MINISO Group - Q1 2024

Transcript

Operator (participant)

Welcome to MINISO Earnings Conference Call for the September quarter that ended September 30, 2023. At this time, all participants are in a listen-only mode. After the management prepare remarks, we will conduct a question-and-answer section. Before joining the question-and-answer section, please mark your name and institution, and be kindly note that this event is being recorded. We have announced our quarterly financial results earlier today. An 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. Jason Jiang. Before we continue, I would 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 know that we will discuss non-IFRS financial measures today, which we will have explained and reconcile 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 meetings, you should be seeing it right now. You can also revisit it on our IR website later. Now, I would like to hand the conference over to Mr. Ye, and the operator will translate for Mr. Ye. Please go ahead, sir.

Ye Guofu (Founder, Chairman and CEO)

[Foreign language]

Speaker 7

Hello, everyone, and welcome to MINISO Group September 2023 Earnings Conference Call. Our overall performance once again reached new highs during this quarter. As both of our revenue and profitability maintains high-quality growth based on the breakthroughs we achieved in previous quarters. Total revenue hits CNY 3.79 billion and set a new record, increasing by 37% year-over-year. Gross margin exceeded 40% for the very first time, reaching 41.8 with an increase of 6.1 percentage points compared to the same period last year. Adjusted net profit exceeds CNY 640 million, representing a year-over-year increase of 454%. Adjusted net profit margin reached 16.9%, increasing by about 2.2 percentage points compared to the same period last year.

Ye Guofu (Founder, Chairman and CEO)

[Foreign language]

Speaker 7

Now, I will walk you through business updates for our three major segments: MINISO China, MINISO Overseas, and TOP TOY.

Ye Guofu (Founder, Chairman and CEO)

[Foreign language]

Speaker 7

Let's start it with MINISO China. During the peak season of summer vacation, GMV of MINISO offline store in China achieved CNY 3.6 billion, refreshed its historical record, compared with a year-over-year increase of 5% in domestic retail sales of the consumer goods, according to National Bureau of Statistics of China. On a per-store basis, average transaction volume increased by over 70%, and average transaction value increased by more than 3% year-over-year. During the first 10 months in 2023, GMV per store of MINISO China recovered to 100% of 2021 level and around 85% of the pre-COVID level in the same period of 2019, consistent with our expectation at the beginning of the year. Entering into the fourth quarter of calendar year 2023, some investors worried about the weak domestic consumption environment.

However, MINISO has maintained resilience as always. According to our weekly sales data, the trend of per store sales since July today, this year, was consistent with the normalized pattern in the same period of 2019. No weaknesses was noticed.

...It is more about seasonal, seasonality. We will keep checking this trend and staying alarmed and taking positive measures to cope with the macro headwind.

Ye Guofu (Founder, Chairman and CEO)

[Foreign language]

Speaker 7

We opened a total of 198 new MINISO store on a net basis in China during September quarter. Continuing on the trend of our store expansion, including 80 new stores in Tier 1 and Tier 2 cities, and around 60% new stores in Tier 3 and lower tier cities. While the numbers of store is growing rapidly, we continue on and focused on unit economics of our operating stores, proven by the healthy closure rate of MINISO store of only 1.4% in this quarter. Below history average. As of September 30, we have accomplished our target of opening 350-450 store in China on a net basis in calendar years 2023. Meanwhile, we celebrate the milestone of 6,000 MINISO store worldwide in this quarter.

We do well in both space and quality in growing a healthy global store networks for MINISO brand. Going forward, we continue currently expect to add another 100-200 new stores in China in the remaining calendar year 2023 on a net basis.

Ye Guofu (Founder, Chairman and CEO)

[Foreign language]

Speaker 7

Next, we will introduce the progress of the overseas business. First, the overall revenue of the overseas business was nearly CNY 1.3 billion, on top of the high base from the same period last year, with a year-over-year growth of nearly 41%, which also refreshed the highest historical record for single-quarter sales of the overseas business. In particular, the revenue from directly operated markets grew nearly 89% year-over-year, the proportion of directly operated market revenue to overseas revenue was about 46%, compared to about 34% in the same period last year.

