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Ladies and gentlemen, thank you for standing by, and welcome to the to MINISO holding in earnings conference call for the for fourth quarter or fiscal year 2022 that ended June 13, 2022. [Operator Instructions] 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. Hello, everyone, and thank you all for joining us. We have announced our quarterly financial results earlier today. An earnings release is now available on our Investor Relations website at ir.miniso.com. Joining us today are our Founder and CEO, Mr. Jack Ye; and CFO, Mr. Steven Zhang. Before continuing, I'd like to refer you to the safe harbor statement in our earnings press 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 the International Finance Reporting Standards in the company's earnings press release and filings with the U.S. SEC and Hong Kong Stock Exchange. With that, I'll now turn the call over to Mr. Ye. Please go ahead.
[Foreign Language]
[Interpreted] Thank you. Hello, everyone, and welcome to MINISO Group's June Quarter 2022 Earnings Conference Call. This marks the last quarter of fiscal year 2022 and the first time we have announced results as a new primary listed company in the U.S. and Hong Kong.
[Foreign Language]
[Interpreted] Thanks to the efforts of dedicated team we completed our listing in Hong Kong on July 13 this year. Our listing in Hong Kong was an important arrangement from the perspective of prospect -- protecting the interests of our existing shareholders and proactively responding to the evolving regulatory environments. We believe it will also provide us with more broader financing channels to drive the company's future developments, help us expand our shareholder base and promote the sustainable healthy development of our business. On behalf of the company, I'd like to express my gratitude to each and every employee for their dedication and to our investors who have always cared for supporting MINISO. Going forward, we are confident that we will create long-term value for shareholders by enabling everyone to better enjoy largely different price.
[Foreign Language]
[Interpreted] So as we have repeatedly emphasized in our earnings conference calls over the past few quarters, that retailers are capable of passing through economic cycles. Our business model has demonstrated great resilience despite the pandemic to win on our near-term results. During this quarter, we have been promoting our brand upgrade efforts in China. And the gross margin of our domestic operations in the June quarter increased by about 3% from the same period of last year as we have launched a new portfolio of high gross margin consumption-based products. During this quarter, as the domestic off-line retail sector based on precedent challenges, we focused on driving the recovery of our overseas business, which achieved nearly 50% year-over-year growth in revenue and accounted for 34% of the company's total revenue, the highest since the outbreak of the pandemic in early 2020, benefiting from these 2 drivers, our overall gross margin reached a record high of 33.3% in this quarter.
[Foreign Language]
[Interpreted] Our recent business performance demonstrates that our globalized presence has given us much greater flexibility when certain pandemic related uncertainty in China as we continue to unleash the operating leverage of our directly operated overseas business, and furthered our efforts to reduce costs and improve efficiency, our adjusted net profit increased by 57% year-over-year to RMB 220 million in the June quarter, which is double the figure from the prior quarter. Our adjusted net margin reached its highest level of the past 10 quarters at 9.6%, returning to a level similar to what we have achieved before the pandemic.
[Foreign Language]
[Interpreted] Next, I'll show in detail the development of our respective business segments during the quarter.
[Foreign Language]
[Interpreted] First I'll cover our domestic operations. Revenue in this quarter was RMB 1.41 billion, of which revenue from off-line business was RMB 1.28 billion, which compared to RMB 1.82 billion and RMB 1.63 billion in the same period last year, respectively.
[Foreign Language]
[Interpreted] We estimate that the GMV loss due to the impact of the pandemic was about RMB 700 million and the corresponding loss of accounting revenue was over RMB 400 million. More specifically, our sales decreased by nearly 30% year-over-year in April and May as a result of the reduced traffic to shopping malls, many of which were able to operate due to local government restrictions. In April, an average of 380 or 12% of MINISO stores in China were able to operate. Number was down by about 100 in May, but still accounted for nearly 9% of our stores. Going into June as cities gradually reopened, [ stocking ] more traffic recover rapidly and main stores resumed normal operations, temporary store closures were further down to 60 or 2% of our stores.
Our stores in June recovered to 94% of the level from the same period last year. That figure was nearly in 9% in Tier 1 and Tier 2 cities, whereas in Tier 3 and below cities, we saw year-on-year growth of nearly 1%.
