Investors and analysts, good morning. Welcome to Sun Art Retail Group Limited results announcement for the whole year. This meeting is going to be conducted online and offline at the same time. We have already sent the PPT to all those who have registered last night. If you need further assistance, you can go to our website to choose online broadcast materials, and you will find the PPT materials there. Without further ado, allow me to introduce members of the management here with us. We have CEO and Executive Director, Mr. Shen Hui. Next to me is our CFO, Ms. Desory Wan. Head of Investor Relations, Ms. Xiaobei Gu. Desory is now going to take us through the whole year performance and financial highlights. Desory, please.
Thank you, everyone. Good morning. Yes. I'm going to introduce to you our financial highlights for the full year.
We have a fall of EBIT margin by 1.4% for the year. Our revenue is CNY 71.5 billion, same-store growth 0.6%, and net profit margin 0.5%. We've seen some substantial drops, including our profit margin. EBIT for the whole year is CNY 1.425 billion and EBIT margin 2%. We would like to emphasize that adjusted net profit margin is 1%, and adjusted profit for the period, CNY 692 million. In February, we have announced a tax provision, and they are non-operational in nature. So after adjustments, the profit for the period is CNY 692 million. Next page, you can see that after we see the CNY 692 million figure, the corresponding impact, as disclosed in our announcement, we are talking about CNY 300 million. After deducting that, the reported net profit is CNY 300 million. Now, if you look at store expansion.
In the financial year, we have new opening of one hypermarket, four supermarkets, and four membership stores. We have 33 supermarkets, mainly concentrated in the Yangtze River Delta, with a same-store growth of 8%. The contribution is a positive cash flow. Therefore, on this foundation, it is going to continue to support our future development and expansion of our network and foothold. For membership stores, we will need to focus more on the construction of new membership stores. Total revenue, CNY 71.55 billion. The overall revenue grew by 1.6% if we do not count the store closure impact. Ticket has increased by 0.6%. Online business, we realized same-store single-digit growth. That is why we're able to showcase for the full year. Beginning from the first half to the second half, we continuously promote our pricing strategies. In this process, we can see stabilization of online traffic.
On the offline front, our revenue has also rebounded. Rental has grown because of certain closures of shops and reorganization of our tenant mix. We will continue to focus on experience-type tenants. At the moment, for the full year, we have vacancy rate of 4.7%. Gross profit margin, CNY 17.236 billion, representing year-on-year decrease of negative 4%. Decrease was mainly resulted from reshaping our price competitiveness and enhancing our customer pricing perception. We will continue to enhance our gross profit margin, and at the same time, we are going to enhance our efficiency to offer more space for better pricing to our consumers. In terms of expenses, CNY 15.941 billion. Removing the impact of the impairment losses, we're talking about a drop of CNY 2.2 billion. The expense rate was 23.6%. It used to be 23.3% before the pandemic, so we're getting very close to that.
Compared to the previous financial year, we see a drop of 2.7 percentage points because of optimization of store expense structure. We made significant savings on headquarter personnel cost, and we also achieved optimization of the online fulfillment expenses. We achieved more than CNY 100 million saving. Concerning headquarter saving, there is a drop of CNY 330 million, which was 0.5 percentage points. For the whole year, online business collaborated with Meituan, allowing us to save a lot of fulfillment expenses. Our online business, from this angle, we are doing much better compared to last year. Concerning our rental cost, there is a CNY 150 million reduction of rental level, and CNY 80 million would be for the ongoing year. This is going to create benefits for our future years and operations. We will continue to optimize our shops.
Under such expense level, we think this is sustainable, and we will be able to, in terms of our pricing and product mix, we can offer something more attractive to our consumers. Therefore, in terms of EBIT, it increased by CNY 2.434 billion. EBIT margin increased by 3.4 percentage points this year. The expenses dropped by CNY 2.2 billion, and operating profit was CNY 1.4 billion from operating loss CNY 1 billion compared to the same period of the last financial year. Without taking into account the impact of impairment losses, the operating profit increased by CNY 1.146 billion year-on-year. You can see on this chart, in terms of our revenue and expenses, we have done really well. In terms of our working capital days, working capital days has dropped to 67, and inventory turnover days and trade payable turnover days were 50 and 67 days, respectively.
