China Nepstar Chain Drugstore Reports Second Quarter 2012 Financial Results - Same Store Sales Increased by 7.8% -

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.

Financial Highlights

  • Revenue increased by 1.8% to RMB617.6 million (US$97.2 million), compared to RMB606.6 million in second quarter 2011
  • Same store sales increased by 7.8% over the same period of 2011
  • Income from operations was RMB3.9 million (US$0.6 million), compared to RMB8.2 million in second quarter 2011
  • Net income was RMB2.5 million (US$0.4 million), compared to RMB6.5 million in second quarter 2011
  • Cash flow from operations was RMB30.2 million (US$4.8 million), compared to RMB42.6 million in second quarter 2011

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 Results

During 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 Information

The 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 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$1.00 = RMB6.3530 on June 30, 2012 as set forth in the H.10 weekly statistical release of the Federal Reserve Board.  No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate on June 30, 2012, or at any other date. The percentages stated are calculated based on RMB amounts.

Contacts

Lucia Qian
China Nepstar Chain Drugstore Ltd.
Vice President, IR
Phone: +86-755-2641-4065
Email: qianrt@nepstar.cn

Dixon Chen
Grayling
Investor Relations
Tel: +1-646-284-9403
Email: dixon.chen@grayling.com

Ivette Almeida
Grayling
Media Relations
Tel: +1-646-284-9455
Email: ivette.almeida@grayling.com

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 ended

June 30,


2011

2012

2012


RMB

RMB

USD





Revenue

606,580

617,606

97,215

Cost of goods sold

(316,663)

(330,148)

(51,967)

Gross profit

289,917

287,458

45,248

Sales, marketing and other operating expenses

(253,567)

(252,289)

(39,712)

General and administrative expenses

(28,115)

(31,272)

(4,922)

Income from operations

8,235

3,897

614

Interest income

5,621

3,917

617

Dividend income from cost method investments

934

3,124

492

Equity in income of an equity method investee

(391)

(995)

(157)

Income before income tax expense

14,399

9,943

1,566

Income tax expense

(7,940)

(7,445)

(1,172)

Net income

6,459

2,498

394





Basic earnings per ordinary share

0.03

0.01

0.002

Basic earnings per ADS

0.06

0.02

0.004

Diluted earnings per ordinary share

0.03

0.01

0.002

Diluted earnings per ADS

0.06

0.02

0.004





Net income

6,459

2,498

394





Other comprehensive income, net of tax:




Foreign currency translation adjustments

475

(496)

(78)

Comprehensive income

6,934

2,002

316

 

China Nepstar Chain Drugstore Ltd.

Unaudited Condensed Consolidated Balance Sheets

(amounts in thousands)






As of

As of

As of

December 31,

June 30,

June 30,


2011

2012

2012


RMB

RMB

USD

ASSETS




Current assets




Cash and cash equivalents

767,885

287,058

45,185

Restricted cash

-

6,000

944

Short-term bank time deposits

43,000

104,100

16,386

Accounts receivable, net of allowance for doubtful accounts

102,937

95,324

15,005

Amounts due from related parties

4,649

6,127

964

Prepaid expenses, deposits and other current assets

122,831

135,004

21,250

Inventories

437,058

411,444

64,765

Deferred tax assets

2,009

3,081

485

Total current assets

1,480,369

1,048,138

164,984





Non-current assets




Long-term bank time deposits

169,000

189,000

29,750

Property and equipment, net

141,817

130,404

20,526

Rental deposits

39,559

38,837

6,113

Cost method investments

12,638

12,638

1,989

Equity method investment

36,703

36,450

5,737

Intangible assets, net

3,087

2,869

452

Goodwill

51,819

51,819

8,157

Deferred tax assets

3,151

2,421

381

Deposits for acquisition

1,000

-

-

Accrued interest income

3,054

6,906

1,087

Total non-current asset

461,828

471,344

74,192

Total Assets

1,942,197

1,519,482

239,176





LIABILITIES AND SHAREHOLDERS' EQUITY




Current liabilities




Accounts payable

352,386

346,447

54,533

Bills payable

-

3,081

485

Amounts due to related parties

18,169

19,023

2,994

Accrued expenses and other payables

118,121

102,079

16,068

Income tax payable

28,480

20,882

3,287

Deferred Income

10,662

14,032

2,209

Total current liabilities

527,818

505,544

79,576





Non-current liabilities




Deferred income

17,078

17,945

2,825

Deferred tax liabilities

12,032

12,463

1,962

Other non-current liabilities

31,015

33,147

5,217

Total non-current liabilities

60,125

63,555

10,004





Total liabilities

587,943

569,099

89,580





Shareholders' equity




Share capital

161

158

25

Treasury stock

(1,736)

(568)

(89)

Additional paid-in capital

1,252,232

838,182

131,935

Accumulated other comprehensive loss

(41,133)

(41,603)

(6,549)

Retained earnings

144,730

154,214

24,274

Total shareholders' equity

1,354,254

950,383

149,596

Total liabilities and shareholders' equity

1,942,197

1,519,482

239,176

 

SOURCE China Nepstar Chain Drugstore Ltd.



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