QKL Stores Inc. Announces First Quarter 2011 Financial Results

DAQING, China, May 16, 2011 /PRNewswire-Asia-FirstCall/ -- QKL Stores Inc. (the "Company") (Nasdaq: QKLS), a leading regional supermarket chain in Northeastern China, today announced its financial results for the first quarter ended March 31, 2011.

Mr. Zhuangyi Wang, Chairman and CEO, said, "We made a lot of progress in the first quarter with our store opening activity.  The opening of six new stores in the first quarter was our most active store opening quarter to date.  We have since opened another five stores in April which brings us close to completing our plan to open twelve new stores for the year.  While this has resulted in higher pre-opening expenses, we believe we are setting the stage for increased top and bottom line growth in the coming quarters.  We finished the first quarter operating a total of 49 stores, comprised of 33 supermarkets, 13 hypermarkets and 3 department stores.  As our new store opening plan slows for the remainder of the year, particularly in the second half, we expect capex spending to slow and our profitability to improve as we benefit from our new store sales, increased same store sales at existing stores and reduced store opening and promotional expenses."  

"We were also pleased with the improvement of our operating cash flows in the first quarter due to a reduction in inventory after the peak Chinese New Year season and a decrease in other receivables attributable to cash recovery from our vendors after the busy holiday season. We are pleased with our execution in the first quarter and are setting the stage for increased top and bottom line growth in the coming quarters."

First Quarter 2011 Financial Results

Revenue in the first quarter of 2011 increased 24.1% to $101.3 million from $81.6 million in the first quarter of 2010.  Revenue performance reflected the growth of 34 comparable stores, which are stores that have been open for at least one year before the beginning of the comparison period, or by January 1, 2010, as well as sales from the opening of 15 new stores since January1, 2010.  Same-store sales were approximately $84.1 million in the first quarter of 2011, an increase of 8.5% from $77.5 million in the first quarter of 2010.The 15 new stores opened since January 1, 2010 generated approximately $17.2 million in the first quarter of 2011.  

Gross profit increased 24.6% year over year to $18.1 million, compared to $14.5 million in the prior year period.  Gross margin for the first quarter of 2011 was 17.9%, compared to 17.8% for the first quarter of 2010. The increase in gross profit was primarily attributable to the increase in net sales over the prior year period.

Operating expenses increased 63.2% to $14.7 million compared to $9.0 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 as well as from pre-opening expenses from six new stores opened in the 2011 first quarter. Operating income was $3.4 million, or 3.3% of sales, from $5.5 million, or 6.7% of total sales, in the first quarter of 2010.  

First quarter 2011 net income was approximately $2.6 million, or $0.07 per diluted share, compared with $11.9 million, or $0.29 per diluted share, for the same period in 2010. Excluding changes in the fair value of warrants, adjusted net income for the three months ended March 31, 2011 was $2.6 million, or $0.07 per diluted share, compared to $4.1 million, or $0.10 per diluted share, in the period prior year.

As of March 31, 2011, the Company had $41.1 million in unrestricted cash, compared to $46.5 million as of March 31, 2010 and no debt or bank loans.

As of March 31, 2011, the Company operated 49 stores totaling 260,000 sq. meters compared to 38 stores totaling 164,000 sq. meters in the prior year period.  The Company opened 6 new store locations in the first quarter of 2011.  

The number of weighted average shares outstanding used in the computation of diluted EPS (excluding the fair value of the warrants) decreased 8.2% to 37.0 million in the first quarter 2011 from 40.4 million in the first quarter 2010. The decrease is due to the fact that 11,768,860 shares of stock warrants and 2,033,000 options were not included in the computation of diluted net earnings per share as their effects would have been anti-dilutive since the average share price for the three months ended March 31, 2011 were lower than the options and warrants exercise price.

Net cash provided by operating activities for the 2011 first quarter was $25.5 million compared to $1.5 million in the prior year period. The increase in cash provided by operating activities primarily reflects net cash inflow caused by the decrease of inventories, and decrease of other receivables. The decrease of inventories was caused by reducing the inventory on hand after the peak Chinese New Year season. The decrease of other receivables is largely attributable to the recovery of money from vendors.

Conference Call

The Company will conduct a conference call to discuss its first quarter 2011 results on Monday, May 16, 2011 at 9:00 am ET. Listeners may access the call by dialing #1-719-325-2455. 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 May 23, by dialing #1-858-384-5517; conference ID: 8096663.

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.

(Financial Tables Follow)