Dangdang Announces Second Quarter 2011 Results

BEIJING, August 16, 2011 /PRNewswire-Asia/ -- E-Commerce China Dangdang Inc. ("Dangdang" or the "Company") (NYSE: DANG), a leading business-to-consumer e-commerce company in China, today announced its unaudited financial results for the second quarter ended June 30, 2011.

Second Quarter Highlights

• Total net revenues in the second quarter of 2011 were RMB790.8 million ($122.3 million), a 53.3% increase from the corresponding period in 2010.
• General merchandise revenue in the second quarter of 2011 was RMB191.5 million ($29.6 million), a 151.9% increase from the corresponding period in 2010, representing 24.2% of total net revenues, compared to 14.7% in the corresponding period in 2010.
• Total operating expense in the second quarter of 2011 was RMB164.9 million ($25.5 million), a 38.1% increase from the corresponding period in 2010, representing 20.9% of total net revenues, compared to 23.2% in the corresponding period in 2010.

Recent Developments

Dangdang started the operation of the Shenyang fulfillment center and expanded the new facility in Guangzhou fulfillment center in the second quarter of 2011, bringing its total warehouse space to 210,000 square meters. In order to improve customer experience, Dangdang will open at least two additional fulfillment centers in China in the second half of 2011.

Dangdang signed agreements with the local government and industrial park to purchase land space in Tianjin, where the Company plans to build its largest fulfillment center in China.

Dangdang launched its mobile application for iPhone™ in the second quarter of 2011. Together with the previously launched application for Android™ mobile, these mobile applications bring Dangdang thousands of orders on a daily basis.

"The second quarter laid the groundwork for a new strategic approach to further scale the business through competitive pricing, fulfillment capacity expansion, product category expansion, product assortment, marketing and branding. Our newly established business units enable us to widen our business scope and more effectively in China's e-commerce industry. With our strong balance sheet we have the resources and long-term commitment to further strengthening Dangdang's leading brand in China's B2C e-commerce market," said Ms. Peggy Yu Yu, Dangdang's Executive Chairwoman.

"During the second quarter we again made good progress in improving our customers' shopping experience. We believe the strategic roll-out of our new fulfillment centers will suit our rapid business growth and meet customers' needs. Since Dangdang launched its "Lightning Plan" in April 2011 to provide same-day-delivery service to our customers in 7 cities, we have doubled the number of cities to 14 by the end of the second quarter. We will continue to enhance our delivery speed in 50 major cities for the rest of the year," commented Mr. Guoqing Li, Dangdang's Chief Executive Officer. "We have added new product categories in apparel and electronics to attract additional online shoppers beside our current customer demographics and to make Dangdang a one-stop destination for B2C e-commerce."

Conor Yang, Dangdang's Chief Financial Officer, commented, "We believe the margin compression will be inevitable at the current stage as we expand our market presence beyond the media category and invest in the long-term growth opportunity of the overall B2C e-commerce market in China."

Second Quarter 2011 Results

Dangdang's total net revenues in the second quarter of 2011 were RMB790.8 million ($122.3 million), a 53.3% increase from the corresponding period in 2010.

Media product revenue for the second quarter of 2011 was RMB584.2 million ($90.4 million), representing a 34.1% increase from the corresponding period in 2010. General merchandise revenue for the second quarter of 2011 was RMB191.5 million ($29.6 million), representing a151.9% increase from the corresponding period in 2010. Other revenue including revenue from third-party merchants for the second quarter of 2011 was RMB15.1 million ($2.3 million), representing a 288.9% increase from the corresponding period in 2010.

Dangdang had approximately 4.6 million active customers in the second quarter of 2011, representing a 38.6% increase from the corresponding period in 2010. Total orders for the second quarter of 2011 were approximately 9.2 million, a 33.1% increase from the corresponding period in 2010.

Cost of revenues was RMB678.1 million ($104.9 million), representing 85.7% of total net revenues, as compared to 80.2% in the corresponding period in 2010. General merchandise revenue for the second quarter of 2011 was RMB191.5 million ($29.6million), representing 24.2% of total net revenues, as compared to 14.7% in the corresponding period in 2010. Gross margin of general merchandise currently is lower than the gross margin of media products. Gross margin in the second quarter of 2011 was 14.3%, as compared to 19.8% in the corresponding period in 2010. The decrease was primarily due to competitive pricing, changes in product revenues mix with a higher percentage of general merchandise and promotional measures, such as free coupons which were deducted from revenues directly.

Fulfillment expenses which include warehousing and shipping expenses were RMB105.4 million ($16.3 million), representing 13.3% of total net revenues, compared to 13.1% in the corresponding period in 2010. The increase was primarily due to the opening of the new warehouses in Shenyang and Guangzhou, as well as investments in improving customers' shopping experience through faster delivery services.

Marketing expenses were RMB18.0 million ($2.8 million), representing 2.3% of total net revenues, compared to 3.9% in the corresponding period in 2010. The decrease was primarily due to different marketing tactics in the two corresponding periods.

Technology and content expenses were RMB20.8 million ($3.2 million), representing 2.6% of total net revenues, compared to 2.8% in the corresponding period in 2010.

General and administrative expenses were RMB20.7 million ($3.2 million), representing 2.6% of total net revenues, compared to 3.3% in the corresponding period in 2010.

