CHINA NEPSTAR CHAIN DRUGSTORE LTD.(ADR) 
By SHENZHEN, China, May 29, 2014 /PRNewswire-FirstCall/ -- China Nepstar Chain Drugstore Ltd. (NYSE: NPD) ("Nepstar" or the "Company"), a leading retail drugstore chain in China based on the number of directly operated stores, today announced its unaudited financial results for the first quarter ended March 31, 2014.
Financial Highlights
For the quarter ended March 31, 2014:
-- Same store sales increased by 7.9% compared to the first quarter of 2013
-- Revenue increased by 8.1% to RMB678.3 million (US$109.1 million) from
RMB627.4 million in the first quarter of 2013
-- Net loss was RMB18.2 million (US$2.9 million) compared to net income of
RMB7.1 million in the first quarter of 2013.
Mr. Fuxiang Zhang, Chief Executive Officer, commented, "We are pleased to report continuing growth in same store sales in the first quarter of 2014. Our focus on non-prescription pharmaceutical and nutritional products and proactive promotions continued to drive the average value per transaction, which was increased by 9.3% as compared to the same period in 2013. We are still challenged by the lower gross profits and increasing operating expenses; however, our product optimization strategy has helped stimulate top line growth, enabling us to focus on profit improvement through cost controls and inventory management."
First Quarter Results
During the first quarter of 2014, the Company opened 15 new stores and closed 24 stores. As of March 31, 2014, the Company had 2,057 directly operated stores in total.
Revenue for the first quarter of 2014 increased by 8.1% to RMB678.3 million (US$109.1 million) from RMB627.4 million for the same period in 2013. Same store sales (for the 1,924 stores opened before December 31, 2012 and which were still operating) for the first quarter of 2014 increased by 7.9% compared to the same period in 2013. The increase in same store sales was primarily due to in-store promotional initiatives and marketing of pharmaceutical products and nutritional supplements.
First quarter revenue contribution by product category was 23.3% from prescription drugs (22.1% for the same period of 2013), 40.3% from over-the-counter ("OTC") drugs (40.0% for the same period of 2013), 14.8% from nutritional supplements (14.9% for the same period of 2013); 4.5% from herbal products (4.1% for the same period of 2013); and 17.1% from convenience and other products (18.9% for the same period of 2013).
First quarter gross profit was RMB278.4 million (US$44.8 million) compared to RMB290.9 million in the same period of 2013. Gross margin in the first quarter of 2014 was 41.0%, compared with 46.4% in the same period of 2013. The year-over-year decrease in gross margin was mainly the result of proactive promotional activity such as more discounts on certain pharmaceutical and nutritional products.
The Company's portfolio of private label products expanded to 2,120 types of products as of March 31, 2014. Sales of private label products represented approximately 20.8% of the Company revenue and 29.9% of the gross profit for the first quarter of 2014.
Sales, marketing and other operating expenses as a percentage of revenue decreased to 39.9% for the first quarter of 2014 from 40.2% in the same period of 2013.
General and administrative expenses as a percentage of revenue were 5.4% for the first quarter of 2014 compared to 4.4% for the same period of 2013. This increase was mainly due to higher staff costs from the various functional departments, as well as a penalty of RMB3.2 million (US$0.5 million) imposed by Nanjing Social Insurance Administration Centre on Jiangsu Nepstar for noncompliance with the policy of allowing customers to use the balances on their medical insurance cards for purchase of merchandises not included on the Essential Drug and Reimbursement Lists.
Loss from operations in the first quarter of 2014 was RMB28.8 million (US$4.6 million) compared with income from operations of RMB11.3 million in the same period of 2013. This loss was mainly due to lower gross profit and the fact that increases in operating expenses outpaced revenue growth.
Interest income for the first quarter of 2014 was RMB2.5 million (US$0.4 million), compared with RMB4.1 million in the same period of 2013. This decrease was primarily due to withdrawal of our bank deposits for the 2013 dividend payment.
