Earnings Call Transcript - MNSO Q1 2023

Operator, Operator

Ladies and gentlemen, thank you for standing by, and welcome to MINISO Group Holdings Earnings Conference Call for the First Quarter of Fiscal Year 2023. 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 the event is being recorded. Now I'd like to hand the conference over to your host speaker today, Mr. Eason Zhang, Vice President of Capital Markets. Please go ahead, Eason.

Eason Zhang, Vice President of Capital Markets

Thank you. Hello, everyone, and thank you all for joining us. We have announced our quarterly financial results earlier today and the earnings release is now available on our Investor Relations website at ir.miniso.com. Joining us today are our Founder and CEO, Mr. Jack Ye; and our CFO, Mr. Steven 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 will be making forward-looking statements. Please also note that we will discuss non-IFRS financial 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 filing with the U.S. SEC and Hong Kong Stock Exchange. In addition, we have prepared a PowerPoint presentation for today's call, which contains financial and operational information for this quarter. If you are using Zoom meeting, you should be seeing it right now. We can also revisit it on our website later. With that, I will now turn the call over to Mr. Ye. Please go ahead.

Jack Ye, CEO

Please go ahead, Mr. Ye.

Eason Zhang, Vice President of Capital Markets

Thank you. Hello, everyone, and welcome to MINISO Group's earnings call for the 2022 September quarter. We kicked off fiscal year 2023 with an encouraging set of results headlined by strong margin performance in spite of the short-term challenges brought by the pandemic in China. We remain focused on our long-term strategic goals, delivering on our globalization strategy, bolstering the strength of our product offerings and optimizing our store network. These efforts are yielding positive results, and we continue to see our overseas operations move further along the path of recovery, while our margin profile continued to exceed expectations.

Jack Ye, CEO

We have a strong performance in margins despite the temporary challenges posed by the pandemic in China. We are committed to our long-term strategic objectives, advancing our globalization strategy, enhancing the quality of our product offerings, and improving our store network. These initiatives are producing favorable outcomes, and we are observing a continued recovery in our international operations, along with margins that have consistently outperformed expectations.

Eason Zhang, Vice President of Capital Markets

As we have repeatedly emphasized in our earnings call over the past several quarters, value retailers are well positioned to ride out economic cycles. Our business model has demonstrated great resilience despite the pandemic on our near-term results. During the quarter, we made progress on upgrading our brand in China and rolling out a portfolio of trendy products with gross margin increasing by about 4% year-on-year. We continue to focus on driving the strong recovery of our overseas business, which has recorded 50% year-on-year revenue growth for two consecutive quarters and now accounts for 33% of our total revenue. Benefiting from these two drivers, our overall gross margin reached 35.7%, a record high for MINISO Group.

Jack Ye, CEO

During the quarter, we made progress on upgrading our brand in China and rolling out a portfolio of trendy products, resulting in a gross margin increase of about 4% compared to last year. We continue to focus on driving the strong recovery of our overseas business, which has achieved 50% year-on-year revenue growth for two consecutive quarters and now represents 33% of our total revenue. Thanks to these two factors, our overall gross margin reached 35.7%, a record high for MINISO Group.

Eason Zhang, Vice President of Capital Markets

MINISO's globalization strategy gives us greater flexibility in dealing with pandemic-related uncertainty in China. Our directly operated overseas business turned profitable during the quarter as we continue to unleash operating leverage. Combined with our continued progress in cost-cutting, this helped us increase our adjusted net profit by 127% year-on-year to RMB 417 million in the September quarter. Our adjusted net margin reached its highest level at 15.1%.

Jack Ye, CEO

Eason Zhang, Vice President of Capital Markets

Next, I will talk in more detail about the developments in each business segment during this quarter.

Jack Ye, CEO

Eas business turned profitable during the quarter as we continue to unleash operating leverage. Combined with our continued progress in cost-cutting, this helped us increase our adjusted net profit by 127% year-on-year to RMB 417 million in the September quarter. Our adjusted net margin reached its highest level at 15.1%. Jack Ye, CEO, will now discuss the developments in each business segment during this quarter.

