MINISO Group Holding - Earnings Call - Q1 2025

Transcript

Operator (participant)

Good afternoon, everyone. Thank you for waiting, and welcome to join us for MINISO 2025 Q1 Earnings Conference Call. At this moment, all our participants are in listen-only mode. Following management's prepared remarks, we will have a Q&A session. Before joining the Q&A session, please mark your name and institution. Please note this event will be recorded. English simultaneous interpretation is available for this conference call. Please click "Interpretation" in Zoom meeting to select your preferred language. We released our Q1 results earlier today, which are now available at our investor relationship website at ir.miniso.com. Joining us today are Mr. Ye Guofu, our Founder and CEO, and Mr. Zhang Jingjing, our Chief Financial Officer. Before we continue, I'd like to refer you to the Safe Harbor Statement in our earnings release, which also applied to this call, as we will be making forward-looking statements.

Please note we will discuss non-IFRS financial measures today, which we have explained in our financials earnings release and filed into the US Securities and Exchange Commission and Hong Kong Stock Exchange (HKEX, which have reconciled the most comparable measures reported under IFRS. All amounts are in RMB unless otherwise stated. Additionally, we have prepared a set of slides that include financial and operational information for this call. If you are using Zoom, you should be able to see it now. You can also preview it later on our IR website. Now, I'd like to welcome Mr. Ye Guofu to begin his remarks.

Guofu Ye (Founder and CEO)

Good afternoon, everyone. Welcome to MINISO Group 2025 Q1 Earnings Conference Call. Today, I will share with you our quarterly performance highlights and our future development plans. First of all, let me review our overall performance for this quarter. In Q1 that just concluded, MINISO Group's overall revenue exceeded expectations, with total revenue of RMB 4.43 billion, growth by 90% on a worldwide basis. MINISO China mainland revenue was RMB 2.49 billion, growth by 9%. MINISO overseas revenue was RMB 1.59 billion, growth by 3%. Coming next, please allow me to talk about our measures behind the steady growth and our future strategy for both domestic and international markets. Let's talk about domestic markets first. We have continued optimization of same-store performance. Starting from the beginning of this year, domestic same-store sales have shown significant year-on-year improvement.

In Q1, the year-on-year decline in domestic same-store sales narrowed significantly, compared with Q4 last year during major holidays. In particular, we reached a positive turning point in our operational performance, with same-store performance shifting from negative to positive. We maintain our guidance on domestic same-store growth will turn positive for this year. Starting from last year, we have established same-store enhancement as our core strategy. We have broken down the vertical management model and continue to strengthen collaboration among operations, merchandise, channels, and marketing departments, building a flexible and very efficient integrated organizational framework with enhanced coordination, enabling faster and more agile decision-making and execution. The company also sets same-store metrics as our core KPI across our entire business chain.

This measure effectively breaks down departmental barriers, greatly motivating different departments to propose performance improvement solutions from their professional perspective, and achieving cross-departmental resources integration through a coordinated mechanism, driving the entire team to effectively collaborate with the unified goal of same-store enhancement. The company has also developed a systematic implementation in merchandise and channel management, where more precisely categorized same-store attributes for the channel stratification, complemented by deep data insights to accurately match the channel characteristics with inventory structure, making sure our sufficient product offering meets diversified consumer needs. Going forward, we will continue to deepen our refined operation, further unlock market potentials, and work with our franchise to advance high-quality development with high store efficiency and high profitability. Secondly, we strengthen our IP strategy and enhance product development precision. High-quality growth fundamentally depends on excellent products. A brand's long-lasting competitive edge is embedded in every item we create.

Each product investment strengthens our market position. We significantly improve our resources at the forefront of product innovation, building specialized teams that track global trends and broadly explore new design concepts and functional applications to keep our offerings at the industrial forefront. Our IP collaborations have delivered exceptional results in this year: the Chicago Lunar New Year collection, Chicago Cherry Blossom series, and our recent Stitch collections launched along with a movie release, which all received outstanding market response and sales performance. Our approach for deep IP and creating hit products around them continues to prove to be successful. Moving forward, we are expanding our IP partnership. We will also focus on dips rather than just breaks, refining our product development procession to create truly distinctive merchandise. From a strategic category perspective, during the May Day holiday, travel accessories grew by 45% compared with 2024, especially on May 1.