[Foreign Language]
[Interpreted] E-commerce revenue in the quarter was RMB 130 million as an important complement to our offline channels. Revenue itself is not such important KPI for e-commence. Instead, we focus more on its profitability, which has been increasing over the past year through our reasonable control of traffic, acquisition costs.
[Foreign Language]
[Interpreted] MINISO retail part model demonstrated great resilience during pandemic outrage as MINISO retail partners face minimal inventory risk and always receive their revenue share on time. The working capital pressure is much lower than the other franchisee models. This quarter, despite the tremendous pressure of the pandemic, our business development team still added 29 stores on a net basis and contain the [ post ] store closure ratio to about 1.1%, the lowest level for the past 8 quarters. In the fiscal year 2022, the number of store closures in China decreased by 40 compelled with the prior year.
[Foreign Language]
[Interpreted] As the control measures were stricter in Tier 1 and 2 cities, new MINISO stores in China in this quarter came entirely from Tier 3 and below cities. For the remaining 4 months of 2022, we'll dynamically adjust the store opening pace according to pandemic developments in China to lower operating risk of MINISO retail partners.
[Foreign Language]
[Interpreted] Moving on to MINISO overseas operations. Revenue for June quarter was about RMB 780 million, an increase of almost 50% year-on-year. Revenue from our distributor business model increased by more than 30% year-on-year. Revenue from our directly operated business model increased by about 70% year-on-year.
[Foreign Language]
[Interpreted] During the June quarter, the overseas market sustained due recovery momentum and overall sales increased by 52% year-on-year and recovered to over 90% over the same period in 2019. Sales in our distributor markets increased by 45% year-on-year and have already recovered to nearly 100% over the same period in 2019 while sales in our direct operating markets increased by nearly 80% year-on-year and have recovered to 80% for the same period in 2019.
[Foreign Language]
[Interpreted] By regions, sales in Europe increased by nearly 40% year-on-year and more than double that in the same period in 2019. Sales in North America increased by nearly 170% year-on-year, up 30% from same period in 2019. Sales in Latin America increased by nearly 60% year-on-year, up more than 10% from the same period in 2019. Sales in the Middle East and North Africa increased by nearly 30% year-on-year up 60% from the same period in 2019 and sales in Asian countries, excluding China, increased by over 50% year-on-year recurring to nearly 60% of the same period in 2019. Asian countries, excluding China, is so far the only market that has not fully recovered to pre-COVID levels in sales. By country, sales in both the U.S. and Canada increased by nearly 170% year-on-year. Mexico increased by over 50%, while India nearly tripled.
[Foreign Language]
[Interpreted] MINISO entered its 105th market in the June quarter and added 57 overseas stores on net business compared to 35 stores in the same period last year. The overseas market has entered the post-pandemic era. And with the strong demand growth from distributors, we have speed up the pace of opening overseas stores this year. Although due to the Russia, Ukraine conflict and the geopolitical tension, which has delayed some of our distributors store opening plans, we are still confident that the number of new overseas stores opened in the calendar year of 2022 on a net basis will be significantly higher than in 2021.
[Foreign Language]
[Interpreted] Under the current inflationary environment in overseas markets, consumers tend to look for more value, which creates great market opportunities for us. We adhere to the productive team philosophy and will continue to enhance our overseas design capacities by sending our domestic product teams overseas to further strengthen our product design capabilities and develop localized products. At present, we have built preliminary capabilities to launch products in a 7:1:1 manner in major overseas markets. Our next focus is on Latin America, North America, Southeast Asia and Europe, where our goal is to provide more and more localized products to consumers there. We continue to leverage China's strong supply chain capabilities and benefit from exploring the Chinese supply chain overseas.
[Foreign Language]
[Interpreted] As we continue to cultivate in overseas markets, we have launched the MINISO store [ image 3.1 ] project to improve the visual competitiveness of our stores in some of these markets. We also proactively assist overseas distributors in refining their operating strategies, taking our distribution spend as an example, has achieved improved performance by shifting its brokers from tourist areas to local communities, to reduce reliance on tourists.
