Miniso plummets? Without IP soul, it can't bring in the next "Pop Mart"

$Miniso(MNSO.US)$MNSO(09896.HK) Miniso: Miniso's Plunge? Without IP Soul, Can't Bring the Next "Pop Mart"

On the afternoon of May 23rd, Beijing time, Miniso (9896.HK) (MNSO.N) released its Q1 2025 performance. Although the overall revenue met expectations, the biggest issue was that core operating profit fell short of expectations after a significant surge in marketing expenses.

Key points are as follows:

1. Overall revenue meets expectations: In Q1 2025, Miniso Group achieved total revenue of 4.43 billion yuan, a year-on-year increase of 19%, basically in line with expectations. Breaking it down, domestic revenue reached 2.84 billion yuan, a year-on-year increase of 13.3%. Since the company clearly stated last year that it would slow down the pace of opening stores domestically and focus on refined store operations, market expectations for domestic Q1 were not high. However, despite a significant number of store closures in Q1, Miniso achieved market expectations due to 1) improvement in same-store revenue for the main brand, 2) high-margin trendy toys driving the acceleration of Top toy growth.

Overseas revenue reached 1.59 billion yuan, a year-on-year increase of 30%. Based on last year's rapid store openings, the growth rate of overseas revenue dropped from over 40% last year to 30%, indicating that same-store revenue performance was not very good, and the proportion of overseas revenue also decreased from 45% to 36%, falling short of Dolphin Research's expectations.

2. Slowing pace of overseas store openings. In terms of the number of stores, Q1 2025 saw a net decrease of 111 stores domestically, marking the first decline in total store numbers for Miniso. Structurally, store closures were mainly concentrated in second-tier and lower cities. Based on the conference call content, Dolphin Research speculates that this was mainly to clear out loss-making stores from small franchisees. In contrast, first-tier cities focused on converting small stores into larger ones and optimizing store locations to help franchisees improve single-store efficiency.

Overseas, there was a net addition of 95 stores in Q1 2025, with an overall slowdown in pace. Among them, the growth rate of overseas directly-operated stores was relatively higher (mainly in North America), with the proportion increasing from 16% to 17% ( since Q1 2023, the proportion of overseas directly-operated stores has been increasing quarter-on-quarter).

3. Significant narrowing of same-store sales growth decline domestically, flat overseas. In terms of the core indicator measuring single-store efficiency—same-store revenue growth—domestic Miniso's same-store revenue growth in Q1, although not positive, saw a narrowing of the decline to single digits. Based on the conference call content, Dolphin Research speculates that in addition to implementing the "large store + IP retail strategy," the company introduced new categories such as rubber plush toys and pet supplies in Q1, and through cooperation with Meituan, utilized Meituan's delivery network and user traffic to expand over 500 stores into the 24-hour instant retail track, thereby increasing consumption scenarios and time periods, which in turn enhanced single-store efficiency.Due to the rapid expansion of direct-operated stores overseas last year, there has been a lack of personnel reserves and operational efficiency. Dolphin Research estimates that the revenue per store is barely flat compared to the same period last year, which is overall below Dolphin Research's expectations.

4. Gross margin remains basically stable. Although with the continuous advancement of the company's IP retail strategy, the proportion of high-margin products in the IP series is continuously increasing, coupled with the accelerated expansion of overseas direct-operated stores (which have a gross margin about 20% higher than the agency market), the trade war has also raised the company's overseas procurement costs. The gross margin for Q1 2025 was 44%, which is basically stable compared to the same period last year.

5. Significant increase in selling expenses, profits below expectations. In terms of expense investment, due to the increased investment in IP licensing fees (up 40% year-on-year) and a significant rise in rent and depreciation costs for overseas direct-operated stores (up 71% year-on-year), the marketing expense ratio surged to 23.1% (only 18.7% in the same period last year). Ultimately, the core operating profit and adjusted EBITDA were 710 million yuan and 1.04 billion yuan, respectively, both below market consensus expectations.

