MINISO Group Holding Ltd

HKEX:9896

Earnings Call Analysis

Strong Revenue and Margin Growth in Q4

Revenue soared to RMB 3.84 billion, up 54% year-over-year, driven by significant growth in both MINISO's offline stores and TOP TOY operations which surged by 63% and 90% respectively. Store count increased by 19%, with per store revenue almost doubling. Overseas revenue also grew robustly by 51%, with directly operated stores being a key contributor. Gross margin improved to 43.1%, thanks to product optimization and a strategic shift towards more profitable products. Adjusted net margin reached a new record of 17.4% after FX adjustments, exemplifying strong profitability. The outlook remains optimistic, with anticipated overseas market growth of 35%-45% year-over-year, and confidence in an improved margin profile for the full year despite a typical Q1 seasonal dip.

Historic Performance and Future Outlook

MINISO's 2023 financial performance broke new records, followed by strategic store expansions and promising guidance for the future. With a 54% increase in annual revenue reaching RMB 3.84 billion, the company demonstrates robust growth backed by an impressive 40% year-over-year increase in overall revenue for the calendar year, totaling RMB 13.8 billion. The gross margin has climbed to 43.1%, reflecting the success of MINISO's intellectual property (IP) strategy and brand upgrading, while the adjusted net profit margin peaked at 17.2%. The company's leadership expressed enjoyment and dedication to the business, highlighting a unified team and increased investor interest.

Expanding Global Footprint

Global expansion is a testament to MINISO's success, with overseas revenue accounting for 34% of total revenue and a presence in 110 markets worldwide. Remarkably, overseas revenue surged by 47%, including an 83% in directly operated markets and a 24% in distributor markets. This growth was complemented by soaring year-over-year increases in major markets and an uptick in same-store sales overseas.

Domestic Market Dominance and Efficiency

In China, MINISO's offline store sales outpaced domestic retail growth, as same-store sales surged by approximately 32%, with a notable 40% increase in Gross Merchandise Value (GMV). The company solidified its domestic market dominance by adding 601 new stores, while optimizing store expansion strategies to ensure both rapid and high-quality growth.

Focused on Sustainably Increasing Store Footprint

MINISO's strategic vision includes expanding its store footprint sustainably. With plans to add 350 to 450 new stores in China and 550 to 650 overseas, with a concentration in Asia (excluding China) and Latin America, MINISO ensures quality and operational efficiency are at the core of their growth.

Investing in the Future: IP and Product Innovation

The company hosted an Investor Day to align its long-term strategy with shareholder expectations, focusing on product innovation with IP design, affordability, and globalization. MINISO aims to cement itself as the world's top IP design retail group by enhancing product assortment, driving sales in strategic categories, and developing a robust global supply chain to maintain a competitive edge in quality and cost.

Profitability, Cash Flow, and Shareholder Returns

Profitability indicators such as operating profit and adjusted net profit soared by 71% and 77% respectively, coupled with an operating margin increase to nearly 20%. The company's financial health is further underlined by a 115% increase in free cash flow and a substantial return on equity of 28%. MINISO committed to shareholder returns with a cash dividend of approximately RMB 650 million, reaffirming its dedication to delivering value to its investors.

Earnings Call Transcript 2024-Q2

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to MINISO's earning conference call for the December quarter of 2023.[Operator Instructions]And be kindly noted that this event is being recorded.We have announced our quarterly financial result earlier today. An earning release is now available on our Investor Relations website at ir.miniso.com.Joining us today are our Founder and CEO, Mr. Jack Ye; and our CFO, Mr. Eason Zhang.Before we continue, I would like to refer you to the Safe Harbor statement in our earnings press release, which also applies to this call as we will be marking forward-looking statements. Please also note that we will discuss non-IFRS financial measures today, which we have explained and reconciled into the most comparable measures reported under the International Financial Reporting Standards in the company's earning release and filings with the U.S. SEC and Hong Kong Stock Exchange. The currency unit is Chinese yuan unless otherwise stated. In addition, we have prepared a PowerPoint presentation for today's call, which contains financial and operational information for this quarter. If you're using Zoom Meetings, you should be seeing it right now. You can also revisit it on our IR website later.Now, I would like to hand over the conference to Mr. Ye and Ms. [ Alice Shenz ] from MINISO IR team to translate it for you.Please go ahead, sir.

