MINISO Group - Q3 2024

Transcript

Operator (participant)

Ladies and gentlemen, thank you for standing by and welcome to MINISO's earnings conference call for the March quarter of 2024. At this time, all participants are in a listen-only mode. After the management prepares remarks, we will conduct a quick round of applause.

This meeting is being recorded.

For joining the question-and-answer section, please state your name and institution, and please note that this event is being recorded. We have announced our quarterly financial results earlier today, and 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 to refer you to the safe harbor statements 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. The currency unit is Chinese yuan, unless otherwise stated.

In addition, we have prepared a PowerPoint presentation for today's call, which contains financial and operational information for this quarter. If you're using Zoom meetings, 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 Ms. Allis Chen from the IR team. We'll translate for Mr. Ye. Please go ahead, sir.

Jack Ye (Founder and CEO)

[Foreign language]

Allis Chen (IR Member)

Hello everyone, welcome to MINISO Group's earnings conference call. The March quarter marked our highest Q1 store openings pace average and laid a solid foundation for the targets of net addition 900-1,100 stores in 2024. Also, we have maintained a solid financial performance while rapidly expanding our overseas directly operated markets.

Jack Ye (Founder and CEO)

[Foriegn language]

Allis Chen (IR Member)

At the group level, our revenue increased 26% year-over-year to RMB 3.72 billion. The increase was primarily due to an around 19% increase in the average store count and an overall around 9% same-store sales growth. In the current uncertain economic environment compared to the consuming companies of similar scale globally, MINISO has maintained a leading growth rate in the industry.

Jack Ye (Founder and CEO)

[Foriegn langauge]

Allis Chen (IR Member)

Behind the rapid growth, we observe several trends that are shaping our future. Firstly, Chinese companies are expanding globally with vast opportunities ahead. As a company, MINISO leveraged Chinese supply chain capabilities to expand overseas at an early stage and has secured a fast first-mover advantage. With a store network in over 100 markets and extensive local operational experience, now we are moving forward to globalizing our MINISO brand. Secondly, along the current of times, here we emerge in numbers of world-class consuming brands from China. MINISO's goal is to ride a wave and become a super brand. Thirdly, despite increasing uncertainties in the global economic environment, interest-driven consumption is still on the rise. Our target is to achieve 50% IP product sales and 50% higher affordable product sales by 2028.

It was because after the pandemic, we observed the coexistence of rational consumption and interest-driven consumption in domestic consumption behaviors. This trend is similar across the world. IP consuming goods is a good example for this trend. The scale of global IP consuming goods is around RMB 2 trillion and remains highly decentralized. Per capita consumption of IP consuming goods in China, it's only RMB 51 yuan, which is only 1/4 of the global average and 1/6 of that in the United States. This indicates a vast opportunity for IP consuming.

Jack Ye (Founder and CEO)

[Foreign language]

Allis Chen (IR Member)

Gross margin stands at 43.4%, which is an increase of 4.1 percentage points year-over-year, setting a new historical high. This improvement was primarily attributable to the increased overseas revenue contribution and the optimization of the gross margin for TOP TOY. moving forward, with the fast growth of overseas revenue, higher IP product sales contributions, and the[audio distortion] of TOP TOY, the momentum for gross margin enhancement remains robust. Meanwhile, we're still committed to providing affordable products, pursuing a healthy increase in gross margin. Adjusted net profit of the March quarter was RMB 620 million, increased 28% year-over-year with an adjusted net margin of 60.6%.

Jack Ye (Founder and CEO)

[Foreign language]

Allis Chen (IR Member)

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

Jack Ye (Founder and CEO)

[Foreign language]

Allis Chen (IR Member)

Let's start with MINISO Mainland China, which continues to grow with high quality. Offline GMV increased 60% year-over-year, compared with a 5% increase of the domestic retail sales of consumer goods, according to the National Bureau of Statistics. In particular, same-store sales recovered to over 98% of last year's high base, continuing to outperform our peers. In this context, average transaction value remained stable, and the transaction volumes recovered to 98%. Entering into June quarter, same-store sales trends remained positive, with year-to-date same-store sales recovery rates reaching nearly 100% of the same period last year. Keeping an industry-leading same-store sales growth will be one of our priorities in this year.

