SHENZHEN, China, Aug. 23, 2012 /PRNewswire-Asia-FirstCall/ -- China Nepstar Chain Drugstore Ltd. (NYSE: NPD) ("Nepstar" or the "Company"), the largest retail drugstore chain in China based on the number of directly operated stores, today announced its unaudited financial results for the second quarter ended June 30, 2012.
Mr. Fuxiang Zhang, Chief Executive Officer, commented, "We are pleased to maintain same store sales growth of 7.8% in such a challenging quarter. In the second quarter, the industry experienced an unexpected loss of consumer confidence in pharmaceuticals and nutritional supplements in capsule forms caused by the nation wide publicity of chromium contamination scandal. In addition, in certain key cities like Dalian, local governments started to impose more severe restrictions on the carrying and selling of non-pharmaceutical products by designated insurance reimbursement stores. Meanwhile we closed 97 underperforming stores in the second quarter. Nevertheless, as a result of our ongoing optimization to the existing product portfolio, we are optimistic about our continued revenue growth. Our pharmaceutical categories, both prescription and over-the-counter ("OTC") drugs, grew over 10% during the quarter on the same store basis, year over year."
Second Quarter ResultsDuring the second quarter of 2012, the Company opened 14 new stores and closed 97 underperforming stores that show no signs of turning around. As of June 30, 2012, Nepstar had a total of 2,257 stores in operation.
Revenue increased 1.8% from RMB606.6 million in the second quarter of 2011 to RMB617.6 million (US$97.2 million) in the same period of 2012.
Same store sales (for 2,164 stores opened before December 31, 2010) for the second quarter of 2012 increased by 7.8% compared to the same period in 2011. The increase in same store sales was caused by a more than 10% increase in sales of pharmaceutical products on the same store basis year over year and closure of underperforming stores.
The breakdown of the second quarter revenue is as follows: prescription drugs was 20.3%, OTC drugs was 37.2%, nutritional supplements was 16.7%, traditional Chinese herbal products was 3.9% and convenience and other products was 21.9%. As a result of the chromium contamination scandal, the revenue contribution of nutritional supplements declined from 19.1% in the same quarter last year to 16.7% this quarter.
As of June 30, 2012, Nepstar's portfolio of private label products consisted of 1,935 products. Sales of private label products represented approximately 28% of revenue and 39.8% of gross profit for the second quarter of 2012, as compared to approximately 31.3% of revenue and 42.3% of gross profit during the same period of 2011. The decline in sales and gross profit of private label products was caused by the introduction of more locally procured pharmaceutical products and the loss of sales from capsule form nutritional supplements.
Gross profit declined from RMB 289.9 million in the second quarter of 2011 to RMB287.5 million (US$45.2 million) in the same period of 2012. Gross profit margin declined from 47.8% in the second quarter of 2011 to 46.5% in the same period of 2012. The decline in sales of capsule form nutritional supplements, a category with higher profit margin, and the increase in sales of locally procured pharmaceutical products, a category with lower profit margin, caused the decline in gross profit margin.
Sales, marketing and other operating expenses as a percentage of revenue decreased from 41.8% in the second quarter of 2011 to 40.8% in 2012. Same store sales growth and closure of underperforming stores led to the decrease of the percentage of sales, marketing and other operating expenses over revenue. We recognized approximately RMB0.7 million (US$0.1 million) as cost associated to store closures in the second quarter.
General and administrative expenses as a percentage of revenue increased from 4.6% in the second quarter of 2011 to 5.1% in the same period of 2012. An increase in labor costs of approximately RMB0.7 million (US$0.1 million) contributed partially to the increase in general and administrative expenses.
As a result of the factors discussed above, income from operations in the second quarter of 2012 was RMB3.9 million (US$0.6 million), compared to RMB8.2 million in the same period of 2011.
Interest income for the second quarter of 2012 was RMB3.9 million (US$0.6 million), compared to RMB5.6 million in the same period of 2011. Interest income decreased as a result of the maturity of certain time deposits in April and reduced cash balance after dividend distribution. During the second quarter, Nepstar declared and distributed a special cash dividend of US$0.60 per American Depositary Share (ADS), which represents total distribution to shareholders of approximately US$60.2 million.
Dividend income from cost method investments was RMB3.1 million (US$0.5 million) in the second quarter of 2012, compared to RMB0.9 million in the same period of 2011. Equity in income of an equity method investee presents a loss of RMB1.0 million (US$0.2 million) in the second quarter of 2012, compared to a loss of RMB0.4 million in the same period of 2011.
Nepstar's effective tax rate was 74.9% for the second quarter of 2012, compared to 55.1% for the same period in 2011. The high effective tax rate for the quarter compared to the previous year's period resulted from increased non-deductible expenses and the relatively high proportion of operating losses from loss-making subsidiaries, for which full valuation allowances were made on their deferred tax assets, as compared to the net operating results of the Company.