[Guofu Ye, executive]

[Foreign Language]

[Unknown Executive]

[Interpreted] Hello, everyone and welcome to MINISO's December quarter 2023's earning call. Our overall performance once again reached new highs during this quarter. We capped off the year of 2023 with brilliant outcome. Total revenue hit RMB 3.84 billion and set a new record once again, increasing by 54% year-over-year. Gross margin growth to 43.1% with an increase of 3.1 percentage points compared to the same period in 2022. Our adjusted net profit exceeded RMB 660 million, breaking our record once again.Our adjusted net profit margin reached 17.2%. Excluding the foreign exchange impacts, adjusted net profit margin reached 17.4%, which set a new record as well. For calendar year 2023, total revenue reached RMB 13.8 billion with a year-over-year increase of around 40%. Gross margin reached 41.2% with an increase of 6.3 percentage point. Our adjusted net profit margin reached RMB 2.36 billion, representing an increase of around 110% year-over-year.

[Guofu Ye, executive]

[Foreign Language]

[Unknown Executive]

[Interpreted] 2023 marks a year full of new records for MINISO. We continuously report new highs in every aspect of our operations. We firstly exceeded RMB 3 billion in revenue for the June quarter this year. And hopefully, we can break through ourselves by reaching RMB 4 billion, RMB 5 billion, or even higher in the future. Total store count exceeded 6,000 in the third quarter. Our gross margin also achieved breakthroughs again and again, reflecting the success of our IP strategy and brand upgrade strategy. Our net profit margin also kept climbing, which was the reward of our asset line models and the efforts in controlling expenses.

[Guofu Ye, executive]

[Foreign Language]

[Unknown Executive]

[Interpreted] In all these financial metrics of new reports, I was always thinking how to outperform our past achievements. I fully agreed and resonated with Warren Buffett's words. Although I am already in my 90s, I truly do feel like tap dancing to work every morning simply because of our immense love for my work. I love running MINISO and feel great happiness without tiredness every day. For me, there is no job in the world with more fun than running MINISO.Moreover, my journey is not solitary. Rather, it is fostered by the strength of a powerful team within our company. We understand and appreciate each other very much and fight for the same goal. In the year 2023, we were thrilled to see that much more investor showed up in our shareholder list. I would like to express my sincere gratitude to our shareholders. And hopefully, deliver more value of our business operation with a long-term perspective.

[Guofu Ye, executive]

[Foreign Language]

[Unknown Executive]

[Interpreted] Despite this uncertainty in our global expansion, globalization is a process of responding to challenge as they arise. It is about riding the wave instead of seeking the definitely certain shore. For the calendar year 2023, our overseas revenue contributed 34% of the total revenue. Having entered into 110 overseas markets so far, we present it as a globally operated enterprise. We are committed to fully diversifying the business layout of MINISO to increase our risk resistance capabilities.

[Guofu Ye, executive]

[Foreign Language]

[Unknown Executive]

[Interpreted] Now I will walk you through a business update for our 3 major segments, MINISO China, MINISO overseas, and TOP TOY.

[Guofu Ye, executive]

[Foreign Language]

[Unknown Executive]

[Interpreted] Let's start with MINISO China. Offline sales increased by 66% year-over-year compared with an increase of 8% in domestic retail sales of consumers' goods. According to National Bureau of Statistics of China, on a comparable basis, same-store sales increased by around 32% year-over-year.

[Guofu Ye, executive]

[Foreign Language]

[Unknown Executive]

[Interpreted] During 2023, GMV of MINISO offline stores in China enjoyed a year-over-year increase of about 40% powered by over 25% increase in the same-store sales. And during 2024, GMV of MINISO offline store in China increased by nearly 13% during the first 2 months, up at the high base of last year because of the pent-up demand and the same-store sales was over 95% of the same period last year, the best recovery rate, demonstrating a resilience of MINISO as always.In February, 1,369 stores, or 1/3 of MINISO store China refreshed their self records. In addition, same-store sales during Chinese Spring Festival increased by around 10%, setting a solid foundation for growth in the first quarter of 2024. We will keep tracking these trends, staying alert and taking positive measures to cope with the macro headwinds.

[Guofu Ye, executive]

[Foreign Language]

[Unknown Executive]

[Interpreted] The [ biggest ] store opening within China, we opened 124 net new stores in China during December quarter, 70% of which were located in the first- and second-tier cities. For the year of 2023, we opened 601 net new store in China.

