Ladies and gentlemen, thank you for being here, and welcome to MINISO Group Holdings Limited's earnings conference call for the first quarter of fiscal year 2022 that ended on September 30, 2021. Please be aware that this event is being recorded. Now I will turn the call over to your host today, Mr. Eason Zhang, Director of Capital Markets. Eason, please proceed.

Thank you, Mengru. Hello, everyone, and thank you all for joining us on today's call. The company has announced its quarterly financial results earlier today. An earnings release is now available on our Investor Relations website at ir.miniso.com. Today, you will hear from our Chairman and CEO, Mr. Jack Guofu Ye, who will start the call with an overview of our business. He will be followed by our CFO, Mr. Stephen Saiyin Zhang, who will address our financial results in more detail before we take your questions. Before continuing, I'd like to refer you to the safe harbor statement in our earnings release, which also applies to this call as we will be making forward-looking statements. Please also note that we will discuss non-IFRS measures today, which we have explained and reconciled to the most comparable measures reported under International Financial Reporting Standards in the company's earnings release and filings with the SEC. With that, I will now turn the call over to Jack. Please go ahead, sir.

Thank you. Hello, everyone, and welcome to MINISO's September quarter 2021 earnings conference call. During this quarter, we added 161 stores to our global store network, including 122 MINISO stores and 39 TOP TOY stores. Revenue reached CNY2.654 billion, up 28% year-over-year, exceeding the high end of our guidance range. Operating profit was CNY213.5 million. Operating margin of 8% was the highest in recent 7 quarters. Adjusted net profit was CNY184.2 million, up 80% year-over-year. Adjusted net margin of 6.9% was the highest in recent 6 quarters since the pandemic broke out. In spite of the headwinds from the resurgence of the pandemic, rainstorm disaster, and weak consumption data in the domestic market in this quarter, we focused on the elements of our business that are within our control, driving product innovation, enhancing inventory management, improving operating efficiency, and executing our omnichannel strategy. These efforts yield positive results as we kicked off fiscal year 2022 with solid performance, demonstrating the resilience of our business model and core competitive strengths. On this call, I'll share major developments we have made in MINISO brand's domestic operations, international operations, and TOP TOY in this quarter. First, let's start with the operations of our flagship brand, MINISO, in China. Offline retailers and consumer confidence were challenged by the continued spread of the Delta variant nationwide since late July. This regional outbreak was reported as the most widely spread variant since the first quarter of 2020. Despite the shelter-in-place during this quarter, domestic operations of the MINISO brand recorded a revenue of CNY1.87 billion, up 13% year-over-year, driven by a 16% year-over-year increase in average store count and a 58% year-over-year increase in our e-commerce business. MINISO added 96 stores on a net basis during this quarter and ended September with more than 3,000 stores in China, marking a new milestone in our 8-year history. As we continue to penetrate into more and more Tier 3 and below cities and unlock these new markets, approximately 80% of newly added stores in this quarter are from there. By the end of September, the geographic reach of MINISO stores spanned across about 330 cities in China, including 4 Tier 1 cities, 46 Tier 2 cities, and about 280 cities in Tier 3 and below. According to government statistics, there are about 2,200 cities in China, including 300 prefectural level cities and nearly 1,900 counties. In addition, there are 91 cities in China with populations of more than 5 and 18 cities with a population of more than 10 million. As China's urbanization continues, there will be a large number of new shopping malls opening new MINISO stores every year. Although resurgences of the pandemic in China could bring short-term pressure, MINISO's long-term addressable market in China remains huge. Moving to our online business, revenue from e-commerce was around CNY186 million, up 58% year-over-year. Revenue from O2O business was around CNY19 million, up 126% year-on-year. In total, online business, including e-commerce and O2O contributed 10% of our revenue. MINISO is committed to deepening consumer engagement and driving omnichannel experience. We firmly believe that the success of our omnichannel strategy will help improve MINISO's brand awareness, user retention, and repurchase. Starting this year, we have enhanced our omnichannel strategy to become a key focus and a growth engine of the company. Supported by our 3,000-plus offline stores nationwide, we have established