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Country Style Cooking Restaurant Chain Reports Third Quarter 2011 Financial Results

CHONGQING, China, November 18, 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 third quarter of 2011.

Third Quarter 2011 Financial Highlights

  • Revenues in the third quarter of 2011 were RMB290.3 million ($45.5 million), an increase of 38.8% from RMB209.2 million in the same quarter of 2010.
  • Comparable restaurant sales increased by 6.1% from the same quarter of 2010. There were 94 restaurants in the comparison.
  • Restaurant level operating margin was 18.4%, a decrease of 110 basis points from a year ago.
  • Adjusted EBITDA (non-GAAP) was RMB34.6 million ($5.4 million) in the third quarter of 2011, up from RMB32.4 million in the same quarter of 2010.
  • Net income for the third quarter 2011 was RMB14.7 million ($2.3 million), compared to net income of RMB21.0 million in the same quarter of 2010. Adjusted net income (non-GAAP), which excludes share-based compensation expenses, was RMB18.2 million ($2.9 million), decreased from RMB22.8 million in the same quarter of 2010.
  • Diluted net income per American depositary share ("ADS") was RMB0.56 ($0.09). Adjusted diluted net income per ADS (non-GAAP), which excludes share-based compensation expenses, was RMB0.68 ($0.11). 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 report robust revenue growth for the third quarter 2011, reaching the top of our previous guidance range. During the third quarter 2011, we accelerated network expansion and added a net of 27 new restaurants, including our first restaurant in Beijing. We are excited about the opportunities in the northern China market and plan to open a few more restaurants in Beijing by the end of 2011."

Ms. Hong Li continued, "As the Company endeavors to raise brand awareness, we increased spending in advertising and promotional activities during the third quarter. These activities provide us with a base for supporting continued restaurant expansion within our home market and new territories. We believe such investment helps us build sustainable revenue growth, reinforces customer loyalty, and strengthens our brand positioning as we solidify our presence in developed regional markets and progress in our national rollout."

Mr. Roy Rong, chief financial officer of Country Style Cooking, added, "I am very satisfied with our financial performance during the third quarter, especially in this overall inflationary environment. Our existing restaurants are doing quite well, while sales from our new restaurants are ramping up in line with our expectations."

Third Quarter 2011 Financial Performance

Revenues in the third quarter 2011 increased by 38.8% to RMB290.3 million ($45.5 million) from RMB209.2 million in the same period in 2010. The revenue growth was driven mainly by an increase in the number of restaurants. Comparable restaurant sales increased by 6.1% from the same quarter of 2010. There were 94 restaurants in the comparison. During the third quarter 2011, the Company opened a net of 27 new restaurants, bringing the total restaurant count to 186 as of September 30, 2011, compared to its total restaurant count of 114 as of September 30, 2010.

Costs of food and paper increased by 36.6% to RMB132.9 million ($20.8 million) in the third quarter of 2011 from RMB97.3 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 45.8% in the third quarter of 2011 from 46.5% in the same quarter of 2010.

Restaurant wages and related expenses increased by 35.3% to RMB44.2 million ($6.9 million) in the third quarter of 2011 from RMB32.7 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 decreased to 15.2% in the third quarter of 2011 from 15.6% in the same period in 2010.

Restaurant rent expenses increased by 52.3% to RMB25.7 million ($4.0 million) in the third quarter of 2011 from RMB16.9 million in the same quarter of 2010. As with other expense categories, the increase primarily arose from expansion of the Company's restaurant network. As a percentage of revenues, restaurant rental expenses increased to 8.9% in the third quarter of 2011 from 8.1% in the third quarter of 2010.

Restaurant utility expenses increased by 37.3% to RMB18.8 million ($3.0 million) in the third quarter of 2011 from RMB13.7 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 were 6.5% in the third quarter of 2011, down slightly from 6.6% in the third quarter of 2010.

Other restaurant operating expenses increased by 93.2% to RMB15.1 million ($2.4 million) in the third quarter of 2011 from RMB7.8 million in the same quarter of 2010, primarily due to the increased spending in warehousing, logistics and in-store promotions. As a percentage of revenues, other restaurant operating expenses increased to 5.2% in the third quarter of 2011 from 3.7% in the third quarter of 2010.

Restaurant-level operating margin was 18.4% in the third quarter 2011, a decrease of 110 basis points over the same period in 2010. The decrease was primarily driven by the large number of newly-opened restaurants, where operations take time to ramp up to higher levels of profitability.