[Guofu Ye, executive]

[Foreign Language]

[Unknown Executive]

[Interpreted] We value both speed and quality in our growth of store numbers. Meanwhile, we will steadily optimize a healthy and comprehensive global MINISO store network. Consequently, we will pay more attention to store location, more actively establish MINISO store metrics, and conduct a more efficient store expansion and store network distribution.

[Guofu Ye, executive]

[Foreign Language]

[Unknown Executive]

[Interpreted] We also pay attention to enhance our store UE. As we implement flexible store strategy, newly opened store of 2023 was 14% larger than the average, while their sales were 30% higher than the average. Meanwhile, the closure rate of MINISO stores in China of 2023 was around 4%, representing a historical low. In 2024, we expect to open 350 to 450 new stores on a net basis in China, focusing on high-quality growth and lean operations.

[Guofu Ye, executive]

[Foreign Language]

[Unknown Executive]

[Interpreted] Moving on to our progress on the international front. Firstly, oversea revenue was about RMB 1.5 billion, another historical high. The 51% year-over-year growth of revenue exceed our most optimistic expectation. Mostly, revenue from directly operated markets increased around 90% and has increased by more than 80% for 3 consecutive quarters, contributing over 50% of oversea revenue for the first time. For the year of 2023, overseas revenue increased around 47% year-over-year, including an 83% increase in directly operated markets and 24% increase in distributors' markets.

[Guofu Ye, executive]

[Foreign Language]

[Unknown Executive]

[Interpreted] GMV of overseas markets increased 38% year-over-year, primarily due to a 76% increase in a directly operated markets and a 27% increase in distributor markets. Major markets maintained strong momentums, including a 110% increase in North America followed by Europe, which is another key market in the next 5 years, achieving 70% increase in this quarter and a 14% increase in Latin America, a 21% increase in Asia, excluding China. For the year of 2023, we witnessed a 120% increase in North America, 70% increase in Europe, a 50% increase in Latin America, and a 26% increase in Asia, excluding China.

[Guofu Ye, executive]

[Foreign Language]

[Unknown Executive]

[Interpreted] Certainly --

[Guofu Ye, executive]

[Foreign Language]

[Unknown Executive]

[Interpreted] Certainly, same-store sales in oversea markets during December quarter increased by 90% year-over-year, including 39% increase in directly operated markets and 38% increase in distributors markets. In terms of major oversea markets such as North America, they experienced a 49% increase. We also witnessed a 23% increase in Latin America and a 12% increase in Asia countries excluding China.For 2023, same-store sales in oversea markets increased by 26%, including a 45% increase in directly operated markets and a 22% increase in distributors markets. Later, oversea markets such as North America, it experienced a 75% increase, and we also witnessed a 34% increase in Latin America and an 18% increase in Asia, excluding China.

[Guofu Ye, executive]

[Foreign Language]

[Unknown Executive]

[Interpreted] We opened 174 new stores on a net basis in oversea markets in the fourth quarter, achieving a new record since 2019. For the years of 2023, we opened 372 new stores on a net basis, in line with our guidance. In 2024, we expect to open 550 to 650 net new stores in oversea markets, with the majority in Asia, excluding China and Latin America, followed by Europe and North America.

[Guofu Ye, executive]

[Foreign Language]

[Unknown Executive]

[Interpreted] In January, we hosted MINISO 2024 Investor Day and shared development strategy for the next 5 years with the investors from a long-term perspective. We brought up our missions of life is for fun and our vision to become the world's #1 IP design retail group with 3 strategies: products innovation with IP design, affordability, and globalization.

[Guofu Ye, executive]

[Foreign Language]

[Unknown Executive]

[Interpreted] From a product innovation perspective, we will adhere to our IP strategy and support and focus our efforts in strategy categories. We are committed to satisfying the demand driven by interest consumption for the worldwide consumer by placing emphasis on affordability of IP products. We adopt dual engine practice on super IP strategy. On one hand, we continuously collaborated with global top IPs. On the other hand, we will focus on incumbent self design IP and generate unique brand advantage.I have confidence that IP market is of great potential. We witnessed its fast growth in IP product sales contribution in oversea market from the previous quarters. The IP product sales contribution of the year of 2023 already is 40%.

[Guofu Ye, executive]

[Foreign Language]

[Unknown Executive]

[Interpreted] While developing strategic categories is an important measure in product innovation as well, strategic categories represented by blind boxes, disposable products for travelings, plush toys, fragrance and perfumes increased about 70% in sales year-over-year.

