajectory. Let's take a look at theme store sales. In Q1 of this year, Mainland China delivers strong theme store sales growth. With high single-digit growth number, many overseas, including the third-party distributor, also deliver solid low single-digit growth. Looking ahead, we will continue to strengthen our theme store across three dimensions, people, product, and stores. First of all, people. We leverage in-store traffic data to capture peak hours, regularly run in-store engagement activities, capitalizing on gift occasions like Mother's Day, 520, and Children's Day and the Dragon Festival to drive traffic through online to offline activation. On the other side, we use internal mechanisms such as inter-store competitions for the best-in-class mentoring to continue to improve our operation capacity. But at the same time, as Jack Yeh has already mentioned, the value of our domestic membership system continues to be unlocked in Q1 of 2026. Members' contribution to the sales rose from 60% to 73% this quarter. Empowered by our large store and IV strategy, we continued to acquire new customers and use refined operations to close the loop from acquisition to retention and repeat purchase limits. in the near future we will leverage ai capacity plus membership data to make sure we continue to have the demand forecast pre-session targeting and the channel iteration continue to rise the same store growth number second let me talk about the product we continue to align tightly with seasonal and holiday consumption trends use hero STUs to drive a structural upgrade in the personal sales mix. In H1, our IP collaboration has broke through across diversified categories, covering high-value IP for K-pop superstar Jennie, the Sweetwell brand Glock, and classic lifestyle aesthetic Cass Cleason. This fully validates the connectivities of our global IP platform. In H203's year, we're going to have a launch the World Cup collections Chihuahua Plus Sun Grill, collaborations, and the Toy Story movie. The Hero IP will help to drive the high attachment rate. Sadly, unsold. We continue to upgrade store discipline and visual identity. In Q1 of this year, we completed renovation to around 80 stores. The average daily sales improved by more than 50% post renovation. The result validates effectiveness of the model strategy. We will continue to make it right. Let me also talk about our store network. At the end of this quarter, we have already more than 8,500 stores. Minnesota, we have 8,210 stores worldwide, a net increase of 722 stores. Minnesota, China's store number grew by 380, where overseas we netted 404 stores, reaching 3,670 stores by the quarter end. Popped Away have 875 stores, with 355 stores by the quarter end. 39 are located outside China. In Q1 of this year, we opened a high-quality themed park, for example, Minnesota Land Minnesota Space in Sanya City at Mall, Minnesota Land in Grandview Mall in Guangzhou, Minnesota Land in Dongkoumen and Shenzhen, as well as Minnesota Friends in IAPM in Shanghai. By the end of this quarter, the Spaceland Friends store reached 44 in total. In this quarter, we're going to have the Super Miniso, a new themed park, line up. running the total to 61 by the quarter end, covering 32 cities across China. Together, themed park schools, flagship ones, and large store ones accounted for 12% of the total store count, contributed 30% of the sales. We expect to roll out more better themed park stores by the end of this year and deliver a joyful and unique shopping experience to our users. Let's talk about the GP margin. GP margin was 43.3% for Q1. Compared with 44.2% in the same year last year, we have a 0.9 percentage point decline due to three reasons. First of all, high margin overseas business. represent a small share of the total group revenue. Secondly, the return of the value-for-money assortment in China, disciplined pricing has translated into higher volume, and thirdly, an increasing mix from our new domestic product like the quick commerce stores, which are still in a margin ramp-up stage. Let's also take a look at expenses. The total operating expense, excluding SDC, grew by 34% in Q1. The total expense ratio was 29.2%, compared with 28% in Q1 last year. Selling expense grow by 37.7%. The selling expense ratio was 24.5%, up by 1.6 percentage point. She and I expenses grow by 70.4%, slower than the revenue growth, representing a 4.7% of the revenue, a decline of 0.4 percentage point. The growth of the selling expense was primarily driven by investment in operating store, licensing fees, and advertising and promotion activities. First of all, in Q1, the revenue from direct operated stores grew by 50% YY, while related expense grew by 35%. demonstrating an ongoing optimization in our DTC store-level economics. Direct stock-related investments include staffing, rent-related expenses, depreciation, and amortization. Secondly, advertising and promotional expenses grow by 74%, accounted for 3% of the revenue that was mainly because of the grant upgrade initiative and proprietary IP marketing, We invest in brand awareness to reach a broader consumer