Eason Zhang, Vice President of Capital Markets

Let's start with MINISO China, which recorded a revenue of RMB 1.7 billion this quarter. Revenue from MINISO China's offline business was RMB 1.54 billion, which represents a 9% year-on-year decrease, but a 20% quarter-over-quarter increase. E-commerce revenue was RMB 163 million, decreasing by 12% year-on-year, yet increasing by 23% quarter-over-quarter to account for 6% of our total revenue.

Jack Ye, CEO

Eason Zhang, Vice President of Capital Markets

Over the last three years in China, the pandemic has posed unprecedented challenges to offline retail business. With the easing of pandemic control policies, however, it is important to note that the most difficult times are behind us and most MINISO retail partners are financially stable and generating healthy returns. Our inventory turnover has also recovered to the normalized pre-COVID level. Going forward, we'll continue to communicate closely with our partners and respond to the concerns in a timely manner. In order to provide our partners with additional support, our product and operations team are conducting detailed research and analysis on different regional markets in China, aiming to help them improve store performance from both product and operational perspectives. During the quarter, we added 43 stores on a net basis, most of which were located in lower-tier cities. In the near future, we'll adjust our store opening pace based on pandemic dynamics in China to reduce MINISO retail partners' operational risk.

Jack Ye, CEO

Our product and operations team is conducting detailed research and analysis on various regional markets in China to support our partners in enhancing store performance from both product and operational perspectives. During the quarter, we added 43 stores on a net basis, primarily in lower-tier cities. In the near future, we will adjust our store opening pace according to pandemic dynamics in China to minimize operational risk for MINISO retail partners.

Eason Zhang, Vice President of Capital Markets

Moving on to our progress on the international front. Revenue for the September quarter was about RMB 920 million, representing an increase of almost 50% year-on-year. Revenue from our distributor model increased by 42% year-on-year. Revenue from our directly operated model increased by more than 60% year-on-year.

Jack Ye, CEO

Our store opening pace is influenced by pandemic dynamics in China, aimed at reducing the operational risk for MINISO retail partners. Moving on to our progress on the international front, revenue for the September quarter was approximately RMB 920 million, which reflects a nearly 50% year-on-year increase. Revenue from our distributor model grew by 42% year-on-year, while revenue from our directly operated model saw an increase of over 60% year-on-year.

Eason Zhang, Vice President of Capital Markets

We are delighted to see that overseas markets sustained good recovery momentum during the September quarter, with overall sales increasing by 41% year-on-year and nearly recovering to the 2019 level for two consecutive quarters. GMV in our distributor markets increased by 36% year-on-year and were above the level from the same period in 2019. GMV in our directly operated markets increased by 64% year-on-year, recurring to more than 80% of the 2019 pre-COVID level.

Jack Ye, CEO

Eason Zhang, Vice President of Capital Markets

Breaking down by regions. North America, which accounts for 6% of our overseas stores and 7% of sales, saw store sales growth of nearly 50% year-on-year, matching the level from the same period in 2019. Europe, which accounts for 9% of stores and 9% of end sales, saw store sales increase by 20% year-on-year, doubling the level from the same period in 2019. Latin America, which accounts for 22% of stores and 35% of sales, increased by nearly 40% year-on-year and 20% from the same period in 2019. The Middle East and North Africa, which accounts for 7% of stores and 14% of sales, increased by nearly 20% year-on-year and 50% from the same period in 2019. Asian countries, which account for about 50% of our overseas stores and 30% of sales, increased by 70% year-on-year, representing 65% of the level from the same period in 2019. Oceania, which accounts for 2% of both of our overseas stores and sales, saw year-on-year growth of more than three times, recovering to nearly 80% of the level from the same period in 2019.

Jack Ye, CEO

Africa saw nearly 20% growth year-on-year and a 50% increase from the same period in 2019, representing 7% of our stores and 14% of sales. Asian countries, which make up about 50% of our overseas stores and 30% of sales, experienced a 70% year-on-year increase, reaching 65% of the level from the same period in 2019. In Oceania, which contributes to 2% of both our overseas stores and sales, growth was over three times year-on-year, recovering to nearly 80% of the level from the same period in 2019.

