On November 21, Mingchuang Premium handed over its financial report for the FY2024Q1 quarter ending September 30, 2023. It can be called the strongest performance in history. Various data such as revenue, gross profit margin, and net profit have all achieved historic breakthroughs.

Revenue during the disclosure period was 3.791 billion/yoy +36.7%. Among them, overseas revenue was 1,295 billion yuan/yoy +40.8%, and domestic revenue was 2,496 billion yuan/yoy +34.7%. Overseas revenue is growing faster than domestic revenue.

Gross margin exceeded 40% for the first time, reaching 41.8% /+6.1pct; adjusted net profit of 640 million/+54%; adjusted net profit margin was 16.9% /+2 pct.

This financial report can be summed up as “3 highs and 2 fast”: high gross profit (41.8%), high single-store revenue (monthly revenue of 211,000); rapid store expansion (number of global stores exceeded 6,000), rapid listing (100 new products launched in 7 days), and fast turnover (completed once every 67 days).

The positive performance of various operating indicators marks that Mingchuang Premium has reached a historic high golden stage in terms of operational efficiency, market response speed, and innovation ability.

However, the day after the results were announced, the company's stock price declined.

Behind the bright earnings data, the market's concerns about the growth rate are hidden.

The share of domestic direct sales has not improved, the presence of self-developed IP has further weakened, and the pace of overseas store expansion falls short of expectations... all cast a shadow of uncertainty over the future growth path of this small commodity empire.

The number of global stores has exceeded 6,000, and the number of direct-operated stores is only 231

Running through a single store model and then quickly replicating it is the fundamental model for retail store growth. Mingchuang Premium is in this stage of rapid replication and rapid growth.

The number of Mingchuang Premium stores continued to soar during the financial reporting period. The number of domestic stores was 3802, a net increase of 533, a net increase of 198 over the previous year. It achieved the annual net growth target of 350 to 450 stores one quarter ahead of schedule, and achieved the important milestone of the number of global stores exceeding 6,000.

Of Mingchuang Premium's more than 6,000 stores around the world, only 231 stores are directly managed stores, and the rest use a third-party agency model.

The fact that the direct business model accounts for too low is something that Mingchuang Premium has always been criticized.

(Source: Mingchuang Premium FY24Q1 Quarterly Report)

Although the agency model can effectively transfer operating risks to agents and reduce the company's own management burden, this strategy also means that profits must be shared with agents, so that the profit margin of individual stores is lower than that of the direct business model.

As a result, many retail brands will choose a direct sales model in key markets to maintain consistent brand quality and control product standards, while adopting an agency model in markets seeking rapid expansion.

Although Mingchuang Premium also claims that it attaches importance to the direct market and regards it as an important driving force for growth, the latest quarterly report shows that the agency model still dominates the position.

According to Q3 data, the number of directly-managed stores of Mingchuang Premium in China was 20, an increase of only 5 compared to the same period last year. At the same time, the number of third-party stores increased by 193.

How to achieve rapid and sustainable market expansion while maintaining brand quality and increasing profit margins remains the key to its future development. This also requires Mingchuang Premium to find a more balanced combination between direct sales and agency models.

The speed of store expansion and single-store revenue have risen sharply, and Mingchuang Premium is in a golden period of development

Surprisingly, with Mingchuang Premium expanding stores so fast, the average single-store revenue still achieved a 23.8% year-on-year increase, which also led to a 41.2% year-on-year increase in the total revenue of its offline stores in China.

During the conference call, Mingchuang Premium explained in detail the key factors for its continued growth in the same store:

One is the “opening a big store” that Mingchuang Premium has always emphasized. Although the investment of large stores is about 2 times that of ordinary stores, due to high customer unit prices and high traffic, single store sales are better.

Since this year, many of Mingchuang Premium's “superstores” around the world, such as the New York Times Square flagship store, Guangzhou Beijing Road flagship store, and Ganzhou City Image Store, have achieved impressive performance.

