omniture

QKL Stores Inc. Announces Second Quarter 2011 Financial Results

2011-08-15 19:32 1081

DAQING, China, August 15, 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 second quarter ended June 30, 2011.

Mr. Zhuangyi Wang, Chairman and CEO, said, "The second quarter was a period in which we focused on opening more of our larger concept stores and improving efficiency in our business. The performance of our existing stores opened for more than a year continued to show stable gross profit margin of 17.8% which helps support the ramp up period of our newer stores, which typically take longer to reach profitability. In the last 12 months, we have opened 18 new stores, many of which are located in remote areas and require higher marketing expenses to attract large numbers of customers."

"We plan to open 2-3 additional stores this year. Many of the new stores we open in the future will be in the Liaoning Province where we have stronger relationships with local vendors and the cost of goods is slightly lower than the other two provinces (Heilongjiang and Jilin) in which we operate."

"As our store opening plan modifies from the first half of the year, we believe that preliminary store opening expenses will decrease in the coming quarters as our total store sales rise, labor & utility costs stabilize and new store marketing expenses ease. For the remaining two quarters of 2011, we believe our gross margin will remain stable in the 17%-18% range, operating expenses as a percent of total revenue will move back into the 14%-15% range and we'll return to profitability with net income as a percent of total revenue in the 2%-3% range."

"As QKL expands its market presence in northeast China, we are uniquely positioned against our local competitors through our large product offering, strong supplier relationships, efficient distribution network and state-of-the-art IT system. We are comfortable with our opportunities in the second half of the year and believe we'll see an improvement in operating expenses and profit growth from the current quarter."

Second Quarter 2011 Financial Results

Revenue in the second quarter of 2011 increased 26.3% to $83.5 million from $66.1 million in the second quarter of 2010. Revenue performance reflected the growth of 33 comparable stores, which are stores that have been open for at least one year before the beginning of the comparison period, or by April 1, 2010, as well as sales from the opening of 18 new stores since April 1, 2010. Same-store sales were approximately $67.2 million in the second quarter of 2011, an increase of 7.6% from $62.5 million in the second quarter of 2010.The 18 new stores opened since April 1, 2010 generated approximately $14.1 million in the second quarter of 2011.

Gross profit increased 26.1% year-over-year to $14.6 million, compared to $11.6 million in the prior year period. Gross margin for the second quarter of 2011 remained flat at 17.5%. The increase in gross profit was primarily attributable to the increase in net sales compared to the second quarter of 2010.

Operating expenses increased 66.1% to $14.7 million compared to $8.8 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 five new stores opened in the second quarter of 2011.

The Company reported a net loss of approximately $(32,867), or $(0.001) per diluted share, compared with net income of $2.1 million, or $0.05 per diluted share, for the same period in 2010. This decrease was due to higher selling expenses related to new stores opening and higher staff costs in the second quarter of 2011.

As of June 30, 2011, the Company had $36.0 million in unrestricted cash, compared to $17.5 million as of December 31, 2010 and no debt or bank loans.

As of June 30, 2011, the Company operated 51 stores totaling 275,000 sq. meters compared to 37 stores totaling 165,000 sq. meters in the prior year period. The Company opened 5 new store locations in the second 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 25.3% to 29.8 million in the second quarter 2011 from 39.9 million in the second quarter 2010. The decrease is due to the fact that 7.3 million preferred stocks were not included in the computation of diluted net earnings per share as their effects would have been anti-dilutive since the Company had a net loss in the second quarter of 2011.

Net cash provided by operating activities for the six months ended June 30, 2011 and 2010 was $26.0 million and $5.3 million, respectively. The increase in cash provided by operating activities for the six month ended June 30, 2011 compared to the same period in 2010 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 repayment of money from vendors.

Conference Call

The Company will conduct a conference call to discuss its second quarter 2011 results on Monday, August 15, 2011 at 9:00 am ET. Listeners may access the call by dialing #1-719-457-2506. 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 August 22, by dialing # 1-858-384-5517; conference ID: 9495247.

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


QKL Stores, Inc.

ICR, Inc.

In China:

In U.S.:

Mike Li, Investor Relations

Bill Zima

+86-459-460-7987

+1-203-682-8233



QKL STORES INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets




June 30,
2011



December 31,
2010




(Unaudited)





ASSETS







Cash


$

36,032,802



$

17,460,034


Restricted cash



35,245




77,205


Accounts receivable



782,281




167,509


Inventories



37,549,843




44,467,265


Other receivables



17,301,351




28,236,397


Prepaid expenses



5,211,102




5,088,825


Advances to suppliers



2,590,634




3,740,327


Deferred income tax assets



689,719




508,617


Total current assets



100,192,977




99,746,179


Property, plant and equipment, net



39,783,641




24,792,149


Land use rights, net



761,134




748,533


Goodwill



44,866,814




43,863,929


Other assets



466,816




467,927


Total assets


$

186,071,382



$

169,618,717


LIABILITIES AND SHAREHOLDERS' EQUITY









Accounts payable


$

36,237,786



$

38,944,917


Cash card and coupon liabilities



12,256,490




10,814,546


Customer deposits received



1,218,321




1,495,059


Accrued expenses and other payables



23,759,004




9,883,282


Income taxes payable



1,135,785




2,365,931


Total current liabilities



74,607,386




63,503,735











Total liabilities



74,607,386




63,503,735


Shareholders' equity









Common stock, $0.001 par value per share, authorized 100,000,000 shares, issued and outstanding 30,269,590 and 29,743,811 shares at June 30, 2011 and December 31, 2010, respectively