Eason Zhang, Vice President of Capital Markets

Since 2022, as many countries have gradually lifted lockdown policies, MINISO's overseas expansion has shifted from recovery mode to growth mode. MINISO added 54 overseas stores on a net basis during the quarter, compared to 26 in the same period last year. In addition to accelerating store expansion, more localized product strategies and sophisticated operations are imperative to our sustainable growth. In our last call, we talked about product strategies. Let me share some details about MINISO's localized operation this quarter.

Jack Ye, CEO

Gradually lifted lockdown policies have enabled MINISO's overseas expansion to transition from recovery mode to growth mode. During the quarter, MINISO added 54 overseas stores on a net basis, an increase from 26 in the same period last year. Beyond expanding our store presence, implementing more localized product strategies and refined operations is essential for our sustainable growth. In our last call, we discussed product strategies. Now, I would like to provide some details regarding MINISO's localized operations this quarter.

Eason Zhang, Vice President of Capital Markets

We celebrated MINISO's 5,000th store in Boston last December. Recently, we celebrated the grand opening of our 2,000th overseas store, which is located in Lyon, France. This is truly another milestone in the globalization of Chinese offline retail brands.

Jack Ye, CEO

In our last call, we talked about product strategies. Let me share some details about MINISO's localized operation this quarter. We celebrated MINISO's 5,000th store in Boston last December. Recently, we celebrated the grand opening of our 2,000th overseas store, which is located in Lyon, France. This is truly another milestone in the globalization of Chinese offline retail brands.

Eason Zhang, Vice President of Capital Markets

We are proud to position MINISO as a globalized Chinese brand, together with more localized products and operations. This is going to be a very standard strategy going forward. First of all, in order to promote traditional Chinese culture, the opening ceremony presented a fantastic Chinese line dance, and we plan to keep it for upcoming new stores. Secondly, the decoration, product display, and service of the stores have been tailored to local consumer habits. For example, the store layout is divided into several engaging areas with different themes, allowing young people more interesting, personalized, and diverse options in one visit. Meanwhile, the store is wheelchair accessible with shelves spaced 1.4 meters apart for easy navigation. Finally, by leveraging our supply chain capabilities, we have brought quality, affordable designed products to French consumers, which are affordable luxuries today. And it's not just our products but also the experience of shopping at MINISO and the comfort that it adds to life. This aligns with MINISO's mission of enabling everyone to enjoy life at different price points.

Jack Ye, CEO

Our store is designed to be wheelchair accessible, with shelves spaced 1.4 meters apart for easy navigation. By leveraging our supply chain capabilities, we provide quality, stylish products to French consumers that are affordable luxuries. It's not just about the products; it's also about the shopping experience at MINISO and the comfort it brings to life. This reflects MINISO's mission of allowing everyone to enjoy life at various price points.

Eason Zhang, Vice President of Capital Markets

MINISO will continue to bring more appealing and useful products to global fans. Following the success we had in China last winter, we recently launched new products in overseas markets such as Vietnam with initial success. We have been teasing the launch of the new collection on social media, and on launch day, customers flocked to MINISO stores and quickly filled the retail space. Shelves were soon cleared in the following three days, and long queues continued to form as enthusiastic shoppers waited for restocking. At one of the stores in Ho Chi Minh, daily sales broke Vietnamese store history records on launch date. Overall, in the Vietnamese market, the debut of the new products drove sales up by nearly twofold.

Jack Ye, CEO

We have been promoting the launch of the new collection on social media, and on launch day, customers quickly filled the MINISO stores. Within the next three days, shelves were emptied, and long lines formed as eager shoppers awaited restocking. At one of the stores in Ho Chi Minh, daily sales set new records for Vietnamese store history on the launch date. Overall, the introduction of the new products nearly doubled sales in the Vietnamese market.

Eason Zhang, Vice President of Capital Markets

Next, I would like to provide everyone with an update on TOP TOY. We made significant progress on executing our established strategy for TOP TOY during the quarter. At quarter end, we had 109 TOP TOY offline stores, representing an increase of 37% year-on-year and 12% quarter-over-quarter. Seven of these were DreamWorks stores and 102 were collection stores.