Working capital remained stable. Trade payable turnover days decreased by five days. CapEx, CNY 775 million, mainly for store opening and expansion of supermarkets and hypermarkets in Kunshan. We also have a new project requiring certain investments. Net cash position, CNY 12.529 billion, representing a decrease of CNY 3.9 billion due to the impacts of dividends and decrease in the prepaid cards balances. Restricted deposits, about CNY 6.5 billion, representing year-on-year increase of CNY 1.877 billion. From all these figures, you can see that in terms of our expenses, it has been substantially reduced, giving us a lot of assurance for the whole fiscal year. Things have already stabilized, and in this process, we will continuously focus on maximization of our gross margin, and we will use our pricing optimization work and also the assortment optimization will continue to drive up the gross margin and gross profit.
We will be able to achieve more saving and continue to drive for higher revenue. Now, I will invite Mr. Shen, our CEO, to talk about our performance highlights other than the financials.
Thank you, Desory. Good morning, everyone. I am happy to again meet with you here. Last year, we have already made certain exchanges. Fiscal year 2025 to Sun Art Retail Group is a year of return of our value. We have turned losses into profits. We have achieved some very good results. Concerning our situation, it is actually quite widespread. I would not call the results outstanding per se, other than some fundamental return. We have to insist on the four major initiatives. In fact, during the year, we have done a lot of preparation work. We have our pricings return and pricing structure, execution power.
At the same time, we are also doing some preparation work for future's sake. Very often in my mind and also among our team members, we have created major community hubs. We are doing a lot on the retail front line in terms of preparation work. So in FY 2026, many people would ask us, "What is happening to your preparation?" We are going to continue to do some testing, a modular testing. Before I start, I would like to tell you this information. To us, to our company, we hope there will be more and more quality products and lower and lower prices, and more and more customers. That is our policy. It also shows that hopefully we can drive up revenue and gross margin, and a better control level of our expenses. So for FY 2025, we are focusing on adjustments.
We will have certain indicators, but more importantly, it is about driving up the revenue and also gross margin and gross profit. The absolute amount is more important than the margin. In terms of product strategy, because we are in retail business, we are talking about differentiation and build high-value community hubs. So on the product end, how do we make improvements? Not long ago, we conducted this review on our product assortment. So in the past year or so, we have been exploring into this topic, and not long ago, together with our product department, we have reviewed our product structure. What is our core product, what are the trending categories? Also, we need to consider what type of products are needed. Secondly, our PB. We have talked about the lower priced products. They have not been taken offline.
The qualities of such products are actually very often better than the national standards. We continue to pursue such products with quality better than the national standard. We will place different brands together so that we can offer a series of high-quality products. So I understand that to build very good brands, we will need to invest a lot of time and energy. Such high-quality products, their proportion will continue to rise, and we also need to use data to further optimize our product mix and pricing mix, so that when we consolidate different products, how can we put them together so as to drive up acceptability by consumers? Then when it comes to pricing, we understand that our consumers have very strong feelings about pricing. So we must offer something that is the most affordable. So we are looking for value for money.
Thirdly, we have to continuously construct our community lifestyle hub. We have sufficient space, and we will do it store by store and case by case to construct such lifestyle hubs, so that nearby residents can receive one-stop services, and we will be their best neighbor. In terms of management upgrade, first of all, we are data-driven to optimize our operations and efficiency. We have this efficiency committee, and we need to focus on three areas. First, it's about the efficiency of our supply chain. Because beginning from our suppliers, our cooperators, and then DC warehouse, regular temperature ones, or low temperature or high temperature ones, and then our stores. We can more quickly provide the best services to our customers. Then about our operational efficiency. From different dimensions, we still have plenty of room for further improvement. Then for promotional capability.
Originally, we have taken some sidetracked pathways and wasted certain price reduction opportunities. In terms of our calculations or plannings, we need to do better. Thirdly, we have weekly surprises. We have so many seasons and festivals. We have so much space. How do we better utilize our space so that every week there is a surprise waiting for our consumers, so that we can enhance sales figures and efficiency? It is also about quality control. Last year, during our internal annual meeting, together with our colleagues and our partners and suppliers, we have made plenty of exchanges. I talked about the four insistence. The first one is always quality. How to make sure people buy from us. Every item is of high and good quality. We have achieved some results, but there is a long way to go.