Jack Ye (Founder and CEO)

[Foreign language]

Allis Chen (IR Member)

We summarize two reasons for achieving outperformed same-store sales. First, we stick to product innovation and solidify our differentiated product strengths. Leveraging our observation of consumption trends and our own advantage, we are gaining market shares for strategic categories such as blind boxes, toys, tools, and store-related products, etc. In Q1, sales from such categories accounted for over 40% in China, with a year-on-year sales increase of more than 40%, driving a 60% growth of total sales in China. Among these, blind box categories saw a nearly 200% growth, and the travel-related products achieved nearly a 70% growth.

Jack Ye (Founder and CEO)

[Foreign language]

Allis Chen (IR Member)

Second, our offline-to-online models or O2O developed rapidly. In Q1, its sales increased by over 80% year-over-year, effectively compensating for the natural decline in foot traffic after the public holidays and driving the growth of our same-store sales. Compared to in-store sales, top-selling SKUs within O2O are predominantly concentrated to IP products and items that cater for immediate consumer needs. This year, we have implemented several operational optimization measures, such as extending the operational hours of O2O and improving service qualities.

Jack Ye (Founder and CEO)

[Foreign language]

Allis Chen (IR Member)

In this quarter, we added 108 new stores in Mainland China, setting a new record for Q1. Structurally, there are several things we're noticing. First, over 50% of new stores were located in the first and second-tier cities. With the normalization of economics, we have identified lots of commercials within China's top-tier cities that present promising opportunities for future store expansion. Second, the total numbers of our directly operated stores have reached 29, nearly doubling 60 stores from a year ago. It was due to our ongoing exploration over the past year into various channel matrices, including directly operated flagship stores. We will continue to refine our channel strategy this year and look forward to sharing more details about it in the near future. Lastly, store network in Mainland China has seen high-quality development, with the store closure rate remaining healthy at around 1.4% for three consecutive quarters.

Jack Ye (Founder and CEO)

[Foreign language]

Allis Chen (IR Member)

Moving on to MINISO overseas business updates.

Jack Ye (Founder and CEO)

[Foreign language]

Allis Chen (IR Member)

Firstly, overseas business growth once again exceeds our most optimistic expectations. Revenue was RMB 1.2 billion, up 53% year-over-year. In particular, revenue from directly operated markets has seen a staggering year-over-year growth of 92%, or 84% on a comparable basis, achieving a growth rate of over 80% for four consecutive quarters. Directly operated markets account for 58% of our overseas revenue, with both year-over-year and quarter-over-quarter increase in revenue share.

Jack Ye (Founder and CEO)

[Foreign language]

Allis Chen (IR Member)

Secondly, GMV in overseas increased by 46% year-over-year, with a 104% increase in the directly operated markets and a 29% increase in distributed markets. On a comparable basis, the growth rate was 78% and 35% respectively. Among key regions, North America increased by nearly 110%, Europe increased by over 80%, Latin America was 40%, and Asia was 34%. Structurally, Latin America and Asia are the top two markets, accounting for nearly three-quarters of overseas GMV, while Europe and North America markets are growing rapidly with over 20% GMV contribution. Especially North America, when we relaunched its operations in late 2021, it accounted for only 7% of overseas GMV, and now it's 13% already. We expect that the share of Europe and North America will continue to rise rapidly.

Jack Ye (Founder and CEO)

[Foreign language]

Allis Chen (IR Member)

Thirdly, one of the key drivers of GMV rapid growth was the same-store sales, which grew by 21%. Within this, directly operated markets saw a 32% same-store sales growth, while the distributed markets grew by 80%. Across nearly all overseas regions, we have achieved positive same-store growth, with North America increased by around 32%, Latin America by around 35%, Asia by around 19%, and Europe by around 13%. In addition, top 20 overseas countries and regions as a whole achieved a 23% in same-store sales growth.

Jack Ye (Founder and CEO)

[Foreign language]

Allis Chen (IR Member)

In March quarter, we added 109 new stores in overseas markets, another new record for Q1 store openings. Having learned from the lessons of last year's store expansions, we will exert stronger control over the pace of store openings this year, aiming to open more high-quality stores before the peak season in Q4. Structurally, 60% of the new stores were contributed by directly operated markets, with Indonesia and the United States together contributing over 40%. Amongst key regions, Asia contributed over 60% of new stores, while North America and Latin America contributed 70% and 10% respectively.

