Ladies and gentlemen, thank you for standing by, and welcome to MINISO Group Holding Limited Earnings Conference Call for the Third Quarter of Fiscal Year 2022 that ended March 31, 2022. At this time, all participants are in a listen-only mode. After the management's prepared remarks, we will conduct a question-and-answer session. Please note this event is being recorded. Now I'd like to hand the conference over to your host speaker today, Mr. Eason Zhang, Director of Capital Markets. Please go ahead, Eason.

Thank you. Hello, everyone, and thank you all for joining us. We have announced our quarterly financial results earlier today. The earnings release is now available on our Investor Relations website at ir.miniso.com. Joining us today are our Founder and CEO, Mr. Guofu Ye; and our CFO, Mr. Saiyin Zhang. Before continuing, I'd like to refer you to the Safe Harbor statement in our earnings press 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 the 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 Mr. Ye. Please go ahead.

Thank you. Hello, everyone, and welcome to MINISO Group's March Quarter 2022 earnings conference call. In the March quarter, the pandemic once again affected China, with major cities like Shenzhen and Shanghai implementing strict lockdown measures since February. This has posed significant challenges to the domestic retail industry, with the most stringent restrictions seen since 2020. Our estimates indicate that nationwide foot traffic to MINISO stores fell by about 2%, with declines of 14% and 34% year-over-year from January to March, due to these strict measures. Despite these challenges, we achieved a solid quarter with revenue reaching RMB2.34 billion, reflecting a 5% year-over-year increase. TOP TOY's revenue surged by nearly four times compared to last year, and MINISO's offline business also showed positive year-over-year growth, demonstrating the resilience of our business model. As we have highlighted in previous calls, the pandemic will continue to impact consumer demand and our short-term results. However, our business model has shown great resilience and adaptability in this challenging market environment. A report from Frost & Sullivan indicates that MINISO has further strengthened its leadership position, with our market share in the global branded variety retail market rising from 5.2% in 2019 to 6.7% in 2021. Our market share in China also grew from 10.9% to 11.4%. I am encouraged by several positive trends in our business. In China, we are executing MINISO's brand upgrade by integrating interest-based consumption into product development. Our newly launched products, which are appealing, useful, and playful, have seen a higher gross margin compared to our traditional lifestyle products. Consequently, our gross margin for this quarter reached 30.2%, an increase of 110 basis points year-over-year, and we anticipate this trend will continue in April. Furthermore, the easing of pandemic controls in many overseas regions has led to a recovery in MINISO's overseas business, with revenue for the March quarter reaching RMB520 million, a 17% year-over-year increase. Our global operations provide us with more opportunities for future growth compared to our competitors. The global retail industry is under cost pressure due to high inflation in many countries, particularly the U.S., but this also presents us with a chance, as consumers are seeking value during this time. To address global inflation, we will continue to leverage our strong supply chain capabilities to maintain the value proposition of MINISO products globally. Our collaborations with over 1,000 qualified suppliers and our strong bargaining power position us favorably to manage rising costs. Additionally, we have maintained a healthy inventory level, with worldwide inventory turnover days returning to approximately 60 to 70 days, reflecting a normalized pre-pandemic state. In the March quarter in China, MINISO brand revenue was RMB1.69 billion, with offline stores accounting for RMB1.56 billion, showing a