base, reflecting our strategic investment in building brand equity. Thirdly, logistics expense grow by 43.5%, stably representing between 1.5% to 2% of the revenue. And fourthly, licensing fee grow by 42% in base quarter, in line with our strategic investment in IP development. Stably representing 2.4 to 2.6% of the revenue. The growth of the G&A expense was primarily due to higher staffing cost. Along with our business expansion, G&A grows lower in revenue. Let's also take a look at other net gains. has been talked with many of you for the previous quarter or in q1 we recorded a large investment gain with other net income related to our direct investment in an ai company following that company's recent ipo and meaningful share price appreciation we recorded 870 million in fair value gains i'd like to remind all of you The management doesn't view this type of gain as reflective of our profit and the core operating business, so it's been excluded from adjusted operating profit and adjusted net profit. In addition, the line item also includes net foreign exchange gains and losses. With forex volatility in Q1, we record a net forex loss of more than $80 million in this quarter. and which going to impact our margin by 1.5%. Generally speaking, our forex exposure may coming from the holding foreign currency dominated assets. For example, cash, cash equivalents or receivables or carrying foreign currency dominated abilities such as our USD dominated convertible bonds in Q1. The forex losses mainly come from the intercompany receivables from our subsidiaries in the US, Canada, Europe, and Indonesia. The forex gains and losses don't reflect the true operation performance of our core business. As the share of our DTC business continue to grow, the impact of the forex will also increase. So the guidance we're going to provide you will exclude the forex impact. Well, for non-IFRS, there will be some item need to be adjusted. I listed it here for you, including six. The first one is equity settled shell-based composition, SBC. SBC expense in Q1 was $110 million, an increase of $84 million because of the top toy. And the second one is came from the indirect investment in our AI company. This is actually a non-IFRS, with an investment of $870 million, represents unrealized and marked market gains arising from the change in the fair value. And the third one is losses from the fair value change in derivatives and issuance of the cost related to convertible bonds. By the beginning of last year, there will be a one-time insurance fees. It won't occur this quarter. And in Q1, the interest expense on convertible notes was $50.4 million, of which $45.7 million are non-cash. The actual cash interest paid by the company for these convertible notes was only $4.7 million. Interest expense on the loan used to acquire our stake in YH was $23 million. in q1 for yh the performance was truly good the net profit was 290 million as we hold a 29.4 of the equity stake in yh then we recognize approximately 77 million in income from yh in q1 and we also have the change in carrying value of the reduction liabilities arising from the preferred shares All those items would be excluded from an adjusted net profit. Effective tax rate was 24.9%, which was 20% last year. Let's take a look at profitability. I was talking about adjusted operating profit. Adjusted operating profit, excluding the net forex loss, grew 40.3%, reaching $840 million in this quarter. The adjusted operating margin, excluding the net forex loss, was 40.7, compared with 60.6 in the same period of last year. Let me just work you through the gap. First of all, gross margin declined by 0.9%, while the total operating expense, excluding SBC, grew by 1.2%, while the above partially offset by other items, resulting in a total impact of 1.8% on the adjusted operating margin. It's been declined from 16.6% to 48.7%. As you can see that for this quarter, the increase in our overall expense ratio was decreased significantly compared with the previous quarters. Well, for the full year, we aim to well control the expense ratio and continue to stabilize the GP margin. In other words, we are going to stabilize the operating profit margin of the company as a whole. So in H2 of this year, as the peak sales season of the overseas market continues to approach, we are going to honor our commitment for this goal. Regarding working capital, By the end of Q1 of 2026, the inventory turnover was 101, compared with 102 days in the same period of last year. Minnesota-China mainland inventory turnover was 67, compared with 83 last year. Minnesota overseas inventory was 254, that was 208 last year. the increase of the overseas inventory was primarily driven to the inventory build up ahead of the store opening the second one is due to the logistics on stabilities in some strategic market we have a more flexible supply chain management strategies increase the safety stock in overseas market Over the time, there will be significant room to optimize overseas inventory turnover. Let's also take a look at the cash flow, liquidity, and capital allocation. By the end of this quarter, our