[Foreign Language]
[Interpreted] Next, let's talk about TOP TOY. We continue to execute our established strategy in the quarter and make steady progress. Overall revenue of TOP TOY increased by 33% year-on-year while its online business contributed 15% of revenue in this quarter.
[Foreign Language]
[Interpreted] In response to the pandemic in China, TOP TOY stepped up some promotional campaigns. As a result, its merchandise gross margin was about 42% in June quarter, which although lower than the previous quarters is still a healthy level. More importantly, the sales mix between TOP TOY proprietary products and third-party products has been moving towards a more reasonable level, matching our consistent product strategy. Proprietary products accounted for nearly 20% of TOP TOY and the gross margin of proprietary remained over 60%.
[Foreign Language]
[Interpreted] Looking back over the 2022 fiscal year, our key operating metrics have demonstrated that we are in a healthy growth space. We added 514 stores on net basis, representing 11% year-on-year growth. Revenue exceeded RMB 10 billion, up 11% year-on-year. Gross profit exceeded RMB 3 billion, up 26% year-on-year. Gross margin reached 30.4%, up 3.6 percentage points year-on-year. Adjusted net profit is RMB 720 million, up 51% year-on-year, and net margin was 7.2%, up nearly 2 percentage points year-on-year.
[Foreign Language]
[Interpreted] Looking forward to 2023 fiscal year, we are still optimistic about our future revenue and profit growth despite continued uncertainty from the pandemic. This positive outlook comes from our long-term confidence in China's economic development, our unchanged ambition for offline retail business and our consistent determination to achieve globalized development. Lastly, as you may have noticed, we issued a hospital letter of apology last in which we moved over the inappropriate marketing tactic in our early days before becoming a listed company and announced a correction plan. In the future, as primary listed company we'll strictly comply with the regulations of those exchanges, which creates a greater level of compliance retirements for the company. Going forward, we continue to raise our compliance standards regarding our operations to guarantee the sustainable success of our core business. That concludes my prepared remarks. I will now turn the call over to CFO for financial review, please.
Hello, everyone. Thank you for joining us today. I will walk you through the financial results in the June quarter as well as the full fiscal year 2022. Please be noted that all the numbers are in RMB, unless otherwise stated. And I will also refer to some non-IFRS measures, which have exclude share-based compensation expenses. Revenue in June quarter reached RMB 2.3 billion, above the midpoint of our guidance range, which was RMB 2.1 billion to RMB 2.4 billion, which implies a better-than-expected performance in our domestic operation in June. Revenue from China was RMB 1.5 billion, including RMB 1.4 billion from MINISO brand and RMB 95 million from TOP TOY brand and RMB 28 million from others. Of this, revenue from MINISO brands experienced a year-over-year decline of 23%, consistent with the decline trend of GMV and off-line traffic to shopping mall. Revenue from TOP TOY increased by 33% year-over-year. During this quarter, TOP TOY sales was significantly impacted by the outbreak of Omicron virus due to the concentration of stores in Tier 1 and Tier 2 cities. As we have [indiscernible] in the previous call in May, although the impact of pandemic on short-term performance is inevitable, we continued to follow our established strategy and made a steady performance in refined TOP TOY's business model, products and omnichannel strategy. For our overseas market, its revenue increased by 49% year-over-year to RMB 785 million. If we look at the financial year 2020, the year-over-year increase in revenue was also about 50%, which demonstrated the recovery trend of our overseas operation is very clear. For full fiscal year 2022, total revenue reached RMB 10.1 billion, an increase of 11% from fiscal year 2021. Revenue from our domestic operation was RMB 7.4 billion, increased by 2% from a year ago. Of this, revenue from domestic operations increased by 15% in the first half of fiscal year 2022 and decreased by 10% in the second half due to the spread of Omicron in China. Revenue generated from TOP TOY was RMB 447 million, representing an increase of 355% year-over-year. Gross profit in June quarter was RMB 772 million, representing an increase of 21% year-over-year. Gross margin was 33.3% compared to 25.8% in the same period of 2020. There were 3 reasons for the year-over-year increase in gross margin. First, it was primarily due to the revenue mix change. This quarter, we have seen overseas market contribute 34% of total revenue. It's the highest level since the December quarter of 2019. Secondly, we launched a more profitable product relating to MINISO's strategic brand upgrades in this quarter. And the third reason is about the inventory clearance activity last year, not aimed to take out the negative impact of the pandemic in Guangdong. For full year, gross profit was RMB 3.1 billion, up 26% year-over-year.
