CHONGQING, China, Aug. 16, 2011 /PRNewswire-Asia/ -- Country Style Cooking Restaurant Chain Co., Ltd (NYSE: CCSC) ("Country Style Cooking" or the "Company"), a fast-growing quick service restaurant chain in China, today announced unaudited financial results for the second quarter of 2011.
Second Quarter 2011 Financial Highlights
- Revenues in the second quarter of 2011 were RMB234.3 million ($36.3 million), an increase of 39.4% from RMB168.0 million in the same quarter of 2010.
- Comparable restaurant sales increased by 6.3% from the same quarter of 2010. There were 88 restaurants in the comparison.
- Restaurant level operating margin was 15.6%, a decrease of 170 basis points from a year ago.
- Net Loss for the quarter was RMB14.5 million ($2.2 million), compared to Net Income of RMB12.5 million in the same quarter of 2010. The change from net income in the corresponding period in the prior year to net loss in the current period was primarily due to a one-time tax levy of RMB17.8 million. Non-GAAP adjusted net income, which excludes the one-time tax levy of RMB 17.8 million and share-based compensation expenses of RMB4.3 million, was RMB7.6 million ($1.2 million), decreased from RMB13.5 million in the same quarter of 2010.
- Diluted loss per American depositary share ("ADS") were RMB0.56 ($0.09). Non-GAAP adjusted diluted earnings per ADS, which excludes the one-time tax levy and share-based compensation expenses, was RMB0.29 ($0.04). Each ADS represents four ordinary shares of the Company.
Ms. Hong Li, chairman and chief executive officer of Country Style Cooking, commented, "We are pleased to be maintaining top-line growth for the second quarter 2011 and achieve increased same store sales growth from the previous quarter during this traditionally slow season. During the second quarter, our operating expenses increased as we sped up expansion and added a net of 19 new restaurants in Chongqing, Chengdu and Xi'an. Based on the success of executing our expansion plan during the first half of 2011, we are slightly raising the target range for new restaurant openings for the full year 2011 from between 65 and 75 openings to between 70 and 80."
Ms. Hong Li continued, "In response to rising inflation, we embarked on a multi-tier pricing strategy toward the end of the second quarter, whereby we have increased average menu prices by between five to ten percent in approximately two-thirds of our restaurants."
Mr. Roy Rong, chief financial officer of Country Style Cooking, added, "Our net income came in negative for the second quarter, mainly due to the one-time tax levy that we explained in detail in our June 20, 2011 press release. Our operating income was affected by the large number of new restaurants that we opened recently. However, we believe that our growth strategy, which has sacrificed some short-term profitability, is the right strategy for the Company in the long run."
Second Quarter 2011 Financial Performance
Revenues in the second quarter 2011 increased 39.4% to RMB234.3 million ($36.3 million) from RMB168.0 million in the same period 2010. The revenue growth was driven mainly by an increase in the number of restaurants and corresponding growth in restaurant sales. During the quarter, the Company opened a net of 19 new restaurants, bringing the total restaurant count to 159 as of June 30, 2011, compared to the total restaurant count of 101 as of June 30, 2010.
Costs of food and paper increased 37.6% to RMB109.2 million ($16.9 million) in the second quarter of 2011 from RMB79.4 million in the same quarter of 2010, primarily as a result of restaurant expansion and increased food costs. As a percentage of revenues, cost of food and paper decreased to 46.6% in the second quarter of 2011 from 47.2% in the same quarter of 2010.
Restaurant wages and related expenses increased 48.5% to RMB40.2 million ($6.2 million) in the second quarter of 2011 from RMB27.1 million in the same quarter of 2010, mainly due to increased headcount and wage levels. As a percentage of revenues, restaurant wages and related expenses were 17.2% in the second quarter of 2011, compared to 16.1% in the same period in 2010.
Restaurant rent expenses increased 50.0% to RMB22.5 million ($3.5 million) in the second quarter of 2011 from RMB15.0 million in the same quarter of 2010. As with other expense categories, this primarily arose from expansion of our restaurant network. As a percentage of revenues, restaurant rental expenses increased to 9.6% in the second quarter of 2011 from 8.9% in the second quarter of 2010.
