Ladies and gentlemen, good morning to you. Welcome to the Sun Art Retail Group Limited 2024 interim results announcement. This is a hybrid meeting, online and offline. We have already sent the PPT by email to all those registered investors. If you need a PPT, would you please go to the Sun Art website and go to investor relations and choose company brief on the online webcast selection, and you will be able to get a copy of our PPT. Today, we have on the stage here the Chief Executive Officer and the Executive Director, Mr. Shen Hui, and we have Desory Wan, the CFO, as well as the Head of Investor, Ms. Gu Xiaobei, and Altaris Financial Advisor, Ms. Jeanie Leung.
First of all, allow me to read out an announcement because the company had already made a public notification concerning a possible offer according to the acquisitions regulation in our exchange. We will base our content on the published information, but we will not be able to provide any key new data or release new opinions, or we cannot discuss anything concerning the acquisitions or future forecasts or operation performance after the interim results. First of all, we will have Mr. Shen.
I would just want to say a couple of words to say welcome. Welcome to our old friends and new, and thank you for your support to Sun Art. The arrangement will be starting with Desory. She will be talking about our operation results, and then I will be reviewing some of the operation strategies and some of our future plans. I would very much want to engage with you at the Q&A session. Thank you.
Good morning, everyone. I would want to report to you the financial highlights for the first half of 2024. Revenue was 34,708 million RMB. Same-store sales growth grew by 0.3%. Gross profit, 8,526 million. Gross profit margin, 24.6%. This is a 600 million increase from the year before. Within the period, the EBIT margin was 1.8%. The company in the first half of the company had been able to turn around to black, to profitable from making a loss. We have built a very good and sound foundation for our business. Next, let us look at our store expansion. For all our multi-format, we have a total of 466 hypermarket and supermarkets, 30 membership stores, six.
We continue to focus on our store expansion, and we have been able to increase by single digit in terms of our hypermarket. For the future, we will be able to continue to grow also on our super stores. We had new openings of three membership stores, Nanjing, Yangzhou, and also one other. This year in Changshu, Wuxi, and Jiaxing, we have increased three membership stores, and we have also opened one just last month. So we have three hypermarkets and four super store sites that we have secured. For the revenue of 34,708 million RMB, if we take away some of the supply chain business scaling down, including Taotaitai, the actual increase is actually 0.6. Also, the scaling down of the supply chain business has approximately 2.5 impact on revenue, and we continue to pick up.
For APP and also our online contribution, these are major drivers for our revenue and also to our B2C. The ticket size has also been increasing and contributing very positively to our revenue. The rental income was CNY 1.5 billion, representing year-on-year decrease of 2.3% to CNY 35 million decrease. The reduction of gallery areas caused by store closures and tenant mix adjustments are the reasons. We have been trying to increase for our gallery shops, our proprietary shops, and also we have been reducing our gallery areas, but at the same time, complementing our tenant mix and also our products mix. For gross profit margin, it was 24.6%, and there is a year-on-year decrease of 4.1%, and this is partly because of our implementation of low price strategy and reshaping our price competitiveness. This can be made good by expenses.
If you look at the expenses, next page, you see that we have been doing well, and it is some CNY 1,090 million decrease year-on-year for expenses. It is some CNY 900 million + in terms of a decrease for expenses. Mostly it is because of our optimization of personnel structure, including the optimization of our stores and headquarters personnel. Also from the original 9%, it has increased to 17%. The optimization had been continually rising, as well as improvement of investment efficiency of our marketing expenses. We have also stepped up with our negotiation efforts for rental cost reduction. Therefore, overall, the expense rate reduction had been higher than our profits or gross profit margin increase. So this is expenses accelerating our cost reduction and efficiency improvement.
For EBIT, for operating profit, the profit margin was 1.8%, and we have been able to turn around the loss-making situation. You are able to see that for our EBIT, it was CNY 621 million. We know that with our peak of retail, and in particular for some of the festival seasons, that had contributed to our operating margin. Going forward, we are very optimistic. For net profit, it is CNY 186 million. For our next page, working capital days, CapEx, and net cash position. Working capital days is at 76 days, and trade payable turnover is 76, and inventory turnover 24. CapEx is CNY 419 million. Net cash position, because of some of the prepaid cards, et cetera, our free cash, it is at CNY 6.9 billion compared to the beginning of the year, it was CNY 5.5 billion in terms of free cash.
There is this increase. For our first half, we are stable in terms of our profitability and especially for our store rationalization, and we continue to support the strategy for growth going forward. In particular, for our super stores, some of our optimization will continue to contribute to our increasing room for further CapEx or further investments. For the first half of the performance, this is our report card, and it also builds a very good basis for our future. That is the report for the first half operations. Next, the CEO, Shen Hui, will be talking about our strategies of the company.
I want to discuss our strategies with you. Our strategies from the very beginning, we have already formulated this strategy of ours. Well, specifically speaking, I would say this has always been our roots. We are back to our roots, and I totally identify with that. Back in ancient times, it was a company that was very much integrated with retail. When we say back to the roots strategy, this is very clear, and that is we will have more and more high-quality products to be sold to more and more customers at lower and lower prices. This is our very clear value. I have always been saying this, and I am completely committed to this, and this is very core to us. In my going around in the rounds to the various group meetings, everybody had also resounded this particular undertaking.
Also, as Desory Wan had mentioned, for a time, we have deviated. We had not been paying attention to prices, but our consumers, our community neighbors, our clients, definitely what they want is lower and lower prices. Same quality commodities or products. Not to say that the product's quality should drop, no, but rather same products but lower prices. Desory Wan had mentioned in the first half, we are definitely growing in our operating revenues and also in our profits.
This is very important. For the first half, it is clearly seen that we are increasing in our operating revenue and our customers. We are very confident about our future, that our growth will be even better going forward. That is the first thing I want to say. The second thing I want to say is even more important, and that is the value of a company is to care for our colleagues, serve our customers, and strive for excellence. This is in the heart of every one of our personnel.
Very often, when we talk about the operation of a company, it is based or guided by our value system. Then in our commercial strategy, in our HR, in our management strategy, these are implementations. We also, as management, teach by example. I very often remind our management members that we have to care for our colleagues, serve our customers, and strive for excellence. I want to talk about this in further detail, because this is very important. Caring for our colleagues is about trusting and sharing. We have to trust our frontline colleagues, all our colleagues. We have to share the wealth together with them so that they can serve our customers even better.
