Ladies and gentlemen, thank you for standing by and welcome to MINISO Group Holding Limited Earnings Conference Call for the first quarter of fiscal year 2022 that ended September 13, 2021. At this time, all participants are in a listen-only mode. After the management prepared remarks, we will conduct a question and answer session. Please note this event is being recorded. Now I'd like to hand the conference over to your host, speaker today, Mr. Eason Zhang, Director of Capital Markets. Please go ahead, Eason.
Thank you, Maru. Hello, everyone, and thank you all for joining us on today's call. The company has announced its quarterly financial results earlier today. An earnings release is now available on our investor relations website, ir.miniso.com. Today, you will hear from our Chairman and CEO, Mr. Jack Guofu Ye, who will start the call with an overview of our business. He will be followed by our CFO, Mr. Steven Saiyin Zhang, who will address our financial results in more detail before we take your questions. Before we continue, I'd like to refer you to the safe harbor statement in our earnings release, which also applies to this call as we will be making forward-looking statements.
Please also note that we will discuss non-IFRS measures today, which we have explained and reconciled to the most comparable measures reported under International Financial Reporting Standards in the company's earnings release and filings with the SEC. With that, I will now turn the call over to Jack. Please go ahead, sir.
[Non-English content]
Thank you. Hello, everyone, and welcome to MINISO September quarter 2021 earnings conference call. During this quarter, we added 161 stores to our global store network, including 122 MINISO stores and 39 TOP TOY stores. Revenue reached CNY 2.654 billion, up 28% year-over-year, exceeding the high end of our guidance range. Operating profit was CNY 213.5 million. Operating margin of 8% was the highest in recent seven quarters. Adjusted net profit was CNY 184.2 million, up 80% year-over-year. Adjusted net margin of 6.9% was the highest in recent six quarters since the pandemic outbreak.
In spite of the headwinds from the resurgences of pandemic, rainstorm disaster and weak consumption data in the massive market in this quarter, we focused on the elements of our business that are within our control. Driving product innovation, enhancing inventory management, improving operating efficiency, and executing our omnichannel strategy. These efforts yield positive results as we kicked off fiscal year 2022 with a solid performance demonstrating the resilience of our business model and core competitive strengths. On today's call, I'll share major developments we have made in MINISO brands, domestic operations, international operations, and TOP TOY in this quarter.
[Non-English content]
First, let's start with the operations of our flagship brand, MINISO in China. Offline retailers and consumer confidence were challenged by the continued spread of the Delta variant nationwide since late July. This regional outbreak was reported as the most widely spread wave since the first quarter of 2020. Despite the shelter-in-place during this quarter, the domestic operations of MINISO brand recorded a revenue of CNY 1.87 billion, up 13% year-over-year, driven by a 16% year-over-year increase in average store count and a 58% year-over-year increase in our e-commerce business.
[Non-English Content]
MINISO added 96 stores on a net basis during this quarter and ended September with more than 3,000 stores in China, marking a new milestone in our eight-year history. We continue to penetrate into more and more Tier 3 and below cities and unlock these new markets, approximately 80% of newly added stores in this quarter are from there. By the end of September, the geographic reach of MINISO stores spanned across about 330 cities in China, including four Tier 1 cities, 46 Tier 2 cities, and about 280 cities Tier 3 and below. According to government statistics, there are about 2,200 cities in China, including 300 prefecture-level cities and nearly 1,900 counties.
In addition, there are 91 cities in China with populations of more than 5 ,000,000 and 18 cities with population of more than 10 million . As China's urbanization continues, there will be a large number of new shopping malls suitable for new MINISO stores every year. Although resurgences of the pandemic in China could bring short-term pressure, MINISO's long-term addressable market in China remains huge.
[Non-English content]
Moving to our online business. Revenue from e-commerce was around CNY 186 million, up 58% year-over-year. Revenue from O2O business was around CNY 90 million, up 126% year-over-year. In total, online business, including e-commerce and O2O, contributed 10% of our revenue. MINISO is committed to deepening consumer engagement and driving omnichannel experience. We firmly believe that the success of our omnichannel strategy will help improve MINISO's brand awareness, user retention, and repurchase. Starting this year, we have enhanced our omnichannel strategy to become a key focus and a growth engine of the company. Supported by our 3,000+ offline stores nationwide, we have established stable cooperation with leading O2O platforms and accumulated a significant amount of private traffic. Let me give you some examples.