Moving on to our progress on the international fronts. Firstly, overseas revenue was about CNY 1.3 billion, representing a year-over-year increase of nearly 41% from a high base last year and setting a new record. Notably, revenue from directly operating markets increased around 89% year-over-year, contributing around 46% of overseas revenue, compared to around 34% in the same period last year.

Ye Guofu (Founder, Chairman and CEO)

[Foreign language]

Speaker 7

Secondly, overseas GMV year-over-year growth 48%, among which directly operated market GMV year-over-year growth 80%, agency market year-over-year growth 39%. Overall, overseas per-store GMV year-over-year growth exceeded 27%, average store count increased by about 13%. Major overseas markets continue to maintain high-speed GMV growth, among which North America region year-over-year growth nearly 160%, Latin America market year-over-year growth nearly 60%, Europe market year-over-year growth nearly 50%.

Secondly, GMV in overseas markets increased by 48% year-over-year, including an 80% year-over-year growth in the directly operated markets and 39% year-over-year growth in the distributors markets. Overall, GMV per store in overseas markets increased by over 27% year-over-year, an average store counts increased by about 13%. Major overseas markets maintain rapid growth momentum, including a 160% growth in North America, a 60% growth in Latin America, and a 50% growth in Europe.

Ye Guofu (Founder, Chairman and CEO)

[Foreign language]

Speaker 7

Firstly, we are encouraged that GMV per store in overseas markets during September quarter recovered to 103% of 2019 level and achieving 27% year-over-year increase. The distributor markets recovered to 107% of pre-COVID level in 2019, while the directly operating markets recovered to 93%. In our major overseas markets, GMV per store in North America nearly double that of that in same period in 2019. GMV per store in Latin America and Europe recovered to about 110% and over 100% of 2019 net levels respectively.

Ye Guofu (Founder, Chairman and CEO)

[Foreign language]

Speaker 7

Overseas markets, 80% of overseas GMV were generated in top 20 markets, and their performance largely represents the overall business performance of our overseas markets. Let me tell you three things about it. Firstly, in terms of GMV, first store sales in the top 20 markets increased by an average of 34% year-over-year, outpacing the average of 27% year-over-year growth for the overseas market as a whole.

Compared with the same period in 2019, per-store sales in the top 20 markets have recovered to 98%. Secondly, 80 of the top 20 markets achieved positive same-store sales growth in this quarter, with an average growth rate of about 38%, outpacing the average growth rate of 32% for the overseas market as a whole. Among top 20 markets, 15 had comparable stores in 2019. Among them, six markets, including the U.S., Mexico, Canada, Spain, Kazakhstan, and Vietnam, have recovered to more than 100% same-store sales. For Southeast Asia countries such as Indonesia, India, the Philippines, and Thailand, same-store sales numbers were better than per-store sales numbers. Thirdly, top 20 overseas markets account for nearly 70% of the total overseas stores and contribute nearly 75% of the new store year-to-date.

Ye Guofu (Founder, Chairman and CEO)

[Foreign language]

Speaker 7

Entering the second half of calendar year 2023, store openings in overseas markets have accelerated. During September quarters, we added 126 stores in the overseas markets on a net basis, making it the best quarter since 2020. As of September 30, 2023, we accumulated 198 new stores in the overseas markets on a net basis. We will strive to deliver our target of opening 350-450 stores in the overseas markets.

