Same Store Sales Growth 6.9% -
SHENZHEN, China, May 18, 2010 /PRNewswire via COMTEX/ --China Nepstar Chain
Drugstore Ltd. (NYSE: NPD) ("Nepstar" or "the Company"), the largest drugstore
chain in China in terms of the number of directly operated stores, with 2,559
directly operated stores in operation as of March 31, 2010, today announced
its unaudited financial results for the first quarter ended March 31, 2010.
Financial Highlights
For the quarter ended March 31, 2010:
-- Revenue was RMB567 million (US$83 million), reflecting a 12.1% increase
compared to revenue of RMB506 million in the first quarter of 2009
-- Same store sales increased by 6.9%
-- Net income was RMB2.6 million (US$0.4 million)
-- Net cash flow from operations was RMB35 million (US$5 million)
Mr. Ian Wade, Chief Executive Officer of Nepstar, commented, "Despite the
unfavorable pressure brought by the various pricing ceiling policies on some
of our products, we continue to achieve solid same store sales growth as our
product mix offerings and promotion programs remain attractive to our
customers."
"After a difficult 2008, we decided to reward our employees through a one-
time bonus for their outstanding performance in 2009. We also provided an
overall salary increase to our employees at both store level and corporate
level to maintain our competitiveness in retaining our most critical asset --
our people. In the meantime, we have accelerated new store openings in Q4,
2009 and Q1, 2010, which has resulted in higher operating expenses. These
measures inevitably impacted the first quarter results but we believe we ought
to run the business with a longer term perspective."
First Quarter Results
Revenue for the quarter ended March 31, 2010 was RMB567 million (US$83
million), 12.1% higher than revenue for the first quarter of 2009 of RMB506
million.
First quarter revenue contribution from prescription drugs was 24.8%,
over-the-counter ("OTC") drugs was 36.7%, nutritional supplements was 17.9%,
traditional Chinese herbal products was 3.7% and other products was 16.9%.
Same store sales (for 2,217 stores opened before December 31, 2008) for the
first quarter of 2010 increased by 6.9% as compared to the same period in 2009.
The increase was mainly attributable to effective marketing campaigns,
optimization of product offerings, and the stronger economic environment in
China.
Nepstar's portfolio of private label products included 1,559 products as
of March 31, 2010. Sales of private label products represented approximately
26.6% of revenue and 39.8% of gross profit for the first quarter of 2010.
Gross profit was RMB272 million (US$40 million) for the first quarter of
2010, as compared to RMB244 million for the first quarter of 2009. Gross
margin for the first quarter of 2010 was 48.0%, as compared to 48.2% for the
same period in 2009. The decrease in gross margin was largely due to decrease
in the price of products included in the national and provincial medical
insurance catalogs or in the national essential drug list.
Sales, marketing and other operating expenses as a percentage of revenue
for the first quarter of 2010 increased to 42.9% compared to 41.0% for the
first quarter of 2009. The increase was primarily due to the one-time
corporate-wide bonus that was accounted for in the first quarter of 2010 and
general salary increase for store employees. The increase was also partially
attributable to the opening of 156 new stores in the fourth quarter of 2009
and 104 new stores in the first quarter of 2010 which increased operating
expenses. Increasing rental costs also contributed to the increase in sales,
marketing and other operating expenses. For stores opened before December 31,
2008 and still in operation, total rental costs increased by 4% in the first
quarter of 2010 as compared to the same period in 2009.
General and administrative expenses as a percentage of revenue for the
first quarter of 2010 was 5.8% compared to 4.6% for the first quarter of 2009.
The increase was primarily due to the one-time corporate-wide bonus accounted
for in the first quarter of 2010, share based compensation granted to
employees in the first quarter and general salary increase for corporate
administrative employees.
Total bonus accounted for in the first quarter of 2010 amounted to RMB6
million (US$0.9 million).
As a result, operating loss for the first quarter of 2010 was RMB4 million
(US$0.6 million) compared to operating income of RMB13 million for the first
quarter of 2009.
During the first quarter of 2010, net interest income (interest income net
of interest expense) was RMB7 million (US$1 million) and other investment
income was RMB5 million (US$0.7 million), compared to net interest income of
RMB24 million and other investment income of RMB5 million in 2009. The
decrease in net interest income was mainly due to (i) the maturity of all
held-to-maturity investment securities which had been earning higher interest
income (ii) a general decrease of interest rates for short-term bank deposits;
and (iii) lower cash balances as a result of the dividend payments in 2009.
Nepstar's effective tax rate was 66.8% for the first quarter of 2010,
compared to 26.5% for the same period in 2009. The increase in effective tax
rate was primarily due to the varying profitability among subsidiary companies
for the first quarter of 2010, an increase in the deferred tax asset valuation
allowance for tax loss carry forwards, the benefits of which the Company
currently does not expect to be realizable and the increase in transitional
tax rate from 20% in 2009 to 22% in 2010 for subsidiaries in Shenzhen.
