Miniso Group Holding (NYSE: MNSO) reported first-half FY26 revenue of RMB 11.5 billion, a 22.4% increase year-over-year. Despite strong top-line growth driven by domestic expansion and proprietary intellectual property, adjusted operating profit excluding foreign exchange effects rose only 5% to RMB 1.63 billion, weighed down by structural shifts in its overseas business mix.

Financial Performance

The company’s gross profit margin remained flat at 44.3% in H1FY26 compared to the prior year period, supported by approximately 0.6 percentage points from US tariff refunds. For Q2 alone, the margin improved by 1 percentage point to 45.3%, aided by 1.2 percentage points of positive impact from these refunds. Management expects tariff refunds to provide further support of 20 bps to 30 bps to the overall gross profit margin in the next two quarters.

Selling expenses rose by 2.7 percentage points to 25.8% of revenue, primarily due to increased rental and depreciation costs for directly operated stores (+1 percentage point) and higher IP licensing fees (+0.5 percentage point). These investments reflect the company’s strategic pivot toward proprietary IP and larger store formats.

What the Numbers Show

A significant divergence exists between revenue growth and profitability trends. While revenue surged 22.4%, adjusted operating profit (excluding FX) grew only 5%. This margin compression is driven by a structural shift in revenue contribution: high-margin franchise and distributor business, which carries a net profit margin exceeding 30%, saw its revenue share fall by 6 percentage points. Conversely, the share of overseas directly operated business, which recorded a single-digit loss margin last year, rose by 3 percentage points. This indicates that current growth is being fueled by lower-margin, capital-intensive direct operations rather than high-margin franchise models.

Operational Highlights

Domestic operations outperformed expectations, with Miniso China revenue growing 26.2% in H1FY26. The segment added a net 97 stores, including 59 Land format stores and 159 flagship stores, while closing 121 regular stores. Same-store sales growth in China was mid-to-high single digits. The company completed 189 store renovations in H1, with post-renovation performance nearly doubling globally.

Overseas revenue grew 40.9% to RMB 4.06 billion, but profitability declined as the segment’s contribution to group profit fell from 35-40% in 2023 to 10-15% in H1FY26. This was attributed to a 10% decline in distributor business revenue and early-stage losses in direct-operated markets outside North America. North America revenue grew 37% to nearly RMB 1.8 billion, though same-store sales moderated in Q2 due to stock-outs of best-selling IP products.

Proprietary IP and Membership

The company’s first proprietary IP, UU, generated nearly RMB 500 million in revenue in H1FY26, entering 53 countries. The group-wide target of RMB 1 billion in proprietary IP sales was achieved ahead of schedule by July. Inventory turnover for proprietary IP products was maintained within 30 to 40 days, with profit margins above the company average.

Membership contributions to sales in China rose to 77% in H1FY26, up from 57% in the same period last year. The member base grew 31% to 130 million. Average transaction value for IP members is more than three times that of non-IP members, while retention rates for IP members acquired in 2025 were 8 percentage points higher than non-IP members.

Outlook and Guidance

Management expects full-year revenue growth of mid-double digits, with H2 revenue growth in the high single digits. Overseas revenue is projected to grow low single digits in H2, with distributor revenue declining low double digits as the company closes 100 to 110 low-efficiency distributor stores for the full year. Adjusted operating profit margin is expected to decline 3 to 4 percentage points year-over-year for the full year, reflecting the ongoing margin pressure from the shift toward direct operations.

Cash reserves stood at RMB 7.39 billion at the end of June. The company returned RMB 1.31 billion to shareholders in H1FY26 through dividends and buybacks, including RMB 520 million in repurchases. No interim dividend was declared, with management citing attractive valuation levels for continued buybacks.

HSBC analyst Lina Yan has downgraded MINISO Group Holding (NYSE: MNSO) from Buy to Hold. The broker set a new price target of $10.8 for the stock.

The downgrade reflects a shift in the investment recommendation for the lifestyle brand. No further details on the rationale or specific financial metrics driving the change were provided in the announcement.

Analyst Action