I told our quality control leaders, "If there are problems, we need to investigate. We need to set up a comprehensive management system to ensure whatever purchased by our consumers are of the best quality." We also advanced our fresh product standardization work because we choose the products on our consumers' behalf. We must establish a full chain quality control system. Thirdly, our teams. They should always come first. We talk about culture and value. We have to care for our colleagues, our consumers, and continue to strive for excellence. We must focus on our team members first. We need to take good care of our teams. How do we improve our incentive scheme for everyone, for procurement, all the way to the back end? Because they are on the battlefield, on the front line.
How do we provide to them very good incentives to continue to drive them to go forward and fight harder? In our system, we will continue to optimize and promote these values. Secondly, we have many good talents, outstanding talents. How do we do succession planning, training, and cultivate them to grow so that they can assist the company to move forward? That is the second point. Thirdly, back to cultural values. We need to connect the dots. We are one big family. We are brothers and sisters. We must care for one another. By extension, our JD policy, HR policy, senior management will be the good models for the younger members of the team so that the whole team will have high level of combat capability.
Finally, before we take your questions, I would like to say, to us, develop our business, and we will analyze our members, our customers, how they spend, how they behave, what are their needs. Based on such figures and data, we will be able to better understand their demands and satisfy them. On this front, we need to do a lot more, from online to offline. We have some members. They are very sticky. The standardization work may be different for them. They may focus more on experience-type activities. We can organize such experiences for them. When we launch new products, we invite them to come and try them out. That is how we better respond to their needs. Secondly, in certain regions and areas, we have core competitiveness. How do we design our layouts of our supermarkets, hypermarkets, and membership stores?
How do we integrate such elements into our networks so that we have good penetration in the overall market and better serve our neighbors. Thirdly, we need to focus on comparable store growth, whether it is membership stores or community hubs or supermarkets or hypermarkets. How do we further expand our penetration in these cycles? Then how do we enhance the purchasing level? So comparable store growth will continue to be one of our focuses. We need to continuously optimize them so that we can attract more customers, so that they can buy more products from us. Finally, our membership stores, we are continuously refining them. The time taken is a bit longer than expected. We cannot say we can quickly copy and paste the same model.
But in terms of product optimization, we will better serve our members, our friends, so that there is value added, and there are surprises every time they purchase from us. So we are still working on this, and I can tell you we have already achieved some results. Of course, there is still plenty of room for improvement in terms of revenue. But in terms of cash flow, compared to the past, it is already improving. Time is taking longer than expected. But this is one important project for us. We will continuously optimize it so that the company's development will be better supported. Thank you, everyone.
Thank you, Desory and Mr. Shen, for the detailed presentation. We will now enter the Q&A session. We are going to divide it into two parts. We will take on-site questions first, and then online investors can also raise questions.
Let us first take questions from investors inside the room. We will pass you the mic. Please tell us who you represent.
I am from Citibank. Wei Xiaopo. Thank you for the opportunity to exchange some views with the three of you. Well, things are changing very quickly. The company continues to change. Competition layout is different. So your performance, just like what you mentioned, FY 2025 was a year of adjustments. We may see some temporary scenarios or situations. You are concerned about sales and then GP margin, or GP instead of GP margin. So can I understand that as, from now on, perhaps you want to see growth, profit growth, not necessarily faster than the expansion of sales? So from the accounting perspective, GP margin is an important driver for growth.
But perhaps are you going to focus more on the supply chain and staff incentives and expenses, OpEx? There is room for saving. So my understanding is that you want to achieve a positive leverage. Is that correct? GP and EBIT margin, you still have a certain aspiration, yes? What about your overall operational theory or philosophy? My second question is about prepaid cards. CNY 1 billion less. So is that intentional? Or is it because the customers are encouraged to do so? Or is it because customers have taken their money elsewhere? Because prepaid cards will lock down future spending. So now under Mr. Shen's leadership, what do you think about such prepaid cards? Third question. This one, when you talked about expenses, you mentioned the more than CNY 1 billion drop in terms of expenses for your staff. Mr. Shen talked about more incentives given to frontline staff.
This business really depends on people. What will be the number of employees in the company? Is it about to be stabilized? Are you cutting back on the number? Thank you.
First of all, GP and GP margin, we will look at both of them. The GP growth is more important than growth in margin. I want to say, let's not waste anything. Efficiency of promotions and pricing, sometimes we see wastage. In terms of management, we should not waste them. If they can drive for growth in our revenue and GP margin and GP. The main point here is not to allow the GP margin to drop continuously, but rather, we want to reduce wastage. That's the first thing. Hopefully, there will be growth in our revenue. Secondly, expenses. In fact, for FY 2025, in terms of GP margin falling, I already expected that, although not 100%.
