Earnings Call Transcript - MNSO Q3 2025

Operator, Operator

Thanks for your patience, and also, welcome to join us for MINISO Group 2025 September Quarter Earnings Results Presentation. We have already announced the 2025 September quarter performance early today, and you can also check our slides on the investor relations website. First of all, we are very happy to have Mr. Ye Guofu, the founder and the CEO, and also Mr. Zhang, our CFO, to join us for the webcast. Before we proceed, please refer to the safe harbor statement in our earnings release, and we are also going to make forward-looking statements. Today, we're going to discuss non-IFRS financial indicators today. And we have already included that and explained that in the filings we filed to the regulators. Otherwise noted, all the currencies in this presentation are in RMB. In addition, we also include financial and business slides for this presentation. If you are using Zoom Meeting, you will be able to see the slides on the screen. And you can also check for the slides after the call on our IR website. Now let's welcome Mr. Ye to start the presentation.

Guofu Ye, CEO

Good day, and welcome to MINISO Group 2025 September Quarter Earnings Results Presentation. This quarter, the group continued to deliver accelerated growth with revenue increased by 28.2%, supporting the high end of our guidance. You can see multi-key indicators, including same-store sales and adjusted operating profit, either met or exceeded our prior guidance, demonstrating the resilience and growth potential of our business model. Today, I'm going to walk you through quarterly performance highlights and share with you some of our insights for strategic initiatives. In September quarter, the total GMV grew by 28%, revenue increased by 28%. Same-store sales being accelerated, reaching mid-single-digit growth. Our 2 flagship brands, MINISO and TOP TOY demonstrated accelerating revenue momentum in Q3. MINISO brand grew by 23%, while TOP TOY delivered exceptional revenue growth of 111%. On the profitability front, the group maintained a stable GP margin of 44.7%, and the GP margin approached to RMB 2.6 billion, grew by 27.6%. This quarter marked a significant milestone as our adjusted operating profit crossed RMB 1 billion threshold for the first time, grew by 40.8%, reaching RMB 1.02 billion. Our adjusted operating margin stood at 17.6%, showing sequential improvement from Q2. Coming next, I'm going to walk you through our quarterly performance across MINISO China, MINISO International and TOP TOY. Starting with MINISO domestic operation, revenue grew by 19.3%. The performance is outstanding, whether compared with China's total retail sales of the consumer goods grew by 3.4%, while online retail sales of the physical goods grew by 7.5% of the same period or measured against our previous guidance. What makes me particularly proud is the growth was coming from same-store sales growth, indicating high-quality growth that is more sustainable with lower operational risk, reflecting our continued enhancement of MINISO's core operational capacity. Entering into Q4, same-store growth still remained robust with strong National Day holiday performance, driving low double-digit same-store growth for the entire month of October. This quarter, we achieved a net addition of 102 MINISO stores domestically. Year-to-date 2025, we have accumulated a net increase of 21 stores. Our franchise base has already surpassed 1,100 for the first time. Since the beginning of this year, our franchise network welcomed new partners with diverse breakthroughs and resources, enhancing MINISO franchise system, not only in scale, but also in business ecosystem sophistication. MINISO China business has significantly outperformed the broader consumer market, fundamentally driven by our enhanced systematic operation capacity. For instance, during Q3 with our happy holiday shopping at MINISO campaign, based on the comprehensive data analysis across multiple categories during holidays and weekends, we forecasted that toys would be the category with the greatest performance elasticities. Consequently, from the early product development to inventory planning, we allocated sufficient resources and capacities for the toy category, and we also leveraged the summer scenarios. For China front, we secured a prime location in a top-tier shopping district with peak summer periods in advance of the PoPark stores. Everything from creative display merchandising to visual presentation of promotion materials was deeply aligned with the seasonal atmosphere and the core product highlights, achieving end-to-end customized operations. Compiling with the TNT brand endorsement announcement in August, we ultimately created powerful strategies of the right type, channel, right timing, right product and the right marketing, maximizing the growth potential of our summer toy category. Turning to our international markets. In Q3, revenue exceeded RMB 2.3 billion, grew by 28%. Our international MINISO store network expanded with a net 170 stores during the quarter, with year-to-date net addition of 306 stores. Our largest international market, the United States, delivered revenue growth of more than 65%, with same-store sales growth in the low double digits, exceeding our expectation. Our operational initiatives in the U.S. continued to strengthen and stabilize our long-term growth and improved new store success rate, brand recognition, and also consumer retention across multiple dimensions. Starting from this year, we have a store expansion committee structure and a clustered store opening model, opening multiple stores at the same time in different locations. This can actually improve management efficiency, and also, with great brand exposure, attract significant consumer attention. Year-to-date 2025, new member acquisition in the U.S. market has grown by 100%. By progressively building bidirectional communication channels with consumers, we enable the company to more precisely understand consumer preferences. Our membership program not only drives our revenue growth, but also provides critical data insights and consumer touchpoints for further enhancing repeat