To me, deep in my heart, I think this is an important KPI, apart from caring for our colleagues, providing the working conditions for them, supporting them, but at the same time, their incentives, their bonus can also rise as our business performs better. I am very happy to see that our colleagues in the first half of the year, their bonus had been increased. Compared to last year, it was a major increase. Serving our customers. Our chairman, Mr. Huang, had told us we always have to satisfy our customers. Who are our customers? We think about every day, what kind of service can we provide to satisfy them? Our customers are all levels, comprehensive. This is a good reminder, because when I say sometimes we have deviated, because we have focused on certain segments of our customers, and this is not good.
Our customers actually come from all around. To understand their needs, what they want is important, not just for one segment of our customers. Also for our community neighbors. We are a living center, especially for our hypermarkets. We are a center within the community. We have to continue to serve the community and to strive for excellence every single day. We have to tell our colleagues that that is what we are about. We want to increase our sales to the maximum and lower our expenses and costs to the minimum. For there to be growth, I can tell you that we have to build on strong basis. Strong basis for customers flow and for our operation. What we've done, actually, is already very encouraging. At the same time, our expenses have been very well managed. Expenses are to be minimized.
That is what we have achieved in the first half. That had contributed our good performance in the first half, and this will continue. We provide our customers with fresh, convenient, comfortable, and inexpensive shopping environment, and we build a good neighbor in our community. Within our radius of service, we provide our customers with fresh products and definitely convenient. We have very good car parking, we have good flow, offline and online, and comfortable shopping environment. Also, inexpensive pricing. Also, we have also been building up, but this is insufficient. Now and in the future, we will continue to do it well, and that is being a good neighbor in the community.
For hypermarkets, I can say that looking all around us, I would say we cannot say that we are the one and only unique, but we are rare in the sense that we are really a living center for the neighborhood. It is because of our positioning, and we have sufficient space. We are not only one shop, but we are really a center for life or livelihood around our community. In our shopping center, we have the commodities or products that we provide to our neighbors in the community. Even for some of the very detailed needs that they have, we try to satisfy them. Also in our gallery, not only we bring in rental income, but we cover traffic and service needs of our community.
Together with our own products and the gallery, we bring in traffic as well as the satisfaction of services and other needs of our communities. This is going to help us grow significantly. This is a very important point, and I just want to talk about that as a start. Yes. Also, to focus on our product power and also our customers' needs, that's very important. Also for each of our stores, each of our points, they have to be the leaders within their circle. I half jokingly say to our associates that we have that particular stature about us. We have the operation, we have the values and culture, we have the scale, which is large, and also we are able to be the leader in our business. But at the same time, we understand that we have deviated for a time.
Now, fresh is very important. Fresh is very discernible, and it is the quickest to differentiate us. For our growth and also in our penetration, we have definitely done very well. This is one of the things that will support us in our continuous increase in traffic to our shops. Also further, for instance, for some of the products, let's say fresh products for CNY 3 bananas, these are high-quality fruit, and apples at CNY 3 sale price, that is very attractive indeed in terms of pricing. These are blueberries or very reasonably priced blueberries or very unique fruits and other products, more differentiated products, we have all of them. Also for purchasing, it is nationwide. We have Xinjiang core purchasing center. Also China Central Television had invited our colleagues to share concerning our purchasing.
Also for our seafood and some of the very popular crabs, et cetera, we also offer that through our purchasing. Also this is definitely extended to our fresh products. For our proprietary or private label products, in the past few years, we have deviated from what is right, because we have given up on the Thumbs Up label. I would say we need higher. At the time we said that we needed higher pricing, higher quality, but that is a deviation, because we are about hypermarkets. We want to be able to face up to most of the customers. But we have been able to come back to the right path very quickly. For two things, one, for we have different labels and we have labels that are focused on first-tier customers, but we are more reasonably priced among these first-tier pricing.
Secondly, if you have been noticing our news for Thumbs Up and some of our private labels, they are doing very successful. Going to some of the shops, even I myself were not able to get some of the products. They have been sold out. That is a good headache to have. So the effect is very good for the building up of our private label and also our flagship products in terms of sales, pricing, trend. It is really very, very good. Please, I invite you to go to our shops to look at this very core value of ours. So we optimize our product selection, and we continue to strengthen the bastion flagship products that we have.
In my mind of this thinking, when we come to a certain scale with our partners, strategic partners, and where we have sufficient returns, either we reduce price to share with our customers, because we are already the lowest price among our competitors, or we can provide more products for our customers, basically to optimize our product strategy. Also for some of the food products, for example, the deep-fried dumpling, youtiao, et cetera, and some of these related products, they are so successful, and some of them have been this 嫩 蛋 挞, egg tart. The crunchy egg tart, if you will, is doing so well, extremely well. So price is really the foundation of our business. We have talked about fresh being a strategy and products being a strategy. Definitely, we are the lowest price within our industry. So price is our basic business foundation.
Our pricing, since we have come back to the path from our deviation, compared to the lowest prices in the industry, we have been able to achieve, overall speaking for our products, they achieve the lowest within the commercial circle. This is very important and this is very worthy of our continuous investment. In the first half, we see that our gross profit is controllable. It is completely controllable because it is composed of different categories of our products. The different products or categories had led to the gross profit situation. In the future, for our gross profit margin, we will continue to manage it well. I have always been saying, we do not chase high gross profit margin, but to avoid wastage. To avoid wastage is something that I take to heart. For a retail company, there are three things.
Commercial, and that is customers, management, and our staff. First of all, customers, we have to understand our customers. Management is to cut down waste, to actually stamp out any waste in terms of staff efficiency, investments, to avoid any waste. For staff team, all our staff are our brothers and sisters. We want to make them a working environment whereby they can work happily. Further, for the pricing matrix, we have the Thumbs Up, we have PB, we have Ten Tin Pin. We are very highly sensitive to lowest pricing within the commercial circle, and we work together with our partners and suppliers. We all pitch in. Also, not to raise prices and also special category products with guaranteed low price. Our penetration is extremely high for these products. These completely are important in providing new quality products to our customers.