We removed some original way of operation, and now we see a drop in the margin. Of course, we need to eliminate any type of wastage. Expenses are important. We've made a lot of saving. For our headquarter, it dropped by a rather big margin. That is very, very important. In our organization, there's plenty of room. There could be further reduction. We will continue to proceed accordingly. Thirdly, we can see that certain savings have been overachieved. We need to return to the pathway of investment. For example, processing departments and other departments, they may need people. In the overall framework, we have returned to some higher level of investment. That is how we approach the overall topic of expenses. I also want to say there are some peers with much higher level of efficiency.
For example, in different warehouses, refrigerating warehouses or freezer warehouses, there are many things involved. I can only tell you that things are being planned. We will control our expenses, drive up our revenue, and EBITDA will also improve, and better operating cash flow. We care about this figure very much. We must see that it is improving. Every month, I will look into this. Prepaid cards. Beginning from last year, we launched the eCard and physical cards, so use the physical card to use it. For eCard, they are bundled together with your wallet. The frequency of use will be much higher. Breakage income in the past two years, you can see a falling trend. Because of higher frequency, the balance will be consumed more quickly, which is a good thing.
In the process of selling, in the past two years, the economy is not doing so well. We're not looking at rising trends. Through such prepaid eCards, we can better increase stickiness. When they have the balance, they will use it. They will spend it. The national level of issuance of eCards is the highest. We're taking about 50% of the market share. As a leader, when we consider our cash level, we are not concerned. I want people to spend more frequently and spend more. This is combining the external situation, and we also want to use the e-platform to run our business. EBIT margin. Mr. Shen also said that we would like to grow more traffic so that we can drive up our revenue, and gross profit can also improve. Our margin dropped within our expectation scope.
In previous communications, we have talked about why in the past. For example, FY 2024, our strategies and price index was higher than Hema. We are returning to this position as a leader inside our community circles. Our margin must be well-supported. You have to be rational in pricing. That is more important than everything. Then you can drive revenue growth and Gross profit growth. We will still have some flexibility in our expenses. OP margin will definitely be better compared to last year. That is the direction we wanted to see. GP has further room because this is the year of returns. We have to do everything first, and there is a lot of room for optimization in the process. For example, digitalization, optimization. Very often, do we have to do such deep level of pricing?
Do we have to adjust pricing in the same way for all types of products, or should we focus on certain product types? There are many details here. Price matrix and refined management, they will be implemented in FY 2026. Processing, we are also doing that because everyone is doing it, and you may ask about this. We have already started this in some of our stores. One or two, we are doing some small-scale testing. The outcome is very good. We have done some trial runs and penetration has improved. The GP would be much better compared to our standard products. That is about volume and margin impact. That is why we said FY 2025 is a year of transition. We will do well and do correctly our pricing to obtain more certainty.
Mr. Shen, Desory, Ms. Gu. I am from Merrill Lynch. My name is Luo Chen.
I have two questions. First, we can see at the moment inside mainland China, in lower-tier markets, there are many supermarkets developing very quickly, especially with snacks business. In recent times, they are being integrated into supermarkets, the snack stores. For medium to lower-tier shops, is it going to affect your business? How are you going to tackle this trend? Second question is somehow connected. We have noticed that traditional supermarkets, there is a lot of channel-related expenses. But now, for emerging shops, they collect less and less from suppliers. They use high turnover model with low level of profit margin. In terms of your operation and the profit, a lot of that is affected by the suppliers' fees. How can we balance short-term operational demand and longer-term reform needs so that we can further enhance our value level?
Thank you very much. That is very professional and very refined. First of all, pop-up shops, they are developing very quickly, especially in lower-tier cities. There could be two of them next to our big shop. For the shorter term, to some of our leisure-type products, yes, some impacts have been seen. But for our major products, the impact is quite limited, and they focus more on baking products or baked products and frozen snacks. My understanding is they only focus on snacks. There is a lot of pressure on them. We are talking about very different types of business and business models. When you consider changing a snack shop to a supermarket, there are plenty of competitors outside. The market is big enough. If we are not healthy, we may have good pricing, good products, good experience. Otherwise, we will be phased out.