purchase rates. Regarding the product assortment, our IP product launch cadence operates like the release of the same, different season and monthly features, providing freshness to the consumer and encouraging store activities. You can see that for beauty, consumer electronics, food and beverage, mainly serving to drive the basket attachment and repeat purchase once consumers are in-store. MINISO is committed to creating a balanced product portfolio to achieve a more stable store operating model to address diversified consumer needs across different shopping occasions. The stronger results of MINISO in both China and the U.S. market are giving us tremendous confidence in both international markets. Our experiences in both major markets have provided proven systematic insights across four disciplines: optimizing store site selection, creating differentiated store formats, achieving precise product channel alignment, and orchestrating full-funnel market synergies, all of which can help to consolidate operational stability and long-term growth. International markets represent our key opportunities for MINISO's long-term expectations. We will systematically replicate and scale up our validated operational framework to more countries and regions. Every initiative is focused on long-term sustained profitability, ultimately unlocking tremendous potential in global markets. TOP TOY delivered outstanding revenue growth of 111% in Q3, with a store count expanding by a net increase of 40 locations, reaching 307 in total, including 292 in China and 50 outside China. Benefiting from the enhanced product competitiveness, particularly the rapid scaling of our proprietary IP, TOP TOY achieved middle single-digit same-store sales growth in Q3 with significant gross margin optimization. TOP TOY also continued to elevate store presentation, transforming proprietary IP into a more immersive experience, contributing to our owned IP and proprietary IP and brands. This quarter, we achieved two significant milestones. First of all, our global network store number already surpassed 8,000 milestone. Our brand presence is actually in key global markets from Asia to Europe, from the Americas, from established commercial districts to emerging neighborhoods. Our product and service are reaching an ever-expanding consumer base, marking a new chapter for our global expansion. The second milestone was our quarterly revenue crossing the RMB 5 billion threshold for the first time, while a single quarter adjusted operating profit also broke through the RMB 1 billion mark for the first time. Moving forward, we will transition from scale-driven growth to a new development paradigm, emphasizing both quality and scale, taking confident and measured steps along the pathway of high-quality development. Achieving high-quality development needs strategic directions and sustained execution excellence. For the past quarter, both our channel upgrades and IP metrics strategy have delivered significant breakthroughs. On the channel upgrade front, our inaugural MINISO FRIENDS store has been inaugurated in a high mall in Shenzhen. The FRIENDS format represents a crucial innovation in MINISO's channel upgrades with the following features. First of all, store design and product curation emphasize IP content presentation, creating a unique shopping experience akin to movie release schedules based on the synchronized IP launch reason. Secondly, leveraging MINISO's comprehensive category coverage and multi-IP metrics product development, MINISO has already become an anchor tenant for selecting shopping malls so that we will be able to enjoy primary location with favorable lease terms and more marketing support from the mall operator. Thirdly, MINISO FRIENDS stores are positioned as accessible luxury stores, designed for mid- to primary shopping centers, representing a strategic channel segmentation initiative for MINISO Group. Regarding proprietary IP, by November 2025, we have already contracted 16 pop toy artist IPs, building a rich and diversified owned IP portfolio with enriching IP value as our core objective. Our first artist at a trendy district has already been launched at Beijing Road Play Grand store in Guangzhou. Through comprehensive scenario-based renovation of the designated area of the store on the third floor, we precisely embedded the exclusive bird view of our TOP TOY IPs. The competitive island area generated sales performance exceeding a typical store's entire monthly sales result in just two weeks. Furthermore, we created atmospheric installations and interactive elements that align with the IP character personas, transforming every space into an extension of the IP storytelling. When consumers enter this immersive store environment, they not only experience the characters' appeal and narrative depths of our system, but also deepen their IP understanding and emotional connection through the experimental touchpoint, facilitating meaningful transmission from product purchase to IP affinity, strengthening the emotional bond between consumers and IPs. I believe over the longer run, MINISO's core competitive advantage in category architecture and IP portfolio will become increasingly pronounced. Geopolitical macroeconomic uncertainties represent universal challenges to all companies. We are already well positioned for that. MINISO maintains the industry's most balanced and diversified IP portfolio with IP assets spanning international renowned licensed properties, primary domestic content, and proprietary IP across multiple development tracks. Our extensive category coverage enables rapid product assortment and also merchandising adjustment based upon seasonal needs. More importantly, we also have precise capture of emerging trends and end-to-end channel control capacity, allowing our operation to be more adaptive to market changes. Looking to the future, MINISO will capitalize on the expansive opportunities within the lifestyle consumption sector, driving high-quality performance through continued strategic evolution. That concludes my remarks. Next, I will turn the floor to Eason, who will walk you through our first three quarters' financial performance, please.

