MINISO Group Holding Ltd

HKEX:9896

Earnings Call Analysis

Strong Performance and Strategic Expansion Amidst Market Challenges

In the first half of 2024, MINISO achieved significant milestones, expanding its global store network to over 7,000 locations and experiencing a 25% increase in revenue to CNY 7.76 billion. The company saw growth in same-store sales by 7% and a substantial improvement in gross margins, rising from 39.6% to 43.7%. MINISO's overseas revenue rose by 43%, driven by a 70% increase in direct operation markets. Despite softening consumer markets, the company remains confident in meeting its full-year targets, projecting revenue growth of 17% and an adjusted net profit of RMB 2.8 billion or higher.

Impressive Store Expansion

In the first half of 2024, MINISO Group has continued its rapid global expansion, marking a milestone by reaching 7,000 stores worldwide. This achievement was accomplished in less than a year since surpassing 6,000 stores. These expansion efforts were spearheaded by the opening of 256 new units for the TOP TOY segment and 47 new units for the Goldman overseen. New store openings contributed substantially to the group's growth, indicating strong market demand and successful execution of expansion strategies.

Revenue Growth and Financial Performance

MINISO reported a 25% increase in group revenue, reaching CNY 7.76 billion in the first half of 2024. This growth was attributed to a 7% year-on-year increase in same-store sales and a 90% surge in the average store count. The company's gross margin also improved significantly, rising from 39.6% to 43.7%, thanks to strategic product categories and cost management initiatives. However, operating profit margin saw a slight decrease from 20.4% to 19.3%, mainly due to a net foreign exchange loss of $12 million compared to a gain of $55 million in the same period last year.

Profitability and Cash Flow

Despite challenging economic conditions, MINISO maintained stable profitability. Adjusted net profit rose by 18% to RMB 1.2 billion, with an adjusted net margin of 16%. The company also showed impressive EBITDA growth of 26% year-on-year, achieving an EBITDA margin of 25.4%. Operating cash flow remained robust, generating CNY 1.3 billion, and free cash flow surpassed CNY 1 billion. The company's strong cash position stood at CNY 6.9 billion as of the end of June 2024, showcasing its solid financial health.

Overseas Market Success

The company's overseas markets played a crucial role in its growth story. Revenue from overseas operations reached CNY 2.7 billion, a year-on-year increase of 43%. Particularly notable was the performance in the direct operation market, which saw a 70% year-on-year revenue increase. The United States was a key market, with the opening of the 200th MINISO store in Santa Monica, California, making MINISO the leading Asian brand in terms of store count in the U.S. Same-store sales in the U.S. also grew by 14%, indicating robust consumer demand.

Strategic IP Focus and Product Innovation

MINISO's focus on intellectual property (IP) and product innovation continued to drive its performance. IP product sales contributed significantly to the revenue, with the U.S. market showing a substantial 40% growth in IP-related sales. The company's strategy to develop self-branded products paid off, especially for the TOP TOY segment, which saw a 35% contribution from self-developed products. This focus on unique and proprietary products helped increase the overall gross profit margin and strengthened the company's market position.

Strategic Outlook and Targets

MINISO's management remains confident in achieving the full-year business plan and the 5-year strategic roadmap. They expect continued revenue growth of 17% for 2024 and an adjusted net profit target of RMB 2.8 billion or higher. The company also reaffirms its commitment to a dividend payout ratio of no less than 50% and has approved an interim cash dividend of approximately RMB 621 million. The share repurchase program, authorized under the general mandate, aims to repurchase up to 10% of the total outstanding shares, reflecting confidence in the company's intrinsic value.

Earnings Call Transcript 2024-Q4

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to MINISO's Earnings Conference Call for the first half of 2024. [Operator Instructions] And be kindly noted that this event is being recorded. We have announced our June quarter's interim financial result earlier today. An earnings release is now available on our Investor Relations website at ir.miniso.com.

Joining us today are our Founder and CEO, Mr. Jack Ye, and our CFO, Mr. Eason Zhang.