slight year-over-year increase. Our e-commerce business generated RMB113 million in revenue while maintaining a healthy margin profile. MINISO added a net of 29 new stores in China during the March quarter, down from 44 stores a year ago. Traditionally, we see seasonality in store openings, with the March quarter being the lowest due to the long vacation from the Chinese Lunar New Year, and the pandemic also impacted new store openings this year. We plan to adjust the pace of store openings in China based on the pandemic's developments to reduce operational risks for our retail partners. In our last earnings call, we shared updates about our strategic upgrade of the MINISO brand. In the March quarter, we successfully refreshed almost all MINISO stores in China, featuring our new slogan and interest-based products alongside a data-driven shopping experience. We are continuing to execute our IP strategy, with gross margins on new IP products improving in low single digits year-over-year. In the upcoming quarters, we'll dynamically adjust our marketing strategies to align with the Chinese consumer market for healthy returns on investment. MINISO is committed to enhancing consumer engagement and encouraging repurchases by improving the omnichannel experience. We launched MINISO's paying membership program last September, which has received positive feedback from our fans. More than 1 million paying members have joined, and they enjoy numerous exclusive benefits. Our A/B testing indicates encouraging incremental spending from these members. For the overseas operations, the March quarter's revenue was around RMB520 million, marking a 17% year-over-year increase. We observed strong sales growth in overseas markets, with total GMV up 30% year-over-year. By region, Europe grew by 85%, North America by 65%, Latin America by 45%, and the Middle East and North Africa by 20%. Asian countries, excluding China, saw a 10% growth, with significant gains in the U.S., Mexico, India, and Indonesia. We added a net of 39 stores overseas in the March quarter, compared to 29 stores last year, and we plan to accelerate our store openings this year following a stable recovery trend. As of March 1, 74 overseas stores, or 4% of the total, had not resumed operations, primarily in Asian countries, excluding China, and Latin America, highlighting the ongoing impact of the pandemic in these areas. Our focus on product development remains strong, with a focus on product localization. In Latin America, we launched 1,100 new SKUs in the March quarter, contributing to a 45% year-over-year growth there. We aim to strengthen our overseas design capabilities and continue to offer localized products. Now, regarding TOP TOY, while the pandemic affected short-term performance, we executed our strategy and made steady progress. Offline revenue increased threefold year-over-year, with online quickly ramping up, contributing over 10% of revenue this quarter. We see significant potential in the TOP TOY market, with expectations for it to grow at a CAGR of 24% from 2022 to 2026. This growth is supported by diverse products, expanded sales channels, greater importance of IP incubation, and a growing brand base. TOP TOY is focused on diversifying its product portfolio and improving IP incubation capabilities tailored to Generation Z. In the March quarter, TOP TOY's merchandise gross margin reached a healthy 45%, with proprietary products stabilizing at around 65%. TOP TOY successfully launched co-branded IP products with Sario, achieving strong sales, including the newly launched Strong Lockecat, which was a top seller. Additionally, TOP TOY introduced a Vintage home appliance series under the China Bricks label, which resonated with consumers and reflected childhood nostalgia. TOP TOY has several toy brick products in the pipeline and will continue to explore the market potential of China Bricks while offering diverse toys to young consumers. Thank you. That concludes my prepared remarks. I'll now turn the call over to our CFO for the financial review.

