MINISO Group Holding Ltd Q3 FY2024 Earnings Call

Ladies and gentlemen, thank you for standing by, and welcome to MINISO's Earnings Conference Call for September Quarter 2024. At this time, all participants are in a listen-only mode. After the management's prepared remarks, we will conduct a Q&A session. Please note this event is being recorded. Simultaneous interpretation in English will be provided during this call. You may choose a language by clicking the interpretation into the Zoom meeting. We have announced our September quarter financial results earlier today and the earnings release is now available on our IR website. Joining us today are our Founder and CEO, Mr. Jack Ye; and our CFO, Mr. Eason Zhang. Before we continue, I'd like to refer you to the safe harbor statement in our earnings press release, which also applies to this call, as we are going to make forward-looking statements. Please note that we're going to discuss non-IFRS financial measures today, which we have explained and reconciled to the most comparable measures reported under the International Financial Reporting Standard in the company's earnings release and filings with U.S. SEC and Hong Kong Stock Exchange. The currency units are in Chinese yuan, unless otherwise stated. In addition, we have prepared the slide presentation for today's call, which contains financials and operational information. If you are using the Zoom meeting, you will be able to see it right now. You can also revisit it on our IR website. Now I'd like to welcome Mr. Ye to deliver the speech.

Hello, everyone. Welcome to MINISO Group's earnings conference call for the September quarter of 2024. As of September 30, 2024, the group added 859 stores on a net basis, including 324 new MINISO stores in China, 449 overseas, and 86 new TOP TOY stores. Both MINISO overseas and TOP TOY's net store addition in the first three quarters has exceeded their respective full-year numbers from last year as MINISO's global store network continued to expand. In the first three quarters, the company's revenue increased by 23% year-over-year to RMB12.28 billion, with average store count increased by 90% and same-store sales growing in a low-single-digit. The world is changing and the global retail industry is experiencing a major reshuffle. Consumers' perceptions continue to evolve. In this time of great transformation, the China retail sector is facing opportunities for breakthrough. MINISO Group will firmly seize the two trends in the future, maintaining a focus on quality retail and interest-based consumption. The future will be characterized by a consumption model that combines product innovation and the consumer experience. In September, the company announced the acquisition of a 29.4% stake in Yonghui. Through this ongoing transformation, we aim to excel in quality retail, change the traditional supermarket approach, and deliver superior product service and consumer experience as we transform Yonghui's stores during this period, which should help us better understand our investment rationale. Moving forward, we will dedicate more efforts to studying consumers and understanding changing consumption trends, maintaining a people-centric approach and returning to retail fundamentals. Upon completion of the Yonghui stake acquisition, MINISO will encompass three brands: MINISO, TOP TOY, and Yonghui. These brands complement each other while differentiating in product categories, targeted consumers, and price points, gradually building a unique multi-brand matrix in the retail sector. Meanwhile, leveraging MINISO's years of accumulated supply chain resources and product design capacity as a shared platform, we will be able to empower these brands to improve synergy and operational efficiency. We remain focused on the consumer retail industry. By implementing our multi-brand and globalization strategy steadily, we will not only strengthen our existing competitive advantage but also help the consumer market navigate instabilities and diversify operational risks. MINISO's core business maintains our commitment to the three major five-year plans from ‘24 to ‘28: maintaining a compound annual revenue growth rate of no less than 20% with earnings per share growing faster than revenue; opening 900 to 1,100 new stores globally each year on a net basis; achieving IP product sales contribution over 50% by ’28; and maintaining a dividend policy of distributing no less than 50% of adjusted net profit annually, complemented by dynamic share repurchases, delivering predictable returns to our shareholders. Moving next, I'm going to share MINISO's development in China, overseas, and TOP TOY in the first three quarters of this year. First, MINISO China's revenue growth in the initial three quarters met our expectations for our five-year plan. This includes both store and e-commerce revenue, which grew by 12.3%, with offline stores growing by 11.8% and e-commerce by 90%. The 11.8% online store growth was primarily driven by a 40.7% increase in average store count. Same-store sales, however, saw a mid-single-digit decline in the first nine months of this year, reflecting the challenging micro consumption environment. To counter this, we actively developed our automobile business, which grew by nearly 80% on a year-over-year basis, helping us to stabilize same-store performance to some extent. According to the National Bureau of Statistics, domestic retail sales of consumables increased by 3.8% in the first nine months of 2024. As an industrial leader, we achieved a growth rate of 12.3%, demonstrating greater resilience in our business. Thus, we feel optimistic about MINISO China's growth in 2025. In the first three quarters, we added 224 net new stores in China, maintaining a steady expansion pace towards our annual target of 350 to 450 net new stores, with 60% of those new stores being in Tier 1 and Tier 2 cities, indicating significant untapped market potential for store expansion in China. Same-store sales declined by mid-single digits in the first three quarters, with transaction value showing a slight increase year-over-year, while transaction volume decreased by mid-single digits, with high-tier cities outperforming lower-tier cities in same-store performance. In the near future, we plan to refine the management of our IP-centric products, ensuring the successful implementation of our IP-centric interest-based consumption strategy while continuing to further improve sales efficiency. The IP consumer goods market is a burgeoning market with great potential for MINISO's IP strategy. According to the global licensing report in 2023, the top 10 global IP licenses accounted for nearly 70% of global IP retail sales, while the top 20 licenses represented more than 80%, showcasing