cash position stood at 7.05 billion, remaining healthy. In apparent May of this year, we distributed dividends over USD 160 million, bringing our accumulated shareholder return to 6.23 billion RMB. We believe our share price is currently significantly below its intrinsic value. Jack has already announced by the end of April he intends to increase his shareholding. The company also plans to conduct share buybacks based upon the market condition. Going forward, we will continue to maintain disciplined cost control and prudent budget management, while balancing the growth with delivery stable and predictable returns to the shareholders. Last but not least, let me just give you the outlook. Standing here by the end of May, We are highly confident in achieving the full-year target. We expect for the full year of 2026, the revenue are going to have a high double-digit growth. Three-year compound growth rate would be no less than 22%. Full-year net store addition would be 450 to 500. Jack has already mentioned, we are going to pay more attention to the quality of the development. four hundred fifty to five hundred net store increase would be adjusted as we continue to balance the quality of the store however overly speaking and whilst very confident in hitting our target Regarding the same-store performance, Minnesota, China, and North America, we hope we can continue a positive same-store sales growth. Excluding forex gains and losses, we expect a reduction in net profit growth to accelerate compared with 2025 on a full-year basis. While the overseas microenvironment presents significant challenges, our expectations for the first half operating without remain unchanged. And we believe the revenue will grow by 20-22%. Net store addition would be 210-230. The Minnesota-China same-store sales maintain a mid-single-digit positive growth. North America same-store sales maintain a high single-digit to low double-digit growth. That's conclude my prepared remarks. I'm happy to take your questions. Thank you. Thanks for Ethan and thanks for Jack. All the investors and analysts, please change your name to have your name and institution now represent. Please make sure you only raise one question each time. Let's first of all welcome Michelle from Goldman Sachs to raise the first question. Hello, Jack and Ethan. Thanks for giving me the chance to raise a question. Congratulations for the company of having a good performance despite the challenges. So my question was regarding overseas market. There been touched upon by Jack Yan. However, you see the crude oil price have risen and stay elevated. Could the management team share with us what is the demand from the key overseas market? What would be the distributor order? pricing, cost of parts through, and transportation and logistics. What are the impacts on your business? And what would be your response strategies? If in the next few quarter, there are some key upside and downside risks, which are the market and factors that you are most associated with? Is there any market who's going to have a huge fluctuation? And what are the market you are confident on? Thank you. Thank you very much. A very good question. Let me hope to address this question. First of all, on product mix, while systematically lifting out the share of the high-margin categories, proprietary IP product and IP collaboration limited edition are key factors. We also started to pursue never-ending but deeper strategy, concentrating on the true hero product and proactively on the Tether and SKUs. Fewer categories, but greater operating depth and efficiency in each. This is, in itself, the most direct way to hedge against cost pressure. On the supply chain, we have extended the raw material stocking cycle from the key STU from 2 months to 3 to 4 months, looking the cost ahead of the time. End-to-end stocking price is still stable, give us sufficient buffer. For US market, over the past 2 weeks, we started the differentiated price test. Taking price first on high-frequency, high-velocity items, we run for like bottomed water and T-shirts. On the data now, we see May gross margin already improved compared with April. The price increase rolled out further, and we believe the U.S. GP margin would continue to stay stable or even go up. Looking ahead into the next few quarters, the upside risks include successful execution of the pricing adjustment, Structural margin improvement, the rising mix of proprietary IP as well as the logistics cost pressure from the sustained hybrid oil and potential pressure on the ticket size if the consumer sentiment is certain continue to go weakened, overall speaking, were still very proactive for cost management. Thank you very much. Thanks for chatting. Coming next, let me just welcome Samuel from UBS. The line is open for you, please. Thank you. Thanks for Jackie and thanks for Ethan and thanks for Christina. I have a question regarding your Indonesia and Mexico market. I heard a few remarks from Jackie regarding the Indonesia market outlook, but let me just ask you a follow-up question. What are the theme store sales and overall sales trends