stable cooperation with O2O platforms and accumulated a significant amount of private traffic. Let me give you some examples. Most active users of MINISO's official WeChat Mini Program surpassed 6 million in September, and private traffic of MINISO brand surpassed 12 million by the end of September. In fiscal year 2021, there were a total of about 300 million orders in MINISO stores. With that figure in mind, we believe MINISO's private traffic has huge potential for future growth. Moving to MINISO's overseas operations, overall, sales of MINISO overseas stores moved further along the path of recovery in this quarter. With overall GMV recorded to about 70% of the same period in 2019, GMV in distributor markets recovered to about 75% of the same period in 2019, and GMV of subsidiary markets recovered to about 50% of the same period in 2019. Revenue generated from international operations was CNY623 million, up 78% year-over-year and 80% quarter-over-quarter, thanks to the improved sales recovery in important markets such as Mexico and the restocking by distributors for the upcoming holiday season. Our total number of overseas stores reached 1,836 by the end of September with a net opening of 26 new stores during the quarter compared to a net opening of 8 stores in the same period of 2020. More than 60% of these new stores were located in Europe, the Middle East, and North Africa. While sales recovery stabilized during the past several quarters at a level sufficient to support moderate expansion, there were 157 suspended stores in overseas markets by the end of September, down from 205 a quarter ago. Moving to TOP TOY, during the quarter, we added 39 TOP TOY stores on a net basis, bringing total TOP TOY stores to 72 by the end of September, including 9 DreamWorks stores and 63 collection stores. More than 90% of TOP TOY stores are opened by retail partners. With its rapid expansion this quarter, TOP TOY's revenue increased by 64% sequentially and exceeded CNY100 million for the first time. TOP TOY has been committed to a multi-category strategy since day 1, because we firmly believe that our toys should not be limited to blind boxes and that there should be many other potential categories to meet the diversified needs of Generation Z. One such category is toy bricks. After years of consumer education, the toy brick category has become one of the most popular categories in China's toy market. Meanwhile, certain promises in domestic brands have emerged, but the challenge for these young brands is that they are facing a fragmented market in terms of channels, data, and productivity. TOP TOY's solution for this problem is the launch of the first-ever Toy Brick Festival in China, a major campaign launched by TOP TOY together with several domestic brands. While leveraging TOP TOY's unmatched omnichannel capabilities, this activity combined online and offline channels to increase exposure of toy bricks with Chinese elements and boost sales. Going forward, we plan to allocate more TOP TOY shelves for domestic brands to help them introduce their flagship products, especially in our DreamWorks stores. We also plan to encourage our consumers to engage more with toy brick products embedded with Chinese elements so they can learn more about the value of Chinese toy bricks. This campaign is a good attempt for TOP TOY to use its omnichannel capabilities to empower traditional toy brands. Going forward, we'll continue to focus on integrating online and offline channels to improve TOP TOY's omnichannel experience and explore more potential trendy toy categories to effectively meet customer demands. Recently, we held the first TOP TOY Show, TTS, in Guangzhou, an art toy carnival featuring approximately 200 brands and over 1,000 artists. This 2.5-day festival for art toy fans attracted more than 100,000 offline visits and accumulated 200 million clicks on Douyin and Weibo, respectively. TTS was one of the largest art toy exhibitions in China during the second half of 2021 in terms of the scale and number of participating brands. Through this very successful exhibition, TOP TOY has deepened its customer insights, enhanced consumer retention, and expanded the influence of the TOP TOY brands. In terms of TOP TOY's proprietary products, we have been continuously discovering talented designers and worked with them, taking co-branding IP as an example; sales of its new blind boxes stabilized within the top 3 SKUs of TOP TOY during this quarter. TOP TOY is still in an early stage of building core capabilities and establishing brand awareness. This leaves its merchandise gross margin significant room for improvement. Going forward, we are confident that its gross margin will improve as its operating leverage is gradually released, driven by the expansion of its scale and the maturity of its proprietary IPs and products. This concludes my prepared remarks. I'll now turn the call over to our CFO, Steven Zhang, for the financial review.