[Guofu Ye, executive]

[Foreign Language]

[Unknown Executive]

[Interpreted] Buying affordable products to consumers in MINISO's value for the whole time. During 2023, I have become more confident than ever with our advantage in supply chain and IP design after traveling a lot in our overseas market. In 2024, we will speed up the establishment in global supply chain and strengthen our collaboration with global suppliers of good quality in order to improve product delivery and anti-risk capability of supply chains.These measures will help us in maintaining our competitive advantage in terms of cost saving in our future operations. Nowadays, there are about 24% overseas suppliers among 1,400 global suppliers that we have worked with including cosmetic suppliers from Korea, toy suppliers from Vietnam, textile suppliers from India, skincare products from Europe, and snacks and toy suppliers from North America.We now have stable and long-term collaborations with all these suppliers of abovementioned categories.

[Guofu Ye, executive]

[Foreign Language]

[Unknown Executive]

[Interpreted] Globalization can be demonstrated in 3 efforts. The first one is to optimize globalization of our store network. Recently, we devoted our focus and support to European markets, the newly opened Oxford Street store and Camden store in London have set new sales records of all European stores. Moving forward, we expect to see more stores like these to be open in Europe, which will be one of our key markets of our growth.The second one is products globalization. Differentiation in global products will be the engine for store UE improvement. We will focus on strategic categories and carry out customized R&D of products according to local conditions, providing our customers with popular products that MINISO features, local usage, experience, and sense of aesthetic.The third one is talent globalizations. As of December 31, 2023, percentage of oversea employees exceeded 50%, which demonstrate our results in globalization. We will continue to exert effort in talent pool establishments to better cope with oversea development of high speed and potential.

[Guofu Ye, executive]

[Foreign Language]

[Unknown Executive]

[Interpreted] Let's move on to TOP TOY. Quarterly revenue achieved a 90% year-over-year increase with a quarter-over-quarter increase of 26 and a year-over-year increase of 31.

[Guofu Ye, executive]

[Foreign Language]

[Unknown Executive]

[Interpreted] Moving forward, in 2024, TOP TOY will run into 2 key strategies, which are speeding up in store expansion and optimizing its margin profile. In 2024, we will actively expand the layout of TOP TOY store network, aiming to establish a recognizable and distinctive brand store networks.

[Guofu Ye, executive]

[Foreign Language]

[Unknown Executive]

[Interpreted] Turning to profitability. On one hand, TOP TOY will continue to increase the contribution of self-developed products actively. On the other hand, it will conduct a stricter control on costs and expenses, include sales forecast capability, conduct a reasonable manufacturing arrangement and inventory management and conduct lean reform in supply chains. We expect that TOP TOY will continue to improve its market share and enhance its role in TOP TOY's markets.

[Guofu Ye, executive]

[Foreign Language]

[Unknown Executive]

[Interpreted] The year of 2024 will be the starter of our development strategy for the next 5 years and the year for all of us to fight and thrive. We embrace the challenge and opportunities with brave hearts by emphasizing on product innovation, affordability, globalization strategy and sticking to results of orientation, long-term needs and the belief in victories.

[Guofu Ye, executive]

[Foreign Language]

[Unknown Executive]

[Interpreted] We will now turn the call over to Eason for a review of our financial performance in December quarter of 2023.

[Eason Zhang, executive]