Jack Ye (Founder and CEO)

[Foreign language]

Allis Chen (IR Member)

In 2024, we further deepened our implementation of IP strategy. For example, we celebrate Chinese New Year with Qiqi and Titi from Disney. In responding to our consumer demand, we initiated an innovative O2O event of flower parades celebrating the Barbie 65th anniversary new collections to draw attention. Moreover, the launch of Chiikawa at the end of March sparked a phenomenal consumer craze. This Chiikawa partnership has further solidified our undisputed status as leaders in IP collaborations. These collaborations can be summarized with five unprecedented sales performance, unprecedented product launch speed, unprecedented efficiency, unprecedented coverage, and the unprecedented enthusiasm of Chiikawa fans. This collaboration is a milestone for our product team, in which they have improved capabilities in identifying trends in IPs, R&D, supply chain management, and the products we build, and enable a rapid product launch and high-quality standards.

It also set a very successful benchmark for future IP co-branding and marketing. I strongly believe that the brands that bring joy to consumers and put consumers first will finally be favored by customers. MINISO have created multiple phenomenal IP collaboration events thanks to our strong IP conversion capabilities. We are pleased to see that more and more young consumers on social media platforms such as Weibo and Xiaohongshu are tagging MINISO's and requesting us to collaborate with more IPs.

Jack Ye (Founder and CEO)

[Foreign language]

Allis Chen (IR Member)

In this quarter, IP products accounted for 26% of total sales. In Mainland China, IP accounted for about 25%, increased slightly year over year. In overseas, IP product shipment increased by over 100% and contributed over 40% of total shipment. We are steadily moving forward to our targets of 50% IP sales by 2028.

Jack Ye (Founder and CEO)

[Foreign language]

Allis Chen (IR Member)

Moving to TOP TOY. we believe that turning point the TOP TOY business has arrived. After three years inception, TOP TOY has grown into a leading player in the pop toy industry with annual sales of RMB 1 billion and with 160 stores across nearly 70 cities around Mainland China.

Jack Ye (Founder and CEO)

[Foreign language]

Allis Chen (IR Member)

With the business moving on track, we have stronger in TOP TOY's rapid expansion and have therefore raised its store opening targets from this year from 50 to 100, which means that we will 250 TOP TOY stores by the end of 2024.

Jack Ye (Founder and CEO)

[Foreign language]

Allis Chen (IR Member)

During quarter, TOP TOY's revenue increased by 55% year-over-year, driven by a very high-quality 26% same-store sales growth and a net addition of 44 stores year-over-year.

Jack Ye (Founder and CEO)

[Foreign language]

Allis Chen (IR Member)

With the rapid growth scale, TOP TOY is set to unlock profit potential gradually and has achieved positive profitability for two consecutive quarters. On one hand, through the optimization of product mix, its gross margins improved by around 8 percentage points year-over-year. On the other hand, as operational leverage took effect and with more targeted investment in marketing, its expense ratios have been further reduced.

Jack Ye (Founder and CEO)

[Foreign anguage]

Allis Chen (IR Member)

The year 2024 is a new starting point for five years' development plans of MINISO Group. Beginning with the ending target in mind, it's a philosophy I uphold as always. To realize our long-term goals, we need to pursue excellence, detail orientation, and continuously develop high-quality work. Therefore, this year I have spent a lot of time encouraging the development of corporate culture that is simple, efficient, and straightforward, one that simplifies complexities and maintains strategic focus. We want to embrace a professional-focused and simple culture at MINISO. We possess the necessary patience and persistence, remaining committed to a long-term approach, taking each step with care and diligence to accomplish our five years' development plan.