Share-based compensation expenses, which were allocated to related expense line items, were RMB2.6 million ($0.4 million) in the second quarter of 2011, a 37.8% increase from RMB1.9 million in the corresponding period in 2010.

Dangdang recorded an operating loss of RMB52.2 million ($8.1 million) in the second quarter of 2011, as compared with an operating loss of RMB17.1 million in the corresponding period in 2010, primarily due to the decrease in gross margin.

Operating loss excluding share-based compensation expenses (non-GAAP) was RMB49.6 million ($7.7 million), a 226.6% increase from the corresponding period in 2010, primarily due to the decrease in gross margin.

Net loss was RMB28.4 million ($4.4 million), representing a 60.0% increase from the corresponding period in 2010, primarily due to the decrease in gross margin.

Net loss excluding share-based compensation expenses (non-GAAP) was RMB25.8 million ($4.0 million), a 62.6 % increase from the corresponding period in 2010, primarily due to the decrease in gross margin.

As of June 30, 2011, Dangdang had cash and cash equivalents, short-term time deposits and held-to-maturity investments of RMB1,644.3 million ($254.4 million), as compared to RMB1,691.9 million as of December 31, 2010.

Capital expenditures for the second quarter of 2011 were RMB9.8 million ($1.5 million).

Adjusted EBITDA loss (non-GAAP) in the second quarter of 2011 was RMB43.5 million ($6.7 million), representing a 320.4% increase from the corresponding period in 2010, primarily due to the decrease in gross margin.

Outlook for Third Quarter 2011

Dangdang expects its total net revenues in the third quarter of 2011 to be in the range of RMB916 million to RMB928 million, representing year-over-year growth in the range of 51% to 53%. This forecast reflects Dangdang's current and preliminary view, which is subject to change.

Conference Call Information

Dangdang's management will host an earnings conference call at 8:00 AM on August 16, 2011 U.S. Eastern Time (or 8:00 PM on August 16, 2011 Beijing/Hong Kong time).

Dial-in details for the earnings conference call are as follows:

Please dial-in 10 minutes before the call is scheduled to begin and provide the passcode to join the call. The passcode is "Dangdang earnings call."

A replay of the conference call may be accessed by phone at the following number until August 25, 2011:

Additionally, a live and archived webcast of this conference call will be available at http://ir.dangdang.com/ until March 31, 2012.

About Dangdang

E-Commerce China Dangdang Inc. ("Dangdang" or the "Company") (NYSE: DANG) is a leading business-to-consumer e-commerce company in China. On its website dangdang.com, the Company offers more than 670,000 books and other media products as well as selected general merchandise products including beauty and personal care products, home and life style products, baby, children and maternity products, apparel, digital and electronics products. It also operates the dangdang.com marketplace program, which allows third-party merchants to sell their products alongside products sourced by the Company. Dangdang's nationwide fulfillment and delivery capabilities, high-quality customer service support and scalable technology infrastructure enable it to provide a compelling online shopping experience to customers.

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," "confident" and similar statements. Among other things, the outlook for the third quarter 2011 and quotations from management in this announcement, as well as Dangdang's strategic and operational plans, contain forward-looking statements. Dangdang may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission, in its annual report 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 Dangdang'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: our growth strategies; our future business development, results of operations and financial condition; our ability to attract and retain new customers and to increase revenues generated from repeat customers; our expectations regarding demand for and market acceptance of our products and services; trends and competition in China's business-to-consumer e-commerce market; changes in our revenues and certain cost or expense items; the expected growth of the Chinese business-to-consumer e-commerce market; Chinese governmental policies relating to our industry and general economic conditions in China. Further information regarding these and other risks is included in our annual report on Form 20-F and other documents filed with the Securities and Exchange Commission. Dangdang 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 Dangdang undertakes no duty to update such information, except as required under applicable law.

About Non-GAAP Financial Measures

To supplement Dangdang's consolidated financial results presented in accordance with United States Generally Accepted Accounting Principles ("GAAP"), we use the following measures as the non-GAAP financial measures defined by the SEC: non-GAAP operating loss, non-GAAP operating margin, non-GAAP net loss and adjusted EBITDA (collectively referred to as the "Non-GAAP Financial Measures" thereafter). We define non-GAAP operating loss, non-GAAP operating margin and non-GAAP net loss as operating loss, operating margin, operating loss and net loss excluding the impact of share-based compensation expenses respectively; we define adjusted EBITDA as earnings before interest, taxes, depreciation, amortization, other non-operating income, and share-based compensation expenses. We review the Non-GAAP Financial Measures together with net loss or income to obtain a better understanding of our operating performance. We believe that these Non-GAAP Financial Measures provide meaningful supplemental information regarding the Company's performance and liquidity. However, a limitation of using the Non-GAAP Financial Measures as an analytical tool is that they do not include all items that impact our net income for the period. In addition, because they are not calculated in the same manner by all companies, they may not be comparable to other similar titled measures used by other companies. In light of the foregoing limitations, you should not consider the Non-GAAP Financial Measures in isolation from or as an alternative to net income prepared in accordance with U.S. GAAP.

For information on the reconciliation between the Non-GAAP Financial Measures and the GAAP financial measures presented in accordance with U.S. GAAP for the periods presented, please see the table captioned "Reconciliations of non-GAAP results of operations measures to the nearest comparable GAAP financial measures" at the end of this release.