Sun Art Retail Group Ltd

HKEX:6808

Earnings Call Transcript 2023-Q2

[Operator]

Welcome to the Sun Art Retail Group Limited financial results announcement for the 6 months ended 30th of September 2022. This is a webcast for analysts and investors. And this is the financial results announcement for 6 months ended 30th of September 2022, and the information has been uploaded onto the company's website. The speakers today are the CEO and Executive Director, Mr. Kevin Lin.

[Kevin Lin, executive]

Good morning, everyone.

[Operator]

The CFO, Ms. Desory Wan.

[Desory Wan, executive]

Good morning, everyone.

[Operator]

And Head of Investor Relations, Ms. Gu Xiaobei.

[Xiaobei Gu, executive]

Hello. Good morning, everyone.

[Operator]

First of all, the CFO, Ms. Desory Wan, will go through the operating environment for us and also the financial highlights as well as the expansion status.

[Desory Wan, executive]

Hello. Good morning, everyone. Let's look at the operating environment. Let's look at the growth of total retail sales of consumer goods, online physical products and catering revenue and commodity sales. We see the TTO retail sales growth and physical product sales growth and also the food-related growth as well as the top 100 China key retailer sales growth rate as in the first page, Page 5.

And for our expansion status, on Page 7, there had been a new opening of 1 hypermarket, new opening of 2 supermarkets and we opened 14 mini stores, and for the total number of stores, we have 597 with GFA square meters of 13.6 meters. And basically, our expansion status is better than the projected.

And let's look at the financial highlights, Page 9. For the 6 months ended 30th of September for 2022, revenue is RMB 40,611 million. It is a change of negative 2.2%. And gross profit is a negative 7.5% at RMB 10,112 million. Gross profit margin is a drop of 1.4% to 24.9%. EBIT margin is a drop of 0.1% to 1.2%, and net profit margin is 0.5% drop to 0.2%. And the profit attributable to equity shareholders is negative CNY 69 million, and it is a 159% drop from the period before. And earnings per share is negative CNY 0.01.

So next page, Page 10. Revenue for the FY 2022 for the period -- previous period, it is a -- for sales of goods and rental income, it is CNY 39,761 million and CNY 1,773 million, respectively, and the reporting period in CNY 39,084 million and CNY 1,527 million. And this has been because of the macro environment, including the jitters in the economy and also because of the COVID situation.

For gross profit and margin, the GP margin is 24.9%, and this is partly because of ad-hoc closure of shops because of lockdown situation. And also during lockdown situations and the rental income has also been affected, and there is an CNY 80 million impairment for rentals, which is a concession for our tenants. And the rentals income has already been recovered. And in the past 3 months, it had become a stable situation. And we have reason to believe that we will continue to recover, and we will be leading the industry in this regard.

And for operating profit, it stands at EBIT margin of 1.2% for the reporting period. And same-store sales had been an increase of 2.2%. And with the epidemic easing and also with the lockdown situation easing, we believe that there will be mid-single-digit growth for our same-store sales and also there will be a cover for our traffic that is there will be a recovering of traffic. And so for the first half of the year, that had been a 14.3% growth, and it is 35% of the -- and also for B2C, the same-store increase is 11.9%, and we are in a profitable position.

Now let us look at the gross profit. And apart from rental income decrease, gross profit increase had been basically because of sales. And compared to online, over 35% of the growth has been from this source and which is 4-point-something percent increase from the previous period.

Operating profit, Page 11. RMB 500 million is recorded for the reporting period. It is an increase of 1.2% compared to the previous period of 0.8% negative for the previous period. This is encouraging. So we are almost balanced in terms of our operating profit, and this is very much in line with our projections.

Now from expenses. For the first half of the year, expenses was RMB 10,414 million, and it is 25.6% in terms of total OpEx as a percentage of revenue. And basically, it is about optimization of cost of our shops and stores and also other expenses decreased. For lease charges, it is 1.1% operating lease rental as a percentage of revenue. And the reporting period operating lease charges for lease rental is the same as the previous period. For staff cost, it is slightly lower than the previous period, and staff cost is 12% and there had been -- of total revenue, and there has been a drop of 5% in terms of number of staff.

Next page, Page 13. Working capital days, it is 80 in terms of trade payable turnover days during the reporting period and 57 inventory turnover days. It is about 2 days and 1 day difference from the working capital days compared to previous period. Our net cash position is RMB 20,332 million, and the prepaid card is about RMB 730 million. And the net cash position of the company is strong and sufficient.

Page 14, let us look at the CapEx. For the reporting period, it is RMB 258 million basically to remodel our stores. And the ROE for the first half, it is negative 0.4%, and it is partly because of the impairment of certain stores. And discounting that, it is 0.1%, and we continue to -- despite the epidemic, we continue to meet up with challenges, and we are totally confident about the future, and this is based on our 500 stores assets accumulated over the years, our cash and also our online operation capabilities and profitability capabilities, and also we continue to implement our strategies.

And next, Kevin will talk about our strategy progress.

[Kevin Lin, executive]

Good morning, everyone. This is Kevin, for the first half of the year, which had already passed, and we are sharing our results with you. And this is how we see the results for the first half.