Jack Ye, CEO

The debut of the new products drove sales up by nearly twofold. Next, I would like to provide everyone with an update on TOP TOY. We made significant progress on executing our established strategy for TOP TOY during the quarter. At quarter end, we had 109 TOP TOY offline stores, representing an increase of 37% year-on-year and 12% quarter-over-quarter. Seven of these were DreamWorks stores and 102 were collection stores.

Eason Zhang, Vice President of Capital Markets

Merchandise gross margin of TOP TOY was about 42% in the quarter, a slight increase from the previous quarter. Revenue contribution of proprietary products stabilized at 20% for all channels and over 30% for online channels. This gross margin remained relatively stable. TOP TOY's net loss narrowed significantly on a sequential basis as we continue to optimize the business margin profile.

Jack Ye, CEO

Eason Zhang, Vice President of Capital Markets

We recently released our first ESG report in which we have disclosed relevant information from governance structure, internal control products, stakeholders, brand development, and social responsibilities. As a company with a global reach, strengthening the disclosure of ESG information provides stakeholders a useful perspective to better understand the value of the company. In the future, our ESG efforts will not only be reflected in our strategy but also in our daily operations.

Jack Ye, CEO

We recently released our first ESG report in which we have disclosed relevant information regarding our governance structure, internal control products, stakeholders, brand development, and social responsibilities. As a company with a global reach, enhancing the disclosure of ESG information gives stakeholders a useful perspective to better understand the value of the company. In the future, our ESG efforts will be reflected not only in our strategy but also in our daily operations.

Eason Zhang, Vice President of Capital Markets

On November 11, China's National Health Commission released a new set of refined pandemic prevention control policies, which are more scientific and precise. I believe that under the guidance of these new policies, the offline retail industry will see new opportunities for recovery and growth. We remain optimistic about our revenue and profit growth potential. Our profit outlook is based on our long-term confidence in China's economic development, our steadfast commitment to our vision for the offline retail business, and our determination to achieve a truly global reach.

Jack Ye, CEO

I believe that under the guidance of new pandemic prevention control policies, which are more scientific and precise, the offline retail industry will see new opportunities for recovery and growth. We remain optimistic about our revenue and profit growth potential. Our profit outlook is based on our long-term confidence in China's economic development, our commitment to our vision for the offline retail business, and our determination to achieve global reach.

Eason Zhang, Vice President of Capital Markets

This concludes my prepared remarks. I'll now turn the call over to our CFO for financial review.

Steven Zhang, CFO

Hello, everyone. Thank you for joining us today. I will walk you through the financial results of the September quarter. Please note that all numbers are in RMB unless otherwise stated, and I will also refer to some non-IFRS measures, which have excluded share-based compensation expenses. Revenue in September quarter reached RMB 2.77 billion, increasing by 5% year-on-year, primarily due to a 48% growth of our revenue from overseas market and partly offset by a 9% decrease of revenue from China. Revenue from China was RMB 1.85 billion, including RMB 1.7 billion from MINISO Brand and RMB 152 million from other businesses, including TOP TOY. For MINISO brands, the year-on-year revenue decrease was also about 9% in this quarter, primarily due to the pandemic. During the peak summer sales season of July and August, when the pandemic situation was also relatively stable, our GMV in China recovered to 95% of the level from the same quarter of last year. With the pandemic resurgence in September, our GMV declined to 80% of last year's level. During the quarter, an average of 2%, 5%, and 7% of our stores were unable to operate due to the pandemic in July, August, and September, respectively. Excluding the impacted stores, we estimate that the average sales per store from July to September were about 85%, 90%, and 80% of the same period last year, respectively. Revenue from the overseas market was RMB 920 million, accounting for 33% of our total revenue. The 48% revenue growth was primarily due to a year-on-year increase of 10% in average store count and a year-on-year growth of 35% in average revenue per MINISO store in overseas market. As we presented in the CEO's speech, we are seeing strong sales recovery from across the board in overseas markets, which helped balance our top-line growth trajectory. On a sequential basis, revenue from overseas market increased by 17%, primarily due to 3% store growth and 14% growth in average revenue per store. Gross profit in September quarter was RMB 989 million, representing an increase of 36% year-on-year. Gross margin was 35.7%, another record high for MINISO Group, and increased by more than 800 basis points from 27.4% in the same quarter of last year. The year-on-year increase was primarily due to three reasons: first, the shift of revenue mix, with revenue contribution from overseas market, which typically has a higher gross margin than domestic operations, increasing to 33% from 24% a year ago. Second, we launched more profitable products in relation to MINISO's strategic brand upgrade in this quarter. Third, we have optimized the cost structure of certain products by leveraging our strong supply chain management capabilities. Selling and distribution expenses were RMB 373 million, representing an increase of 16% year-on-year. The increase was primarily attributed to increased rental and related expenses, increased personnel-related expenses, and increased license expenses related to our enlarged IP product offering, partly offset by reduced promotion and advertisement expenses due to our deferred marketing activity in China following the resurgence of COVID-19. General and administrative expenses were RMB 163 million, representing a decrease of 18% year-on-year. The decrease was primarily due to the decrease in personnel-related expenses. Other net income was RMB 64 million compared to RMB 34 million in the same quarter of last year. Other net income mainly consists of net foreign exchange gains, investment income from wealth management products, and others. The year-on-year increase was mainly attributed to a net foreign exchange gain of RMB 52 million in this quarter compared to RMB 4 million in the same quarter of 2021. We have experienced a strong U.S. dollar lately, but we are well positioned to handle foreign exchange risk related to this because the majority of our sales in overseas markets are settled in U.S. dollars.