Net income in the second quarter of 2012 was RMB2.5 million (US$0.4 million), which represented RMB0.02 (US$0.004) basic and diluted earnings per ADS. In comparison, the net income in the same period of 2011 was RMB6.5 million, which represented RMB0.06 basic and diluted earnings per ADS.
The total number of outstanding ordinary shares of the Company as of June 30, 2012 was 198.1 million. The weighted average number of ordinary shares in the second quarter of 2012 was 199.5 million. Each ADS represents two ordinary shares of the Company.
As of June 30, 2012, Nepstar's total cash, cash equivalents, restricted cash and short-term and long-term bank deposits were RMB586.2 million (US$92.3 million) and its shareholders' equity was RMB950.4 million (US$149.6 million). The RMB6.0 million (US$0.9 million) restricted cash was related to business license registration of a new subsidiary company in Hubei province.
In the second quarter of 2012, net cash flow from operations was RMB30.2 million (US$4.8 million) as compared to RMB42.6 million in the same period of 2011.
Business Outlook"Looking to the second half of the year, we expect same store sales growth to continue. We also expect less underperforming store reorganization being necessary compared to the first half of the year. Our goal remains to enhance our product offerings and services to our customers. While we continue to build our portfolio of pharmaceuticals and nutritional products, we are actively optimizing our convenience and other product portfolio to increase store traffic. We plan to drive sales of non-pharmaceutical categories through more proactive marketing campaigns and therefore we expect more contribution from the convenience and other products in the second half of the year. We are focused on improving our bottom-line and maintaining strong operating cash flow," stated Mr. Zhang.
Conference Call InformationThe Company will host a conference call, to be simultaneously Web cast, on Thursday, August 23, 2012 at 8:00 a.m. Eastern Time / 8:00 p.m. Beijing Time. Interested parties may participate in the conference call by dialing +1-877-407-9210 (North America) or +1-201-689-8049 (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 shortly after the conclusion of the conference call through August 30, 2012 at 11:59 p.m. Eastern Time or August 31, 2012 at 11:59 a.m. Beijing Time. An archived Web cast of the conference call will be available on the Nepstar website 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 398508.
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 June 30, 2012, the Company had 2,257 stores across 76 cities, one headquarter distribution center and 16 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 StatementThis 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 InformationThe 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$1.00 = RMB6.3530 on June 30, 2012 as set forth in the H.10 weekly statistical release of the Federal Reserve Board. No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate on June 30, 2012, or at any other date. The percentages stated are calculated based on RMB amounts.
China Nepstar Chain Drugstore Ltd.
Vice President, IR
Tables follow China Nepstar Chain Drugstore Ltd. Unaudited Condensed Consolidated Statements of Comprehensive Income(amounts in thousands – except per-share and per-ADS data)Three-month period endedJune 30,201120122012RMBRMBUSDRevenue
97,215Cost of goods sold
45,248Sales, marketing and other operating expenses
(39,712)General and administrative expenses
(4,922)Income from operations
617Dividend income from cost method investments
492Equity in income of an equity method investee
(157)Income before income tax expense
1,566Income tax expense
394Basic earnings per ordinary share
0.002Basic earnings per ADS
0.004Diluted earnings per ordinary share
0.002Diluted earnings per ADS
394Other comprehensive income, net of tax:Foreign currency translation adjustments
316 China Nepstar Chain Drugstore Ltd.Unaudited Condensed Consolidated Balance Sheets(amounts in thousands)As ofAs ofAs ofDecember 31,June 30,June 30,201120122012RMBRMBUSDASSETSCurrent assetsCash and cash equivalents
944Short-term bank time deposits
16,386Accounts receivable, net of allowance for doubtful accounts
15,005Amounts due from related parties
964Prepaid expenses, deposits and other current assets
64,765Deferred tax assets
485Total current assets
164,984Non-current assetsLong-term bank time deposits
29,750Property and equipment, net
6,113Cost method investments
1,989Equity method investment
5,737Intangible assets, net
8,157Deferred tax assets
381Deposits for acquisition
-Accrued interest income
1,087Total non-current asset
239,176LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilitiesAccounts payable
485Amounts due to related parties
2,994Accrued expenses and other payables
16,068Income tax payable
2,209Total current liabilities
79,576Non-current liabilitiesDeferred income
2,825Deferred tax liabilities
1,962Other non-current liabilities
5,217Total non-current liabilities
10,004Total liabilities587,943569,09989,580Shareholders' equityShare capital
(89)Additional paid-in capital
131,935Accumulated other comprehensive loss
24,274Total shareholders' equity
149,596Total liabilities and shareholders' equity1,942,1971,519,482239,176
|SOURCE China Nepstar Chain Drugstore Ltd.|
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