Before we continue, I would like to refer you to our safe harbor statement in our earnings press release, which also applies to this call as we'll be making forward-looking statements. Please also note that we will discuss non-IFRS financial measures today, which we have explained and reconciled to the most comparable measures reported under the International Financial Reporting Standard in the company's earnings press 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. If you are 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 over to Mr. Ye. And Ms. Allis Chen from MINISO IR team who will translate for Mr. Ye. Please go ahead, sir.

[Guofu Ye, executive]

[Foreign Language]

[Allis Chen, executive]

[Interpreted]

Hello, everyone. Welcome to MINISO Group's Earnings Conference Call for the first half of 2024. During the reporting period, our global markets for things continue to expand. We achieved net milestone of 7,000 stores globally, which is less than a year since we surpassed 6,000 stores.

[Guofu Ye, executive]

[Foreign Language]

[Allis Chen, executive]

[Interpreted]

In the first half of 2024, the group's net store network have seen 502 units with Goldman overseeing TOP TOY experience in their opening period in history, adding 256 and 47 new units on a net basis on the first half of the year, respectively. These 2 business segments also making double-digit growth in same-store sales continuing to leave and act as growth engines in the world. MINISO Mainland China achieved steady growth by adding 189 net new stores, including 8,000-plus same-store-sales performance of 98.8% of previous year's level. As a result, the group's revenue for the first half increased by 25% to CNY 7.76 billion, including a 7% same-store sales growth and a 90% growth in average store count.

[Guofu Ye, executive]

[Foreign Language]

[Allis Chen, executive]

[Interpreted]

Product capability, it's our core competitive strengths. We continue to focus on IV and strategic categories, increasing gross margin from 39.6% in the first half last year to 43.7%, respectively, adding 4.1 percentage points. General capability is crucial for us to stand out in future [ positions ], especially in overseas markets, especially in direct operating markets and especially in the United States. The pace of store expansion in the United States have exceeded expectations continuously to double store count and a double-digit same-store sales growth.

Even though we are still at investment stage in overseas markets, under our effective cost control measures and adjusted net profit in the first half of 2024 still increased 80% year-over-year.

Excluding net foreign exchange impacts, adjusted net profit increased 26% year-over-year, slightly faster than the growth of [ RAB ].

[Guofu Ye, executive]

[Foreign Language]

[Allis Chen, executive]

[Interpreted]

At our Investor Day earlier this year, I shared our mission, vision and long-term strategy and implementing cash in the next 5 years. Our mission is Life Is For Fun and our vision is to become the world's #1 IP designer [ tell ] group. To realize this vision, we adhere to affordability, globalization and product innovation have being signed. We have established 8 markets. 900 to 1,100 net new stores in this year from 2024 to 2028, no less than 20% CAGR for revenue, and a higher figure for EPS from 2024 to 2028, and having less than 50% of IP product sales contribution by the end of 2028.

[Guofu Ye, executive]

[Foreign Language]

[Allis Chen, executive]

[Interpreted]

In the first half of 2024, despite evolving global markets, our business model demonstrates strong resilience and our financial performance met our earlier expectations. Going forward, all of our businesses will make firm progress in accordance to our 5-year strategic plan.

[Guofu Ye, executive]

[Foreign Language]

[Allis Chen, executive]

[Interpreted]

Now I will walk you through 2024 first half business update for our 3 major segments, MINISO Mainland China, MINISO Overseas and Top Toy.

[Guofu Ye, executive]

[Foreign Language]

[Allis Chen, executive]

[Interpreted]

Firstly, MINISO Mainland China continued to achieve a robust and resilient same-store sales based on high-quality channel expansions, with a 60% year-over-year increase in upline GMV. According to National Bureau of Statistics, the growth rate of high [ state ] retail sales were 4.1% during the same period last year.

In particular, same-store sales were at 98.3% of the prior levels with a 0.9 percentage increase and a 2.5 percentage decrease in profits. Meanwhile, purchase conversion rates have remained stable. Including the Q2 sales of Chicago product in our pop-up stores, same store sales for H1 in domestic markets will have a positive growth year-over-year, which will be in [ passive ] performance in domestic outline retail industry. Online to online models also developed rapidly with a nearly 80% increase in GMV for the first half years.