Thank you, Jack. Hello, everyone. Thank you again for joining us today. I will walk you through our financial results for the December quarter.Please note that all numbers are in renminbi terms unless otherwise noted.And I'll also refer to some non-IFRS measures, which have excluded share-based compensation expenses. Revenue was RMB 3.84 billion, representing an increase of 54% year-over-year. Revenue from China was RMB 2.35 billion, up 56% year-over-year. The increase was driven by, #1, a growth of 63% in revenue from MINISO's offline stores and #2, a growth of 90% from TOP TOY. The 63% year-over-year growth of MINISO offline business from China was a result of a 17% growth in average store count and a 39% growth in per store sales.The 90% year-over-year growth of TOP TOY was a result of a 19% growth in average store count and nearly 60% growth in per store revenue. Revenue from overseas markets was RMB 1.49 billion, up 51% year-over-year, driven by an increase of 16% in store count and a growth of 31% in per store sales. Revenue from distributed markets was around RMB 723 million, increased by 26% year-over-year. Revenue from directly operated markets was around RMB 771 million, an increase of around 86% year-over-year, accounting for over 50% of our overseas revenue as compared to 42% in the same period of last year.Gross profit in this quarter was RMB 1.66 billion, up 66% year-over-year. Gross margin was 43.1%, increasing by about 3.1 percentage points in the same period of 2022. The year-over-year increase was mainly due to 2 reasons. Firstly, we witnessed high gross margin in overseas markets, contributed by product optimization and higher revenue contribution from directly operated overseas markets.Secondly, we also witnessed higher gross margin by MINISO and TOP TOY brand due to a shift in product mix toward more profitable products. SG&A expenses as a percentage of revenue was around 23%, above 1 percentage point, up from 22% in the same quarter of 2022. Selling and distribution expense were around RMB 701 million, increasing by about 71% year-over-year.There are 3 reasons: #1, increased personnel-related expenses, logistic expenses and IP licensing expenses in relation to the growth of the company's business. #2, increased depreciation expense of the right of use assets in relation to directly operated stores. And #3, increased promotion and advertising expenses, mainly in connection with brand upgrade and the opening of new stores in overseas markets.G&A expenses were RMB 186 million, representing a year-over-year increase of about 32%, driven by increased personnel-related expense in relation to the growth of our business.Turning to profitability. Operating profit in this quarter was RMB 765 million, an increase of 71% year-over-year. Operating margin was nearly 20% compared to 18% in the same quarter of 2022. Adjusted net profit in this quarter was RMB 660 million, increasing by 77% year-over-year. Adjusted net margin was 17.2% compared to 15% in the same period last year and 16.9% in the previous quarter. Excluding FX impacts, adjusted net margin in this quarter would be 17.4%, another new record in this quarter.Turning to cash position. As of December 31, 2023, we had a strong cash position of RMB 6.9 billion. Free cash flow for CY '23 is about RMB 1.97 billion, up 115% year-over-year. Return on equity or ROE is about 28% for CY '23 compared to 15% in 2022, thanks to higher net margin and improved asset turnover.In longer term, we are confident to increase net margin steadily by leveraging our core capabilities in IP product development, supply chain integration and globalization. We also optimized our expense structure and pursue a sustainable margin profile. And our Board approved a cash dividend of approximately RMB 650 million in this quarter, about 50% of our adjusted net profit during the second half of 2023.Since our -- when we became a public company in 2020, we have returned about RMB 2.8 billion in cash to our shareholders, accounting for about 50% of our adjusted net income from 2019 to 2023. Our capital allocation strategy in the future will continue to balance growth and our commitment to bring stable and possible return to our shareholders.Thank you. And this concludes our prepared remarks. Operator, we are ready to take questions.

[Operator]

The first line is coming from Goldman Sachs, it's Michelle Cheng.

[Michelle Cheng, analyst]

So I have 3 questions for the management. So for the first one, MINISO domestic business, can you share with us the GMV per store or same-store sales plan post the holiday? And given we had a high base last year, so how should we think about the same-store -- GMV per-store trend into 2024?And second question is about the overseas operation. So it's good to see management talk about the supply chain -- global supply chain strategy. But can you share with us some more color about globalization sourcing or some diversification of the sourcing from the non-China market?And thirdly, for the overseas market, we have very strong performance in U.S. and Latin America, et cetera. So is there any strategy we can discuss to improve the per store performance for those market lagging behind like in Asia market?

[Guofu Ye, executive]

[Foreign Language]

[Eason Zhang, executive]

This is Jack. I will answer your first question, for the domestic sales trends. So the first 2 months in this year in China, we see total GMV increased by about 30%. And our goal is to reach about 50% year-over-year growth for the whole quarter. For same-store sales, for the first 2 months, we have recovered to about 95% of last year, and we still see room of improvement for the -- in the whole quarter.So let's wait and see what will happen in March. Usually, the months after CNY is a low season for our China business. So for this year, it will still happen. It will still be the case. But what's positive on this is we have seen the month-on-month trend for this March is a little bit lower than last year. That means we have seen a stronger post-CNY months this year. And for same-store sales growth, yes, this will be our -- one of our key focus in our operations in China.So in addition for -- in addition to lean operations, we still have 3 directions. The first is to improve our productivity in innovation and development. And productivity power is one of our core capabilities. And we currently estimate that we can fine-tune our products or our product structure to improve our sales, especially for the interest consumption-based products. We are going to improve their sales contribution, and it will benefit our same-store sales, including blind box, plush toys and other IP-related products.The second direction is to improve our channels. We now notice that for the nearly 4,000 MINISO stores in China, we still have some structural opportunities. For example, 2/3 of our domestic stores are within 100 to 200 square meters at this moment. And its per store sales is obviously lower than our standard store about 200 to 300 square meters and our flagship store of 300 to 500 square meters.So since this year, we will begin to upgrade some of these smaller stores, increase its area and improve its sales.And the third direction is to improve our brand awareness including, #1, we will continue our brand upgrades. We want to open a batch of new stores with higher performance, with better image and better operations. And #2, meanwhile, we plan to build MINISO's own store metrics. Now we are trying different directions, including MINISO IP land, MINISO Go and various store types. And now all of this are in pipeline. Thank you.