First of all, for revenue and profits, it is slightly lower than the previous period, but expectations, we are optimistic -- more optimistic than the previous period. And compared to our competitors, we are leading them. In the first half of the year, for our hypermarket, our share had been increasing, our market share. And also, for the challenging period, we continue to push forward with our 3 strategies, and we are now reporting to you on the 3 strategies and our implementation.

First of all, the first strategy is to focus on off-line needs of families with kids and the getting-old group and redefine the customer value of shopping experience, services and social and become an offline experience centers. And in particular, we are focused in 3 areas. First of all, the hypermarket remodeling version 2 was successfully duplicated in 4 stores, representing a much higher off-line revenue growth than that of comparable stores. And in particular, the modular remodeling will be duplicated quickly to other stores in this year. And we continue to have product homogenization of upgrading so as to drive the growth of ticket size. And as mentioned, for the 4 stores which are in the Eastern China region, they have met with success.

The hypermarket remodeling has been successfully duplicated in these 4 stores, and we continue to build our stores into a social environment where people, our customers and traffic come for the experience of shopping and also a social experience. So we will step up with our plans for the year, for this fiscal year, and we will continue to expand this modular remodeling to 96 stores in the fiscal -- this fiscal year.

And as mentioned, we adhered to the harmonization and upgrading of our products to drive the growth of ticket sales. And in particular, for fresh products, it is an increase of 12%. And fresh products is optimized after a series of improvements. And from last year, we have increased from the growth of our fresh products, and the average ticket size has also increased to -- by 14%. It had also brought on, for the first half, our comparable stores basically a balanced profitability. And for the galleries, because the tenants have been hard hit by the epidemic, in the period, we have put in all efforts to continue to optimize our tenant mix in the galleries. Well, basically, for some of the tenants, we have defined them as internal traffic engendering. So they are able to bring on their internal traffic. And with the pandemic situation, some of the tenants have actually exited. But we were able to maintain a low gallery vacancy rate compared to the market, even though the pandemic had hit the tenants. From 7.8 vacancy rate, it had dropped to 4-point-something vacancy rate right now.

And further, another focus of ours is to focus on the busy working person to enjoy the convenience of online shopping, leverage near-field advantages of store warehousing and become an online fulfillment center. So our [ Eleme ] and Taoxianda, et cetera, we continue to grow these areas. Taoxianda, Eleme had increased significantly in ticket size, and also that it has been a double -- high double-digit growth. For our 1-hour delivery business, it continues to grow at double digit with a sustainable profit model. The online order centralized processing capability further developed during the pandemic in the cities, including in Shanghai, which has implemented in stores nationwide to mitigate the negative impact and stores due to lockdown amid the pandemic. So in the second half of the year, our online business will be faster in growth than the first half, and it will bring on our implementation of our strategies.

Third focus of ours is to continue to develop the business models of RT-Super and RT-Mini for the multi-format development. So for -- we will continue to open new RT superstores cautiously, and they will be positioned as low-cost extension of RT-Mart. And we continue to develop the business model of RT-Mini focusing on community stores in the Nantong city. And we have already identified the locations for our RT superstores as we cautiously continue to open them. And for RT-Mini, we continue to increase the SKUs and the efficiency of stores operation for RT-Mini had continued to increase. So that is for multi-format development.

Next, I would like to talk to you about Page 17, developing our infrastructure and our team for fresh product supply chain into our core competitiveness to serve the multi-format omnichannel development. And in particular, we accelerate the construction of our infrastructure for fresh product processing centers, facilitating the development of processing center network and supply chain networks. And these centers, the 8 large processing centers, has a very high coverage, and we continue to increase the efficiency of these fresh product processing networks.

And at the same time, we have a system for our purchasing. And there is a direct purchasing system, where our frontline purchasers are able to standardize their purchasing work. And some 20% of our products comes directly from the source and from the farms. And during the reporting period, there are more than 200 stores, which have reswitched the supply chain to this format.

And in the second half of the year, we will continue to build on our fresh product supply chain, and we would want 350 stores by the end of the year to be supplied by this fresh product supply chain. And for the first half of the year, we have already done a lot of work in the ESG. And for example, we have optimized our structure. We have set up very clear targets, and we will continue to redefine the -- to define the targets well. And we have put in a lot of investments. And also, we are people oriented. And wherever there are disasters, relief or pandemic situations, we have been contributing to society with our Sun Art action. So we continue to focus on ESG, including being carbon neutral in our operations by 2030.

[Operator]

Thank you. That was the management's sharing. Ladies and gentlemen, this is the Q&A session. Bank of America, Chen Luo please.

[Chen Luo, analyst]

A couple of questions. For this results announcement, it is better than expected actually. And actually, we see that especially with the industry with all the difficulties it is facing, it is not as fast for your company as we had expected. In the next 2 quarters, I would like to know for the epidemic in China, it continues to spread. And -- but on the other hand, there is a relaxing of the controls of -- to combat the epidemic. And therefore, we expect the epidemic situation will be worse off in this winter. And then the CNY will arrive early for next year. So how do you see this confluence of factors because CNY had traditionally been a very important time for retail. So how do you see same-store sales? How do you see the next 2 quarters? And also for the first half of the year and from the experience gleaned from the first half, how do you see the second half? Is there a new guidance for your second half, please, results?