Entering the third quarter, our year-to-date domestic sales have continued to maintain a doubled digital growth. We expect MINISO Mainland China will continue to grow by 10% to 15% in line with our earlier expectation.

[Guofu Ye, executive]

[Foreign Language]

[Allis Chen, executive]

[Interpreted]

The expansion of our store network is healthy. In the first half of 2024, we had 189 net new stores, maintaining a steady pace towards our annual target of 350 to 450 net new stores. We're pushing up new stores in the first and second-tier cities were close to 60%. Meanwhile, we are thrilled to see that in the first half years, the same-store recovery of higher tier cities, especially first-tier cities, nearly 100% of the previous year's level, which recovered better than the lower tier cities. On one hand, this indicates MINISO still has sufficient space for store openings in higher-tier cities.

On the other hand, this also indicated that our IP strategies have been notably impacted in higher-tier cities, significantly driving the performance of same-store sales. There are a total of nearly 2,000 cities and towns in China as lower tier area, and MINISO have entered over 1,000 of them, indicating that there is still a significant untapped market for future penetration.

Our retail partner structure is although very stable. In recent years, store concentration rate for top 50 retail partners remain at 50% and more than 600 of them having in operation with MINISO for more than 3 years. The development on MINISO from the support of our partners, and we will continue on winning cooperation for more and MINISO stores.

[Guofu Ye, executive]

[Foreign Language]

[Allis Chen, executive]

[Interpreted]

Next, let's discuss the MINISO overseas business update.

[Guofu Ye, executive]

[Foreign Language]

[Allis Chen, executive]

[Interpreted]

In the first half of 2024, revenue from overseas exceed CNY 2.7 billion, a year-over-year increase of 43%. In particular, revenue from the direct operation market increased by 70% year-over-year on a comparable basis. The Direct operation market accounting for 56% of overseas revenue in the first half of this year, surpassing the distributor's market.

[Guofu Ye, executive]

[Foreign Language]

[Allis Chen, executive]

[Interpreted]

Excitingly, the overseas market added a net of 256 stores in the first half year, which marked store opening phase for the first half of the year since MINISO's globalization 9 years ago, boosting our confidence in our bulk of 550 to 650 net new stores for the full year. Amongst these net new stores, the number of directly operated stores has been set at a record of 105 with more than 50% of them are from United States.

Last week, we celebrated the opening of the 200th MINISO store at the Santa Monica Beach in California, turning MINISO as the Asia's consuming brand with the largest store network in the United States. And as we have entered 40 states in the United States, along with the rapid growth in the numbers of the U.S. stores.

Same-store sales have also achieved healthy growth in the first half of 2024. Going forward, we will pay more attention to our store operation management aiming to achieve sustainable same-store sales growth through product localization, operations localization and consumer localization.

[Guofu Ye, executive]

[Foreign Language]

[Allis Chen, executive]

[Interpreted]

The IP strategies have been [ released ] and implemented in 2024. In the first half years, IP product sales contribution exceeded 30%. In our domestic market, IP products contributions have been further increased nearly to 30% with a nearly 40% year-over-year growth.

In our overseas markets, IP products contributions have been increased to nearly 50% and the revenues have been doubled in. Also for the brand and continuously explore innovative IP corporations.

To summarize the clean use of IP operation in the first half of 2024, their new models, new store types and new series.

[Guofu Ye, executive]

[Foreign Language]

[Allis Chen, executive]

[Interpreted]

Firstly, in the first half of 2024, the GM lease of the IP themes models increased by about 400% year-over-year, contributing to more than 30% of the IP product sales compared to less than 10% contribution in the same period last year. Secondly, our store -- new store formats, the IP pop-up stores will launch in the first half years.