Eason Zhang, CFO

Okay. Thank you. Hello, everyone. Welcome to join us for our September quarter earnings release. In front of you is a wonderful scorecard, showcasing how we leverage flexibilities and high-quality growth to navigate the future development. First of all, let me help you to review our performance against our guidance. There are four guidance we provided from revenue to SSSG and adjusted operating profit. We hit our profits. Regarding the guidance of the revenue growth, well, for SSSG, we gave the guidance of a lower single-digit growth, but we made it mid-single digit. A few points I'd like to share with you. For MINISO China, we made it to a high single-digit growth for SSSG, while for MINISO International, we also made a middle single-digit growth. For TOP TOY, it also registered a mid- to high single-digit growth number. It is worth mentioning that many of our stores in the international market are franchised stores. The control is less than the directly operated stores. But even against such a backdrop, we were able to have a low and positive growth among our 3,000 stores worldwide. You can also see adjusted operating profit also registered double-digit growth, reaching 50%, and for the adjusted operating profit margin, our previous guidance was a minor improvement month by month. However, we made a net profit of 17.86%. The decrease has already been narrowed down from 2.3 percentage points to 2.1 percentage points. From a revenue perspective, a few things I'd like to draw your attention to. First of all, 28.2% of the growth with RMB 5.8 billion revenue has already exceeded our expectations. This is also the first time for the group's revenue to exceed RMB 5 billion. Our Q1 revenue growth was 80.92%, and also Q2, 23.13%. For Q3, that was 28.2%. You can also see that we foresee for Q4, the revenue growth would be around 25% to 30%, continuing to deliver our commitment for a full year revenue growth of 25%. Let me also dive into our operating segments. MINISO Mainland China revenue grew by 90.3%. MINISO International's growth was 27.7%, reaching RMB 2.3 billion. TOP TOY revenue surged by 111.4%, reaching RMB 570 million, significantly exceeding our expectations. When breaking down into domestic versus international, the group's Mainland China revenue grew by 25%, and international revenue grew by 32.9%. We'll break this down to different brands. For MINISO, as a brand with GMV close to RMB 35 billion to RMB 40 billion, we'll still be able to manage revenue growth of 23%. While for TOP TOY, the growth was more than 111%, as I mentioned. High-quality growth is inseparable from SSSG. In Q3, SSSG performed well, which can help to drive the same-store growth by a mid-single-digit number. Among which, in Q3, MINISO Mainland China same-store sales achieved high single-digit growth. Overall revenue growth approached 20%. October continued a strong same-store momentum, reaching a low double-digit growth, while international same-store growth was a low single-digit number. Strategic markets like North America and Europe are showing outstanding same-store performance. The U.S. and Canada achieved low double-digit same-store growth in Q3 as well. For TOP TOY, same-store sales grew by a mid-single-digit number, in line with our expectations. The improvement comes from capturing the strategic and high-potential product category with multiple sales opportunities. We also optimized the product assortment. We leveraged direct sourcing in international markets, enhancing the merchandise dollar capacity, while at the same time, we always focus on the product, coordinating with frontline operations, strengthening refined product assortment management, conducting customized product development, and also creating some regular best sellers. More importantly, we emphasize seasonal and holiday opportunities. We organized holiday-plus IP-themed pop-up stores to stimulate the sales performance. Our directly operated market is the closest to our headquarters' management radius and also the first place where our strategies and adjustments take effect. The domestic market is our largest, most mature, but also the most competitively intense market. Achieving positive same-store growth in such a fiercely competitive market in China not only validates the effectiveness of the measures we take but also reflects our rapid market response capacity and strong execution. Through channel and store format differentiation, we continue to explore the boundaries of same-store efficiency, opening up long-term store expansion opportunities. Excellent same-store performance has also been observed in our strategic directly operated markets like the U.S. Stores are the smallest profit-generating units, just like sales of the body. Pursuing high-quality growth requires refined optimization of the store model beyond the traditional mall stores. We also actively explore plaza stores. We leverage scientific decision-making to be selective for store openings and cluster openings, and refine store staffing to continue optimizing profitability for the stores, allowing the smallest profit unit to fully realize its potential in driving future high-quality growth. We are very happy to see that for our internationally directed operating stores, including the U.S. and Canada, show significant year-over-year improvement in operating profit margins in Q3. We plan to first extend our China-U.S. success experience to the Southeast Asia market in 2026. We have been in the Southeast Asia market for nearly 10 years. Markets like Indonesia contribute substantial profits to the company every year. However, alongside local macroeconomic downturns and social unrest, we face certain operating challenges, especially the need for upgrading channel product assortment, organizational, and Thailand improvement. The market optimization will be the key focus of our strategy in 2023, and we are very confident to achieve success in those markets similar to what we accomplished in China by 2025. This quarter, the GP margin was 44.7%, down from 44.9% the same period last year. Looking at the first nine months of 2025, GP margin was 44.4%, compared to 44.1% last year. I also mentioned our GP margin has climbed from 27% in 2021 to 