Monthly active user of MINISO's official WeChat mini-program surpassed 6 ,000,000 in this September, and private traffic of MINISO's MINISO brand surpassed 12 million by the end of September. In fiscal year 2021, there were a total of about 300 million orders in MINISO stores. With that figure in mind, we believe MINISO's private traffic has huge potential for future growth.
[Non-English content]
Moving to MINISO's overseas operations. Overall, sales of MINISO's overseas stores moved further along the path of recovery in this quarter, with overall GMV recovered to about 70% of the same period in 2019. GMV in distributor markets recovered to about 75% of the same period in 2019, and GMV of subsidiary markets recovered to about 50% of the same period in 2019. Revenue generated from international operations was CNY 623 million, up 78% year-over-year and 18% quarter-over-quarter. Thanks to the improved sales recovery in important markets such as Mexico and restocking by distributors for the upcoming holiday season.
[Non-English content]
Our total number of overseas stores reached 1,836 by the end of September, with a net opening of 26 new stores during the quarter, compared to a net opening of eight stores in the same period of 2020. More than 60% of these new stores were located in Europe, Middle East, and North Africa, while sales recovery stabilized during the past several quarters at a level sufficient to support moderate expansion. There were 157 suspended stores in overseas markets by the end of September, down from 205 a quarter ago.
[Non-English content]
Moving to TOP TOY. During the quarter, we added 39 TOP TOY stores on a net basis, bringing total TOP TOY stores to 72 by the end of September, including nine Dream Factory stores and 63 collection stores. More than 90% of TOP TOY stores are opened by retail partners. With its rapid expansion this quarter, TOP TOY's revenue increased by 64% sequentially and exceeded CNY 100 million for the first time.
[Non-English content]
TOP TOY has been committed to multi-category strategy since day one, because we firmly believe that art toys should not be limited to blind boxes, and that there should be many other potential categories to meet the diversified needs of Generation Z. One such category is toy bricks. After years of consumer education, the toy brick category has become one of the most popular categories in China's toy market. Meanwhile, certain promising domestic brands have emerged. The challenge for these young brands is that they are facing a fragmented market in terms of channels, data, and productivity. TOP TOY's solution for this problem is the launch of the first ever Toy Brick Festival in China, a major campaign launched by TOP TOY together with several domestic brands.
By leveraging TOP TOY's unmatched omni-channel capabilities, this activity combines online and offline channels to increase exposure of toy bricks with Chinese elements and boost sales.
[Non-English content]
Going forward, we plan to allocate more TOP TOY shelves for domestic brands to help them introduce their flagship products, especially in our Dream Factory stores. We also plan to encourage our consumers to engage more with toy brick products embedded with Chinese elements, so they can learn more about the value of Chinese toy bricks. This campaign is a good attempt for TOP TOY to use its omni-channel capabilities to empower traditional toy brands. Going forward, we'll continue to focus on integrating online and offline channels to improve TOP TOY's omni-channel experience and explore more potential trendy toy categories to effectively meet customer demands.
[Non-English content]
Recently, we held the first TOP TOY Show, TTS, in Guangzhou, an art toy carnival featuring approximately 200 brands and over 1,000 artists. This two and half day festival for art toy fans attracted more than 100,000 offline visits and accumulated 200 million clicks in Douyin and Weibo respectively. TTS was one of the largest art toy exhibitions in China during the second half of 2021 in terms of the scale and number of participating brands. Through this very successful exhibition, TOP TOY has deepened its customer insights, enhanced consumer retention, and expanded the influence of the TOP TOY brand.
[Non-English content]
In terms of TOP TOY's proprietary products, we have been continuously discovering talented designers and work with them. Take Dali Zhaocai Mao, a co-branding IP, as an example. Sales of its new blind boxes stabilized within top three SKUs of TOP TOY during this quarter. TOP TOY is still in an early stage of building core capabilities and establishing brand awareness. This leaves its merchandise gross margin huge room for improvement. Going forward, we are confident that its gross margin will improve as its operational leverage is gradually released, driven by the expansion of its scale and the maturity of its proprietary IPs and products.
[Non-English content]
This concludes my prepared remarks. I'll now turn the call over to our CFO, Steven Zhang, for financial review.
Thank you. Hello, everyone. I will start my remarks with a review of the September quarter's financial results, and then provide additional color regarding December quarter. Please note that I will be referring to non-IFRS measures, which exclude share-based compensation expense and certain non-recurring items. Revenue in September quarter was CNY 2.654 billion, increased by 28% year-over-year, and 7% quarter-over-quarter. Above the high end of the company's guidance range of CNY 2.45 billion-CNY 2.65 billion. The year-over-year increase was primarily driven by the growth of our domestic operations and the recovery of our international operations. Revenue generated from our domestic operations was CNY 2.03 billion, increased by 18% year-over-year.