They provide consumers with brand new shopping experience and have become a new channel for IP product sales. Lastly, the upgraded and development of product series of the same IP brands will prolong the promotion fees, extend the IP operation sales cycles and create more SaaS opportunities to a greater extent.

[Guofu Ye, executive]

[Foreign Language]

[Allis Chen, executive]

[Interpreted]

In overseas markets, we replicated our IP operation strategies and to create momentum for the popular [ strategy ], BT21 continuously setting new records for IP sales in multiple overseas markets. The great success of such IP series operations not only brought us a better product sales and stronger brand exposure but more importantly allowed our global commercial rental partners to fully perceive the potentials of IP consumption and the brand values of MINISO. We are grateful for the support from our partners during these events.

I believe that within that cooperation with them in the future, there will be opportunities to create more marketing [ deadlines and sell stores ].

[Guofu Ye, executive]

[Foreign Language]

[Allis Chen, executive]

[Interpreted]

Thanks to the implementation of our IP strategies, as of June 30, the numbers of registered members of MINISO worldwide exceeded 100 million, gradually improving global membership system will help convert more IP events into our brand members and vice versa, during business growth of MINISOs in the future.

[Guofu Ye, executive]

[Foreign Language]

[Allis Chen, executive]

[Interpreted]

The super store share is also steadily advancing globally. Taking advantage of all in this momentum, we opened a global flagship store at the most famous Champs-Elysées Avenue in Paris. With brand promotions occurring for Chinese Olympics athletes attracting countless consumers from all over the world to get to know more about the products and cultures from MINISO, from China via MINISO stores.

MINISO has over 300 stores located in Indonesia, as of June 30. And the largest MINISO flagship store in the world, covering an area of 3,000 square meters will also be unveiled in Jakarta, Indonesia tomorrow. We hope that these global flagship stores are not just shopping destination, but also magical paradise in a wonderful land that captivated global consumers and lead them with a sense of wonder, allows everyone to be treasure hunters in our stores.

We believe that happiness and support that can be passed on. We are committed to creating these [ scores ] for every consumer who enters MINISO stores.

[Guofu Ye, executive]

[Foreign Language]

[Allis Chen, executive]

[Interpreted]

Meanwhile, we are also actively deploying the overseas supply chain with the efforts in the first half years. Most of the core categories we saw in the United States markets can be fully replaced by the supply chains from Southeast Asia, Japan, South Korea and United States. Operating a highly edged supply chain, it's a must-have approach for the global companies to [ public ] evolving and challenging global markets.

[Guofu Ye, executive]

[Foreign Language]

[Allis Chen, executive]

[Interpreted]

Let's move on to TOP TOY.

[Guofu Ye, executive]

[Foreign Language]

[Allis Chen, executive]

[Interpreted]

In the first half of 2024, TOP TOY revenue increased by 38% year-over-year, including a high-quality same-store sales growth of 40%, coupled with a net increase of 47 TOP TOY stores in the first half of 2024.

[Guofu Ye, executive]

[Foreign Language]

[Allis Chen, executive]

[Interpreted]

TOP TOY self-developed products continue to have [ use ] with a proportion of self-developed products exceeding 35% in the first half years. The average merchandise sales profit margin of self-developed products is about 60%, which undoubtedly places positive growth in improving the overall gross profit margin. TOP TOY has been profitable for 3 consecutive quarters, reconfirming its shipping point.

[Guofu Ye, executive]

[Foreign Language]

[Allis Chen, executive]

[Interpreted]

As for the products, self-developed [ growing ] series launched in Q2 have topped the sales of all [ havers ] in TOP TOY this year. We recently launched a [ San Reno Buy One Sirius ], having around 100,000 units of sales within just 50 days in launches, achieving over 10 million sales. In the future, we will continue to increase the proportions of self-developed brand products and further optimize the product profit margins.

[Guofu Ye, executive]

[Foreign Language]

[Allis Chen, executive]

[Interpreted]

In 2024, while focusing our business, we also made more emphasis on fostering our corporate culture. I repeatedly emphasize right strategy and dynamic teams internally. Looking that at 11 years development history of MINISO, talent is the most [ solar ] strength for our enterprise development.

