Earnings Call Transcript - MNSO Q2 2023

Operator, Operator

Ladies and gentlemen, thank you for standing by, and welcome to MINISO’s Earnings Conference Call for the Second Quarter of Fiscal Year 2023 that ended December 31, 2022. Please note that this event is being recorded. 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. Eason Zhang. Before we continue, I would like you to refer 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 the International Financial Reporting Standards in the company’s earnings release and filings 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. You can also revisit it on our IR website later. Now I’d like to hand the conference over to Mr. Ye, and Mr. Zhang will translate for Mr. Ye. Please go ahead, sir.

Jack Ye, CEO

Now I’d like to hand the conference over to Mr. Ye, and Mr. Zhang will translate for Mr. Ye. Please go ahead, sir.

Eason Zhang, CFO

Hello, everyone, and welcome to MINISO Group’s December Quarter 2022 Earnings Conference Call. Continuing our strong performance from the September quarter, we delivered another strong profitability result in the December quarter to cap off a successful 2022 calendar year. We achieved these results in the most severe pandemic-related challenges of the past three years. In the December quarter, the company’s gross margin increased by 8.9 percentage points from the same period last year, reaching a record high of 40%. Overseas revenue increased by nearly 40% year-over-year, effectively offsetting the adverse impact of the domestic pandemic situation. Adjusted net profit increased by 82% year-over-year. Adjusted net margin remained stable compared to the prior quarter at 15%. And excluding the impact of foreign exchange gains, net margin for the December quarter was 14.9%, up from 13.2% in the December quarter of last year.

Jack Ye, CEO

Overseas revenue increased by nearly 40% year-over-year, effectively offsetting the adverse impact of the domestic pandemic situation. Adjusted net profit increased by 82% year-over-year. Adjusted net margin remained stable compared to the prior quarter at 15%. Excluding the impact of foreign exchange gains, net margin for the December quarter was 14.9%, up from 13.2% in the December quarter of last year.

Eason Zhang, CFO

Let me walk you through our performance of the quarter by segment. Starting with MINISO China. According to our estimates, total foot traffic to offline MINISO stores decreased by 32% year-over-year in this quarter, while average ticket size increased by 6%, thanks to our brand upgrade efforts, partially offsetting the decrease in traffic. As a result, we saw a 28% decrease in revenue from MINISO’s offline operation in China.

Jack Ye, CEO

According to our estimates, total foot traffic to offline MINISO stores decreased by 32% year-over-year in this quarter, while average ticket size increased by 6%, thanks to our brand upgrade efforts, partially offsetting the decrease in traffic. As a result, we saw a 28% decrease in revenue from MINISO’s offline operation in China.

Eason Zhang, CFO

However, we’ve kicked off 2023 with strong sales performance in China. Our offline sales in January increased by nearly 40% year-over-year, setting a new record. Average sales per MINISO store increased by nearly 33% year-over-year. During the 7-day Chinese New Year holiday, offline sales increased by nearly 25% year-on-year and average sales per MINISO store increased by nearly 18% year-over-year. Quarter-to-date, we saw offline sales increased by more than 20% year-on-year in China. Overall, we are very confident about the growth prospects of our domestic business in 2023.

Jack Ye, CEO

Sales in January increased by nearly 40% year-over-year, setting a new record. Average sales per MINISO store increased by nearly 33% year-over-year. During the 7-day Chinese New Year holiday, offline sales increased by nearly 25% year-on-year and average sales per MINISO store increased by nearly 18% year-over-year. Quarter-to-date, we have seen offline sales increase by more than 20% year-on-year in China. Overall, we are very confident about the growth prospects of our domestic business in 2023.

Eason Zhang, CFO

As China’s pandemic control measures update and consumer spending gradually recovers, we are optimistic about our store expansion plan for 2023. We have very strong relationships with our major retail partners. We are in a good financial position and seeing healthy investment returns. The overall retail partner structure has remained stable throughout the past three years. The percentage of total MINISO stores owned by top 50 MINISO retail partners was 49%, 50%, and 46% in 2021 and 2022, respectively. For 2023, we are committed to improving strong performance on both the product and operational fronts. In the December quarter, we added a net 56 MINISO stores in China, most of which were located in lower-tier cities. For 2023, we currently expect a net increase of between 250 and 350 MINISO stores in China, but we retain the flexibility to adjust our plan dynamically.