In our RT-Super stores, because they are smaller than our hypermarkets, it is easier for us to do the presentation and for our focused products, and that is important. So efficiency is also a key to our company survival. Actually, Mr. Huang had said that our efficiency is the key to whether our company continues to exist, our survival. So we have an efficiency committee and among our peers, there are companies which are doing very well. Actually, there are good examples among our peers, and we have been taking notice of them. But for our hypermarkets, of course, we are differentiated as well. With our hypermarkets, deep in my heart, I would say for efficiency, it is very important. Otherwise, it will be very difficult to maintain the competitiveness of our hypermarkets. But we should be able to attain high efficiency.
Also, we already have some results from raising our efficiency, and we continue to push ahead strongly. For example, in marketing, in operation and supply chain efficiency, we continue to improve. Also in our marketing for some of our good products to promote its sales. I would say perhaps in marketing, there had been some inefficient marketing and with insufficient response from our customers, we will make adjustments for these and we will have a lot of optimization programs for them. We have already put in such optimization strategies. Further, we have already gained certain results to allow our customers through IT, technology, and through adjustments, we allow our customers to use more of our self-help purchases and also for our supply chain efficiency, that is important too.
If you look at the PPT for supply chain, as I mentioned for the Thumbs Up, I can say I am very happy with it. It is scoring over 95% in terms of marking, because it is about iteration. For quality, we continue to optimize and enhance it. In packaging, we continue to enhance as well. We also have PPQ, and that is the whole carton of presentation. The effect of that has been very good. We also, apart from PB, have some other products which are on the road, and they would include some of the staples such as oil, et cetera. This is the whole carton sales. It is about we are chasing for gross profit and not gross profit margin for this kind of sales format.
Because it lowers our expenses, and this whole carton or whole box sales gives us higher efficiency and higher profit margin and higher price competitiveness. We also, second point, continue to optimize our personnel structure and pattern, and this will help in reducing our man hour. We are able to digest that our processing, bakery, and cooked food, et cetera, we need personnel as well. In the past, we have been overdoing it a bit. On the one hand, we raise our efficiency, and at the same time, we also reward our personnel. That is why I said just now, we want our personnel's bonus and income to increase. As we increase our operation results, we also want to reward our personnel as well. Our personnel also help us increase our efficiency.
Third point to raise our efficiency pertains to our rectification of tail-end stores, the low-performing stores. In September, we are very clearly able to see that trend. In the future, we will continue to rectify such stores with significant improvement. Internally, we will categorize these as stores that have experienced low revenue. I am not saying all these tail-end stores are loss-making or hopeless. No, that is not so. Rather in our fine categorization of these tail-end stores, for example, their commercial circle, their competition, their operation, and we look for solutions for each of the stores, and each of the stores will be differentiated. We will be pinpointing their pain points, their problems, and we will try to resolve them. If indeed we cannot resolve those problems, we may consider closing them. But before we close these tail-end stores, we will try to resolve the problems.
For one store, for example, after rectification or adjustments, I can say that that store had turned around from loss-making to become a more typical store, profitable. There is another one which will be changed from hypermarket to a superstore. There is another store which may become more facing to the community and with more food provision. The results have been very good for such rectification of these stores. Next, we continue our multi-format and omni-channel development, and that would include our RT-Supers. This is basic to us, the hypermarkets. We are fully confident that the future would be better for our super hypermarkets. This is our basics. At present, there are a few areas of our development, and first of all, for our RT-Supers, M Club, our membership stores, and also our online sales. Right.
This is in the beginning of the month, we have opened this RT-Super. It is about 2,700 sq m big. At the beginning of the year, we have been adjusting our RT-Supers, and we have looked at Pangdonglai and also some of the exemplary peers, and we have taken a lot of their concepts. We continue to adjust our product mix. We have already made some adjustments for these RT-Supers and in particular for this RT-Super that we have made adjustments to in the beginning of the month. We have showcased all the rectifications and adjustments and some of the new concepts, and the performance is very encouraging. For example, the SKUs, we have contracted that, and we have also made stronger presentations, lower prices, increasing the quantity, quality of the products, but staying put with the pricing, et cetera.
Also some of our new product mix. For the pricing matrix, the advantage is even more significant than our hypermarket, the pricing, especially for the coastal eastern regions, for the first half, been performing well. Also in the first half of the year the results are very solid, and the consumer's feedback is very positive. For our RT-Super, we are very confident from the feedback that we have gleaned, this will be the way we are going. As for the hypermarkets, in terms of development, we will be opening some sparingly, but it's difficult to find the right spot for it. Yes, the hypermarkets will become the centers of our community, and we will continue to look for the relevant spots. On the other hand, if I can just share with you the French situation. In France, there is E.Leclerc.
E.Leclerc is a French brand name. Over 10 years ago, it was at 12% in terms of market share, 24% now, and Auchan and Carrefour lag behind its price competitiveness. This is a hypermarket brand. Even in a country such as France, it is doing so well. Our hypermarkets are even closer to the community, not in France. Even so, they've been performing so well. But we have a lot of room, as I've mentioned, a lot of room for further optimization. It is also true for our superstores as well. For M Club, on Friday, they will have another store opening, and for this month, there will be seven in total for M Clubs. Some of the results that we have got, we will continue with this direction of M Clubs.
I cannot say tomorrow that we will be picking up speed and opening a lot more M Clubs, no. But we are still strategizing, and Costco and Sam's Club would be our models for operation. We'll be more localized, and we will be more utilizing our supply chain for RT-Mart, and we have Jiaxing, Zhejiang, and mainly in the eastern coastal region for our M Club opening. Relatively speaking, we have some new quality products, which is already very popular with our M Club customers. So we have these seven M Clubs, and this has provided us with a sound foundation in terms of our brands and of our partners and our supply chain. We will continue to refine that so as to build up our supply chain and product power. If you look at the Yangzhou M Club store in the first half's financial year compared to last year.
Let me think. What is that? The membership card, it is slightly lower than the Sam's level. But in terms of sales, it is very encouraging, these M Clubs. Also in investment, the loss is narrowed. I cannot say we are already there, or we have reached the destination, but definitely we are on the right path. For online, for our product power offline, it also helps with our online sales. This is very important. For our product power, there is this RT or uniquely RT, and this is a product line that is very, very popular and welcomed by our customers.