We must focus on optimization of our product mix, dynamic layout, how to improve fresh products, PB. Things will need time. Things cannot be achieved overnight. But I believe in ourselves. If they are doing well, they grow quickly, but that is okay. Every day, something is emerging. I think that is not a problem. Your second question about procurement model or profit model. In fact, in the past one year or so, I have been looking at this and analyzing the situation, and I very often say, this is the feeling. We charge this, charge that, but if you look at the consolidated profit rate margin, it is not that high compared to our peers. How do you strike a balance? That is something we have been trying to achieve. Our GP margin is really not that high. It is about combination.
We are in the process of testing, understanding, and optimizing. I trust that we will find a very good point, a very good equilibrium. You may think we are charging a lot of expenses or fees, but actually, no, that is not true. We will continue to find a balance to improve everything. I am not too worried because we will continue to optimization so that our partners and suppliers, they know better what is happening. What kind of structure for the gross margin, and everything is transparent, which will facilitate our future collaboration.
Can we take the next question?
Linda from Macquarie. Some simple questions. First of all, about dividends. Interim and year-end dividends. You are very generous, so I want to know. Future dividend, what is the principle? Is it sustainable? And when you pay out dividend, contract liability is not included, right?
I want to understand about the payout principle. Second, private label. It seems to be a global trend. I want to know when it comes to a private label in other countries compared to China, how are we doing in terms of speed? I think there is room for improvement with the tariff war going on. In terms of GP, can you be more optimistic? Then about some pop-up retail shops. Do we have any collaboration? How does that affect your offline profit? I want to talk about dividend. It may not seem like a lot, but every year we are asked, we have so much cash retained earnings. Why don't you pay them out?
Our performance in this year is not too bad. Last year, when we communicated with investors, what will the next three years look like?
We achieved that in the first year within the scope of our expectations. In terms of dividend payout policy, there will be no major changes in terms of the direction. Dividend payout depends more on our net profit performance and cash performance. Dividend also shows what the company thinks about its strategies and direction and its confidence level. I think overall, payout policy will not change fundamentally. As we improve our cash flow, we will make sure dividend will move in a well-aligned manner. Dividend shows our operational cash flow confidence. That is important. We should have the ability to continuously create operational cash flow. That is very important. I just want to add that. Secondly, about PB. We can see our peers domestically, internationally, medium to large scale supermarkets, 20%-30% of them. Our strategy, first of all, we Supermarkets.
If you look at Walmart, and also those in European markets. We essentially are supermarkets, but we choose what our customers prefer. So different brands, we hope that they can collaborate with us. There is plenty of room to develop PB, private label products. We have achieved some good results. It will continue to pick up over time. We have our PB department, and each procurement team will look into different product mixes. We are talking about, first of all, quality higher than national standard, and then we have PB single products. Quality is same as PB brands, but we offer lower prices because they are our own brands. As for tariff issue, it drives us to choose more widely in terms of sourcing quality partners and manufacturers. First of all, we talk about GP instead of margin, so finding the right pricing is important.
There should be win-win so that our consumers can benefit. We want to return the benefits to our consumers, and we have indeed done a lot to help our consumers. Last month, we opened a green channel to many enterprises originally focused on export trade. Now they can join us in our stores, many green channels to sell their products. We have obtained from government departments a lot of positive feedback. So that is about PB. For instant retail, yes, we do have some collaborators other than our own APP and small apps. About 40% is the proportion with Meituan, JD.com, Ele.me, and also more recently, Taobao. So basically, we have many different types of collaborators. Secondly, based on physical store systems, in terms of efficiency, we are still doing well. For instant retail, we are making a profit, and that will allow us to move forward without fear. How do we achieve win-win? We will continue to work on that.
Linda, further question.
One moment. Concerning dividend, I want to follow- up. So this is not a ratio concept. Is it going to be stable DPS?
Yes. About dividend payout. Well, previously, through IPO, we have talked about certain disclosure on dividend policy. No change at the moment. In the past two years, while we were suffering from losses, we were still offering dividends. So we have sufficient flexibility. But for the longer term, it really depends on our overall performance.
Thank you.
I am Shidi from Huatai Securities. First question, in FY 2025, we can see some optimization of operational efficiency since profitability is enhancing. Are you going to open more shops more quickly? For hyper or supermarkets and membership stores or be the momentum? Secondly, we talked about membership stores.