strong concentration. Over recent years, MINISO has achieved significant success in IP, collaborating with over 150 IPs globally. We've partnered with six of the world's top 10 IP licensors and nine of the top 20. Moving forward, we will forge deep bonds with these leading global IP licensors, leveraging our global store network, design capacity, and supply chain advantages to launch new products. We've already begun deep collaboration with Disney and Sanrio, which forms an important category in product innovation. We've also worked with the Harry Potter IP to inspire MINISO's product design, accumulating experience in developing new SKU categories while also stimulating MINISO's potential for future collaborations with a more diversified IP portfolio. We have improved our product trends, striving to unlock the potential of interest-based consumption through innovative store formats. The seven-layer store metric strategy announced at our brand upgrade conference on October 29 has been systematically implemented. We're going to have the IP standardization and the category-based standardization. The IP and store represent our IP standardization format. In August, our first MINISO Land opened in Bingjiang Road, Tianjin, achieving nearly RMB5 million in sales in its first month, and the Shanghai IP land store opened in October, where IP products accounted for 70% of sales during its soft opening month. We hope to provide not only experience but also exclusive IP products, enhancing shopping uniqueness. In terms of category standardization, same-store sales are our key focus. MINISO is categorized into 800 to 600 categories in our stores, focusing on four major categories along with plush toys, light boxes, pads, and ECG packaging targeting young consumers and emerging consumption trends. The plush-themed store that opened in Times Square in Chongqing in December has already become a landmark destination for plush toy fans, and our sales performance continues to improve. Moving forward, MINISO will adopt product differentiation with store format differentiation, using various store formats to meet consumer requirements and spread joy to global consumers. Next, let's talk about our overseas business. In the first three quarters of 2024, overseas revenue exceeded RMB4.5 billion, representing year-over-year growth of 41%, particularly in direct-operated markets which grew by 64%, while distributor markets saw a 22% increase. GMV reached RMB9.7 billion in the first three quarters, growing by 31%. The direct-operated markets exhibited a 56% growth, while distributor markets grew by 22% on a comparable basis. The IP strategy continued to demonstrate notable growth, with IP products accounting for over 40% of overseas market sales in the first three quarters, along with sales revenue increasing by nearly 85% year-on-year. We recorded impressive growth this quarter, with a net addition of over 449 stores. Direct-operated markets contributed 67% of the net new stores, primarily from the United States and Indonesia. We expect the total net new stores for this year to reach 650 to 700, exceeding our previous forecast. Same-store growth in overseas markets shows a high-single-digit growth rate. We plan to maintain a flexible store operation model, introducing franchised stores in direct-operated markets to leverage expansion further. Notably, Italy ranked among the top 20 overseas markets in Europe in 2023. By 2024, we have four major European markets—U.K., Italy, France, and Spain—showing rapid development. This progress is due to our deep guidance to distributors in adjusting inventories and store operations, which have improved efficiency and profits. In the near future, we aim to increase consumer stickiness in overseas markets through continuous optimization of our membership system and in-depth consumer research. Taking Indonesia and the U.S. markets as examples, member consumption contribution grew by 97% and 244%, respectively, significantly outpacing membership growth in both regions. We will further localized product divisions and adapt our store operation strategy to local markets, realizing MINISO from China joy to the world. Regarding potential U.S. tariff increase risks, we perceive this as an industry-wide impact. Compared to other retailers who mainly rely on buyer-sourced merchandise, our products predominantly comprise MINISO private brands. Through our IP collective store model, we maintain differentiation from other retailers, giving us stronger pricing power to offset potential cost increases. Nevertheless, we are taking forward measures to mitigate potential risks, including increasing the local sourcing ratio in the U.S. market, where currently around 30% of the products are sourced from overseas supply chains. We are establishing a backup overseas supply chain and actively identifying alternatives in South Asia, Japan, Korea, and within the U.S., expecting to cover an additional 50% of the U.S. product category. With our capability to source over 80% of the products for the U.S. market, we are optimizing our overseas inventory management strategies. Internally, we have a dedicated workforce to regularly assess the impacts of global trade policies on our supply chain to formulate responsive measures. With a diversified supply chain, we will be able to further improve inventory management and continue to strengthen our global competitiveness. Let me also talk about TOP TOY. In the first three quarters, TOP TOY's revenue grew by 43% year-on-year, while same-store sales grew by 5%. TOP TOY added 86 new stores, steadily progressing towards the annual target of 400 stores. In Q3 of 2024, the self-developed products of TOP TOY have continued to increase. For instance, the pilot TOP TOY shopping shop in MINISO's IP land store in Indonesia opened the first overseas store in Thailand. With a young demographic structure and rapid economic development, young people have become the target consumer for TOP TOY. We believe that by diving deeper into the Southeast Asian market, TOP TOY can achieve rapid growth and establish a solid foundation for global expansion. We firmly believe that offline retail holds unlimited potential, and Chinese brands have great opportunities ahead. The key lies in innovation and adherence to retail fundamentals, focusing on delivering quality service and products to consumers. More and more Chinese brands are starting to showcase their significant advantages as they all charge forward—breaking through and advancing. MINISO adheres to its long-term strategy as we are committed to steadily improving our products and services, contributing to the rise of Chinese brands. That concludes my remarks. Coming next, I will have Eason present the financials.

