MINISO Q1 Profit Boosted by AI Gains as US Growth Slows
A lucrative bet on artificial intelligence is heavily distorting the first-quarter profitability of MINISO Group Holding Ltd., masking a structural margin squeeze in its core retail operations driven by surging intellectual property costs and an increasingly capital-intensive overseas footprint.
MINISO reported a 28.5% year-on-year revenue surge to RMB 5.69 billion (US$790 million) for the first quarter of 2026, beating its own 25% growth guidance. However, a reported 114% spike in operating profit was artificially inflated by an RMB 880 million fair-value gain from its investment in Chinese AI startup MiniMax.
Stripping out this financial windfall, adjusted operating profit grew just 14.3% to RMB 840 million, severely lagging top-line expansion and signaling deteriorating operational leverage. The earnings structure forces a recalibration for investors who previously assigned premium valuations based on MINISO’s aggressive North American expansion, as the latest data reveals cooling overseas momentum offset by an unexpected domestic retail resurgence.
Surging IP Costs Erode Operating Leverage
The primary drag on MINISO’s core profitability stems from its reliance on an "open ecosystem" retail model, which utilizes heavy intellectual property (IP) co-branding to drive foot traffic. Selling and distribution expenses surged 44.0% year-on-year to RMB 1.47 billion, pushing the expense ratio up 2.8 percentage points to 25.9%.
Gross margins also contracted by 0.9 percentage points to 43.3%. This compression is a direct result of the company’s shift toward direct-operated stores in overseas markets. To sustain rapid expansion in the US, MINISO increased its reliance on localized, direct procurement and emergency inventory restocking, which structurally elevated unit costs. A minor financial offset came from a RMB 78 million investment income contribution from Yonghui Superstores, representing a marginal improvement from the previous year's losses.
Domestic Resurgence Offsets North American Cooling
Revenue geographic distribution in Q1 inverted recent market expectations. The domestic core brand generated RMB 3.22 billion, a 30% year-on-year increase, driven by the rollout of larger flagship formats and IP-themed stores. Domestic same-store sales maintained high-single-digit growth through January and February, indicating untapped operational depth in a market previously considered mature.
Conversely, overseas revenue reached RMB 1.94 billion, reflecting a decelerating 21.9% growth rate. North America, historically the engine for MINISO’s overseas valuation premium, saw same-store sales growth cool to low single digits. Concurrently, the Southeast Asian market remains in a protracted channel adjustment phase, struggling with the transition between franchise and direct-operated models amid a slower-than-expected macroeconomic recovery.
Sluggish Store Expansion Pressures Full-Year Targets
MINISO added a net 80 stores globally in the first quarter, bringing its total network to 8,565 locations. This represents only 15% of the company’s 510 to 550 net-new store target for 2026, necessitating a significantly accelerated rollout in the remaining three quarters.
The structural composition of these new stores highlights a shift toward heavier asset management. Overseas direct-operated stores accounted for 45 of the net additions, pushing the direct-operation ratio to 20.6%. Meanwhile, the company’s designer toy brand TOP TOY added 21 net new stores, while revenue rose 51% year-on-year to RMB 520 million. While TOP TOY grew 51% year-on-year, the pace has normalized from the 80% growth peaks seen in previous quarters due to a higher base effect.
Management’s 2026 guidance projects positive global same-store sales with low-single-digit growth in China and North America. However, unless the pace of store openings accelerates and IP licensing costs are optimized, MINISO’s strategy of trading higher capital expenditure for revenue growth will continue to weigh heavily on its retail bottom line.
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