That is a multi-channel drive, offline driving online, and including our Jingdong, Douyin, Meituan, our new partners have also provided us with a lot better revenue online. For online, every sale is profitable for us. We will continue to increase our sales online. For efficiency online, it is also being enhanced, and it also, with our product power and low price competitiveness, we continue to enhance our customers' stickiness. Our ticket size is also increasing for online, and I would hope that to be a 10% increase for the first half of the year compared to last year. It is an increase of close to 10%, which indicates that our profitability will be higher even for our online sales. That concludes my sharing. Thank you very much.
Thank you very much, Desory and our CEO for the sharing. We will have two parts to the Q&A. First of all, those physically in the room and then those online. For the online investors, can you please press star one, and you will be given your chance to ask the questions after we have fielded the questions from the room here. The first row there.
Thank you for the presentations. I am Lo Chen from Merrill. Just now I have heard Mr. Shen's sharing. I would say as a veteran in the industry, definitely from your joining, you have already raised the performance of the company. Just now you talked about the community center positioning of the hypermarket. My home is in Shanghai, Pudong, and I can say personally that with your hypermart, it has breathed in a lot of vitality to the community. For the retail market, I have to say that the drop in market share is something that is undeniable. Given that, what is the hypermarket's future for you? How do you see it?
Some of our leading companies in the field are having a hard time, and it seems that there will have to be major adjustments. On the other hand, we have to always be chasing the changing times. I mean, the entire industry is making adjustments, but everybody seems to be making the same kind of rectification and adjustments, fresh products, proprietary brands, lowering of prices. Very often, or sometimes the plans, the strategies cannot keep up with the changing times. Every few years there is a new change, digitalization and automation, all kinds of changes. After two years, there may be another major change for the industry again.
Strategy cannot chase up to keep up with new changes. Given that reality, how do we see the future in our hypermarket segment? How do we want to position our hypermarket given that kind of macro or industry change? That is the first question. Secondly, Pangdonglai and some of the other companies have been, or some of the peers have been replicating the Pangdonglai model nationwide. How do you see this? Are there things that you can learn from the Pangdonglai experience, or perhaps in the tier one to two cities? Is there anything that we can perhaps replicate?
Thank you for the question. First of all, I want to say for our performance, for our coming back to the path, coming back to our roots, for our product power, et cetera, it is not because of me, it is because of the very sound foundation of our RT-Mart, Sun Art. This is very important in coming back to the path. Now, when I first started in the presentation, I already said that RT-Mart had already been in existence, but I am of course also guiding the company on the path. What I said came from my heart, and that is very important to me. In the future, for the future, I would say the following. First of all, for retail environment, it has always been constantly changing.
I see that in Europe as well, Auchan, for example, a few years ago it was in terms of e-commerce, it was very active and now it is omni-channel, et cetera. There are changes constantly. But what is important is that we always provide what the consumers need. For example, for the different shops that we have, the different stores that we have. For example, Jiangjiang Store in Shanghai in our commercial circle, it was a hypermarket. Originally it was a hypermarket. We are planning for it to become a superstore and we also put in the community cafeteria. I will give you an example as follows. in September, this store was the highest growth in Shanghai. I am not saying all stores will follow that model, no.
But according to the environment, according to our structure and also to our neighborhood, we will be positioning our stores appropriately. Secondly, for example, in Suzhou, in northern Suzhou or Sucheng, this store. This store in Sucheng area in Suzhou. It is a center for community life. At present, at this moment, I do not have a definition as to exactly what it will look like, but definitely it will face up to the community to provide the services and products that it needs. For Europe, especially for France and for Canada, U.S., there is Walmart. Compared to Costco, Sam's, they can integrate with the community very well. I remind my team all the time that the market is big enough. We have some stores where there is a Sam's opening right near us, and they are doing very well. We have the stature.
I always tell my team, it is fine to have a competitor opening near us. Our store will still be growing as well as they. Because when we talk about a community center, it is not just about the circle, because we are open. We open up to the outside. It is not just a closed circle. We are optimizing it still, but what I am saying is that we attract a lot of traffic. You can imagine 1.5 kilometers radius, if we are able to buy good products, really fresh products at good prices, and at the same time, I get the service that I want, and I can also have entertainment for half a day and dine out there, so it becomes a community. It is attractive for traffic, and this is what our neighbors need in a community. I just want to illustrate that.
Your second question, Pangdonglai, it is a true example because in its positioning, as I have mentioned just now, for our supers and also our hypermarkets, we are planning them. In the next financial year, beginning of next financial year, for hypermarkets, we will have some of the features of Pangdonglai, and when the time is ripe, I will be sharing with you. But for RT-Super, we have already some of the concepts already included. It is something that retailers should do actually. For many of the features, it is what retailers should have. As I have mentioned, we have to respond to demands. Not only that, we have to make adjustments all the time. For example, online and offline, we integrate it, and also we have the ceiling chain system, as you know, already put in in the hypermarkets.
We already have certain solid foundation to forge ahead strongly. We are definitely not just sticking around and having a hard time, no. Rather, our team has high morale and the condition for our team is very good. Some people say, "Why don't you move faster, quicker paces going forward?" I say, well, in the first half of the financial year, I want to build a solid foundation first. We continuously absorb examples from the market, not only from Pangdonglai, but of course we have our own unique foundation. But at the same time, we learn, we are open-minded to our industry. We are definitely not waiting out for others to die off and whittle down. That is not our strategy. Rather, we are very vibrant.
At present, Pangdonglai, I would say for the stores in the commercial centers, their renovated stores are in these areas. As for us, we are more in communities. For the Huaqiao superstore, for example, we are still by ourselves. It is not built into a community center yet because around our store, there is not a lot of buildup, not a lot of offerings still. It will improve, and this is important just to respond to you. We have our very clear plan and we will continue on our very solid foundation.
Greetings. Citibank, Wei Xiao Paul. I have three questions. One big one and two small ones. One concerning the operation. Just now you said that it is not just about the profit margin, but about the gross profit more. In terms of sales and also profit margin, what is your balance?
