MINISO Group Holding Limited ($MNSO)

Hello, everyone, and thank you for standing by. Welcome to MINISO March Quarter 2026 Earnings Results Presentation. [Operator Instructions] Please also be reminded the event will be recorded. We provide you English simultaneous translation for this call. Please select your preferred language by clicking interpretation in the Zoom meeting. We released our Q1 2026 results earlier this year. [ Now please ] help to refer to our IR website. Joining us here today are Mr. Jack Ye, our Founder and CEO; and Mr. Eason Zhang. Right before we begin, please refer to the safe harbor statement in our earnings press release, which also apply for this call as we were making forward-looking statements. Please also note that we were discussing non-IFRS financial measures. These measures are explained reconciled to the most comparable measures reported under IFRS and also in our filings with SEC and Hong Kong Stock Exchange. Unless otherwise stated, all figures are in RMB. We have already prepared a slide deck for financial and operating highlights for today's call. If you are joining through Zoom, you will see the slide now. You can also refer to our IR website after the call. Now let me just turn the call to Mr. Jack Ye.

Hello, everyone, welcome to MINISO March Quarter 2026 Earnings Call. In March quarter, the revenue reached close to RMB 5.7 billion, grew by 28.5%, exceeding the high end of our previous guidance. Adjusted net profit, excluding ForEx gain and loss comes at RMB 630 million grew by 8%. Operating cash flow grew by 40%. Free cash flow was up by 36%. I'm now going to read through the financial items one by one, Eason will take you through the detailed notes and outlook in CFO remarks. I'd like to focus on 3 areas: First of all, execution of our strategy, I may spend more time here because the details of execution can really tell you where a company is heading to. Secondly, an update on two overseas markets that a few are most concerned, Indonesia and the U.S. And thirdly, my view on H2 of this year. Let me just start with strategic execution last year. I introduced a store upgrade strategy. We are right on that. MINISO brand store number grew by 380 in China, less than 10% growth, but offline store GMV grew by 25%. The two data tell the story best. First of all, the share of the profit franchisee this quarter reached the highest level in recent quarters. Franchisees are putting their own money on the line, so their [ P&R ] is most honest signal that it can get. The fact that the profitability hit a new height tells you that large format store is not asking franchisees to take the risks but helping them to make money. Secondly, we received thousands of new store applications. Half of that requesting for large format or flagship stores. In the past, we have to convince franchisees to open larger stores. Today, they are competing for these trends. Such shift is a market's most direct vote for the confidence in our large store format. On April 18, MINISO SPACE and MINISO LAND opened simultaneously at [indiscernible]. Beauty [indiscernible] has been transitionally taken for luxury and beauty brands with highest foot traffic density and spending power among the top-tier retail store. The fact that we can [indiscernible] speak for the brand equity most importantly, we bring something that people won't be able to take, an immersive IP-driven experience, a pop culture to duty free malls and translate into incremental foot traffic and time for venue. The real barrier for running large store isn't capital, it is content density. In 1,000 square meter space, can you really make the customer want to stay without leaving. This comes to 3 things we accumulated for 1 decade. [indiscernible] over 150 global IPs, a network of 2,000 global suppliers and the supply chain that fast enough to refresh assortment every week. These are the 3 that can really make us stand out where at the same time, with thematically closing underperforming stores, those opened for many years with under 200 square meters, but at the same time, we upgrade our [ friendship theme ] base, removing vehicle partners to bring new strong ones. This is what our store and the China operating strategy is really about. Many people want to know how we have our IP strategy done. This is quite important. In Q1 of this year, we launched an IP operation training program around our Guangzhou headquarter, bringing together regional managers, store representatives from South China and functional team. This isn't the classroom start trending. We use our MINISO LAND store as a [ live ] trending ground breaking down operation in [ rail ] store environment. The program covers our IP understanding, store retailing, operational execution and data capacity working through everything from underlying logic to hands-on experience. Why it is so important? Because IP operation is an organizational capacity, it is not a set of the SOP. No matter how well a menu is written, if franchisees and you're staff just to follow it mechanically, the result won't be good. Only when people genuinely understand why IP resonates [ consumer ] the most that can help our [indiscernible] the strategy. These contain IP operations from a headquarter story into a muscle memory across the entire network. On April 8, we concluded our overseas street fair. The start of this event was usual, a proprietary IP that we built from scratch