[Guofu Ye, executive]

[Foreign Language]

[Eason Zhang, executive]

[Interpreted] Okay. Michelle, for the second question, here is our initial thoughts. Our thinking of this issue has always been consistent, that is, from a longer-term perspective, we are always optimistic about our prospectus in North American market, in European market and so on, especially the North American markets. So for these questions, I think as a business owner, as entrepreneur, we should think big, think longer.So first of all, we are in consumer sector. So we are not in a sensitive industry. Secondly, we have always believed that if there is any trade friction because all of the American offline retailers, they rely on Chinese supplies so much that so this will be a industry-wide implication and influence. So the American consumers will pay for this at the end of the day.So if there is of this policy, it won't be a long-term policy. Finally, we'll make full proposition on this. So the first is that our pricing strategy is cost markup because we have enough cost advantage and uniqueness in IP and our self-owned brand. So these 3 advantages decide that we have pricing power for our products. So we can transmit all the negative influence to the ending price.The second is we have been preparing ourselves in supply chain. Now for the U.S. market, our local sourcing has accounted for 30%, and it will increase in this year. And we have also cooperated with a lot of qualified overseas suppliers, as we shared, about 24% of our overseas -- of our suppliers are located in overseas. And we are doing propositions in other aspects, but now I'm not at liberty to share more.We'll share more after this project is done. Thank you.

[Guofu Ye, executive]

[Foreign Language]

[Eason Zhang, executive]

[Interpreted] Okay. 3 things to add on these questions. So we have a very ambitious goal for the next 10 years to 20 years I think if we do well enough. So MINISO U.S.A. will be a business like USD 10 billion or even USD 30 billion. So we have this imagination. But it is still a small fraction of the whole U.S. consumption world. So #1, we are not like e-commerce players, right? So we are not that sensitive.And #2, if this is an industry-wide influence, it will benefit players with cost advantage such as MINISO. And #3, we contributed to local offline retail environment and ecosystem by adding diversity. We are not Barbarian at the Gate. We are not broker and so on. Thank you.

[Guofu Ye, executive]

[Foreign Language]

[Eason Zhang, executive]

[Interpreted] We shared on Investor Day that we want to focus key markets such as Europe and North America because in addition to the U.S.A., the European market in the next 5 years will embrace a huge development. Our initial goal is that by the end of the next 5 years, the -- our store network can reach we can thousands of stores in Europe.So in addition to doing well in our existing distributor market in Europe, we will also try different ways that can open directly operated flagship stores. We try to participate in operations or try to set up JVs with our distributors in various ways to support local market. Meanwhile, we have still -- have a lot of white space in Europe. In a lot of countries we haven't had one single MINISO store, and that's our next stage planning. So except Europe, we now have 2/3 of overseas stores in Asian countries and Latin American countries.For example, in Latin American countries, this is a market that has the highest operational efficiency in MINISO's ecosystem. Now in terms of per store sales, our top 5 overseas market, 4 of our top 5 markets are located in Latin America. Now in this market, we have 515 MINISO stores, but this is a market with 560 million population. So we believe we can have about 2,800 stores in there.For Asian countries. Now it accounts for about 1/3 of our GMV in overseas markets. Although the same-store sales or per store sales recoveries still lag behind its peers but for CY '23, it still contributed about 40% of our overseas revenue. For the past 4 quarters in 2023, per store sales recovery rates in Asian countries recovered steadily from 67% in Q1 to 75% in Q2 and to 79% in Q3 and further improved to 82% in Q4. We have high confidence to further improve our per store sales in this area and to further enlarge our business.In general, we don't want to limit ourselves in overseas market, and we should think long. And our strategy for overseas market in the future is to focus on key markets such as Europe and U.S. markets and fully diversify the whole overseas operations by using our flexible store models. Thank you.