It is 24.6% for our profit margin. If you say that is not the main point, at least there is a baseline, right? You cannot have too low a gross profit margin, right? What is the lower? As you grow your top line, what is your baseline for gross profit margin? That is first question. Secondly, for your proprietary products, your own labels, can you discuss the own label performance in the past half year? What is the gross profit margin for these brands? Also, what is its contribution to total sales? Third question, perhaps is a more challenging question, that is, I saw from Mr. Shen's PPT that there are a few strategies for operation. In English it says, "Caring for the staff." In the first half, there has been a lot of staff cuts.
We are in the financial industry, perhaps just now the person asked a question. For us in the financial industry, we are trying to just survive and there had been a lot of staff cuts. Where there are these staff cuts, it is a hit to the morale. Then you say you care for your personnel, you also want to rationalize your personnel team. How do you balance that, and how do you Perhaps you also incentivize them? Pangdonglai is not talking about their staff, but I would think that is important, caring for the colleagues, and how do you actually go about doing that?
First of all, your first question. Of course, we do focus on gross profit margin. I am not saying that we disregard that. For each of our categories, we have a standard for it, for gross profit margin.
For this year, the gross profit margin, it looks like it is slightly decreasing. We have to look at the mix. For fresh products, it was quickest in its increase, and it has decreased a little bit in the first half. Of course, we minimize all waste, as I have mentioned. For next year, for example, for our Suning, as you know, Suning household electrics, they have come back to partner with us. The profit margin there is lower for these products, for household electricals. For gross profit margin, as far as I can see now, it is reasonable. It is at a reasonable level. Also, we know which categories of products we can put in more investments and where we can optimize a bit. Gross profit margin is important. It is very important, just to assure you.
Secondly, for our own labels profit margin, it is higher than our other categories' gross profit margin. I do not know whether I can share this piece of information actually. I will say that our cooperation with the suppliers, manufacturers, even closer. I would say for Decathlon, for example, we had a 3-day business strategy meeting with them, and their CEO said that they are talking about the ROA for a single product. This is not just about gross profit margin, but rather for their supply chain, they put all the elements inside and they calculate an ROA. This ROA is quota-based. On that basis, they lower their price. In Auchan, there is a backpack, right? Product. Basically, we cannot match them in terms of pricing. They look at not just at the gross profit margin, they look at ROA. That is what they do.
For our private labels, we will do the same going forward. We already have a list. I have not gone into details, but I can tell you that either in pricing will be even lower for our own labels. At the same time, we will be also optimizing or enhancing our quality. This private label is helping us, positively contributing to our gross profit margin. Lastly, your question concerning caring for the colleagues.
Oh, contribution to sales for our private labels. Right. You asked that question. For French companies or Costco, it is about 30% contribution. Because we have just come back to the path, so we do not have a requirement for sales contribution, but for each of the products, each of the categories, we want to be the best for our private labels.
in the future, we can talk about trends, et cetera, but at present, what I am happiest about is that more or less, I cannot say 100%, but basically for our private labels, they are doing very well. I can tell you, I can use the description as highly satisfied. I am highly satisfied with the performance of our private label products. For some of our peers, as I have mentioned, it is about 30% in terms of sales contribution. Your last question was on caring for the staff or colleagues.
You see, this is number one in our value system. We are brothers and sisters. Somebody shared this with me some time ago, and that is, if there is no warmth in the company, how can there be smiles in our service? At a very difficult time last year, at the end of the year or more or less at that time, we had a round of staff cuts, and the morale was bad at the time. Through our revenues increase and our increased profitability, it had raised the confidence level of our staff and our team. We have a survey. We have stopped that for a few years. Before at RT, we always had that survey, staff survey, to gauge the confidence level and wellbeing of our staff.
We have done some of this survey, and also some of them were open-ended questions for our staff to fill in. They have said they have really realized something new, and that is their income had increased for the first half of the financial year. Yes, and we will continue to make adjustments, and we also see the Pangdonglai bonuses monthly, et cetera, and we will be considering those. For the bonus, total bonus is higher this year compared to last year by double digits. Because of our staff rationalization, the bonus for each staff member is higher, so the staff are happy. For the first half financial year, for 100 stores, I have to say, I have been to many of these stores. First of all, I look at the customer responses at the stores on site, and also I was considering the strategy.
For example, some of the price matrix, the degree of freshness of our fresh products. I look at everything. While there, I was considering our strategies. Also very importantly, by being on site, I am talking, exchanging views with our frontline colleagues because their feedback is very real. I find that they are happy compared to a past period of time where they were confused and lost. Same with the management, actually. We have been working incessantly, continuously on this. What I am most happy about for colleagues is that through bonuses, we are increasing their confidence level and also raising efficiency. When I say efficiency raising, is not about staff cut, but rather we become more competitive. In certain divisions, we are actually adding staff so as to raise our performance.
At the same time, we are sharing the results, the positive results with our staff, rewarding them. I can feel that from some of the responses in our surveys. I can feel that for our frontliners, they are proactive, and we have been caring for them. Thank you.
Second row there.
Thank you for the opportunity. Dustin from Morgan Stanley. Three questions. The first question is a management question. In the first half, the performance had been good, and the management, it seems, have been doing well. We see acquisition news in the market. Mr. Shen, as the CEO of the company, I am sure you have plans and strategies for the next year and also for CNY. Also the grasp that retail sales opportunity and also we have some very positive changes. How can you continue with that trend?
Because you may be facing with certain changes. Mr. Shen, how do you formulate a good strategy and to persuade your colleagues that this will be the way forward and it will not be affected by any change in shareholding? That is the first question. The other two questions are just about operation for same store. For the first half, we see that there had been an improvement, that is good news. Offline, online, what is the contribution and what are some of the regions? Are there strong locations or regions with good performances? What are some of the less performing areas compared to, let us say, is it the eastern coastal regions that is been doing well? Can you share? How do they compare?
Also offline, Mr. Shen, in the Q&A session and in your presentation, you talked about the offline, and this is going back to the path. On the other hand, we see that online growth had been bigger. For the APP, the RT APP, is that your main engine for driving online growth? What is the return purchases rate? If our members are How are they performing? Are they buying offline as well as online? What is their behavior? Going forward, what do you see as the further penetration of online, or do you think you are good now? What about online and offline integration?