It's setting a new historical high for this category. For the disposable product, we created immersive specialty displays, zoomed and product end caps, while simultaneously showcasing professional third-party testing reports to build consumers' impression that MINISO disposable products are safe enough. We continue to search for high-quality and more environmentally friendly materials, all to bring consumers a more exceptional and reassuring user experience. We firmly believe that continued innovation with high-quality and value-driven products that meet evolving consumer needs is essential to our market success. MINISO's journey to date has been built on exceptional merchandise. Going forward, we will further invest in it as a core competitive edge to gain greater consumer recognition globally and continue to establish MINISO as a truly household name worldwide. Thirdly, let's focus on channel upgrades with large stores driving growth. I'd like to share with you my thoughts on our domestic store expansion strategy.

The brand has evolved from rapid land grabbing into an upgraded phase of large-store-driven growth. This year, we are focusing on high-quality channel development as our strategic goal, working on opening larger better-performing stores. Since the beginning of this year, we opened five new MINISO LAND locations, bringing the total to eight, with another 50 in preparation. We established 43 flagship stores with 150 more in the pipeline. New stores opened in Q1 have achieved 27% higher average efficiency compared with new stores from the same period of 2024. Since the grand opening of our first IP LAND store in Tianjin last August, IP LAND stores in Shanghai, Chengdu, and other cities have successfully opened, with Nanjing and Guiyang locations also making impressive departures this year. Those stores not only enhance MINISO's brand image but also offer consumers a wider product selection and a very unique shopping experience.

We were delighted to see that after the store opening, all the stores continued to break single-store sales records through refined operations and marketing campaigns closely integrated with our IP strategy. Moving forward, we will continue to emphasize our IP land stores' position as brand benchmarks, prioritizing IP and product resources to ensure priority product launches and customized limited editions. Currently, the performance contribution from the larger stores is gradually increasing, with single-store models showing positive development trends. We will continue advancing our large-store strategy by optimizing store layouts and improving operational efficiency to further enhance our brand influence and profitability. Beyond actively expanding new stores, we equally focus on renovating and optimizing existing locations. Small-to-large conversion and old-to-new renovation are key initiatives. By increasing store size, we will expand disciplinary areas and consumer interaction space.

Through upgraded decor styles and optimized lighting design, we refresh stores with better alignment with our brand positioning. We also proactively and systematically close some smaller outdated stores, optimizing our store portfolio and further improving the overall operational efficiency, laying a very solid foundation for the brand's long-term development. Coming next, let's talk about the international market. We have international markets steady expansion. Our overseas revenue contribution continued to rise, increasing 3 percentage points on a worldwide basis. We implemented a diversified strategy to address different market dynamics. In North America, improving store operational quality and controlling expenses ratio are our key priorities. We are going to focus on 24 states that represent 76% of the U.S. population, implementing cluster-based store openings and leveraging economics of scale, enabling rapid inventory transfer between warehouses and stores, reducing logistics costs and improving inventory efficiency.

We also enhanced merchandise operations through a specialized product development team at headquarters that creates targeted product assortment based upon U.S. store formats and positioning, with emphasis on developing core bestsellers. We believe the market opportunities are not only in the U.S., in Europe, in Latin America, or even in the Middle East. We were flexibly optimizing the corporation model and deepening partnerships with our agents. We have strengthened control and headquarter coordination with our overseas partners on the ordering side, while at the same time, we also continue to explore new business models. For example, we continue to improve our store positioning, which can continue to further improve our opening potentials in the U.S. and continue to leverage greater store models. In terms of the tariff, we also made some good preparations. Last year, we continued to build inventories in the U.S.

Market for reserves despite some upfront costs, ensuring sufficient stock availability amid tariff uncertainty can allow us to fully capitalize on sales potential. Furthermore, we enhanced our overall cost competitiveness in the U.S. market by increasing procurement from U.S. local and other overseas supply chains to continue to improve our product competitive edge in the U.S. This April, we held our 2025 Global New Product Carnival at Chimlong in Guangzhou, featuring nearly 4,000 square meters of exhibition space with 90 immersive themed special exhibitions, showcasing over 6,000 new products. Through our headquarters' strategic department of IP products and bestsellers, we enhanced product differentiation and competitiveness by creating a more efficient and innovative store model. We bring a more engaging shopping experience to local consumers to further strengthen our brand image.

