QKL Stores Inc. Announces Fourth Quarter and Full Year 2010 Financial Results

-- 4Q10 Revenue Increased 17.3% to $85.8 million from $73.2 million in 4Q09 --

-- 4Q10 Gross Profit Increased 18.6% to $15.4 million from $13.0 million in 4Q09 --

Mar 31, 2011, 07:00 ET from QKL Stores Inc.

DAQING, China, March 31, 2011 /PRNewswire-Asia/ -- QKL Stores Inc. (the "Company") (Nasdaq: QKLS), a leading regional supermarket chain in Northeastern China, today announced its financial results for the quarter ended December 31, 2010.

Mr. Zhuangyi Wang, Chairman and CEO, said, "We were pleased with our fourth quarter results which showed solid sequential improvement over our 2010 third quarter. Our gross profit performance exceeded 18% as we benefited from healthy same store sales, the larger store format of many of our stores and our new distribution center.  We finished the year operating a total of 43 market locations, comprised of 29 supermarkets, 11 hypermarkets and 3 department stores."

"As we enter 2011, we believe the northeast China region will continue to benefit from solid economic growth, increased urbanization and growing levels of disposable income which bodes well for our existing retail stores and new stores we plan on opening. We have already opened 6 new stores in the first quarter and the plan to add 12 total new store locations for an aggregate total of approximately 70,000 square meters of space in 2011.  We believe our full year gross margin trends can gradually increase as we benefit from greater sales of non-food items, a larger size store format, bulk buying power, greater private label sales and the opening of our second distribution center.  We also will continue to focus on minimizing our expenses to generate additional profit growth opportunities."

Fourth Quarter 2010 Financial Results

Revenue in the fourth quarter of 2010 increased 17.3% to $85.8 million from $73.2 million in the fourth quarter of 2009.  Revenue performance reflected the growth of 31 comparable stores, which are stores that have been open for at least one year before the beginning of the comparison period, or by October 1, 2009, as well as sales from the opening of 12 new stores since October 1, 2009.  Same-store sales were approximately $73.8 million in the fourth quarter of 2010, an increase of 8.7% from $67.4 million in the fourth quarter of 2009.The 12 new stores opened since October 1, 2009 generated approximately $12.0 million in the fourth quarter of 2010.  

Gross profit increased 18.6% year over year to $15.4 million, compared to $13.0 million in the prior year period.  Gross profit for the fourth quarter of 2010 was 18.0%, compared to 17.8% for the fourth quarter of 2009. The increase in gross profit was primarily attributable to the increase in net sales over the prior year period as well as the new distribution center which enabled the Company to purchase larger orders from vendors at lower prices and thus reduces cost of goods sold.  

Operating expenses increased 31.3% to $12.7 million compared to $9.7 million in the prior year period.  

This was primarily a result of additional salary, rent and utility expenses, the hiring of more employees, and other operating costs related to the Company's increased store count over the past year.

Operating income was $2.8 million, or 3.2% of sales, from $3.4 million, or 4.6% of total sales, in the fourth quarter of 2009 and $1.4 million, or 2.1% of sales in the third quarter of 2010.  

Fourth quarter 2010 net income was approximately $2.4 million, or $0.06 per diluted share, compared with $12.1 million, or $0.33 per diluted share, for the same period in 2009. Excluding changes in the fair value of warrants, adjusted net income for the three months ended December 31, 2010 was $2.4 million, or $0.06 per diluted share, compared to $2.6 million, or $0.07 per diluted share, in the period prior year.

As of December 31, 2010, the Company had $17.5 million in unrestricted cash, compared to $45.9 million as of December 31, 2009 and no debt or bank loans.

As of December 31, 2010, the Company operated 43 stores totaling 205,976 sq. meters compared to 36 stores totaling 161,215 sq. meters in the prior year period.  The Company opened 5 new store locations in the fourth quarter of 2010.  

Full Year 2010 Financial Results

Net sales increased by $50.8 million, or 20.5%, to $298.4 million for fiscal 2010 from $247.6 million for fiscal 2009. 27 comparable stores opened for at least one year before the beginning of the comparison period, or by January 1, 2009, generated approximately $227.5 million in sales in 2010, a 9.7% increase compared to $207.4 million in sales in 2009.  New store sales increased, reflecting the opening of 16 new stores since January 1, 2009.  Nine stores opened in 2010 generating approximately $14.7 million for fiscal 2010, and seven stores opened in 2009 generated $51.3 million in fiscal 2010.