Thank you. Hello, everyone. I will start my remarks with a review of September quarter's financial results and then provide additional color regarding December quarter. Please note that I will be referring to non-IFRS measures, which have excluded share-based compensation expense and certain nonrecurring items. Revenue in September quarter was CNY2.654 billion, increased by 28% year-over-year and 7% quarter-over-quarter, above the high end of the company's guidance range of up CNY2.45 billion to CNY2.65 billion. The year-over-year increase was primarily driven by the growth of our domestic operations and the recovery of our international operations. Revenue generated from our domestic operations was CNY2.03 billion, increased by 18% year-over-year. Revenue generated from domestic operations of the MINISO brand was CNY1.87 billion, increased by 13% year-over-year, mainly driven by a year-over-year increase of 16% in average store count and year-over-year growth of 58% in our e-commerce business. Revenue generated from TOP TOY was CNY109 million compared to nil in the same period of 2020. Revenue generated from our international operations was CNY623 million, increased by 78% year-over-year, reflecting an improved recovery of sales in certain markets and the restocking by distributors for the upcoming holiday season. From a quarter-over-quarter perspective, revenue from our domestic operations increased by 4%. As you may know that our business is subject to seasonality, typically, with stronger performance in September quarter than in June quarter. For example, our domestic revenue increased by 16% sequentially in September quarter of 2019, which represented a normalized seasonality before the pandemic. Apparently, the weak seasonality in this year was primarily due to the new wave of the pandemic from late July. We estimate the GMV loss for those influenced stores in China during this quarter was north of CNY200 million. Revenue from international operations increased by 18% sequentially. According to the National Bureau of Statistics in China in the first 3 quarters of 2021, retail sales of supermarkets, convenience stores, department stores, and specialty stores increased by an average of 16% compared to the same period of 2020. On an apples-to-apples basis, MINISO Group's domestic sales increased by 40% during the same period, demonstrating the resilience in our business model and the core capabilities. Gross profit was CNY728 million, increased by 39% year-over-year and 14% quarter-over-quarter. Gross margin was 27.4% as compared to 25.2% a year ago and 25.8% a quarter ago. Both year-over-year and quarter-over-quarter increase in gross margin was primarily related to change of revenue mix. Our more profitable international operations accounted for 24% of our revenue in this quarter, the highest percentage in recent 6 quarters compared to 17% a year ago and 21% a quarter ago. Selling and distribution expenses were CNY323 million, increased by 40% year-over-year and 22% quarter-over-quarter. The year-over-year increase was primarily attributed to increased personnel-related expense, logistics expense, and marketing expense as with the year-over-year revenue growth and brand awareness improvement for both MINISO and TOP TOY. The quarter-over-quarter increase was primarily attributed to logistics expenses and personnel-related expenses. G&A expenses were CNY200 million, increased by 29% year-over-year and 6% quarter-over-quarter. The year-over-year increase was primarily due to increased personnel-related expenses and IT expenses for our new initiatives, such as TOP TOY, partly offset by decreased potential service fees related to our IPO in the same period of 2020. The quarter-over-quarter increase was primarily due to increased personnel-related expenses. Turning to our profitability, operating profit was CNY214 million compared to a loss of CNY2 million a year ago and a profit of CNY108 million a quarter ago. Operating margin of 8% was the highest in the recent 7 quarters. Adjusted net profit was CNY184 million, increased by 80% year-over-year and 27% quarter-over-quarter. Adjusted net margin was 6.9%, the highest in recent 6 quarters compared to 4.9% a year ago and 5.9% a quarter ago. Adjusted basic and diluted earnings per ADS were CNY0.60 in this quarter compared to CNY0.40 a year ago and CNY0.48 a quarter ago. Turning to our balance sheet, as of September 30, 2021, the combined balance of our cash, cash equivalents, restricted cash, and other investments was CNY6.14 billion compared to CNY6.88 billion as of June 30, 2021. Turning to working capital, turnovers of inventory and trade receivables remained flat sequentially. Looking ahead into December quarter of 2021, we expect our total revenue to be between CNY2.5 billion to CNY2.7 billion, which represents an increase of 9% to 18% year-over-year. Looking ahead, we remain confident in our ability to continue to deliver shareholder value, attracting likeminded stakeholders and enabling our consumers to better enjoy life's little surprises. This concludes our prepared remarks for today. Operator, we are now ready to take questions.