Jack Ye (Founder and CEO)

[Foreign language]

Allis Chen (IR Member)

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

Eason Zhang (CFO and VP)

Thank you, Jack, and thanks everyone for joining us today. Let me walk you through our financials for this March quarter. Please note that all numbers are in RMB unless otherwise noted, and I also refer to some non-IFRS measures which have excluded share-based compensation expenses. Revenue saw a robust increase of 26%. As highlighted by Jack, we are particularly encouraged by strong same-store sales growth, or SSSG, of 9%, achieved concurrently with the rapid expansion of our global store network. In mainland China, MINISO's same-store sales surpassed 98% of the previous figure, a high benchmark set after the release of pent-up demand following the COVID lockdown. The overseas markets' SSSG reached 21%, surpassing the peak season's SSSG of 20% observed in last December quarter, with a particular noteworthy 32% same-store sales growth in overseas directly operated markets and 18% growth in distributed markets.

additionally, TOP TOY's SSSG was remarkably at 26%. Regarding our channel mix, we have noted a significant surge in the contribution from our overseas markets. The share has grown from 23% in CY 2021 to 33% in the current quarter. This increase is particularly pronounced in our overseas directly operated markets, which have seen their contribution to total revenue more than doubled, climbing from 8% in CY 2021 to 19% in this additionally, TOP TOY has been consistently gaining traction, with its revenue share escalating from 3% in CY 2021 to 6% in the current quarter, indicating its readiness to unlock even more significant potential moving forward. We're optimistic about this shift towards a more diversified revenue stream, which underscores the strengths and resilience of our business model. Gross profit margin reached 43.4%, marking another historical high and representing a 4.1 percentage point increase year-over-year.

This improvement is attributable primarily to two factors. First, there was a higher revenue contribution from overseas markets, particularly directly operated segments, which accounted for over a 4.7 percentage point increase of consolidated GP margin. Second, the of TOP TOY's gp margin resulted from a strategic shift towards a product mix with greater profitability. SG&A expense amounted to RMB 156 million in total, constituting 23% of our revenue, an increase from about 20% a year ago. Despite this shift, the structure of the major expenses remains stable, indicating effective cost management aiming at expansion. This year's increase was attributable to, number one, increased personnel-related expenses, logistics expenses, and other expenses in relation to the growth of our business.

Number two, increased expenses in relation to directly operated stores, including payroll, rental expenses, D&A expenses, as well as marketing expenditures for new store opening, all of which are essential investments for our new store openings and ongoing success of our directly operated business. Let me give you an example. By March quarter, we had 281 such stores in the overseas market, up 131 stores, or 87%, and in mainland China, we had 46 such stores for our two brands, up 21 stores, or 84%. As we rapidly expand our overseas directly operated markets, there may be a temporary surge in related expenses, and we might observe fluctuations in these expenses across different quarters in a year, as we have been talking about this for two quarters in our earnings conference call.

However, we are confident that the high gross margin, driven by the increased revenue contribution from our directly operated markets, will more than offset the operating expenses and product tech margins. In this March quarter, for example, revenue from our overseas directly operated markets soared by 98% and 84% on a comparable basis, which has outpaced the growth in expenses. The shift in expansion of our overseas directly operated markets may also have a consequential impact on the distribution of our operating profits. Let's look at the distribution of CY 2023. So, over 60% of our operating profits during that year from overseas markets were realized in the second half, in contrast to over 50% of operations in Mainland China. So, consequently, 55% of our total OP profit for that year was realized in the second half.

This trend is expected to continue in CY 2024, with profits being even more skewed towards the second half of the year. Turning to profitability, operating profit was RMB 743 million, up 29% year-over-year. OP profit margin was 20%, up from 19.5% in the same quarter last year. Adjusted net profit was RMB 617 million, up 28% year-over-year. Adjusted net margin was 16.6%, up from 16.4% in the same quarter last year. Adjusted EBITDA was RMB 965 million, increasing by 37% year-over-year. Adjusted EBITDA margin was 25.9%, compared to 23.9% in the same period of 2023. Adjusted basic and diluted earnings per ADS were both RMB 1.96, increasing by 29% year-over-year. Turning to cash position, as of the end of March quarter, we maintained a strong cash position of RMB 7.3 billion.

In April, we distributed cash dividends of about RMB 650 million, more than 50% of our adjusted net profits generated during the second half of CY 2023. We are committed to a dividend payout ratio of at least 50% and bringing sustainable and foreseeable returns to our shareholders. Turning to working capital, the channel inventory turnover remains efficient. By March quarter, 24% of MINISO brand inventory was located in overseas, compared to 18% a year ago. Inventory turnover days were 83 days on brand level, including 72 days for MINISO mainland China and 153 days for MINISO overseas directly operated markets. For the top 20 markets in overseas distributed markets, inventory turnover days were comparable to the level of our DTC market. Structurally, inventory over 180 days accounted for about 9% on group level, flat year-over-year.

