Increase in revenue without increase in profit, is MNSO (09896) strategic transformation a failure?

Increasing revenue without increasing profits, or the "bitter fruit" that MNSO (09896) has to swallow on the road to transformation and upgrading. On November 21, MNSO released its performance report for the first three quarters of 2025. The report showed that in the first three quarters, the company achieved revenue of 15.19 billion yuan, a year-on-year increase of 23.68%; with a profit of 1.349 billion yuan, a decrease of 26.1% year-on-year. In the third quarter, the company's revenue was 5.797 billion yuan, an increase of 28.17% year-on-year; with a profit of 443 million yuan, a decrease of 31.64% year-on-year. Whether for a single quarter or for the first three quarters, MNSO has shown a performance of increasing revenue without increasing profits, indicating that the company's global expansion and large store strategy have not yet produced positive results. Perhaps the reason is that the market lacks confidence in MNSO's long-term business model and strategic investment, as evidenced by the stock price decline on November 24 and 25. The company's stock price fell by 4.84% when trading opened on November 24, and continued to decline, closing at 37.16 Hong Kong dollars on November 25. For a company, staying in one place in the face of challenges is more dangerous than changing direction. Therefore, strategic transformation for companies is often not a spontaneous decision, but a necessary choice for survival, victory, and growth. Faced with multiple pressures such as the "pseudo-Japanese" controversy, slowing growth, and declining profits, MNSO's strategic transformation is clearly an inevitable path. So, what are the gains and losses for MNSO behind this necessary strategic transformation? Significant cost increases, declining gross profit margin GMTEight observed that in the past, MNSO relied on a light-asset franchise model for rapid expansion. Now, its strategy has shifted to the "opening of large stores, developing IP, and brand-building" business strategy. Breaking down this strategic approach, "opening large stores" provides space for value display and experiences; "developing IP" provides value content and emotional carriers; and "brand-building" is the ultimate goal. This strategic transformation reflects that Miniso's previous model of "small stores + franchise" expansion has reached a bottleneck, and the company needs a new and more imaginative growth story. "Opening large stores" can increase revenue per store, "developing IP" can create new high-margin product categories and open up new growth spaces, while "brand-building" is the ultimate goal. By injecting emotional value and stories through "developing IP" and providing immersive experiences through "opening large stores," Miniso aims to change its brand image and move away from low-level price competition. However, MNSO's bold strategic transformation has come with its costs. The significant growth in operating costs has eroded the company's profit margins. According to the financial report, in the third quarter of 2025, MNSO's sales costs were 3.207 billion yuan, a 28.6% increase year-on-year; sales and distribution expenses were 1.43 billion yuan, a 43.5% increase year-on-year; general and administrative expenses were 344 million yuan, a 45.6% increase year-on-year. The company stated that the increase in sales and distribution expenses was mainly due to investments in direct-operated stores to drive future business development, especially in strategic overseas markets such as the United States. The increase in operating costs has clearly affected the company's profitability. In the third quarter, MNSO's gross profit margin declined by 0.2 percentage points to 44.7%, leading to the company's performance of increasing revenue without increasing profits. Additionally, it seems that MNSO is facing financial burdens from the incubation of new businesses. On one hand, there is the expansion "burden" from TOP TOY: as the second growth curve, MNSO's TOP TOY is still in the expansion stage. The equity incentive of TOP TOY led to stock payment expenses of 180 million yuan being directly included in MNSO's financial statements, which has clearly eroded the company's profit margin. On the other hand, there are growth "costs" from acquisitions and investments: during the period, MNSO's investments in projects such as Yonghui Superstores resulted in a net financial expense of 100 million yuan, while MNSO also absorbed Yonghui's loss of 150 million yuan. These strategic investments are aimed at the future, but in the short term, they are expected to have a certain impact on net profit. If we exclude the impact of these factors, MNSO's adjusted net profit in Q3 is expected to increase by 12% year-on-year to 770 million yuan. It is evident that MNSO's current situation of "increasing revenue without increasing profits" is a necessary pain point in its strategic transformation. After the pain of transformation, the results await verification For MNSO, the setbacks in changing gears are necessary steps towards a longer journey. This can be seen through its overseas revenue and the growth trend of TOP TOY. According to the financial report, as of September 30, 2025, MNSO Group's total number of stores reached 8,138, achieving a milestone of 8,000 stores, with a net increase of 718 stores year-on-year. Among them, MNSO had a total of 7,831 stores, with a net increase of 645 stores year-on-year. The number of MNSO stores in mainland China was 4,407, with a net increase of 157 stores year-on-year. The number of MNSO stores in overseas markets was 3,424, with a net increase of 488 stores year-on-year. Thanks to the expansion of its overseas business, MNSO's overseas revenue has shown obvious growth momentum in the first three quarters of 2025, Miniso China's revenue was 8.024 billion yuan, a 14.1% year-on-year increase; Miniso's overseas revenue was 5.846 billion yuan, a 28.7% year-on-year increase. At the same time, the company's trendy toy brand TOPTOY has also shown significant growth. In the first three quarters, TOPTOY achieved revenue of 1.317 billion yuan, an 87.9% year-on-year increase, and in the third quarter, TOPTOY's revenue increased by 111.4% to 575 million yuan. In addition, MNSO's large store strategy is also gradually showing results. In the third quarter of 2025, Miniso China's revenue increased by 19.3% year-on-year, with a high single-digit growth rate in the same-store sales. Miniso's overseas revenue increased by 27.7% year-on-year, with a low single-digit growth rate in the same-store sales. In the short term, the above growth trends clearly indicate the new "growth story" for MNSO after its strategic transformation. In the long run, the strategic transformation fundamentally optimizes MNSO's core business, making its layout more rational and its moat deeper. Firstly, in terms of product matrix, the company has shifted from relying on low-priced general merchandise for traffic (thin profit margins) to the current product combination of "essential goods to maintain traffic, IP products to increase profits." Daily sundries ensure basic customer flow and repeat purchases, while IP cultural and trendy toy products become high-profit growth engines, making the business structure more resilient to risks. Secondly, in terms of channel models, MNSO has shifted from the past standardized replication of only small stores (easily impacted by online competition) to the current multi-layer store matrix strategy of "benchmarking with large stores, broad coverage with small stores." Large stores serve as brand flagships and experience centers that cannot be replaced by online channels, while small stores efficiently penetrate the market. This layout strengthens its unique value as an offline entity, resisting the impact of e-commerce. In conclusion, MNSO's transformation comes with a certain level of "pain," such as high cost investments and increasing revenue without increasing profits, which are the costs that transformation must pay. After the pain, whether it can incubate new powers of blood circulation still needs time to verify and will continue to be tested by the market.