- Miniso's FY2023 revenues and GMV up by double digits, profits up triple digits, margins double.
- Tremendous runway for growth, particularly in North America where Miniso is quite differentiated and has competitive advantages against established rivals.
- Valuation appears pricey.
Discount retailer Miniso (NYSE:MNSO) has an ample room for further growth however valuation appears pricey.
Miniso is a value-focused retailer of trendy consumer lifestyle products. The company currently operates two retail brands - “Miniso” and “Top Toy” which together make up their two major reportable segments.
Miniso, their flagship retail brand offers an assortment of affordable, trendy consumer lifestyle products covering a number of categories including home decor, small electronics, textile, accessories, beauty tools, toys, cosmetics, personal care, snacks, fragrance and perfumes, stationery and gifts. This is Miniso’s biggest segment accounting for 95% of revenues.
Top Toy, a new retail brand launched in December 2020 offers an assortment of collectible toys aimed at both adults and children across a number of categories including blind boxes, toy bricks, model figures, collectible dolls and other popular toys. This segment accounts for around 4.6% of revenues.
FY2023: GMV and revenues up by double digits, profits up by triple digits, operating margin and net margins double
For FY2023 (year ended June 2023), Miniso’s revenues rose 13.7% YoY to CNY 11.47 billion and GMV rose 12.6% to CNY 21.4 billion helped by an expanding store footprint; the total number of Miniso stores (in China and overseas markets) increased 11.3% YoY from 5,199 at the end of June 2022 to 5,791 at the end of June 2023. The number of Top Toy stores rose from 97 to 118 during the same period.
Operating profit rose 152% YoY to $2.2 billion and net profit rose 178% YoY to $1.7 billion. Gross margins rose to 38.7% from 30.4% the previous year, operating margins rose to 19.4% from 8.7% and net margins rose to 15.5% .from 6.4% the previous year. The company attributed the improvement in profitability to their overseas expansion and premiumization strategies around their Miniso brand. The company attributed the improvement in profitability to their overseas expansion and premiumization strategies around their Miniso brand.
Looking ahead, the company has ample runway to expand their store footprint, currently a key revenue and earnings driver. In China, Miniso’s biggest market, management’s expansion strategy is focused on upgrading and increasing their store count in lower tier cities where management says the company is relatively under-penetrated. Of the 3,604 Miniso stores in China, over 80% were located in lower tier cities, however these are likely to be stores with smaller selling space.
There is ample runway for store growth overseas (China alone generates over 60% of Miniso’s revenues). About 15% of revenue is generated in the Americas, including North America, a market with tremendous growth opportunity considering their population size and spending power, particularly among Miniso’s core target market of 18-28 year old females, given the relatively high participation of women in the workforce in North America relative to other regions.
North America has its share of discount stores, notably Dollar Tree (DLTR) and Dollar General (DG) to name just a few. Miniso however differentiates themselves in a number of different ways including their focus on impulse buys like toys and snacks rather than household consumables as well as supply chain advantages; the company controls much of the supply chain from product design to marketing and sales that allows them to update their product assortment on a monthly basis compared with once every six months or so for their American rivals. In line with the company’s philosophy of launching 100 new Miniso SKUs every week (as noted in their FY2022 Form 20-F), Miniso launched around 530 Miniso SKUs per month during FY2023. It also allows them to localize their products (about 70%-80% of Miniso products sold worldwide are broadly similar and around 20%-30% are unique, localized products tailored to suit local preferences).
Miniso’s North America timing is opportune as well; inflation and the resulting weakening of American consumers’ spending power opens opportunities for discount stores, and the recent retail shakeup which saw a number of retail store closures across the U.S. (nearly 3,000 according to some estimates with as many between 40,000-50,000 more closures from the current base of 940,000 expected by 2027 according to UBS) gives Miniso a good choice of store locations.
Miniso is aiming to have around 70% of revenues generated from international markets by 2028 from around 36% currently, and an aggressive expansion in North America could help them reach that target. Dollar Tree has over 15,000 store locations in North America and Dollar General has nearly 20,000 stores in the U.S. alone and both companies generate revenues in excess of $20 billion dollars each from North America (Dollar General earned $37 billion and Dollar Tree earned $28 billion in revenues last year), at least ten-times higher than Miniso suggesting tremendous growth prospects for the latter over the coming years.
In addition to offline expansion, channel expansion could further support revenue growth. Miniso currently relies heavily on offline retail stores however management is aiming to have an omnichannel presence. Online channels currency account for just around 6% of total GMV.
Better than anticipated profitability
The assumptions (see below) assume a slight increase in profitability over the coming years to account for scale economies as the business expands. If Miniso’s profitability improves considerably more than anticipated, the business could be worth significantly more.
Miniso’s competitive advantage partly rests on their ability to constantly refresh their product assortment based on fast-changing consumer trends. If the company fails to correctly identify these trends or offer products that appeal to consumers, the company’s financial performance could be affected.
Geopolitical tensions may hinder international expansion
International expansion efforts may be hindered by geopolitical tensions particularly between China and the U.S. Miniso’s expansion into India may also run into operational challenges similar to those faced by Chinese smartphone makers in the country. If Miniso struggles to gain traction internationally, particularly in the U.S., the company's growth could be materially hindered.
Miniso stock has a buy analyst consensus rating.
Miniso is up nearly 400% over the past year and currently trades at a forward P/E of 25.8, higher than the sector median of 14.3.
Taking the following assumptions suggests Miniso is worth around $5.2 billion, considerably lower than the $6.2 billion market value currently. The stock could be viewed as a hold for investors willing to tolerate the risks.
Revenue growth YoY %
19% CAGR over the next five years (based on a low single digit growth rate in China, and a growth rate of over 35% internationally each year until 2027 by which time international revenues would be around 70% of total revenues)
Terminal growth rate %
Operating margin gradually increasing to 20.9%, net margin gradually increasing to around 17% to account for scale economies as the business expands
Depreciation (% of revenues)
CAPEX (% of revenues)
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