Thank you, Mr. Ye. Welcome everyone to our meeting. Going forward, I will walk you through MINISO Group's financial data for the first nine months of 2024. Please note, unless otherwise stated, all figures are in RMB. I will also mention some non-IFRS financial metrics that exclude stock-based compensation expenses. In the first nine months of 2024, our total revenue reached RMB12.28 billion, reflecting a 22% year-on-year growth. Based on our forecasts for the year, we are progressing towards our target. The average store count increased by 90%, with comparable same-store sales growth in low single digits. Revenue from the China region reached RMB7.74 billion, growing by 40% year on year. Within this, MINISO brand's China revenue was RMB7.03 billion growing by 12%. TOP TOY brand revenue was RMB700 million, growing by 43% year on year. Overseas revenue reached RMB4.54 billion, growing by 41%. Within this, revenue from direct operated overseas markets was RMB2.45 billion, up by 64%. The distributor market was RMB2.1 billion, up by 22%. Let's examine the revenue structure. In the first nine months, overseas revenue accounted for 37% of our total group revenue, while this number was 32% during the same period in 2023. The contribution from direct operated overseas markets was 50% last year, but now it stands at 20%. This change in the revenue structure is a key driver for our record high GP margin, which has also resulted in our operating profit being more concentrated in the second half of this year. Regarding the GP margin, in the first nine months this year, the GP margin grew by 3.7 percentage points, reaching 44.1%. Besides the adjustment in our revenue structure, improvement also benefitted from the IP strategy, which improved the GP margin across all business segments, especially in overseas operations and TOP TOY, where GP margins improved by a high single-digit. Looking ahead, with more overseas revenue and IP sales, we expect GP margins to continue trending upward. However, as mentioned by Mr. Ye, we will continue to uphold our value-for-price performance products. In the first nine months of 2024, selling and administrative expenses increased by 54%, with selling expenses up by 63% and administrative expenses up by 28%. Selling and administrative expenses accounted for 25% of revenue, 5% higher than the same period last year. Over 60% of this expenses increase was related to newly opened directly operated stores. As previously communicated, our current investment in directly operated stores aims to capture more sales opportunities, ensuring our future business success, particularly in strategic overseas markets like the U.S. By the end of September, we had 422 direct operated stores in overseas markets, doubling the number from the same period last year. In the first nine months of 2024, revenue from direct operated stores grew by 104%. Related to selling and distribution expenses, factors such as rent, depreciation, amortization, and personnel costs grew by 75%. We are implementing effective measures to improve the operational efficiency of these directly operated stores and control costs. We believe that through refined operations and strict expense management, the operating expenses ratio will stabilize or trend downward, and we expect these newly opened stores will unlock significant sales potential in the near future. In the first nine months of this year, advertising and promotion expenses grew by 38%, still accounting for 3% of total revenue, the same as last year. Licensing fees grew by 38%, accelerated compared to H1 of this year. This increase can be attributed to the launch of several new IP product lines. The overall proportion of IP sales notably increased, especially in overseas markets. Logistics expenses increased by 52%, partially due to the higher shipping costs from international shipping constraints during the first nine months of 2024. However, we have observed a clear downward trend in the growth of these expenses. Regarding profitability, in the first nine months of 2024, our adjusted operating profit grew by 60%, with an adjusted operating profit margin approaching 20%. Our adjusted net profit margin was RMB1.93 billion, up by 40%. Our adjusted