Eason Zhang, Vice President of Capital Markets

Turning to profitability. Operating profit in the September quarter was RMB 510 million, representing an increase of 139% year-on-year. Operating margin was 18.4% compared to 8% in the same quarter of last year. Adjusted net profit was RMB 417 million, representing an increase of 127% year-on-year. Adjusted net margin was 15.1% compared to 6.9% in the same quarter of last year. Adjusted basic and diluted earnings per ADS was RMB 1.36 in this quarter compared to RMB 0.60 in the same quarter of last year, increased by 127% year-over-year. Turning to cash position. As of September 30, we had a strong cash position of RMB 6 billion. Turning to working capital. Turnover of inventories and trade receivables remains stabilized. Looking forward into December quarter, we expect our overseas market to continue to grow strongly. Meanwhile, our margin profile will improve on a year-on-year basis as we successfully execute our brand upgrade, see steady recovery in the overseas market, and reach breakeven on our directly operated overseas business. Our financial strategy will remain disciplined in terms of budgeting, cost controls, and allocation of capital as we focus on consistently delivering solid financial performance. Thank you, and this concludes our prepared remarks. Operator, we are now ready to take questions.

Operator, Operator

Your first question today comes from Michelle Cheng from Goldman Sachs. Please go ahead.

Michelle Cheng, Analyst

I have two questions. The first one is about the domestic business. Given the unstable sales performance in recent quarters, can you discuss the cash flow of retail partners and their confidence in opening new stores? Specifically, what does the short-term and mid-term store expansion outlook look like? My second question is about GP margin. Since GP margin expansion has been performing well, how should we view the potential for further increases in GP margin, considering the brand upgrade strategy has been quite successful?

Jack Ye, CEO

The first question is about the domestic business. Considering the fluctuating sales performance in recent quarters, could you provide insights into the cash flow of retail partners and their confidence in opening stores? Essentially, what is the outlook for store expansion in the short term compared to the mid-term? The second question pertains to GP margin. The GP margin expansion has been strong. How should we view potential increases in the GP margin, especially since the brand upgrade strategy has been successful?

Eason Zhang, Vice President of Capital Markets

Okay. Thank you. Thank you for your question, Michelle. This is Mr. Ye. Because of the uncertainty of the pandemic development in China, we have been quite cautious in terms of opening new stores. However, we have managed to maintain a relatively healthy level for our store caters. Before the pandemic, the normalized store closure rate was about 5% to 6% annually for MINISO. During the past two years in the pandemic, there was some increase; however, around 8% to 9% in calendar year 2020, and 7.5% in 2021. It decreased to 6.4% in the first three quarters of 2022 on an annualized basis. Last week, the government updated its prevention policies to minimize the impact on economic and social development, which I think has played a positive role in the recovery and development of the offline retail industry. In the short term, the impact of the pandemic will continue for shops. But under the guidance of the positive policy background, our store network will continue to grow at a relatively healthy level. In addition, the performance of our stores is expected to be restored. Thank you.

