Super Hi International Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 25, 2024

Key Takeaways

  • Positive Sentiment: Q3 performance improved significantly: Revenue rose 14.6% year over year to $198.6 million, customer visits increased 4.2% to 7.4 million, and table turnover reached 3.8 rounds. Operating profit margin improved to 7.5%, supported by higher traffic and spending, supply-chain efficiencies, and cost controls.
  • Positive Sentiment: Management said average spending increased by $2.1 per customer, while product upgrades, localized marketing, and campaigns such as the League of Legends collaboration helped attract customers. Japan and South Korea showed notable operational improvements, and Southeast Asia continued to perform well.
  • Positive Sentiment: International expansion remains a growth priority: The company expects to open a double-digit number of stores in 2024 and has signed contracts for more than 10 additional projects across North America, Southeast Asia, East Asia, the Middle East, and Europe. Management is also exploring lower-tier cities and new markets.
  • Neutral Sentiment: The “Pomegranate Project” is incubating new restaurant concepts, including halal hot pot, noodles, barbecue, and fast food. Some concepts are near break-even or profitable after adjustments, but management emphasized that the brands remain early-stage and require further product and business-model refinement.
  • Negative Sentiment: Management expects continued price competition, particularly as more Chinese restaurant brands expand in Southeast Asia. Labor costs rose as the company added employees and faced higher minimum wages, while performance at certain new stores—including in the Philippines—and two U.K. stores remains affected by local or operational challenges.
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Earnings Conference Call
Super Hi International Q3 2024
00:00 / 00:00

There are 10 speakers on the call.

Operator

Hi, ladies and gentlemen, the investors and analysts. Hello. Thank you for attending 2024 interim results call of Super Hi International. The company management attending the conference are Ms. Yang Lijuan, Executive Director and CEO of the company, Ms. Chu Song, Financial Director and Board Secretary. Today's conference call may include forward-looking statement, which encompasses the company's strategy, business plan, and performance outlook. The content discussed in the earnings conference, along with any comments and responses to your questions, reflects the management's views as of today. Please refer to the latest safe harbor statement in the earnings press release that applies to this conference call. This conference call will be conducted in Mandarin Chinese with an external agency providing simultaneous translation into English. In case of any discrepancies, please refer to the original Chinese content. The presentation materials for the conference call have been uploaded to our IR website.

Speaker 1

We encourage you to review them at your convenience. Next, we will invite Ms. Yang Lijuan, Executive Director and CEO of the company, to review our Q3 performance. Thank you. Hi, everyone. I am the Executive Director and CEO of Super Hi International. My name is Yang Lijuan. Allow me to introduce the third quarter business performance of Super Hi International. In Q3, our average table turnover rate was 3.8 rounds, an increase of 0.1 rounds year-over-year. We received a total of 7.4 million customers, an increase of 4.2% year-over-year. The revenue was $198.6 million, with an increase of 14.6% year-over-year. Our company's operating profit margin was 7.5% year-over-year, 1.8 percentage points. First, we have promoted stores to improve their business from the so-called three spreadsheets.

Speaker 2

That is the management table, which is about the stores on site for color coding charts. The operational table really allow the stores to monitor the financial performance, and also we have the basics spreadsheets that allow our employees and customers to receive better management and also service quality as well. As a result, in the third quarter, more stores have improved their customer experience and also the unit economics as well. In addition to that, we have conducted a more comprehensive and detailed sorting and standardization of our services and business operation as well. For example, for our members, students on their special occasions such as birthdays, weekends, holidays, we offer customized services, which allow us to continue to improve our service quality.

Speaker 2

Number three, we also implemented the so-called dual management policy with more national managers and excellent store managers managing another store on top of their home store, which allow them to really replicate good management to more stores. In addition to that, we also began to study how to divide smaller units of management within a store so that more people can be responsible for different parts of the business. We also allow different party to have their own spreadsheets for management, which can help us to deeply stimulate the passion of each employee to make sure that the management of the store and also the organization of the management becomes flatter and easier. Number four, in terms of our headquarter empowerment, we have now integrated the product and marketing departments.