Jack Ye, CEO

In the December quarter, we added a net 56 MINISO stores in China, primarily in lower-tier cities. For 2023, we anticipate a net increase of 250 to 350 MINISO stores in China, while remaining flexible to adjust our plans as needed.

Eason Zhang, CFO

Moving on to an update on our overseas business. In the December quarter, our overseas business maintained its strong momentum. The overall GMV increased by 40% year-over-year and 33% quarter-over-quarter. This represents high single-digit growth compared to the same period of 2019. Overseas revenue reached nearly RMB 1 billion, representing a year-over-year increase of 38%, a quarter-on-quarter increase of 7%, and an increase of nearly 5% over the same period in 2019.

Jack Ye, CEO

Eason Zhang, CFO

In the December quarter, nearly 80% of GMV in the overseas market was contributed from the distributor channel, a similar percentage to the past few quarters. In terms of region, Latin America contributed 38% of overseas GMV and 22% of overseas stores, while Asia contributed 28% of GMV and 45% of stores. In addition, North America, Europe, and the Middle East and North Africa regions each contributed about 10% of GMV. And their store shares were 6%, 10%, and 7%, respectively. In terms of markets, the top 10 countries and regions contributed more than 60% of overseas GMV. The top 20 contributed nearly 80%, and the top 40 contributed more than 90%. The top 5 markets were Mexico, the Philippines, Indonesia, the U.S., and Colombia. The Indian market has become our sixth overseas market.

Jack Ye, CEO

The Indian market has become our sixth overseas market.

Eason Zhang, CFO

In terms of GMV growth, North America saw the best performance, recording 66% year-over-year growth, followed by Latin America with 51%. And Asia also grew by 35%.

Jack Ye, CEO

The top 10 countries and regions contributed more than 60% of overseas GMV. The top 20 contributed nearly 80%, and the top 40 contributed more than 90%. The top 5 markets were Mexico, the Philippines, Indonesia, the U.S., and Colombia. The Indian market has become our sixth overseas market. In terms of GMV growth, North America saw the best performance, recording 66% year-over-year growth, followed by Latin America with 51%. Asia also grew by 35%.

Eason Zhang, CFO

In terms of the average GMV per store, the overseas business as a whole has recovered to 86% of the level we achieved in the same period of 2019. Broken down by market: North America’s average GMV per store was 1.5 times that of the same period in 2019, whilst the U.S. market was 1.5 times and Canada was 1.1 times, while Latin America recovered to 93% of the corresponding 2019 level, with Mexico surpassing by 8%. Although the Asia business has recovered to only 66% of the same period in 2019, its performance has improved significantly, by 30% sequentially compared to the 55% recovery rate we saw in the September quarter. And we are very confident that Asia will improve significantly in 2023. In Europe, average GMV per store was around 8% over the same period in 2019, mainly due to the weakness of the local market in October and November, but in December and January, same-store sales performance in Europe already exceeded the level seen in the same period of 2019.

Jack Ye, CEO

The performance has improved significantly by 30% sequentially compared to the 55% recovery rate observed in the September quarter. We are very confident that Asia will improve significantly in 2023. In Europe, average GMV per store was around 8% over the same period in 2019, mainly due to weakness in the local market in October and November. However, in December and January, same-store sales performance in Europe already exceeded the levels seen in the same period of 2019.

Eason Zhang, CFO

In the December quarter, we added 88 stores in the overseas market on a net basis, compared with a net addition of 41 stores in the same period of the prior year. For the calendar year 2022, we added nearly 240 stores compared with a net addition of 131 in 2021. Among these new stores, Asia contributed 44%, Latin America contributed 22%, and Europe contributed 19%. Looking ahead to 2023, we are more optimistic about overseas store openings, expecting a net increase of 350 to 450 overseas stores throughout the calendar year. We expect around 60% of store growth will come from Asia and Latin America, but more than 10% from North America and 10% each from Europe and the Middle East and North Africa region.

Jack Ye, CEO

In 2022, we added a total of 300 stores, compared with a net addition of 131 in 2021. Among these new stores, Asia contributed 44%, Latin America contributed 22%, and Europe contributed 19%. Looking ahead to 2023, we are more optimistic about overseas store openings, expecting a net increase of 350 to 450 overseas stores throughout the calendar year. We expect around 60% of store growth will come from Asia and Latin America, but more than 10% from North America and 10% each from Europe and the Middle East and North Africa region.