Revenue generated from domestic operations of MINISO brand was CNY 1.87 billion, increased by 13% year-over-year, mainly driven by a year-over-year increase of 16% in average store count, and a year-over-year growth of 58% in our e-commerce business. Revenue generated TOP TOY was CNY 109 million compared to nil in the same period of 2020. Revenue generated from our international operations was CNY 623 million, increased by 78% year-over-year, reflecting an improved recovery of sales in certain markets and the restocking by distributors for the upcoming holiday season. From a quarter-over-quarter perspective, revenue from our domestic operations increased by 4%. As you may know, our business is subject to seasonality, typically with a stronger performance in September quarter than in June quarter.
For example, our domestic revenue increased by 16% sequentially in September quarter of 2019, which represented a normalized seasonality before pandemic. Apparently, the weak seasonality in this year was primarily due to the new wave of pandemic from late July. We estimate the GMV loss for those influenced stores in China during this quarter was north of CNY 200 million. Revenue from international operation increased by 18% sequentially. According to National Bureau of Statistics of China, in the first three quarters of 2021, retail sales of supermarkets, convenience stores, department stores and specialty stores increased by an average of 16% compared to the same period of 2020. On an apples-to-apples basis, MINISO Group's domestic sales increased by 40% during the same period, demonstrating the resilience in our business model and the core capabilities.
Gross profit was CNY 728 million, increased by 39% year-over-year, and 14% quarter-over-quarter. Gross margin was 27.4% as compared to 25.2% a year ago, and 25.8% a quarter ago. Both of year-over-year and a quarter-over-quarter increase in gross margin was primarily related to change of revenue mix. Our more profitable international operation accounted for 24% of our revenue in this quarter, the highest percentage in recent six quarters, compared to 17% a year ago and 21% a quarter ago. Selling and distribution expense were CNY 323 million, increased by 40% year-over-year and 22% quarter-over-quarter.
The year-over-year increase was primarily attributed to increased personnel related expense, logistic expense, and marketing expense, as with the year-over-year revenue growth and the brand awareness improvement for both MINISO and TOP TOY. To a lesser extent, increased license expense, as with the increased revenue contribution from IP products. The quarter-over-quarter increase was primarily attributed to logistic expense and personnel related expense. G&A expense were CNY 200 million, increased by 29% year-over-year and 6% quarter-over-quarter. The year-over-year increase was primarily due to increased personnel related expense and IT expense for our new initiatives, such as TOP TOY, partly offset by decreased professional service fee related to our IPO in the same period of 2020. The quarter-over-quarter increase was primarily due to increased personnel related expense. Turning to our profitability.
Operating profit was CNY 214 million, compared to a loss of CNY 2 million a year ago, and a profit of CNY 188 million a quarter ago. Operating margin of 8% was the highest in the recent seven quarters. Adjusted net profit was CNY 184 million, increased by 80% year-over-year and 27% quarter-over-quarter. Adjusted net margin was 6.9%, the highest in recent six quarters, compared to 4.9% a year ago and 5.9% a quarter ago. Adjusted basic and diluted earnings per ADS were CNY 0.60 in this quarter, compared to CNY 0.40 a year ago and CNY 0.48 a quarter ago. Turning to our balance sheet.
As of September 30, 2021, the combined balance of our cash equivalents, restricted cash and other investments was CNY 6.14 billion, compared to CNY 6.88 billion as of June 30, 2021. Turning to working capital. Turnovers of inventory and trade receivable remain flat sequentially. Looking ahead into December quarter of 2021, we expect our total revenue to be between CNY 2.5 billion-CNY 2.7 billion, which represent an increase of 9%-18% year-over-year. Looking ahead, we remain confident in our ability to continue deliver shareholder value, attracting like-minded stakeholders, and enable our consumer to better enjoy life's little surprise. This conclude our prepared remarks for today. Operator, we are now ready to take questions.
Thank you. We are now beginning the question and answer session. Your first question today comes from the line of Michelle Cheng from Goldman Sachs. Line is open. Please go ahead, Michelle.
Yeah. Thank you. Ye Guofu, Steven. [Non-English content]
[Non-English content]，Michelle.