44% today, increased by 70 percentage points over four years. This improvement stemmed from, first of all, the continued increased contribution from our international revenue as well as upgrades and solid execution of our IP strategy. As international-directed operated business continues to expand, along with category structure adjustments between quarters, seasonal fluctuations are inevitable. Going forward, we will continue to focus on balancing product price and volume. For IP products, we will persist in product innovation and value for money. For non-IP products, we will emphasize product profitability and quality-to-price ratio, achieving better sales performance while maintaining overall GP margin. For this quarter, deducting the equity payment expenses and incentives, our SBC grew by 33.7%, representing 27.6% of the revenue. It is worth noticing that SBC, share-based compensation, totaled RMB 176 million, significantly increased compared to the previous period, primarily due to the TOP TOY equity incentives plan. The selling expenses, excluding SBC, grew by 36.5%. The increase was due to our international-directed operational store investment, including labor cost, leasing, depreciation, and optimization grew by 40.7% in Q3. You can see in Q1, this number used to be 71.4%, and 56.3% in Q2. So you can see that directly operated stores' selling expenses growth has clearly slowed down, while at the same time, the directly operated store revenue growth was close to 70% higher than the growth rate of the related expenses with significant deceleration because of our continued refined operation and strict expenses management. Next, let me also touch upon YH. Our investment in YH began to impact our financial statement last quarter. We accounted for these transactions using the equity method. The YH investment affected our net profit by RMB 146 million this quarter, which has been included in our non-IFRS financial metrics. Now let's also talk about the effective tax rate. With IFRS categories, our effective tax rate was 33.9%, compared with 24.8% same period last year. This sounds relatively high, but it's not the true tax burden. It's primarily due to share-based compensation and YH losses, where those items cannot be deducted pretax under tax law. However, they didn’t generate income tax relief, resulting in a higher effective tax rate on our financial statements. These expenses totaled around RMB 320 million. If we're excluding those impacting non-operating related items, our adjusted effective tax rate was 22.8%, 1% lower than last year. Let's also talk about profitability. Adjusted operating profit grew by 40.8%, reaching RMB 1.02 billion, showcasing our operating quality. The adjusted operating margin was 7.6%, down by 2.1%, but a great improvement compared with Q1 and Q2. The decline in adjusted operating margin was due to structural changes in the revenue composition. Looking at each of our major business segments, operating profit margins were either flat or improved. For example, the international-directed operating business maintained a high operating profit margin by a low single-digit number. China franchise business and international agent business have flat growth. The key reason for the 2.1% decline is due to the international-directed operating revenue proportion continuing to go up. The business profit margin still faces some gap compared with the asset-light franchise and agents business model, causing dilution of the overall profit margin. However, you can see as the U.S. and Canada already have the directed operating model, the operating profit margin for international directly operated business will continue to improve, especially as we see low double-digit growth of the U.S. directly operated business improving local profit margins. But we are operating in different countries and regions. We inevitably face profit fluctuations due to the regional economic and social environments. Our team is still young, and capacity needs to be improved, but there is significant room for growth. Q3 adjusted net profit grew by 11.7%, and adjusted EPS grew by 12.7%. Adjusted EBITDA grew by 90%. The year-over-year growth also accelerated quarter by quarter, but adjusted EBITDA margin was 23.4%. For working capital, our inventory turnover remained robust and efficient. As of Q3, MINISO brand inventory turnover was 87 days compared to 104 and 94 days in Q1 and Q2. You see our inventory efficiency improved in Q3. At the same time, as of September 30, our cash reserve was RMB 7.77 billion, remaining robust. Our net cash flow from operating activities reached RMB 1.3 billion, with a net cash to net profit ratio of 1.7. Capital expenditure was RMB 330 million. Free cash flow was RMB 970 million. In the first 9 months of this year, net cash flow from operating activities was RMB 2.01 billion, exceeding adjusted net profit for the same period. Capital expenditure was RMB 770 million. Free cash flow was RMB 1.55 billion, demonstrating our high-quality profitability, efficient working capital management, and stable business providing fuel for our future high-quality development. Last, but not least, I'd like to walk you through the outlook. Despite pressures and challenges in the micro consumption data, we remain confident in achieving our full-year guidance, anticipating a 25% full-year revenue growth and RMB 3.65 billion to RMB 3.85 billion in operating profit. We see Q4 revenue growing by 25% to 30%, with China and U.S. same-store sales achieving double-digit growth. For the full year, we expect that the China and the U.S. same-store growth will be in the mid-single digits. We expect Q4 operating profit will register double-digit year-over-year growth. Operating profit margin will still decline due to revenue structural changes, but the decline would be modest, close to Q3 levels. North America is about to enter into the peak shopping season. China Q4 will maintain rapid growth. Even continued macro weakness in Southeast Asia may bring some impact, but our global business layout will diversify our operating risks. We will continue to communicate with the capital market regarding our progress and expectations. Thank you very much. Let's now move into the Q&A session.