Jack Ye, CEO

The government recently revised its prevention policies to lessen the effects on economic and social growth, which I believe has positively influenced the recovery of the offline retail sector. In the short term, the pandemic will still affect stores. However, with the support of favorable policies, our store network is set to expand at a healthy pace. Furthermore, we anticipate that our store performance will improve. Thank you.

Eason Zhang, Vice President of Capital Markets

Thank you, Michelle, for your question on the gross margin. First of all, our gross margin in this quarter increased by about 8% compared to the same period last year. I think there are several reasons. The first reason is that the merchandise gross margin was 4% higher than last year. The second reason is that the revenue mix from the overseas business this year is 33% compared to 24% last year. The overall gross margin of overseas operations is also higher than last year. If you quantify this, the impact on gross margin was about 2%. The remaining increase can be attributed to the cost-cutting measures we have taken to reduce the cost of certain products. Since this year, we have achieved remarkable results in our cost-reduction efforts. Our product team has systematically reviewed nearly 10,000 SKUs internally at home and abroad, especially in categories such as beauty tools, skincare products, plush toys, and socks. We have effectively lowered the costs of these products in various ways. First, we simplified excessive or redundant packaging in our products if it did not affect the consumer experience. This helped us eliminate unnecessary waste. For example, our effort to simplify the packaging material of our MINISO hand sanitizer successfully reduced costs by adjusting the thickness of the plastic bottle and the weight of the pumping head. Customers barely noticed the change, but it saved costs for us. In addition, we also reduced the use of outer packaging boxes throughout the supply chain process to cut costs. The second way is to optimize the production process of materials. For some products, we have designed the production process or even materials with low consumer sensitivity, so we replaced them with lower-cost alternatives. For example, we used to use a specific technique in overseas markets that required expensive electroplating. In developing new products, we replaced that process with a new design element, which helped us reduce costs. The most important third way is to leverage MINISO's scale advantage to negotiate prices with our suppliers. MINISO is the kind of customer that suppliers want because of our large volume of orders, our high ability to manage, and our timely payments. When our suppliers want to maintain this relationship with us, we are willing to cooperate with them to reduce costs and offer more competitive prices. For example, a supplier of one of our products has invested in more efficient new equipment for MINISO, thus reducing their production costs while ensuring our prices remain competitive. Generally speaking, that is the room for our cost reduction this quarter.

Operator, Operator

The next question is from the line of Lucy Yu from Bank of America. Your line is open. Please go ahead.

Lucy Yu, Analyst

I have two questions. First, the savings from operating expenses contributed significantly to our record high quarterly net profit. Could you elaborate on the measures taken to achieve these cost savings? How much of this is one-time and how much is temporary? Additionally, what portion of these savings will be sustainable going forward? My second question is regarding the 11 shopping holiday. We observed that you implemented more promotions and activities during Double 11 this year. What was the gross merchandise value achieved, and what is our strategy for e-commerce?

Jack Ye, CEO

Could you please elaborate on what we have done to achieve this cost saving? How much of that is one-off, how much is temporary savings? And how much of that will be sustainable into the future? Second question is on the 11 shopping holiday. We noticed that you have done some more promotions and activities during Double 11 this time. How much GMV have we achieved? And what's our strategy on e-commerce?

Eason Zhang, Vice President of Capital Markets

Okay. Thank you for the question, Lucy. This is Steven. In terms of the expense, first of all, general expenses decreased. The main reason is the decline in labor costs. We also disclosed in our annual report that our current account is three, with headcount at 3,648 at the end of June 2021, reflecting our stock turnover trends and a decrease in numbers too. This reflects MINISO's ability to control our costs in an uncertain environment. Second, in terms of selling expenses, we have been promoting our MINISO brand strategic upgrade since this year. The initial results have been quite encouraging, and we plan to continue executing this strategic brand upgrade. In this quarter, there were savings in advertising expenses. But in the December quarter, we currently estimate that there will be about RMB 15 million in advertising expenses for this project, which is larger than the September quarter and has increased. Generally speaking, if you look at the expenses on an annual basis, they remain under our control, with the expense ratio maintaining stability in the long term.