Eason Zhang, CFO

Next, let me give you a quick update on TOP TOY. During the quarter, TOP TOY revenue decreased by 25% year-over-year mainly due to the decline in shopping mall traffic. By quarter end, there were 117 TOP TOY stores, representing a net increase of 28 year-over-year, with 1 new store in Tier 1 cities, 20 in Tier 2 cities, and 7 in lower-tier cities.

Jack Ye, CEO

During the quarter, TOP TOY revenue decreased by 25% year-over-year mainly due to the decline in shopping mall traffic. By quarter end, there were 117 TOP TOY stores, representing a net increase of 28 year-over-year, with 1 new store in Tier 1 cities, 20 in Tier 2 cities, and 7 in lower-tier cities.

Eason Zhang, CFO

For the December quarter, gross margin of TOP TOY was around 45%, flat year-over-year. Sanrio Bricks, TOP TOY’s strategic category, contributed nearly 1/4 of sales. We continued to refine our products. The recently launched Sanrio Kuromi series of TOP TOY Sanrio Bricks has become a blockbuster product in Sam’s Club in China. During the period, TOP TOY’s exclusive products contributed nearly 1/4 of its sales. Over the past year, TOP TOY has significantly stepped up its product development capability. And in the future, TOP TOY aims to become a product brand rather than a channel brand.

Jack Ye, CEO

io Bricks, TOP TOY’s strategic category, contributed nearly a quarter of sales. We continued to refine our products. The recently launched Sanrio Kuromi series of TOP TOY Sanrio Bricks has become a blockbuster product in Sam’s Club in China. During the period, TOP TOY’s exclusive products contributed nearly a quarter of its sales. Over the past year, TOP TOY has significantly improved its product development capability. In the future, TOP TOY aims to become a product brand instead of a channel brand.

Eason Zhang, CFO

Last week, we held MINISO’s Global Brand Upgrade Conference. For the first time, I systematically laid out our roadmap to building a great Chinese consumer brand. Thinking about MINISO’s future from a global perspective, we aim to become a super brand. To achieve this goal, we need to focus on three strategic transformations. First, we need to upgrade MINISO from a channel brand to a product brand which has its own channels. Second, we need to upgrade MINISO from a retailer to an interest-driven company. And third, we need to upgrade MINISO experience from one of consumption to one of passion, enhancing our customers’ loyalty, converting them into our friends and users.

Jack Ye, CEO

MINISO’s future from a global perspective aims to become a super brand. To achieve this goal, we need to focus on three strategic transformations. First, we need to upgrade MINISO from a channel brand to a product brand with its own channels. Second, we need to upgrade MINISO from a retailer to an interest-driven company. And third, we need to upgrade MINISO experience from one of consumption to one of passion, enhancing our customers’ loyalty and converting them into our friends and users.

Eason Zhang, CFO

At the conference, we also introduced MINISO’s global product innovation center, with users as its core. This massive platform brings together IP owners, global designers, and players in the supply chain around the key principle of good-looking, fun, and easy-to-use products. This platform will leverage the extensive product innovation insights we have accumulated over the past 10 years.

Jack Ye, CEO

Eason Zhang, CFO

Finally, let me give you some details about how MINISO will continue to leverage its IP strategy and develop new products in strategic categories.

Jack Ye, CEO

Finally, let me provide some details about how MINISO will continue to leverage its IP strategy and develop new products in strategic categories.

Eason Zhang, CFO

First, I will talk about our IP strategy. IPs enable a direct emotional connection between products and consumers and are driving the increasingly salient trend of interest-based consumption. Our IP-based product innovation has proven to be our most successful product in terms of connecting with consumers’ emotions. We have seen this play out repeatedly within the MINISO business. For example, last March, we introduced the limited-edition IP products featuring Sanrio’s Cinnamoroll dog to help fans celebrate the cute puppy character’s birthday. This product sold out on the same day it hit shelves. We see the same dynamic with the Pixar product series we launch every summer in cooperation with Disney, which has become a summer festival for Pixar fans. Another example is MINISO’s own IP character, hanging PenPen, which has gained popularity on social media. Topics related to PenPen have reached tens of millions on TikTok. Our data shows that consumers who buy IP products have 28% higher shopping frequency and 43% higher average selling price than the average customer.