Second question about accounting. Desory, if you can answer the question. In the first half of the year for overall tax, the tax have been very high. We understand that for some of the stores, some of the regions, they have been at a loss. And therefore, we are not able to have the tax concession because the loss-making, and therefore, the tax payment had been higher. But for some of the businesses, even though they were loss-making in the first half and the second half, they may be profitable. So how do you see our tax burden in the second half? And are there any measures to hedge our tax risks?

Last question is about strategy for the business. Perhaps it's a long-term question. For our hypermarkets, there had been a repositioning of the business. My understanding is that for the renovation of the change of our business model for hypermarkets, there have been a lot of new attempts, new changes, which is ahead of the industry. But in terms of products, I think we need more work. Just now, it was mentioned for fresh product supply chain, this is a focus of our work. For the industry, it seems for Yonghui or Hema in the Ali chain, for some of the self-owned brands and some of the products, I think they have been doing well. So how do you compare with these? Or if you can give us more color as to our shortcomings in this area that is in the product area. And what kind of work will you be doing? What kind of investments will you be putting in? And how does it impact the finance? And in medium term or long term, how does it bring on returns to you? Sorry, the questions are getting long. And what about our members? And can you perhaps talk a little bit about that as well, the supply chain as well?

[Kevin Lin, executive]

Thank you, Luo Chen. Indeed, in the second half of the year, there are certain uncertainties and certain uncertainties. The -- one of them is off-line traffic, and the other is CNY impact on our business. For off-line traffic, it is difficult to foretell. It is uncertain. With the epidemic controls tight, there is no less traffic. And with the epidemic running rampant, traffic also is scarce. So for off-line traffic, in the second half, I think it is still challenging. So this is the one uncertainty.

But for CNY, it is true that it is early arrival for CNY. For RT-Mart, a few of the categories, we have already done some good planning, and we have some measures in response to this, including our adjustment in our product mix, our marketing strategy. And for CNY, it is a rather certain uncertainty. I would say that. And we believe that we will be fine for the CNY. And online, I have already shared that for the first half of the year, our online has been doing well. And for example, Eleme orders have been an increase by double digit, and there have been other rises, increases for our orders. And for RT-Mart, I think for the second half, it will continue. And for our -- RT-Mart will continue growth in orders. And for our Taoxianda, there would also be growth for the second half. So in the second half, we believe orders growth, business growth, will be increased compared to first half. So this is a certainty.

Now for off-line, however uncertain the business will be for the second half, for our remodeling 2.0, we continue to this remodeling, and it will be extended -- we have already extended to 4 stores and we'll continue to be extended to 95 stores. In the second half of the year, with the off-line uncertainty. But on the other hand, we have about 100 stores that are under remodeling. So when spring comes, when times are better, we will be even more attractive our RT-Mart stores.

So for CNY, as mentioned, we have -- it's a certainty. We have strategies. And also, we have growth strategies and making our stores remodeled and a lot more attractive. So that is another certainty. So the only uncertainty is off-line traffic because of epidemic and epidemic controls, that is the only uncertainty. But even so, it might bring on third quarter uncertainty in terms of revenue. But on the other hand, we are positioning our centers with the stores. And together with their capabilities, they will pass through this difficult patch together.

As for your second question, yes, RT-Mart had been more proactive than the industry, and we have been doing rather well compared to the industry. And whether it is RT-Mart or other superstores, there is a situation where the choice of products and also there are a lot of historical reasons to that for products. And we -- according to our strategy, we continue to optimize product side. And we have a systematic approach to it. We have brand differentiation and store differentiation and product mix adjustments. And also, we will -- in terms of differentiation and deharmonization as I have mentioned just now, we have optimized our product mix significantly to 20% of our products, and we have new product lines, including high-end beefsteaks, salmon fish and coffee and also certain fresh products, the differentiation is a lot more clearer, and they are doing well in the number of stores. And for some of the product categories, they have picked up sales by some 50%.

And also, as mentioned, for fresh products, we have [ HM&L ] certification. And this has brought on what I've mentioned the order size increase. And we want to continue with that momentum in the second half of the year. For orders, because of epidemic, there have been certain changes in the behavior of our consumers. But on the whole, it is a stable situation with our strategies. Now if you have been to our stores, you would see that, for example, for RT-Mart, there are certain products which are -- safeguarded. And for these products, they're either big brands which are packaged by us, or we are -- these are RT-Mart-branded products. And these are already 1.5% of our total revenue sales. So these are our sales RT-Mart-branded products. And the team for these products have also been increased, and they are already deployed in RT-Mart all over the nation. And this is just for the short couple of months of introduction.

By CNY, we will have more self-owned brands. And we will have some major self-owned brands introduced around the time of CNY. For our RT-Mart, it is large. So for these SKUs that have been put in, perhaps it is not as obvious at first because they are among our many, many SKUs, and we have not really been promoting them a lot. But as we increase our self-owned brands for SKU, we will continue to increase our promoting -- promotion efforts.

Now if you on Bili, Little Red Book and Douyin on the platforms and you search for our website, you would see that we are building this up. So we do expect there will be an enhancement of our products. And in the future, it will be a very important engine of our growth.