net profit margin was 50.7%, and we also maintained a relatively faster growth for our direct sales model. Our adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) increased by 21%, with an adjusted EBITDA margin of 25.3%. Our adjusted basic and diluted earnings per ADS rose by 40.1% and 40.2%, respectively. Regarding working capital, our channel inventory turnover remains efficient. As of September 2024, 30% of MINISO's brand inventory was located overseas, up from 21% last year. Inventory turnover days stood at 85 days, with China market turnover at 71 days, unchanged year-on-year. The MINISO brand's overseas direct operated market turnover was 173 days, compared to 135 days last year due to stocking advances to address potential tariff risks and accelerated store openings. However, the average inventory level per overseas store decreased year-on-year. Structurally speaking, inventory aged over 180 days accounted for 12% of our total inventory. Going forward, we will further optimize our overseas inventory management strategy to improve turnover efficiency and reduce risks. In terms of capital allocation, we will also maintain a dividend payout ratio of no less than 50% in the coming period. Our capital allocation strategy will balance rapid business growth with our commitment to delivering stable and predictable returns to our shareholders. As of September, we have already distributed cash dividends exceeding RMB600 million. Year to date, the company has returned approximately RMB1.6 billion to shareholders through dividends and share buybacks. Since 2020, we have already returned over RMB3.7 billion to shareholders. In the first nine months of 2024, we generated operating cash flow of RMB2.03 billion and free cash flow of RMB1.47 billion as of the end of September 2024. We maintain a cash reserve of nearly RMB6.3 billion, which includes RMB1.72 billion in cash and cash equivalents, RMB4.23 billion in wealth management products recorded under other investments, and around RMB340 million in deposits. The company's interest-bearing debt ratio remains below 1%, providing ample room for our balance sheet. Lastly, I would also like to share the latest progress on the Yonghui transaction. The Yonghui acquisition requires satisfaction of five preconditions. To date, the transaction circular has received non-objection confirmation from the Hong Kong Stock Exchange. The market supervision and administration authority has completed the public notification period for the simplified merger filing. These steps mean we have essentially completed two of the five preconditions. The overall progress is meeting our expectations, and we anticipate the transaction will be completed in the first half of 2025. As previously communicated, upon completion, MINISO Group will become the largest shareholder of Yonghui. Going forward, we will take investment by using the equity method. We are optimistic about its future development, and the current valuation appears attractive. This investment will better leverage the supply chain and channel integration advantages of both parties to create more value for the Chinese consumer. We expect to finance at least 60% of the investment amount through external borrowing, equivalent to RMB3.76 billion, which allows us to further optimize our capital structure and improve return on capital while maintaining sufficient capital reserves. In summary, our performance in the first nine months of 2024 again demonstrates the strength and resilience of our business model, reflecting our effective execution and development potential for the IP strategy. Looking to the future, our full-year target remains unchanged from the beginning of this year, with revenue growth forecasted to be between 20% to 30% year on year, alongside an adjusted net profit target of RMB2.8 billion. I am confident we will achieve these full-year targets and have every reason to remain positive about our future business developments in 2025. Our financial strategy will continue to uphold rigorous budgeting, cost control, and capital allocation in commitment to stable profit growth and healthy cash flow. That's all for the prepared remarks. Moderator, we can now start the Q&A session.