Speaker 2

We examine the menu structure and also marketing activities of various regions and countries. We have unified the management of the trade business of various countries and regions from the source of procurement to improve our operational efficiency. In August, our product team really optimized a highly acclaimed hot pot dish, pork belly slices in Singapore, and really launched the so-called tender pork belly item, which has now been order with high popularity among our customers, with over 10% of increase of selection actually for three consecutive months, and number is still rising. In August, we also upgraded our flagship hot pot sauce as well, allowing more fresh tomato to upgrade our taste. During the Olympic Games, we also launched Olympic theme bundle that allow more popularity for different countries as well. Number five, we continue to innovate marketing activities.

Speaker 2

In July, we actually have a crossover event with a really well-known video game, League of Legends. We attracted over 600,000 customers to participate in the activity as well. By the end of the event, a total of over 12,000 co-branded dishes were sold, which are deeply loved by our customers. In September, we also launched a series of really fun merchandise for young people, including, for example, hot pot ingredients and other themed toys as well. Customers can participate in the role-play activities with the waiters and really enjoy the fun of the immersive experience. When it comes to our operation, first of all, when it comes to the store network, our current base of store number is relatively smaller in terms of store expansion due to construction and also processing preparation. No new stores were opened in the third quarter.

Speaker 2

In June, we opened a store in Cambodia. So far we've opened nine new stores this year in total, and another single-digit number of stores will be renovated in December. The total year estimate for the number of stores newly open will be double digits. After our adjustment, we actually are now able to optimize the utilization of our resources that allow us to improve our operational efficiency. Our country managers are responsible for overseeing store openings as well for the coming year and also beyond. They have already identified several opportunities for expansion, including opening new stores in existing countries and regions, and also expanding into lower-tier cities, and also outside of current countries, and footprint as well. The headquarters will assess the suggestions and proposals and oversee the quality of the new stores, fostering a positive cycle of growth from the ground up.

Speaker 2

In addition to our basic hot pot offerings, we also have initiated the so-called Pomegranate Project. We have actively explored catering projects in various countries as well. Our headquarter will provide resources such as market research, product development, brand marketing and design, and other support to empower these initiatives effectively so that we can incubate other types of restaurants such as hot pot, barbecue, fast food, and additional categories as well. Looking beyond, we have established our long-term goal as becoming a leading global integrated restaurant group so that we can continue to improve our operational efficiency. So that's all for my introduction. Coming up, our financial director, Ms. Chu Chung, will continue with the financial performance update. All right. Thank you, Ms. Yang. Hi, everyone. Allow me to give you a brief report of our Q3 financial report.

Speaker 1

In Q3, we achieved $199 million, a year-over-year growth of 14.6%. It is because, first of all, our network continued to expand. We continued to also increase our average spending per customer. We also contributed a lot when it comes to our increased traffic and also table turnover rate. Among them, our operating income. Our delivery was $2.6 million, a year-over-year increase of 8.3%. We also benefited from our popularity of the hot pot sustain products and also our sub-brand food among local consumers and retailers. When it comes to our cost and expenses, our raw material and also consumable use was optimized by 1.4 percentage points year-over-year. As a result, we also are able to improve our gross profit margin.

Speaker 1

Our gross profit margin was optimized because of a number of reasons. Our employee costs were increased by 0.9 percentage points. It was mainly because, on the one hand, we increased the number of store employees to ensure customer satisfaction and also the quality of the stores management. On the other hand, some countries also increased the minimum wage per country, so the overall labor cost has increased. Our rental expenses also decreased and optimized year-over-year, mainly due to the economy of scale generated by the increase in revenue. Our water and electricity expenses, our utility bills also were optimized because of the increase of internal revenue base. In addition to that, depreciation and amortization also was basically at the same level as last year.

Speaker 1

For the third quarter, our company level operating profits was approximately $15 million, an increase of 1.8 percentage points. It was mainly because, first of all, the table turnover rate increased and also the average spending per customer increased. In addition to that, we optimized the supply chain and also better control our cost, which allow us to improve the operational efficiency. In the third quarter, our net profit after tax was also optimized, basically amounting to $38 million. At the same time, because of the foreign exchange gains in the third quarter, we also generated extra income, where the same period last year, the foreign exchange loss was recorded. It is mainly due to the exchange rate fluctuation. For the third quarter, we served a total of 4.2% more customer. The table turnover rate also increased by 0.1 rounds year-over-year.