The momentum has been slower than expected. So what challenges are we facing for supermarket and membership stores? Thirdly, Mr. Shen Hui, you talked about creating this community hub concept to enhance differentiation advantage. So there are many community shops talking about a similar concept for supermarkets. They have plenty of space. And hypermarkets, because they are very, very big, they may be further away from community centers. So it is about one-stop services being provided to the community members. Can you share more about that?
Thank you. First, about expansion. Future opening will focus on supermarkets, mainly supermarkets for the shorter term. That is next one to two years. So we are actively identifying the correct locations. And in the last FY, we set a very good foundation, but of course, we will continue to look at the actual situation. Some locations are so good. It takes good opportunities.
They take up very good spaces in the communities. Sometimes you can look and look, and you may not find them. As for warehouses, we will be very careful in selection of our products, essential products, so that together with supermarkets, we can work out the scale in a certain city or logistical surfaces. We have to integrate everything into our consolidation and consideration plan. As for membership stores, it is all about the products. We need to do continuous updating and iteration so that our members can feel surprised all the time. In fact, for fresh products, we have been going along more quickly. For quick sales, we are strong, and we need to optimize the experience for new products and fresh products, invite our members to come all the time, and every time there are surprises, new things to try. That is the core.
Thirdly, about the community hubs or lifestyle hubs. Our hypermarkets are good. We have shopping streets. They are of very large scales, more than 10,000 sq m. Some 5,000, some 3,000, some 1,000. We really have a lot of planning and good analytic work, including, for example, restaurants and children experience. Now, the state is encouraging giving birth. What can we do to offer a better experience? We have done many rounds of analysis to better plan our footprint. We have some stores already set up, receiving very good feedback. If you come to Shanghai Changyang store and Shandong Zibo store. Originally, it is enclosed. It is in the inside. But now we open it up with a lot of restaurants. The whole place is shining very brightly. It is not huge, but it is a mall, it is a shop, it is a hub with real content.
People would enjoy walking around in this space. They can find good quality products that they look for, fresh products, unique products. We must combine all of these. We are not just copying the same model. Every shop is unique in its own way. We have good locations, but every store, we are looking at a different structure, different commercial circle. So every case is done in a special way. Thank you.
Online, we have accumulated many questions. Perhaps we will now invite some questions from our online participants. Operator?
Please press star one if you would like to ask questions. Please go ahead. Please press star one if you would like to ask a question.
We can take questions now. Are there any questions?
Not yet.
In that case, let's come back to the on-site participants.
Hello, I am Eric Chen. Two questions. First, Mr. Shen, you talked about front line incentive. Can you offer more details about such incentives? Are you going to increase their salary to drive up their efficiency? That is the first question. Secondly, Desory . You talked about prepaid card utilization and speed in our cash flow. More than 60% proportion would be in such deposits. If utilization rate is higher, how come the cash mix is not going through fundamental changes? More than CNY 400 million still trapped in there.
Incentive schemes. Well, first of all, in FY 2025, we need to understand that we have offered many bonuses, especially in first-tier cities. We will need to continue to make adjustments. Hopefully, first of all, our employees. We hope that their working efficiency can be greatly enhanced. So we will continue to carry out in-depth analysis and optimization.
Our employees can have their performance linked to their remuneration and the performance of the stores so that they can see more clearly what is happening. Thirdly, we hope that in the overall process, they can receive better support.
What about the cash?
Well, actually, time deposit has been an area of our concern. As you may already know, in China, in this RMB policy, or exchange rate or interest rate, things are going down. So, two years ago, we have already entered high interest cycle and we have already done some planning. So in the past two to three years, even today, the overall return level is higher than the market rate. This is not going to have major impact on our prepaid card funds. The balances will take up a lot of our cash. In terms of operating cash flow, we maintain healthy and stable trends.
In this cash structure, we can better plan for our return. We are not worried about the usage being higher for the prepaid cards affecting our cash flow. Definitely not.
Investors online, you can press star one to queue up. Now, let's continue to take questions on site.
I have a few questions. First of all, about Pangdonglai . Many peers are saying that they will do hypermarket. But I think the fundamental original philosophy about running retail is the same. It doesn't matter what you call these shops. Ultimately, it is about foot traffic. When you do retail, you have to focus well on your fundamentals. You also need to attract volume. So any plans on this front at the moment? We can also see that in the second half of last year, especially Q4.