I often say this is what I think and feel, and that is confidence is more important than gold. Without confidence for the company, for the future, for life, it is not a happy place, if that is the case. In the beginning of the year, before I came back and after I came back, there had been some rumors in the market. They were false rumors, and they had hit the company. Regardless, I think the state we are in now is that we are confident and stable. There is no impact from outside, whatever the news or rumors, but we are very solid. We have value in our company. Our customers are satisfied. At present, internally, I can tell you truthfully, we are very positive, we are very confident. There is no so-called influence from exterior, outside.
My purpose is to operate well our company, whether it is our top management, our store managers, our middle management, we want to operate our company well, and that is all that is important. All our work and behavior shows that there is confidence in our company. It is a very good situation, I can tell you truthfully, and I do not feel that there are any thinking or problems affecting us from outside. This is very, very important. Second question, online, offline. The first or the previous financial year, we have been moving our offline to online, and that is a mistake. In the first half of this year, for our traffic, as far as I can tell, I would say it has been increasing.
Actually, online traffic is increasing higher than offline, even though it has been affected by Taotian Group, but we have new channels and our ticket size have also been increasing online and the contribution had been significant. We are growing faster online than offline. There is something important is that we have stabilized sales revenue and also traffic increase. Also for the regions, your other question, the regions performance. For our major regions, we are all improving. Some are improving faster than others. This is important, in particular for Eastern Coastal region. We have a number of regions where our gross profit margin increase, our sales increase, our expenses had been well managed, and there is good cash flow. I will not go into the details, though. We have the few major regions, they are all improving, and especially for Eastern Coastal, it is in a very good trend.
If we strengthen, our community center positioning will be even better. As mentioned just now, there is this company, let me think. The name, what is the name? In Suzhou, Northern Suqian, that is the name of the company. Our store was doing very well, and in the community center, there was this other store which had been opened next to us. But we continued to increase our attractiveness for offline. To increase our attractiveness offline. Convenience is important, offline. We are profit-making, and also the ticket size, if we continue to increase that would be making a better contribution. Now, word of mouth is important. Word-of-mouth marketing is most important, whether it is from product side, for F&B or bringing in traffic, et cetera.
If we have word of mouth, whether it is offline or whether if people do not have the time, they go online for purchases. We must have word of mouth. That is the most powerful marketing. For certain instances, first of all, there is a store which had been decreasing, but I say in the regional meeting, I notice that for each of our customer, he or she is important. We have to think about it. Where there are complaints, actually, it is a good thing, because we can analyze what is behind that particular dissatisfaction. Customer satisfaction is very important because they give us word of mouth marketing. In all our channels, this is core. Online, offline, there is 20%+ , which is online and offline active. Among our members, we are doing the analysis, but we have to perhaps, go deeper into it.
For repeat purchases, it is about over 2% for Youxian, and overall, it is 35% contribution. For the first half of financial year, the growth rate had been good. For Meituan partnership, for B2C, Q2 was 18%. Youxian plus Meituan together for online, for our company, it is a strong contributor and performing well.
For online investors, please press star one to raise your question. The front line there. Greetings, management.
Macquarie, Ling Dow. For the nurturing period of new stores, do you see that you can already compress that timeline? That is the first question. Second question on rentals. The first half, it is because of shop numbers that rentals, the number had been changed. How do we continue to control that? On this basis, how do you see rentals increasing for galleries? For tenant mix, how are you going to adjust that?
There are some non-performing assets in your results disclosure. What are these non-performing assets, and has that been disposed? There is one that has been perhaps handled in September. What is it? Can you talk about it a little bit more?
Concerning new stores, from our newly opened Huaqiao store, I dare not say how long it takes or how many months it takes for it to break even, but I would say it is better than expected. I would say this. Generally, for a store, the second year, it will be cash flow positive, third year, break even. In planning new stores, in our basic framework, it is unchanged. If that cannot be attained, that kind of timeline, we may give it up. In the first half, we had planned some of the new store points, but we have given them up.
While we are confident, we have to be clear as to our framework. We have reassessed the commercial circle around in the neighborhood, so we have abandoned some of the points. Before we are prepared, I always say, I would rather abandon some opportunities rather than to bring on more burden. That is important. This is how we think about RT-Supers and also in our future development. For hypermarkets, we have some excellent locations now because they are community centers, that is different. That is for new stores. For rentals, we have some adjustments and rationalization in our different industries. For example, for the preparation time for new stores and rationalization of existing galleries, and that had affected our rental income a bit. This year, when I have returned to the company, I had already said that it is very important for our offline customers traffic.
We have to bring in traffic for our retail. That will also help our tenants in making a higher profit. We are still in the stage of planning adjustment. We definitely want to bring in more traffic by ourselves so as to enliven the business of our gallery and lower the vacancy rate for our gallery. Vacancy rate is a very important indicator for us. We expect for the future, through these adjustment measures, our vacancy rate for the galleries would be lower and will continue to decrease. The non-performing asset, Desory?
Yes. It is an asset for sale. Last year, in the last financial year, there was also this disclosure. This is for certain stores because there are certain parties which can take these up in the locality. These stores had been stores that we wanted to rationalize or handle.
It was on our list of stores to be sold. There was no major loss at all for our store closure. Yes. As mentioned, for some of the tail end stores, we continue to rectify them. Either we reform them, we improve them, but for some of the stores, because of their situation, we have to close them. There are other parties which say, "Yes, we want to take up your store." For such stores where we can transfer them, that would be best. It is equity sale or exchange for these stores. Yes. Through these equity transfer out, we handle these stores. Also in terms of compensation, et cetera, it is the least impact to our company through this transfer of stores.
Chanting Christine. Management, thank you for the opportunity. I have three questions. The first question is a small question about your expenses savings. In your PPT, I noticed that you have some very detailed reasons for your expenses cut. For example, optimization of your staff, et cetera, and rentals decrease. Your efficiency in investment, can you talk about each and also for your expenses, will there be more room for reduction going forward?
Desory, perhaps if you can share that with us. A second question concerning your superstores just now. It has been mentioned by Mr. Shen that you have gone into a good path for your operation of your superstore. For the profitability of each of the stores, can you talk about the details? Third question is an old question. For the medium to long term, you have a 1.5% net profit margin level. Mr. Shen, you have been at the company for a period of time. Is this a possibility, and on that basis, can you actually achieve even better profit margin? three questions.