Hello, everyone. Thank you for joining us. Today, I will start my remarks with a review of March quarter's financial results, and then provide additional color regarding June quarter. Please note that I will talk about the financials in RMB, and I will also refer to some non-IFRS measures, which have excluded share-based compensation expenses. Revenue for the March quarter was RMB2.34 billion, including RMB1.82 billion in China and RMB520 million in the overseas market. In China, revenue from offline business of MINISO brand was RMB1.56 billion. Revenue from e-commerce of MINISO brand was RMB126 million, and the revenue from TOP TOY was RMB111 million. From a year-over-year perspective, our revenue increased by 5% year-over-year, primarily driven by a 17% year-over-year growth in the overseas market, but dragged by a 2% year-over-year growth in China, which was caused by the lingering effect of the Omicron variant. As we mentioned in the CEO's remarks, revenue from the offline business of MINISO brand in China grew by 1% year-over-year. The pandemic has negatively affected our revenue in China in two ways. Firstly, it caused the temporary closure of our stores, with more than 300 or 10% of MINISO stores temporarily closed in March. Secondly, for those stores that remained open, the lockdown measures taken by local governments significantly impacted traffic. We estimate the GMV loss for the month of March alone was around RMB300 million, translating into a revenue loss of about RMB200 million. Our TOP TOY brand, although it recorded a year-over-year revenue growth rate of more than 300%, was also negatively impacted by the Omicron variant, with more than 10% of its stores temporarily closed in March. In the overseas market, the year-over-year growth came from both distributor markets and the subsidiary market, with part of the shipment to overseas distributors deferred to June quarter because the pandemic has impacted the operation of our logistics and transportation service providers. However, considering the strong replacement demand from the overseas market after encouraging GMV growth this quarter and anticipating that more stores will be opened in the coming quarters, we expect decent growth in shipments to revenue in the overseas market in the upcoming quarterly reports. From a quarter-over-quarter perspective, revenue from the overseas market decreased by 28%, as you may know that our overseas business is subject to seasonality, typically with the strongest performance in the same quarter and lowest in the March quarter. For example, our overseas revenue decreased by 40% sequentially in the March quarter of 2019, which represents a normalized seasonality before the pandemic. The strongest seasonality in the March quarter of 2022 is proof of the continued recovery in the overseas market. Gross profit was RMB707 million, an increase of about 17% year-over-year and a decrease of 18% quarter-over-quarter. The gross margin rate was 30.2% compared to 28.1% a year ago and 31.1% a quarter ago. The year-over-year increase was primarily due to one, the revenue contribution of the overseas market increasing from about 20% in the same period of 2021 to 22% this quarter. As you know, our overseas operation usually has a higher gross margin than our operation in China. And number two, higher gross margin contributed by new products under the strategic brand upgrade of MINISO in China. The quarter-over-quarter decrease was primarily due to the decreased revenue contribution from the overseas market from about 26% to about 22%. Excluding share-based compensation expenses, selling and distribution expenses were RMB352 million, an increase of 28% year-over-year and a decrease of 5% quarter-over-quarter. The year-over-year increase was primarily attributed to: number one, an increase in personnel-related expenses; number two, an increase in license expenses related to our newly launched IP products; and number three, an increase in promotion and advertising expenses related to the refresh of MINISO stores in China, partially offset by decreased logistics expenses. The quarter-over-quarter decrease was due to decreased logistics expenses, license, and traveling expenses. General and administrative expenses were RMB191 million, an increase of 22% year-over-year and a decrease of 11% quarter-over-quarter. The year-over-year increase was primarily due to increased depreciation and amortization expense related to the land use rights of our headquarters building project and increased personnel-related expenses and tax surges. The quarter-over-quarter decrease was primarily due to decreased personnel-related expenses and decreased financial and legal service fees. Turning to profitability, operating profit was RMB141 million compared to RMB161 million in the same period of 2021 and RMB255 million in the previous quarter. The operating margin was 6% compared to 7.2% a year ago and 9.2% a quarter ago. Adjusted net profit was RMB111 million compared to RMB149 million in the same period of 2021 and RMB205 million in the previous quarter. The adjusted net margin was 4.7% compared to 6.7% in the same period of 2021 and 7.4% in the previous quarter. Adjusted basic and diluted earnings per ADS were $0.36 in this quarter compared to $0.52 a year ago. Turning to cash position, as of March end, the combined balance of our cash, cash equivalents, restricted cash, and other investments was RMB5.49 billion compared to RMB5.37 billion as of the end of December 2021. Our strong cash position and ample operating cash flow have positioned us well to cope with any challenges. Turning to working capital, inventory turnover has improved year-over-year and stabilized quarter-over-quarter. Trade receivables remained stable on both year-over-year and quarter-over-quarter bases. Looking ahead into the June quarter of 2022, we continue to operate amid significant uncertainty regarding the timetable for pandemic recovery in China and some Asian countries. In China, our business suffered more in April than in March, with an average of 380 MINISO stores temporarily closed and total revenue down about 10% sequentially. Although we have observed a sequential improvement in May, it is more related to seasonality, as it is typically a strong month for sales. It is difficult to predict when the lockdown measures will come to an end, so we remain cautious in our outlook for the June quarter. We currently expect our total revenue to be between RMB2.1 billion to RMB2.4 billion, with the midpoint representing a decrease of 9% year-over-year. Our margins have been and are expected to be pressured during this wave of pandemic outbreaks primarily due to sales deleverage. As we shared in the CEO's remarks, we have not faced any material cost headwinds, thanks to our strong bargaining power and flexible pricing strategy. However, we have taken necessary actions such as controlling operating overheads, reducing personnel-related expenses, and adjusting marketing plans to ease the short-term impacts on our bottom line. Although we have been experiencing these tough challenges, we are confident in our competitive advantage and optimistic about our growth potential in inflationary periods. The fundamentals of our business remain unchanged. We will continue to focus on those elements of our business that are under our control to drive growth and pre-tax margins. Thank you, and this concludes our prepared remarks. Operator, we are now ready to take questions.