Your third point about fresh supply, yes, it is a shortcoming of ours for fresh products. Because our RT-Marts are large, fresh products have not been a major emphasis of ours. But with the infrastructure buildup in the past half year and with our organization capabilities, I would say, in the first half of the -- in the eastern coastal area, 70% of the infrastructure have been built, and 50% or 60% of operation capabilities have been built up. So for the second half, for eastern coastal region, fresh products will perform much better than first half. And we continue to replicate to the 4 regions outside of eastern coastal. So we continue with this efforts, and there will be more cellphone brands as well.

So for the second half, I would say the industry for fresh products, we would be in -- at par with the industry, would have chased up. For tax, Desory?

[Desory Wan, executive]

Luo Chen, greetings. I just want to supplement one point, and that is for the second half of the year. As mentioned, for online growth for second half, we are very confident about that growth, even though off-line traffic is uncertain, but online growth is going to cover as much as possible cover that uncertainty from off-line traffic. And also for the second half of the year, we want to achieve above breakeven with profits. So with the company's own point of view, of course, we want our entire year to be balanced in our net profits. But from a conservative point of view, according to the epidemic situation and uncertainty about epidemic controls on the basis of our original guidance before impairment, we want to achieve breakeven.

As for tax, in the 2 years impairment, whether it's last year or first half of the year or whole year last year, in accounting treatment, there is the tax element, and there has been this impact, as you know. And the company is doing a reasonable tax planning. And for the entire year, for example, this CNY 350 million for the first half, for the whole year, it will be CNY 550 million in terms of the tax amount. So this is tax question response.

[Chen Luo, analyst]

Thank you very much, Mr. Lin and Ms. Wan's answers. As Mr. Lin had mentioned, the RT-Mart had been really looking up. And I, too, am confident that there will be more customer optimization and growth. So yes, thank you for the answers.

[Operator]

Next question from UBS, Christine.

[Christine Peng, analyst]

Thank you, management, for allowing me the opportunity to ask the question and also in this very challenging times, to deliver an encouraging set of results. I have 3 questions. First of all, I'm concerned about the industry. And if Mr. Lin Kevin can answer the first question. I think investors are very concerned about the community group buy and how it impacts the traditional supermarket business. Because from what we see is that for the wave, hot wave of community group buy is subsiding. So Kevin, how do you see CGB and its impact on traditional supermarket business?

And for finance, your financial performance, in the past, starting from 2019, for your gross profit, it had been coming down gradually. And with CGB being subsiding in its effect, I would like to know from your point of view for gross profit margin, how would it recover? And to what level so that investors know what to expect.

Second question. How does the management of the company see traditional supermarket business? With the traditional supermarkets area, your market share has been increasing. So I would like to know, supermarket, can you analyze additional supermarket business? How do you see it? So that's the second question.

Our third question is that I have noticed your CapEx is very low this year, and it is lower than last year. And is this just temporary? Or do you have certain new thoughts in the next 1 to 2 years? What is your CapEx, please?

[Unknown Executive]

Thank you for your questions. For CGB, the players are decreasing. For some of the smaller platforms, regional platforms, they're exiting the market. And we see a few major players, including our partners, TAOCAICAI, their performance is actually being enhanced. So in the past, there was this chaotic fight, I would say, in CGB and now some of them have exited the scene. So there is still pressure on our traditional marts and supermarkets. So for the major players, they have been growing for CGB.

For our product differentiation, and in fact, in the early stages, they were very aggressive CGB. They have cut prices significantly. But now they are moving into customer differentiation, that kind of retails. And at the same time, we also noticed that CGB is targeted at certain product categories, at certain customer categories. So we believe for online e-commerce, they basically will be coexisting with us. And so this is how I see this type of business, CGB. I'm not saying that in the future, CGB will disappear. But I would say that there will be fierce competition still, and very fierce competition, and we will be prepared for it.

Now for the macro situation, for the industry, I would say there is an oversupply of supermarkets, superstores. And so it is challenging for all. But overall situation for the industry, I think yes, it is coming under pressure. So with the epidemic and the controls with these challenges, I would say there will be die offs, I think. And there will be certain species which become extinct, which exits the lands. And if we still continue with our original strategies and way of operation, we will be -- we may be -- we must not go extinct. So we have to grow new strengths. We have to metamorphosize. So that when spring comes and flowers open, we will become a new RT-Mart. And that is why we have been compressing costs. We have been raising our gross profit, and therefore, we have lived on despite the deep winter. And we continue with our 3 core strategies and 1 core capability as mentioned and we will continue [indiscernible] better RT-Mart.

As for CapEx, yes, CapEx is low this year. Let me just explain. We have our plans for RT-Mart and new stores opening and our processing centers and warehouse on the plans. But on the -- and there have been certain lockdowns. And as a result, CapEx has decreased because of this disruption. And further, in terms of efficiency, we need to continuously raise that because of competition. So we want to lower our costs as well. So for every investment of ours, it becomes more cautious. And also because of uncertainty of the macro environment, we would want to have more cash on hand for the company so as to face the uncertain situations. So these are the few thoughts on CapEx.