So I have two questions for the management. The first one is the company has been turning more aggressive, expanding in U.S. and European markets. In U.S., we are also seeing a new concept like 10 Below. So can management share the strategies regarding the overseas expansion? And my second question is about the IP development, so we are seeing that for MINISO brands, there are some price adjustments for the IP products. And can management share whether we are aggressively expanding the IP products contribution for MINISO brand? And for TOP TOY, management just mentioned that the proprietary IP development has been quite successful. So can you share with us what's the outlook at the development stage?

Hello, Michelle, this is Jack, CEO of MINISO Group. Thank you for your questions. Regarding our strategies in the U.S. market and the new 10 Under concept, we opened four of these stores in October—three in California and one in Virginia. We are encouraged by the recent recovery in sales within the U.S. market over the last three months, with same-store sales reaching nearly 90% compared to the same period in 2019. Our customer insights reveal there is significant demand for household products under $10, which is currently not being met. Given MINISO's supply chain strengths, we feel confident in trying out this concept, which is still in its early stages, and we will share more updates in the future. For your second question about our IP strategy, I will discuss it separately for MINISO and TOP TOY. For MINISO, we have recently adjusted our pricing strategy for newly launched IP products, which have a higher gross profit margin compared to non-IP products. Our conversion and cross-selling rates have remained stable after implementing this new pricing strategy a few months ago, with IP products now contributing about 22% to 25% of sales. However, the majority of our products continue to be non-IP. Regarding TOP TOY, by the end of September, we have launched eight SKUs of proprietary products, which is two more than in the June quarter. This includes the blind box series that has performed well, ranking in the top three SKUs across all categories. The gross margin for TOP TOY's proprietary products has stabilized above 60%, and in the September quarter, these products accounted for 5% of TOP TOY's total sales, with half coming from our proprietary IP and co-branded IP. Additionally, we launched the Yifanshang feature in our TOP TOY mini program last quarter, which was a significant success, with great reception from fans. This mini program releases three to four SKUs each month, with sales tripling the TOP TOY average. Although the gross margin for these Yifanshang products is lower, their turnover is exceptionally fast, often selling out within 10 minutes of launch. Thank you.

So my question is regarding fourth quarter quarter-to-date sales momentum in both China and overseas market? And the second question is regarding the guidance for the next quarter of CNY2.50 to CNY2.7 billion, and could you please give some quick breakdown by China, overseas as well as TOP TOY?

Thank you, Lucy, for your question. This is Steven, the CFO of MINISO. I will provide updates on our operations. As you may know, the recent resurgence of the pandemic is reported to be the most widespread since March 2020. The cold weather and rains have certainly made it harder for the government to mitigate the pandemic. At MINISO, we currently believe the impact will be less severe than that of the Nanjing outbreak in late July. However, given its spread across several provinces, our best estimate is a decrease in GMV growth between CNY15 million from the Guangzhou outbreak in late May and CNY300 million from the Nanjing outbreak in July. Regarding the overseas market as of October, we had 118 suspended stores at the end of the month, down from about 157 previously mentioned. Sales have shown clear sequential improvement compared to September. The overall GMV in this market has recovered to 70% to 75% of the same period in 2019, with 80% recovery in distributor markets and 60% in subsidiary markets. For your second question on revenue guidance, we have estimated December quarter revenue based on the current recovery in both domestic and overseas operations. We anticipate pressure on revenue due to the pandemic recovery, particularly in the mass market. Traditionally, overseas operations see increased activity during the holiday season, especially Christmas, which is expected to contribute positively. The TOP TOY business has continued to see strong numbers, and we expect sequential revenue growth from it as well. However, I want to emphasize that due to the pandemic resurgence in China, the increase will be limited. Therefore, based on these factors, we have provided our revenue guidance for the next quarter.

