Achieves Record Gross Margin of 47.1%
Successful U.S. IPO Raises More Than US$384 Million
SHENZHEN, China, Dec. 11 /Xinhua-PRNewswire-FirstCall/ -- China Nepstar Chain Drugstore Ltd. (NYSE: NPD) ("Nepstar" or "the Company"), the largest retail drugstore chain in China, today announced its unaudited financial results for the third quarter and nine months ended September 30, 2007.
Financial Highlights
For the third quarter ended September 30, 2007:
-- Revenue rose 6.6% to RMB484.3 million (US$64.6 million) compared to the
same period in 2006
-- Gross margin increased to 47.1%, compared with 35.9% for the same
period in 2006
-- Net income soared 512.6% to RMB46.3 million (US$6.2 million) compared
to same period in 2006
For the nine months ended September 30, 2007:
-- Revenue rose 14.1% to RMB1,430.6 million (US$190.9 million) compared to
the same period in 2006
-- Gross margin increased to 42.5%, compared with 34.0% in the same
period of 2006
-- Net income was RMB89.7 million (US$12.0 million) compared with a net
loss of RMB4.1 million for the same period of 2006
"We are very pleased to report a strong quarter characterized by significant growth in our gross margin and bottom line," said Mr. Jiannong Qian, Chief Executive Officer of Nepstar. "We have increased our penetration within existing markets by opening more stores. As a leader in the retail drugstore market in China, we have not only continued to generate solid revenue from each store, but also leveraged our sourcing capabilities to increase profit margins through our private label products and centralized procurement."
"We will continue to build brand loyalty by providing high quality products and services to our customers in China. Going forward, our strategy is to increase revenues through same-store sales growth and new store openings, continue to enhance operating efficiencies and control costs, and drive margin growth through private label offerings and optimization of product mix," Mr. Qian continued.
Third Quarter Results
Revenue for the third quarter ended September 30, 2007 was RMB484.3 million (US$64.6 million), representing an increase of 6.6% compared to RMB454.4 million for the third quarter of 2006. Third quarter revenue contribution from prescription drugs was 23.3%, over-the-counter, or OTC, drugs was 34.4%, nutritional supplements was 19.3%, traditional Chinese herbal products was 2.7% and other products was 20.3%. Same store sales (for stores opened before December 31, 2005) for the third quarter decreased 1.9% over the third quarter in 2006, due to a strategic decision to discontinue certain low margin products in August 2007, as a special initiative to refine our product portfolio and increase sales contribution from higher margin products.
Third quarter gross profit was RMB228.2 million (US$30.5 million), an increase of 40% over RMB163.0 million for the same period in 2006. Gross margin for the quarter increased to 47.1%, compared with 35.9% for third quarter of 2006. The increase in gross margin was driven largely by changes in product mix, including increased contributions from private label products and the centralization of merchandise procurement.
Third quarter 2007 operating income increased 381.9% to RMB58.4 million (US$7.8 million) compared to RMB12.1 million for the third quarter of 2006.
Sales, marketing and other operating expenses for the third quarter increased 14.2% to RMB154.0 million (US$20.6 million) over RMB134.8 million in the third quarter of 2006, primarily due to the increase in the Company’s store base and additional hiring to support this expansion. General and administrative expenses for the period decreased 1.3% to RMB15.9 million (US$2.1 million) compared to RMB16.1 million for the same quarter in 2006, primarily due to various cost control efforts.
The Company’s effective tax rate was 16.7% for third quarter of 2007. Third quarter net income increased 512.6% to RMB46.3 million (US$6.2 million), or RMB0.37 (US$0.05) basic earnings per share, or RMB0.74 (US$0.1) basic earnings per American depositary share (ADS), or RMB0.28 (US$0.04) diluted earnings per share and RMB0.56 (US$0.08) diluted earnings per ADS. This compares to RMB7.6 million, or RMB0.03 basic earnings per share, and RMB0.03 diluted earnings per share for the same quarter in 2006.
Nine-Month Results
Nine-month revenue for 2007 rose 14.1% to RMB1,430.6 million (US$190.9 million) compared to RMB1,253.6 million for the first nine months of 2006. Nine-month revenue contribution from prescription drugs was 24.0%, OTC drugs was 35.0%, nutritional supplements was 18.9%, traditional Chinese herbal products was 2.5% and other products was 19.6%. Same store sales (for stores opened before December 31, 2005) for the nine-month period increased 4.6% compared with the same period last year.
Nine-month gross profit rose 42.7% to RMB608.6 million (US$81.2 million) over RMB426.4 million for the same period in 2006. Nine-month gross margin was 42.5%, compared with 34.0% for the first nine months of 2006.
Nine-month operating income was RMB119.4 million (US$15.9 million) compared with RMB3.1 million for the same period of 2006. Sales, marketing and other operating expenses rose 15.6% to RMB437.1 million (US$58.3 million) over RMB378.1 million in the same period of 2006, primarily due to increased salaries and bonus payments in connection with increased headcount as a result of the continued expansion of the Company’s drugstore network. The increase in sales, marketing and other operating expenses was also due to higher rental and utility expenses for Nepstar’s drugstore outlets and distribution centers and increased depreciation for store and distribution center leasehold improvements and store equipment as the Company opened additional drugstore outlets and additional distribution centers to accommodate its growth.