[Non-English content]
I have two questions for the management. For the first one is, the company has been turning more aggressive expanding in U.S. and European market. In U.S., we are also seeing the new concept like $10 N' Under. Can management share the strategies regarding the overseas expansion? My second question is about the IP development. We are seeing that for MINISO brands, there are some price adjustment for the IP products. Can management share whether we are aggressively expanding the IP product contribution for MINISO brand? For TOP TOY, management has mentioned that the proprietary IP development has been quite successful. Can you share with us what's the outlook and development stage? Thank you.
[Non-English content]
Hi, Michelle. This is Jack, CEO of MINISO Group. Thank you very much for your questions. For your first questions about our strategies in the U.S. market, specifically on the $10 N' U nder concept. Here's my answer. We opened four $10 N' U nder concept MINISO stores in the U.S. in October. Three in California and one in Virginia. The company now has some recent business development plan in the U.S. market. That is based on our observation that the U.S. market has a relatively good recovery in terms of sales in the last consecutive three months. With same stores in the U.S. market in this quarter reaching nearly around 90%, compared with the same period in 2019.
In terms of, you know, this concept of $10 N' Under, you're right that according to our customer insight, local consumers in the United States market, they have a great demand for household products under $10. Their demand is not well met at the moment. With MINISO's supply chain strengths, we decided to give the concept a try. This $10 N' Under concept is still in its early stages, and we will definitely share more in due course. Thank you. Okay. For the second questions on the company's IP strategy. Michelle, you know, I will introduce the IP strategy separately for our MINISO brand and TOP TOY brand.
First for MINISO brand, you know, the company has, you know, recently gradually adjusted our pricing strategy of the newly launched IP products. The gross profit margin of these newly launched IP products is higher than that of the non-IP products. After a period of observation, we have found that MINISO's, you know, conversion rate and, you know, our cross-selling rate remained stable after this new IP pricing strategy was adopted several months ago. The sales contribution of IP products now is at about 20%-25%. For MINISO, the majority of our products is still non-IP products. We're definitely committed to our, you know, value points at this moment. In terms of TOP TOY.
By the end of September, TOP TOY has launched a total of eight SKUs for its proprietary products and two more than that in the quarter of June. This includes the blind box, as we mentioned in CEO prepared remarks, Dali Zhaocai Mao blind box. The second is, you know, the batch blind box of Twinkle. Among which the Dali Zhaocai Mao blind box series. Its sales was quite encouraging and ranked in the top three SKUs in the whole categories of TOP TOY. For the Twinkle batch blind boxes, it was introduced until, you know, September 13th.
The gross margin of our TOP TOY's proprietary products now has stabilized about 60%, above 60%. In September quarter, our proprietary has contributed 5% of total sales of TOP TOY, and 50% of them is from our, you know, proprietary IP and co-branding IP, and another 50%, respectively. We also launched our [Non-English content] function in our TOP TOY mini program in last quarter, and it was a huge success and was warmly welcomed by the fans. For example, this mini program, it launches 100 SKUs every month with each of the sales tripled the average sales of TOP TOY's grid on average.
Although products of this [Non-English content] have relatively lower gross margin than others, but its turnover is much faster than it can be. Every time it can be nearly sold out within 10 minutes after its launch. Thank you.
Thank you. The next question is from the line of Lucy Yu from Bank of America Merrill Lynch. Line is open. Please go ahead, Lucy.
[Non-English content]
My question is regarding fourth quarter to date sales momentum in both China and overseas market. The second question is regarding the guidance for the next quarter of CNY 2.5 billion-CNY 2.7 billion. Could you please give some breakdown by China overseas as well as TOP TOY? Thank you.
[Non-English content]
Okay. Hi Lucy, thank you for your question. This is Steven, CFO of MINISO. I will answer questions about, you know, the update of October operations. You know, as you guys may know that the latest resurgence of the pandemic is reported to be the most widely spread wave since the March of 2020. You know, the cold weather event has definitely increased the difficulties for government to control the pandemic. For MINISO, we now currently estimate that this influence will be smaller than that of the Nanjing pandemic in late July. Considering that it has, you know, spread to about 20 provinces. Our best estimate at the moment is that the loss in the GMV will be somewhere between, you know, CNY 15 million of, you know, Guangzhou pandemic in late May and CNY 200 million of the Nanjing pandemic in late July.
[Non-English content]
In terms of overseas market, in October, the number of suspended stores by the end of October was 118 compared to, as we mentioned earlier, that 157. In terms of sales recovery, you know it has absolutely a sequential improvement compared to that of September. The overall GMV in overseas market has recovered to 70%-75% of that in the same period of 2019, including 80% recovered in our distributor markets and 60% recovered in our subsidiary markets. Thank you.