The Company's tax credit of RMB3.1 million in the first quarter of 2014 is mainly due to (i) a tax credit of RMB4.3 million attributable to deferred tax assets mainly derived from tax losses recognized by certain subsidiaries of the Company; and (ii) a RMB2.2 million reversal of deferred tax liabilities derived from withholding tax due to loss from operations in the first quarter of 2014. The tax credit is partially offset by an income tax expense of RMB3.4 million attributable to current tax charges of profitable subsidiaries of the Company.
Net loss for the first quarter of 2014 was RMB18.2million (US$2.9 million), or RMB0.18 (US$0.03) basic and diluted losses per ADS compared to net income of RMB7.1 million, or RMB0.07 basic and diluted earnings per ADS for the first quarter of 2013. As of March 31, 2014, the Company had 197.4 million outstanding ordinary shares. Each ADS represents two ordinary shares of the Company.
Net cash outflow from operating activities for the first quarter of 2014 was RMB22.6 million (US$3.6 million), compared to RMB6.9 million cash inflow for the same period in 2013. This cash outflow is primarily due to the operating loss incurred in the first quarter of 2014.
As of March 31, 2014, the Company's total cash, cash equivalents, short-term and long-term bank deposits and restricted cash were RMB399.4 million (US$64.2 million), compared to RMB622.8 million as of December 31, 2013, and the Company's shareholders' equity was RMB827.2 million (US$133.1 million), compared to RMB845.5 million as of December 31, 2013.
On November 26, 2013, the Company announced a cash dividend of US$0.32 per ADS. Approximately US$31.6 million was subsequently paid to shareholders in January 2014.
Business Outlook
"As we look forward to the remainder of the year, there are some encouraging signs of improvement in our market environment. The National Development and Reform Commission of the People's Republic of China recently announced cancellation of the price ceiling on certain low-cost drugs and initiated the process of re-pricing. The implementation of this new policy may take a few quarters, but we believe these are favorable developments that could restore differentiated pricing for a considerable number of the drugs that we sell and ultimately improve both top and bottom line performance for pharmaceutical products. In the meantime, we plan to start adjusting pricing on certain nutritional products in an effort to improve gross margins," Mr. Zhang concluded.
Conference Call Information
The Company will host a conference call, to be simultaneously webcasted, on Thursday, May 29, 2014 at 8:00 a.m. Eastern Time / 8:00 p.m. Beijing Time. Interested parties may participate in the conference call by dialing +1-877-407-9210 (North America) or +1-201-689-8049 (International) approximately five minutes before the call start time. A live webcast of the conference call will be available on Nepstar's website at www.nepstar.cn.
A replay of the call will be available shortly after the conclusion of the conference call through June 5, 2014 at 11:59 p.m. Eastern Time. An archived webcast of the conference call will be available on Nepstar's website at http://www.nepstar.cn. Interested parties may access the replay by dialing +1-877-660-6853 (North America) or +1-201-612-7415 (International) and entering conference ID number 13581619.
About China Nepstar Chain Drugstore Ltd.
China Nepstar Chain Drugstore Ltd. (NYSE: NPD) is a leading retail drugstore chain in China. As of March 31, 2014, the Company had 2,057 directly operated stores across 78 cities, one headquarter distribution center and 16 regional distribution centers in China. Nepstar uses directly operated stores, centralized procurement and a network of distribution centers to provide its customers with high-quality, professional and convenient pharmaceutical products and services and a wide variety of other merchandise, including OTC drugs, nutritional supplements, herbal products, personal care products, family care products, and convenience products. Nepstar's strategy of centralized procurement, competitive pricing, customer loyalty programs and private label offerings has enabled it to capitalize on the continuing economic growth in China and take advantage of the demographic trend in China to achieve a strong brand and leading market position. For further information, please go to http://www.nepstar.cn.
Safe Harbor Statement
This press release contains forward-looking statements. These statements constitute "forward-looking" statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in 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 quotations from management in this press release and the Company's strategic operational plans and business outlook, contain forward-looking statements. Such statements involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Further information regarding these and other risks is included in the Company's filings with the U.S. Securities and Exchange Commission, including its annual report on Form 20-F. The Company does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under applicable law.