Next year starting, we will pick up pace. And we -- by the end of the financial year, we will step up with our store opening pace. In the past, we have been kind of stable, slower in new store openings. But next year, CapEx will go back to normal because of new store opening. I don't think our growth margin is low. I rather think our gross margin is relatively high compared to our competitors in the industry. They have used various methods to raise gross margin. But for us, we don't want to raise margin just for the sake of it, we want to compress costs and also most importantly, to provide best value for our customers. We want to build our core competitiveness, which is products, quality, service and customer experience. So we will not want to randomly increase our gross margin. But rather, in the second half of the year and in the future, we want to provide low prices for our customers, but at the same time, provide the experience and service to them so that we grow our business that way.

[Operator]

Next question is from Anne from Jefferies.

[Kin Shun Ling, analyst]

Can you hear me, management?

[Unknown Executive]

Yes, we can hear you.

[Kin Shun Ling, analyst]

Two small questions. First, for opening of new stores, in the second half, you say that there will be speeding up of new store opening. What are you referring to, please? Are you talking about superstores? Or are you talking about hypermarkets as well? And also for our centers and warehouses, what would be that -- the strategy? And our shop cum stores or shops or stores cum centers and warehouses that is, can you also talk about that and also talk about our multi-format approach? Another question, assuming cooperation for home electric appliances, it's given over to Suning for operation, and we basically just have a consignment fee or lease income. Will this continue, please? Because we see Suning, they are having operational problems. So how would this impact us, this Suning effect?

[Kevin Lin, executive]

Thank you. For store opening, we will be focusing on superstores because for hypermarkets, we will be extending them, but the speed will be slower for hypermarkets. Because for our sites, availability for hypermarkets is lacking. So it is for superstores where there are more property sites, we will be growing this more. And in our -- in some of the new cities, we will be reexamining the hypermarket strategy. So basically, we will be rather focusing on our superstores. But where they are already RT-Mart and where we want to be more dense in our coverage, we will be building out more RT-Supers as well. And we will be focusing on some of the main cities, Nantong, for instance, to standardize the operation and radiating out to other cities.

For the Nantong, one, we will continue to put in more efforts, but it is not about numbers, but it is about density. Especially for smaller stores, the density is important. That is also true for our mini stores. Now for the -- in the media, you see that in Yangzhou, we are already having some new measures for members shops. This is very confident for our members' stores. We are studying this format still. We think that at the core, it is about the products compared to the traditional hypermarket where it is the -- about the site. It is very different. The products are very important rather. So we are very cautious about this type of business. We are very cautious in moving into this new model because we want to provide for our members new value, extra value. And only we are satisfied that we can increase -- indeed create extra value for our members that we will move ahead briefly in this kind of format.

Suning. For our gallery, Suning is a very important factor. Compared to last year, Suning is RMB 100 million less in revenue. For Suning, we will continue to cooperate with them, but we will be focusing on the Eastern Coastal region. For the other regions, for some of the Suning stores, they will exit our galleries. And there will be a gallery remodeling 2.0. For where Suning had exited in those stores, we will have other home appliances stores put in. We believe for this year this will be fine. For the next financial year, Suning's impact on us, on our profitability would be even less, and also our own capabilities would have increased, and we will continue to add home electrical appliances where Suning has exited. So the impact from Suning problems would not impact us as much as compared to this financial half year.

[Kin Shun Ling, analyst]

Question for the management. Will we reposition our member stores? Or will you be filling the vacancy with membership stores? What do you think about our hypermarket sites?

[Kevin Lin, executive]

Well, for hypermarket sites, we need big areas for the sites, and also we need good locations. So we need to look at the hypermarket model and also we will look into our overall structure. But overall speaking, if -- for member stores, we will be growing member stores. If indeed, we find this format a good one.

[Kin Shun Ling, analyst]

In our exploration question, product is very important. And in the industry for competitors, for their store warehouses, they are basically located in their hypermarkets. And the EBIT margin actually is not as good as they had expected. And therefore, this development has actually been on hold. So in your exploration work, how do you see the operating margin and the gross margin?

[Kevin Lin, executive]

For the successful competitors, we have not been trying to replicate our competitors. The warehouse stores, their main revenue come from membership fees. So the logic is different for some of our competitors and overseas peers as well. So I think it is mostly the core is about product differentiation, the value that we bring to the members, and whether the members or customers are willing to pay the membership fee. It is not about how many members you have for the first year, but rather how many repeat members you get the second year. So I think this is about membership stores. I don't have a lot to share with you at this point. We are very cautious in our approach in this format.

[Kin Shun Ling, analyst]

I understand. I noticed in the news for Ali, in Chongqing, they have invested in certain projects for certain formats of retail. Will there be any cooperation opportunity with them? Or would it be a competitive situation? Because for Australia, overseas markets, we see cooperatives, co-ops. And for these stores, co-ops, apart from selling farm produce, they also sell daily necessities and groceries. So I do not know about the China market. What do you think?