in-house. The fact that proprietary IP took center stage is a signal, our own IPs are now capable of standing on their own commercially and the strong order volume from the distributor and overseas customers is the most honest vote of the confidence to our IP and our product that's more telling than any market results. [indiscernible] surpassed RMB 100 million in sales with 6 months of launch. In April, it appeared on [indiscernible] the Silk Road [indiscernible] of the fashion, a stage that has been traditionally for luxury brands and international salabilities. Chinese original pop toy IP appeared as accessory along with international stores and was featured as a [indiscernible] at an event. This is not marketing. [indiscernible] earned its place in the global fashion spotlight on its own rates. From CCTV Spring Web Gala to Paris Fashion Week, to Met Gala in New York, [indiscernible] covered the ground in 6 months that many IP won't be able to make in 10 years. It's a full stack of the IP capacity from incubation to design to operation and global [ reward ]. [indiscernible] success is not a coincidence. It's a signal that proprietary IP strategy is going that into the harvest stage. In Q1 of this year, total overall revenue of MINISO Group exceeded RMB 2 billion, and we also have a great way to extend our business. The success is whether our organizational capacity can keep the pace. Building organizational capacity is what we made in the last investment [indiscernible]. It won't immediately show up in financials but [indiscernible] our long-term development, we have advanced a few things. First of all, standardization, the headquarter has developed operation and merchandising menus, delivering a video case study and on-site trending to ensure consistent understanding and execution across markets. Each market also set up regional management training with regular session for store managers and supervisors. Secondly, we build benchmark and rapid replication. When key [indiscernible] pilot projects is selected. Once they prove success, we rule out them quickly to other markets. Thirdly, a mentorship model, powering experienced operator who deliver results with new comments and continue to have the generation passed on the information. This system means our overseas capacity no longer depends on a single individual. It becomes something that organization can grow on its own. The more marketed in the store we have, the greater the compounding effect might be deep organizational capacity along with IP-driven products, those two things give us strong confidence for our long-term overseas growth. Indonesia and the U.S. are the two markets, many of you are focused on. Let me give you an update on both. Indonesia has been one of the markets we're most proud of in our international journey. It has to remain so going forward. When Indonesia isn't about market, it's young demographic and vibrant consumer environment is a market we're going to have a long investment. It also made a demonstration effect for confidence of our global team. We must make it right. However, the business reached a certain scale hitting some bumps is entirely normal. The most difficult time is already done. We have already have a clear path forward. On channel, headquarter has set up dedicated negotiation team to proactively pursue primary location and select relocated stores. On assortment, we have the one-site feasible approach, school segmented. The product operation headquarter is providing direct support to strengthen local IP execution and the [ tater ] merchandising plan on the organizational side, we clearly define responsibility, [indiscernible] strategic development with a local team focusing on daily operation. And in terms of the membership, we noticed that we need to truly make the business from a traffic driven to repeat purchase driven. I'd like to spend a few words on membership piece. We noticed Indonesia consumers show a clear spike install visit at the end of each month, which [indiscernible] the local payday circle, we made a payday wave membership benefits program. The result was clear, membership participants was 80.5 percentage higher than during the normal member days. The repeat purchase rate and frequency all improved. When we ran the Ramadan, we saw participation in criteria, which tell us this has become a real habit for the consumer. Well, for the full year, Indonesia delivered a solid profit contribution. I believe with our adjustment to the effect, profitability in this year would be much better than last year. More importantly, the membership and repeat purchase become the primary engine for growth, and the growth would be even higher. I'm truly confident on Indonesia. Let's also talk about North America, which is another heat. I have already walked you through the store model and the strategic updates, where today, I'd like to address two2 questions, including tariffs and consumer behavior on the inflammatory pressure. I believe those are opportunities for MINISO. First of all, our [indiscernible] give us the structure advantages. Our core price range in U.S. was around USD 5 to USD 25 in that range. What drives purchase emotional connection is IP, I love this so I buy it, while at the same time, USD 5 to USD 25 is quite alluring, but at the same time, a consumer looking for merchandise of specific IP won't work away because of the small price increase. And the tariff