Thank you. We will now begin the question-and-answer session. Your first question today comes from the line of Michelle Cheng from Goldman Sachs. Line is open. Please go ahead.

I have two questions for management. The first is about inflation and costs. Some retailers are reporting significant pressure from cost inflation. What is management’s view on the cost inflation rate affecting our business, and how are we addressing it? We saw strong margin expansion in the March quarter; how sustainable is that? My second question is about store expansion. Can management provide an update on the expansion plans for China and the overseas market? Thank you.

Thank you for your question, Michelle. Yes, we have observed the current situation. The recent cost pressures faced by retailers concern everyone in this industry. Let me share our perspectives. The recent cost pressures in retail arise from several factors. First, there are rising transportation and freight costs, including increasing oil prices and shipping expenses. Second, on the supply chain front, we are seeing higher prices for raw materials and commodities, along with the transmission of cost pressures from suppliers. Third, inventory impairment is leading to reduced gross profit. In this turbulent market, retailers are grappling with uncertain consumer demands and increased seasonality, which complicates reordering due to prolonged lead times. More freight pressures are emerging, leading some companies to maintain higher inventory levels. However, unpredictable consumer demand has caused issues with miscalculating forecasts, resulting in excess inventory—a common challenge in the retail sector. For MINISO, we currently do not feel much cost pressure, as evidenced by our rising gross margin in recent quarters. This can be attributed to a few key reasons: First, regarding our expense structure, the freight costs incurred by MINISO primarily come from suppliers to our warehouses, comprising a small portion of the total freight expenses. The costs from our warehouse to retail partner stores or distributed locations are charged to the retail partners or distributors, so increases in trade costs do not significantly affect our profit and loss statement or our retail partners, who operate under a cost-plus pricing strategy. Therefore, rising freight costs will not materially impact their gross margins. Second, on the supply chain side, our large procurement volumes, driven by our over 5,000 global stores, give us substantial cost advantages. Our long-standing relationships with suppliers help us consolidate these advantages, allowing us to transfer incremental costs while maintaining our target gross margin through our flexible pricing strategy. Third, we maintain strict inventory control. Our inventory turnover is currently between 60 to 70 days, close to pre-COVID levels. In FY '19, our inventory turnover was about 63 days, and it rose to roughly 78 days in FY 2021 due to the pandemic. However, thanks to consistent efforts over the past year, we have reduced our inventory turnover to 68 days, approaching pre-pandemic levels. Currently, China is the least affected by global inflation, which places us in a favorable position. Nonetheless, we will continue to closely monitor global cost increases and manage them effectively.

Our inventory turnover was approximately 63 days, and it increased to about 78 days in FY 2021 due to COVID. However, thanks to our consistent efforts over the past year, our inventory turnover days have decreased to 68 days, approaching our pre-pandemic levels. Currently, China is the least and latest to be affected by global inflation, which positions us favorably. While there are global cost increases that may impact us, we will closely monitor these changes and continue to manage effectively.

I will translate for the CFO. Yes, for your question on store expansion, let me start with the overseas market. We still maintain our guidance of a net addition of 350 stores in the calendar year 2022. For China, it's a more complicated story, as everyone is aware of the current restrictions. As Mr. Ye shared in his prepared remarks, we will dynamically adjust our store openings in China based on pandemic control. The overall approach here is to focus on the long-term trajectory of the MINISO system while adjusting our store openings accordingly.

Thank you. The next question comes from the line of Lucy Yu from Bank of America Merrill Lynch. Line is open. Please go ahead.