For your first question in terms of expenses. For expenses, there is a 1,090 million RMB year-on-year decrease, or 11.3%. For 500 million, it is personnel and also 200 million is in depreciation for personnel for at the stores, there is major savings internally. For example, for the personnel at the stores compared to the previous period, it is a cut of 1.5%. Also headquarters, as mentioned, it was 2.2% last year, and September it was 1.4% HQ expenses. That is over 70 million savings. Last year compared to this year, we have been continuing with our optimization, and this is the annualization performance. For marketing expenses last year, we had a lot of expenses in, for example, the stores, marketing measures.
This year, even though we have done some promotions, there had been third-party teams doing the marketing. For each year it will be tens of millions in terms of marketing even for certain stores, and we have cut down on that. It was 1.2% last year, 0.8% this year for marketing expenses with great savings and improvement for that efficiency. For expenses decrease, in the first half, it is within our expectations. Going forward, there is still further room for improvement. As I've mentioned just now, in marketing measures, in operation, in supply chain, there is still a lot of room, and we are taking action. In expenses, there is still a lot of room for further improvement, and also HQ expenses. First half, the HQ expenses control was very good, and our goal is 1% or even lower.
We've not reached that yet, but we have made major improvements. Further for marketing expenses last year, as an example, last year in marketing, we have done a lot of different marketing measures. Directly, I would say these are wastes. Wastage. As I've mentioned earlier, I want to cut out all wastage. They're meaningless. For example, we have used a lot of expenses on certain stimulation of sales. Now we have come back to normalcy. We have come back to the right path, and we have a lot of further room for improvement of efficiency in terms of marketing. That's just two points for supplement. For this year, first half, we have come back to a reasonable level in terms of our expenses ratio. That is very, very good. But there is still a lot of room for continuous improvement.
As for the super stores, I just want to say a couple of words. Before Huaqiao, there were other stores which had been reformed. We have been more selective in our product mix, for example, through the products presentation, price matrix, higher quality, lower prices, processing of food, fresh products, extension of categories, differentiated categories, direct presentation, et cetera. A lot of our customers are giving us feedback, and we are also taking off the unattractive products as well. So, good feedback from our customers. Also in our work mode, in our ordering of products, we have done major optimization. Our team is also slimmer. For a Dadu store, for example, we have rationalized the work process. We have less staff. The remaining staff are happier, their efficiency is higher. This is really impressive.
Also in coastal eastern region, for the management team for super stores, I together with the team, had gone to all the stores in this region, and we see major and fast improvement in all the stores. For the improvements of the stores, we are picking up the pace and the cash flow for the first half was positive. Very importantly, investment is very important. For the front of shop and back end, it is very important. Huaqiao had already improved significantly and we will continue with that going forward in our investments. Definitely, it will be directed to this goal, and it will bring us higher returns and even better competitiveness. That is only to be expected. Because the company had already given out a public notice concerning a possible acquisition.
So whether online or offline, the investors, I encourage you to grasp this opportunity for questions. Please press star one for the online investors. Please.
I have another question for you. You mentioned going back to pricing, but there is a question for you, and that is for the retail industry in China, there is a lot of channel expenses. We have to charge these channel expenses. It is unavoidable. Hema, for instance, at the time, and when Mr. Cai was there, that was done as well. There was a lot of resistance from the product brands. Also, after taking out some of the lower-performing SKUs, the consumers felt that there was less choice available for them. So how do you balance that?
First of all, as I have mentioned just now, we are optimizing our offerings. You already see some of the adjustments in our super stores. What we are doing is not going through channel fees or increasing fees to increase our gross profit or gross profit margin. Our gross profit margin for super stores is higher than our hypermarkets for the first half. That is our first point to note. The second point is that when you see our gross profit situation, this is just a composition. It is but a composition in the sense that it is our front of shop and our back office composition. Compared to our peers, I think this is very important, we are competitive. The composition is different from some of our peers. We cannot say that for some of the other peers, they are charging certain fees and we will therefore do it.
For some of the products that our customers need, as long as they need it, we will be putting it in our stores. Also, we are planning our products very carefully. I can tell you that this is something that is very deep as a skill, as a study. Our product power is very important. Our purchasing is important. But the chairman had also said the same, and that is controlling the inclusion of what products and what to weed out in terms of product. This is something that is squarely on my shoulders. It is not the responsibility just of our purchasing team, no. We will be optimizing our product mix, our inclusion of products. This optimization, I am fully confident, will not adversely affect our gross profit or gross profit margin, but rather it will increase our competitiveness.
This so-called channel fee is not something that will affect us. We will just continue to optimize our products. We will be weeding away some of the products so that our product power would be even stronger. That is very important. According to our product categories, we will define each category, which kind of category is it? For example, in my mind, I always have this as an example, juice. Fruit juice has to be wide enough and deep enough. For the hypermarkets, there will have to be choices. But for some of the other products, as long as we have that would be fine. It is just to satisfy certain consumers' needs. That will not affect us. The channel that you have talked about will not affect us. Thank you.
Jefferies Analyst. I have a few questions. Just now, you talked about the products. Can you talk about our product mix right now? In the past, we had four to five major categories: food, cooked food, and different categories. In the future, what would it be? In our reform for the product mix, how has that changed? Also, can you talk about the first half in terms of the products, same store, differentiation? For example, home appliances, is that in one of the product categories?
What about this category? That is about products. Second question. Offline, we are working with Meituan, and they have these pop-up stores concepts. For Meituan pop-ups, they talk about instant shopping at Meituan. Where does this market share come from? Are they taking away from the online or offline part? A third question, for the second half, there would be a larger volume rebate to help our gross profit. I would like to know this volume rebate in the second half, will that still be offered, please?
From the categories of products and the structure of the categories, first of all, in the first half, for fresh products, we have very good response, and we will continue to extend that category. Also for cooked foods and bakeries, we will increase that as well. Those products have been doing well. For processing, especially for baking and noodles, we are coming back to the path for these categories, I should say that. Also for adjustments of the stores and also for the Huaqiao store data, we see that we are fast going back to the right path. We are going back to the right path. We are on that right path. Also for some of the fast consumer goods.