Nine-month net income was RMB89.7 million (US$11.97 million), or RMB0.67 (US$0.09) basic earnings per share, or RMB1.34 (USD$0.18) basic earnings per ADS or RMB0.54 (US$0.07) diluted earnings per share and RMB1.08 (US$0.14) diluted earnings per ADS. This compares to a net loss of RMB4.1 million, or basic net loss per share of RMB0.14 and diluted net loss per share of RMB0.14 for the same period of 2006.
As of September 30, 2007, the Company’s total cash and cash equivalents amounted to RMB136.1 million (US$18.2 million) as compared with RMB83.0 million as of December 31, 2006. Total shareholders’ equity increased to RMB74.2 million (US$9.9 million) as of September 30, 2007 from a total shareholders’ deficit of RMB2.4 million as of December 31, 2006.
Operating Highlights
During the first nine months of 2007, the Company opened 376 new stores, 179 of which were opened in the third quarter. As of September 30, 2007, Nepstar had a total of 1,791 stores in operation.
Nepstar increased its portfolio of private label products to 1,177 as of September 30, 2007. Sales of private label products represented approximately 18.3% of the Company’s revenue and 28.6% of the gross profit for third quarter; and approximately 17.8% of the revenue and 30.2% of the gross profit for the nine-month period.
On November 9, 2007, the Company successfully completed its initial public offering of 20,625,000 ADSs, representing 41,250,000 ordinary shares, on the New York Stock Exchange. Including the over-allotment option, which was exercised on November 15, the initial public offering raised more than US$384.2 million, with net proceeds of approximately US$350.1 million.
"The positive response from investors to Nepstar’s initial public offering underscores the strength of our business model and the promising future of the retail pharmacy sector in China," commented Mr. Jiannong Qian, Chief Executive Officer of Nepstar. "The IPO proceeds will enable us to open more stores and distribution centers in China, increasing our market presence, as well as purchasing strength and efficiencies. We also plan to upgrade our IT and inventory management systems and pursue synergistic acquisition opportunities."
"Nepstar’s blend of superior customer service, broad geographic reach, and extensive product offerings at competitive prices has made us a market leader; and we believe that we are well positioned to capitalize on the demographic trends and regulatory changes in China’s pharmaceutical retail industry to enhance shareholder value," concluded Mr. Qian.
Business Outlook
The targeted revenue for fiscal 2007 is expected to be between approximately RMB1,950 million to RMB1,960 million. The targeted net income, excluding interest income from IPO proceeds and share-based compensation expense associated with the Company’s share option plan for fiscal 2007, is expected to be between approximately RMB147 million to RMB150 million. This outlook is based on organic store performance and approximately 210 planned new store openings in the fourth quarter.
These targets are based on the Company’s current views on the operating and market conditions, which are subject to change.
Conference Call Information
The Company’s management team will host a conference call at 8:00 a.m. Eastern Standard Time / 9:00 p.m. Beijing/Hong Kong Time on December 11, 2007 to discuss third quarter results.
Interested parties may participate in the conference call by dialing +1-877-407-9210 (US) or +1-201-689-8049 (International) approximately five to ten minutes before the call start time. A live Webcast 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 starting on December 11, 2007, at 11:00 a.m. Eastern Standard Time / December 12, 2007, at 12:00 a.m. Beijing/Hong Kong Time through December 18, 2007 at 11:59 p.m. Eastern Standard Time / December 19, 2007, at 12:59 p.m. Beijing/Hong Kong Time. Interested parties may access the replay by dialing +1-877-660-6853 (US) or +1-201-612-7415 (International) and entering account number 286 and conference ID number 264885. An archived Webcast of the conference call will be available on the Nepstar Web site at http://www.nepstar.cn .
About China Nepstar Chain Drugstore Ltd.
China Nepstar Chain Drugstore Ltd. (NYSE: NPD) is China’s largest retail drugstore chain. As of September 30, 2007, the Company had 1,791 stores in 62 cities and 11 regional distribution centers in China. It uses directly operated stores, centralized procurement and a network of regional distribution centers to provide customers with high-quality, professional and convenient pharmacy services and a wide variety of other merchandise, including over-the-counter ("OTC") drugs, nutritional supplements, Chinese herbal products, personal care products, family care products, and convenience products including consumables and seasonal and promotional items. China Nepstar believes that its strategy of competitive pricing, customer loyalty programs and private label offerings have enabled it to capitalize on the robust demographic and economic growth trends in China to achieve a strong brand and leading market position. For further information, please visit 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 27A of the Securities Act of 1933, as amended, and 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, the Company’s strategic operational plans, as well as outlook for Fiscal 2007, 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 registration statement on Form F-1. 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.
China Nepstar Chain Drugstore Ltd.