Speaker 1

Our average spending also increased by $2.1 per guest. It was mainly because, first of all, we had made a reasonable adjustment to our menu and marketing activities, providing customers with more choices. In addition, compared to last year, the overall impact of exchange rate fluctuation on customer spending was slightly positive, which contributed to the overall increase in customer spending. The average daily revenue per single restaurant also recorded an increase by about 36%. First of all, South Korea continued to lead in the performance. After our optimization in Japan, including major adjustments in two stores, we were able to actually improve their table turnover rates by 0.5 rounds. North America table turnover rates was at the same level as last year.

Speaker 1

The average spending increased by 2.3 USD per customer as well, and it was mainly due to our adjustment in the marketing activities and also our provision of better quality and a wider range of dish selection that allow us to attract a wider customer base as well. For Southeast Asia, for the third quarter, an increase was also recorded for the same quarter last year. The foot traffic has increased significantly, and we have actually benefited from the foreign exchange rate fluctuation. For other regions, the average table turnover rate was 3.8 rounds, slightly slower than the same period last year. The main reason was because of the slowdown of two stores in the U.K. We are still ramping up the operational results in the U.K. In addition, the operation in Australia and the UAE were normal, with an improvement recorded compared to the same period last year.

Speaker 1

When it comes to same-store performance, we have recorded over 106 same-store performance at stores that has recorded same-store performance within the same region. Same-store performance basically was similar to the overall trend of the same region. We are not going to repeat here. That is all for our very quick review of the third quarter performance. We are now ready for your question. All right. We now have started the Q&A session. The first question comes from Huatai. Ms. Sung Chen, please go ahead. Hi. Please go ahead. Hi. Good evening. I am Zeng Jing from Huatai. Can you hear me okay? Yes, we can. All right. Great. Thank you so much for giving me the opportunity to ask the question, and congratulations on the excellent performance. I actually have three quick questions for you.

Speaker 3

The first one is that for this year, we have observed that you actually balance the quality and quantity of new stores open. Would you mind sharing with us your store opening plan for the next year? My second question is that during your presentation, you mentioned a new initiative that is about incubating new brands. Is there any updates that you can share with us, new brands of restaurants, and also the unit economics? My third question is that we notice that the ASP, the average spending per customer, actually have improved for the third quarter. How does it really vary from region to region, and what is the competitive landscape as well? Especially in Southeast Asia, we also see that there are some other competitive brands from China that are doing their overseas expansion in Southeast Asia. Does that change our competitive dynamics? Thank you.

Speaker 1

Thank you for your questions. Regarding the first questions, I think it is about store opening and plan for the next year. I think Ms. Yang will be in a better position to take that. Ms. Yang? All right. I will take her place. About store opening, as was mentioned by Ms. Yang, we have already opened nine new stores so far this year, and we expect that a single-digit number of stores will complete renovation and open for business before end of the year. We expect to open a total of double-digit number of stores for the year of 2024. For next year and beyond, we have already signed contracts for more than 10 projects and are promoting preparing for their renovation.

Speaker 2

We also have identified some new opportunities for increasing our store numbers in some lower-tier cities and new markets as well, and we are quickly speeding up the process. There are projects in North America, Southeast Asia, East Asia, Middle East, and Europe, et cetera. Hi, Ms. Yang. Are you back? Great. All right. Thank you for the question. For next year, when it comes to store opening, again, we have opened nine new stores this year so far. We expect that the single-digit number of stores will complete renovation and open for business before end of the year. We expect to open a total of double-digit number of stores in 2024. For next year and beyond, we have already signed contracts for over 10 projects. We are quickly preparing for their opening.

Speaker 2

We also have identified a number of opportunities for increasing our store network in lower-tier cities and new markets. We are quickly doing site selection and contract signing. When it comes to new regions, we have projects in North America, Southeast Asia, East Asia, Middle East, Europe. We are not setting a specific number of store opening targets to avoid signing contracts prematurely or inaccurately. In addition, we are encouraging country managers to actually participate in our Pomegranate initiative. We are encouraging them to explore the possibility of opening different formats. As you mentioned, we are incubating many brands. We now do not have any well-established brands yet. We are trying different formats. For example, our halal hot pot and also some noodle shops. They are continuing to refine their products and their uni-economics and business model as well.