and inflation translate directly into price elasticity. However, for us, we don't apply that the same way. Secondly, MINISO supply chain capacity has been further upgraded from building a localized and specialized merchandising team while improving the entire supply chain, including product, strategy and supplier development with strong cross functional and supply chain collaboration, we have launched our first [ cell ] program, which can help to improve our supply capacity. Certainly, our goal can really support the U.S. business development. We operate in 120 countries and regions worldwide. Any successful store model from one market, proven IP playbook could be quickly adopted worldwide but at the same time, the stable cash flow and scale economy can also give us the confidence and the resources to invest in the U.S. The global complementary framework is not there for our competitors. Thirdly, tariff and inflation are [indiscernible] and short-term variable, they come and they go, where consumer demand over emotional IP experience is structural. It doesn't appear with micro volatility for strong companies [indiscernible] pressure is also the growth opportunity. These [indiscernible] is going to accelerate industrial shakeout and let truly differentiated brands to stand out in U.S., we are that differentiated brand. Let me just attend to TOP TOY now. In first quarter of 2026, TOP TOY revenue grew by 51%. Net store grew by 21%, reaching RMB 355 million, RMB 360 million in China and RMB 39 million in overseas. In Q1 of this year, we launched a new proprietary IP [indiscernible] along with proprietary IP [indiscernible] TOP TOY portfolio of proprietary IP stand out. The portfolio product become more mature. Our proprietary IP is being validated by the market. By the end of this month, we announced [indiscernible] as TOP TOY's global brand ambassador for influence and recognition among young consumers will help us to accelerate and reach more young consumer. Coming next, let me just walk you through my H2 outlook. There are 4 drivers First of all, membership is the most important lever for our same-store sales growth. The dollar tells a clear story. For full year 2026, member contributed 60% of the total sales. In Q1 of 2026, this number rose to 73%. In other words, nearly 3/4 of MINISO China business are coming from our members. There are two structural [ trips ] behind that. And I see that consumer accounted for 79% of the total sales for us. Two highlights. First of all, contribution from repeated purchase continued to grow. In Q1 of this year, repurchase has already accounted for 60% of the member sales. New member acquisition is also accelerating. In the first -- first purchase contribution from the new members rose from 6% to 11% in Q1 which tell us when we convert new consumers into members, the quality of those new members are also improving. With more than 70% of our business revenue are coming from the consumers, you can directly reach and engage the growth shifted from being opportunity-driven to system driven, that's the underlying logic behind our confidence why we are there for repeat purchase and [indiscernible] expansion in H2. Secondly, benefit our channel upgrade only started to come through. For the full year, we plan to open a closed 500 large store -- open close to 500 large format stores with MINISO LAND and flagship store making up increasing share. Thirdly, North America and Europe is set to enter into harvest space in H2. The new store we opened in U.S. and Canada was of high quality. The cohort will reach maturity and deliver high-quality same-store sales growth and margin improvement. Fourthly, 2026 is a year with highest density of IP. As we move into summer peak season, we have a very strong pipeline of major IP production launched [indiscernible]. Finally, well, we did see some return this quarter from our earlier investment in the AI space. I firmly believe that bigger price lies in the efficiency gain AI can bring to our core business. Strong management capacity got amplified by AI. And the technology dividend from AI will flow first to organizations that already have high execution discipline and a very strong lending capacity, and I surely believe we're going to continue to leverage AI to really support organizations who already have a very strong lending capacity. So for me and for my team, we are improving our understanding over AI and also continue to divide AI. What is MINISO? MINISO is a high-density operating organization launched thousands of new SKUs every year, manage over 80,000 stores and spends more than 100 markets in the regions. For an organization like us, the drive for efficiency is our DNA. On the product development side, AI supporting the trend forecasting and assortment decision, marketing, AI can improve our efficiency in content production and the customer stratification. On the operations side, our smart floor system are helping us managing foot traffic by time and the day. We approach change with a sense of humility. We see AI as an amplifier, amplifying the supply chain advantage, product development speed and operational precession that MINISO already has. Recently, we also would like to leverage AI to forecast the product need. In that way, we will be able to improve the customer loyalty. Those are the two prepared remarks I have for you. Now I'm going to welcome Eason to walk you through the financials.