Okay, the first question is coming from Anne Ling, please.

Hello? Hello, Eason. Can you hear me?

Yes.

Thank you very much. I have a few questions. I'd like to ask about the Q4 outlook. At least now we see that in China, the market is not looking very well. So I'd like to ask you about performance in Q3 of this year, where we see same-store declines and growth is only in single digits. How can you comment on the Q4 performance? What about the Double 11 sales festival? What might the situation look like? Would you elaborate on Q4 updates and growth opportunities in the China market? That is my first question. My second question: you have performed very well in the overseas business, and I would like to ask you about the acceleration of store expansion in your direct-operated markets, such as the U.S. or European countries. What measures are you going to take to further grow your business overseas? How do you see the sales in festival occasions, especially after the Black Friday, driving your Q4 performance? Thank you.

Thank you for your questions, Anne. For the Q4 outlook, allowing me to answer the question about our confidence in achieving the targets we set at the beginning of this year. I predict our top-line growth this quarter to be around 25% to 30%, with overseas market growth at 45% to 50%. In terms of direct-operated markets, I expect growth to be between 70% and 75%, while the distributor market is expected to grow by 20%. Regarding TOP TOY, we anticipate growth in the range of 50% to 55%. Although growth in China will be comparatively slower, we believe the MINISO brand can still achieve low-teens growth, which is achievable and serves as our guidance for Q4. For overseas store expansion, we anticipate net growth of around 200 to 250 stores in Q4. For TOP TOY, we added 86 new stores in the first three quarters, and we aim to exceed 100 by year-end. To clarify, we plan to open around 400 new stores in China for the full year 2024. Altogether, we expect the total to be 1,200 new stores, with significant store expansion occurring in overseas markets. For profit, as mentioned earlier, our net profit target remains at RMB2.8 billion for Q4, and we aim to maintain a net profit margin between 16% to 16.5%. Although 2024 will see accelerated growth compared to 2023, our direct-operated business is being divided, enabling us to enhance cost control and improve same-store growth.

What’s your question about the European market? You mentioned that you hope to improve business development in Europe, using the U.K. as a base camp, right? What progress can you share with us?

We will let Mr. Ye comment on the U.S. market.

Well, in the U.S., year-to-date growth is currently in the mid-single digits, aligning with our expectations. The channel expansion is accelerating, and we expect stores to drive significant sales, particularly in Q4 as we expand our footprint in the U.S. We anticipate substantial revenue growth from U.S. stores and are implementing measures to enhance operational efficiency in our direct-operated stores. We will also continue to improve our profit margins by organizing a local management team to control costs for warehousing, logistics, rents, and labor. I am very confident about our Q4 profits in the U.S. and prospects for 2025.

Do you have any specific operating profit margin target, Mr. Ye?

We don't have it yet. Let's discuss the U.K. For the U.K., same-store performance growth was 35%. We've effectively supported our distributors in adjusting product offerings and operational standards. Interior décor in U.K. stores has been improved, optimizing consumer experience, and we have introduced popular IP products with greatly improved attachment rates.

Great, thank you.

Can you all hear me? Hello? Thank you, Eason, and thank you, Jack. I have one question that I'd like to direct to Mr. Ye regarding the Yonghui acquisition, which has been highlighted in the capital market. You mentioned in your opening remarks the strategies for operations. Could you elaborate on the executable measures you plan to employ to improve Yonghui's performance? Are there any concrete steps already in place?