30,270




29,744


Series A convertible preferred stock, par value $0.01, authorized 10,000,000 shares, issued and outstanding 6,769,549 and 7,295,328 at June 30,2011 and December 31, 2010, respectively



67,695




72,953


Additional paid-in capital



91,147,667




90,710,619


Retained earnings - appropriated



6,012,675




6,012,675


Retained earnings



4,649,112




2,094,850


Accumulated other comprehensive income



9,556,577




7,194,141


Total shareholders' equity



111,463,996




106,114,982


Total liabilities and shareholders' equity


$

186,071,382



$

169,618,717





QKL STORES INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income



(Unaudited)



(Unaudited)




Three Months Ended June 30,



Six Months Ended June 30,




2011



2010



2011



2010















Net sales


$

83,453,372



$

66,099,594



$

184,764,468



$

147,705,707


Cost of sales



68,828,405




54,504,918




152,044,021




121,584,917


Gross profit



14,624,967




11,594,676




32,720,447




26,120,790



















Operating expenses:

















Selling expenses



12,749,493




7,117,955




25,286,696




13,983,993


General and administrative expenses



1,946,466




1,731,613




4,150,083




3,898,871


Total operating expenses



14,695,959




8,849,568




29,436,779




17,882,864



















Income from operations



(70,992)




2,745,108




3,283,668




8,237,926



















Non-operating income (expense):

















(Increase) decrease in fair value of warrants



-




-




-




7,801,649


Interest income



163,762




195,810




453,385




344,928


Interest expense



-




(8,201)




(31,100)




(10,381)


Total non-operating income (loss)



163,762




187,609




422,285




8,136,196



















Income (loss) before income taxes



92,770




2,932,717




3,705,953




16,374,122



















Income taxes



125,637




820,348




1,151,691




2,378,902



















Net income (loss)


$

(32,867)



$

2,112,369



$

2,554,262



$

13,995,220



















Comprehensive income statement:

















Net income (loss)


$

(32,867)



$

2,112,369



$

2,554,262



$

13,995,220


Foreign currency translation adjustment



1,784,806




173,612




2,362,436




45,485


Comprehensive income


$

1,751,939



$

2,285,981



$

4,916,698



$

14,040,705



















Weighted average number of shares outstanding:

















Basic



29,755,085




29,667,924




29,771,783




29,613,671


Diluted



29,755,085




39,859,213




37,039,139




40,332,126



















Earnings per share:

















Basic


$

(0.001)



$

0.07



$

0.09



$

0.47


Diluted


$

(0.001)



$

0.05



$

0.07



$

0.35





QKL STORES INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows




(Unaudited)




Six Months Ended June 30,




2011



2010









CASH FLOWS FROM OPERATING ACTIVITIES:







Net income


$

2,554,262



$

13,995,220


Depreciation - property, plant and equipment



3,566,227




2,309,342


Amortization



15,249




13,662


Share-based compensation



432,316




591,814


Deferred income tax



(169,473)




(256,827)


Change in fair value of warrants



-




(7,801,649)


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









Accounts receivable



(610,942)




33,031


Inventories



7,934,102




5,706,734


Other receivables



11,580,644




(37,080)


Prepaid expenses



(5,164)




(272,240)


Advances to suppliers



(598,759)




401,054


Accounts payable



(3,597,550)




(6,394,315)


Cash card and coupon liabilities



1,194,685




(169,382)


Customer deposits received



(310,921)




(3,172,881)


Accrued expenses and other payables



5,272,840




187,656


Income taxes payable



(1,284,241)




152,112


Net cash provided by operating activities



25,973,275




5,286,251











CASH FLOWS FROM INVESTING ACTIVITIES:









Purchases of property, plant and equipment



(7,775,089)




(2,831,895)


Refund of office building purchase payment



-




11,015,480


Decrease of restricted cash



41,960




55,765


Net cash provided by (used in) investing activities



(7,733,129)




8,239,350











Effect of foreign currency translation



332,622




(13,352)











Net increase in cash



18,572,768




13,512,249


Cash - beginning of period



17,460,034




45,912,798


Cash - end of period


$

36,032,802



$

59,425,047











Supplemental disclosures of cash flow information:









Interest received


$

220,968



$

344,928


Interest paid


$

31,100



$

10,381


Income taxes paid


$

2,562,939



$

2,495,550





Source: QKL Stores Inc.
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