Thank you. Thanks for Jack. Welcome, everyone, to today's call. Please allow me to walk you through our financial results of this quarter. Unless otherwise noted, all figures are in RMB. First of all, let's take a look at the completion of guidance. Let me just start by reviewing how we perform against the guidance we provided on the March earnings call. We delivered on every metric we guided for this quarter. First of all, revenue. Group revenue was grown by 28.5%, which is higher than 25% we made for the previous call. I will break down the growth driver by business unit later in my remarks. Next, on same-store sales. In Q1, MINISO China Mainland delivered high single-digit same-store sales growth, where North America delivered mid double-digit same-store growth. The two strategic priority market maintained a very strong momentum we saw in Q4 of 2025, driving group same-store growth to a mid- single-digit number. It is worth mentioning Europe and Latin America also delivered positive same-store sales growth in Q1. The trend would be continued in Q2. Let's also take a look at the top line. In Q1 of 2026, group GMV reached RMB 10.1 billion, grew by 26%. Total revenue grew by 28.5%, reaching RMB 5.7 billion. Let's break down by brand. MINISO brand revenue was RMB 5.17 billion in Q1, up by 26.6%. MINISO China Mainland was RMB 3.23 billion, up by 29.6%. MINISO China managed to continue to perform exceptionally well. This was the fist year-over-year growth rate in the past 9 quarters and the previous consecutive quarter of accelerated growth followed in Q4 of 2025. The success of our China business validates our strategic directions right, our operating playbook is solid. We will use China experience as our benchmark, use those proven operating experience to drive breakthroughs in international business tending China's success into our powerful engine for overseas growth. MINISO overseas revenue was RMB 1.94 billion, grew by 22%. TOP TOY revenue was RMB 510 million, grew by 51.4%, continued a very strong growth trajectory. Let's take a look at same-store sales. In Q1 of this year, Mainland China delivered strong same-store sales growth with high single-digit growth number. MINISO overseas, including the third-party distributor also delivered solid low single-digit growth. Looking ahead, we will continue to strengthen our same-store across 3 dimensions: people, product and stores. First of all, people will leverage in-store traffic data to capture peak hours, regularly run in-store engagement activities, capitalizing on gift occasions like Mother's Day, 5/20 and Children's Day and the [ Dragon Festival ] to drive traffic through online to off-line activation. On the other side, we use internal mechanisms such as inter-store competitions for the best-in-class mentoring to continue to improve our operation capacity but at the same time, as Jack Ye has already mentioned, the value of our domestic membership system continued to be unlocked in Q1 of 2026. Members contribution to the sales rose from 60% to 73% this quarter. Empowered by our large store and IP strategy, we continue to acquire new customers and use [ refi ] operations to close the loop from acquisition to retention and repeat purchase [indiscernible]. In the near future, we will leverage AI capacity plus membership data to make sure we continue to have the demand forecast, precision targeting and channel iteration continue to rise the same-store growth number. Second, let me talk about the product. We continue to align tightly with seasonal and holiday consumption trend. Use [ hero ] SKUs to drive a structural upgrade in the personal sales mix. In H1 of this year, our IP collaboration has broke through across diversified categories, covering high-value IP for [indiscernible] block and classic lifestyle aesthetic [indiscernible], this fully validates the connectivities of our global IP platform. In H2 of this year, we're going to have launch the World Cup collections, Chihuahua plus [indiscernible] collaborations and the Toy Story movie. The hero IP will help to drive the high attachment rate. [indiscernible] we continue to upgrade the store discipline and visual identity in Q1 of this year, we completed renovation to around 80 stores. The average daily sales improved by more than 50% post renovation. The result validates effectiveness of the model strategy. We will continue to make it right. Let me also talk about our store network. At the end of this quarter, we have already more than 8,500 stores. MINISO, we have 8,210 stores worldwide, a net increase of 722 stores. MINISO China store number grew by 380 where overseas, we [ added ] 404 stores, reaching 3,670 stores by the quarter end. POP TOY have [ 875 ] stores with 355 stores by the quarter end, 39 are located outside China. In Q1 of this year, we opened a high-quality [indiscernible], for example, MINISO LAND and MINISO SPACE in [indiscernible] MINISO LAND in [indiscernible] in Guangzhou, MINISO LAND in [indiscernible] and Shenzhen as well as MINISO friends in [indiscernible] in Shanghai. By the end of this quarter, the [ Space land, the friendship store ] reached 44 in total. In this quarter, we're going to have the Super MINISO, a new [indiscernible] park lined up. [indiscernible] the total to [ 61% ] by the quarter end, covering 32 cities across China, Together, same-park schools flagship ones and the large store ones accounted for 12% of the total store count contributed 30% of the sales. We expect to roll out more better same park stores by the end of this year and the delivery are joyful and unique shopping experience to our users. Let's talk about the GP margin. GP margin was 43.3% for Q1 compared with 44.2% in the same year last year. We have a 0.9 percentage point decline due to 3 reasons. First of all, high-margin overseas business represent a small share of the total group revenue. Secondly, the return of the value for money assortment in China, disciplined pricing has translated into higher volume. And thirdly, an increasing mix from our new domestic product like the quick commerce stores, which are still in a margin ramp-up stage. Let's also take a look at expenses. The total operating expense, excluding SBC, grew by 34% in Q1. The total expense ratio was 29.2% compared with 28% in Q1 last year. Within that, Selling expense grew by 37.7%. The selling expense ratio was 24.5%, up by 1.6 percentage points. G&A expenses grew by 70.4% slower than the revenue growth, representing 4.7% of the revenue, a decline of 0.4 percentage points. The growth of the selling expense was primarily driven by investment in operating store, licensing fees and advertising and promotion activities. First of all, in Q1, the revenue from direct operated stores grew by 50% Y-o-Y, while related expense grew by 35% demonstrating an ongoing optimization in our DTC store level economics, direct stock-related investments include staffing, rent-related expenses, depreciation and amortization. Secondly, advertising and promotional expenses grew by 74%, accounted for 3% of the revenue. That was mainly because of the rand upgrade initiative and proprietary IP marketing. We invest in brand awareness to reach a broader consumer base, reflecting our strategic investment