Gross margin was 30.4% compared to 26.8% in the fiscal year 2021. Selling and distribution expense in June quarter was RMB 346 million, representing an increase of 31% year-over-year. The year-over-year increase was primarily attributed to first increased logistic expense in relating to our recovering international operations; second, increase of personnel-related expense and the third, increased license expenses in relation to our newly launched IP products, partly offset by our savings in promotion and advertisement expense due to our reduced marketing efforts in China to take over the resurgence of the COVID-19. For the full year, selling and distribution expense was approximately RMB 1.4 billion, representing an increase of 29% year-over-year. The year-over-year increase was primarily attributed to first increase of personnel-related expense. Second, increased license expense relating to our enlarging IP library and enriching offering of IP products. And the third, increase the promotion and advertisement expense mainly connecting to a strategic brand update of MINISO in China.
G&A expense in June quarter were RMB 180 million representing a decrease of 5% year-over-year. The year-over-year decrease was primarily due to decrease of personnel-related expense. For full year, G&A expense were RMB 785 million, representing an increase of 19% year-over-year. The year-over-year increase was primarily due to, first increased depreciation and amortization expense mainly related to the land use rights of the company's headquarter building project. And the second, increase of personnel-related expense which were partly offset by a decrease of office operating expense as a result of expense control measures taken by the company to tackle the resurgence of the COVID-19 in China. Turning to profitability. Operating profit in June quarter was at RMB 272 million representing an increase of 45% year-over-year. Operating margin was 11.7% compared to 7.6% a year ago. For full fiscal year 2022, operating profit was RMB 882 million representing an increase of 120% year-over-year. Operating margin was 8.7% compared to 4.4% in the fiscal year 2021. Adjusted net profit in June quarter was RMB 223 million representing an increase of 57% year-over-year. Adjusted net margin was 9.6% compared to 5.7% in the same period of 2021. For full year, adjusted net profit was RMB 723 million, representing an increase of 51% year-over-year. Adjusted net margin was 7.2% compared to 5.3% in fiscal year 2021. Adjusted basic and diluted earnings per ADS in June quarter was RMB 0.72, up 50% year-over-year. For full year, adjusted basic and diluted earnings per ADS were RMB 2.40 million and RMB 2.36 million respectively, representing an increase of 43% and 40% year-over-year, respectively. Turning to cash position. As of end June, we had a cash position of RMB 5.8 billion.
On August 17, 2022, our Board of Directors approved a special cash dividend in the amount of approximately USD 53.5 million or RMB 360 million, up 20% year-over-year. Our capital allocation strategy in the future will balance new growth opportunity and our commitment to bring stable return to shareholders. Turning to working capital. Turnover of inventory and the trade receivable remains stabilized. As a newly listed company on Hong Kong Stock Exchange, we follow the common practice adopted by the public company in the Hong Kong market, and we will no longer provide guidance on revenue growth going forward. That being said, as we approach the last month of September quarter, we have observed encouraging sales recovery in China, which has stabilized at a healthy level during the past several weeks. Looking forward into the coming quarters, we expect our bottom line performance will further normalize because of our disciplined execution of brand upgrade and a steady recovery of overseas operations.
Thank you, and this concludes our prepared remarks. Operator, we are now ready to take questions.
[Operator Instructions] Your first question today comes from the line of Michelle Cheng from Goldman Sachs.
[Foreign Language]
So my question is about the brand upgrade. So brand are actually drive the gross margin quite significantly in the past quarters. So can management comment on our strategies into second half? And what's the gross margin upside and whether there's any related operating expenses for the brand upgrade?