We see tremendous potential in the overseas market and will continue to drive high-quality growth through increasingly refined and localized cooperation. For TOP TOY, let me just make the following statement: TOP TOY's business continued to maintain steady development. Through optimized product structure and improved operational efficiency, the proportion of self-developed products exceeded 40% for Q1 of this year, further enhancing TOP TOY's market competitiveness and profitability. Going forward, we will continue to strengthen TOP TOY's brand building and in-house product development, launching more products to meet consumer needs, increasing brand market share and influence. Looking to the future, we are confident in our performance in both the second quarter and the full year. We will continue to advance our refined operational strategy, strengthen IP partnerships, upgrade our channel, upgrade the store location, enhancing supply chain management, building brand influence to solid conditions for our full-year performance target.

Meanwhile, we will continue to implement our shareholder return policy, combining dividends and share repurchase. We paid out RMB 740 million in dividends this April and completed nearly RMB 260 million in share repurchases since the beginning of this year. We will continue such a strategy to maximize shareholder value. We remain committed to a customer-centric, innovation-driven approach as we advance business upgrades and market expansion in the IP collaboration space. We increasingly focus on the strategy of deepening existing partnerships while developing new ones. Strengthening long-term IP partnerships while also exploring leading resources in niche markets. Please believe in the power of our business trajectories. In the interest space and the cultural consumption space, MINISO has built a difficult-to-replicate competitive edge through our unique IP advantage. I look forward to witnessing our continued growth and success with all of you. Thank you very much. That concludes my remarks.

Now, I will invite Eason to present to you our financials in Q1 of 2025. Please. Thank you.

Eason Zhang (CFO)

Thanks for Mr. Ye. Coming next, I'd like to walk you through our financial result for Q1 of 2025. Please note, unless otherwise stated, all figures are in RMB. I will also refer to some non-IFRS financial measures that exclude stock-based compensation expenses as well as costs related to convertible bonds and acquisition loans. First of all, revenue. In Q1 of this year, the overall revenue was RMB 4.43 billion, up by 90%, making steady progress towards our expectation: 90% revenue growth exceeding the upper limit of our 50%-80% growth guidance. Looking at each brand, MINISO brand generated RMB 4.09 billion revenue, growth by 16.5%. Within this, MINISO China mainland revenue was RMB 2.49 billion, growth by 9%. 9% growth is even accelerated compared with the previous quarter.

Meaningful overseas revenue was RMB 1.59 billion, growth by 30%, also exceeding the upper limit of our 20-25% guidance to the market. TOP TOY brand achieved RMB 340 million revenue, up by 59%, continuing its rapid growth. From the revenue structure, in Q1 of 2025, China mainland revenue accounted for 56% of the total revenue. In the same period of last year, the number used to be 61%. Overseas revenue was 36%, used to be 33% last year, increased by 3 percentage points for the same store performance. With the collective efforts of everyone from our CEO to store staff, domestic MINISO same-store sales have significantly improved in this year. The Q1 same-store sales declined only by a mid-single-digit number against the high baseline last year. The rate of the decline substantially narrowed down compared with Q4 last year. This improvement trend has continued since the Lunar New Year.

Particularly impressive is that in April last year, featuring the Chicago launch, which created a very high baseline last year. Still, in April of 2025, we will be able to continue a positive trend during the May holiday. We continue working towards our goal of achieving positive same-store growth for the full year. Overseas MINISO same-store sales faced some base pressure. Q1 performance is similar to the domestic trend. However, it is worth noting that in the same period of last year, our overseas same-store growth was 20%. Looking at the two-year compound rate, overseas same-store sales still show solid growth in Q1. For overseas same-store performance, we were replicating successful practices from the China market and already seeing improvements in major markets like the U.S. and Mexico in Q2.

Having proven our ability to enhance same-store performance in China's intensively competitive market, we were even more confident in our overseas market performance. In terms of the store network, in Q1 of this year, we added 95 new overseas locations, steadily expanding our international network. In domestic China, we actively implemented a strategic channel upgrade. Our approach is to close underperforming stores while opening better ones and replace small locations with larger ones. Notably speaking, most of the stores closed in Q1 were low-productivity locations under 200 sq m, operating for over three years, with average monthly sales lower than RMB 200,000. In contrast, newly opened stores this year averaged 300 sq m, with average monthly sales approaching RMB 400,000. This explains why we have nearly double-digit revenue growth in mainland China, despite no net increase in domestic store count during Q1.