As for June 30, the numbers of our global employees have exceeded 5,200, over 2,800 are from the overseas. In March, we launched with over 10 million initial funding. We held a very first MINISO group wedding ceremony for 17 couples, [ vending ] our sincere blessings.

[Guofu Ye, executive]

[Foreign Language]

[Allis Chen, executive]

[Interpreted]

I have always emphasized the values with passion and persistence within the group in our pursuit of success built alive in our [ career ] in addition to the correct values and sufficient rational capability, while we also need a strong passion and persistence. Passion and persistence are also in accordance with create industrial and promote enterprise development continuously.

[Guofu Ye, executive]

[Foreign Language]

[Allis Chen, executive]

[Interpreted]

We have huge potential for development and profitability in returns, we commit ourselves to launch reasons to seeking truth from facts, to operating with good faith and strong ambitions. MINISO provide [ playful ], appealing and useful products to our global consumers in the future continuously, offering competitive career development opportunities to our employees and bring long-term and sustainable returns to our shareholders.

[Guofu Ye, executive]

[Foreign Language]

[Allis Chen, executive]

[Interpreted]

That concludes my remarks.

Next, please allow Eason to introduce the company's financial situation in the first half of the year.

[Eason Zhang, executive]

Thank you, Jack, and welcome, everyone, for joining us today. I'm pleased to see that our business have made firm progress in accordance with the 5-year strategic road map. And our performance has maintained expectations at the beginning of the year.

Our business model has demonstrated great resilience despite the softening of consumption market. In overseas market, where we doubled our directly operated store network, we managed to balance growth and margin. And we can surely do better in the second half because the initiatives we adopted recently to improve operational efficiency have begun to pay off.

Although the economic data remains the next -- we see IP [ return ] and globalization, we have full confidence to deliver our new beginning targets. Now let me walk you through our financials for first half.

Please note that all numbers are in renminbi, unless otherwise stated. And I will also refer to some non-IFRS which has excluding share-based compensation expenses for [ SPC's ] expenses. So revenue saw a robust increase of 25% by last year's high base and at high end of our expectation.

We are thrilled to see those drivers of revenue performed very well in the first half in terms of [ sum average ]. We've delivered record net addition in overseas in TOP TOY and we received acceleration in the second half in Mainland China. In Mainland China, we are on track to deliver our guidance of 350 to 450 net new units, while making necessary training to our existing store formats and franchisee structure.

When it comes to same-store sales, we've delivered a 7% year-on-year growth at new group levels. So we are particularly encouraged by our treatment in China Mainland. While [ SSG ] was 98.3% previous by level, outperforming domestic retail sector. Our product team have introducing best-selling SKUs as they have been doing during the past 11 years.

Our operation team has launched several initiatives to make sure in-store sales is best in class. For example, our [ O2O ] business for instant retail increased by nearly 18% in the first half because our core [ sales ] in 115 stores are easily accessible to our customers. And we have right products and a comprehensive set of fast and convenient digital fulfillment solutions.

In overseas, same-store sales growth was 16%, we are still at very early stage to uncover sales potentials for overseas stores. It will grow very fast, but it [ naturally ] fluctuates. The mission critical here is localized products and operations. Although MINISO is a pioneer in Chinese consuming brands going overseas, all of attempts at retail localization are nearly at the beginning stage.

In addition, TOP TOY same-store sales growth was remarkably at 14% in the first half. Next, let me talk about channel mix. Overseas DTC market is now 20% of our total revenue compared to 14% in the first half last year. The revenue contribution from MINISO [ training ] offline stores decreased by 4 percentage points. This shift in revenue mix is one of the reasons why we had another record high GP margin, and it also changed operating profit distribution within a year, a small profit will be made in the second half.

In terms of GP margin, the year-over-year high of 4.1 percentage points is a result of not only revenue mix shift, but also improvements in GP margin at every single line of business, notably in TOP TOY and overseas. Going forward, we have reason to believe our GP margin can be optimized further because of above reasons, yet, we will keep an eye on value proposition and make dynamic judgments.