6. Detailed financial data overview:

Dolphin Research's overall view:

Overall, although Miniso's performance this quarter barely met expectations due to the improvement in revenue from domestic single-store efficiency, the significant surge in selling expenses also points to the risk of "increased revenue without increased profit," indicating an asymmetrical return on investment. Dolphin Research believes that the essence behind this is that compared to Pop Mart, which has strong original design capabilities and operates across the entire industry chain, Miniso's business as an "IP transporter" has weaker pricing power.

The two largest components of increased selling expenses are IP licensing fees and rent for overseas direct-operated stores.

IP licensing fees are generally divided into three models: buyout (one-time fixed payment), guaranteed royalties + fixed sharing, and pure sharing. For Miniso, most adopt the second model, which means paying a guaranteed royalty upfront and then paying a share of the sales revenue to the IP party based on a certain percentage.

The final growth rate of IP licensing fees (40%) far exceeds Miniso's revenue growth rate (19%), indicating that many non-popular IPs signed by Miniso do not contribute significantly to revenue. Combined with channel research information, many IPs ultimately incur losses. Therefore, a more rational approach for Miniso would be to cut IPs with low return on investment and focus on top IPs, but this also requires Miniso to have a certain predictive ability regarding each IP, which is not easy.

As for rent, due to Miniso's large-scale opening of overseas direct-operated stores in North America, mainly focusing on core business districts, the significant increase in rent as a pre-investment cost is reasonable. However, it is crucial to pay attention to whether the profitability of overseas operations will improve with the increase in operational efficiency and enhanced synergy between stores. After all, although the direct-operated model has a higher gross margin, the final operating profit margin is currently only in single digits, dragging down the overall profitability of the group. (Miniso's overall operating profit margin is between 15% and 20%.) Ultimately, when it comes to valuation, based on Dolphin Research's previous profit forecasts, it is not a big problem for Miniso's overall net profit growth CAGR to remain above 20% from 2025 to 2027. After a pre-market plunge of 14%, the current market value implies that Miniso's PE for 2025 is only around 15x.

Additionally, the company mentioned in the communication meeting in May that same-store revenue in major markets, including the United States, has turned positive since April, so future performance is likely to see marginal improvements. Therefore, without considering the impact of Miniso's stake in Yonghui Superstores on Miniso's valuation (although it has not been consolidated yet, many investors in the market are not optimistic about Miniso's adjustments to Yonghui Superstores), the current valuation is actually not high compared to a 20% performance growth rate. Thus, Dolphin Research believes that whether to intervene at this point depends critically on whether Miniso's subsequent performance can gradually digest the upfront sales expenses through sustained high growth overseas and the release of operational leverage.

The following is a detailed interpretation of the financial report:

1. Overall revenue meets expectations

In Q1 2025, Miniso Group achieved total revenue of 4.43 billion yuan, a year-on-year increase of 19%, which basically meets expectations. Breaking it down, domestic revenue reached 2.84 billion yuan, a year-on-year increase of 13.3%. Since the company clearly stated last year that it would slow down the pace of opening stores domestically and focus on refined store operations, market expectations for domestic Q1 were not high. However, in reality, despite Miniso's significant store closures in Q1, 1) the main brand's single-store revenue improved month-on-month, 2) the high-margin trendy toys boosted the growth rate of Top Toy, ultimately just meeting market expectations.

Toy Toy, as a trendy toy brand under Miniso, achieved revenue of 340 million yuan in Q1, a year-on-year increase of 59%, with a month-on-month acceleration, showing a relatively bright overall performance. Based on channel research information, Dolphin Research speculates that this is mainly driven by blind boxes and PVC plush toys of co-branded IPs such as Sanrio and Kuromi, but currently, due to the overall low base of Top Toy, its contribution to overall performance is limited.