Speaker 2

Our halal hot pot is close to breaking even, but the products and services still have room for growth. Right now they are not in a very stable sort of operational status at the moment. After our adjustment and operational reform, our noodle restaurant in America has turned to positive profit-making. But compared with our other successful Chinese fast food and previous restaurants in North America, there is still room for growth with this new brand. We also are preparing noodle restaurants in Singapore, and we are trying to combine fast food and also some office-targeted combo meals on top of the original business model. But we will keep trying. Thank you so much. That is all for my question. That is all for my answer. I think we also have a third question, which is about the competitive and pricing dynamics in different regions.

Speaker 2

Competition in the F&B industry has always been very, very fierce. Price competition will always exist. Price adjustments, including discounts, off-peak periods discounts, et cetera, will continue to exist for a long time. We will pay attention to the reasonableness of our pricing. On the one hand, we will maintain cost effectiveness, but on the other hand, we also have to take into consideration our operating costs as well. In Southeast Asia, we now are seeing a lot of Chinese brands expanding their operation there. But on the one hand, this makes competition more fierce. But on the other hand, we also are seeing the maturing of the market because together with other brands, we are helping to grow the local supplying chain and also to grow customer mindset there together as well.

Speaker 2

We firmly believe that improving the experience of our own restaurants and for our own customers will be the way to go for the long run. We expect to maintain a reasonably fair level of pricing as before. But because of the fluctuation of foreign exchange currencies and also because of the supply chain changes, we might expect smaller adjustments. But overall, the same level. Thank you. Thank you, Ms. Xu, Ms. Yang, for your answers. I don't have any further questions. Thank you. The next question come from Cindy Gao with Morgan Stanley. Please go ahead. Hi. Can you hear me okay? Yes, we can. Thank you so much for taking my question. I also have three quick questions. The first one is that for Q3, you have made a lot of improvement in your profit and margin.

Speaker 4

Going forward, do we have any updates when it comes to the guidance of margin and profit going forward for 2025? In addition to that, we also see that we have done a lot of new management measures to optimize the front end and the back end. Is there any updates that you can actually report to us when it comes to the operating performance and results? Another question is that when it comes to the new stores that has been opened so far for 2024, what are the latest performance or trends of performance, and what is the expected payback period for these new stores? All right. Thank you, Ms. Gao. This is Xu Cong. Let me just answer two out of your three questions that are about the financial part.

Speaker 1

This year, we still maintain our forecast of a mid-single digit operating profit margin for the company. The margin is calculating using the company's earnings before interest and taxes, while excluding foreign exchange gains and losses. So gains and losses on financial assets and interest income. For this quarter, our operating margin stands at 7.5%. Showing a significant improvement from 6.6% in the first quarter and 4.6% in the second quarter. We aim to maintain this margin at a reasonable level in the fourth quarter. For the whole year, the guidance has not changed. For a longer period, for 2025, for example, at least on a store level, 10%-15% store level margin is a reasonable level.

Speaker 1

For next year, as we mentioned previously, we are preparing for some new store opening and because of our new brand incubation plan, we also believe that there will be upcoming expenses or investment for those new store network and also for our new brands incubation. But when it comes to the details, right now, we are not in a position to disclose too many details. That's the first part of your question. Another question was regarding our new store performance. We've opened nine new stores, I mean, restaurants this year. As of September this year, we had opened eight new stores. Many of the stores have been performing as expected in terms of table turnover rate and recovery or payback cycle. One of them actually, during the first month of operation, already achieved profitability. And actually, one reaching profitability in the second month.

Speaker 1

The remaining stores are still in their ramp-up phase. In the Philippines, for example, for the first month and second month, they performed really well, but because of some external factors like social safety and security, our current performance is declining versus month one and month two. We are trying to cope with those local challenges. That is all for my answer. I think Miss Young can take the last question regarding the implementation of new management measures, and also any updates as to the operating performance. Thank you, Gal, for your question. When it comes to our new management operation or new management measures, first of all, we have clearly established that store management is responsible for operations. We have actively promoted the use of the three spreadsheets management tool or three tables, which helps store management to have a clearer and more accurate understanding of customers, employees, and operational processes.