I can share a few points regarding this. First, both teams—Yonghui and MINISO—have already started discussions and engagement. MINISO will help Yonghui optimize their procurement costs. Secondly, MINISO is also supporting Yonghui in building self-owned brands to enhance contribution from these brands and improve gross profit margins. The most significant strategic focus remains on self-developed products, similar to successful models like Costco and Sam's Club. Thirdly, we will work on optimizing products and services in stores to improve operational efficiency while reducing costs. The goal is to enhance labor efficiency within three months, enabling each improved pilot store to make a positive profit. If those pilot stores perform well, we may request landlords to lower rents. Lastly, we will concentrate resources by closing profit-losing stores and focusing on high-quality development—taking care to close only low-performing stores.

We need to conclude the transaction to assess Yonghui's performance fully. We are currently in preliminary discussions, and it may take time to align business and establish processes. We expect to complete the acquisition in the first half of 2025, allowing cooperative business operations to commence.

Just to summarize, both teams have begun communication given that the transaction is nearing completion. Should we expect to see Yonghui's performance reflected in your balance sheet immediately after its closing?

We will need to finalize the acquisition before discussing performance specifics. Currently, we are in early discussions focused on procurement and brand alignment, which is a time-consuming process. The transitional stages require cooperation from both parties, and we foresee being able to engage in substantive cooperation in H1 2025.

Thank you for the opportunity to raise my questions. I have two questions. The first question is regarding same-store performance in China. From Q4 and into next year, what is the overall trend? You mentioned channels would significantly influence performance moving forward. Additionally, last month at the brand strategy upgrade conference, you mentioned dynamics in the brand metrics and store metrics. What projections can we envision regarding future growth? The second part concerns IP. What contributions have you seen from Harry Potter IP recently? In both domestic and overseas markets, what key IPs do you have lined up for next year, and what are your strategies?

Let me address your first question regarding same-store performance. I will invite Mr. Ye to handle your second question. For same-store performance, the overall trend has been pressured primarily due to a high baseline in Q3 of 2023. During summer last year, strong demand for travel and sales driven by the Barbie IP influenced favorable performance. As a result, Q3 saw increased pressure in same-store sales. In Q4, we continue to face challenges in traffic. Yet, based on our monitoring, we are performing better than our industry peers regarding same-store performance. Looking ahead, in the next five years, our revenue growth target is built on the expectations of a challenging microenvironment in offline retail stores. We plan to optimize our operations further to improve performance metrics. A refinement in our IP allocation will also play a vital role. This year, higher-tier cities outperformed lower-tier cities in same-store performance due to higher allocations of IP products. Minimizing the total ratio of same-store growth will continue to optimize our interests in this area. In higher-tier markets, we found the average selling price (ASP) improved by low single digits, thanks to better IP allocations.

As for Harry Potter, co-branded products represent our first pilot initiative toward an omnichannel presence, achieving record sales both overseas and in the Chinese market. It appears inventory efficiency is significantly better in the overseas market. This has contributed positively to our Q4 sales figures, particularly in Indonesia. The Harry Potter IP product sales have accounted for 85% of the sales in MINISO land stores. We recorded sales exceeding RMB30.85 million within a single month through this collaboration, setting new records. For Hong Kong, sales within seven days of Harry Potter-related products surpassed HKD5 million, generating single-day sales of HKD850,000—showing promising growth trends. Additionally, in Malaysia, stores saw single-day sales reaching RMB430,000. As we approach Black Friday this year in the U.S., we anticipate further growth in IP-related product sales. Beyond Harry Potter, we have a pipeline of 150 additional IPs that are advancing toward future launches. However, due to ongoing negotiations, we will announce them at the appropriate time. Overall, our IP strategy is structured both horizontally and vertically, allowing us to enhance cooperation and revenue through various collaborations.

Thank you.

Hello, Mr. Ye and Mr. Zhang. I have questions regarding TOP TOY's overseas business. 2024 marks the first year of TOP TOY's international expansion, with the store now opened in Thailand. Given the popularity of trendy toys in Southeast Asia, how is your operational status in these markets shaping up? What future strategies do you plan to implement for TOP TOY? Additionally, regarding your horizontal and vertical cooperation for IP, can you provide further insights on the plush toys and pad products? Finally, regarding your O2O business, which has garnered interest across the industry, how predictable do you find it? What prospects do you foresee?