Ye Guofu (Founder, Chairman and CEO)

[Foreign language]

Speaker 7

In September, MINISO cooperated with Disney to create a Disney-themed train to celebrate a 100 anniversary of Disney. By decorating the carriages with Disney's four famous IPs and integrating MINISO super symbol, MINISO Wink to create immersive environment to the passenger. We also launched a marketing campaign to promote awareness of our flagship fragrance and perfume products, which combined Master Fragrance Series products with the traditional festival culture to cater for social behaviors and consumption preference of our young target customers. As the industry leading IP powerhouse, the key difference between our IP strategy from other companies lies in our continuous effort in developing IP products to elevate our brand, our brand equity and capitalize on cultural phenomena or influential trends by featuring their elements in our product design and adding exciting diversity to our products...which is different from the occasional marketing efforts of other players.

Meanwhile, with more favorable margin profile of IP products, we are positioned well to leverage their huge fan base to grow both our top line and bottom line.

Ye Guofu (Founder, Chairman and CEO)

[Foreign language]

Speaker 7

Meanwhile, by leveraging our capability in capturing customer insights and our fast supply chain, our highly refreshed assortment and continuous innovations have created huge sales opportunities. During this quarter, we have witnessed the birth of 100 million sales products and a new batch of best-selling products with more than 10 million sales. For examples, we seized the trend of offline travel recovery to quickly launch a new disposable travel categories, generating more than CNY 100 million sales in this quarter. In addition, about 60% of our best-selling products comes from strategic categories, strategy categories such as our interest-driven products with improved hit rate.

Ye Guofu (Founder, Chairman and CEO)

[Foreign language]

Speaker 7

In this quarter, MINISO also made progress in superstore initiative. Our newly opened Xi'an Datang All Day Mall stores and Wuhan Chuhe Hanjie Wanda stores gains potent positive response from customers. In the future, we will encourage and prepare for more super stores to test different store formats and improve store unit economics. With initial success in China, we test the water in some overseas markets. In this quarter, the very first MINISO blind box store in the U.K., grandly opened in Chinatown, with more than 50 kinds of IP-related blind boxes, co-branding with Disney, Sanrio, Winnie-the-Pooh, and other popular IPs. Although only 30 square meters, its total sales and sales per square meters on its first days far exceeds our expectations. MINISO's first Sanrio themed IP store opened in one of the most popular shopping centers in Indonesia, featuring a spacious Sanrio IP co-branding display area.

The sales on its first day set a new record in Southeast Asia. We'd expect that with the implementation of the super store strategy, it will strongly promote overseas performance and enhance the global influence of the MINISO brand.

Ye Guofu (Founder, Chairman and CEO)

[Foreign language]

Speaker 7

Let's move on to TOP TOY. Quarterly revenue achieved a 46% year-over-year increase, with about 30% year-over-year strong growth in GMV per store, and a 70% year-over-year growth in average store counts.

Ye Guofu (Founder, Chairman and CEO)

[Foreign language]

Speaker 7

TOY will celebrate its third anniversary next month. Although most of the past three years was covered by the pandemic, TOP TOY managed to be the unicorn with an annual GMV approximated to be CNY 1 billion and enlarge influence in these sectors. During its partner conference in September, TOP TOY renewed its cooperation relationship with important partners such as Bandai Namco and 52TOYS, which lay a solid foundation to future optimize its product structure. Meanwhile, the grand opening of TOP TOY store in Shanghai Disney, becoming the only new consumer brand to settle here in 2023.

Ye Guofu (Founder, Chairman and CEO)

[Foreign language]

Speaker 7

I will now turn the call over to Eason for a review of our financial performance in September quarter of 2023.

Eason Zhang (Executive VP)

Thank you, Jiang. Hello, everyone. Thank you again for joining us today. I will walk you through our financial results for the September quarter. Please note that all numbers are in renminbi, unless otherwise noted. I will also refer to some non-IFRS measures, which have excluded share-based compensation expenses. Revenue was CNY 3.8 billion, representing an increase of 37% year-over-year. Revenue from China was CNY 2.5 billion, up 35% year-over-year. The increase was driven by, number one, a growth of 41% in revenue from MINISO's offline stores. And number two, a growth of 46% in revenue from TOP TOY. The 41% YOY growth of MINISO offline business was a result of 14% growth in average store counts and 24% growth in per store sales.

