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  "docSlug": "0900eea60013",
  "documentTitle": "New Oriental Education & Technology Group (EDU)",
  "authorId": "51_Muddy_Waters",
  "authorName": "Carson Block",
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  "sourceTypeSlug": "short_seller",
  "sourceTypeLabel": "Short seller",
  "presentationDate": "2012-07-18 00:00:00",
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  "notes": "The slide uses direct quotes from Louis Hsieh to challenge the company's narrative regarding store growth and franchising.",
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      "text": "Store base growth has always been the lynchpin of the EDU myth.",
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      "text": "Franchisees must open an initial store with a minimum size of 1,000 m2 (11,000 ft2). Each additional store must be a minimum size of 500 m2 (5,500 ft2). In June 2012, Hsieh has said the following to an investor regarding EDU's expansion strategy...",
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      "text": "The agreement penalizes franchisees RMB 100,000 if they do not open one new store per year. As previously mentioned, the trademark license fee is per city, not per store. Therefore, the additional fees franchisees must pay to EDU for new stores are de minimis.",
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      "text": "Store base growth has always been the lynchpin of the EDU myth. The following quotes illustrate its importance – and thus why EDU engaged in the risky behavior of seeking franchisees while concealing this side of its business from investors.",
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      "text": "We have evidence that EDU's franchising goes back to before its IPO, is prevalent in Tier 1 cities, and includes numerous traditional (i.e., non-POP Kids) and POP Kids stores. We are allowing EDU the opportunity to come clean on its franchising in response to our report. Should we find that management is still not being truthful, we reserve the right to further discredit them.",
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      "text": "What typically happens, the pattern is, we go into a city, we'll open up large learning centers first, fifteen hundred square meter ones. Then we'll open up five hundred to one thousand square meter ones in the, in the second sort of ring...",
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      "text": "What [opening 81 learning centers in Q3 2012] should tell you guys is that our business is so strong in one-on-one and kids that we're opening up a lot more centers than we normally would. – Louis Hsieh to an investor in June 2012.",
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      "text": "\"What typically happens, the pattern is, we go into a city, we’ll open up large learning centers first, fifteen hundred square meter ones. Then we’ll open up five hundred to one thousand square meter ones in the, in the second sort of ring, you know second set of large schools.\" — Louis Hsieh. \"What [opening 81 learning centers in Q3 2012] should tell you guys is that our business is so strong in one-on-one and kids that we’re opening up a lot more centers than we normally would.\" — Louis Hsieh to an investor in June 2012.",
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      "text": "10 Section 3.2.3. 11 id.",
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      "text": "How Extensive is EDU's Franchising?",
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