Jack Ye, CEO

This quarter, we experienced savings in advertising expenses. However, for the December quarter, we currently estimate around RMB 15 million in advertising expenses for this project, which is higher than in the September quarter. Overall, when viewing expenses annually, they are still within our control, with the expense ratio remaining stable in the long term.

Eason Zhang, Vice President of Capital Markets

Okay. In terms of the second question on Double 11, in short, the total GMV exceeded RMB 100 million this year, with sales growing by 6% year-on-year. Some of our key products, such as perfumes, increased by more than 20% and TOP TOY's sales grew by more than 400%, while buying books increased by about twelve times.

Operator, Operator

The next question is from the line of Kin Shun Ling from Jeffries. Your line is open. Please go ahead.

Kin Shun Ling, Analyst

My question is as follows: First, will the renminbi depreciate significantly against other currencies? Since we are sourcing from mainland China, does this suggest that we can benefit from the depreciation of the renminbi compared to other markets where we utilize foreign currency? The second question pertains to the gross profit margins for mainland China. With the brand upgrade strategy in place, do you believe that the current gross profit margin has already surpassed 60% overall? Furthermore, is there a specific target for our gross profit margin in China moving forward?

Jack Ye, CEO

First, will the renminbi depreciate significantly against other currencies? Since we are sourcing from the mainland, does this mean we could benefit from the renminbi's depreciation compared to other markets where we use foreign currencies? The second question is about the gross profit margins for mainland China. With the brand upgrade strategy, do you believe the gross profit margin is currently above 60% overall? In other words, do we have a specific target for our gross profit margin in China going forward?

Eason Zhang, Vice President of Capital Markets

Okay. And this is Steven. For your first question about the overseas gross margin, yes, this quarter, we saw an overall overseas gross margin of about 40%, which is quite high. The distributor model, which accounts for 60% of our revenue, had a gross margin of about 33%. The directly operated model can achieve gross margins as high as 50% to 55%. The positive effect of direct countries breakeven on the company is primarily about the improvement of the company's overall profitability. During the past three years in the pandemic, the gross margin of the directly operated business has been stable. However, its sales were impacted due to fixed costs and expenses, resulting in losses in the direct operated business. With the gradual normalization of overseas markets and the expansion of this part of the business in the future, we are optimistic about this improvement. As for the RMB depreciation against the U.S. dollar, I think it is not relevant to the overall GP margin of overseas operations.

Jack Ye, CEO

The gross margin of the directly operated business has remained stable over the past three years during the pandemic. However, sales were affected by fixed costs and expenses, leading to losses in this segment. With overseas markets gradually normalizing and plans for future expansion, we are hopeful for improvements. Regarding the depreciation of the RMB against the U.S. dollar, I believe it does not significantly impact the overall gross profit margin of our overseas operations.

Eason Zhang, Vice President of Capital Markets

In terms of your second question on the GP margin potential, I think it can last for a while due to three reasons. First, as we mentioned, we have continued to reduce costs of certain products successfully, and the results of these efforts will be reflected in our financial statements in the upcoming quarters. Second, as we approach the holiday season in overseas markets, as I just mentioned, the gross margin is relatively high, and we anticipate that its sales contribution in the December quarter will maintain above 30% or higher, which will further increase the overall gross margin. Third, there will be rebates from our strategic suppliers as we approach year-end. Since we have surpassed the threshold in our agreements, we can record more rebates by year-end or in the second half of the year. However, we remain cautious about raising GP margins simply by increasing our prices. In the past few quarters, we have communicated that we have achieved GP margin improvement through cost reduction and savings from our product innovation or adjustment of our product structure. Meanwhile, our MINISO product pricing has remained very reasonable, maintaining a competitive value proposition compared to peers.

Operator, Operator

Thank you once again for joining us today. If you have any further questions, please contact the 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.