China Nepstar
Chain Drugstore Ltd. (NYSE: NPD) ("Nepstar" or "the Company"), the largest
retail drugstore chain in China based on the number of directly operated
stores, today announced its unaudited financial results for the fourth quarter
and the fiscal year ended December 31, 2009.
Fourth Quarter Financial Highlights
For the quarter ended December 31, 2009:
-- Same store sales grew 10.5% compared to the same period in 2008
-- Revenue increased 12.8% to RMB621 million (US$91 million) compared to
RMB551 million in the fourth quarter of 2008 on an adjusted basis -- Operating income rose 13.0% to RMB42 million (US$6 million) compared to
RMB37 million in the fourth quarter of 2008 on an adjusted basis
-- Net income was RMB43 million (US$6 million)
-- Net cash flow from operations was RMB31 million (US$4.5 million) Effective January 5, 2009, Nepstar terminated a voting rights
agreement, which assigned 30% of the total voting rights of Yunnan
JianZhiJia Chain Drugstore Co. Ltd. ("JZJ") to Nepstar. As of December
31, 2008 JZJ had 355 drugstore outlets, all of which were located in
Yunnan province. As a result, Nepstar no longer consolidated JZJ's
financials beginning in the first quarter of 2009, and the financial
results of JZJ were accounted for under the equity method.
To facilitate comparability of figures between periods presented,
certain financial information for 2008 is shown on an adjusted basis
in this press release to reflect the accounting impact of the
termination of the voting rights agreement as if it had been taken
place in the beginning of the relevant period.
"Our strategy of enhancing product offerings and improving store operation
efficiencies is working. Our fourth quarter was highlighted by the continued
improvement in same store sales and a healthy recovery in new store openings,"
commented Mr. Ian Wade, Chief Executive Officer of Nepstar. "As healthcare
reform and economic development continued to progress and the size of middle
class consumers continued to grow in China, we have seen an increased consumer
spending on healthcare products. In the fourth quarter of 2009, we are pleased
to see steady increases in our sales of prescription and over-the-counter
("OTC") drugs listed on the Essential Drug List ("EDL"), as well as non-EDL
pharmaceutical and nutritional products. Our customers continue to enjoy our
selection of products, quality services and the convenience we bring."
Fourth Quarter Results
During the fourth quarter of 2009, the Company opened 156 new stores and
closed 14 stores. As of December 31, 2009, Nepstar had a total of 2,479 stores
in operation.
Revenue for the fourth quarter of 2009 was RMB621 million (US$91 million),
compared to RMB656 million for the same period in 2008, and RMB551 million for
same period in 2008 on an adjusted basis.
For the fourth quarter of 2009, revenue contribution from prescription
drugs was 27.0%, OTC drugs was 36.4%, nutritional supplements was 19.7%,
traditional Chinese herbal products was 3.3% and other products was 13.6%. The
higher contribution from sales of prescription drugs was mainly due to the
surge of antibiotics sales related to the H1N1 epidemic.
Same store sales (for the 1,577 stores opened before December 31, 2007)
for the fourth quarter of 2009 increased by 10.5% from the same period in 2008.
The increase was mainly attributable to higher level of prescription and OTC
drug sales related to the H1N1 epidemic. The increase was also attributable to
the Company's effective marketing campaigns, streamlining of store operations,
further optimization of product mix, as well as the general recovery of the
Chinese economy.
Nepstar's portfolio of private label products included 1,524 products as
of December 31, 2009. Sales of private label products represented
approximately 28.7% of revenue and 43.4% of gross profit for the fourth
quarter of 2009.
For the fourth quarter of 2009, gross profit was RMB298 million (US$44
million), compared to RMB299 million for the same period in 2008 and RMB272
million for the same period in 2008 on an adjusted basis. Gross margin for the
fourth quarter of 2009 was 47.9% compared to 45.6% for the same period in 2008
and 49.4% for the same period in 2008 on an adjusted basis. The decrease in
gross margin for the fourth quarter of 2009 compared with the same period in
2008 on an adjusted basis was mainly due to the expansion of the breadth of
product offerings and price ranges to maintain competitiveness, and higher
branded product sales associated with the H1N1 epidemic.
Sales, marketing and other operating expenses as a percentage of revenue
for the fourth quarter of 2009 was 37.1%, compared to 36.2% for the same
period in 2008 and 38.6% for the same period in 2008 on an adjusted basis. The
decrease in sales, marketing and other operating expenses as a percentage of
revenue for the fourth quarter of 2009 compared to the same period in 2008 on
an adjusted basis was primarily due to the implementation of effective cost
control measures, which resulted in a reduction of headcount, closure of non-
performing stores and improved economies of scale.
General and administrative (G&A) expenses as a percentage of revenue for
the fourth quarter of 2009 were 4.1%, compared to 3.6% for the same period in
2008 and 4.1% for the same period in 2008 on an adjusted basis.
As a result of the previously mentioned factors, operating income for the
fourth quarter of 2009 increased to RMB42 million (US$6 million), compared to
RMB38 million for the same period in 2008 and RMB37 million for the same
period in 2008 on an adjusted basis. Operating margin improved from 6.1% in
the third quarter to 6.7% for the fourth quarter of 2009, compared to 5.9% for
the same period in 2008 and 6.7% for the same quarter of 2008 on an adjusted
basis.
Interest income for the fourth quarter of 2009 was RMB15 million (US$2
million) compared to RMB27 million for the same period in 2008 both on an
actual basis and on an adjusted basis. The decrease in interest income was
primarily due to (i) the maturity of a majority of the held-to-maturity
investment securities of which the proceeds were placed in bank deposits; (ii)
a general decrease of interest rates for bank deposits; and (iii) lower cash
balances as a result of the dividend payment of approximately RMB248 million
(US$36 million) in May 2009 and a special dividend payment of approximately
RMB1,034 million (US$151 million) in fourth quarter of 2009.
Other income in 2009 of RMB9 million (US$1 million) represented a gain on
deconsolidation of Yunnan JianZhiJia Chain Drugstore Co. Ltd. ("JZJ"), which
equaled to the excess of fair value of the Company's 40% non-controlling
interest in JZJ over its book value.
Nepstar's effective tax rate was 35.3% for the fourth quarter of 2009,
compared to 27.6% for the same period in 2008 and 27.7% on an adjusted basis.
The increase in effective tax rate was primarily due to the deferred tax
liability recognized for the excess of the accounting carrying amount over the
tax basis of equity interest in JZJ, which amounted to RMB7 million (US$1
million) and accounted for 5.7% of the increase in effective tax rate.
Excluding this effect, the effective tax rate was 29.6%, which was due to the
relatively higher portion of Nepstar's taxable profits being generated by
subsidiaries subject to the PRC statutory tax rate, rather than the
preferential rate.
Net income attributable to Nepstar's ordinary shareholders for the fourth
quarter of 2009 was RMB43 million (US$6 million), which represented RMB0.20
(US$0.03) basic and diluted earnings per ordinary share and RMB0.40 (US$0.06)
basic and diluted earnings per American depositary share ("ADS"). This
compares to net income of RMB46 million, which represented RMB0.22 basic and
diluted earnings per ordinary share and RMB0.44 basic and diluted earnings per
ADS for the same period in 2008. The total number of outstanding ordinary
shares of the Company as of December 31, 2009 was 210 million. The weighted
average number of ADSs for the fourth quarter of 2009 was 105 million. Each
ADS represents two ordinary shares of the Company.