Net income in the first quarter 2010 was RMB2.6 million (US$0.4 million),
or RMB0.02 basic earnings per American depositary share (the "ADS"), and
RMB0.02 diluted earnings per ADS. This compares to net income of RMB30 million,
or RMB0.30 basic and RMB0.28 diluted earnings per ADS, for the first quarter
of 2009. The total number of outstanding ordinary shares for the Company as of
March 31, 2010 was 211 million. The weighted average number of ADSs for the
first quarter of 2010 was 105 million. One ADS represents two ordinary shares.
As of March 31, 2010, the Company's total cash, cash equivalents and
current bank deposits were RMB1,142 million (US$167 million), long term bank
deposits were RMB200 million (US$29 million) and total shareholders' equity
was RMB1,588 million (US$233 million).
On March 3, 2010, the Company announced that the Board of Directors
declared a cash dividend of US$0.28 per ADS. The cash dividend was paid during
the first half of May 2010 to shareholders of record as of the close of
business on April 2, 2010.
First Quarter Operating Highlights
In the first quarter of 2010, Nepstar added 104 new stores and closed 24
stores. As of March 31, 2010, Nepstar had a total of 2,559 stores in
operation.
Nepstar has initiated strategic collaboration with certain world-leading
fast moving consumer goods companies to design and remodel a new type of
health and beauty concept store for the Company. Such concept stores will
allocate half of the display space of a Nepstar store to health and beauty
products while maintaining the core product offerings of a conventional
Nepstar store. Such concept stores will also have more modern interior decor
and is aimed to attract a broader base of customers.
In addition, since the fourth quarter of 2009, Nepstar has introduced
approximately 70 new Stock Keeping Units ("SKUs") of consumables and organic
food products as of March 31, 2010. These new products are now sold through
half of the Company's stores and contributed RMB7 million to the Company's
revenue in the first quarter of 2010.
Business Outlook
Mr. Wade commented, "We remain cautious about the pressure on our
operating expense for the remaining quarters of the year as various provincial
governments are issuing minimum wage policies, which are affecting our labor
costs. Also, we expect continued pressure as to store rental costs."
"Such cost pressure is calling for us to focus even more on the
productivity of the stores. We expect the gross margin to improve in the
second quarter as we continue optimizing our product offerings between
products that are subject to price ceiling and products that are not so as to
strike the proper balance between maintaining the breadth of our product
offerings and the overall gross margin. We are also expanding our product
offerings in health and beauty as well as organic food categories at a much
quicker pace to attract customers and to become less reliant on pharmaceutical
products. We continue to focus on growing same store sales along with
strengthening customer relationships."
"We remain hopeful that the recent pricing policy by the Chinese
government will shake out a number of small competitors who have already been
suffering loss in the past few quarters."
Conference Call Information
The Company will host a conference call, to be simultaneously Web cast, on
Tuesday, May 18, 2010 at 8:00 a.m. Eastern Daylight Time / 8:00 p.m. Beijing
Time. Interested parties may participate in the conference call by dialing
+1-877-407-8033 (North America) or +1-201-689- 8033 (International)
approximately five to ten minutes before the call start time. A live Web
cast of the conference call will be available on the Nepstar Web site at
http://www.nepstar.cn .
A replay of the call will be available starting on May 18, 2010, at 11:00
a.m. Eastern Daylight Time or 11:00 p.m. Beijing Time through May 28, 2010 at
11:59 p.m. Eastern Daylight Time or May 29, 2010 at 11:59 a.m. Beijing Time.
An archived Web cast of the conference call will be available on the Nepstar
Web site at http://www.nepstar.cn . Interested parties may access the replay
by dialing +1-877-660-6853 (North America) or + 1-201-612-7415 (International)
and entering account number 286 and conference ID number 349559.
About China Nepstar Chain Drugstore Ltd.
China Nepstar Chain Drugstore Ltd. (NYSE: NPD) is China's largest retail
drugstore chain based on the number of directly operated stores. As of March
31, 2010, the Company had 2,559 stores across 74 cities, one headquarter
distribution center and 13 regional distribution centers in China. Nepstar
uses directly operated stores, centralized procurement and a network of
distribution centers to provide its customers with high-quality, professional
and convenient pharmacy services and a wide variety of other merchandise,
including OTC drugs, nutritional supplements, herbal products, personal care
products, family care products, and convenience products including consumables.
Nepstar's strategy of centralized procurement, competitive pricing, customer
loyalty programs and private label offerings has enabled it to capitalize on
the robust economic growth in China and to take advantage of the demographic
trend in China to achieve a strong brand and leading market position. For
further information, please go to http://www.nepstar.cn .
Safe Harbor Statement
This press release contains forward-looking statements. These statements
constitute "forward-looking" statements within the meaning of Section 21E of
the Securities Exchange Act of 1934, as amended, and as defined in the U.S.
Private Securities Litigation Reform Act of 1995. These forward-looking
statements can be identified by terminology such as "will," "expects,"
"anticipates," "future," "intends," "plans," "believes," "estimates" and
similar statements. Among other things, the quotations from management in this
press release and the Company's strategic operational plans and business
outlook, contain forward-looking statements. Such statements involve certain
risks and uncertainties that could cause actual results to differ materially
from those in the forward-looking statements. Further information regarding
these and other risks is included in the Company's filings with the U.S.