[Non-English content]
Lucy, for your second question on the revenue guidance. Let me just give you a simple breakdown. Actually we have made this estimation is based on the, you know, the current recovery and our domestic operations and overseas operations in terms of December quarter revenue. Absolutely, and our current estimate that it will be pressured by the, you know, the pandemic recovery, especially in domestic markets. In terms of overseas operation, traditionally due to you know the holiday season, especially Christmas. For the overseas market, it will be stronger sequentially. For TOP TOY business, you know, because, its store numbers has been increasing.
With you know this we call the effective store that means the store has opened for a while as with this increasing. We estimate that the revenue of TOP TOY will also improve sequentially. Here I want to stress that you know due to the pandemic persistence in China and some impacts. Based on these factors we have given this revenue guidance for the next quarter.
Thank you. The next question is from the line of Wenhui Song from CICC. Line is open, please go ahead, Wenhui.
[Non-English content]
[Non-English content]
[Non-English content]
Good evening, management. I have two questions. The first is that we can see that the overseas business improves month by month. So what's your store opening plan for the next year? I mean 2022. And to what extent can the overseas business be breakeven or profitable? And the next question is that are the newly opened overseas stores mainly from old franchisees or new franchisees? Thanks.
[Non-English content]
Okay. Hi, Wenhui, this is Steven. I'll answer first questions. You know, traditionally, MINISO will, you know, review our whole year performance at the end of calendar year. Based on that review, we will make a detailed working plan or budget for the next year. As of today, you know, we do not have, you know, a specific plan in our mind. What I want to stress here that, you know, MINISO has listed as a public company for several quarters, and from all our past performance during the past several quarters, we have shown that our you know, resilience in our business model and our core capabilities, and that gives the whole management confidence. We can stick to our existing strategy in both at home and abroad.
This includes the rollout and the rapid growth of TOP TOY. We are very confident about that. In terms of the overseas stores, here's what we think. All those areas that the COVID is controllable. Maybe in this first half of next year, we do not have detailed plan to make a very rapid development at these areas. Because if the pandemic resurges it will be very harmful to our business in that market. For those countries and markets that the COVID is well controlled, such as Europe and the U.S., as we have shown earlier that we have begun some of our business development and there as we are doing in the U.S. market. Thank you.
[Non-English content]
Hi Wenhui, this is Steven. For the second question about the store opening of overseas markets, you know in the September quarter, our subsidiary countries, there were some of them have, you know, opened a lot of stores. I will give you some examples, such as India. We opened six stores in that. As we have mentioned earlier that in the U.S. market, we opened four stores in this quarter. In Indonesia, we opened one store. Absolutely, our distributor countries, our distributor partners, they are also opening new stores as they did in the past several quarters. For example, Spain, the distributor of ours in Spain opened three stores this quarter and three in Italy. In general, now, with the recovery of overseas markets, we have high confidence that in the coming quarters, overseas markets, our distributor partners will gradually recover to a modest expansion. Thank you.
Thank you. The next question is from the line of Xiaofang Xu from CITIC. Line is open. Please go ahead, Xiaofang.
[Non-English content]
Could you please give us more detailed information about the expenses of TOP TOY, together with the operating expenses and other expenses? When can they make profit TOP TOY? in the coming half a year or, it may be need one year or, more years? Thank you.
[Non-English content]
Hi, Xiaofang. Thank you for your question.
Hi.
This is Steven. I will answer your questions about the TOP TOY's margin profile. You know, for TOP TOY, it's still at its early stage of rapid growth. We are continuously make some investment TOP TOY, including its team building, including its marketing to improve its brand awareness and including in the IP side. If you look at the operating expense ratio for TOP TOY, it's at a relative high level at this moment. For example, in the past September quarter, the TOP TOY's operating expense was about CNY 40 million. Now, absolutely TOP TOY is in a loss status.
We do believe that with the development TOP TOY's scale and its the maturity of its proprietary products, TOP TOY's merchandise gross margin will improve. As we have shared earlier that, at the early of 2021, TOP TOY's merchandise gross margin was about less than 40%. Its merchandise gross margin has reached about 45% by the end of September and at the beginning of October. We are highly confident that, by the mid of next year, its merchandise gross margin can reach as high as 50%. If we can do that, and based on its development in next year, we do believe that TOP TOY can reach breakeven on a monthly basis at some time point in second half of next year. Thank you so much.
Very clear. Thank you.
Thank you once again for joining us today. If you have any further questions, please contact MINISO investor relations team. Our contact information can be found on today's press release. We will see you next quarter. Have a nice day.