In this quarter, Mingchuang Premium continued to expand its “super big store” network. Newly opened super stores such as Xi'an Datang City Store and Wuhan Chuhe Hanjie Wanda Store had a positive impact on the company's overall performance.

Mingchuang Premium, which has tasted sweetness, is also planning to open “super big stores” in major international cities such as Rome in Italy, Paris in France, and Madrid in Spain.

In addition, interest consumption such as big beauty, big IP, and big toys has always been a key investment in Mingchuang Premium. The gross margin of this category is around 60%, and there is plenty of room for premiums, which is the key to increasing overall gross profit.

For example, products co-branded by Mingchuang Premium, Barbie, and Loopy were popular this quarter, becoming an important driving force for performance growth. Of the products with domestic sales exceeding 10 million, about 60% came from interest in consumption.

However, it is worth noting that although co-branded IPs have a significant effect on brand sales and profits in the short term, the label “excessive reliance on external IP” has also always accompanied Mingchuang Premium.

The company is also aware of this, and has emphasized many times that it regards self-developed IP as an important strategic direction. However, judging from this quarter's data, Mingchuang Premium's self-developed IP brand's share of sales is declining further.

This also requires Mingchuang Premium to raise a higher level of warning. To truly build a “super brand” with lasting appeal, Mingchuang Premium must have its own “loopy”.

In terms of costs, with the upgrading of the Mingchuang Premium brand, the opening of large stores, the increase in advertising expenses, and the expansion of the IP library and the diversification of IP product types, related licensing fees increased. Sales and distribution expenses for the quarter were RMB 640.9 million (87.8 million US dollars), an increase of 68.1% over the previous year.

According to the company's financial forecasts, sales expenses are expected to continue to trend upward in the next quarter.

As Mingchuang Premium's revenue scale expands, fixed costs remain the same, and additional sales will generate higher profit margins. The release of operating leverage hedges the risk of rising costs, and overall growth is still manageable.

There are joys and worries in overseas markets

Going overseas is another story about Mingchuang Premium, and it is also a direction that the market values.

The common feature of the excellent performance of Bubble Mart and Mingchuang Premium in China Stock Exchange this year is the logic of domestic goods going overseas. Going overseas means that the target customer base of the enterprise will be added to overseas markets, the ceiling will be greatly raised, and the possibility of achieving market share growth in the new market is more clear.

Overseas markets also provided a number of highlights for this quarter's earnings. Overseas business revenue was close to 1.3 billion yuan, up from the high base for the same period last year, up nearly 41% year on year, setting a new record for the highest overseas business sales in the third quarter.

GMV continued to grow rapidly in major overseas markets. The North American region grew by nearly 1.6 times year on year, the Latin American market by nearly 60% year on year, and the European market by nearly 50% year on year.

It is particularly noteworthy that the revenue of Mingchuang Premium's overseas direct sales market increased nearly 89% year over year, and its share of total overseas revenue increased from 34% in the same period last year to about 46%.

This is a positive sign, and Mingchuang Premium also said, “Next year's biggest opportunity is the overseas direct market.”

However, in terms of the speed of store expansion, overseas markets seem difficult to compare with domestic markets.

In the first half of the year, Mingchuang Premium was slow to open overseas stores. Although it accelerated in the third quarter, with a net increase of 126 stores, as of September 30, 2023, the cumulative net increase in the number of stores in overseas markets was 198. Compared with the opening target of 350 to 450 stores set at the beginning of the year, this only completed about half of the tasks. It's not too difficult to complete the remaining goals within a quarter.

Historically, after going through a stage of rapid expansion (such as opening new stores on a large scale), many retail companies performed well in the current period, but often faced a decline in traffic to new stores, causing profit drags down. The market may also be worried that Mingchuang Premium is also experiencing a similar situation, and that high growth will not be sustainable.

Although Mingchuang Premium has boasted that it will open more stores in overseas markets next year, the speed and quality of the company's expansion during the downward cycle is still unknown.