Selling, general and administrative (SG&A) expenses increased by 89.2% to RMB17.2 million ($2.7 million) in the third quarter of 2011, compared to RMB9.1 million in the same period in 2010, reflecting increased spending on administrative staff cost, more sales and marketing activities during the quarter as well as higher share-based compensation expenses. Share-based compensation expenses included in SG&A amounted to RMB2.8 million ($0.4 million) in the third quarter of 2011, compared to RMB1.3 million in the third quarter of 2010. As a percentage of revenues, SG&A expenses increased to 5.9% in the third quarter 2011 from 4.3% in the same quarter of 2010.

Depreciation expense for the third quarter 2011 amounted to RMB9.9 million ($1.5 million), representing an increase of 68.9% as compared to RMB5.8 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 3.4% in the third quarter of 2011 from 2.8% in the same quarter of 2010.

Pre-opening expense for the third quarter 2011 amounted to RMB5.3 million ($0.8 million), representing an increase of 368.1% as compared to RMB1.1 million in the same quarter of 2010, primarily because of the expansion in the Company's restaurant network. As a percentage of revenues, pre-opening expense increased to 1.8% in the third quarter of 2011 from 0.5% in the same quarter of 2010.

Impairment charges were RMB0.9 million ($0.1 million) in the third quarter of 2011, representing costs related to asset impairment charges in two underperforming restaurants.

Income from operations for the third quarter 2011 decreased by 17.8% to RMB20.3 million ($3.2 million) from RMB24.7 million in the same period in 2010.

Operating margin in the third quarter of 2011 was 7.0%, compared to 11.9% in the same period in 2010.

Income tax expenses in the third quarter of 2011 increased by 108.7% to RMB11.2 million ($1.8 million) from RMB5.4 million in the same period in 2010.

Net income was RMB14.7 million ($2.3 million), compared to net income of RMB21.0 million in the third quarter of 2010. Adjusted net income (non-GAAP), which excludes the share-based compensation expenses, decreased to RMB18.2 million ($2.9 million) in the third quarter of 2011 from RMB22.8 million in the prior year's third quarter.

Diluted net income per ADS was RMB0.56 ($0.09) in the third quarter of 2011, compared to diluted net income per ADS of RMB1.00 in the third quarter of 2010. Adjusted diluted net income per ADS (non-GAAP), which excludes share-based compensation expenses, was RMB0.68 ($0.11) in the third quarter of 2011, compared to RMB1.09 in the third quarter of 2010. The Company had approximately 26.4 million weighted average diluted ADSs outstanding during the quarter ended September 30, 2011.

EBITDA (non-GAAP), defined as earnings before interest, income tax expense, depreciation and amortization, was RMB30.2 million ($4.7 million) in the third quarter of 2011, down from RMB32.1 million from the same quarter of 2010. Adjusted EBITDA (non-GAAP), defined as EBITDA excluding foreign exchange loss, other income, impairment charges and share-based compensation, was RMB34.6 million ($5.4 million) in the third quarter of 2011, up from RMB32.4 million in the same quarter of 2010.

As of September 30, 2011, the Company had cash, cash equivalents and short-term investments of RMB573.6 million ($89.9 million), compared to RMB613.3 million as of December 31, 2010.

Net cash provided by operating activities was RMB68.9 million ($10.8 million) in the nine months ended September 30, 2011, down from RMB77.4 million in the same period in 2010.

Outlook

For the fourth quarter of 2011, the Company currently estimates that its revenues will be between RMB270 million ($42.3 million) and RMB280 million ($43.9 million), representing a year-over-year growth of between approximately 28.4% and 31.1%.

For the full year of 2011, the Company now expects revenues in the range of RMB1,017 million ($159.5 million) to RMB1,027 million ($161.1 million), representing a year-over-year growth of between approximately 36.4% and 37.7%.

Definitions

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. Comparable restaurants exclude (i) restaurants whose operational area has increased or decreased by more than 5% during the periods under comparison and (ii) restaurants that were closed for more than 5% of total days in any period under comparison.

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.

Exchange Rate

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 in this announcement were made at the noon buying rate of RMB6.378 to US$1.00 on September 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.

Conference Call

The Company will host a conference call at 7:30 pm, Eastern Time on November 17, 2011, which is 8:30 am, Beijing Time on November 18, 2011, to discuss third quarter results and answer questions from investors. Listeners may access the call by dialing:

US:

+1-718-354-1231

International:

+65-6723-9381

Hong Kong:

+852-2475-0994

China Domestic:

+800-819-0121

China Domestic Mobile:

+400-620-8038



Passcode:

24141198



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.

Contact:

Country Style Cooking Restaurant Chain Co., Ltd.