Condensed Consolidated Statements of Operations
(amounts in thousands -- except share and per-share data)
Quarter ended Nine-month period ended
September 30 September 30
2007 2007 2006 2007 2007 2006
RMB USD(1) RMB RMB USD(1) RMB
Revenue 484,304 64,636 454,400 1,430,587 190,928 1,253,599
Cost of goods
sold (256,104) (34,180) (291,390) (821,971) (109,701) (827,163)
Gross profit 228,200 30,456 163,010 608,616 81,227 426,436
Sales,
marketing
and other
operating
expenses (153,956) (20,547) (134,815) (437,068) (58,332) (378,129)
General and
administrative
expenses (15,880) (2,119) (16,084) (52,117) (6,956) (45,159)
Income from
operations 58,364 7,790 12,111 119,431 15,939 3,148
Interest
income 409 54 241 916 122 828
Interest
expense (67) (9) (30) (151) (20) (30)
Dividend
income
from cost
method
investments -- -- -- 1,057 141 1,006
Income before
income taxes
and minority
interests 58,706 7,835 12,322 121,253 16,182 4,952
Income taxes (9,778) (1,305) (3,398) (25,189) (3,362) (6,531)
Minority
interests (2,594) (346) (1,360) (6,407) (855) (2,471)
Net
income/(loss) 46,334 6,184 7,564 89,657 11,965 (4,050)
Basic earnings
per share(2) 0.37 0.05 0.03 0.67 0.09 (0.14)
Diluted
earnings
per share(2) 0.28 0.04 0.03 0.54 0.07 (0.14)
China Nepstar Chain Drugstore Ltd.
Condensed Consolidated Balance Sheets
(amounts in thousands)
As of September 30, As of December
2007 31, 2006
ASSETS RMB USD(1) RMB
Current assets
Cash and cash equivalents 136,093 18,163 82,996
Accounts receivable, net 61,158 8,162 40,155
Amounts due from related parties 4,827 644 5,818
Prepaid expenses, deposits and
other current assets 106,615 14,229 62,556
Inventories 302,644 40,391 271,362
Deferred income taxes 3,236 432 2,380
Total current assets 614,573 82,021 465,267
Property and equipment, net 154,927 20,677 146,978
Rental deposits 16,256 2,170 12,666
Investments 12,638 1,687 12,638
Intangible assets, net 3,306 441 3,819
Deferred income taxes 578 77 859
Total assets 802,278 107,073 642,227
LIABILITIES, MINORITY INTERESTS,
REDEEMABLE CONVERTIBLE
PREFERRED SHARES AND
SHAREHOLDERS’ EQUITY
Current liabilities
Short-term bank loan -- -- 3,000
Accounts payables 257,438 34,358 244,034
Amounts due to related parties 57,580 7,685 55,628
Accrued expenses and other
payables 110,769 14,783 84,204
Income tax payable 37,365 4,987 12,185
Total current liabilities 463,152 61,813 399,051
Minority interests 17,443 2,328 11,036
Series A redeemable convertible
preferred shares 247,508 33,033 234,532
Shareholders’ equity/(deficit)
Ordinary shares 95 13 95
Additional paid-in capital 59,617 7,957 59,617
Accumulated other comprehensive
loss (601) (80) (487)
Retained earnings/(accumulated
deficit) 15,064 2,010 (61,617)
Total shareholders’
equity/(deficit) 74,175 9,900 (2,392)
Total liabilities ,minority
interests, redeemable
convertible preferred
shares and shareholders’
equity 802,278 107,073 642,227
Notes:
(1) For the convenience of readers, the RMB amounts as of and for the
quarter and the nine month period ended September 30, 2007 have been
translated into U.S. dollars at the rate of RMB7.4928 to US$1.00, the
noon buying rate in New York City for cable transfers of RMB per U.S.
dollar as certified for customs purposes by the Federal Reserve Bank
of New York, as of Friday, September 28, 2007. No representation is
made that the RMB amounts could have been, or could be, converted into
U.S. dollars at that rate on September 28, 2007 or at any other date.
(2) The computation of diluted net income per share for the three-month
period ended September 30, 2007 was based on 115,000,000 ordinary
shares and the assumed conversion of the 50,000,000 ordinary shares
issuable upon conversion of Series A redeemable convertible preferred
shares on January 1, 2007 using the if-converted method. The
computation of diluted net income per share for the three-month period
ended Sept 30, 2006 did not assume the 50,000,000 ordinary shares
issuable upon conversion of Series A redeemable convertible preferred
shares because the inclusion of these potential dilutive securities
would be anti-dilutive. One ADS is equal to two ordinary shares.
For more information, please contact:
In China:
Lucia Qian
Marketing and IR Director
China Nepstar Chain Drugstore Ltd.
Tel: +86-755-2641-4065
Email: qianrt@nepstar.cn
In the United States:
Rachel Levine
Investor Relations
The Global Consulting Group
Tel: +1-646-284-9439
Email: rlevine@hfgcg.com
Ivette Almeida
Media Relations
The Global Consulting Group
Tel: +1-646-284-9455
Email: ialmeida@hfgcg.com