Yes, we will increase the selection choices for those categories. For home appliances, with Suning.com, next year 331, we are in a process of adjustments. Starting from the next financial year, we will be operating that ourselves. For home appliances, the pricing is very transparent, and we can also do online sales of home appliances. It does not mean that we will not have home appliances in the superstores. For example, Huaqiao, it is a very small proportion of home appliances in the total sales, different for each of the stores. For hypermarkets, starting from next year, we will be self-operating home appliances, and batch by batch, we will be going back to the right path. That would be a better return in all ways than from cooperating with Suning.com, not only in profits, but also in better relationship with our customers.
For pop-ups, that is their strategy, and this is what I think, and that is compared to some of the other peers. For example, Pangdonglai, they do not have pop-ups, and they are doing well. That is true for a lot of peers in the industry as well. What is most important is that we build the framework for our basic retail. Our word of mouth, we have to improve on that, and also product mix. Then online, we also do that. Meituan is an excellent channel for online. As for pop-ups, we can pay attention to it. In answer to your question, I would say we are already doing very well. For some of the pop-ups, from time to time, it would affect us some, but most of the time it has no effect on us, no impact on us.
Whether this is for Meituan, pop-ups, or some of these other efforts by our peers, I don't think it impacts us adversely in big ways at all. I think the market is big enough. I always think so, and I always say so. Also, there is another thing we say is low margin and sell more. So more sales, lower margins. Why people don't come to us to make purchases? We want people to come to us, and we already have the scale and the stature. Now because of time, this is the last question. Or one to two questions.
[Bonares City], Eric. I have a couple of questions. For asset light and asset heavy, this is the first question. For you, for these over 100 stores ownership, and with our CNY 300 million kind of value, do you think that this is the right way forward?
That's the first question. Secondly, low price strategy. For some of the other platforms, JD.com, Costco, et cetera, it is 9%-12% for their gross profit margin because their cost level is low. Our OpEx is over 40%. So average-wise, it's very difficult for us to replicate their costs. So for this low price strategy, what do you think about this, the value of our low price strategy? Another question. In the past few years, in restricted cash, sorry, and prepaid card, and it is about 30% or so stable. But you're saying that there is some changes to the regulations, and that has risen by 100%. Is that true? Behind it, are there some prepaid cards situation? For example, there are some very dormant prepaid cards, and so there will be some changes to your provisions. Can you give us some highlights?
Thank you, Eric. Concerning light asset, we have all along considered that our long-term operation, our stores and our retail, and to build our stores into community living centers, this is highly meaningful. It is a foundation stone of ours. So our proprietary or private labels operation, and we will try to operate well. So this is very important as a foundation stone. For asset light and asset heavy, let me just respond this way. I was looking at an article concerning an analysis of Costco, very deep analysis. It said Costco is a light asset company. Why is it light? Its business is theirs. They operate their own stores and business. Why is it a light asset company? Because their product turnover is very fast, within 20 days or average 18 days. The payment cycle including is two months.
So they're not using their own capital, basically, to make business development. That's why they're categorized as a light asset company. Now, one thing I'm very happy about after I've returned is inventory days. For inventory days, if it is lower than our payment cycle, then this is very good. This is a very good cycle for light asset. I said we want to be a good light asset company, but we are still on the path for that purpose. Second point, Costco, Sam's Club, their membership stores, membership club, their gross profit margin is at just over 10%, and we are more or less the same. For them, there are two types. One is for discounts for some of the major brands that are discounts. Costco is doing that in big ways, and also they have big packages and low price.
But for us, it is smaller packages, and we have more choices. We are different in that sense. For some of the hypersensitive products, we are very low in prices. On the other hand, we have our private labels, and those are differentiated from them. We definitely want to be low priced and also for the products. For 3,000 to 4,000 range, we have more choices, more brands, for example. For them, they have less selection. We have many points of differences. Another example, I was studying in Monterey, and I saw next to Costco, there was a Walmart store opened, and it is completely full of customers. We were in Walmart. Why are the customers in Walmart? The response is, "So rich in choices, a lot of choices, full of choices, smaller packages." I always say the market is big enough.
We can have different positionings for the membership clubs or stores. For example, in Yangzhou, we have hypermarket, and we have the M Club. No bad impact on each other. No cannibalization because they are different. Last question?
Yes.
There was a last question. For the first half, yes, there was an increase, and definitely for 2024 or beginning from last year for China, for retail market, there are some peers where the prepaid cards had been affected. For example, Carrefour will be one. For prepaid cards, for the regulations and their prepaid card associations, there had been certain changes in the regulations. It is 100% regulated for prepaid cards. For example, for the regulators, they want the cash for 60% and to be used 40% for insurance coverage. For our prepaid cards, it is CNY 15 billion.
I think for prepaid cards, we are 50% of total in China. This is insignificant. We work very closely with the partners concerned. On the one hand, it is 40% in terms of our insured coverage. Also, for the credit, for the cash that we can use, it is still significant. It is still over CNY 10 billion that we can use. This is significant amount. For free cash, apart from prepaid cards and borrowings, we have free cash of net CNY 7 billion+ . The first half, we have increased by CNY 1.4 billion in free cash. That is very important for our health and future development for the company. The trend is also positive.
If we have another question, this will be the last one. Yes.
I have a question. We see that the F&B restaurants are not doing well.
The sector has been not performing well, and people are saying that they stay home to cook, not eat out. In the past six months or so, what is the image that you see? Has there been changes for the food and beverage? I have been to Shanghai a couple of times, and some friends say they are going to the wet market, they are going to supermarket to buy fresh food and then cook at home. How is this impacting you?
According to my understanding for F&B sector, my own feeling is that just from observation, just from my friends' observation, I would say this is different from our gallery business. It is different because we are smaller eateries at our gallery. We sell noodles and also the rice dishes, and they are doing well, actually, F&B in our galleries.
Secondly, this year for fruit and vegetables in the first half, the growth had been picking up. That is true. Personally, I did not do any refined analysis, but there may be some impact, the trend that you talked about, but I cannot be certain. For fresh products, as I have mentioned just now, that is our strategic emphasis because in terms of traffic, penetration, all these are picking up for it. But I have not connected this up with the F&B trend in the market.
Thank you very much for your presentation and your sharing, the management. We close the meeting here. Again, we would thank the investors for taking the time and for all your support. Thank you. Good-