Roy Rong

Chief Financial Officer

Phone: +86-23-8866-8866

Email: ir@csc100.com


ICR Inc.

Rob Koepp

Phone: +86-10-6583-7516 or +1-646-328-2520

E-mail: robert.koepp@icrinc.com



Non-GAAP Disclosure

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: adjusted net income, adjusted diluted earnings per ADS, EBITDA and adjusted EBITDA. 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. We define adjusted net income as net income excluding one-time tax levy (applicable to second quarter 2011 only) and share-based compensation expenses. We define adjusted diluted earnings per ADS as diluted earnings per ADS excluding one-time tax levy (applicable to second quarter 2011 only) and share-based compensation expenses. We define EBITDA as earnings before interest, income tax expense, depreciation and amortization. We define adjusted EBITDA as EBITDA excluding foreign exchange loss, other income, impairment charges and share-based compensation. 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 that in conjunction with GAAP financial measures, these non-GAAP financial measures provide meaningful supplemental information regarding its operating performance and liquidity. 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.

One of the limitations of using adjusted net income, adjusted diluted earnings per ADS, EBITDA and adjusted EBITDA is that they do not include all items that impact the Company's net income for the relevant periods. 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. In addition, the Company's EBITDA and adjusted EBITDA may not be comparable to EBITDA, adjusted EBITDA or similarly titled measures utilized by other companies since such other companies may not calculate EBITDA and adjusted EBITDA in the same manner as the Company does. 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 fourth 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 data)


(Unaudited)







As of December 31, 2010


As of September 30, 2011


RMB


RMB


US$

ASSETS






Current assets:






Cash and cash equivalents

612,583


362,530


56,841

Short term investments

734


211,044


33,089

Due from related parties

100


180


28

Inventories

24,951


46,901


7,354

Prepaid rent

6,569


8,951


1,403

Prepaid expenses and other current assets

16,155


17,644


2,766

Deferred income taxes-current

639


639


100

Total current assets

661,731


647,889


101,581

Property and equipment, net

188,699


269,338


42,229

Goodwill

6,286


6,286


986

Deferred income taxes - non current

3,067


3,067


481

Deposits for leases - non current

10,020


14,870


2,331

Total assets

869,803


941,450


147,608







Current liabilities:






Accounts payable

34,204


46,963


7,363

Deferred revenue

2,824


3,403


534

Due to related parties

560


-


-

Accrued payroll

15,292


23,181


3,635

Income tax payable

6,526


21,391


3,354

Other liabilities

31,013


38,191


5,987

Total current liabilities

90,419


133,129


20,873

Deferred rent - non current

8,871


13,526


2,121

Prepaid subscription - non current

678


453


71

Advanced receipts from depositary bank - non current

3,743


3,343


524

Total liabilities

103,711


150,451


23,589







Equity:






Ordinary shares, $0.001 par value, 1,000,000,000 authorized, 103,080,000 and 103,803,093 issued and outstanding, respectively

736


741


116

Additional paid-in capital

682,577


697,038


109,288

Accumulated other comprehensive loss

(6,603)


(8,142)


(1,277)

Retained earning

89,382


101,362


15,892

Total equity

766,092


790,999


124,019







Total liabilities and equity

869,803


941,450


147,608




Condensed Consolidated Statements of Operations


(Amounts in thousands, except shares, per share and per ADS data)


(Unaudited)





For the three months ended September 30,


2010


2011


RMB

%


RMB

%


US$









Revenue - restaurant sales

209,213

100.0


290,289

100.0


45,514

Costs and expenses:







Restaurant expenses:








Food and paper

(97,319)

(46.5)


(132,910)

(45.8)


(20,839)

RESTAURANT WAGES AND RELATED EXPENSES(1)

(32,704)

(15.6)


(44,235)

(15.2)


(6,936)

Restaurant rent expense

(16,899)

(8.1)


(25,744)

(8.9)


(4,036)

Restaurant utilities expense

(13,711)

(6.6)


(18,826)

(6.5)


(2,952)

Other restaurant operating expenses

(7,798)

(3.7)


(15,064)

(5.2)


(2,362)

Selling, general and administrative expenses
1

(9,078)

(4.3)


(17,172)

(5.9)


(2,692)

Pre-opening expense

(1,127)

(0.5)


(5,275)

(1.8)


(827)

Depreciation

(5,838)

(2.8)


(9,862)

(3.4)


(1,546)

Impairment charges

-

-


(870)

(0.3)


(136)

Total operating expenses

(184,474)

(88.1)


(269,958)

(93.0)


(42,326)