The 46% year-over-year growth of TOP TOY was a result of high teens growth in average store counts and mid-twenties growth in per-store sales. Revenue from overseas market was RMB 1.3 billion, up 41% year-over-year, driven by an increase of low teens in average store counts and a growth of mid-twenties in per-store sales in overseas markets. Revenue from distributed market was RMB 304 million, an increase of 16% year-over-year. Revenue from directly operating market was RMB 592 million, an increase of 90% year-over-year, accounting for 46% of overseas revenue, as compared to 34 during the same period of last year. Gross profit in September quarter was RMB 1.6 billion, up 61% year-over-year.

Gross margin was 41.8%, increasing by about 6 percentage points from the same period of last year. The year-over-year increase was due to three reasons. Number one, GP margin in overseas market increased as we made meaningful progress in optimizing our product structure, and so revenue contribution from IP products increased from less than 30% to more than 40%. In addition to that, GP margin in overseas markets in this quarter also benefited from increasing revenue contribution from our directly operated markets, which contributed 46% of revenue. As we enter the peak season of our directly operated markets, we may expect its revenue contribution surpassing 50% for the first time in the coming December quarter.

Number 2, GP margin in China increased by low single digits percentage points, thanks to our continuous growth of merchandise GP margin and a better control of promotional discounts. Number 3, GP margin of TOP TOY continued to increase as planned. SG&A expense as a percentage of revenue was around 20.8%, up from 19.3% in the same period of last year. Selling and distribution expense were CNY 220 million, increasing by 67% year-over-year, driven by number 1, increased personnel-related expense. Number 2, increased marketing expenses related to brand upgrade projects, as we mentioned in our last earnings conference call. As we are executing our brand upgrade strategy, both in China and overseas markets, we expect to see marketing expenses increase a little bit for a while, but this is totally controllable.

Marketing expense as percentage of total revenue, just increased by one percentage points in this quarter, compared to the same period of 2021. And number three, increased IP licensing expenses. Licensing expense is more, variable costs as we offer more IP products. IP licensing expense as percentage of revenue increases by less than one percentage points in this quarter, compared to the same period of 2022. G&A expenses were CNY 167 million, flat year-over-year. Turning to profitability, operating profit in the September quarter was CNY 788 million, representing increase of 55% year-over-year. Operating margin was nearly 21%, compared to 18% in the same period of last year. Adjusted net profit in September quarter was CNY 642 million, increasing by 54% year-over-year.

Adjusted net margin was 16.9%, compared to 15% in the same period of 2022. On a quarter-over-quarter basis, our margin profile improved because we enjoyed a significant foreign exchange gain in June quarter. If we exclude, foreign exchange impact, adjusted net margin in this quarter would be 7.1%, compared to 15.5% in the previous quarter. Turning to cash position. As of September 30, we have strong cash position of CNY 6.7 billion. September quarter has once again witnessed breakthroughs and new heights in each major aspects of our operations. Looking forward into the December quarter, we expect our sales continue to grow strongly on a year-on-year basis, driven by better store level performance and store network expansion. Meanwhile, our margin profile will continue to optimize on a year-on-year basis. Thank you. That concludes our prepared remarks. Operator, we are now ready to take questions.

Operator (participant)

Thank you, sir. Your first question today comes from the line of Michelle Cheng from Goldman Sachs. Line is open. Please go ahead.

Michelle Cheng (Managing Director, Asia Consumer Research)

Mr. Ye, Yifan, hello. First, congratulations again, the company has such good performance. I have three questions to ask. The first question is about the trend of this same-store or GMV per store. We know this year actually benefited from the recovery after the pandemic. Domestic and some Asian countries actually all have very good performance. Can you share with us? That is, if looking at 4Q or next year, because recently everyone is indeed more worried about domestic consumption pressure. How do we see the same-store now roughly recovered to 85% pre-pandemic? Then, 2024 will it be a relatively long-term GMV per store or same-store trend? How should we see it? This is the first question. Then the second question to ask, this is still overseas store opening this part. We just mentioned that this year the store opening target is still planned to achieve? Indeed, first half year still saw the store opening speed is relatively slow a bit. Can you share again with us? Say the current seen this improvement situation is how?