in building brand equity. Thirdly, logistics expense grew by 43.5%, stably representing between 1.5% to 2% of the revenue, and [indiscernible] licensing fee grew by 42% in this quarter, in line with our strategic investment in IP development, stably representing 2.4% to 2.6% of the revenue. The growth of the G&A expense was primarily due to higher staffing costs aligned with our business expansion, G&A grew slower than revenue. Let's also take a look at other [indiscernible]. As been talked with many of you for the previous quarter call, in Q1, we recorded a large investment gain with other net income related to our direct investment in an AI company following the company's recent IPO and meaningful share price appreciation, we recorded RMB 870 million in fair value gains. I'd like to remind all of you the management doesn't view this type of gain as reflective of our profit and the core operating business. So it's been excluded from our adjusted operating profit and adjusted net profit. In addition, the line item also includes net foreign exchange gains and losses with ForEx volatilities in Q1, we recorded a net ForEx loss of more than RMB 8 million in this quarter -- RMB 80 million in this quarter and -- which is going to impact our margin by 1.5%. Generally speaking, our ForEx exposure may come in from the holding foreign currency-dominated assets. For example, cash, cash equivalents or receivables, or covering foreign currency-dominated liabilities such as our USD-dominated convertible bonds. In Q1, the ForEx losses mainly come from the intercompany receivables from our subsidiaries in the U.S., Canada, Europe and Indonesia. The ForEx gains and losses don't reflect the true operational performance of our core business as the share of our DTC business continue to grow, the impact of the ForEx were also [indiscernible]. So the guidance we're going to provide you will exclude the ForEx impact while for non-IFRS, there will be some items need to be adjusted. I listed here for you, including 6. The first one is equity settled show based compensation, SBC. SBC expense in Q1 was RMB 110 million, an increase of RMB 84 million because of the TOP TOY and the second one is again from the indirect investment in our AI company. This is actually a non-IFRS with an investment of RMB 870 million represent unrealized and mark-to-market gains arising from the change in the fair value. And the third one is losses from the [ well ] value change in derivatives and the issuance of the costs related to convertible bonds. By the beginning of last year, there will be a onetime insurance fees. It won't occur this quarter. And in Q1, the interest expense on convertible notes was RMB 50.4 million, of which RMB 45.7 million are noncash. The actual cash interest paid by the company for these convertible notes was only RMB 4.7 million. Interest expense on the loan used to acquire our stake in YH was RMB 23 million. In Q1 for YH, the performance was truly good. The net profit was RMB 290 million as we hold a 29.4% of the equity stake in YH. Then we recognize approximately RMB 77 million in income from YH in Q1. And we also have the change in covering value of the redemption liabilities arising from the preferred shares. All those items would be excluded from adjusted net profit. Effective tax rate was 24.9%, which was 20% last year. Let's take a look at the profitability. I was talking about adjusted operating profit. Adjusted operating profit, excluding the net ForEx loss grew 40.3%, reaching RMB 840 million in this quarter. The adjusted operating margin, excluding the net ForEx loss was 40.7% compared with 60.6% in the same period of last year. Let me just walk you through the debt. First of all, gross margin declined by 0.9% Y-o-Y. The total operating expense, excluding SBC, grew by 1.2 percentage Y-o-Y. The above, partially offset by other items, resulting in a total impact of 1.8 percentage points on the -- but adjusted operating margin has been declined from 16.6% to 40.7%. As you can see that for this quarter, the increase in our overall expense ratio was decreased significantly compared with the previous quarters, while for the full year, we aim to [ well ] control the expense ratio and continue to stabilize the GP margin. In other words, we are going to stabilize the operating profit margin of the company as a whole. So in H2 of this year, as a peak season of the overseas market continued approach, we're going to honor our commitment for the school. Regarding working capital, by the end of Q1 of 2026, the inventory turnover was 101 compared with 102 days in the same period of last year. MINISO China managed inventory turnover was 67 compared with 83 last year. MINISO overseas inventory was 254. That was 208 last year. The increase of the overseas inventory was primarily driven to the inventory buildup ahead of the store opening. The second one is due to the logistics on stabilities. In some strategic markets, we have a more flexible supply chain management strategies, increase the safety stock in overseas market. Over the time, there will be significant room to optimize overseas inventory turnover. Let's also take a look at the cash flow, liquidity and capital allocation. By the end of this quarter, our cash position stood at RMB 7.05 billion remaining healthy in upper end of May of this year. We distributed dividends over USD 160 million, running our accumulated shareholder return to RMB 6.23 billion. We believe our share price is currently significantly below its intrinsic value. Jack has already announced by the end of April, we intend to increase its shareholding. The company also plans to conduct share buybacks based upon the market conditions. Going forward, we will continue to maintain disciplined cost control and prudent rate management. We are balancing the growth with a delivery stable and predictable returns to the shareholders. Last but least, let me just give you the outlook. Standing here by the end of May, we are highly confident in achieving the full year target. We expect for the full year of 2026, the revenue, we're going to have a high double-digit growth. 3-year compound growth rate would be no less than 22%. Full year net store addition would be 450 to 500. Jack has already mentioned, we are going to pay more attention to the quality of the development, 450 to 500 net store increase would be adjusted as we continue to balance the quality of the store. However, [ overly ] speaking, and we are still very confident in hitting our targets. Regarding the same-store performance. MINISO China and North America, we hope we can continue a positive same-store sales growth. Excluding ForEx gains and losses, we expect adjusted net profit growth to accelerate compared with 2025 on a full year basis, while the overseas microenvironment present significant challenges. Our expectation for the first half operating results remain unchanged. And we believe the revenue will grow by 20% to 22%. Net store addition would be 210 to 230. The MINISO China same-store sales maintained a mid-single-digit positive growth North America same-store sales maintained a high single-digit to low double-digit growth. That concludes my prepared remarks. I'm happy to take your questions.