Restaurant utility expenses increased 41.9% to RMB14.8 million ($2.3 million) in the second quarter of 2011 from RMB10.4 million in the same quarter of 2010, mainly due to the increase in the number of restaurants. As a percentage of revenues, restaurant utility expenses increased slightly to 6.3% in the second quarter of 2011 from 6.2% in the second quarter of 2010.
Other restaurant operating expenses increased 55.6% to RMB11.1 million ($1.7 million) in the second quarter of 2011 from RMB7.1 million in the same quarter of 2010. As a percentage of revenues, other restaurant operating expenses increased to 4.7% in the second quarter of 2011 from 4.2% in the second quarter of 2010.
Restaurant-level operating margin was 15.6% in the quarter, a decrease of 170 basis points over the prior year period. The decrease was primarily driven by increased restaurant labor costs and rent expenses, and partially offset by leverage from food and paper cost.
Selling, general and administrative (SG&A) expenses increased 105.7% to RMB15.7 million ($2.4 million) in the second quarter of 2011, compared to RMB7.6 million in the same period of 2010, reflecting an increase in non-cash share-based compensation expenses, professional fees and administrative staff costs. Share-based compensation expenses included in SG&A amounted to RMB3.6 million ($0.6 million) in the second quarter of 2011, compared to RMB0.7 million in the second quarter of 2010. As a percentage of revenues, SG&A expenses increased to 6.7% in the second quarter 2011 from 4.5% in the same quarter of 2010.
Depreciation expense for the second quarter 2011 amounted to RMB8.7 million ($1.3 million), representing an increase of 80.6% as compared to RMB4.8 million in the same quarter of 2010, primarily because of the increase in total fixed assets as a result of restaurant network expansion. As a percentage of revenues, depreciation expense increased to 3.7% in the second quarter of 2011 from 2.9% in the same quarter of 2010.
Pre-opening expenses were RMB3.2 million ($0.5 million) in the second quarter of 2011. The pre-opening expenses in second quarter of 2010 were separated from other restaurant operating expenses for comparison purposes.
Impairment charges were RMB3.8 million ($0.6 million) in the second quarter of 2011, representing charges related to IT software used in our restaurant network and asset impairment charges in two underperforming restaurants.
Income from operations for the second quarter 2011 decreased 66.9% to RMB5.1 million ($0.8 million) from RMB15.5 million in the same period in 2010.
Operating margin in the second quarter of 2011 was 2.2%, compared to 9.2% in the same quarter of 2010.
Income tax expenses in the second quarter of 2011 amounted to RMB21.9 million ($3.4 million) primarily due to the one-time tax levy related to the withdrawal of previously granted preferential tax treatment.
Net loss was RMB14.5 million ($2.2 million), compared to Net Income of RMB12.5 million in the second quarter of 2010. Non-GAAP adjusted net income, which excludes the one-time tax levy and share-based compensation expenses, decreased to RMB7.6 million ($1.2 million) in the second quarter of 2011 from RMB13.5 million in the prior year's second quarter.
Diluted net loss per ADS was RMB0.56 ($0.09) in the second quarter of 2011, compared to diluted net income per ADS of RMB0.60 in the second quarter of 2010. Non-GAAP adjusted diluted net income per ADS, which excludes the one-time tax expense and share-based compensation expenses, decreased to RMB0.29 ($0.04) in the second quarter of 2011 from RMB0.67 in the second quarter of 2010. The Company had approximately 25.9 million weighted average diluted ADSs outstanding during the quarter ended June 30, 2011.
As of June 30, 2011, the Company had cash and cash equivalents of RMB495.2 million ($76.6 million), compared to RMB612.6 million as of December 31, 2010. As of June 30, 2011, the Company also had short-term investment of RMB101.3 million ($15.7 million), of which RMB100 million ($15.5 million) was an investment product purchased from Hua Xia Bank, a bank headquartered in Beijing, China.
Net cash provided by operating activities was RMB47.2 million ($7.3 million) in the six months ended June 30, 2011, up 13.1% from RMB41.7 million in the six months ended June 30, 2010.