Then, if looking to the future, we know overseas this opportunity relatively more. But, are there some, for example market regions, or this, including operations, or this distribution model's this business model's this emphasis on this overseas store opening this part. The third question is about product this side. This year this IP, also have this fragrance this product have very good feedback. Can share next year we on this product have some highlights, or can expected, expected directions. This is my three questions. Then I quickly translate a bit. So I have three questions for management.

First one is regarding the GMV store versus same-store sales growth upside. Given this year, we already benefit from the post-reopening, so how should we think about the 2024 and long-term same-store sales growth? And secondly, regarding the overseas store expansion, given we a little bit late behind in the first half, but we still target to achieve the guidance for the full year. So can you share with us where do we see the improvement, and how should we think about the focus for expansion overseas next year?

And thirdly, on the product, so we have a very good progress on IP and the fragrance product, et cetera. So how do we think about or is, is there anything we can expect for next year's product? Thank you.

Ye Guofu (Founder, Chairman and CEO)

[Foreign language]

Eason Zhang (Executive VP)

OK, thank you, Michelle. This is Eason. I will translate for Mr. Ye, and then I will make some add up. So, first, Mr. Ye introduced the latest update of our same store sales. So for this year, year to date, in China, our same store sales has recovered to 93% compared to 2019 level. So compared to 2021, same store sales has, you know, increased by 9 percentage points, and compared to 2022, same store has, you know, more than 20% year-on-year increase.

... For overseas market, as we mentioned of our prepared remarks, the same-store sales has recovered to about 94% as a whole in overseas market, among which top 20 overseas market has also, you know, positive same-store sales growth. In the long term, our, you know, major target here is, you know, if we want to have a sustainable same-store sales growth, I think there are a few several key factors here. Number one is the traffic. You know, our business performance is positively related to traffic. Take this year as example, as I mentioned, in China, we reached 93% of same-store sales recovery. But this recovery varies among, you know, weekdays, weekends, and holidays. So in this year, in weekdays, the same-store sales was 90%. In weekends, it's a little bit higher at 95%.

But when we have, you know, public holidays such as Labor Day, National Day, and so on, our same-store sales have low single digits positive growth compared to 2019 level. The reason behind this is that when we have public holidays, we have more traffic. When we have weekends, the traffic is obviously higher than weekdays. So that is why we promote; we launched the superstore strategy. I repeated a lot of times internally, only by opening superstore can we make better performance. So with the brand upgrade of brand upgrade strategy, we want to improve and, you know, optimize our store network by, you know, continuously introducing more superstores. And second, I think the key here lies in the innovation of products. By brand, by ex...

You know, the introducing brand upgrade, during the past year or so, our ASP has improved a lot while we had a you know, stabilized cross-selling rate. So this has been very key in supporting our same-store sales growth. And the third is all about the branding. Only by becoming a super brand, so we can you know, get more market share from the traffic under the backgrounds of the reducing traffic in China's shopping mall. So and I also want to add one point that you know, just now, Mr. Ye talked about same-store sales growth. But before that, Michelle, you know us, we disclosed our GMV per store. So GMV per store is more an average, but the same-store sales is more related with comparable sales.

So if you look at year to date, the GMV per store in China recovered to 85% of pre-COVID level, because we have, you know, opened a lot of new stores in lower tier cities in China, which has some dilution to our, you know, average store performance. But if you look at the comparable sales, our same-store sales have recovered to 93%, and which is very encouraging to us.