[Kevin Lin, executive]

This is a rather hot topic, co-op. Yes, that has also been in existence in format. And lately, there have been more public attention on it. At present, we do not see any impact from this format. And we have not really discussed any opportunities with it. I think in China, the retail industry is totally open. The market is fully competitive. Last year, for instance, where so many CGBs coming into the market, all the Internet companies, they have entered into the retail market. So for retail, it is fully open to competition, whether there is co-op as a format entering the market, it is still totally open, totally competitive. All we can do is to strengthen our own capabilities to provide the best experience to our customers. And only then will we be able to maintain and grow our market share. So we have to grow our own capabilities. That is core.

[Operator]

Next question, JPMorgan, George.

[George Hsu, analyst]

I have 3 small questions. First of all, on impairment, Desory. The target is profit after impairment. What is the impairment guide for the entire year? And this impairment, what is the main assets being impaired? So that's the first follow-up question.

Second question, Kevin. We talked about co-ops just now. And then there is the community restaurants or cafeterias. Is there any 2B opportunities there? Any growth opportunity there? And also for new stores opening, you're very cautious about new stores opening. In the future, for superstores, will these be leased or will these be self-owned mostly? And also, there is something like 32% self-owned stores in GFA. Will there be any changes in the future? Will we have more leased GFAs? What's the strategy?

[Desory Wan, executive]

Let me answer the question on impairment. In the past, as of last year, last year, there have been epidemic challenges, et cetera. But before that, our impairment per year for the first half or the whole year, impairment has been stable. And from past years, according to our impairment levels, it had been about CNY 300 million. For this year, it is at the same level for whole year guidance. So it is about CNY 300 million thereabouts.

[Kevin Lin, executive]

Your second question about community cafeterias. Our B2B business in RT-Mart is 10%. For B2B business includes a few areas: close channel and open channel. For close channel, for -- it includes procurement, enterprise procurement, enterprises of corporations, cafeterias. And in the past years, especially with epidemic challenges last year, for small stores, they have been challenged because many of them have been under the competition of CGBs.

For some of the mom-and-pop shops, actually, they have come under huge challenges. So as a result, for our close-end channel, there has been some impact. But for open channel, for the enterprises, stores, enterprises procurement, enterprises supplies, we have been doing well. Some of our businesses have been growing at a few times increase. So we have been getting orders from the closed channels. So for this enterprise cafeterias where there are business opportunities, our team will very proactively do the communication and build up that capability because we already have the supply chain to supply these neighborhood or these enterprise cafeterias. If there are opportunities, we will grow this. And if there is any of such close channels, we term them, we are highly interested.

As for new stores, usually, the superstores are in big shopping malls or a part of big developments. So in the future, we will continue to grow these stores. And the -- we're in a shopping mall, there can be certain difficulty. So for our self-owned stores, we are usually stand-alones, not in the shopping malls. So for our superstores in the future, they will mostly be leased. For superstores, they will be mostly be leased. And for the superstores, we continue to build them. And right now, for the landlords, they are still repositioning. In the future, for the pricing for the leases, I think there will still be some room for negotiation with the landlords. So we want to use this opportunity where some of the stores are exiting from shopping malls, we want to be able to identify good opportunities, to identify good sites for our superstores in the future.

For own GFA, it is about 30%. We self only bought because it is better and more profitable than leasing. So with our CapEx not being high and with our cash on hand being in a strong position, we feel that we do not have to encash any of our stores to bring on more cash on hand. We don't have that pressure. We don't have that need right now. But of course, we continue to accumulate our capabilities in cash so that we can strike out where the opportunities for sites present themselves.

[Operator]

[indiscernible] Morgan Stanley, next question.

[Unknown Analyst]

I have 3 questions. First question about same-store sales. For first half, it is stable. And for October, November, what was the same-store sales and also the ticket size and traffic? Secondly, for the first quarter, it is a 25% increase for our ticket size, and the second quarter, it is mid-single-digit increase. Can you give us more information on that, please? And thirdly, about gross profit margin for the first half, because of rentals or because of the reasons the gross profit margin has come down, do you see that continuing in the second half? How do you see gross profit margin for the second half? And the management had mentioned 2 points, optimization of the fresh product warehouses. And you mentioned before that there will be a 5% increase for profits if this is done. And also for the -- June, there is a new brand for fresh fruit. And what is the profitability of this compared to our other products. And in the future, how do you see this category of our own brand, fruits and other fresh products in increasing our profitability?

And for this year, there is more discussion on the leading -- with a leading position in retail, how do we see consumer behavior? What would be their choices? What will be the ticket size going forward? And what is the trend for consumer behavior? And do we see the trend as an opportunity for us? If so, what are some of the levers? Measures? And if you see that it is a challenge, what are some mitigating factors or risk management measures?

[Desory Wan, executive]

For October, the mid-autumn festival was early. And for same-store, it had been a same-store sales growth of about 13%. And in October, we had been growing at in -- for fresh products and Taoxianda, we have been increasing our revenue and profits as well. And also because of control for epidemic, before we see an off-line drop of about 15% compared to last year. But for ticket size, it is a growth of 10%. And overall speaking, as of now, we think that for our customer ticket, because of -- as we have mentioned the product strategy, so for our ticket, it has been a growth of about 10%. So that is for October. For November, it is more or less the same as October. That's for same-store sales.