[Operator Instructions] Let's, first of all, welcome Michelle from Goldman Sachs to raise the first question.

Congratulations for the company of having a good performance despite the challenges. So my question was regarding overseas market. They're being [ touched ] upon by Jack Ye. However, you see the crude oil price have risen and stay elevated. Could the management team share with us what is the demand from the key overseas market? What would be the distributor order? Pricing, cost pass-through and the transportation and the logistics? What are the impacts on your business? And what would be your response strategies if in the next few quarters, there are some key upside and downside risks, which are the market and the factors that you are most associated ways. Is there any market who's going to have a huge fluctuation? And what are the market you are confident on?

Thank you very much A very good question. let me help to address this question. First of all, on product mix was systematically lifting out the share of the high-margin categories. Proprietary IP products and IP collaboration limited addition are a key focus. We also started to pursue [indiscernible] deeper strategy, concentrating on the true hero product and proactively on the [indiscernible] SKUs fewer categories, but a greater operating debt and efficiency in each. This is in itself the most direct way to hedge against cost pressure. On the supply chain, we have extended the raw material stocking circle from the key SKU from 2 months to 3 to 4 months, booking the cost ahead of the time. End-to-end stocking price is still stable, give us sufficient buffer. For U.S. market over the past two weeks, we started the differentiated price test taking price first on high frequency, high velocity items [indiscernible] and T-shirts. On the data now, we see a gross margin already improved compared with [ Apple ]. The price increase roll out further, and we believe the U.S. GP margin would continue to stay stable or even go up. Looking ahead into the next few quarters, the upside risks include successful execution of the pricing of adjustment, structural margin improvement, the rising mix of proprietary IP as well as the logistics cost pressure from the sustained high crude oil and potential pressure on the ticket size, if the consumer sentiment is certainly continue to go weaken. Overall speaking, we're still very proactive for cost management.

Thanks for Jack. Coming next, let me just welcome Samuel from UBS.

I have a question regarding your Indonesia and Mexico market. I heard a few remarks from Jack Ye regarding the Indonesia market outlook. But let me just ask you a follow-up question. What are the same-store sales and the overall sales trends in Indonesia and Mexico over the past 2 months in April and May? And what is your strategy for both markets, especially in Mexico? And how should you comment on the sales and profit growth outlook for both markets in 2026?

Thank you. I think I have already covered Indonesia market. Let me talk about Mexico. The macro [ sugar ] trend was positive. Same-store sales already came positive. North America are also delivering positive growth. From April to May, same-store sales improved meaningfully and strategically speaking, we're going to work on channel upgrade. Mexico used to be dominated by small stores on the 300 square meters. This year, we're going to roll out a [ larger ] store. Larger store not only means largest [indiscernible]. It represents a comprehensive upgrade on IP, density and [indiscernible] time to improve with the higher ticket size and repeated [indiscernible]. Our large store practice in China is truly validated. We're going to have it in Mexico now. Looking to the full year, Mexico, the same-store sales should maintain positive new store benefit of the channel upgrade would be visible in H2. Latin America has substantial consumption power and a fragmented competitive landscape. As long as we open [indiscernible] and execute IP operation well, the market is still quite promising because for Mexico, we're going to have larger stores starting from H2 of this year. We really look forward to its performance.

Thanks for Samuel, and thanks for Jack. Then let's hear from Anne from Jefferies.

I have a question regarding the Mainland China market. As you can see, that generally speaking, the social retail data is not looking right. However, as I was talking to the expert, we find out MINISO stores, your performance is much better than other peers. Is it possible for you to share with us if there any strategic updates that you can share with us? What are you going to do next? Just now, we have already mentioned some of our franchisees, they're happy to open the large stores. But can I just kindly ask you, are there any capital support we provided to our franchisees, any strategies you have on the China market? Would be happy to hear.