in Indonesia and Mexico over the past two months in April and May? And what is your strategy for both markets, especially Mexico? And how should you comment on the sales and profit growth outlook for both markets in 2026? Thank you. Thank you. I think I have already covered Indonesia market. Let me talk about Mexico. The Mexico trend was positive. Same-store sales already came positive. Latin American are also delivering positive growth. From April to May, same-store sales improved meaningfully. And strategically speaking, we're going to work on channel upgrade. Mexico used to be dominated by small stores under 300 square meters. This year, we're going to roll out land store. Larger store not only means a larger sprout footage. It represents a comprehensive upgrade on IP. density and draw time to improve the higher ticket size and repeated purchase. Our large-store practice in China is truly validated. We are going to have it in Mexico now. Looking to the full year, Mexico, the same-store sales should maintain positive. New-store benefit of the channel upgrade would be visible in H2. Latin America has substantial consumption power and a fragmented competitive landscape. as long as we open right store and the execute ip operation while the market is still quite promising because for mexico we're going to have a lot of stores starting from h2 of this year we really look forward to its performance thank you thanks for samuel and thanks for jack then that's where um and from jeffries thank you thanks for christina I have a question regarding the Mennon China market. As you can see, the general speaking social retail data is not looking right. However, as I was talking to the expert, we found out many socials store, your performance is much better than other peers. Is it possible for you to share with us? Are there any strategic updates that you can share with us? What are we going to do next? Just a note. We have already mentioned some of our franchisees, they're happy to open the large stores. But can I just kindly ask you, is there any capital support we provide to our franchisees? Any strategies you have on the China market, we'd happy to hear it. Thank you very much. Let's talk about renovation progress. We renovated around 80 stores this quarter with clear result. Average daily sales increased by 50% post renovation, validating the effectiveness of our store upgrade strategy. For 2026, we plan to renovate more than 300 stores. And we need to do it in a phased, paced, and proactive intervention way. In other words, open big, close small, open good, and close weak. And transferring those aging undersized stores into new store formats, we place store emphasis on evaluating the visual identities, standard, display, IP experience, mix, and to have an efficient renovation strategy. Let's also talk about franchisee profitability and paybacks. From Q1 2025 to Q1 2026, the share of the profit franchisee store continued to go up, the GP margin continued to extend. On payback period, larger store are meaningfully higher than the store-level profitability. For some of the best performing themed box store can even achieve a payback within 6 months, compared with around 80 months for the standardized stores. In 2026, we continued to reinforce the franchisees' understanding over the large stores. We received some positive feedback from many of our large store franchisees. Rough 50% of the new store application received by the headquarter are for large store format. The feedback indicated franchisees are increasingly willing to invest in large store renovation. It also reinforced the importance of our strategic shift towards improving per-store quality. Thank you. Thank you, Anne. Coming next, let's welcome Yang Renbo from CICC, please. Hi, Jack and Ethan. I have a question regarding man-in-China businesses. As we can see, in April and May, the micro-consumption data in China is still fluctuating. I'd like to ask the management team, in terms of the food traffic and willingness to spend, is there any change? What trend are you observing across different city tiers and consumer cohorts? Same-store average daily order volume and average ticket size are both going up. The ticket size is approaching RMB 40. There is one driver that is becoming more important for our China growth, that is membership operation. Its most important strategy we have, a high-quality, highly engaged membership system, provide more predictable growth with strong resilience going through the industrial circle. The data tell us very clearly, members spend at the meaningful higher than the non-members. The higher the share of the member sells, the higher the quality and predictability of the overall business might be for the past few months. Our member GFW share increased from 60% to more than 70%, driven primarily by new consumer acquisition. In H1 of ACN, we'd like to work on the member acquisition. In H2, we will focus on repeated purchase. When the two are combining together, it can help to complete a membership growth fly well. Taking a look at the city tiers, we observe some positive trend. Consumption potential