SG&A expense increased 56% in total, including a 66% increase in selling and distribution expenses, and a 27% increase in general and administrative expenses. SG&A represented 24% of our total revenue, 5 percentage points higher than the same period of last year, of which 3 percentage points were directly related to our new DTC stores opened in the past 12 months, including rent, D&A and payroll.

As we discussed in the press release, the investment into DTC stores is to make sure that future success of our business, especially in strategic overseas markets such as the U.S. markets. As of June 30, 2024, number of DTC stores in overseas markets was 343, we're only doubling such figure compared to a year ago.

In the first half, revenue from DTC stores increased by 111%, while related S&D expenses, such as [ RINs ], D&A expenses and payroll, excluding SBC expenses increased 83%. These new stores are expected to contribute more substantial sales in the second half of 2024. We are taking effective measures to improve operational efficiency in these DTC stores and control costs. So the initial results is very good. So we believe the hike in operating expense ratios won't last too long.

Conversion and advertising expenses increased by 46% in the first half, P&A expenses as percentage of revenue stabilized at around 3% in the first period. License expense increased 24%, consistent with our revenue growth. Logistics expenses increased by 54% compared to 43% of revenue growth in overseas, reflecting to a certain extent the rising freight costs caused by tension in international pricing during the first half.

Turning to profitability. Operating profit increased 18% year-over-year, OP margin was 19.3% compared with 20.4% in the first half of last year. Notably, there was a $12 million net foreign exchange loss in this first half compared with a $55 million net borrowing exchange gain in the same period last year. Excluding SBC impact and [ direct ] impact, adjusted OP margin was 20.3% compared with 20.1% last year. Adjusted net profit was RMB 1.2 billion, up 18% year-on-year. Adjusted net margin was 16% compared with 17% last year.

Excluding FX impact, adjusted net margin was 16.2% compared with 16.1% last year, implying our stable profitability and the scalable growth. Adjusted EBITDA increased by 26% year-over-year. Outpacing the growth in revenue, adjusted EBITDA margins was 25.4% compared to 25.2% in the same period of last year. Adjusted basic and diluted earnings per ADS increased by 18% and 19%, respectively.

Turning to cash. So by end of June, we maintained a strong cash position of CNY 6.9 billion, Net cash flow generated by operations in the first half was about CNY 1.3 billion. CapEx was CNY 303 million and free cash flow was above CNY 1 billion.

Turning to working capital. The channel inventory turnover remains efficient. By the end of first half, 26% of MINISO's brands inventory were located in overseas DTC market compared to 21% a year ago. Inventory turnover days were 81 days including 70 days in China and 147 days for MINISO overseas DTC markets. Structurally, inventory over 180 days accounted for about 12% at this level.

Turning to capital allocation, we are committed to a dividend payout ratio of no less than 50%. Our capital allocation strategy will also continue to balance fast growth and our commitments to bring stable and foreseeable returns to shareholders. The Board company has approved an interim cash dividend for first half of 2024, with a total amount of approximately RMB 621 million. Upon payments of the interim dividend, the company will have returned RMB 1.4 billion in cash to shareholders through dividends and share repurchase from year-to-date.

Since 2020, we have returned CNY 3.6 billion to our shareholders upon payment of the interim dividend, accounting for 62% of adjusted net profit accumulated from 2020 until the first half of this year. We are confident in accomplishing our full year business plan and 5-year strategy and believe that our share price has been trading below its intrinsic value. The [ Board ] company has approved a share repurchase program to make the best of the general mandate granted at our General Meeting held in June this year.

Under this general mandate, the company may repurchase its shares in ADS in the next 12 months, not exceeding 10% of the total outstanding shares and [ ask for ] share repurchase in open market subject to market conditions. We believe that the share repurchase program is in the best interest of the company and its shareholders as a core and create value for shareholders.