Speaker 2

We continue to refine the low base salary and high dividend structure. In Q3, we raised the dividend ratio for national managers and top-performing store managers as well, especially those at A-level stores. Additionally, through our dual management policy, we have increased the dividend ratio for outstanding managers, making the incentives more substantial and attractive. There are definitely still room for improvement, but we can already see a lot of improvement on the operational efficiency. As a result, all of our indicators in the third quarter have shown year-over-year improvement, and we have further strengthened the capabilities of the product and brand marketing department within our functional teams. Our supply chain management, product research and development, membership operations, and marketing efforts have now really paid off with systematic and data-driven approach. Thank you. All right. Thank you for the answers, very clear. I do not have any further questions. Thank you.

Speaker 5

All right, the next question comes from Lu Lingxi with CICC. Please go ahead. All right. Thank you. Hi, I am with CICC. My name is Lu Lingxi. I have three questions. The first one is that when we look at the overseas environment, macro economy face some headwinds as well. What is the outlook for Q4 and next year's turnover in customer orders? In addition to that, are we actually happy with the current store management level? Do we expect to actually hear more about store management? Is there any new KPI sort of systematic adjustment for store? In addition to that, we also hear that we increased the more store employees to improve our customer satisfaction rate. Is there any room for further optimization of store labor in the future? All right. Thank you for your question.

Speaker 1

Let me just first take the two questions regarding the financials. The first one about the Q4 outlook and next year's outlook of table turnover and ASP. First of all, the table turnover rate for Q4 basically went slightly higher than the same period last year. Quarter over quarter, the improvement is not that significant because basically entering Q3 versus Q1, Q2. First of all, Q1, Q2 this year already improved quite a lot year-over-year because we have prioritized the optimization or the improvement of table turnover rate since the beginning of the year. We really have been growing on a higher base, and that is why the improvement has narrowed, because of the high base. Obviously, we aim to maintain a relatively stable average spending, and we will continue to do our best to improve the table turnover rate.

Speaker 1

For Q4, we expect to record year-over-year improvement. You can expect to hear the specific results by the next quarter. In addition to that, we also believe that there are new opportunities to actually improve our performance in late-night hours. Because judging from this year, we actually see this exciting improvement. We used to think that late-night snacks is not a dining habit of the overseas customers, but now we actually see new opportunities. When it comes to the average spending per customer, we expect to maintain a stable level. In Q3, we recorded improvement because last year our previous marketing strategies were not scientifically sound. This year we did a lot of improvement. With those improvements, we actually record higher average spending per customers. In the future, we actually expect sort of similar level of average spending.

Speaker 1

Now, another question is basically head count per store. Our labor cost is about 33.1%, and that is a reasonable level because we want to maintain high customer satisfaction rate. In the future, we are going to actually improve our operational efficiency. We also will actually continue to improve our proficiency and operational efficiency as well. We believe that the labor ratio is still fixed relatively, and significant improvement is not really realistic. The last question will be taken by Ms. Yang regarding the store management. All right. Thank you for the question. For Q3, definitely our management has improved when it comes to the results, but still there are a lot of issues to be addressed. For example, we need to enhance the business of proficiency and also experience of in-store managers and employees, and problem-solving capabilities also need to be improved as well.

Speaker 2

We are continuing to transform our organization within, and really break it down to smaller units so that we can have better management efficiency. For instance, key employees such as every responsible person, back-of-the-house team leaders, warehouse managers are organized into smaller units, accountable units. They are responsible for detailed reports and have their own mechanisms for establishing connections with their interests as well. Looking ahead, we are focusing on implementation of our brand incubation plan. We are now actively exploring different catering projects in various countries or different brand opportunities as well. Our headquarter really have empowered them by providing a lot of market research, product development, brand marketing resources to empower them to incubate other brands such as barbecue, fast food, and other hot pot as well. Thank you. Again, just a reminder, if you have any questions, please press star 1.

Speaker 6

The next question will come from Wang Yeru. Ms. Wang Yeru, please go ahead. Hi. Thank you. Thank you for taking my question, and congratulations on the excellent performance of the Q3. We have two questions here. The first one is about the overseas supply chain. Do we have any further plans for expansion and also any prospect of reducing raw material costs? Another question is where marketing strategies for each region next year, based on the current trend of table turnover rate, which regions are expected to actually increase their marketing efforts? The first question regarding the supply chain and raw material cost control. Let me just first talk about our supply chain. Right now, in addition to the central kitchens in Singapore and Malaysia, which are on the bigger scale, we actually have a small-scale processing sort of warehouses in different regions and countries.

