MINISO Group Holding Limited (MNSO) Earnings

Management highlights

Strategic Pivot to IP and Large Formats: - MINUSO is transitioning from a general lifestyle retailer to a world-leading IP operating platform. - The strategy relies on a flywheel of 'Content (IP) + Space (Large Stores) + Operation'. - Proprietary IP sales target of RMB 1 billion was achieved ahead of schedule by end-July. - Key proprietary IPs include 'YuYu' (generated nearly RMB 500 million in H1 revenue) and 'ChouChou' (sold out instantly upon launch). Channel Upgrade in China: - Shift from small regular stores to larger, immersive formats: Land, Friends, Super Miniso, and Flagship. - Land-format stores deliver sales per square meter roughly twice that of regular stores. - Store renovations accelerated: 189 completed in H1, with post-renovation performance doubling YoY. - Franchise profitability reached its best level since 2019. Membership Growth: - China membership base grew 31% to 130 million. - Member contribution to sales rose to 77% in Q2. - IP-driven members show 80 percentage points higher retention and 2x purchase frequency compared to non-IP members. Overseas Market Adjustment: - Performance fell short of expectations due to distributor revenue declines and unprofitable direct-operated models in early stages. - Management is shifting from 'scale-first' to 'quality-first', slowing new store openings to refine unit economics. - Focus is now on optimizing existing 800 direct-operated stores and ensuring ROI before expansion. - North America remains a key profit driver with mid-single-digit same-store sales growth. Product and IP Strategy: - Accumulated full-chain SOP for IP from artist signing to fan operation. - Licensed IP collaborations (e.g., Disney, Harry Potter, Lisa) are being integrated with proprietary IP. - Goal to lead 100 Chinese IPs onto the global stage.

Guidance

- Full Year 2026 Revenue: Expected to grow at a mid-double-digit rate YoY. - H2 2026 Revenue: - China: Expected to grow at a mid-double-digit rate. - Overseas: Expected to grow at a low single-digit rate. - Overseas Distributor Revenue: Expected to decline at a low double-digit rate. - Overseas Direct Operated Business: Expected to grow at a low double-digit rate. - Top Toy: Expected to be flat in H2, with low double-digit growth for the full year. - Profitability Outlook: - Adjusted Operating Profit (excluding forex): Expected to decline at a high single-digit rate YoY. - Adjusted Operating Profit Margin: Expected to decline by 3-4 percentage points YoY. - This represents a downward revision from earlier guidance which anticipated accelerated profit growth. - Store Count Guidance: - Overseas: Net reduction of 50-70 stores in H2; net reduction of 100-110 distribution stores for the full year. - Direct Operated: Net addition of 40-50 stores in H2. - Same-Store Sales: - MINUSO China: Low single-digit growth maintained. - North America: Low single-digit growth maintained.

Segment performance

Group Revenue: RMB 11.5 billion (up 22.4% YoY). EPS grew 8.2%. Operating Cash Flow rose 46%. Total global store count reached 8,674. China Segment: - Revenue: Grew 26.2% YoY, outpacing retail sales growth and prior guidance. - Contribution: Approximately 65% of total group revenue (calculated as ~RMB 7.44 billion based on Overseas RMB 4.06B). - Store Count: 4,665 stores. Net addition of 97 stores in H1 (Land format +59, Flagship +159, Regular -121). Overseas Segment: - Revenue: RMB 4.06 billion (up 40.9% YoY on a reported basis, but up only 15% when excluding FX/distributor declines; Terminal GMV up 40%). - Contribution: Approximately 35% of total group revenue. - Store Count: 3,644 stores. - Note: Profit contribution declined significantly from 35-40% in 2023 to roughly 10-15% in H1 2026 due to early-stage investment costs in direct-operated markets outside North America and distributor revenue declines. Top Toy Segment: - Revenue: Grew 32.7% YoY. - Contribution: Part of the remaining revenue mix not explicitly broken down by percentage in the text, but noted as a growing engine. - Store Count: 365 global stores (including 48 overseas). First US store opened in Times Square.