Let's talk about renovation progress. We renovated around 80 stores this quarter with clear result. Average daily sales increased by 50% post renovation, validating the effectiveness of our store upgrade strategy. For 2026, we plan to renovate more than 300 stores, and we need to do it in a phased pace and proactive intervention way. In other way, open big, close small, open good and close [ big ] and transferring those aging advertised stores into new store formats. We placed to emphasize on evaluating the visual identities standard [ discipline ], IP experience mix and to have an efficient renovation strategy. Let's also talk about franchisee profitability and paybacks from Q1 2025 to Q1 2026. The share of the profit franchisees store continue to go up. The GP margin continued to expand. On payback period, largest store are meaningfully higher than the store level profitability. For some of the best-performing [indiscernible] can even achieve a payback within 6 months compared with around 18 months for the standardized stores. In 2026, we continue to reinforce the franchisees, their understanding over the large stores. We received some positive feedback from many of our large store franchisees. Around 50% of the new store applications received by the headquarter of a larger store format. The feedback indicate franchisees are increasingly willing to invest in large store renovation. It also reinforced the importance of our strategic shift towards improving per store quality.

Coming next. Let's welcome Yang, Runbo from CICC, please.

I have a question regarding Mainland China business. As we can see in April and May, the micro consumption data in China is still fluctuating. I'd like to ask the management team in terms of the foot traffic and the willingness to spend, is there any change? What trends are you observing across different city tiers and consumer cohorts?

Same-store average daily order volume and average ticket sizes are both going up. The ticket size is approaching RMB 40. There is one driver that is becoming more important for our China growth, that is membership operation, its most important strategy we have, a high-quality, highly engaged membership system provide more predictable growth with strong resilience going through the industrial cycle, the data tell us very clearly members spend at a meaningful higher than the nonmembers. The higher the share of the member sales, the higher the quality and the [indiscernible] of the overall business might be for the past few months. Our member [indiscernible] increased from 60% to more than 70%, driven primarily by new consumer acquisition. In H1 of this year, we'd like to work on the member acquisition in H2, where we will focus on repeated purchase when the two are combining together, it can help to complete a membership growth flywheel. Taking a look at the city tiers, we observed some positive trend consumption potential being unlocked for OTS same-store cells are all positive for all city levels. Provincial capitals are driven by large stores as well as top-level IP, new tier cities are driven by potential penetration and customer acquisition, the growth was pretty healthy during the Chinese new year, we rolled out the trendy toys to the countryside strategy, bringing MINISO IP product and the same partner experience to country-level market and which can help us to have a same-store sales in country-level rate double-digit number. This tells us emotional demand for IP and the trendy toys cover much broader audience. Young people in content, they also have the same demand. They simply don't have the show and adequate supply before. These can also see MINISO brand has already covered different consumer cohorts. The depth of the China market is far greater than what has been generally appreciated by the market.

Coming next, let's welcome [indiscernible] from Citi, please. Okay. We may move to the next question first. Let's welcome Shi, Di from Huatai Securities first.

I'm Shi Di from Huatai Securities. I have a question regarding the same-store sales in China. We see in Q1 of this year, the company did a good performance on same-store sales. In the next few quarters, the baseline was being elevated so how you're going to comment on the same-store base rising and the subsequential quarter performance, what strategies and tactics are in place for sustained same-store growth?

You're right. The baseline is indeed rising, but we have a clear and systematic strategy in place. Let me just share with you a few [indiscernible] during the May labor festival. Domestic sales grew by a high double-digit number, outpacing major competitors. Average daily sales hit all-time holiday high even higher than daily average during the Chinese New Year holidays earlier this year. We see some third-party data show us. Foot traffic was under pressure during the May Labor holiday but our store, the entry level improved by 4.1 percentage. Average per store traffic also grow means we drove traffic against the headwinds. By categories, toys, digital accessories and travel categories delivered 25% growth, which is a hard earned result. For sustaining same-store growth, we have the following strategy. For IP collaboration, we continue to deliver differentiated and high frequency launches, for example, with [indiscernible] global exclusive license for F1 Disney collaboration and May through June, there will be a few gifting seasons with Mother's day, Children's Day, Father's Day and 5/20, I love You Day. And we have already built a dedicated assortment and event plan according to the gifting data to improve the average ticket size. For operating, we also roll out the foot traffic contest at the store and to further empower our store, the supply chain also continued to improve. Even during the [ May ] holiday, we can unload the sales window. So even if the baseline is going up, we have a diversified toolkit, and we are confident we continue to deliver strong same-store performance.

Thanks for Jack. Madam [ Xiao ] are you there from Citi? Can you unmute yourself for questions?

Yes. I have to say sorry, there might be some technical issue with my line. I have a question regarding your proprietary IP. For the past few -- 6 months, we see that your proprietary IP started to show up in your store medium and lower-tier cities, the designs have been quite interesting. So is it possible for you to share with us your proprietary IP, for example, [indiscernible].