Speaker 1

At the same time, there is still a demand for central kitchens for stores. On the one hand, we hope to improve our standardization of products and increase gross profit margin with central kitchen. The other is to reduce the burden of the cutting and matching work in store so that we can better focus on the customers in store. Therefore, in terms of supply chain construction, we now fully utilize the existing supply chain capacity, optimize the processes, and improve management capabilities. For example, we optimize and upgrade existing products. We are actively seeking sources, and we also are scouting for possibility for maybe improving efficiency or maybe building bigger central kitchens if possible. But before we do that, we are still focusing on those smaller scale processing warehouses to improve the efficiencies on the overall.

Speaker 1

Our target is really to improve the standardization of kitchen and also improve the efficiency. Now, the majority of our work right now is to, for example, to integrate our current work and our supply chain and our procurement, et cetera. We have been doing it since last year, and right now we've already seen a lot of improvement. When it comes to our projection, we believe that in the future, we can expect to see cost control outcome. But right now, we cannot give a very accurate estimate on the extent of optimization. When it comes to the marketing events, right now, we place the main responsibility for marketing in each country for each country manager. The headquarters set some red line rules that cannot be crossed.

Speaker 2

For example, we have to fulfill and be fully compliant with local regulations and laws, and also we have to respect local religions. But when it comes to the specifics of each marketing activity, it's down to each region, and each region is responsible for their own marketing strategy. The headquarter basically conducts the necessary estimate, calculation, supervision, and review and events. But the actual implementation and planning are done by local markets. So that's our current strategy, so that we can empower local regions and local stores. Right now, we do not set specific targets when it comes to marketing investment for each region. All right. Thank you so much for your answer. Very clear. Thank you. The next question comes from Li Huayi with Minsheng. Hi, Ms. Yang. Ms. Xu, can you hear me? Yes, we can. Hi. My name is Huayi. I'm with Minsheng.

Speaker 7

Thank you for taking my questions. Now, I have a question regarding the table turnover rate and also operating profit margin for mature stores. Obviously, we understand that they vary from store to store, from region to region, but what do you think is the appropriate and sustainable level for mature and well-developed and established stores as well? Right now, do you think that they really differ from one country to another? Thank you for your question. Right now, when it comes to our store management, we focus more on the, for example, payback period and also operating profit margin. When it comes to the table turnover rate, I think one of the key challenges is how many tables you have, right? When you have a fewer number of tables, obviously your table turnover rates will be higher than the opposite.

Speaker 1

But then on the other hand, even though your table turnover rate might not be the highest, as long as you have a lot of tables, you still can record very good top line and also bottom line, operating profit margin for the store as well. I think a reasonable range for margin per store is 10%-15%. For Southeast Asia, 2 years of payback time is reasonable. For the Western market, like Europe and America, 3-4 years are reasonable as well. Now, obviously, it depends from project to project, and also from site to site as well. I think as long as they are within the range, then that's fine. So that's a quick answer to your question. Very clear. Thank you. I don't have any further questions. All right. The next question come from Jesse Chen. Hi, Ms. Yang, Ms. Xu.

Speaker 8

I have 2 questions. The first one is that since Ms. Yang's arrival to the company, we have observed a lot of adjustment. As was mentioned in the previous presentation or answer, we talked about the improvement of dividend ratio. So for different store managers, how do we evaluate their performance and what kind of bonus level are we giving out to them? Another question is that, as was mentioned by Ms. Yang, we have done a lot of optimization when it comes to the store management, and we did see improvement in efficiency. For Southeast Asia and East Asia, when we look at the overall operating margin, what is the current level? Also Ms. Yang mentioned that for Q3, East Asia really outperformed the others. We also did some adjustment in South Korea. After the adjustment, they improved significantly.

Speaker 1

For Japan right now, as you mentioned in your presentation, you also recorded some improvement. What was driving those improvement in Japan? Now, regarding your first question, which is the bonus level or dividend level for different stores manager. Obviously, this is confidential. We cannot give you too many details. But for A-level store, obviously, the ratio would be higher. So level A store is basically double the level of level C, and B is right in the middle. But unfortunately, we cannot disclose specific numbers. But when it comes to the operating margin in Southeast Asia and East Asia, now, we do not disclose the breakdown per Region. I can only say that it's between 10%-15%, which is reasonable. You also would like to understand the growth driver for our Japan stores.