being unlocked for all tiers. Same store sales are all positive for all city levels. Provincial capitals are driven by large store as well as top level IP. New tier cities are driven by potential penetration and customer acquisition. The growth was pretty healthy during the Chinese New Year. We roll out the trendy toys to the countryside strategy, bringing municipal IP product and the same product experience to county level market. And which can help us to have the same store sales in county level reach double-digit number. This tells us emotional demand for IP and trendy toys cover much broader audience. Young people in county, they also have the same demand. They simply don't have the shared and adequate supply before. This can also see municipal brand has already covered different consumer cohorts. The depth of the China market is far greater than what has been generally appreciated by the market. Coming next, let's welcome Xu Xiaofang from CTIC, please. Okay. We may move to the next question first. Let's welcome Shi Di from Huatai Securities first. Hello, can all of you hear me? Yes, great. Loud and clear. Thank you. I'm Shi Di from Huatai Securities. I have a question regarding the same-store sales in China. We see in Q1 of this year, the company did a good performance on same-store sales. In the next few quarters, the baseline was being elevated, so how are you going to comment on the theme store base rising and the subsequential quarter performance? What strategies and tactics are in place for sustained theme store growth? You're right. The baseline is indeed rising, but we have a clear and systematic strategy in place Let me just share with you a few data during the May labor festival. Domestic sales grew by a high double-digit number, outpacing major competitors. Average daily sales hit an all-time holiday high, even higher than daily average during the Chinese New Year holidays earlier this year. We see some third-party data show us food traffic was under pressure during the May labor holiday, but our store, the entry level improved by 4.1%. Average per store traffic also grow, means we drove traffic against the headwinds. By categories, toys, digital accessories and travel categories deliver 25% growth, which is the hard-earned result. For sustaining seems to growth, we have the following strategy. For IP collaboration, we continue to deliver differentiated and high-frequency launches. For example, we secure a global exclusive license for F1 plus Disney collaboration. And May through June, there will be a few 15 seasons with Mother's Day, Children's Day, Father's Day, and 520 I Love You Day. And we have already built a dedicated assortment and event plan according to the 15 data to improve the average ticket size. For operating, we also roll out the food traffic counters at the store and to further empower our store. The supply chain also continues to improve. Even during the May Day holiday, we can unlock the sales window. So even if the baseline is going up, we have a diversified toolkit and we are confident in continuing to deliver strong same-store performance. Thank you. Thanks for Jack. Madam Xu, are you there from CETIC? Can you unmute yourself for questions? Yes. Christina, thank you. I have to say sorry. There might be some technical issue with my line. Jack, Ethan, good afternoon. I have a question regarding your proprietary IP. For the past few six months, we see that your proprietary IP started to show up in your store, media, and local cities, the designs being quite interesting. So is it possible for you to share with us your proprietary IP, for example, UU as well as Peplice? Thank you. A very good question. Let me elaborate on that. Third-party licensed IP and proprietary IP seems selling the same product, but the logic would be different. Let's talk about the GP margin. Proprietary IP product have a high margin compared with licensed IP, but the underlying logic matter the most. Proprietary IP is most exclusive and absolutely differentiated. If you want to sustain the GP margin, you need to have a proprietary IP. The pricing power, operating authenticity, and entire value chain of the proprietary IP sits fully in our hands. It also provides long-term high-margin mode. However, you need to think about how to diversify the monetization model. A mature proprietary IP isn't self-product. You can sub-license it to the third party, you operate across multiple formats, and it can also drive content production and upgrading the IP capacity. Those are all extreme high-margin business model. That compound over time, view your appearance on the map garden and entry into fashion week reflect build of the brand value rather than sell product only. While building our proprietary IP, while building a business model on an entirely differentiated style, that is most important upgrade for Minnesota long-term profit structure. Thank you. Thanks for your echo. Coming next, let's welcome Mr. Qin from Changjiang Securities, please. Thank you. Thanks for the management, please. I'm Qin Yang from Changjiang Securities. I have a question regarding the Europe business. It