In the calendar year, Q1, we encountered Spring Festival, which is the most important festival. After Chinese New Year, what is the retail momentum has come down, and there's this trade war. So what we have observed in this quarter, any changes over the previous quarter? Finally, you have talked about supply chain business. All along you have been actively shrinking that affecting our revenue. So what is the proportion at the moment from supply chain? Their contraction, how far would it impact on our revenue? Thank you.
First of all, we have learned from Pangdonglai. We want to understand the concept behind them. But then we saw a lot of operational details, and they talked about the people. We were told that we can also consider this trend. They are massively upgraded shops, but we need to continue to observe their performance.
We need to focus on the fundamentals. We have been doing some modular transformation. If you come to our shops, we have done a lot of modification, adjustments. For example, how to launch new products and speedy sales. So we are not yet at the stage of copying the model elsewhere. That is the first point. Secondly, in the second half of the year, compared to the first half, there should be a rising trend. That should be the general trend, and we do not anticipate any changes there. FY 2025 budget has already been set. Actually, it should be FY 2026. The trend overall is still within the range of budget. So FY 2026, we have fundamental confidence in achieving our budget.
Thirdly, about supply chain business. Taocaicai. Well, not much impact on our profit. That's the first half of last year. The base is compared with the first half of last year. In the second half of the previous year, Taocaicai, the operations are already gone, so it is a clean base, basically. I want to supplement by saying that for the full financial year, it starts from a low point and it goes up. The overall trend should be a rising trend, including the ticket number and foot traffic. Foot traffic has grown compared to the previous year, and it is within the range of our anticipation. It is in line with our expectation. Thank you.
At the back.
Good morning. I am Viola from UBS. I have two small questions. First of all, concerning the losses. Cash flow still negative for those stores. What indicators will have to be seen before they are disposed of or closed? Our tax rate, 35% is rather high because there are certain losses. What will be your initiative to tackle that high tax rate?
Concerning negative cash flow stores, we will express support to them and we track them very closely. For such negative cash stores in FY 2025, we have great optimization plans. We need to identify the problems. Is it about our operation? Is it because the products are not suitable? Is it the rental level? Or is it too remote? Our resources cannot reach there. We analyze and then we will take action. We have closed a number of stores, single digit. All of them had problems, real problems. We will try rescue plan first. First, we talk to the landlord. Perhaps the rental is too high, which is pretty good results for a number of stores. Ultimately, with the landlord, we achieved very good rental reduction.
To us, if we leave the premises, they will also suffer. It is about achieving a win-win. It is not just grabbing all the money and putting them in one person's pocket. Continuous operation is beneficial. Can we have any opportunity to turn cash flow back to a positive figure in the next couple of years? In terms of rental reduction, supply chain optimization, if we have considered everything and still it is not likely to happen, we cannot turn things around, we will close the store. But we will try our best not to close our stores because with better operation there are better opportunities. But if there is no other way, we will still close. For negative cash flow stores in FY 2025, I think we have already achieved quite a good outcome.
Tax rate. Compared to last year, it is the CNY 248 million was in incremental compared to the previous year, which is pre-hold tax. If we take that aside, effective tax rate is less than 32% compared to 2019. It was 29% back then. First of all, in relation to this year's tax rate, I think it is already quite optimistic. As long as we enhance our capability in terms of net profit going forward every year, we can fight for it percent by percent.
A follow-up on a big issue about your business model and layout. 33 supermarkets, and you said sometimes you open hypermarkets, but the business side is not catching up, and sometimes it is very difficult to find the right location.
What do you think about the ideal mix? You talked about turning losses into profit for hypermarkets, but that is more on the passive side. Are you doing anything proactively? What is the ideal situation instead of waiting and seeing what may happen next? Yonghui Superstores has been adjusting, you have been adjusting. You talked about rescuing store by store. That is a defensive outcome, or is it a subjective action?
Well, first of all, when things are not healthy, we defend. That is why we have to ASAP return to good health and create good models for hypermarkets. If there are such opportunities, of course. We would like to identify good locations for our hypermarkets unless others are withdrawing from the market. In terms of store expansion plan, we will definitely focus on supermarkets, and we hope to more quickly move forward. Secondly, we are talking about malls at different levels in the communities. We need to use warehouses to support our malls.