Jack Ye, CEO

We observe a similar trend with the Pixar product series that we release every summer in partnership with Disney, creating a summer celebration for Pixar enthusiasts. Additionally, our own IP character, PenPen, has surged in popularity on social media, with discussions about PenPen reaching tens of millions on TikTok. Our data indicates that consumers purchasing IP products exhibit a 28% higher shopping frequency and a 43% higher average selling price compared to the average customer.

Eason Zhang, CFO

For 2023, we have lined up collaborations with many popular and influential IP owners, bringing more exciting surprises to our users. We also launched the Chinese culture globalized innovation program with the Xinhua News Agency as an important part of our efforts to promote Chinese culture and creativity spirit.

Jack Ye, CEO

Eason Zhang, CFO

Second, to adapt to changing consumer demand, technology, and fashion trends, we need to focus our resources on categories with strategic value. We define strategic categories as having three criteria. The first is emotional resonance, meaning products that convey MINISO’s value proposition of a better life. The second is global appeal. And the third is high growth potential. Categories that meet these criteria include plush toys, mugs, fragrances and perfumes, accessories, and toys such as blind boxes.

Jack Ye, CEO

To adapt to changing consumer demand, technology, and fashion trends, we need to focus our resources on categories with strategic value. We define strategic categories as having three criteria. The first is emotional resonance, meaning products that convey MINISO’s value proposition of a better life. The second is global appeal. And the third is high growth potential. Categories that meet these criteria include plush toys, mugs, fragrances and perfumes, accessories, and toys such as blind boxes.

Eason Zhang, CFO

As an example: We have identified perfumes as our most important strategic category in China. During the past several years, sales in the perfume sector have been growing at a CAGR of 20%, while in MINISO their sales are growing at a CAGR of 60%. We have become the #1 brand in China’s perfume market. Together with master perfumers and top suppliers, we established the master’s aroma lab to provide consumers with high-quality perfume products that match the quality of top international brands at very attractive prices. Our master perfume series achieved instant popularity upon its launch during the Double 11 shopping festival last year, breaking into Tmall’s bestseller ranking list typically dominated by international brands. Encouraged by this success, we are committed to developing perfume as our top strategic category.

Jack Ye, CEO

We established the master’s aroma lab to provide consumers with high-quality perfume products that match the quality of top international brands at very attractive prices. Our master perfume series achieved instant popularity upon its launch during the Double 11 shopping festival last year, breaking into Tmall’s bestseller ranking list typically dominated by international brands. Encouraged by this success, we are committed to developing perfume as our top strategic category.

Eason Zhang, CFO

As we head into MINISO’s next decade, we need to upgrade and empower our product platform. First, we’ll incubate in-house IPs and make them our signature products alongside co-branded IP products. Second, we’ll set up four global design centers in China, the U.S., Japan, and South Korea. Third, we will work with top market research institutions to monitor trends and gain consumer insights so that we can pursue forward-looking product development on a global scale. Fourth, we will cooperate with leading suppliers in raw materials, technology, and other fields to provide more high-quality products to our users. Fifth, we will strengthen our global sourcing capabilities so that we can rapidly put MINISO products in front of our users in every part of the world.

Jack Ye, CEO

We will work with top market research institutions to monitor trends and gain consumer insights for forward-looking product development on a global scale. We will also cooperate with leading suppliers in raw materials, technology, and other fields to provide high-quality products to our users. Additionally, we will strengthen our global sourcing capabilities to rapidly deliver MINISO products to users around the world.