Turning to capital allocation, net cash flow generated by operation was RMB 652 million, CapEx was about RMB 122 million, and free cash flow was RMB 530 million. We repurchased RMB 71 million worth of stock in the first quarter. If we included the dividend paid out in April, we have returned around RMB 720 million back to our shareholders year to date. Since our U.S. IPO, we have returned RMB 3.5 billion RMB to our shareholders, and we will continue to commit to a capital allocation strategy that balances growth and return. Our performance in March quarter once again demonstrates the strengths and resilience of our business model and reflects our ability to execute on our IPO and globalization strategy. I'm very confident that we will once again meet our full-year target and deliver on our fun and value to our consumers worldwide. Thank you, and this concludes our prepared remarks.

Operator, please, we are ready to take questions.

Operator (participant)

Thank you. Next, we are moving forward to the Q&A section. The first question is coming from Ms. Michelle Cheng from Goldman Sachs. Please go ahead.

Michelle Cheng (Managing Director)

叶总，Eason你们好。那这个再次恭喜公司还是有很好的业绩啊。那我这边有三个问题想要请教一下。那第一个问题是关于国内这一边，我们其实看到那个到三月或是这个 year to date 整体来讲这个同店的表现其实有一些进步了嘛。那能不能再分享一下说我们现在看到这个三四月到五月这些同店的这个表现在不同县级城市有没有一些不同？那我们刚刚也有提到说今年其实这个同店是一个目标嘛。那之前也还是有提到说这个门店优化是这个重心，那有没有一些比较多的目前做的这些优化的进展能不能可以跟我们分享一下？那这个对现在看到这个客流客单的这个趋势有什么帮助？那这个是关于第一个这个国内这边同店的一些趋势。然后第二个问题是想要请问海外这一块能不能再给我们更新一下说今年看起来这个美国整体店效啊开店表现很好嘛。那现在看到的这个单店的店效跟门店的这个 UE 模型的状况是怎么样？那今年其实也有提到说美国这边有更多不同的这个选址的机会嘛。那能不能再给我们更新一下说现在看起来美国开店的一些今年的发展？那第三个问题是想关于毛利这一块。刚刚看到 PPT 对不对，非常感谢有这个好像有一个这个 GP margin 的一个 waterfall 的一个 chart 嘛。那好像我看到这个国内这一边的这个 GP margin 是不是它看起来是有一些下降？那能不能也请 Eason 稍微解释一下这个 GP margin like-for-like 的一个趋势还有原因？那我简单翻译一下啊。So I have three questions here. Firstly regarding the domestic same-store sales trend, can management share the recent same-store sales performance by city tier and the store optimization is the key focus for this year. So is there any progress management can share with us and how this will impact the traffic and ticket size? And second question is regarding the US expansion. So can you share with us the latest store economics and the sales trend? And we talk about exploring the new locations this year. So can management share with us any strategic development of US business? And thirdly is on GP margin.

So in the slide, management shared the GP margin LFL trend, but it looks like the China business GP margin is down. So can we have more color on the factors? Thank you.

Jack Ye (Founder and CEO)

[Foreign language]

Eason Zhang (CFO and VP)

Thank you, Michelle, for your question on flagship strategy. So the basic idea is that we really want to open as many flagship stores as we can in the best commercial areas. So since CY 2023, we have opened a series of very good flagship stores such as Beijing Road store in Guangzhou, Huaihai Road store in Shanghai, and Hesheng Hui stores in Beijing. We have accumulated a lot of operational and store expansion experience during these store opening and store operations. But still, I think it's early days. We are still optimizing the UE and the models of flagship strategy. As I mentioned in prepared remarks, I hope we can share more in our earnings conference call in the near future.