Risks & headwinds

- Overseas Profitability Risk: Direct-operated stores outside North America are currently unprofitable and require significant upfront investment. There is a risk that localization and organizational capacity may not mature quickly enough to generate sustainable profits. - Distributor Channel Health: Inventory digestion issues in distributor markets (particularly Asia and Latin America) have led to reduced restocking and revenue declines. Geopolitical conflicts, currency fluctuations, and natural disasters pose external risks to these regions. - Margin Compression: Increased selling expenses, including rental/depreciation for large stores, advertising/IP licensing fees, and labor costs, have pressured gross margins. The structural shift toward lower-margin direct operations further impacts overall profitability. - Supply Chain and Inventory: High inventory turnover days in overseas markets (273 days vs 240 days last year) indicate potential liquidity and operational inefficiencies. Stock-outs of popular IP products in North America also highlighted planning vulnerabilities. - Competitive Pressure: While MINUSO claims strong performance, competitors like Pop Mart are also growing rapidly in China's interest-driven consumption sector, requiring continuous innovation to maintain market share.

Analyst Q&A

• Q: Analyst asked about the sustainability of large store performance in China and criteria for site selection.

  A: Ye Guofu stated that large stores are not a short-term trend but a sustained growth model. Land-format stores average >3M RMB annual sales, while Super Miniso exceeds 1M RMB. Sales per sq meter are double regular stores, with payback periods averaging one year (vs 60-80 months for regular stores). Site selection prioritizes quality and traffic over speed, aiming for 1,200 Land/Super/Friends stores and 2,000 Flagships long-term. Internal targets include outperforming competitors like Pop Mart in sales per square meter.

• Q: Analyst asked about July/August SSS trends, drivers (ASP vs Traffic), and category performance amid soft retail.

  A: Ye Guofu reported steady SSS growth in July/August, driven by both volume (+20%) and ASP (+5%), indicating healthy demand. Growth stems from store upgrades, product mix shifts toward IP, and refined operations. IP products account for ~25% of sales. Lower-tier cities offer expansion room. H2 outlook focuses on back-to-school and holiday seasons, leveraging membership cashbacks to drive repurchases.

• Q: Analyst asked about future IP types, category extensions, and holiday pipeline for H2.

  A: Ye Guofu outlined a dual-engine IP strategy using licensed and proprietary IPs. Upcoming launches include collaborations with Lisa (starting Sept 1), Li Yuchun, and continued success of proprietary IPs YuYu and ChouChou. YuYu has surpassed Disney collaborations in popularity. The company aims to integrate blind boxes and trendy toys more deeply, targeting a business model where 50% of performance comes from trendy toys/IP collaborations, enhancing brand stability and immersion.

• Q: Analyst questioned how MINUSO will meet its $4B revenue/$400M profit target for the US despite Q2 slowdown.

  A: Ye Guofu clarified that US/Canada are treated as one market, with a full-year target of RMB 4 billion (~$4B USD equivalent contextually) and 10% net margin. He attributed Q2 moderation to IP launch cadence gaps and stock-outs, which are being corrected. Margins will improve through operating leverage and optimized store numbers. The company is slowing store openings to focus on profitability rather than pure scale, ensuring the US remains the fastest-growing retail segment there.

• Q: Analyst asked about distributor market growth outlook and plans amidst resilience issues.

  A: Ethan explained that distributor revenue decline (-10% in H2 forecast) reflects inventory digestion and external headwinds (geopolitics, currency) rather than weak terminal demand. GMV remains robust. MINUSO is proactively closing underperforming distributor stores (net -110 in H2) to ensure channel health. They will deploy localized products, improve IP launch calendars aligned with local holidays, and phase out low-efficiency SKUs to support distributors in iterating marketing plans and improving sell-through.