Regarding the gross margin, we saw an increase near 1 percentage point compared with the same period last year, reaching 44.2%. Beyond GP margin improvement driven by increased proportion of the overseas revenue mentioned earlier, our effective IP strategy also contributed to the steady enhancement of our overseas market segment. Looking for the future, there might be some fluctuation from the seasonal factors, but the upward trend continues to have momentum and room for further growth. Let's also talk about expenses. I'd like to highlight our expense in this report. In Q1 of 2025, combined selling and administrative expenses grew by 45%. Sales expenses are up by 51%, administrative expenses are up by 22%. Selling and administrative expenses represent 28% of the revenue, 5 percentage points higher than the same period of last year. Most of these YOY increases are due to the sales.

The majority of those YOY increases relate to our newly opened direct operated stores, including labor costs, rental expenses, depreciation, and amortization. In Q1 of 2025, directly operated stores contributed 22% of our revenue, up from 14% in the same period of last year, with revenue growing 86% on a YOY basis. The growth rate of direct retail revenue continued to outpace the growth of the related expenses. As I continue to talk to the market, our existing investments for the directly operated stores are capturing more sales opportunities to ensure our future business success, especially our strategically important markets like the United States. While at the same time, we will be effectively controlling headquarter-related management expenses, with their overall proportion decreasing. In Q1 of this year, it has been reduced by 1%. We firmly believe in focusing our spending where it matters most.

We believe that with continued refined operation and strict expenses management, our operating expense ratio will continue to be improved. In the mid and long run, those newly opened directly operated stores will unlock greater sales and profit potential. Regarding profitability, our adjusted EBITDA margin for Q1 of 2025 was 23.4%, up by 7.5%. Adjusted operating profit margin was 16.6%, down by 4.2 percentage points compared with the same period of last year. Let me just break down the reason behind this decline by business segment and explain to you why I'm still confident in margin improvement. The operating profit margin of MINISO mainland China franchise business remains stable compared to the same period of last year. The operating profit margin of our overseas agency business slightly improved. Those businesses are pretty stable. As you can see, these two business segments are performing very well.

The decline in the group's overall operating profit margin is primarily due to the changes in the revenue structure. The proportion of the high-margin franchise and agency business has decreased, while the rapidly growing direct operated business has increased, diluting the overall profit margin. Of course, we believe there is significant room to improve our profit margin of the directly operated business. Going forward, we aim to increase efficiency and refine operations to improve the operating margin of directly operated business. Additionally, investment in new business will surely cause some short-term fluctuations in profit margin. In the mid and long run, 20% profit margin would be a reasonable target. During our growth phase, we need to build new business, sufficient space, and time to develop. In Q1, our adjusted net profit was RMB 590 million, with adjusted net profit margin 30.3%.

Beyond operating expenses, the key factor affecting our profit margin in this quarter is an increase in financial expenses, primarily coming from the three resources. First of all, the seven-year convertible bonds of $550 million, with a 0.5% coupon rate, issued on January 6 of this year. Since these convertible bonds incorporate financial derivatives, it generates quarterly fair value fluctuations and accrued interest costs under the effective interest method, which are accounting standards required to record as financial expenses. Secondly, the bank loans expenses related to our investment in YH, which include borrowing interest expenses at an annualized rate below 3%. The third one is financial expenses related to slow lease for our increased number of directly opened stores. As Mr. Ye just stated, we are committed to long-term thinking, even if we see short-term pressure, but they lay a solid foundation for long-term revenue and profit growth.

In Q1 of this year, our effective tax rate was 26.6%, primarily because of the convertible bonds and YH-related financial expenses reducing pre-tax profit without generating actual tax liabilities, resulting in a higher effective tax rate. Excluding those impacts, the actual operational tax rate was 21.2%, in line with what we saw last year. Going forward, we're going to maintain a very stable effective tax rate for our regular operation. Regarding capital allocation, in March of this year, $740 million 2024 final dividend has already been paid to the shareholders. Meanwhile, starting from the trading window opened in March, the company continued its share repurchase program. As of now, we have repurchased nearly $260 million worth of the shares in 2025, totaling 8 million shares, representing 0.7% of the total outstanding shares.

In the near future, we're going to balance the rapid business growth and our commitment to providing shareholders with stable and predictable returns. Looking ahead to 2025, our expectations remain largely consistent with those at the beginning of this year. Due to the comparison base from 2024, the overall revenue pattern was slower in H1 and accelerated in H2. We believe our operating profit growth would be healthy in 2025, as we will be more focused on expenses control. Improvement in operating profit margin still depends on the profitability of our directly operated stores and also investment into the new stores. These stores are currently in a rapid growth phase and are temporarily seeking lowest profit margin, but it has significant room for further improvement in the mid and long run. Looking into the future, we believe our reasonable operating profit margin should be around 20%.

