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