Ye Guofu (Founder, Chairman and CEO)

[Foreign language]

Eason Zhang (Executive VP)

For your third questions about the product innovation. So in this year, I have traveled around the major overseas markets of MINISO, and I brought out an idea that we should focus on three strategic category, that is big beauty, big IP, and big toys. For these three strategic categories, they are now contributing about 60% of overseas sales, and hopefully, we may see it increase to more than 70% in the near future. For these three categories, I think there are three products that can represent them, that is Blind Box, plush toy, fragrance and perfumes.

So our next step is that we want to, you know, cooperate with more, you know, famous IPs, more, you know, big IPs to, enhance our ability in, in, in, in, product development in these three areas. So hopefully, next year, you can expect our new cooperation relationship with a lot of new IP partners. Among these three categories, plush toy has always been one of our best sellers in overseas markets, and we shall, you know, continuously enhance our leadership position.

... And for Blind Box, during the past several quarters, no matter in China or in overseas markets, it's increasing is fabulous. So, our, you know, key strategy here in Blind Box is that by cooperating with this established IP, licensors, we are gaining market share. And Michelle, this is Eason. Let me answer your second question about the overseas store expansion. Yes, we have mentioned, talked about the overseas store opening strategy. So for the first half of this year, because, you know, when we just reopened, when our people, our team, come to overseas market, we realized that in some overseas market need to, you know, need to some, you know, upgrade of their operations. So we paused a little bit of our store expansion plan.

But during the past September quarter, we have been accelerating of our store expansion in overseas markets, and hopefully in the fourth quarter, in the December quarter, we will strive to achieve the 350-450 year beginning plan. And then next year, hopefully, because the directly operated market has been a key driver, not only in overseas business, but also for the whole core municipal business. So we see strengths in regions like North America, including the U.S., including Canada. We also see Indonesia gaining strengths in opening new stores because we are kind of want to penetrating more into larger cities in these countries.

So, next year, in general, our big opportunities will lie in overseas directly operated market. But that doesn't mean our distributed market will not open new stores. We still see a lot of chances in distributor markets, because we have so many markets, we have so many distributor partners. So in next year, hopefully, we are very confident that we will open more stores in overseas market than this year. Thank you.

Michelle Cheng (Managing Director, Asia Consumer Research)

Thank you, Ye. Thank you, Ethan.

Operator (participant)

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

Lucy Yu (Equity Research Analyst)

Hey, thank you, Ye. Thank you, Eason. I am Lucy. [Foreign language]. I'll do the translation first. So, the overseas distributor revenue this quarter, growth is lagging behind the direct sales growth, partially because of the slower store opening in the first half of the year. So with the third quarter store expansion started to accelerate, how should we expect the growth in the fourth quarter for distributor market in the overseas market? And secondly, is about the product GP margin in China. Could you please give a little bit breakdown or by category? And how should we think about our GP margin in China going forward? And lastly, is on the selling expense, which has been increased a lot, on both YOY and QOQ basis. Could you please elaborate the breakdown? Thank you.

Eason Zhang (Executive VP)

Thank you, Lucy. This is Eason. For your first question about the upcoming growth or distributor markets, I'd say hopefully we can see an improvement in the December quarter, in the December quarter, compared to the past two quarters. At this moment, I cannot comment too much because, you know, for the first half of this year, the distributor market as a whole, its net new stores was, you know, apparently fewer than our expectation. We will wait and see how the distributor market, how the need from our distributors ramp up during the fourth quarter. Hopefully we can reasonably expect that it will improve on a quarter-over-quarter basis.

For the GP margin by categories, I'd say we now have more than 11 product categories, but we categorize them into three words. The first is big beauty, the second is big toys, and the third is, you know, you know, big IPs, as, as we mentioned. So for the IP-related products, so it's a high single digits than the average of, than the average of GP margin. So our average GP margin is, like, 60%. So for toys, it's the same case. It's just same case with, with, with this, you know, IP products. And we have a small parts of our products, we call them merchandise general merchandise.