Our financial strategy will continue to maintain discipline in budgeting, cost control, and capital allocation, committed to achieving stable and sustained profit growth and healthy cash flow. Thank you very much. This concludes our presentation. We are now ready for Q&A, please.

Operator (participant)

First question, let's welcome Michelle Chen from Goldman Sachs, please.

Michelle Chen (Managing Director)

Thank you. Thanks for Mr. Ye and thanks for Eason for giving me the opportunity to raise a question. I have three questions. My first question is regarding MINISO domestic China business. There is some same-store improvement recently. Could you be more elaborative on that? Why do we have the same-store improvement? Is it because the format of the stores has been changed? Is it because of the metrics of the stores being changed in different tiered cities? My second question, what would be the payback period for your franchisees?

Another point you mentioned is the store adjustment strategy. Do you have any guidance regarding the store opening plan or strategy? This is my first question. My second question is targeting the U.S. market. Tariffs are still with huge fluctuations as the market sees. With very different tariff potentials, do you have any strategies or plans? What about the supply chain adjustment, especially for the U.S. market? My third question for YH. Starting from Q2 of this year, there will be some P&L impact from YH, right? Can you please elaborate on how YH is going to impact the profit and loss of MINISO? YH has already rolled out some adjusted superhypers. Are there any updates on the progress now? Thank you.

Guofu Ye (Founder and CEO)

Thank you. Thanks for Michelle. Many questions. I wrote down five. Let me just respond to your questions one by one.

The first three questions, I think you really want to know more about our domestic business. You want me to elaborate on the specifics of the same-store performance in China. In Q1, in the domestic market, we do have a mid-single-digit decline. For those investors who follow us long enough, this is indeed a huge improvement compared with Q3 and Q4 last year. Internally, for MINISO, we were quite inspired by only having a decline to a mid-single-digit number. Here yesterday, we have already narrowed this number to a low single-digit number. In 2025, we still have every possibility of improving our positive growth. Let me just tell you, the micro-consumption in China has not yet been fully restored. In such a challenging background, MINISO can guarantee a positive growth, which can surely showcase our business resilience.

If you further break down the Q1 same-store performance, especially for APS and the customer flow, the value per order is still the same as what we saw last year, but for the same-store decline because the traffic of the physical stores continues to showcase low and single-digit decline. Starting from Q2, value per order and the traffic continue to be improved. In terms of the regional, especially in Eastern China and South China, in the Tier 1 and Tier 2 cities, the same-store improvement shows very nice progress. Or even some of them have a positive growth from the beginning of this year to now. In the northern part of China, especially in the northeast and the northwest part of China, we do see some pressure for same-store improvement. We made some regional-specific plans, and we have periodical follow-ups for those plans.

Overall speaking, we are very confident. Probably for our interim of this year, we are very close to breaking even. Let me just also share with you the franchisee business. Starting from 2025, the ROI has already seen nice improvement along with same-store improvement. We do have five MINISO lands being operational and 43 flagship stores. All of them are mostly being operated by franchisees. Franchisees still have a very deep emotional bond with MINISO. They are still positive on us. We also have IP-land flagship stores in pipeline. The majority of them are still being owned by the franchisees. We surely notice franchisees are quite interested in this new store format, and they have every confidence in it. Third question regarding the store opening guidelines in China. In Q1, the same-store performance delivered a very ideal performance.

Even we adjusted the number of the stores, but still, we will be able to register a double-digit growth by improving the same-store improvement and the single-store improvement, especially those stores being operational within 12 months, which showcase a very healthy store metrics. For this year, we are confident we can achieve double-digit growth. Besides that, we will also surely optimize our store network. The fourth question is regarding tariff. With existing tariff, let me see, compared with 2020, we do have some early preparations for the past one year. We are intentionally building up our stock in the U.S., especially the inventory preparation. We do have more inventories in the overseas market. In that way, it can help to be ready for the sales peak season in the overseas market. In short run, it may bring some pressure on expenses.