And for gross profit margin, we expect that compared to same period last year, it will be an increase. This is reflecting, as I've mentioned, the epidemic controls last year and also our strategy enhancement. For our gross margin, it is 0.5% or 1% better than same period of last year. And for the financial year, it is impacted by channel mix and also with early arrival of CNY, especially for April to June in coastal region in Shanghai, because they have been affected by the lockdown, a lot of the marketing and costs had not been efficient at all, and it has not been reflected to these efforts. So for same period next year, there will be an increase.

[Kevin Lin, executive]

Now for proprietary brands, your other question, our proprietary brands it is about our bringing in traffic, a famous brand which is inexpensive and which has high gross margin. This is a model that we pursue. We believe that this model because the traffic to the hypermarkets is actually relatively low. So in the future, we think that this model really is for bringing in traffic to the hypermarkets, targeting our target customers and be very focused in bringing, attracting traffic to the hypermarkets. And for these products, they continue to be attractive and they bring people to the hypermarkets. In the past, they come -- the customers come to the hypermarket to buy, let's say, groceries and vegetables. In the future, the customers will be coming to our hypermarkets to buy Sun Art or RT vegetables. And as a result, we want to be able to raise our margins.

The stickiness and loyalty of our customers would be very much enhanced with our branded products. And for some of the branded products, our proprietary brands, it is some 5% to 10% higher than the non-branded, self-branded ones. So our self-branded products is helping our gross profit. But that is not our ultimate objective. The ultimate objective is bring on more traffic to our hypermarkets and stores.

And for your other question, for our stores internal figures, we see that with our new brands and new product mix and the growth rate, it is higher than our mid-end products. The higher end or the -- our self-proprietary products are selling well. So it is a raising of the consumer behavior, overall standards rather than lowering.

When people have less consumer outlets, when people go out less, when people are staying home, actually, there is an enhancement of raising of the standard of purchases. So we -- in view of that, we'll continue to bring up, enhance the quality of our products and enrich the product mix. So these will be our strategies.

For RT-Mart, it had been a mass consumer brand traditionally. So someone had talked about our gross margin. Yes, we have good products, but they have to be inexpensive. It's not like our good products will be sold at higher margins. That is why we are cautious in our pursuit for margins. For some of the other companies, they want to raise their margins very quickly and very high, but this kind of behavior of our competitors leaves us space because the customers will be looked at service and pricing and quality of products. We think the consumers are very, very smart and discerning. So we -- our core strategy is good products, high-quality products at inexpensive prices rather than to chase margin, high margins.

[Desory Wan, executive]

We see for the ticket size in the past 2 quarters, it is a 6% to 7% increase. And this is for each order, if we -- we see a positive growth for the average number of items per sale and also the ticket size, they have both been increasing.

[Operator]

[indiscernible] of [ Citi Capital ].

[Unknown Analyst]

Very happy to note the remodeling of the stores and the strategies putting into implementation. And the results are better than we have expected. Congratulations.

Now I have a couple of questions, first of all, on RT-Supers and Mini stores. So for superstores and mini stores optimization, what is the situation, please? And also for mini stores, will you be having plans for membership source? And also for all franchise mini stores, what is your plan? And also, for the optimization of staff costs, et cetera, or digitalization, have you been optimizing the cost per store, maybe because of staff cuts, et cetera. And in the future, what are some further room for improvements for per store margins, please? And thirdly, online business, for the financial year, online business, including third-party and also for cafeterias, et cetera, what is the expectations, please? That is for online.

[Kevin Lin, executive]

For superstores and mini stores, for superstores, we think that this has a low threshold for RT-Mart. This is the positioning. So it shares many of the assets with RT-Mart and the operation it shares as well. Because RT-Mart already has its own supply chain and operation system, and it is being shared partially to superstores. So it is lower cost in operation and also the store build-out, new store build-out is also lower in cost than RT-Mart, the hypermarket.

And also because the superstores are smaller, staff cost is also lower. There is a lot of room for further optimization for staff cost for superstores. So small is big, small is more, that is our slogan. Even though the -- it is 2,000 to 3,000 square meters in terms of area, but we optimize the usage of that space, and we continue to dynamically optimize the superstores, for example, in putting in more products, richer products, better product mix for our customers. And the SKU for hypermarkets is 30,000. And superstores' SKU is 10,000. And it covers some [ 80% ] of the product categories of our hypermarkets.

And there are some 2 superstores build-out this year. And by the end of this financial year, 70% of superstores, the cash flow will be positive. This is not a complicated situation for superstores. All we have to do is to get the strategy right. And for another difference between superstars and hypermarket stores is online business. The coverage radius is the same for these 2 stores. And the products are similar. So in the future, for online superstore business, it would be the same as the size of hypermarket online sales. It will not be because of more floorage that the hypermarket online business will be much bigger than superstore online business. No, it won't be that. So superstores, I think, is leading the industry in quite a bit in our business. So it will bring on added competitiveness for us.

Another one is supply chain for fresh products. In the past, we did not have our own processing center. We did not have our purchasing capability or sourcing capability. But now 40%, by the end of the year, 60% or 70% of our cities, will be covered by fresh product processing centers. And with that, the superstore efficiency would be even higher. Without the coverage of fresh product processing centers, there has to be deliveries to the superstores, it is not as sufficient. But with the coverage increase for fresh products, our superstores will be even more successful and we'll continue to optimize the operation of our superstores and also to online stores. We're looking for potential sites to open more superstores.