[Operator]

Second line is coming from Bank of America, Lucy Yu.

[Lucy Yu, analyst]

So the first question is about the increasing support for distributors in Europe market. Could you please elaborate how are we going to support them? And what is the strategy difference between U.S. and EU?And the second one is on unit economics in domestic market, especially that was the first year of reopening. So how should we compare the profitability of per store versus 2019? And the last one is on Q1 guidance. Mr. Ye already guided for China GMV of 15% growth. So how should we think about the overseas GMV growth in the first quarter?

[Guofu Ye, executive]

[Foreign Language]

[Eason Zhang, executive]

[Interpreted] So European market is very good. Now currently, we use flexible ways to cooperate and to enhance our support to local distributors, including JV or including cooperating with same-store operations. I think the European market as a whole is a very good market, including the average GDP per capita, average consumer spending and so on. So I think it's a comparable market in terms of size and prospectus with the U.S. market.

[Guofu Ye, executive]

[Foreign Language]

[Eason Zhang, executive]

[Interpreted] Population-wise for -- European as a whole, it has nearly 700 million population. So more than of 470 million of that in the North American market. So in the longer term, we think European market is still a very important growth engine for MINISO's overseas business.

[Guofu Ye, executive]

[Foreign Language]

[Eason Zhang, executive]

So for your second question about the store UE, Lucy, that's a very good question. As we shared at our Investor Day, the same-store sales of the whole CY '23 in China was nearly 95% compared to the pre-COVID times, i.e., 2019 times. And we still maintain a very healthy payback period for our franchisees, our retail partners within 1 year.And for the first quarter, about the guidance, I think, hey, Lucy, you mean the guidance for top line and bottom line, right?

[Lucy Yu, analyst]

Yes, top line for overseas and break that down into wholesale versus DTC, if you can give any guidance on the margins, that would be great.

[Eason Zhang, executive]

Okay. Yes, I think we still see very healthy growth for the first 2 months in our overseas market. GMV increased about 40% on a year-over-year basis. And although we still have 2 weeks to 3 weeks to end this quarter, now we believe overseas market as a whole can maintain a year-over-year growth of about MINISO 35% to 45% year-over-year growth rate, including 60% to 70% increase in DTC market and about high teens to low 20s in our wholesale markets.About the margin, I think there's still uncertainty here. We will still wait to see because it depends on the margin profile of our DTC market. So for the Q1, as a whole, it's usually a low season for our overseas market. So if you look at the past several years, Q1 usually has about low teens or to low 20s Q-o-Q decline compared to the previous quarter, Q4. But we have observed better performance in this Q1 because of the DTC market.You may notice that we opened a lot of new stores in the fourth quarter last year. So that means the revenue contribution from the DTC market in this quarter will be significantly higher than that in last year. So because the DTC market is still in its early stage, and it's apparently not in a fully normalized margin profile, so it may dilute some of our operation margin as a whole. But we have high confidence that if we think long with the increase of the DTC's sales scale, it will put positive impact to our operation margin.Hopefully, we can use sales leverage, we can have better control on rents, on labor costs, on promotional and advertising expenses and so on to improve the margin profile for the overseas DTC market and at the end of the day, to improve the whole operation margin of the company.So in general, we are quite positive of our margin profile for the whole year. Thank you.

[Operator]

The third line is coming from UBS, Mr. Samuel Wang.

[Samuel Wang, analyst]

I have 2 questions. The first is regarding the SG&A ratio. I noticed that in Q4 last year, our SG&A ratio is actually around 23% to 24% of our total sales. So in the past, I think our guidance is generally 20% to 22% of the revenue. I understand that D2C is one of the main reasons. So just to check for 2004, is that a new norm for us to forecast SG&A and a ratio given we are also very aggressive on D2C sales expansion? So that's the first question.The second question is regarding the distributors strategy in China market. We aim to increase their store area for them. And do we have any pushbacks and how do we persuade them to expand their store networks? And do we have any quantified number of how many big format stores we are going to open in 2024?