Now, it can actually help to further play the potential of our overseas sales. U.S. inventory can still support our sales for another three to six months. We have another countermeasure for U.S. tariff fluctuation. We are adjusting our supply chain. We hope we can translate MINISO as Chinese supply chain going global to global supply chain integration. In other words, we are going to be less dependent on mainland China as a single market for supply chain. In order to further improve our supply chain efficiency, we did a lot of job for direct sourcing from the U.S. market. We make sure we have controllable costs and stable delivery of the U.S. product. We have a deep bond with our international supplier to adapt to the new landscape. In Q1 of this year, U.S. direct sourcing accounted for 40% of the local product.

In 2025, we're also going to adjust the sourcing and making sure we improve the diversities and the qualities of the direct sourcing to improve the GP margin of the U.S. business. At the same time, we also have the tax planning tools that can help us to effectively reduce our tariff burden in the U.S., making sure our commodity to the U.S. market can generate a higher profit. The final question is around YH. Starting from Q2 of 2025, YH is going to be consolidated into our overall performance. For YH, its overarching goal is to reduce financial losses with efficiency and the manpower and GP margin improvement and also cost and expenses reduction. YH business has seasonalities. Q1 is a peak time. From Q2 to Q4, we're going to confirm the profit and losses of investment, especially starting from Q2.

For YH adjustment, I think we do have a dedicated team to talk to the capital markets. Overall speaking, for YH retrofitted store, the performance is truly in line with our expectation. The team is also well performing. By 9th of May, 78 stores have been adjusted. We're going to close another 250-350 stores for YH with an adjusted store of more than 200. The adjusted store showcased very good performance with nice profit. From January to May, around top 40 YH store after adjustment, the profit is already more than RMB 100 million. The future profit growth will come from efficiency and management efficiency improvement. YH performance is truly in line with our expectation. YH business is a huge one. It really takes time to make the business right. Thank you.

Michelle Chen (Managing Director)

Thank you. Thanks for Eason. Very clear response. Thank you.

Operator (participant)

Next question.

Guofu Ye (Founder and CEO)

Let's welcome Samuel Wong from UBS. Please.

Samuel Wong (Analyst)

Thank you.

Guofu Ye (Founder and CEO)

Samuel, thank you. Can I just make one suggestion in order to make sure everyone with the equal opportunity to raise questions? No more than two questions for each, shall we?

Samuel Wong (Analyst)

Great.

Guofu Ye (Founder and CEO)

Okay. Thank you.

Samuel Wong (Analyst)

Thanks for Eason. I have a question regarding the overseas market. Recently, especially in April and May, what would be the same-store performance trend in the overseas market, especially how's performance in the U.S.? We noticed in 2024, you have a new management team for the U.S. market. What would be the outlook of the same-store's performance for the U.S.? What kind of strategy and measures will you take in order to improve the same-store performance in the U.S.? My second question is on IP partnership. IP started to become a red sea market with many players.

Guofu Ye (Founder and CEO)

There are some new entrants into the market that take very unique ways. For example, they do have the celebrity ambassador promotion. Are there any differentiated strategies for IP? Are you going to incubate your own IP, or did you ever consider acquiring other IP and developing your own IP in-house? Or are you still going to follow the third-party IP licensing to build a partnership to advance the IP business? Those are the two questions I have. Thank you. Thank you. Thanks for Samuel. For the same-store performance in the overseas market, as I have already mentioned, Q1 performance is very much like what we saw in China, but the baseline is very different. In Q1 last year, overseas same-store growth was 21%, more than 10% for the Asian market, direct sales more than 30%. For offshore offline chain retail store, growth more than 20% for single months.

They are very solid, high solid line. If you take it as a two-year compound growth rate, the international, especially overseas same-store growth was quite good. Starting from April, in Mexico and the U.S. market, we do see some turnaround improvement. Generally speaking, we're still very confident for the same-store performance improvement in the overseas market. I have to notice there used to be a very fast growth for the network of the stores in the overseas market. For example, directly operated store, before 2024, we only had 900. Last year, all of a sudden, it jumped to 1,300. With 1,300 stores, half of them can be accumulated, accounted with same-store performance. Another half will not be taken with same-store improvement. In the U.S., we have more than 300 stores. In Q1, the same-store performance only accounted for 90% of that.

In other words, 30% of the U.S. store can be taken on the same-store improvement baseline. Another growth driver would be the non-same-store inventory business, which has been operational within 12-15 years. The performance is going to be further improved. Its single-store output is going to have a teens, or should I say a low double-digit growth for this year. I have already mentioned in the preparatory remarks, we are going to adopt the successful experience from China for the overseas market. In China, we have so many competitions. There are so many competitions, but still, we will be able to grow in China. We are still very confident of having a successful story for the overseas market. The U.S. new management team is doing right. The U.S. is the world's largest consumer market. It is also going to be a key destination for MINISO's future global strategy.