A rather good question. Let me elaborate on that. Third-party licensed IP and proprietary IP seems so in the same product, but the logic would be different. Let's talk about the GP margin. Proprietary IP products have a high margin compared with licensed IP. But the underlying logic matter the most, proprietary IP is most exclusive and absolutely differentiated if you want to sustain the GP margin, you need to have a proprietary IP. The pricing power operating [indiscernible] and the entire value chain of the proprietary IP sit truly in our hands. It also provides long-term high-margin mode. However, you need to think about how to diversify the monetization model, a mature proprietary IP use and sell product. You can sublicense it to the third party, you operate across multiple formats and it can also drive content production and upgrading the IP capacity. Those are extreme high-margin business model that compound over time, [indiscernible] appearance on the Met Gala and entry into fashion week reflect [ build ] of the brand value rather than sell product only, while building our proprietary IP, we're building a business model on an entirely differentiated scale that is most important upgrade for MINISO long-term profit structure.

Thanks for Jack. Coming next, let's welcome [ Mr. Tim ] from Changjiang Securities.

I'm [indiscernible] from Changjiang Securities. I have a question regarding the Europe business. It seems that the business growth in Europe is quite fast, and we are still in the investment phase. And Europe is a big market for you to explore. So can I ask Jack here. Can you share your view on the long-term opportunities in Europe and the specific strategy plan? And for the mid- and the short run, what would be the pace of the store investment in Europe this year, the profit quality of the new stores? And what would be the change of the margin for the store?

Europe has delivered continued positive same-store sales growth this year with the leading category being trendy toys categories, for example, like the [indiscernible]. This is also the reason for us to go for international expansion. We're not branding in product others already selling, we'd rather branding the consumption scenario of IP trendy toys open new demand. Channel upgrades are progressing in parallel. The [indiscernible] store will roll out in H1 of this year. Regarding the profitability, Poland and Germany are strong proof points both directly operated stores have outperformed expectations and the store level and market level operating margin reached double digits. The Germany over raw operating margin brought more than 10 stores has already stabilized with double digit. Other markets are ramping up. Q1 is transitional the [indiscernible] for retail. It is also the best window to prepare for new store openings. And our long-term profitability target for Europe DTC is clear. Germany has already achieved that. Other markets will follow up. Europe is a market with a long-term cultivation. We have the patience and we have a clear pathway there.

Thanks for Jack Ye. Coming next, let's welcome [indiscernible] Haitong.

I have a question regarding U.S. It seems that you operate the largest [ format ] in U.S. for quite a while. Is it possible for you to work us through the operational details as well as the operational result. And you can see that what would be the purchase frequency of your U.S. members? Is it improved as you roll out larger stores?

Thank you, Ms. [ Wu ]. As I was emphasizing again and again, that is what we're doing now. For the past 2 to 3 years, MINISO continue to build up our non-U.S. consumer goods, the largest DTC network in the local area. So starting from January of 2024, we started to explore the last store. Before that, you see that we entered into U.S. market in 2017. By then, majority of our store allocated in U.S. trucking malls. But from January of 2024, we started to have our garden roof stores being opened, and we started to build our understanding over [indiscernible] by beginning of this year, Jack Ye went to U.S. to tour around our stores. We find out our buzz store has already moved into a 2.0 version time. What does 2.0 version means? And our 2.0 version store is not picky about the business district at all. You can say that for our good and large other stores, even in your average business district, its store sales and efficiency per square meter is still be looking right compared with 1.0s, the 2.0 version are actually showing better profitabilities. So we have already provided you a single store profit model in the U.S., generally speaking, for a single store, the payback takes around one year in the U.S. Well, for the 2.0 version store, the payback period has been controlled within one year. While for MINISO, we are committed for the long-term business and will stick to the long-term investment. So for the 2.0 version store and it provided above expectation same-store performance, and it is also sustained and continued wage improvement. In other words, in the near future, our U.S. 2.0 version store can be rolled out to more cities and more business districts, it's a proven success, which can help us to continue to unlock its potential in the U.S. market. The second question, you were talking about the sales data from our members. In China, we have a very mature and well-established CRM operation system. In that way, we will be able to extend our success China membership management to the U.S. For the past one year, the sales growth from our U.S. members has been quite significant. And the China started to do membership in 2018 and in 2021, the membership sales exceed half of our total business. And we made 5 years making the membership spending accounted for half of our revenue. Where in the U.S., we only spend one year to make that happen. And you can also see the repurchasement rate of the U.S. consumer is no less than that of the Chinese members. So that's the reason. And we believe we're going to have a very healthy store efficiency this year and we have every confidence for that.

Thanks for Jack Ye and thanks for Eason. Thanks for all the investors and analysts for your questions. Thanks for everyone to be a part of our earnings call. If you have any further questions, feel free to contact my team. Thanks for your attention to support for MINISO. See you next quarter.