Speaker 2

Now, when we examine our stores, we had 2 that encounter issues with their site selection. We did pause their operation, but there is opportunity for their resuming of business if the macro environment turn better. If opportunities arrive, we are open to the idea of reopening those stores. After the adjustment, we can now place more of our focus on, for example, maintaining our existing stores. Now, with our so-called three spreadsheets or three table, and also the four color-coding management method, we can now really improve the management efficiency and accuracy. So customer experience can be improved, product quality can be improved, and environment can be improved. Also, we changed the pricing level in Japan for a period of time as well.

Speaker 2

And we also lower the pricing for example, affordable products or some really popular products or items, so people can have a very first-hand experience of our sincerity of improving our service quality. And so that allow us to gradually bring up the performance in Japan. And on the one hand, not only did we improve the table turnover rate, on the other hand, we also improved the revenue. But the whole process started last year. It has been quite a long period of time. And we are very happy to see that the adjustment and the change in the management measure has paid off. Thank you. I would like to follow up with a question. After your series of measures or management adjustment, did you see operating margin or net profit margin to be improved in some mature regions such as Singapore?

Speaker 2

Now, specifically about Singapore, on the one hand, we did see improvement on the store level and also table turnover rate. We also saw improvement in Singapore as well, and also product structure and pricing. We did see improvement on both aspects to allow us to, for example, offset the inflation. And also we are able to fulfill the government requirements locally for the increase of minimum wage. Thank you. Just a reminder that if you have any questions, please press star 1 1. The next questions come from Wang Yijie with Haitong. Please go ahead. Hi, Ms. Yang. Ms. Chu. I have one question. My question is about our future growth and also opportunities as well. We can see that we maintain a very stable pace of store opening this year, and we saw also improvement of the performance as well.

Speaker 9

What do you think is the opportunity for future store expansion, and how are we going to penetrate more markets and countries? And also, when it comes to the penetration rate, what do you think the ceiling level is for each region? Especially when you are localizing your store across the world, what measures have been proven to be effective? Now, thank you for your question. Future store expansion, internally, we do not set specific targets for each region. For example, for our hotpot restaurants, based on our previous experience, we first of all will focus on improving the employees' performance and then increase the customer satisfaction rate by optimizing our, for example, product structure and pricing, et cetera.

Speaker 2

After we have done all those, typically we would see an uptake on the bottom line and also the overall revenue as well, and that actually allow us to have more opportunities for opening our branded stores in the region. So we actually do not set store opening targets for different regions beforehand, because we believe in our own efforts. Because we did see that happen before. Through our improvement of services and product quality, we actually create new opportunities for opening new stores. And on the other hand, as we mentioned, we had this Pomegranate initiative that are incubating different formats of restaurants, different brands. We also with the dual management policy, meaning that we are encouraging and empowering our store managers to not only run their original store, but also run a second store.

Speaker 2

May or may not be the same hotpot restaurant, then we can actually see that in the future, it's possible that surrounding every Haidilao hotpot store, we can see surrounding sister stores of a different format, different brands. Obviously, we still face a lot of challenges and headwinds. We still believe that there's great hopes for the future, and there's still a lot of white space to be filled. Definitely there is a blue ocean market out there, so we're not too concerned about store expansion opportunity. That's all. Thank you. Great. Another question is about your localization. Obviously, you've reached different regions. Could you also give us some review of the localization situation across the world? One of the metrics that we can see is the local clients penetration rate, right? Obviously, in Asia, we have a higher customer base that are from the local communities.

Speaker 2

For some stores, we can reach 80%-90% of local clients versus tourists. But in Europe and America, we actually see a higher percentage of tourists, like Chinese or Asian tourists coming to the store more than local customers. Again, it depends on the site selection. For some restaurants, for those restaurants that are in non-Chinese community neighborhood, we also hire local American managers. We saw room for improvement, and we also saw great opportunities there as well. So yes, overall, we did see that big divide between local customers and tourists, Asian and non-Asian, but there's a lot of growth opportunities out there, and we can improve that further. Thank you. All right. Due to the time constraint, we will end the earnings call here. Thank you so much. See you next time.

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