MNSO(MNSO) - 2022 Q3 - Quarterly Report

International Market Revenue - Revenue from international markets decreased by 3.2% from RMB3,030.9 million in FY2019 to RMB2,934.9 million in FY2020, and further decreased by 39.3% to RMB1,780.5 million (US$279.4 million) in FY2021[21] - Revenue from international markets increased by 64.9$210.4 million) in H1 FY2022[21] - Revenue from Ukraine and Russia accounted for less than 0.5% of total revenue for FY2021, with operations in Ukraine temporarily terminated and sales in Russia slowed due to geopolitical conflicts[12] - Revenue from markets outside China accounted for 24.7% of total revenue for the six months ended December 31, 2021, up from 19.6% in the fiscal year ended June 30, 2021[181] - MINISO's overseas revenue contribution was 32.3%, 32.7%, 19.6%, and 24.7% in the fiscal years ended June 30, 2019, 2020, 2021, and the six months ended December 31, 2021, respectively[195] China Market Revenue - Revenue from China increased by 20.6% from RMB6,044.1 million in FY2020 to RMB7,291.2 million (US$1,144.2 million) in FY2021[22] - Revenue from China increased by 14.9$641.2 million) in H1 FY2022[22] - Revenue increased by 24.2% from RMB4,369.9 million in the six months ended December 31, 2020 to RMB5,426.9 million in the six months ended December 31, 2021[181] COVID-19 Impact - Approximately 4% of MINISO stores in overseas markets were temporarily closed as of December 31, 2021, due to COVID-19 impacts[17] - The company expects consolidated results for the rest of FY2022 to continue being negatively affected by COVID-19, with potential adverse impacts in subsequent periods[23] - The COVID-19 pandemic negatively affected the company's supply chain, including manufacturing, warehousing, and shipping of products[23] - COVID-19 pandemic continues to pose significant risks to the company's business operations, with potential re-imposition of restrictions if new cases surge[24] - The company's reliance on third-party logistics and transportation companies for product delivery poses risks of delays and increased costs, especially during COVID-19 disruptions[37] Inventory Management - Inventory levels increased from RMB1,309.0 million in June 2019 to RMB1,496.1 million (US234.8 million) in June 2021, with inventory turnover days rising from 63 days in 2019 to 79 days in 2021[35] - MINISO's inventory turnover days decreased to 68 days for the six months ended December 31, 2021, down from 79 days in the fiscal year ended June 30, 2021[180] - The company's inventory management challenges include potential obsolescence, write-downs, and lower gross margins due to high inventory levels[35] E-commerce and Digital Transformation - The company's e-commerce initiative aims to expand online offerings and broaden sales channels, but faces risks such as cyber-attacks and data security breaches[39] - The company plans to expand and upgrade its store network globally, enhance product development, and accelerate digital transformation, requiring significant resources[32] - MINISO's Weixin mini-program reached more than 7 million average monthly active users in the quarter ended December 31, 2021[192] Regulatory and Compliance Risks - The company faces regulatory uncertainties and substantial compliance costs when entering new overseas markets, with potential risks of non-compliance leading to sanctions or penalties[15] - The company is subject to stringent data security and privacy regulations in China, including the PRC Data Security Law and the PRC Cyber Security Law, which could impose additional compliance costs and risks[62] - The company may be required to undergo cybersecurity reviews if deemed a "critical information infrastructure operator" or "network platform operator" under the Cybersecurity Review Measures[63] - The company is evaluating the impact of new privacy and data protection laws, such as the Personal Information Protection Law, on its business practices[63] - The company faces potential risks from international data protection regulations, such as the GDPR in the EU and the California Consumer Privacy Act in the US, which could increase compliance costs and legal exposure[65] - The company's e-commerce initiatives and loyalty programs in overseas markets may subject it to new data protection laws and regulations, affecting how it stores and processes consumer data[65] - The company may face fines up to RMB500,000 for non-compliance with commercial franchising regulations under the "TOP TOY" and "WonderLife" brands[66] - The company has not obtained fire control inspection certificates for one TOP TOY store and one WonderLife store, risking fines or suspension of operations[68] - The company may be subject to fines ranging from RMB1,000 to RMB10,000 for unregistered lease agreements in China[74] - The company is required to comply with the Uyghur Forced Labor Prevention Act (UFLPA), effective from June 21, 2022, which may affect its supplier relationships[78] - The company may be required to relocate operations if leased properties are deemed illegal or subject to demolition[74] - The company is subject to uncertainties in the interpretation and enforcement of PRC laws and regulations, which could limit legal protections and affect its