Operator, Operator

First of all, let's welcome Michelle to raise a question, please.

Michelle Cheng, Analyst

Congratulations on the company's high-quality performance in the September quarter. I have two questions. My first question is regarding the domestic MINISO business. From the macro perspective, since Q2, despite the consumption slowdown, we still see that MINISO's same-store sales and overall revenue growth continue to accelerate. Particularly, we noticed the company seems to have accelerated the rollout of the new store format. For example, Chairman Ye mentioned the MINISO FRIENDS as a new format. In your previous interview, Chairman Ye, you also mentioned you are going to renovate 80% of your domestic stores. Can you share with us the current progress of those store renovations, the targets? What about the unit economies? Anything you can share with us? This is actually my first question regarding domestic MINISO stores. And I also have another question regarding international outlook. Just now, Eason walked us through the Q4 outlook. Is it possible for you to elaborate on that because Q4 is always a peak season. Last year, we saw some adjustments. While for this year, entering into Q4 peak season, is there something worth noticing regarding inventory preparations, marketing, store operations? Can you share your work on the next year international strategy planning? Those are the two questions I have.

Guofu Ye, CEO

We are extending the space. We upgrade from small to large with greater frontage and better display space. The larger stores truly provide consumers with a better experience with more display space and larger, more attractive displays. We want to give more consumers a wonderful shopping experience. Moreover, opening large stores has a higher barrier to entry. Only MINISO's extensive IP portfolio and category place can truly support a large store format. If you don't have enough IP and product category, you won't be able to accommodate large stores. Our 2025 channel optimization achieved initial success, and we have accumulated systematic methodologies and experience. However, the number of optimized stores isn’t large yet. In the upcoming years, we will proactively plan and implement store optimization work, hoping that we can optimize more stores next year. The pace of the store renovation would be gradual. We are not going to rush for that. Most importantly, we need to have the right location selection. Many existing stores already have a good profit margin. We will advance our strategy based on lease and new store site selection. Thank you, Michelle. Let me just give a few updates. In the first three quarters, we've relocated, expanded, and optimized more than 200 stores. The optimized sample stores show significant store efficiency improvement, maintaining healthy sales per square meter and the rent-to-sale ratio declined by a low single digit. This can help to drive high performance while achieving a win-win for both companies and franchisees. Both parties have seen revenue and profit growth from the optimized stores. Store optimization will become a regular part of our channel expansion work. Well, regarding the outlook of Q4, a few points I'd like to share with you. I think the September ordering conference was very successful with record-high ordering amounts. Five categories each exceeded RMB 100 million in orders, and all specialized sections broke historical records. Categories were quite evident. For IP merchandise, we have a strong creative outlook, where for value-for-money products, we continue to enhance cost and pricing competitiveness. Additionally, our international, localized IP design and category implementation has already been improved. For example, the Mickey Merlion limited edition launched in Singapore in October, an airport store exclusive that perfectly matches channel and merchandise. The product has extreme scarcity and differentiation. It actually created a new single-store record. Our executive bearer was even asked by tourists at the airport to borrow her passport so that they can purchase more Mickey Merlion products. From initial market insights to creative design to logistics support to integrated marketing, every step worked closely, demonstrating IP merchandise store operation and marketing capacity integration. This is a very good and replicable IP operation model. This month, the Zootopia film would be released worldwide. Yesterday, the Director of Zootopia also provided us with very positive comments on the MINISO pop-up store by weaving our self-designed products. We remain confident about long-term international opportunities. MINISO's achievements in both China and the U.S. market over the past years give us strong confidence in international market growth potential. Practices in the two major markets have provided us with proven systematic insights, optimizing store opening decision mechanisms, creating differentiated store models, and achieving precise product channel alignment and full-funnel marketing synergy. International markets are MINISO's core potential field for long-term growth. Those proven systematic operational frameworks will gradually be replicated and extended to more countries and regions, with every step centered on long-term sustainable profitability. Ultimately, we will be able to steadily release the tremendous global market opportunities.

Operator, Operator

Next question, let's welcome Lina from HSBC.

Hau-Yee Yan, Analyst

Can all of you hear me?

Operator, Operator

Yes, please.

Hau-Yee Yan, Analyst

Eason and Mr. Ye, congratulations on the company's IP strategy success. I have a question for you. I know that IP means a lot for your same-store sales growth. There are some pulse-like growth where we know that, for many of the investors, we really would like to know how sustained your growth would be when you just do IPO? Your product categories are quite similar to Muji. But how are you going to comment on the non-IP product, especially from the existing suppliers? For example, if you're going to benchmark with Muji, who also registered very good growth in China for the past few quarters, I'd like to ask you how sustainable the growth would be? What are those categories that are going to register sustained growth in the near future? What would be your plan?