Gross profit increased by $9.3 million, or 21.2%, to $52.9 million, or 17.7% of net sales, in fiscal 2010 from $43.6 million, or 17.6% of net sales, in fiscal 2009. The change in gross profit was primarily attributable to the increase in full year net sales

Selling expenses increased by $8.0 million, or 33.0%, to $32.3 million, or 10.8% of net sales, in fiscal 2010 from $24.3 million, or 9.8% of net sales, in fiscal 2009. The change in selling expense was mainly due to increase in labor costs, depreciation, rent expense, and utilities and other operating costs for fiscal 2010 compared with fiscal 2009 primarily due to support of an increase in store count. In particular, labor costs increased by $2.8 million or 35.5%, to $10.8 million in fiscal 2010 from $8.0 million in fiscal 2009.  Depreciation increased by $0.9 million, or 35.8% in fiscal 2010, to $3.4 million from $2.5 million in fiscal 2009. Rent expenses increased by $2.9 million, or 255.3%, to $4.0 million in fiscal 2010 from $1.1 million in fiscal 2009. Utilities increased by $1.0 million, or 30.3%, to $4.4 million in fiscal 2010 from $3.4 million in fiscal 2009.

General and administrative expenses increased by $3.4 million to $8.2 million, or 2.7% of net sales, in fiscal 2010 from $4.8 million, or 1.9% of net sales, in fiscal 2009. The increase was mainly due to the fact that the Company continued to strengthen its work force by hiring new employees, training and providing higher compensation to managerial staff.

Net Income was $17.4 million, or $0.44 per diluted share, in fiscal 2010 compared to a net loss of $24.6 million, or ($1.13) per diluted share, in fiscal 2009. Excluding changes in the fair value of warrants, adjusted net income for fiscal 2010 decreased 11.3% to $9.6 million, or $0.24 per diluted share, from $10.8 million, or $0.34 per diluted share for fiscal 2009.

The number of weighted average shares outstanding used in the computation of diluted EPS increased 80.0% to 39.4 million in fiscal 2010 from 21.9 million in fiscal 2009. Excluding changes in the fair value of warrants, the number of weighted average shares outstanding used in the computation of diluted EPS increased 23.5% to 39.4 million shares in fiscal 2010 from 31.9 million shares in fiscal 2009.

Conference Call

The Company will conduct a conference call to discuss its fourth quarter 2010 results on Thursday, March 31, 2011 at 8:30 am ET. Listeners may access the call by dialing #1-719-457-2605. To listen to the live webcast of the event, please go to http://www.viavid.net.  Listeners may access the call replay, which will be available through April 7th, by dialing #1-858-384-5517; conference ID: 5288532.

About QKL Stores Inc.:

Based in Daqing, China, QKL Stores, Inc. is a leading regional supermarket chain company operating in Northeastern China. QKL Stores sells a broad selection of merchandise, including groceries, fresh food, and non-food items, through its retail supermarkets, hypermarkets and department stores; the company also has its own distribution centers that service its supermarkets. For more information, please access the Company's website at: www.qklstoresinc.com.

Safe Harbor Statement

Certain statements in this release and other written or oral statements made by or on behalf of the Company are "forward looking statements" within the meaning of the federal securities laws. Statements regarding future events and developments and our future performance, as well as management's expectations, beliefs, plans, estimates or projections relating to the future, are forward-looking statements within the meaning of these laws. The forward looking statements are subject to a number of risks and uncertainties including market acceptance of the Company's services and projects and the Company's continued access to capital and other risks and uncertainties. The actual results the Company achieves may differ materially from those contemplated by any forward-looking statements due to such risks and uncertainties. These statements are based on our current expectations and speak only as of the date of such statements.

Contact Information

Contact Information

QKL Stores, Inc.

In China:

Mike Li, Investor Relations

+86-459-460-7987

ICR, Inc.

In U.S.:

Bill Zima

+1-203-682-8233

(Financial Tables Follow)

QKL STORES INC. AND SUBSIDIARIES

Income Statements

Years Ended December 31,

2010

2009

Net sales

$

298,399,394

$

247,594,272

Cost of sales

245,548,576

203,994,809

Gross profit

52,850,818

43,599,463

Operating expenses:

Selling expenses

32,348,721

24,324,848

General and administrative expenses

8,151,742

4,802,262

Total operating expenses

40,500,463

29,127,110

Income from operations

12,350,355

14,472,353

Non-operating income(expense):

Other income (expenses)

-

(14,253)

(Increase) decrease in fair value of warrants

7,801,649

(35,492,017)

Interest income

670,245

222,007

Interest expense

(10,469)

(23,734)

Total non-operating income (loss)

8,461,425

(35,307,997)

Income (loss) before income tax

20,811,780

(20,835,644)

Income taxes

3,381,216

3,807,794

Net income (loss)

$

17,430,564

$

(24,643,438)

Weighted average number of shares outstanding:

Basic

29,670,468

21,885,423

Diluted

39,411,282

21,885,423

Earnings (loss) per share

Basic

$

0.59

$

(1.13)

Diluted

$

0.44

$

(1.13)