Eason Zhang, CFO

That concludes my prepared remarks. I’ll now turn the call to Eason for financial review. Hello, everyone. Thank you for joining us today. I will walk you through our financial results for the December quarter. Please note that all numbers are in renminbi unless otherwise stated. And we’ll also refer to some non-IFRS measures, which have excluded share-based compensation expenses. Revenue in the December quarter was about RMB 2.5 billion, a decrease of 10% year-on-year primarily due to a 27% year-over-year decline in our revenue in China, partially offset by a 38% increase in revenue in overseas markets. Revenue from China was RMB 1.5 billion, including RMB 1.4 billion from the MINISO brand and RMB 122 million from other business, including TOP TOY. Revenue from the MINISO brand decreased about 26% primarily due to the effects of COVID. So based on our estimation, total foot traffic to our offline stores decreased by about 27%, 36%, and 34% in each of October, November, and December, while average spending per ticket size increased by about 5%, 7%, and 7%, which translates into a decline of 23%, 32%, and 30% in sales in these corresponding periods. Revenue from overseas markets increased by about 38% year-over-year and closed to nearly RMB 1 billion, accounting for 40% of our total revenue. This growth was primarily driven by a 12% year-over-year increase in the average overseas store count and a 23% year-over-year increase in average revenue per MINISO overseas store. As mentioned in Mr. Ye’s remark, we were thrilled to see strong sales recovery across the board in overseas markets, boosting our top-line performance. Gross profit was RMB 997 million, an increase of 16% year-over-year. Gross margin was 40%, another record high for MINISO Group and an increase of nearly 900 basis points from 31.1% in the same quarter of last year. The year-over-year increase in gross margin was primarily attributed to three reasons: the first is a revenue mix shift to the overseas market. So overseas revenue contribution increased from 26% to nearly 40% in this quarter, while its gross margin stabilized. The second reason is higher gross margin contributed by newly launched products in relation to our execution of strategic brand upgrades in China; and the third is the saving measures we adopted to reduce costs. Excluding share-based compensation expenses, selling and distribution expense were RMB 409 million, representing a 10% year-over-year increase. The year-over-year increase of selling and distribution expense was primarily due to increased promotion and advertising expenses, mainly in connection with our strategic brand upgrade of MINISO in China; and increased depreciation and amortization expense of our directly operated stores. Excluding share-based compensation expense, G&A expenses were RMB 141 million, representing a decrease of 34% year-over-year. The year-over-year decrease was primarily due to decreased personnel-related expenses and decreased depreciation and amortization expense due to the capitalization of construction costs of our headquarters building. Other net income was RMB 8.8 million compared to RMB 12.3 million in the same quarter of 2021. Other net income mainly consists of net foreign exchange gain, investment income from wealth management products, and others. The year-over-year decrease was mainly attributable to the decrease in investment income from wealth management products as a result of reduced principal of such products, which was partially offset by a net foreign exchange gain of RMB 1.8 million in this quarter compared to a net foreign exchange loss of RMB 15.8 million in the same period of last year. Turning to profitability. Operating profit in this December quarter was RMB 448 million, representing an increase of 75% year-over-year. Operating margin was 18% compared to 9% in the same quarter last year and flat quarter-over-quarter. Net finance income was RMB 23 million, representing an increase of 373% year-over-year mainly due to an increase in interest income from bank deposits. Adjusted net profit was RMB 373 million, representing an increase of 82% year-over-year. Adjusted net margin was 15% compared to 7.4% in the same quarter of last year. Excluding foreign exchange gains, adjusted net margin was 14.9% compared to 8% last year and 13.2% in the previous quarter. Adjusted basic and diluted earnings per ADS were RMB 1.16 in this quarter compared to RMB 0.68 in the same quarter of last year. Turning to cash position. As of year-end, our consolidated cash position was approximately RMB 6.2 billion. Turning to working capital. Turnover of inventories and trade receivables remained very healthy in this quarter. So looking back on the past three years, MINISO has demonstrated strong profitability under the repeated stress tests of the pandemic. Over the past 18 quarters, MINISO’s adjusted net margin averaged 8.6%. Of these 18 quarters, 12 were in a pandemic. And MINISO’s adjusted net margin averaged 7.6%. For the remaining six quarters without a pandemic, MINISO’s adjusted net margin averaged 10.7%. And we will continue to execute a disciplined financial policy in terms of budgeting, cost control, and allocation of capital as we focus on consistently delivering solid profit and healthy cash flow in the future. Thank you. And this concludes our prepared remarks. Operator, we are now ready to take questions.

Operator, Operator

Your first question today comes from the line of Michelle Cheng from Goldman Sachs.