Guofu Ye, CEO

We can see within consumer conception, the most important and the best one is interest-driven consumption. Moreover, the most promising one is also interest-driven consumption. Consumers no longer just pursue product functionality but also value the aesthetic identity, social labels, thrilling experience, and spiritual satisfaction behind the product. That would be the ultimate pursuit for consumers. Going forward, consumers will pay for passion and emotions. This interest-driven, emotionally connected consumption demand has higher stickiness and prime space and is also becoming the company's core lever for navigating cycles and building differentiated competitiveness. The IP transformation does not abandon our existing category advantages, but rather IP plus core categories do well drive our ten years of accumulated experience to unleash greater value. Our supply chain resources cover home goods, cosmetics, stationeries, toys, and snacks, along with mature multi-category product development capacity, which is a great way to support our IP strategy implementation. MINISO is a very unique business model worldwide. IP empowerment isn't only about single-point best-sellers, but also the full scenario penetration. Our product development capacity's key is understanding category and better understanding how IP can empower categories rather than merely printing a logo. For instance, since November, MINISO's seasonal product has grown very fast. Plush socks, scarves, and gloves have captured and converted the traffic brought by IP. Our original key category is the performer store. Essential categories, including home goods, cosmetics, and stationery products, contribute our stable traffic and repeated purchase, where IP is a growth catalyst, enhancing product design appeal and the brand pioneer through collaboration and same-sale rules. We can also leverage IP popularity to boost core category sales. The model is quite unique because single IP brands lack multi-category supply chain support, making full scenario coverage difficult. Traditional general merchandise brands lack mature IP development and operation capacity, but our ten years of accumulated multi-category supply chain plus IP-integrated development capacity allows IP to rapidly penetrate into high-frequency consumption scenarios where key categories can leverage IP to break through the growth bottlenecks. Ultimately, forming a healthy growth structure of having essential category driving traffic and category boosts profitability.

Operator, Operator

Let's also welcome Mr. Wei, Xiaopo from Citi.

Xiaopo Wei, Analyst

Can all of you hear me? Yes, great. My first question is quite forward-looking. Just now, I see Eason has already provided the guidance for the Q4 performance. As Eason, you are quite conservative about the guidance, so I think I don't have any doubt on that. But a question I may have is that U.S. business has a strong Q4 seasonality, where Q1 in 2026 will see seasonal declines. In your prepared remarks, you also mentioned you are improving your operational efficiency to buffer the seasonality impact. Is it possible for you to share with us from Q4 2025 to Q1 2026 whether the so-called seasonal decline trend would be similar to last year or narrowed down compared with the same period of last year? This is my first question. My next question, Mr. Ye, you mentioned about the China IP going for the international market. You have already signed 16 artists. Then you're probably going to bring those IP outside China. Mr. Ye, according to your experience, in the international market, for Chinese IP going for international business, how long will it take to develop them there? And whether it's going to hurt your profitability?

Eason Zhang, CFO

Let me just respond to your questions regarding the seasonality of the U.S. business. Mr. Ye will answer the second question. I think the questions are well raised. For the past 3 to 4 years, especially starting from 2021, we started to work on direct-operated business in the U.S. Q1, generally speaking, is a low sales season in the U.S. The store sales in the low season will be around 10% to 20% lower than the peak season in Q4. This is common practice in the U.S. retail industry. However, how we can iron out the seasonality is through store operation and store openings. You can see that our U.S. stores do have a very good experience. A key takeaway is that in Q4 of the previous year, you have to make sure your stores are well prepared for presence. In Q4 of this year, we're going to have all the stores ready and not open new stores next year in Q4 in order to make sure that all stores are well in place in the first three quarters of every year. For example, in 2026, when I tell you how many stores we're going to have in the U.S. we need to make sure at least half of those promised stores are already contracted. This is also a common practice in the retail industry in the U.S. In Q1 of 2026, you will see we have a very nice store opening growth to iron out the seasonality on scale. On the other side, regarding the business operation, we are not going to smooth out or iron out, but we are going to follow the trend because the essence of retail is to capture and satisfy consumer needs. For the U.S. and European markets, they do have very strong seasonality and festival attributes, which is something we can work on. For consumers, they have very different needs in different seasonality. For example, Black Friday is coming, which is a peak season for consumer spending when consumer willingness to consume peaks. We have already prepared inventories and worked on the supply chain to ensure we have enough inventories to meet shopping festival needs from consumers. In the U.S., Q4 is still going to register good growth. We're not going to give up on the golden growth opportunity in Q4 just because of seasonal differences compared with Q1 of next year. We're going to leverage seasonal dividends, having good marketing, seasonal disciplines as well as strategic inventory building, translating seasonal fluctuations into an exemplifier of our business. This is how we respect the market and are able to continue to follow retail development. You can see that MINISO brand Chinese IP overseas will definitely leverage our unique advantage, not letting China IP to go it alone. We're going to leverage our past licensed IP experience and our massive IP portfolio for mutual empowerment. For example, on the first of this month, MINISO Canada National flagship store had its grand opening. Such a prime store provided the best stage for IP going overseas, representing a key milestone for MINISO's global IP strategy. The Canada National flagship store open day sales again broke the North American new store open sales record. Such a successful opening was inseparable from the IP catalyst. The event was featured by a surprise triggering people to check in and purchase the product. Coordinating with this store opening, our gifted bear family made its overseas debut with very cute and lovely designs that filled the opening atmosphere with joy and energy. The Chinese IP going for the international market is not starting from zero; it is standing on the shoulders of giants for steady growth. We have every confidence in leveraging our store resources worldwide and our very successful experience to bring Chinese IP international wide.