The market is worried about the decline in spending power in China. In the short term, we may experience a reduction in consumption or more cautious spending, which might take time to rebuild consumer confidence. Additionally, MINISO has increased prices for some products since the latter half of last year. What impact do you expect this to have on sales during this consumption downturn? Will you consider changing this strategy? My second question relates to the sales performance both in China and internationally in the second quarter so far. Furthermore, given that sales in China have been somewhat weak recently, how should we assess the inventory destocking pressure in the second or third quarters? Thank you.

I'll translate for the CEO. Thank you for the question, Lucy. One thing I want to highlight is that many countries are currently experiencing inflation. Consumers tend to seek value in high inflation environments, which presents a significant opportunity for us, as this is our advantage. With our expertise in supply chain, inventory management, and pricing strategy, we will continue to use our value proposition and cost advantages to strengthen our market position during this downturn. MINISO has historically maintained a pricing strategy targeting around a 50% merchandise gross margin. Since 2021, our pricing margins for interest-based products have increased by at least 5%. However, it's important to note that these price increases apply to only about 30% of our interest-based products; the remaining 70% will continue to align with our value proposition. Additionally, I can share that over the past 3 to 4 years, the average selling price per MINISO product in the China market has gradually decreased from RMB12.5 to below RMB12. Meanwhile, our margins in the China market have stabilized. Therefore, we will not raise MINISO product prices uniformly but will instead implement differentiated pricing based on our value proposition to meet diverse customer needs. As of now, I believe this strategy has had a positive impact on our gross margin. Going forward, there will likely be minimal changes to our promotional strategy, primarily focused on the 30% interest-based products and only new offerings. As we mentioned in last quarter's earnings call, I genuinely hope that after the brand upgrade, consumers will perceive our products as offering more value, even if they seem more expensive.

Our strategy to meet diverse customer demands has positively impacted our gross margin. Looking ahead, we expect minimal changes to our promotional strategy, focusing mainly on the 30% interest-based products and new offerings. As I mentioned in the previous quarter's earnings call, I genuinely hope that after the brand upgrade, consumers will perceive that our products offer more value, even if they seem pricier.

I'll translate for the CFO. I will answer your second question. Regarding the recent recovery in April and May, in China, April was even worse than March due to more stringent measures, resulting in a 10% sequential decrease in GMV. This decline was primarily due to a higher number of temporary store closures and decreased foot traffic in April, estimated at around 380 stores. We have observed a slight recovery in May, but we believe this is more connected to seasonal trends; May is traditionally a stronger month for sales. On the other hand, international operations have performed better, with notable year-over-year growth rates, especially in markets like India and Indonesia, where we've seen growth exceeding 100%. Regarding inventory destocking, we are confident in our inventory management practices. Throughout the past two years, we've made every effort to manage our inventory turnover days, which currently stands at a low level of approximately 60 days. Despite the challenges presented in March due to COVID, our inventory control remains strong. We are, therefore, optimistic in anticipating favorable conditions on this front.

Thank you. The next question is from the line of someone from Credit Suisse. Your line is open. Please go ahead.

How is our latest progress in the overseas market, particularly in North America? Have we observed a stabilization in store economics in the U.S.? In which overseas countries have we reached a point of stabilized economics and are prepared for further large-scale expansion? Thank you.

Thank you, Meradco. Generally speaking, since we officially launched our net tenant program in North America during the fourth quarter of last year, everything has gone quite well in the North American market. I will use the U.S. market as an example, which represents the majority of our business. By the end of March, we had a number of MINISO stores in America, primarily through direct operations, and the store count increased by 70% year-over-year. In terms of average store performance, we observed a full recovery to pre-COVID levels in the March quarter. If we look at the peak season in December last year, average store performance was about 10% higher than pre-COVID levels. This recovery is largely attributed to the overall better performance of the U.S. retail market. Additionally, we have made significant internal management improvements, including product localization and supply chain solutions. Over the past seven quarters, we've seen a growing number of profitable stores in the U.S. market, moving closer to a stable store model. We anticipate solid progress in this area throughout 2022. Beyond the U.S., we also plan to target the Canadian market in the second half of this year. In addition to the North American market, we have several subsidiary markets that are beginning to show signs of stabilization in their store economics, as the pandemic's lingering effects continue to recede. Thank you very much.

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