For full year 2011, the Company now expects 70 – 80 new restaurant openings, up from 65 - 75.
For the third quarter of 2011, the Company currently estimates that its revenue will be between RMB281 million (US$43.5 million) and RMB291 million (US$45.0 million), representing a year-over-year growth of between approximately 34.3% and 39.1%.
The following definitions apply to these terms are used throughout this release:
Comparable restaurants are defined as restaurants that were open throughout the periods under comparison. A restaurant is included in the comparison once it has been in operation for 12 full months before the start of the quarter.
Restaurant level operating margin represents total revenue less restaurant operating costs (including food and paper, restaurant wages and related expenses, restaurant rent expense, restaurant utilities expense and other restaurant operating expenses), expressed as a percent of total revenues.
This announcement contains translations of certain Renminbi amounts into US dollars at specified rates solely for the convenience of readers. Unless otherwise noted, all translations from Renminbi to US dollars were made at the noon buying rate of RMB6.4635 to USD1.00 on June 30, 2011 in the City of New York for cable transfers in Renminbi per U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York.
The Company will host a conference call at 8:30 pm, Eastern Standard Time on August 16, 2011, which is 8:30 am, Beijing Time on August 17, 2011, to discuss second quarter results and answer questions from investors. Listeners may access the call by dialing:
A live and archived webcast of the conference call will be available at http://ir.csc100.com
About Country Style Cooking Restaurant Chain Co., Ltd.
Country Style Cooking Restaurant Chain Co., Ltd (NYSE: CCSC) ("Country Style Cooking") is a fast-growing quick service restaurant chain in China, offering delicious, everyday Chinese food to customers who desire fast and affordable quality meals. Country Style Cooking directly operates all of its restaurants and is the largest quick service restaurant chain in Chongqing municipality, home to Sichuan cuisine, one of the best-known Chinese regional cuisines. Additional information about Country Style Cooking can be found at http://ir.csc100.com.
To supplement the unaudited consolidated financial statements presented in accordance with United States Generally Accepted Accounting Principles ("GAAP"), the Company uses the following measures defined as non-GAAP measures by the SEC: Non-GAAP adjusted net income and Non-GAAP adjusted diluted earnings per ADS, each of which is adjusted from results based on GAAP to exclude share-based compensation expenses and one-time tax levy. The presentation of these non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. For more information on these non-GAAP financial measures, please see the tables captioned "Supplementary Metrics—Reconciliations of GAAP to Non-GAAP Financial Measures" set forth at the end of this release.
The Company believes that these non-GAAP financial measures provide meaningful supplemental information regarding its operating performance by excluding (a) share-based compensation expenses, which may not be indicative of its operating performance from a cash perspective, and (b) the one-time tax levy, which may not be indicative of its operating performance on an on-going basis. The Company believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing its performance and when planning and forecasting future periods. These non-GAAP financial measures also facilitate management's internal comparisons to the Company's historical performance and liquidity. Management uses both GAAP and non-GAAP information in evaluating and operating the business internally and therefore deems it important to provide all of this information to investors. Management also believes that these non-GAAP financial measures facilitate comparisons to the Company's historical performance. A limitation of using these non-GAAP measures is that they exclude share-based compensation charge that has been and will continue to be for the foreseeable future a significant recurring expense in our business. It also excludes the one-time tax levy that has a direct cash-flow impact on our business. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from each non-GAAP measure. The accompanying tables have more details on the reconciliations between GAAP financial measures that are most directly comparable to non-GAAP financial measures.
Safe Harbor Statement
This announcement contains forward-looking statements. These statements are made under the "safe harbor" provisions of 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 outlook for the third quarter 2011, the new restaurant opening plan for full year 2011 and quotations from management in this announcement, as well as Country Style Cooking's strategic and operational plans, contain forward-looking statements. The Company may also make written or oral forward-looking statements in its reports filed with, or furnished to, the U.S. Securities and Exchange Commission, in its annual reports to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including statements about the Company's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: uncertainties regarding our ability to open and profitably operate new restaurants and manage our growth effectively and efficiently; risks associated with changing consumer taste and discretionary spending; uncertainties regarding our ability to maintain and enhance the attractiveness of our restaurants and our brand and image; risks related to instances of food-borne illnesses, health epidemics and other outbreaks; uncertainties regarding our ability to respond to competitive pressures; and uncertainties associated with factors typically affecting the consumer food services industry in general. Further information regarding these and other risks is included in the Company's reports filed with, or furnished to the Securities and Exchange Commission. Country Style Cooking does not undertake any obligation to update any forward-looking statement, except as required under applicable law. All information provided in this press release and in the attachments is as of the date of this press release, and Country Style Cooking undertakes no duty to update such information, except as required under applicable law.