Operator, Operator

Coming next, let's welcome Samuel from UBS, please.

Samuel Wang, Analyst

I have a question also concerning the U.S. market. Recently, for both the capital market and investors, we find that the U.S. consumer market has been relatively weakened, especially the performance of the retail market in the U.S. was not looking promising. I would like to ask you, what do you see in the U.S. market, especially in October? What would be the SSSG in the U.S.? In that way, how are you going to handle your own measures? Also, for the U.S. market specifically, how are we to look into a full-year revenue and profit guidance for the U.S. market?

Eason Zhang, CFO

I'm Eason. Let me just respond to your question. In the U.S., indeed, we see some high-frequency consumption data, especially credit data consumption from the U.S. was quite weak. But it is actually external macro environment pressure that cannot be avoided. What we can do is to strive to do our best and give our all. I have already mentioned the three strategies. For example, the key thing was to take care of the holiday, early preparation, sufficient inventories, and good adoptions. Now, we have already been prepared for the decorations ahead of time and created the holiday shopping experience. The store inventory is more abundant than last year. We expect that the U.S. Q4 revenue growth will be a low double-digit growth, with Q4 revenue growth reaching 50% to 55%. The same-store growth will be low double-digit growth. For Q4, I think the scale growth would be slower than Q3 because we are slower than last year for the number of stores opened and the cadence, but still, the profit is going to generate a healthy growth.

Operator, Operator

Let me also welcome Xu, Xiaofang from Citic.

Xiaofang Xu, Analyst

I have a question regarding your proprietary designer IP. I can surely feel the company's investors and consumers have a high expectation of proprietary designer IP. Looking to the next three years, how will the designer and proprietary design IP look? Are you going to have a designer ecosystem organizing the trendy toy communities and exhibitions, where you invest in the secondhand market?

Guofu Ye, CEO

By the end of June, we have already signed 9 designer IPs. By Q3, we signed 16. We are proactively discovering highly potential original toy art IPs globally, working hard to build MINISO's trendy toy IP landscape. When one IP breaks out, it will definitely show exponential growth. The upper limit for proprietary IP volume is anchored to the trillion level interest of the consumption market. Generation Z has already become the key consumption force, close to RMB 260 million of them, and their annual consumption would be more than RMB 5 trillion. They are happy to pay for emotional value. However, at the same time, proprietary IP growth always has the risk backstops. We continue to test the market through small batch trial sales data iteration, but adjust our design style and category based on market needs and feedback. Such a model allows proprietary IP to grow steadily within a very safe trial and error framework, avoiding traditional IP incubation pain points of high investment, high risk, and unpredictable returns. We're going to continue. For MINISO, we have a great advantage: full category coverage, omnichannel penetration, global layout, and full funnel operation. Our stores themselves are theme park ecosystems. MINISO LAND and MINISO FRIENDS have a checking area with proprietary IP characters, placing IP characters sculptured model in the most prominent areas. We also have audience zones like Shiba signing events. We have dedicated product display areas and interactive activities like the gifted bear family plush that you can see when you visit MINISO stores. Products are key in the IP ecosystem. Good products don't consume IP but actually enhance IP value. The Yu Yu second-generation ring has excellent sales with product innovation and maximizing secondary creation attributes. In marketing, MINISO's plush festival gifted bear mascot performed supporting store opening activities, and screens in-store checkout areas play cute gifted bear family cartoon clips in snow form that can help enhance IP exposure and strengthen IP personalities and images.

Operator, Operator

Coming next, let’s have Runbo from CICC.

Runbo Yang, Analyst

Maybe we will move to our next analyst first. Let's also welcome Shi, Di from Huatai Securities. Can you hear me?

Di Shi, Analyst

Yes. My question is regarding your China business. I find that your store format is more in retail, including SPACE, LAND, FRIENDS stores, and flagship stores. Can you break down the appropriate proportion structures of different store types in sequential expansion plans? And for your store renovations and upgraded stores, how will this drive your domestic business growth?