Income from operations

24,739

11.9


20,331

7.0


3,188









Interest income

141

0.1


5,595

1.9


877

Foreign exchange gain/(loss)

13

-


(4,105)

(1.4)


(644)

Other income

1,490

0.7


4,081

1.4


640

Income before income taxes

26,383

12.7


25,902

8.9


4,061









Income tax expense

(5,387)

(2.6)


(11,242)

(3.9)


(1,763)

Net income

20,996

10.1


14,660

5.0


2,298








Basic net income per share

0.26



0.14



0.02

Diluted net income per share

0.25



0.14



0.02

Basic net income per ADS

1.04



0.56



0.09

Diluted net income per ADS

1.00



0.56



0.09

Basic weighted average ordinary shares outstanding

57,533,652



103,640,620



103,640,620

Diluted weighted average ordinary shares outstanding

83,425,655



105,462,012



105,462,012


(1) Includes share-based compensation expenses of RMB1.8 million and RMB3.6 million ($0.6 million) for the three months ended September 30, 2010, and the three months ended September 30, 2011, respectively.



Condensed Consolidated Cash Flow Statements


(Amounts in thousands)


(Unaudited)





Nine months ended September 30


2010


2011


RMB


RMB


US$

Operating activities:






Net income

48,714


11,980


1,878

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






Loss on disposals of property and equipment

149


741


116

Impairments

-


5,646


885

Depreciation

14,711


26,179


4,105

Gain on forward contracts

-


(310)


(49)

Share based compensation

3,478


10,541


1,653

Changes in operating assets and liabilities:






Due from related parties

8,884


(80)


(13)

Inventories

(7,550)


(21,950)


(3,442)

Prepaid rent

(1,235)


(2,382)


(373)

Prepaid expense and other current assets

945


(1,489)


(233)

Deposits for leases

(2,704)


(4,850)


(760)

Accounts payable

3,574


12,759


2,000

Deferred revenue

1,117


579


91

Due to related parties

115


(560)


(88)

Accrued payroll

7,392


7,889


1,237

Income taxes payable

(332)


14,865


2,331

Deferred rent

2,790


4,655


730

Other current liabilities

(2,691)


4,727


742

Net cash provided by operating activities

77,357


68,940


10,810

Investing activities:






Restaurant and office space capital expenditures

(82,974)


(110,121)


(17,266)

Proceeds from disposal

-


811


127

Purchase of short-term investment

-


(210,000)


(32,926)

Net cash used in investing activities

(82,974)


(319,310)


(50,065)

Financing activities:






Dividend paid to Series A convertible preferred shares

(3,946)


-


-

Proceeds from exercise (early exercise) of employee stock options

2,887


2,500


392

Payment of IPO related expenses

(2,092)


-


-

Offering expense

-


(838)


(131)

Net cash provided by/(used in) financing activities:

(3,151)


1,662


261

Effect of exchange rate

(78)


(1,345)


(211)

Net decrease in cash and cash equivalents

(8,846)


(250,053)


(39,205)

Cash and cash equivalents, beginning of period

70,695


612,583


96,046

Cash and cash equivalents, end of period

61,849


362,530


56,841




Supplementary Metrics - Reconciliations of GAAP to Non-GAAP Financial Measures


(Amounts in thousands, except ADSs and per ADS data)



Three months ended September 30,


2010


2011


RMB


RMB


US$







Net income

20,996


14,660


2,298

Share-based compensation expenses:






Restaurant wages and related expenses

505


756


119

Selling, general and administrative expenses

1,293


2,806


440

Adjusted net income (non-GAAP)

22,794


18,222


2,857







Diluted net income per ADS

1.00


0.56


0.09

Diluted earnings per ADS (non-GAAP)

1.09


0.68


0.11

Diluted weighted average ADSs outstanding

20,856,414


26,365,503


26,365,503














Three months ended September 30,


2010


2011


RMB


RMB


US$







Net income

20,996


14,660


2,298

Income tax expense

5,387


11,242


1,763

Interest income

(141)


(5,595)


(877)

Depreciation and amortization

5,838


9,862


1,546

EBITDA (Non-GAAP)

32,080


30,169


4,730







EBITDA (Non-GAAP)

32,080


30,169


4,730

Foreign exchange gain/(loss)

(13)


4,105


644

Other income

(1,490)


(4,081)


(640)

Impairment charges

-


870


136

Share-based compensation expenses






Restaurant wages and related expenses

505


756


119

Selling, general and administrative expenses

1,293


2,806


440

Adjusted EBITDA (Non-GAAP)

32,375


34,625


5,429




Source: Country Style Cooking Restaurant Chain Co., Ltd.
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