[Foreign Language]
[Interpreted] Thank you, Michelle for the question. This is Jack. And the question is now, as we have communicated in our last quarter back in March, our MINISO brand strategic upgrade will come from 3 ways: In product, in channel and in marketing. In terms of products, we will continue to improve the gross margin of newly launched products, especially those consumer, interest-based consumption products in our regular based as planned. As mentioned just now, as our domestic gross profit margin increased by about 3% year-on-year this quarter from about -- to about 54% from nearly 51% last year. So our current plan is that by the end of fiscal year 2023, which is this time next year, we plan to have improved our gross merchandise margin by another 5 percentage points to close to 60%.
In terms of channels, we plan to systematically optimize offline business and profitability in the Tier 1 and 2 cities and to help our retail partners to reduce operational risk. And in terms of marketing, we originally had a marketing plan in the September quarter as we communicated. And the budget was around RMB 50 million or so. But however, considering the current domestic situation of the pandemic and its possible or restrict control measures will continue for some time. So we have decided to delay or postponed these market campaigns and to save part of the cost, and this will have a positive impact on profit in September quarter. So I hope this helps answer your question. Thank you.
The next question is from the line of Anne Ling from Jefferies.
[Foreign Language] Now let me translate in English. Just regarding your letter to the public regarding like minimize some of these sort of quarter-on-quarter Japanese interest. So what exactly is the strategy regarding like how you will change in terms of the operation? Our concern is that whether all these changes will impact your image or your performance -- or brand acquisition from the consumers' angle, both for overseas as well as the domestic client? So I would like to get more information about what is your plan?
[Foreign Language]
[Interpreted] Thank you, Anne, for questions. This is Jack. So in terms of your question about the correction plan of these events. So we have 3 specific measures. The first is strengthening the internal control environment of our distributors in overseas markets and especially in relation to the political sensitive issues. And we will establish our headquarters globalize -- our globalized headquarter of branding center. And we have all these marketing person in overseas market report to headquarters. And these headquarters, they will regularly organize related trends for the frontline personnel. And the second is on the operational side. And we have given a time line in the correction plan that the rectification shall be completed before the March, end of March next year, and the third is from a product level. So we will export more Chinese culture or Chinese traditional element embedded products and plan to launch a series of Chinese IP products to overseas markets. For your second question about the impact on our sales. In Chinese market, in domestic market, we have not observed any impact from those China and other markets. So in China, in July, the total GMV was about 95% of last year. And if you look at the first 3 quarters of August, it was flat year-over-year. And as we mentioned earlier, in last several quarters, this recovery from sales in China mainly come from the recovery from the foot traffic to shopping malls, where our ASP remains a gross of low single digits. And in terms of overseas market, if you look at the July and the first 3 weeks of August, the total GMV in our overseas distributors, it's increased by about 30% to 40% on a year-over-year basis. And if you look at our directly operated business, the year-on-year growth was even higher, about 50%.
[Foreign Language] Is there any additional cost involved in this exercise?
[Foreign Language]
[Interpreted] And this is Steven -- Let me quickly translate for Steven. So for the internal control measures, there will be some, but we do not think that it will increase our related expense significantly and will not impact our earnings.
The next question is from the line of Lucy Yu, Bank of America, Merrill Lynch.
[Foreign Language] So we are facing potential recession in U.S. and Europe. Should we worry about the impact of recession on our business and whether that will impact our overseas store expansion plan.
[Foreign Language]
[Interpreted] Thank you, Lucy. This is Jack. I will cover this question. So in terms of a question on the store expansion in overseas market, we have to say that currently, we see a strong demand from our overseas distributors and the pipeline is also strong. But we also have to be -- frankly speaking, that the Russia-Ukraine conflict and the evolving geopolitical risks in some overseas markets are now impacting in different ways and aspects for our -- to our overseas distributor store opening plan, and some of them have delayed store expansion plan in this quarter. But if you look at the past several years, from fiscal year 2022 to fiscal year -- fiscal year 2020 to fiscal year 2022, our overseas market net added 375, 121 and 163 stores. So we are now quite confident that in fiscal year 2023, the net addition of our stores in overseas market as a whole will be significantly higher than that in 2022.
Thank you once again for joining us today. If you have any further questions, please contact me or the relations team. Our contact information can be found on today's press release. We will see you next quarter. Have a nice day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]