Our performance for the first half once again demonstrates the strength and resilience of our business model and reflects our ability to execute on our IP and globalization strategy. I'm very confident that we will once again meet our full year targets. Our financial strategy will continue to remain disciplined in terms of working cost compares and allocation of capital as we commit to delivering stable profits and cash flows.

Our target for the year of 2024 remain unchanged from our expectations at the beginning of the year. The revenue is expected to increase by a continued [ 17% ], and adjusted net profit target is RMB 2.8 billion or higher.

Thank you, and this concludes our prepared remarks. We are now ready to take questions.

[Operator]

Thank you. The first questions are coming from Ms. Lucy Yu from Bank of America Merrill Lynch.

[Lucy Yu, analyst]

So 2 questions here. Firstly is on the domestic market. In July and August, we have witnessed some weakness in the domestic demand. So could you please update us how is your performance in the first 2 months -- in July and August? And how should we think about the pop-up store contribution to these 2 months as well as for the rest of the year? So that's the first question.

And the second one is for the selling and distribution expense as a percentage of revenue, which has exceeded 20% this quarter. So this is the highest since we have divested, so I believe this is due to a faster overseas DTC expansion during low season. But how should we think about this ratio going forward in the second half? Should we expect that to go back to maybe the first quarter level or last year level?

[Guofu Ye, executive]

[Foreign Language]

[Eason Zhang, executive]

So I will translate for Mr. Ye quickly. So about your questions on the performance in the recent -- in recent months. The best MINISO same-store sales in China in the first half was about 98%. We stay at the increased by 0.1% and tracking down by 2.5% and our conversion rate from stock visit to purchase stabilized.

Now we are facing challenges by a very soft domestic consumer market. But MINISO has very, very high confidence to keep the best-in-class same-store service in China, specifically in the same-store sales above 97% year-to-date, and we will see a relatively lower base entering into September.

And we also are working on our IP products, improving the operational and investment in instant retail. So our target for full year is to stabilize in same-store sales with 100% of recovery or higher or lower than sitting on that base. And our target for the whole year for our MINISO offline business remain unchanged with 10% to 15% year-on-year growth.

And about the same-store sales in China, we have more initiatives going forward. The first is improving our product capabilities, and which is our profitabilities and we'll focus on IP and strategic [ accuracy ] to improve our -- to optimize our product structure. And we will have a lot more and more interesting product categories going forward, which will help our increase in same-store sales, products.

The second is increase -- improve our capabilities in channel expansion as we have done in the past several quarters. Now, we have an assortment of stores in China that we can improve by structurally operating the store from the inside, and so on. So since last year, we had been executing this improvement. Our plan is to finish this improvement in next coming years.

And the third is to improve MINISO's brand awareness, including our inner strategic brand upgrade and we want to build lots of flagship stores with better image and better performance. For example, 2 weeks ago, we have a newly launched [ IP ] in Tianjin, and we have received very, very positive initial feedback from consumers there.

And we have also this new kind of [ store-borne ] ads launched in this year. And going forward, we will have another form of trial and experiment, which we look forward to see that. And we see, about the second question about [ EBC ] store sales and distribution experience. But big answer is, as I mentioned, the hike of our expense, especially those expenses with DTC stores won't last long because, if you remember, we have talked that MINISO stores in the U.S. now already in 40 states already.

Considering that we have somewhere like 200 stores, that means our stores in the United States [ bad news ]. We will need to open more stores before we can get these logistics expenses or related expenses to leverage. So because our MINISO store expansion back in the U.S. is very -- is very quick. For example, by the end of this year, we will have doubled our store base compared to 1 year ago.

So we think that when we have 300 stores or 400 stores or even 500 stores, we can fully reach these logistic expenses and other expenses such as the store rents and labor costs are also in our way to be optimized. So I think in the second half, you will see that our operating expense ratio being significantly reduced.

[Operator]

The next questions are coming from Ms. Michelle Cheng from Goldman Sachs.

[Michelle Cheng, analyst]

[Foreign Language]

[Interpreted]

So I have 2 questions for management. For the first one is on U.S. market. Given the volatile consumption market in U.S. in the past few months, do we see any new opportunities or risk and how this will impact strategic expansion and store formats.