Thank you, Samuel. I can address the first two questions. As for TOP TOY's international expansion, we did not include one specific point in our presentation. TOP TOY is trending positively, with a stunning top-line growth rate of 43%. Notably, this business has generated positive profits for four consecutive quarters. Looking ahead, TOP TOY will adopt a prudent approach to expanding overseas, focusing on improving profitability, product structure, and margins while pursuing international growth. We have TOP TOY stores established within the MINISO's IP land in Indonesia, and we've also created dedicated shelf space in Singapore for TOP TOY. Additionally, the first store has successfully launched in Thailand. Given the favorable demographics and rising economic conditions in Southeast Asia, we believe TOP TOY is poised for significant growth, laying a solid foundation for global expansion efforts. For plush and pad products, alongside ACG, these will be pivotal categories we focus on for 2025. MINISO and TOP TOY have received exclusive licenses from Sanrio, resulting in successful product launches with strong sales outcomes.

Let me update you on Meituan warehouse stores. They are in a development phase, representing a strategic advancement in our retail business. These 24/7 warehouse stores differentiate us from traditional retailers like Walmart. We offer fast consumables, daily essentials, and fresh produce. Meituan's numerous stores are often white-label grocery stores with inconsistent product quality, presenting an opportunity for us to leverage strong supply chains. Together with Meituan Fresh, we aim to elevate brand perception through refined product allocation at our warehouse stores. Further improvement to the transportation network will enable regular stores located in shopping malls to operate within limited hours.

Hello. I'm Lucy from Bank of America. I have two questions for Eason. You mentioned Q4 growth expectations in China would be low teens, still accelerating compared to mid-single digits seen in Q3 of this year. Do you expect more growth in ASP or traffic relative to Q3? My second question pertains to 2025. You mentioned growth would be faster than 2024. Is this referring to revenue growth, profit growth, or both? Regarding store expansion, if we look back to 2024, the performance in China was as expected; however, overseas expansion exceeded expectations. For your store expansion plan projecting 900 to 1,010 new stores, should we expect a more conservative approach for China yet more overseas growth in the next two to three years?

Thank you, Lucy. For Q4 this year, I would say that H2 has posed considerable challenges for offline retail in China. Over the full year, we expect a low-teens growth rate, with H1 reflecting high-teens growth and H2 remaining lower. For the total year, we foresee low-teens growth for MINISO, encompassing both offline and e-commerce sectors. This year our guidance indicates such growth and remains consistent for 2024. While 2025 goals remain fluid until finalized, we exhibit confidence driven by expansion initiatives in overseas markets, which lays a solid foundation for strong top-line growth. Additionally, our U.S. market expansion is being tracked, and we are exerting tighter control over expenses. In 2025, whether referring to revenue or profit growth, we expect to see figures exceed those from 2024. Regarding the store expansion dynamic, MINISO has the levity to adjust store openings across various markets—with MINISO China, MINISO overseas, distributor markets, and TOP TOY.

Hello, I'm Shiyu from Huatai Securities. I have two questions. First, the U.S. market: your self-operated market has expanded quickly. Are you also considering partnerships with retail partners in the near term? Could you update us on the ongoing retail partner models? If we see self-operation and retail partnerships in the U.S. together, how might this impact your profitability? My second question pertains to the middle economy, which is emerging quickly. However, there are several new aggressive players in the market. How do you view the competitive landscape and the pressure it presents?

Thank you, Shiyu. To answer the first question on timeline for retail partners in the U.S., we currently do not have a predetermined timeline to share with you. However, I can reiterate that MINISO aims to maintain its asset-light business model, whether domestically or overseas. Looking forward, we plan to operate flexibly, potentially introducing third-party stores in some direct-operated markets. We will continually review our store expansion experience to optimize our strategies for 2025, and we will make announcements when suitable. Regarding the middle economy, it has become a popular topic lately. Regardless, MINISO will always strive to be the most professional and dedicated entity in the realm of ACG. MinSEO's positioning and partnerships will enhance our advantages in this space.

For specifics, I would like to note that in 2025, we plan to launch new products each month and look forward to detailing our strategy further next year.

Thank you.

Ladies and gentlemen, we have reached the end of our earnings call. Thank you very much for your time. Let's meet again next time.