For hypermarkets, really, even when we want to develop, we have to wait for the right timing and opportunities. In terms of number of stores, that is not our priority. Supermarket and fulfillment replenishment from our warehouses will be the focus. We will consider our advantage regions and quality cities and the surrounding areas. That will be our core consideration. They may not be eastern part of China only. In other regions, there are premium locations too. In these premium areas, we will have planning to make use of our supply chain to connect perhaps two quality areas. Before we make any proactive moves, we need a good model first so that we can optimize and implement first. Thank you.
Operator, we have a question online. Please start your question.
Thank you. Good morning. I have three questions. Large shareholders have seen some changes.
Any changes in your strategies and directions? and Restricted funds, is that going to affect your long-term development? Has some major shareholder set any operational targets? Secondly, we can see Hema opened many shops in Eastern China. How are you going to tackle the competition from Hema? Concerning membership stores. I understand this trend came from the United States. They are mainly in major cities. Our membership stores may sometimes overlap with our hypermarket. You focus mainly on first and second-tier cities. What about third and fourth-tier cities? Are you considering setting up such membership stores as well? What are their competitive advantages? Thank you.
Thank you. First of all, in fact, our major shareholder, we have been making exchanges for over half a year. In the process, we continue to understand each other. Now, our target is well-aligned. Our philosophy is well-aligned.
He is also a long-term investor. How to make this company better and healthier. Secondly, they have brought to us data analytics, which is more refined and specific, which is very helpful. If we are looking at a matrix or a Sudoku layout, how do you do better? How do you achieve a better layout? What about our culture and values? We have spent a lot of time on such exchanges. Our majority shareholder also wants to create a better and greater business. Together, we will improve our business. For Hema, in fact, in third, fourth-tier cities in the eastern region, they have done quite well. Some cities, if we are doing well, originally, they are not impacting us at all. The market is big enough. I still need to say this.
We need to learn from good peers when it comes to operation, efficiency, and quality. If we do well enough, we are still obtaining very good results and operations. Desory, about the connected transaction, you can talk about that. About membership shops. We can see, in fact, compared to hypermarkets, the customer base is quite different. When we are good enough, other people may open other supermarkets or hypermarkets, but they have no impact on us. There are newcomers in Jiangyin, Nanjing, Yangzhou. In the eastern region, we are located in cities with sufficient level of consumption power. We are still exploring and looking into them. There is no conflict with our hypermarkets. There is not much impact on us. We would like to focus at the moment on creating a good model and then developing further.
Yes. Two things. It is about Hema's development. We are all working very hard in terms of fresh products. Stability of quality is the key. When you are moving forward quickly, the stability of fresh products will affect you, because that really affects certainty of offering to our consumers. For the whole year, last year, Mr. Shen joined us and assisted the company to realize some new initiatives. The fulfillment capability and stability of fresh products can assure our consumers. It is not just about developing rapidly a certain brand. In a certain site, what do you offer in terms of quality assurance and stability and pricing to your consumers? In that circle, that is more important. Secondly, yes, we originally belong to this Alibaba lifestyle circle, but we are talking about a different track. In our collaboration with Alibaba in the past, you already know the focus was on two brands. But for FY 2025, we have become more independent.
We have developed very rapidly our collaboration with Meituan. The entire B2C business, one big channel is our own APP. Takes up about 35% of our business. Our growth was more than 10% in the past. The second channel is Meituan, 17.5%, with very good business model. With Xintao, Ele.me, we are still collaborating. We are the biggest contributor on Ele.me. In the shorter term on Shoutao, they have launched this flash sales recently. Ele.me has been connected to certain Taobao offerings in terms of bulk purchase. For the longer term, the traffic and conversion rate will be beneficial to us. Taoxianda on our B2C business takes up about 28%, Ele.me more than 10%. Both parties can drive for customer base expansion, and in this process, in terms of fulfillment rate and platform rate, we can be better positioned to negotiate further.
The entire B2C model through Meituan's joining, we have omnichannel operations. Our operational profit has been enhanced. We have better negotiation with landlords to optimize our cost base. All these are very helpful from our perspective.
Thank you for the answers.
Thank you everyone. Because of time constraints, we are going to wrap up this presentation. Once again, thank you our management and all our participants on site and online. If you have further questions, please anytime contact us and once again, I look forward to meeting with you in the future. Thank you.