Against the backdrop of slowing domestic growth, Miniso is betting on "the second growth curve" overseas, so the growth of overseas business has always been the most concerning point for investors.

In Q1 2025, overseas regions achieved revenue of 1.59 billion yuan, a year-on-year increase of 30%. Based on last year's rapid store openings, the growth rate of overseas revenue has dropped from over 40% last year to 30%, which can only indicate that same-store revenue performance is not very good, and the proportion of overseas revenue has also decreased from 45% to 36%. On the other hand, combined with the company's previous guidance—that overseas overall revenue will quadruple in the next five years, corresponding to a CAGR of about 30%-40%—it has only reached the lower limit of the guidance.Therefore, the overall overseas performance in Shanghai did not meet Dolphin Research's expectations.

II. The pace of overseas store openings has slowed down

In terms of the number of stores opened, in Q1 2025, there was a net decrease of 111 stores domestically, marking the first decline in total store numbers for Miniso in recent years. Structurally, the closures were mainly concentrated in second-tier cities and below. Based on the conference call content, Dolphin Research speculates that this is primarily due to the cleaning up of loss-making stores from small franchisees. In contrast, first-tier cities mainly focused on converting small stores into larger ones, optimizing store locations, and helping franchisees improve single-store efficiency.

In overseas regions, there was a net addition of 95 stores in Q1 2025, and the overall pace has also slowed down. Among them, the growth rate of overseas directly-operated stores is relatively higher (mainly in North America), with the proportion increasing from 16% to 17% ( since Q1 2023, the proportion of overseas directly-operated stores has been increasing quarter-on-quarter). Additionally, based on the company's conference call information, starting from Q2, Miniso will focus on enhancing the synergy between existing stores in the 20 states in the United States.

III. The decline in same-store sales growth in the domestic market has significantly narrowed, while overseas remains flat

From the core indicator measuring single-store efficiency—same-store revenue growth—in Q1, although Miniso's same-store revenue growth domestically did not turn positive, the decline narrowed to single digits quarter-on-quarter. Based on the conference call content, Dolphin Research speculates that in addition to implementing the "large store + IP retail strategy," the company introduced new categories such as rubber plush toys and pet supplies in Q1, and through cooperation with Meituan, utilized Meituan's delivery network and user traffic to expand over 500 stores into the 24-hour instant retail track, thereby increasing consumption scenarios and time periods, which in turn increased single-store efficiency.

In addition to the improvement in store efficiency, the potential benefits also lie in the enhanced premium capability brought about by the improvement of Miniso's own brand strength.Based on channel research information, during the process of some franchisees upgrading from small stores to larger ones, the same rent allows stores to occupy more central locations in shopping malls (previously on B1 and B2, now they can open on the second or third floor), which also means that the payback period for franchisees will be faster.

Overseas, due to the rapid expansion of direct-operated stores last year, there is a lack of personnel reserves and other resources. Dolphin Research estimates that compared to the same period last year, single-store revenue has just remained flat, which is overall below Dolphin Research's expectations. In the future, it is necessary to closely observe whether the profitability of overseas direct-operated stores will improve with the enhancement of operational efficiency and inter-store synergy.

3. Gross margin remains stable, while sales expenses surge significantly

Although with the continuous advancement of the company's IP retail strategy, the proportion of high-gross-margin products in the IP series is constantly increasing, coupled with the accelerated expansion of overseas direct-operated stores (which have a gross margin about 20% higher than the agency market), the trade war has also raised the company's overseas procurement costs. The gross margin for Q1 2025 was 44%, which is basically stable compared to the same period last year.

In terms of expense investment, due to the increased investment in IP licensing fees (up 40% year-on-year) and the significant rise in rent and depreciation costs for overseas direct-operated stores (up 71% year-on-year), the marketing expense ratio surged to 23.1% (compared to only 18.7% in the same period last year), resulting in core operating profit and adjusted EBITDA of 710 million yuan and 1.04 billion yuan, respectively, both below market consensus expectations.