Jack Ye (Founder and CEO)

[Foreign language]

Eason Zhang (CFO and VP)

So for a question about the U.S., about its UE and the store expansion plan. So we have seen the uptrends continuous in this year and in the second quarter. Actually, since the fourth quarter of CY 2021, under the very excellent operation of our local team there, the U.S. business has been kept at very high growth speed for a lot of quarters. According to our data, we have achieved like 130 CAGR for our sales in the U.S. between CY 2021 and CY 2023. In this March quarter, the same-store sales of the United States still maintain a very high growth of 30%-40%, and that is one of our resources of our confidence about the United States market. Now, at this moment, we have around 150, 150, 150 stores in the United States, and our annual target for store net opening is 8-100 stores.

According to our experience and our internal data during the past two years in the United States, the December quarter, the peak season, will account for more than 50% in terms of revenue and net profit, and with a very obvious seasonality. With the U.S. revenue share getting bigger and bigger this year, it will definitely help us to achieve our annual target. For your question about the SSG recovery rate in different tier cities in China, I'd say in this year we have seen tier one and tier two cities outperform lower tier cities, at least for MINISO. We are 98% recovered in the first quarter. In tier one and tier two, I'd say it's near to 98%. In tier three and below cities, it's like mid-single digits lower compared to last year.

For GP margin, please go back to the workflow chart.

Yes. For GP margin, if you look at this chart, you will see that the MINISO Mainland China has a negative contribution of 1.7%. But this chart is calculated based on weighted average. So because our MINISO Mainland China's gross margin is lower than the group level average, so it is a negative drag of the overall GP margin. So this is the case for last Q1, for Q1 in last year and this year. And in this year, we have seen the GP margin in Mainland China improve on a year-to-year basis. So with its revenue contribution decreased on a year-to-year basis, the drag was lower compared with one year ago. Thank you, Michelle, for your question.

Michelle Cheng (Managing Director)

[Foriegn language]

Thank you. The second question is coming from Bank of America Merrill Lynch. Ms. Lucy Yu, please go ahead.

Lucy Yu (Investment Banking Analyst)

[Forign language]. So for the overseas market, same-store sales has been expanding at 21% in the quarter. What are the major key drivers behind that, and how should we think about the future same-store sales for the overseas market? Secondly is on overseas direct-to-consumer OP margin. What's the like-for-like expansion in the first quarter, and what is the optimal level for OP margin in the longer run? And thirdly is on the flash store of Chiikawa in early this year. So it has contributed a lot to our store sales, as well as helping us to test the popularity of some IP in China. So can we comment that? Are we going to do more about these kind of flash stores? Thank you.

Jack Ye (Founder and CEO)

[Foreign language]

Eason Zhang (CFO and VP)

Okay. Lucy, thank you for your question on Chiikawa and the pop-up store strategy. So MINISO's position is global IP collection store. Any single IP will not contribute a significant revenue contribution. So as investors need to diversify their portfolio, we do the same thing when choosing IP. We want to introduce more and more new IP and world-class IP and fully diversify our IP portfolio. And the second point that is MINISO is very—our style is very cautious, and we are determined to deliver results. CY 2024 marks the first year of our five-year development plan, and we have high confidence to achieve this growth target. And for the pop-up strategy, yes, there will be some small-scale testing in big cities, in cities where a lot of—have a lot of young people, young customers, such as Wuhan, Chengdu, Shenyang, Changsha.

In North China, we'll focus on these regional centers such as Xi'an. We have about a dozen pop-up stores on our pipeline at this stage. For a question about the same-store sales growth of overseas markets, I would say the most significant same-store sales growth comes from our directly operated market, especially in markets like the United States and in the Europe market, our important distributor market. Let's take the U.S. market and the U.K. market as two examples. We have seen the drive comes from both traffic and average sales price or average order value during the past several quarters. Behind this, we think there are two reasons. The first is we are improving our brand awareness in both of these two markets, and a lot of new people come to us.

A lot of new young customers, a lot of families come to visit the MINISO store and become our members. So we have a lot of improvement on this side. And second is the product optimization. As Mr. Ye just mentioned, about 40% of our overseas shipment is IP products now, increased by more than 100% during the March quarter. With this improvement, with this increase, we have high confidence to attract more customers come to us and buy more things. And yes, we have seen same-store sales growth increase for a couple of quarters. And I would say in this June quarter, we still see the trend maintain. But you are right. At the end of the day, it will get normalized.