I have two questions. The first is that we can see that the overseas business improved month by month. So what's your store opening plan for the next year, I mean, 2022? And to what extent can the overseas business breakeven or become profitable? And the next question is that are the newly opened overseas stores mainly from old franchisees or new franchisees?

Okay. Hi, Wenhui, this is Steven. So I'll answer your first questions. Traditionally, MINISO will review our whole year performance at the end of the calendar year. And based on that review, we will make a detailed working plan or budget for the next year. So as of today, we do not have a specific plan in mind. But what I want to stress here is that MINISO has been listed as a public company for several quarters, and from our past performance during the past several quarters, we have shown our resilience in our business model and our core capabilities. And that gives the whole management confidence, so we can stick to our strategy both at home and abroad. And this included the rollout and the rapid growth of TOP TOY, and we are very confident about that. And in terms of the overseas stores, here's what we think. All those areas that the COVID is unstable, maybe in the first half of next year, we do not have a detailed plan to make a very rapid development in these areas. Because of the pandemic resurgence, it will be very harmful to our business in that market. But for those countries and markets where COVID is well controlled, such as Europe and the U.S., as we have shown earlier, we have begun some of our business development, and there as we are aggregating the U.S. market. Thank you. For the second question about the store opening in the overseas market, in the September quarter, our subsidiary countries, some of them have now opened a lot of stores. I will give you some examples such as India, we opened 6 stores there. And as we have mentioned earlier, we opened 4 stores in the U.S. market this quarter. And in Indonesia, we opened 1 store. Absolutely, our distributor countries, our distributor partner, they are also opening new stores as they did in the past several quarters. For example, Spain, the distributor in Spain opened 3 stores this quarter and 3 in Italy. So in general, we see the recovery of the overseas market. We have high confidence that in the coming quarters our overseas market, and our distributor partners will gradually recover to now a modest expansion. Thank you.

Could you please give us more detailed information about the expenses of TOP TOY, at least the operating expenses and other expenses? When can they make profit, TOP TOY, in the coming half year or will it need 1 year or more?

Okay. Hi, Xiaofang. Thank you for your questions. This is Steven. I will answer the questions about the TOP TOY's margin profile. For TOP TOY, it's still at its early stage of rapid growth. So we are continuously making some investments in TOP TOY, including its team building, including its marketing to improve its brand awareness and including in the IP side. So if you look at the operating expense ratio for TOP TOY, it's at a relatively high level at this moment. For example, in the past September quarter, the TOP TOY's operating expense was about CNY14 million, and now absolutely, TOP TOY is in a loss status. But we do believe that with the development of TOP TOY's scale and its maturity of its proprietary products, TOP TOY's merchandise gross margin will improve as we have showed earlier; at the early 2021, TOP TOY's merchandise gross margin was about less than 40%, but its merchandise margin has reached about 50% by the end of September and at the beginning of October. So we are highly confident that by the middle of next year, its merchandise gross margin can reach as high as 50%. So if we can do that, and based on its development in next year, we do believe that TOP TOY can reach breakeven on a monthly basis at some point in the second half of next year. Thank you very much.

Thank you once again for joining us today. If you have any further questions, please contact MINISO Investor Relations team. Our contact information can be found on today's press release. We will see you next quarter. Have a nice day.