From 2021 to 2024, we have a 100% four-year CAGR, which is truly impressive. Single-store output performance also makes us world top two. In a fast-growing market, the short-term individual season fluctuation may be impacted by different factors. We believe retail business is a long-short business. Where for the U.S. market, what we're going to focus on, including the following two. The first one is channel optimization. The second one is merchandise improvement. For channel, last year, we opened 150 stores with more experience accumulated. In 2025, we're going to be more focused on store opening in the 24 states with 76% of the U.S. population to leverage the clustering effect. In those areas, if we open new stores, we can really pay the scale effect, making sure we can have fast deliveries between warehouse and stores, reducing the store shortage, improving customer satisfaction.

We are also going to optimize the route of our logistics, reducing logistic costs and improving efficiency, which has already proved to be right in Q1. Certainly, we can also predict the demand, reducing the inventory backlog. Where for merchandise, we are going to be more refined and precise. Our headquarter merchandise center has already established the tariff task force and high-growth task force for the U.S. We did some specific R&D to U.S. market demand only, especially we followed in on new store formats in the U.S. and positioning of the stores we have in the U.S. to have dedicated resources and R&D for U.S. market only. We also made some best sellers. We will continue to further improve our membership system by enhancing our IT technology.

Through the membership system, we'll be able to see the high demand and repeatedly purchased product, making those products into our best seller, just as what we did for the past one year. By improving the supply chain of those best sellers, leveraging our trump card in the global supply chain, and guarantee a stable delivery of those best sellers. Certainly, we're also going to be very much targeted for customer profiling, getting more insights from the user. The question regarding IP is indeed a hot topic in the consumption market. There are three observations I can surely share with you. The global most well-known and top IP licensing resources are still the scarce resource. As we continue to further expand our market coverage, the way for us to work with top IP or the frequency for our IP partnership will continue to be forged.

We will be able to get good resources, for example, exclusive licensing, and that can help us to get more gallery image resources, which can help us to further expand our presence in the IP market. Secondly, for IP product design and IP product quality, it would also be the key criteria to decide whether consumers come back to you or not. There are many interest-based consumptions. People just rush to build, but many of those demands are non-effective ones. Why should I say so? Because for MINISO, we have a very good expertise that is to convert the IP. Our IP conversion capacity has been built based upon our 8,000 stores worldwide. We have seven to eight years' experience for IP development. We have already paid the license. All those could become our expertise to protect our IP business.

Secondly, we also have a more than 1,000-people product team, more than 1,500 global merchandise suppliers, pipelines, with very effective supply chain management, which could be used for IP business. Certainly, we're also working on our in-house IP. For MINISO, our in-house IP, right before 2025, we used to have some IP with sales of more than RMB 100 million, for example, like Pen Pen and Dun Dun Ji Chicken. For this year, we also started to have the Chip Belle. This IP will generate sales of more than RMB 400-500 million. As someone who started to do in-house IP, the Chip Belle indeed really surprised us. For sure, it really takes time for us to build our in-house IP. I surely believe in the next three years, we'll be able to generate good performance, which is going to be very much inspiring for the whole team.

Operator (participant)

Thank you. Next question. Let's welcome Justin.

Thank you. I have a question. I'd like to ask the management team for MINISO Man and China business. If we just take a look at MINISO Man and China, whether your GP margin is still 38-40%, if we only take a look at the MINISO Man and China business, what is the GP margin now? We also clearly noticed many of your merchandise are being sourced from the third party, which can actually help to mobilize more customer base and also improve your same-store sales. How are you going to balance the same-store performance improvement and the GP margin enhancement? For the commodities or the merchandise from the third party, how much does it contribute to your overall sales? Do you have any target? I see your store started to display drinkable waters or even some liquor products.

I saw that in MINISO Qingdao store. How are you going to balance your GP margin if you source from the third party? For third-party products, the GP margin would be low, but for sure, it is going to mobilize more customer base for same-store improvement. Thank you.

Guofu Ye (Founder and CEO)

Thank you. A very good question. Thanks for the end. I think what we are trying to do is that we shelved many third-party products, whether it is going to burden our GP margin. Let me reassure you, it will not. In Q1, for GP margin, especially in the mainland China business, it has a flat growth compared with last year. We indeed shelved many third-party products in our store, but those are the products in a specific category. From the nature perspective, MINISO is still an air-fly store. We would like to provide consumers with a treasure hunt experience.