seems the business growth in Europe is quite fast, and we are still in the investment phase. And Europe is a big market for you to explore. So can I ask Jack here, can you share your view on the long-term opportunities in Europe and the specific strategy plan for the mid and short run? What would be the pace of the store investment in Europe this year, the profit quality of the new stores, and what would be the change of the margin for the store? Thank you. Europe has delivered continued positive things to sales growth this year, with the leading category being trendy toys categories, for example, like the Vida Brush and the Vine Box. This is also the reason for us to go for international expansion. We're not branding new products others are already selling. We're rather branding the consumption scenario of IP trendy toys, open new demand. Channel upgrades are progressing in parallel. The land store will roll out in H1 of this year. Regarding the profitability, Poland and Germany are strong proof points. Both directly operated stores have outperformed expectations, and the store level and market level operating margin reached double digits. The Germany overall operating margin across more than 10 stores has already stabilized with double digits. Other markets are ramping up. Q1 is traditionally the off-season for retail. It is also the best window to prepare for new store opening. And our long-term profitability target for Europe, DTC is clear. Germany has already achieved that. Other markets will follow up. Europe is a market worth of long-term cultivation. We have the patience, and we have a clear pathway there. Thank you. Thanks for Jack Yeh, and thanks for Mr. Ting for the question. Coming next, let's welcome Wu Chunxi from Guotai Haitong. The line is open, please. Thank you. Jack, Ethan, and Christina, thanks for giving me the chance. I have a question regarding US. It seems that you operate a large store format in US for quite a while. Is it possible for you to work us through the operational details as well as the operational results? And you can see that what would be the purchase frequency of your U.S. members? Is it improved as you roll out larger stores? Thank you, Ms. Wu. As I was emphasizing again and again, that is what we're doing now. For the past two to three years, Minnesota continued to build up our non-U.S. consumer goods, the largest DTC network in the local area. So starting from January of 2024, we started to explore the last store. Before that, you see that we entered into U.S. market in 2017. By then, majority of our store are located in US shopping malls. But from January of 2024, we started to have our garden-proof stores being opened, and we started to build our understanding over buzzer. By beginning of this year, Jacky Air went to US to tour around our stores. We find out our buzzer store has already moved into a 2.0 version time. What does 2.0 version means? and our two point aversion store is not picky about the business district at all you can see that for our good and large bazaar stores even in an average business district its store sales and efficiency per square meter is still be looking right Compared with the 1.0 version buzzer store, the 2.0 version are actually showing better profitabilities. So we have already provided you a single store pre-profit model in the US. Generally speaking, for a single store, the payback takes around one year in the US. well for the 2.0 version store the payback period has been controlled within one year well for minnesota we are committed for the long-term business and we stick to the long-term investment so for the 2.0 version store and it provides above-expectations thin store performance, and it is also sustained and continued with improvement. In other words, in the near future, our US 2.0 version store can be rolled out to more cities and more business districts. It's a proven success, which can help us to continue to unlock its potential in the US market, The second question, you were talking about the sales data from our members. In China, we have a very mature and well-established CRM operation system. In that way, we will be able to extend our success China membership management to the U.S. For the past one year, the sales growth from our U.S. members has been quite significant. China started to do membership in 2018, and in 2021, the membership sales exceeded half of our total business. And we made five years of making the membership spending accounted for half of our revenue, where in the U.S., we only spent one year to make that happen. And you can also see the repurchasement rate of the U.S. consumer is no less than that of the Chinese members. So that's the reason. And we believe we're going to have a very healthy store efficiency this year. And we have every confidence for that. Thank you. Thanks for Jack Yeh and thanks for Ethan. Thanks for all the investors and analysts for your questions. Thanks for everyone to be a part of our earnings pool. If you have any further questions, feel free to contact my team. Thanks for your attention and support for Minnesota. See you next quarter.