General merchandise is the products including, you know, home cleaning, seasonal foods, snacks, stationery, and gifts, you know, some small electronics, and, you know, lifestyle products, and so on. For these general merchandise products, it now accounts for about 40% of our our total sales. And, apparently, its GP margin, merchandise GP margin, is lower than IP products and toys. And now we also have about 40% of our sales in China comes from big beauty. So big beauty's GP margin is low single digits, higher than general merchandise. And, our, you know, big toys accounts for about 10%, including blind box, including plush toys, including children's toys, and so on.

So these three together accounts for about 10% of total sales, and its GP margin is low single digits, higher than the previous two categories. For your questions about the selling and distribution expenses. So in this quarter, S&D expenses was about 16% of our revenue. The major part of our selling and distribution is staffing, so which is about 5% of revenue. Next, by marketing expenses, about 3%, and then depreciation, another 3%. In licensing expense, it was about 2%-3%. So the year-over-year increase in S&D expense was related to three business updates that is noticeable. The first one is our rapid growth of our directly operated markets.

So we have increases in staffing, you know, in terms of, you know, store, staffing and so on, and including hiring more people in overseas directly operated stores, and bonus accrue. An increase in depreciation and amortization related to these new directly operated stores. And the second is related to our brand upgrade. So we invested a little bit more in branding, but it's total controllable. And the third is our, you know, IP offering. So it's with IP licensing expenses. This licensing expense, as I said, is more variable, and it will increase with the increase of our IP sales. So going forward, if you look at the next few quarters, as we open more direct stores in overseas, some expenses will increase, such as staffing, such as depreciation of, you know, our ROU in PPE and so on.

But in general, as we promised, we are confident that the total S&D expenses is controllable, because in overall, we are still enjoying a significant operating leverage. So thank you.

Lucy Yu (Equity Research Analyst)

Thank you, Eason.

Operator (participant)

Thank you. The next question is from the lines of Samuel Wang from UBS. Line is open. Please go ahead.

Samuel Wang (Equity Research Analyst)

[Foreign language]

So I will translate briefly on my questions. My first question is regarding U.S. markets. So could you update on the U.S. markets profitability for September quarter, and also introduce about the strategies how to improve in the future, and also the store opening plans next year. And my second question is regarding TOP TOY. What, what's the management's target on profitability this year for TOP TOY business? And also, what's the strategies going forward? I saw that in September quarter, the own brands mix has been a little bit lower than June quarter. Also, I saw cooperation with other brands like 52TOYS. So is there any strategy changes on self-developed IP percentage point in the future? So thank you.

Eason Zhang (Executive VP)

Samuel, this is Eason. So for your first question about the U.S. business, I would say it's everything is evolving very fast and is very encouraging. For example, in the September quarter, we saw GMV in this market increased by more than 108% on a year-over-year basis. And the best part, personally, I think that it's accelerating from 120% year-over-year growth from the June quarter. And entering in the holiday season, you know, for the past, you know, several weeks, we still see this market maintain this triple digit growth on a year-over-year basis. So we can expect a fruitful holiday season this year in the U.S. And we also just celebrated the 100th new stores in the U.S. market. For next year, although we are still, you know, making internally...

Internally, we are making plans and budgets for next year, but we do believe that the major driver of the overseas business will come from DTC market, and the DTC market major driver will be in North American market, including the US market. And we also include the Canada market here. It's more like, you know, US market one year ago, so it's in the door of ramping up and everything is very promising. And for TOP TOY, to be frank, last year, you know, TOP TOY, you know, it was loss-making in CY 2022, right? If you can remember, its net loss margin is nearly about, you know, more than 20%.

So for this year, I would say, TOP TOY is hopefully, it will close very close to breakeven, to be breakeven, or, you know, significantly reduce its net loss status. So if you look at CY 2023, as Mr. Ye just mentioned in his prepared remarks, TOP TOY, in the past three years, has become, you know, a unicorn with, you know, annual sales of CNY 1 billion, so increasing by nearly 50% compared to last year. And if you look at the bottom line, hopefully, the net loss for TOP TOY this year will be like, you know, 1% or 2%, something like that.