I think for this year, for the remaining quarters, the major driver will still come from store network expansion and same-store sales growth, but the former will contribute more to our overall sales growth. For the overseas DTC market margin profile, if you compare the operating margin on group level, last year OP margin was 20%. This is 19.5%. This year is 20%. We have a very small improvement on this side. If you look at China, China is a very mature business. You can assume that China's margin is stabilized. If you look at overseas, it's improved. It's improved both in directly operated markets and in our distributed market. Thank you.

Operator (participant)

Thank you. The first question, it's coming from JPMorgan, Mr. Kevin Yin. Please go ahead.

Kevin Yin (Executive Director)

[Foreign language]? Very quick translation. For the US, help us to walk through the key assumptions for the GP/OP net profit and the potential margin expansion, the driver for the potential margin expansion. China, why IP percentage of 25% no change, ASP flattish, but GP margin was up. And thirdly, license fee, why it was declining in the first quarter. Thank you.

Eason Zhang (CFO and VP)

Thank you, Kevin, for your question. We do not disclose too much detail on our UE at this moment because it's still at a very early stage, but I assume your assumptions are fair enough to a certain extent. As I answered Lucy's question, the driver of 30%-40% same-store sales growth comes from both traffic and AOV, traffic and AOV. Now, the US has begun to build its CRM system from this year on. So hopefully we can share with you more in the future. And about the synergy of the different US stores, you are right. At this moment, we have 150 stores. I would say the biggest three states are California, Texas, and Florida, and next by New England area and so on. But apparently, our stores are quite separated.

So we have improved, we have a lot of improvement, a lot of room to improve on this cost saving in terms of logistic expenses or distribution expenses. For example, the related expense in the United States accounts for low single digit or even mid-single digit of its sales, but compared to a more mature business of China, it's only less than 1% in China. So we have a lot of improvement. And the GP margin of China increased because of the product optimization, as we say, like blind box increased by 100%, travel-related products increased by 200%, as we mentioned. These products have higher GP margin. So this is a product mix optimization. And the IP license fee is all about a cutoff. It's a cutoff. So this is one quarter, right?

If you look at a full year or even a longer term, the IP license fee should be a relative variable cost. Thank you.

Kevin Yin (Executive Director)

[Foreign language].

Jack Ye (Founder and CEO)

[Foreign language]

Operator (participant)

Go ahead. The fourth question is coming from UBS, Mr. Sam Wang. Please go ahead.

Sam Wang (Executive Director)

[Foriegn language]. My question regarding TOP TOY. so when Mr. Ye on TOP TOY's business, he mentioned that there's a change of timing, changing for TOP TOY's business, it turned around. And also he raised up the store opening target this year. So my question is regarding what makes the management believe that there's a turning point for this business, and also what are the drivers for the same-store sales growth in Q1 and going forward? Thank you.

Eason Zhang (CFO and VP)

Thank you for your question, Sam. Yes, we have seen several changes. First of all is the change, or we have seen a more rational competitive landscape in TOP TOY market. 3 years ago, 4 years ago, 3.5 years ago, when we TOP TOY, it was a highly competitive market. A lot of new players, newcomers come in this sector. But after 3 years, a lot of small players have quit competition and left a lot of white space, not only the prime locations, but also the better value chain, supply chain, and so on. The second is on the supply chain TOP TOY, with 160 stores, has been a leader of its sector. So it has higher bargaining power with its suppliers, I mean, with the toy brands, with ODM manufacturers, or even with landlords. So these are the two sides we have seen.

It's getting better. TOP TOY, we have mentioned it has been making money for two consecutive quarters. So last December quarter, I would say it was just break-even, has a little profit. But since this quarter, we seen TOP TOY has been making a decent profit margin because of, as we mentioned, 8 percentage points improvement in GP margin and a comparable decrease in its OpEx ratio. So that means a meaningful or leading to meaningful improvement in its OP margin. We are also happy to see that its profit mix, its profit structure are getting more and more healthy, not only in its proprietary exclusive products, but also in third-party products. For example, Blind Box is a major category within TOP TOY.

So, Blind Box from third-party suppliers, its GP margin also has been improving during the past several quarters because it's higher bargaining power, because it's larger scale, and so on. So thank you.

Operator (participant)

Thank you all again for joining us today. Now we shall conclude our call. See you in next quarter. Goodbye.