QKL Stores Inc. Announces Second Quarter 2013 Financial Results

DAQING, China, August 14, 2013 /PRNewswire/ -- QKL Stores Inc. (the "Company") (Nasdaq: QKLS), a leading regional supermarket chain in Northeastern China and Inner Mongolia, today announced its financial results for the second quarter ended June 30, 2013.

Mr. Zhuangyi Wang, Chairman and CEO, said, "The second quarter was a period in which we focused on improving efficiency in our business. Our existing stores opened for more than a year continued to show stable gross profit margin of 17.2% which helps support the ramp up period of our newer stores, which typically take longer to reach profitability.

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

"As our new store opening plan modifies from the first half of the year, we believe that preliminary new 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 2013, we believe our gross margin will remain stable in the 17%-17.5% range, selling expenses as a percent of total revenue will move back into the 15%-16% range and we'll return to profitability."

"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 2013 Financial Results

Net sales decreased by $24.2 million, or 29.1%, to $59.0 million for the three months ended June 30, 2013 from $83.2 million for the three months ended June 30, 2012. The change in net sales was primarily attributable to the following: Same store sales represent sales from stores that were opened for at least one year before the beginning of the comparison period, or by April 1, 2012. Same store (44 stores) sales generated approximately $57.4 million sales in the second quarter of 2013, a decrease of $16.1 million, or 21.8% compared with $73.5 million net sales in the second quarter of 2012. New store sales decreased, reflecting the opening of one new store since April 1, 2012. The one store generated approximately $1.6 million sales in the second quarter of 2012. The number of stores including supermarkets/hypermarkets and department stores at June 30, 2013 was 45 versus 53 at June 30, 2012.

Gross profit, or total revenue minus cost of sales, decreased by $4.4 million, or 30.3%, to $10.1 million, or 17.2% of net sales, in the second quarter of 2013 from $14.6 million, or 17.5% of net sales, in the second quarter of 2012. The change in gross profit was primarily attributable to net sales decreased by $24.2 million in the second quarter of 2013 compared to the second quarter of 2012. The decrease in gross margin was primarily attributable to the increase in competition in Daqing area. We believe that our gross margin is likely to be between 17.0% and 17.5%, over the next few business quarters. New stores tend to be less profitable during their early months of operation. In addition, China's retail industry in general, and its supermarket industry in particular, are becoming more competitive every year. In this competitive marketplace, it is likely that we will focus on providing our customers with low prices in order to increase our market share and long-term sales volume.

Selling expenses decreased by $2.5 million, or 20.2%, to $9.9 million, or 16.7% of net sales, in the second quarter of 2013 from $12.4 million, or 14.9% of net sales, in the second quarter of 2012. The change in selling expenses was mainly due to a decrease in labor costs resulting from a decrease in the number of store employees, and a decrease in rent expense in the three months ended June 30, 2013 compared to the same period in 2012. In specific, labor costs decreased by $1.2 million or 24.4%, to $3.8 million in the second quarter of 2013 from $5.0 million in the second quarter of 2012. Rent expenses decreased by $0.5 million, or 22.0%, to $1.6 million in the second quarter of 2013 from $2.1 million in the second quarter of 2012.

General and administrative expenses decreased by $9,365, or 0.4%, to $2.1 million, or 3.5% of net sales, in the second quarter of 2013 from $2.1 million, or 2.5% of net sales, in the second quarter of 2012. There is no significant change to our general and administrative expense.

The Company reported a net loss of approximately $1.4 million or $(0.955) per diluted share, compared with net income of $9,611, or $0.006 per diluted share, for the same period in 2012.

As of June 30, 2013, the Company had $21.7 million in unrestricted cash with no bank loans, compared to $26.0 million as of June 30, 2012 with bank loans of $7.9 million.

Conference Call

Management will host a conference call at 8:30 am ET on Thursday, August 14th. To participate, please dial one of the local access numbers, listed below. The conference call identification number is 10017432.

About QKL Stores Inc.:

Based in Daqing, China, QKL Stores, Inc. is a leading regional supermarket chain company operating in Northeastern China and Inner Mongolia. 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.

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