operations[85][86][87] - The company may incur substantial costs to comply with new PRC regulations on data security and cross-border data transmission, which could negatively impact demand for its products[88][90] - The company's operations in China are subject to significant government oversight and discretion, which could result in material adverse changes to its operations and the value of its ADSs[91] - Approval from CSRC or other PRC government authorities may be required for the company's Global Offering, future offerings, or issuance of securities abroad, with uncertainty on obtaining or maintaining such approval[95] - The M&A Rules require overseas special purpose vehicles controlled by PRC entities to obtain CSRC approval before listing on overseas stock exchanges, with potential risks of fines, penalties, or restrictions on dividend payments if approval is not obtained[95] - The Draft Data Security Regulations and Cybersecurity Review Measures strengthen cybersecurity review for entities seeking offshore listing, potentially impacting the company's operations[97] - The Provisions of the State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments) and related measures may introduce new approval or filing requirements for offshore offerings, with potential regulatory actions or sanctions if not complied with[97] Financial Performance and Market Position - Gross profit increased by 36.6% from RMB1,165.1 million in the six months ended December 31, 2020 to RMB1,591.3 million in the six months ended December 31, 2021, with gross margin improving from 26.7% to 29.3%[181] - MINISO generated GMV of approximately RMB18.0 billion (US2.8 billion) globally in 2021, making it the largest global branded variety retailer of lifestyle products[184] - TOP TOY achieved GMV of RMB374.4 million in 2021, with GMV per store reaching RMB7.1 million, ranking top three in China's pop toy market[184] - MINISO had approximately 3 billion store visits and 1 billion in-store orders in China during the Track Record Period[184] - MINISO launched an average of about 550 SKUs per month under its brand in the fiscal year ended June 30, 2021[185] - TOP TOY-branded products contributed about 14.0% to revenue in the quarter ended December 31, 2021[185] - MINISO had over 34 million members and TOP TOY had over 1.5 million members as of December 31, 2021[192] - MINISO's aggregate GMV reached approximately RMB18.0 billion (US$2.8 billion) in 2021, making it the largest global branded variety retailer of lifestyle products[178] - TOP TOY achieved a GMV of RMB374.4 million in 2021, ranking in the top three among major companies in China's pop toy industry[178] - As of December 31, 2021, MINISO had over 5,000 stores globally, including over 3,100 in China and approximately 1,900 overseas, spanning approximately 100 countries and regions[178] - TOP TOY had 89 stores as of December 31, 2021, ranking third among major brands in China's pop toy market[178] - MINISO launched an average of about 550 SKUs per month in the fiscal year ended June 30, 2021, offering over 8,800 core SKUs[178] - TOP TOY offered around 4,600 SKUs as of December 31, 2021 across 8 major categories[178] Market Trends and Growth - The size of China's lifestyle products market by aggregate GMV increased from RMB3.1 trillion in 2017 to RMB4.2 trillion in 2021, representing a CAGR of 7.8$41.4 billion in 2017 to US$41.9 billion in 2021 at a CAGR of 0.3$11.5 billion in 2022E to $17.4 billion in 2026E, with a CAGR of 10.9$1.3 billion in 2022E to $1.8 billion in 2026E, with a CAGR of 9.5$2.8 billion in 2022E to $4.8 billion in 2026E, with a CAGR of 14.4$1.6 billion in 2022E to $2.7 billion in 2026E, with a CAGR of 14.0$2.2 billion in 2022E to $3.6 billion in 2026E, with a CAGR of 13.1$2.8 billion) from its branded variety retail business globally in 2021, capturing a 6.7% market share[142] - The pop toy market in China grew from RMB10.8 billion in 2017 to RMB34.5 billion in 2021, with a CAGR of 33.7%, and is expected to grow at a CAGR of 24.0% from 2022 to 2026[147] - The company generated GMV of RMB374.4 million from its pop toy business in China in 2021, holding a 1.1% market share and ranking third by GMV[154] - The top five players in the global branded variety retail market held an aggregate market share of approximately 20.3% in terms of GMV in 2021[141] - The pop toy market in China is driven by an active and diversified fan base, varied sales and customer engagement channels, and diversified products[150][151][152] Company History and Milestones - MINISO commenced operations in 2013 with its first store in Guangzhou, China[160] - By 2014, the total number of MINISO stores exceeded 300[160] - In 2015, MINISO initiated its globalization strategy, with the total number of stores exceeding 1,000[160] - By 2018, the number of MINISO stores in overseas markets exceeded 1,000[160] - MINISO listed its ADSs on the NYSE under the symbol "MNSO" in 2020[160] - In 2020, MINISO launched a new brand, TOP TOY, focused on pop toys[160] - By 2021, the number of MINISO stores exceeded 5,000, entering the 100th geographical market[160] - MINISO was included in the Hurun China 500 Most Valuable Private Companies list for two consecutive years (2019-2020)[160] - MINISO raised approximately RMB1.0 billion in Series A investment in 2018[164] - As of the latest practicable date, MINISO's controlling shareholders jointly held approximately 64.4% of the total issued share capital, representing approximately 76.8% of the aggregate voting power[167] Risks and Challenges - The company's international expansion strategy involves risks such as limited brand recognition, difficulties in managing logistics, and challenges in anticipating foreign consumer preferences[12] - Product liability issues, recalls, or personal injury claims could damage the company's reputation and financial condition, with potential for significant monetary awards[29] - The company's return and exchange policies in China allow consumers to return defective products within 7 days or exchange within 15 days, with warranties varying by product category[31] - The company's MINISO Retail Partners and local distributors engaging in illegal activities or misconduct could harm the company's reputation and financial condition[25] - The company's live streaming promotions on third-party platforms carry risks of inappropriate content, which could damage the company's brand image[28] - Intense competition in the retail industry may lead to loss of market share and reduced margins, with potential competitors including traditional retailers, online retailers, and variety retailers[40] - Historical rapid growth since 2013 may not be sustained due to factors such as decreased consumer spending, increased competition, and economic slowdowns[42] - Unfavorable fluctuations in raw material prices and availability could increase cost of sales and delay production, impacting gross profit margins[43] - Consumer-friendly return and exchange policies may lead to increased costs and negatively affect results of operations if misused[44] - Fluctuations in currency exchange rates have led to net foreign exchange losses, including RMB114.2 million (US$17.9 million) for the fiscal year ended June 30, 2021[45] - Marketing and brand promotion expenses have increased, with RMB214.8 million (US$33.7 million) spent in the fiscal year ended June 30, 2021[52] - Intellectual property infringement claims and negative publicities could harm the company's brand image and reputation[56] - The company's success heavily depends on the continued services of its management team, particularly Mr. Guofu Ye, the chairman and CEO[48] - Competition for qualified personnel and rising labor costs could adversely affect the company's ability to expand operations[49] - The company may face challenges in protecting its intellectual property rights, which could harm its competitive position[53] - The company relies heavily on the SAP ERP system for daily store operations, and any malfunction could disrupt operations, especially during peak seasons like Chinese New Year[57] - The company faces risks of data security breaches, which could result in reputational damage, financial losses, and legal consequences[60] - The company collects and processes a large volume of consumer data, including browsing and consumption behavior, which is critical for maintaining operating efficiency and consumer confidence[61] - The company disposed of loss-making subsidiaries, including the NOME business with over 200 stores, which were all closed by June 30, 2021[69] - The company recorded equity-settled share-based payment expenses of RMB281.3 million (US$44.1 million) for the fiscal year ended June 30, 2021[77] - The company maintains limited insurance coverage, lacking business interruption and key-man life insurance[75] - The company granted 70,879,312 restricted shares and options to purchase 11,276,328 shares as of December 31, 2021[77] - The company faces risks from changes in international trade policies, particularly between the U.S. and China, which could impact its operations[78] - The company faces potential delisting of its ADSs in the US by 2024 under the HFCAA if the PCAOB cannot inspect its auditor, with a possible earlier delisting in 2023 if proposed changes to the law are enacted[82][84] - The company's auditor in China is not currently inspected by the PCAOB, which may lead to a loss of investor confidence in the company's financial reporting[81] - The company's international operations and financial condition could be adversely affected by escalating tensions between China and other countries, including the US and India[80] - The company may face challenges in raising capital if its ADSs are delisted from US exchanges, which could significantly impact its business and financial condition[84] - The company's ability to hedge against foreign currency exchange risk is limited, and PRC exchange control regulations may restrict its ability to convert Renminbi into foreign currency[92] - The company may face difficulties in pursuing growth through acquisitions in China due to complex procedures and regulatory requirements under PRC laws[93][94] - The trading price of the company's ADSs and Shares may be volatile due to market factors, industry performance, or company-specific events, potentially leading to substantial losses for investors[98] - Short selling practices may drive down the market price of the company's Shares