You are right that in the September quarter, the exclusive products of TOP TOY decreased a little bit. When we talk about exclusive products of TOP TOY, we mean, you know, our in-house designed blind boxes or, you know, our in-house developed blind box and so on. We are in the middle way in building an internal designer team and a product manager team and so on. So it takes time for this whole team to get mature, to get more, you know, connected. So we have enough patience to wait this business to get more mature.

We do not have any adjustment in terms of our self-branded strategy in TOP TOY. In the next couple of quarters, we are planning to launch more, you know, exclusive products. Thank you.

Operator (participant)

The next question is from the line of Anne Ling from Jefferies. Line is open, please go ahead.

Anne Ling (Equity Research Analyst, Greater China Consumer)

Hey, hi. Thank you, thank you, management team. [Foreign language]. So I'll translate in English. You know, first, the first question is on the overseas market. If we are looking at the overseas direct operated market, are there any additional markets that we have, you know, for this quarter? And like, you know, can we also provide a breakdown in terms of like, you know, within the direct operated markets, how, what is the sales mix between the franchise sales or wholesale sales versus the direct operated store sales? Secondly, is on the operating margin side.

Is there any like, you know, like regular trend in terms of like, you know, how this quarter performed for Mainland China, for Mainland China's OP margin versus the the overseas market? And then, my last question is on the 2024 calendar year trade flows. In terms of the sales per store or same-store sales, you know, what should- what sort of like, you know, growth rate we should be expecting, given the fact that, you know, we, we are likely to like, you know, still opening more stores? Thank you.

Eason Zhang (Executive VP)

Thank you, Anne. This is Eason. So for your first questions about the DTC market, is there any new members? I would say no, in the past two quarters. So there is no reclass between the distributor markets into our DTC market in the past one quarter or two. So the 80% year-on-year growth, 80% year-on-year growth you have seen in this quarter was substantially all organic growth. Of course, in this year, we have some small markets, such as Hong Kong, China, reclassed from, you know, the distributor market to our DTC market, but its revenue contribution is insignificant. But going forward, as we talked a lot, right, in general, we believe if we want to penetrate more and do better in overseas markets, we should involve more into local, local markets.

So one of the ways to turn them into direct operating market, the other is to invest in them or get ourselves more involved into their operation decisions. So I would say I'm not surprised if we are going to see more distributor markets, you know, turning to DTC market in the upcoming few quarters.

Anne Ling (Equity Research Analyst, Greater China Consumer)

Mm.

Eason Zhang (Executive VP)

And for the revenue contribution of our directly operated stores in overseas market, I would say now we have about 700 stores in our directly operating markets. Among them, about 200 stores are directly operated. So, considering the average store performances, there is no such significant difference. So you can calculate the contributions about 6%. We do not have the exact number. That's my, you know, rough estimate. And for the OP margin of overseas market, I say investors big concentration is for our overseas direct operated markets. I say its margin profile has been improving in this quarter. So in this quarter, the OP margin for our DTC market, it was mid-teens, so on OP level.

So compared to last year, one year ago, it was just breakeven, so it's a significant improvement. And compared to last quarter, so it increased by low single digits on quarter-over-quarter basis. And in long term, I think it's too early at this moment to decide to project the OP margin of our direct model. So it all dependent on our, you know, store model in the DTC market. i.e., if we adopt more franchisee model or if we adopt more directly operating model, so it's too early to project. And for the fourth question about the same-store sales growth in next year in China.

I would say, as we answer Michelle's question, in long term, our target should be maintaining, you know, both store network expansion and reasonable same-store sales. So we will strive to achieve that goal. Thank you.

Anne Ling (Equity Research Analyst, Greater China Consumer)

Okay. Thank you.

Eason Zhang (Executive VP)

Thank you.

Operator (participant)

Now the conference call comes to an end. Thank you all for joining our call today. We look forward to seeing you in the next quarter. Have a nice day, and goodbye.