In other words, you provide whatever the customer likes. In such a way, when you convert organic traffic into your real customers, it does not mean the product has to be your self-owned commodities. For example, let me give you an example, like toys. In China, in the shopping malls, the traffic structure has been fundamentally changed. The household consumer, especially children, becomes the key. Kids are indeed the consumer of the toys. In shopping malls, we do not have any very stable supply nationwide. If MINISO would be able to provide the household customers with a diversified array of the toys, which is quite cost-effective, that would be great. Toy development means we need to engage many toy producers, especially those professional ones. We do not need to develop our toy supply chain.

We can leverage the existing toy suppliers, engage them in our channel, and convert the organic traffic into actual sales. At the same time, we will surely be able to build our own IP. For consumers who come to MINISO, some of them are organic traffic. They just come naturally to your store, and they can be converted into actual sales. There are also some other consumers who know our brands. Or some of them see your advertisement in the social media. They see the advertisement and come to your store to purchase certain products, for example, travel products, blind boxes, and the doors. You have to make it right, but we do not give up organic traffic conversion opportunities. That is the reason we shelved the third-party merchandise. We are going to have a dynamic control, but still, the GP margin is very stable.

A follow-up question.

Imagine if you have the third-party products, but if some of them do not have very good sales in your store, no matter if it is for toys or for drinking waters or something else, were you going to refund the product to the third party, or is it just a buy-out? Thank you.

We do have some of the piloting initiatives now, but let me just tell you, for any of the single batch of the procurement, we have 4,000 stores in China. We have every capacity to digest those inventories. We do not have too much third-party procurement. It is only in certain specific categories. We leverage our data, insights, and experience, make sure we make the right decision to de-risk ourselves. Secondly, we have 4,000 stores. We safely digest those inventories. Thirdly, we just make sure we have a fast turnover of the third-party product.

We're not going to build too much inventories. We always do it face by face. Thank you.

Operator (participant)

Next question. Wei Xiaobo from CITIC Securities.

Xiaobo Ge (Managing Director)

Thank you. I'm Mr. Wei from CITIC Securities. I have one question regarding your stores. If we take a look at Q1, end-of-quarter store, you have a net closure of 111 stores in China. By closing those underperforming stores, it's going to improve your same-store performance. I believe for your annual guidance, you're going to have 200-300 net openings, where you change the target of the net openings. If it remains the same, when are you going to have a net increase of the stores? What would be the time frame? Imagine in Q1, if you already have net openings, then what would be the net closing and net opening? Thank you.

Guofu Ye (Founder and CEO)

Thank you. Thanks for your question.

Last quarter, I think I have already shared with many of you. We do channel upgrading in mainland China. The reason is because if we blindly seek for the store number growth, it will not be a good fit for our long-term development. That is the reason we do the channel upgrading initiative. Along with our same-store enhancement, there will be some net store opening in H2 of this year. We are not going to indeed do 200-300 net openings. We just keep a dynamic adjustment. If it is 200-300 net opening, then it means our same-store performance is more than what we expected. Even if we do not make 200-300, still, we will be able to maintain a double-digit growth. Thank you.

One more comment I would like to make for this question.

Closing store does not help for same-store enhancement because our definition over the same-store performance means you have complete closure of the store. They were not accounted for the same-store performance. For the operational stores, the store closing should be no more than one month. That is the reason for this quarter we do see same-store performance improvement. It is because we did some merchandise strategy and operational strategies for those inventory stores.

Xiaobo Ge (Managing Director)

Here is a follow-up question. No matter for same-store or for the new openings, as long as your mainland China sales reach the target, you do not bother whether it is being driven by same-store or new openings, right?

Guofu Ye (Founder and CEO)

As long as you guarantee a good revenue size and high-quality revenue growth. Yes, you are right. This is a premise we have. For sure, in 2025, we hope more growth from China is coming from same-store performance improvement.

Xiaobo Ge (Managing Director)

Okay, great.

Operator (participant)

Okay. Ladies and gentlemen, thanks for all the investors for your time, and thanks for supporting MINISO Group. Here comes to the end of the earnings conference call. See you next quarter. Thank you.

Guofu Ye (Founder and CEO)

Thank you.

Eason Zhang (CFO)

Thanks very much.