MINISO Group Holding Limited is pivoting its overseas strategy, moving away from large-scale store expansion to focus more on optimizing its existing international operations. This strategic adjustment comes after the company reported interim results that highlighted mounting pressure from its global business, which has become the primary drag on bottom-line growth.

On August 28th, MINISO announced its 2026 interim results. For the first half of the year, the company's revenue reached RMB 11.499 billion, marking a year-over-year increase of 22.4%. However, adjusted net profit, excluding foreign exchange gains and losses, declined by 1.7% to RMB 1.222 billion, underscoring the profitability challenges faced during the period.

The underperformance of the overseas segment was a significant factor in the profit decline. While international revenue grew by 14.9% to RMB 4.059 billion in the first half, same-store gross merchandise value in overseas markets actually fell by a low single-digit percentage year-over-year. Management conceded during the earnings call that the overseas business performed below expectations, which adversely affected the group's overall profitability. The contribution of international operations to the group's profit has consequently dropped from 35% to 40% in 2023 to just about 10% to 15% in the first half of this year.

In recent quarters, investor focus on the overseas business has largely centered on the performance of direct-operated stores in North America, with key questions revolving around whether hefty upfront investments in new store openings will translate into profits once those stores mature. While revenue in North America still grew by 37% in the first half, the growth rate decelerated sharply to 25% in the second quarter from roughly 50% in the first quarter. During the same period, the company added a net 75 direct-operated stores in North America—double the number added in the same period last year. The associated rental, depreciation, and labor costs from these new locations continue to weigh on profit margins.

A new element of pressure this period is the downturn in the higher-margin franchise business. Unlike previous quarters where the strain was mainly felt from upfront investments in direct stores, the overseas agency business, which is generally more profitable, has also started to decline. Revenue from this segment decreased by approximately 10% year-over-year in the first half, with both the Asian and Latin American markets experiencing temporary slowdowns.

Over the last few quarters, multiple issues have surfaced across different regions: a slowdown in orders from distributors in Asia and Latin America, weak same-store sales in Europe, and increasing upfront costs for new direct-operated stores. Management acknowledged that the company's localization capabilities in some markets are still evolving and that its product planning, channel strategy, and terminal execution have not yet formed the same closed-loop the company enjoys in China. Furthermore, the firm is proactively closing some underperforming franchise locations. Reflecting these operational inefficiencies, overseas inventory turnover days increased to 273 days in the first half, up from 214 days in the same period last year.

To address this, management has indicated a tighter grip on inventory discipline for the second half of the year, aiming to accelerate stock clearance through new intellectual property launches, holiday sales, and membership campaigns. Looking ahead, MINISO projects that overseas revenue will only grow by a low single-digit percentage in the latter half of 2024, with revenue from its agency business anticipated to fall by a double-digit percentage. Concurrently, the total number of overseas stores is expected to shrink by a net 50 to 70 units, comprising a net reduction of 100 to 110 franchise stores, offset by a net increase of 40 to 50 direct-operated stores.

MINISO founder, Chairman, and CEO, Guofu Ye, likens the current challenges in the overseas market to a transformation China went through three years ago—shifting from a philosophy of "scale first" to "quality first." In the second half of the year, the company plans to focus on improving the operations of its nearly 800 existing overseas direct-operated stores, aiming to solidify a successful single-store model before considering further replication.

This recalibration overseas has a direct impact on the full-year profit outlook. MINISO now expects its adjusted net profit for the full year to decrease by a high single-digit percentage year-over-year, with the adjusted operating profit margin shrinking by 3 to 4 percentage points. Earlier this year, the company had guided for an acceleration in operating profit growth compared to 2025, with a corresponding margin contraction of just 1 to 2 percentage points. The projected drop in margins has now roughly doubled.

Another business segment that missed expectations this period was the group's trendsetting toy brand, TOP TOY. In the first half of the year, TOP TOY generated revenue of RMB 985 million, a 32.7% increase year-over-year. However, the growth rate slowed to just 16.9% in the second quarter. Based on half-year and quarterly data, TOP TOY’s revenue growth in the first quarter was approximately 51% year-over-year, indicating a noticeable deceleration on a quarterly basis. As of the end of June, TOP TOY had 365 stores globally, an increase of 72 year-over-year, with its overseas store count jumping from 10 to 48.

In contrast to the pressure in overseas markets and within TOP TOY, the core MINISO brand in mainland China delivered one of its strongest performances in recent years. Revenue in China grew by 26.2% year-over-year in the first half, with store count expanding by approximately 8%. Same-store sales also rose by a mid-single-digit percentage. The company attributes this growth to its strategy focusing on larger-format stores, intellectual property products, and membership operations. During the period, the company remodeled 189 stores. Management noted that these refurbished locations are seeing their store efficiency nearly double year-over-year. Moreover, proprietary IP products boast profit margins higher than the company average, with inventory turnover maintained at a healthy 30 to 40 days. Domestic membership sales contribution has also climbed to 77.4%.

MINISO intends to replicate the successful "transformation" playbook from its home market to its international operations. However, the path abroad is complicated by additional variables such as localization challenges, ocean freight logistics, and inventory management. Whether the company can successfully transpose its domestic expertise to the global stage remains to be seen.