Guofu Ye, CEO

In the near future, we're going to have two kinds of store models, where different models will have different VE and logos. The first one is the Wonderland and regular stores, where we leverage meaningful space and land to provide people a Wonderland experience. Simultaneously, we also have the regular stores, benchmarking the higher tier and newer tier cities, asking for prime location to cover as much traffic as possible. Looking at quantities and different store types, more will still be flagship stores and existing store location optimization expansion, where we have two logos for regular stores. When consumers come to our store, they will surely understand what MINISO LAND, FRIENDS, and SPACE are, alongside the regular stores. We will continue to work on the flagship store and the store door renovation, where we will leverage our brand priming and bargain power to secure the best locations in commercial districts while continuing to upgrade our channels. We will also use our 8,000 stores to gather frequent consumer feedback to provide us with market data and continue to empower our channel upgrade and lay a solid foundation to further improve product performance. That’s why, starting this year, our store types are going to be more diversified.

Operator, Operator

Coming next, we're going to have Runbo from CICC to raise a question.

Runbo Yang, Analyst

Can all of you hear me?

Operator, Operator

Yes.

Runbo Yang, Analyst

My name is Runbo. Congratulations on the continued optimization of the company. I have two questions. First of all, I see your domestic business continue to go up with more larger and well-performing stores being demonstrated. What would be your next year business development and your store number forecast? My second question, for outside China, especially outside China and in the U.S., what retail market do you see now? Do you see some pressures? What will be the regional performance differences?

Eason Zhang, CFO

I'm Eason. Let me just respond to your question. In China, we have already confirmed, we are going to seek high-quality growth that is inseparable from store growth, where in China, we expect mid-double-digit or even high-double-digit growth, which will be supported by SSSG improvement. This year, our internal KPI assessment also introduced SSSG improvement, hoping to enhance our performance in 2026. The SSSG target for 2026 has not yet been confirmed, but we hope we can achieve best-in-class SSSG in our industry. Regarding international business in Q3, the international markets that underperformed were the third-party agency markets, especially in Southeast Asia and Latin American markets. There are some macroeconomic seasonality factors, including local currency exchange rate fluctuations and consumption tax changes. But we are pleased to see that our terminal GMV growth is much better than our shipment GMV growth. In other words, our agency inventories would be quite healthy. They can still travel light into 2026. In some key markets, like Southeast Asia, GMV has already accelerated in Q3 with double-digit growth. We also observe that comparable listed companies in Southeast Asia, with October consumption showing improvements, but we’re still monitoring performance. Thirdly, we will proactively adjust the product assortment and channel. Many of our investors have already joined us for the order meeting; with the highs achieved, I strongly believe that these high orders will continue to be converted into revenue contributions in the next few quarters. More importantly, we are very confident that our success in the U.S. and China proves our operational abilities and resilience, and we have every confidence in that.

Operator, Operator

Final question, Anne from Jefferies. Can you hear me?

Kin Shun Ling, Analyst

I have two questions for you. Now, I see your equity incentives plan was registered a high number. Eason also mentioned that there are some equity incentives from TOP TOY included in Q3 performance. Is it possible for you to share with us regarding the equity incentives plan? What are the KPIs inside it? And how might it look in the next quarter? Will you continue to have such equity incentives in the next few quarters? My second question for TOP TOY, I think your drafted prospectus has already been filed. What would be your IPO schedule for TOP TOY? What will be the relationship between you and TOP TOY? I know you may have some related party transactions, and many of the profits and sales being given to TOP TOY. But once TOP TOY has been IPO-ed or spun off, what will be the relationship between the two entities? How can we protect the interests of the stakeholders of MINISO?

Guofu Ye, CEO

For this quarter and the next quarter, the expenditures were relatively high due to the equity incentives plan for TOP TOY. As you’ve already mentioned, for TOP TOY, its revenue doubled this quarter, significantly exceeding expectations. We believe an excellent team in an excellent sector combined with incentives can release more growth potential. TOP TOY has always been MINISO's fully consolidated subsidiary, so MINISO shareholders also benefit from TOP TOY's high growth. The IPO plan is advancing now. We will inform the market when any progress is made. Both the industry and the TOP TOY brand are in a rapid development phase. As a leading player, TOP TOY's market share continues to expand from user to category to region. We continue to explore the boundary. The only reason for the IPO is hoping TOP TOY can become stronger and continue to expand its business, fully capturing the broad opportunities in the trendy toy market. Okay, let me just give one more comment for Anne. Internally, we actually made some long-term discussions. There's no better strategy to advance than to have both entities, MINISO and TOP TOY, which would be the best strategy. We can leverage MINISO's full category and omnichannel operation and global presence, along with TOP TOY as a specialized trendy toy brand. The trendy toy market is growing very fast with an explosive growth rate. I believe both businesses will enable our company to be number one in the dual market. You worried about SBC expenses will total RMB 100 million for this quarter and another RMB 100 million for next quarter. This is normal accounting; after we have IPO-ed, you can see that for MINISO, in 2020, it is after the IPO that SBC and the team equity incentives plan will be diluted and amortized for a few quarters after the IPO.

Operator, Operator

Ladies and gentlemen, we conclude the earnings call for September quarter. Thank you very much for your participation. If you have any follow-up questions, please contact our IR team. I wish you a wonderful weekend.