And where we are already competitive, we have competitive advantage in Shandong, in Yangtze River Delta region, we will continue to increase our superstores. And then there are cities with 230 cities where we have hypermarkets where there are very appropriate site for superstore opening. We will be opening them as well. So I think for superstores, there is a lot of certainty.

As for mini stores, I have always said that there is uncertainty for mini stores. Because for small stores, it is difficult. The threshold is high. We are setting our new standardization. The most difficult period is over. In Nantong city, for instance, a mini store area is about 100 square meters. And with this standardization, products are also standardized. And as a result, efficiency had increased, and margins also should increase. So for mini stores, our cash flow has already returned to single-digit loss. Compared to a few months ago, during our remodeling for mini stores, it was some negative 20% cash flow, it is now compressed down to single-digit numbers.

So we would want to have more franchise. Yes, we do not have a time table for franchising. It's only been about a -- in a year or so, we will have some breakthroughs. We will be more focused. So for Nantong, we will be setting the standard, because for mini stores starting from Nantong, we have been expanding them to other cities. And the cities where we have expanded to were lower in tiers than Nantong. So next up, we will be raising the city tiers upwards from Nantong in building the mini stores where the pace of life is quicker, where there is a little bit more prosperity than Nantong. So we are still figuring out the model for mini stores.

As for costs, yes, there have been cost compression in this half year. At the core is staff costs. Staff cost is the highest for our costs, but we have not compressed the income of our staff, but rather through process optimization, through innovation and through usage of technology, we have increased our efficiency. And as a result, we have achieved savings.

For cost savings, as I have answered another question just now, I said we are not looking for overly raising the products margins, gross margins. Rather, we want to save cost, save expenses for our customers. We are in the retail business. We should raise our efficiency and also to save our customers' expenses. That is our focus. Only then will we have more room for exploration, more value to provide and more opportunities.

[Desory Wan, executive]

For online, yes. For online, our share is 22% of total. So online is 22% of total. And -- [indiscernible] is 30%, and Taoxianda is 40%. Eleme is about 12% online. Because online, overall, is 35% of total, of which 22% is B2C. And off-line, it is 65% of total. So B2C is a bulk of our online.

[Kevin Lin, executive]

And further, for this year, 2B and 2C they have both been increased. 2B, because of epidemic all over the country, we have had more government measures during this very special time. So B2B closed channel, the gross margin had increased even though the total amount had decreased in terms of revenue, but margin had increased B2B.

And also for the first half of the year, online results have been relatively profitable compared to our competitors. We have been more certain, more stable because of ticket size increase and also our delivery capability had also been improved. And that has brought on better efficiency and more sales. And during the epidemic, we have stopped our marketing efforts. And therefore, the cost for marketing has also been decreased during this period. And therefore, we have increased our operating profitability.

[Desory Wan, executive]

For the whole year, B2C ticket increase has been healthy. And online, the different channels, we have different products mix provided to them. And margin had also been 51% or so also. Just now for picking of goods and delivery, with all those costs taken off, we have been able to have 0.8% profitability for online.

[Unknown Analyst]

For your analysis of online business, we are optimistic about your online business. I have no other questions.

[Operator]

This is the last question.

[Unknown Analyst]

Can you hear me?

[Unknown Executive]

Yes, we can hear you.

[Unknown Analyst]

For the next 3 to 5 years, what are your revenue targets and the time line to reach those targets?

[Desory Wan, executive]

For short term, we are very confident that by next year -- now, for this year, there are different factors, epidemic, et cetera. But for next year, we would want to be able to, in terms of sales increase, to have positive profitability and also growth in our revenue.

For the 3-year period, with our 3 strategies, 3 core strategies and 1 capability implementation, we want to achieve a few things. First of all, for our superstores, more stores opening for that. That will be our growth driver and also ticket increase that is driven through our products and product mix and also B2C growth drivers. These are the 3 growth drivers. And total sales this year is 65% off-line. And after epidemic, the consumer and the integration of online, offline has also -- it has become very mature. And in the future, to be omnichannel growth.

So '25 to '26, we will be a high single-digit growth. And in 3 to 5 years' time, we want to be able to achieve RMB 100 billion in terms of total revenue. And we want to be able to be profitable in 2024. And in '25, 0.5% and 1% of net profit in '25 to '26. This is because of channel mix, as I have mentioned. Channel mix, 40% will be online, or 45% will be online, because online/off-line profitability is basically the same. So for net profit, apart from ticket size increase, for the product mix, for fresh products, et cetera, with the infrastructure built, it will bring on higher gross margin growth. And also for cost compression, expenses compression, staff cost compression, that would also bring on more profitability. Thank you.

[Unknown Executive]

Thank you very much for having joined the Sun Art Retail Group Limited financial results announcement for the 6 months ended 30th September 2022 webcast. We are not able to come physically to Hong Kong, unfortunately. If you want deeper exchange and communication with us, do please reach out to our Investor Relations. Last of all, I would want to wish you good health. Thank you.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]