[Eason Zhang, executive]

This is Eason. For your first question about the SG&A trend. So first of all, in the December quarter, we have seen it increased. But if you look at the whole SG&A ratio as a percentage of revenue, it increased like 1 percentage points compared to same period last year, right? The year-over-year improvements are majorly in relation to our newly opened direct stores, especially in the key markets such as the North America, including increased rental related expenses and people expenses and store opening related marketing expenses and so on.So as I shared in my answer to Lucy's question, we -- if you look at the whole year, we feel positive about the improvement of the whole operational margin of our DTC market. So with the revenue contribution of the DTC market increased. And if we successfully increase, improve its margin profile, it will contribute positively to the whole operation margin to the company as a whole. But if you look at this problem on a quarterly perspective, it still -- it will have some uncertain because for example, you investment -- you put investments such as store rents, marketing expense in this quarter, but the store will have to open until next several quarters.So it will obviously impact this quarter's P&L. So I strongly suggest you look at this question in at least on a yearly basis. And for your second question about the channel upgrades, yes, we do have a plan, but it's not finalized yet. We now have nearly 4,000 stores and nearly 2/3 within 100 to 200 square meters. So at the end of the day, we want to upgrade all of them, but we should take the measures step by step. And it has to depend on the availability of the neighborhood in the shopping malls and depend on the negotiations with franchisees. So that is business, right? You have to make negotiations and it has some uncertainties. Thank you.

[Operator]

The fourth line is coming from Jefferies. Ms. Anne Ling.

[Kin Shun Ling, analyst]

So my first question is on like whether for the MINISO brand, where you have a segment margin of 22.6% for the half year. And on a half-on-half basis, it improved by 0.2 percentage points. So we're just wondering whether there's any break down or idea in terms of the margin difference between the domestic market versus the overseas market and overseas market like between direct operator and the wholesale business.

[Eason Zhang, executive]

About the breakdown, I mean, I think you mean the OP margin, right?

[Kin Shun Ling, analyst]

Yes.

[Eason Zhang, executive]

Yes. I think it's a dynamic mix. Now for the 22.6%, we do not disclose them. Maybe it's after your calculation, but that's close. That's close to our management counts. So among this mix, we have MINISO China, which obviously is asset-light and with higher OP margin, higher OP margin because the GP margin in China is nearly around 38% to nearly 40%, and the expense structure is quite light for this business.So obviously, it can have nearly 30% or so OP margin. But for our overseas market, especially for DTC market, since it's at its early stage and its margin profile is not that stable and it fluctuates quarter-over-quarter -- on a quarterly basis. So we do not think that this is the right time to discuss this part of the margin.

[Kin Shun Ling, analyst]

So my question is regarding the European operation, which is not part of the direct operated business. So moving forward, how are we going to -- are we going to reclassify it or like how do we look at the European market and the sales profit break down? Yes.

[Eason Zhang, executive]

Yes, that's a very good question. And I think if you look at the whole overseas markets of MINISO, I think the best thing we noticed that is we have a very quite flexible business model among different markets. For Europe, you are right that all of our markets now are operated by our distributor partners. And Mr. Ye mentioned that, hopefully, by end of next 5 years, we will have thousands of stores in European markets. And we have seen -- we are quite confident with the possibilities to achieve this goal.And margin-wise, you are right that, that -- it will contribute in a positive impact on the whole of OP margin. Actually, we have continuously witnessed this trend go on during the past 3, 2, 4 months, where we see, as we increase the proportion of IP products exported to these wholesale market, we have seen the whole margin profile of distributor market improved, including increase in GP margin and increase the sales leverage and so on.

[Kin Shun Ling, analyst]

So my last question is on the U.S. market where we have a very good performance and so far, but at this stage, it's still a directly operated market where we run our own store. So when will we start our franchise business model in the U.S.?

[Eason Zhang, executive]

That's a very good question. Yes, we have been quite open to consider various options in growing our U.S. market. But now, more than 90% of our store there are our directly operated. In the future, we are open -- still open to explore various possibilities. But at this moment, we want to do it by ourselves because if you look at the wholesale market, the DTC market, and overseas market, obviously, we want to accelerate the growth of a certain market. The best way is to do it by yourself because you can have more control on the whole business, right?So at this moment, the U.S. market is at its momentum. So we want to seize this momentum, and we want to know, to find out how well can we optimize the OP margin? And how large can we enlarge the addressable market at first. But in the future, we are still open. But --

[Kin Shun Ling, analyst]

Not at this stage.

[Eason Zhang, executive]

Yes. But not at this time. Thank you.

[Operator]

Thank you all again for joining our call today. Now we shall conclude our call. We will see you in the next quarter. Goodbye.