Securities and Exchange Commission, including its annual report on Form 20-F.
The Company does not undertake any obligation to update any forward-looking
statement as a result of new information, future events or otherwise, except
as required under applicable law.
Exchange Rate Information
The United States dollar (US$) amounts disclosed in this press release are
presented solely for the convenience of the reader. Translations of amounts
from RMB into United States dollars for the convenience of the reader were
calculated at the certified exchange rate of US$1.00 = RMB6.8258 on March 31,
2010 as set forth in the H.10 weekly statistical release of the Federal
Reserve Board. No representation is made that the RMB amounts could have been,
or could be, converted into US$ at that rate on March 31, 2010, or at any
other date. The percentages stated are calculated based on RMB amounts.
For more information, please contact:
In China:
Lucia Qian
China Nepstar Chain Drugstore Ltd.
Vice President, IR
Phone: +86-755-2641-4065
Email: qianrt@nepstar.cn
In the United States:
Dixon Chen
Grayling
Investor Relations
Phone: +1-646-284-9403
Email: dixon.chen@grayling.com
Ivette Almeida
Grayling
Media Relations
Phone: +1-646-284-9455
Email: ivette.almeida@grayling.com
Tables Follow
China Nepstar Chain Drugstore Ltd.
Unaudited Condensed Consolidated Statements of Operations
(amounts in thousands - except per-share data)
Three-month period ended
March 31
2009 2010 2010
RMB RMB USD
Revenue 505,960 567,217 83,099
Cost of goods sold (261,970) (295,049) (43,226)
Gross profit 243,990 272,168 39,873
Sales, marketing and other operating
expenses (207,622) (243,378) (35,655)
General and administrative expenses (23,295) (32,948) (4,827)
Income/ (losses) from operations 13,073 (4,158) (609)
Interest income 23,518 8,226 1,205
Interest expenses -- (1,200) (176)
Dividend income from cost method
investments 3,776 2,997 439
Equity in income of an equity method
investee 1,007 1,846 271
Income before income tax expense 41,374 7,711 1,130
Income tax expense (10,944) (5,153) (755)
Net income attributable to China
Nepstar
Chain Drugstore Ltd. ordinary
shareholders 30,430 2,558 375
Basic earnings per ordinary share 0.15 0.01 --
Basic earnings per ADS 0.30 0.02 --
Diluted earnings per ordinary share 0.14 0.01 --
Diluted earnings per ADS 0.28 0.02 --
China Nepstar Chain Drugstore Ltd.
Unaudited Condensed Consolidated Balance Sheets
(amounts in thousands)
As of As of
December 31, March 31,
2009 2010
RMB RMB USD
ASSETS
Current assets
Cash, cash equivalents and other
bank deposits 666,012 1,141,533 167,238
Restricted Cash 765,000 -- --
Held-to-maturity investment
securities 400,000 -- --
Accounts receivable, net of
allowance for doubtful
accounts 72,561 65,770 9,636
Prepayments for purchase of
merchandise paid to related
parties 38,102 31,657 4,638
Amounts due from related parties 7,306 9,627 1,410
Prepaid expenses, deposits and
other current assets 144,154 130,449 19,111
Inventories 369,775 339,567 49,748
Deferred tax assets 6,907 4,219 618
Total current assets 2,469,817 1,722,822 252,399
Non-current assets
Long-term bank deposits -- 200,000 29,301
Property and equipment, net 204,710 208,169 30,497
Rental deposits 38,557 40,142 5,881
Cost method investments 12,638 12,638 1,852
Equity method investment 29,343 31,189 4,569
Land use right 8,622 8,579 1,257
Intangible assets, net 725 463 68
Goodwill 40,462 51,971 7,614
Deferred tax assets 2,914 3,469 508
Deposits for acquisitions 12,788 3,000 439
Total non-current asset 350,759 559,620 81,986
Total Assets 2,820,576 2,282,442 334,385
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities
Short-term bank loans 470,000 -- --
Accounts payable 313,794 279,344 40,925
Amounts due to related parties 12,533 15,521 2,274
Accrued expenses and other payables 121,645 114,137 16,721
Income tax payable 38,599 40,383 5,916
Dividend payable 38,631 201,301 29,491
Total current liabilities 995,202 650,686 95,327
Non-current liabilities
Deferred income 27,002 28,938 4,240
Deferred tax liabilities 20,640 14,394 2,109
Total non-current liabilities 47,642 43,332 6,349
Total liabilities
1,042,844 694, 018 101,676
Shareholders' equity
Share capital 166 166 24
Additional paid-in capital 1,605,762 1,531,849 224,420
Accumulated other comprehensive loss (38,485) (38,438) (5,631)
Retained earnings 210,289 94,847 13,896
Total China Nepstar Chain Drugstore
Ltd. shareholders' equity 1,777,732 1,588,424 232,709
Total liabilities and shareholders'
equity 2,820,576 2,282,442 334,385
SOURCE China Nepstar Chain Drugstore Ltd.