Michelle Cheng, Analyst

My question is about gross margin. First, I would like to know more about the significant year-on-year improvement in the December quarter gross margin, as well as the strong quarter-over-quarter improvement. Can you provide more details on the drivers behind this margin improvement? Additionally, what are your expectations for future gross margin upside? Considering the strong improvements in recent quarters, how much more upside do you anticipate? Specifically, what has been the sales contribution from the products whose prices have been adjusted? Lastly, how much upside do we expect from the merchandising gross margin compared to the historical 50% level?

Jack Ye, CEO

What factors contributed to the significant quarter-over-quarter margin improvement? Additionally, what are our projections for gross margin growth moving forward? Given the strong improvements we've seen in recent quarters, how much further upside do we anticipate? In particular, we've made several price adjustments to various products; what has been the sales impact from these changes? Also, regarding the merchandising gross margin, how much upside do we expect based on the historical 50% level?

Eason Zhang, CFO

Okay, thank you for your question, Michelle. This is Jack Ye. So if we have to quantify the strong gross margin performance in the December quarter, I think there are two reasons. The first is the revenue mix shift. For overseas business, this quarter, we have a gross margin of about 45%, flat year-over-year, but this is obviously higher than the domestic gross margin of 35% or so. So the overseas market in this quarter has contributed the historical-high revenue of 40% compared to 26% last year. Because of this reason, the incremental gross margin to the company for this revenue mix change is about 5%. The second reason is due to the brand strategic upgrade in China. In this quarter, we have seen the gross margin improve by about 4% year-over-year, and this number has included the impact from the rebates from the suppliers.

Jack Ye, CEO

The overseas market in this quarter has contributed a historical-high revenue of 40% compared to 26% last year, which is higher than the domestic gross margin of around 35%. As a result, the incremental gross margin for the company due to this revenue mix change is approximately 5%. Additionally, there has been a brand strategic upgrade in China, leading to an improvement in gross margin of about 4% year-over-year, which also accounts for the impact of rebates from suppliers.

Eason Zhang, CFO

So for your second question: In 2023, we plan to improve our gross margin, as we shared. If you look at the calendar year 2022, for the whole year, our merchandise gross margin has improved by at least 5 to 6 percentage points. The increase in merchandise gross margin for the December quarter is about 6 to 7 percentage points compared to the last December quarter. So our initial target, as we shared in last March’s earnings conference call, is to increase our merchandise gross margin as a whole to around 60%. We are still planning to do this at this moment, so for the entire calendar year 2023, I think we still have low single-digit growth to achieve that number. Thank you.

Operator, Operator

The next question is from the line of Veronica Song from Credit Suisse.

Veronica Song, Analyst

My question is about our international business. We’ve observed notable improvements in both sales and profits overseas. What is our current operating margin for the overseas direct operation? Additionally, for key markets like Indonesia and the U.S., what are our current store unit economics and payback? What do we aim for in terms of store unit economics and payback period? What will be the primary factor driving margin improvement overseas?

Eason Zhang, CFO

Thank you for your question, Veronica. This is Eason. Regarding our overseas directly operated markets, we are pleased to report that this segment has achieved breakeven for two consecutive quarters over the past six months. We can categorize this directly operated business into three segments. We have established operations in India and Indonesia. Although sales recovery in these markets has not been optimal, they feature a significant store network and substantial sales leverage, allowing for an operating profit margin exceeding 10%. A normalized net margin in these countries is around 10%. In our U.S. markets, it's encouraging that breakeven has been reached since November of last year, and this positive trend has persisted over the last several months as we moved into 2023. We will provide further insights on the U.S. market in the next quarter. Analyzing the payback and ROI for these three regions, Indonesia is a very established market with a model akin to our operations in China, specifically the MINISO retail partner model. With relatively low rental and salary costs, the ROI remained attractive even during the pandemic over the past three years. In India, we've been accelerating our store openings, especially in lower-tier cities, where we've developed a new concept referred to as low-tier stores. These stores are smaller, usually between 60 to 120 square meters, featuring competitive rental costs and minimal salary expenses since the owner also acts as the store clerk. This model has proven to be quite successful in India over the past year. As for the U.S., we have effectively identified favorable store unit economics in the past year. During the 2022 holiday season, most of our U.S. stores achieved impressive profit levels at the bottom line. Thank you.

Operator, Operator

Okay. Thank you once again for joining us today. If you have any further questions, please contact MINISO’s IR team. Our contact information can be found on today’s press release. We will see you next quarter.