QKL STORES INC. AND SUBSIDIARIES

Consolidated Balance Sheets

December 31, 2010

December 31, 2009

ASSETS

Cash

$

17,460,034

$

45,912,798

Restricted cash

77,205

181,836

Accounts receivable

167,509

283,929

Inventories

44,467,265

24,691,156

Other receivables

28,236,397

13,980,572

Prepaid expenses

5,088,825

2,993,191

Advances to suppliers

3,740,327

2,965,139

Deferred income tax assets

508,617

417,788

Total current assets

99,746,179

91,426,409

Property, plant equipment, net

24,792,149

29,402,630

Land use rights, net

748,533

753,226

Goodwill

43,863,929

19,280,509

Other assets

467,927

408,391

Total assets

$

169,618,717

$

141,271,165

LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable

38,944,917

29,244,923

Cash card and coupon liabilities

10,814,546

7,721,630

Customer deposits received

1,495,059

3,862,890

Accrued expenses and other payables

9,883,282

6,656,089

Income taxes payable

2,365,931

1,154,229

Total current liabilities

63,503,735

48,639,761

Warrant liabilities

-

44,304,034

Total liabilities

63,503,735

92,943,795

Commitments and contingencies

-

-

Stockholders' equity

Common stock, $.001 par value per share, authorized 100,000,000, shares, issued and outstanding 29,743,811 and 29,475,983 at December 31, 2010 and December 31, 2009, respectively

29,744

29,476

Series A convertible preferred stock, par value $0.01, 10,000,000 shares authorized, 7,295,382  and 7,548,346 shares outstanding at December 31, 2010 and 2009, respectively

72,953

75,483

Additional paid-in capital

90,710,619

53,191,217

Retained earnings – appropriated

6,012,675

4,913,072

Retained earnings (accumulated deficit)

2,094,850

(14,236,111)

Accumulated other comprehensive income

7,194,141

4,354,233

Total stockholders' equity

106,114,982

48,327,370

Total liabilities and stockholders' equity

$

169,618,717

$

141,271,165

QKL STORES INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

 Years Ended December 31,

2010

2009

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss)

$

17,430,564

$

(24,643,438)

Depreciation-property, plant and equipment

4,858,011

2,721,636

Amortization

28,294

27,967

Deferred income tax

(77,850)

(416,944)

Loss on disposal of property, plant and equipment

180,304

36,938

Share-based compensation

1,014,755

-

Change in fair value of warrants

(7,801,649)

35,492,017

Adjustments to reconcile net income to net cash provided by operating activities:

Accounts receivable

125,240

512,692

Inventories

(19,009,023)

(10,047,537)

Other receivables

(13,821,470)

(9,749,527)

Prepaid expenses

(2,038,694)

(327,811)

Advances to suppliers

(2,043,610)

1,686,988

Accounts payable

8,791,436

7,829,738

Cash card and coupon liabilities

2,853,026

3,834,412

Customer deposits received

(2,487,840)

944,028

Accrued expenses and other payables

1,748,832

3,069,863

Income taxes payable

1,175,844

(104,692)

Net cash provided by operating activities

(9,073,830)

10,866,330

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property, plant and equipment

(8,618,288)

(19,566,327)

Acquisition of business, net

(23,984,428)

-

Refund of office building purchase

11,343,373

-

Sales proceeds of fixed assets disposal

11,533

-

Decrease of restricted cash

104,631

111,313

Net cash used in investing activities

(21,143,179)

(19,455,014)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from issuance of Common stock

-

37,406,389

Repayment of bank loan

-

(2,195,872)

Net cash provided by financing activities

-

35,210,517

Net increase in cash

(30,217,009)

26,621,833

Effect of foreign currency translation

1,764,245

5,944

Cash at beginning of period

45,912,798

19,285,021

Cash at end of period

$

17,460,034

$

45,912,798

Supplemental disclosures of cash flow information:

Interest received

206,003

222,007

Interest paid

10,469

23,734

Income taxes paid

$

2,260,343

$

4,120,045

QKL STORES INC. AND SUBSIDIARIES

Income Statements

Three Months ended December 31, 2010

Three Months ended December 31, 2009

Net sales

$

85,823,938

$

73,184,213

Cost of sales

70,388,146

60,171,683

Gross profit

15,435,792

13,012,530

Operating expenses:

Selling expenses

10,547,065

8,068,950

General and administrative expenses

2,129,623

1,585,004

Total operating expenses

12,676,688

9,653,954

Income from operations

2,759,104

3,358,576

Non-operating income(expense):

Other income (expenses)

-

(14,253)

(Increase) decrease in fair value of warrants

-

9,558,621

Interest income

160,030

33,559

Interest expense

(53)

(2,934)

Total non-operating income

159,977

9,574,994

Income before income tax

2,919,081

12,933,569

Income taxes

515,602

821,195

Net income

$

2,403,479

$

12,112,374

Weighted average number of shares outstanding:

Basic

29,738,659

24,858,989

Diluted

37,694,475

36,254,460

Earnings (loss) per share

Basic

$

0.08

$

0.49

Diluted

$

0.06

$

0.33

SOURCE QKL Stores Inc.



RELATED LINKS

http://www.qklstoresinc.com