And also, the second question is about Europe market. This is one of the key focus, we mentioned earlier in the year. And can you update us the key -- any development for different markets in terms of the store format, partnership or with different partners and also the store format, et cetera. And any good progress we are seeing so far and any room for further improvement?

[Guofu Ye, executive]

[Foreign Language]

[Eason Zhang, executive]

Let me quickly translate. So overall in overseas [ city ] market, the same-store sales was double-digit growth in the first half. And we're at that very stage, brand awareness, product authorization, professional authorization and so on. So we strongly believe that we still have more room to growth on same-store sales growth, but [ net profit ] fluctuates.

In last year, in the industry, the major driver of our U.S. business was same-store sales growth. But in this year, it seems our target is to double this business. So I think our major driver will be in-store network extension. So in the first half, the U.S. same-store sales growth increased by 14%, 1-4 percent.

And the strong network in-store numbers doubled. And which is in line with our expectations. And by the end of July, we already added about 69 new stores in the United States, and we'll have about 100 in this year. And in the future, we'll see that the United States will accelerate in terms of store opening. And we will open to discuss to have more franchisees or distributors currently joining us that have very rapid store expansion, while maintaining [ high ] terms in profit in the United States.

And since we increased 14% in terms of sales growth in the United States, in the future, we will [ increase ] further. The first is the product side, we will adjust our product structure to increase the local supply chain and increase our inventory turnover and reduce the product lead time. And outside, we want to increase more local sourcing, especially in IP-related [ snacks ], IP-related cosmetic products and IP voice.

And we were also introducing best-in-class [ suppliers ] in other parts of the world, including cosmetic and beauty [ products ] in Japan and Korea. And we will also increase our IP-related product research and development, which will increase our [ experience ] in these IP products. And in terms of store fronts, we will upgrade our stores there, including image and product experience. And we will upgrade our digital systems to improve the store efficiency as we've been in China several years ago.

And our loyalty program, we will increase our loyalty program as we mentioned. We will improve our customer insight capabilities in our material products, [ and tailor ] our store operation measures and increase customer repurchase. We will have a strong team in the overseas family in the U.S. We will have localized team including the buyers, and we will have a business in overseas including training local operational staff, and we will have a lot of online course. And we are now building our department in the Southeast Asia to train new overseas team in Malaysia, and the first batch of this project has finished. And this new team will be with the expansion in the United States.

And in the next 2 years, we look forward to 2025, where we're also set up our training center in the North America and that will prepare for our expansion there.

[Guofu Ye, executive]

[Foreign Language]

[Eason Zhang, executive]

On second question. So we have 3 measures. The first is the upgrade of store formats, that take U.K. as example, where we have been helping to increase and upgrade their channels to open bigger stores and to open better stores. So in the first half, if same-store sales increased by 50%, 5-0. And if total sales increased by 150%. And that has once again demonstrated that our super store strategy has helped increase the overall performance of the market.

And in terms of same-store today, U.K. now increased [ RMB 20,000 ] year-on-year and it increase by 15% year-over-year. So it still has room in recoveries in United States and the Mexico market. But it's already a huge job for itself, and it's the best in Europe already. And in the future, U.K. will be the benchmark in Europe.

And I think the Europe market is the pathway for stores in the future, service and potential. The second is, we want to still reiterate our fortress IP and a differentiated IP is a key to our future success in Europe, growth out there, IP is now 49% of total sales there, and year-over-year increases by 65%, especially our flagship stores in [ net brands ], which has an 85% of our IP sales. And this has robust -- overall distribution market increase in margin.

And the third is to stay core. Our top 100 SKU contributed by 90% of our total sales in Europe, and each segment has performed very well, very well. In the future, our key product categories in this will make news on stores in Europe, getting more professional and more -- and provide more immersive shopping experience to our customers. That's helped us to increase our store conversion rate.

[Operator]

Thank you. We shall close our call now. Thank you all for joining us today. We will see you in the next quarter. Goodbye.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]