Condensed Consolidated Balance Sheets
(Amounts in thousands, except shares)
As of December 31, 2010
As of June 30, 2011
Cash and cash equivalents
Short term investment
Due from related parties
Prepaid expenses and other current assets
Deferred income taxes-current
Total current assets
Property and equipment, net
Deferred income taxes—non current
Deposits for leases—non current
Due to related parties
Income tax payable
Total current liabilities
Deferred rent—non current
Prepaid subscription—non current
Advanced receipts from depositary bank—non current
Ordinary shares, $0.001 par value, 1,000,000,000 authorized, 103,080,000 and 103,660,839 issued and outstanding, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Total liabilities and equity
Condensed Consolidated Statements of Operations
(Amounts in thousands, except shares, per share and per ADS data)
For the three months ended June 30,
Revenue - restaurant sales
Costs and expenses:
Food and paper
Restaurant wages and related expenses (1)
Restaurant rent expense
Restaurant utilities expense
Other restaurant operating expenses
Selling, general and administrative expenses (1)
Pre-opening expense (2)
Total operating expenses
Income from operations
Foreign exchange gain/(loss)
Income before income taxes
Income tax expense
Basic net income/(loss) per share (3)
Diluted net income/(loss) per share
Basic net income/(loss) per ADS
Diluted net income/(loss) per ADS
Basic weighted average ordinary shares outstanding
Diluted weighted average ordinary shares outstanding
(1) Includes share-based compensation expenses of RMB1.0 million and RMB4.3 million ($0.7 million) for the three months ended June 30, 2010, and the three months ended June 30, 2011, respectively.
(2) Pre-opening expenses are expenses incurred prior to restaurant opening. These expenses were originally shown in other restaurant operating expenses prior to the third quarter of 2010.
(3) In the quarter ended on June 30, 2010, since Series A convertible preferred shares are participating securities, the Company used the two-class method of computing earnings per share. A diluted earnings per share is computed using the more dilutive of the two-class method or the if-converted method.
Condensed Consolidated Cash Flow Statements
(Amounts in thousands)
For the six months ended June 30,
Adjustments to reconcile net income to net cash provided from operating activities:
Loss on disposals of property and equipment
Gain on forward contracts
Share based compensation
Changes in operating assets and liabilities:
Due from related parties
Prepaid expense and other current assets
Deposits for leases
Due to related parties
Income taxes payable
Other current liabilities
Net cash provided by operating activities
Restaurant and office space capital expenditures
Proceeds from disposal
Purchase of short term investment
Net cash used in investing activities
Dividend paid to Series A convertible preferred shares
Proceeds from exercise (early exercise) of employee stock options
Net cash provided by/(used in) financing activities:
Effect of exchange rate
Net decrease in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Supplementary Metrics - Reconciliations of GAAP to Non-GAAP Financial Measures
(Amounts in thousands, except ADSs and per ADS data)
For the three months ended June 30,
GAAP net income/(loss)
Share-based compensation expenses:
Restaurant wages and related expenses
Selling, general and administrative expenses
One-time tax levy
Non-GAAP net income
Diluted net income/(loss) per ADS
Non-GAAP diluted earnings per ADS
Diluted weighted average ADSs outstanding (1)
(1) Non-GAAP adjusted diluted weighted average ADSs outstanding during the quarter ended June 30, 2011 includes the weighted average ADSs of options amounted to496,749, They were not included in the calculation of GAAP earnings per ADSs as their effective would be anti-dilutive.
SOURCE Country Style Cooking Restaurant Chain Co., Ltd.