Exchange Rate Information
The United States dollar (US$) amounts disclosed in this press release are presented solely for the convenience of the reader. Translations of amounts from RMB into United States dollars were calculated at the certified exchange rate of US$1.00 = RMB6.2164 on March 31, 2014 as set forth in the H.10 weekly statistical release of the Federal Reserve Board. No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate on March 31, 2014, or at any other date. The percentages stated are calculated based on RMB amounts.
Contacts
Zixin Shao
China Nepstar Chain Drugstore Ltd.
Chief Financial Officer
+86-755-2641-4065
ir@nepstar.cn
Dixon Chen
Grayling
Investor Relations
+1-646-284-9403
dixon.chen@grayling.com
Ivette Almeida
Grayling
Media Relations
+1-646-284-9455
ivette.almeida@grayling.com
(Tables Follow)
China Nepstar Chain Drugstore Ltd.
Unaudited Condensed Consolidated Statements of Comprehensive Income/(Loss)
(amounts in thousands - except per-share and per-ADS data)
Three-month period
ended
March 31,
2013 2014 2014
RMB RMB USD
Revenue 627,360 678,281 109,112
Cost of goods sold (336,437) (399,904) (64,330)
-------- -------- -------
Gross profit 290,923 278,377 44,782
Sales, marketing and other operating expenses (252,085) (270,760) (43,556)
General and administrative expenses (27,557) (36,378) (5,852)
Income/(loss) from operations 11,281 (28,761) (4,626)
Interest income 4,113 2,529 407
Dividend income from cost method investments 1,797 4,932 793
Income/(loss) before income tax expense 17,191 (21,300) (3,426)
Income tax (expense)/credit (10,077) 3,111 500
Net income/(loss) 7,114 (18,189) (2,926)
===== ======= ======
Basic earnings/(losses) per ordinary share 0.036 (0.092) (0.015)
Basic earnings/(losses) per ADS 0.072 (0.184) (0.030)
Diluted earnings/(losses) per ordinary share 0.036 (0.092) (0.015)
Diluted earnings/(losses) per ADS 0.072 (0.184) (0.030)
===== ====== ======
Net income/(loss) 7,114 (18,189) (2,926)
Other comprehensive loss, net of tax:
Foreign currency translation adjustments (137) (161) (26)
Comprehensive income/(loss) 6,977 (18,350) (2,952)
===== ======= ======
China Nepstar Chain Drugstore Ltd.
Unaudited Condensed Consolidated Balance Sheets
(amounts in thousands)
As of As of As of
December 31, March 31, March 31,
2013 2014 2014
RMB RMB USD
ASSETS
Current assets
Cash and cash equivalents 361,146 245,036 39,418
Short-term bank time deposits 184,440 77,440 12,457
Restricted cash 37,000 36,631 5,893
Accounts receivable, net of allowance for doubtful accounts 131,984 113,122 18,197
Amounts due from related parties 379 1,520 245
Prepaid expenses, deposits and other current assets 169,210 178,762 28,757
Inventories 551,783 545,666 87,778
Deferred tax assets 6,330 8,657 1,393
----- ----- -----
Total current assets 1,442,272 1,206,834 194,138
--------- --------- -------
Non-current assets
Long-term bank time deposits 40,256 40,256 6,476
Property and equipment, net 123,183 123,706 19,900
Rental deposits 41,946 41,903 6,741
Cost method investments 12,638 12,638 2,033
Intangible assets, net 2,509 2,509 404
Goodwill 51,819 51,819 8,336
Deferred tax assets 11,723 13,658 2,197
Accrued interest income 769 1,208 190
--- ----- ---
Total non-current assets 284,843 287,697 46,277
------- ------- ------
Total assets 1,727,115 1,494,531 240,415
========= ========= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable 403,558 402,362 64,726
Bills payable 4,334 - -
Amounts due to related parties 29,247 35,572 5,722
Accrued expenses and other payables 123,065 104,758 16,852
Income tax payable 34,567 28,051 4,512
Dividend payable 191,246 - -
Deferred income 22,477 25,527 4,106
------ ------ -----
Total current liabilities 808,494 596,270 95,918
------- ------- ------
Non-current liabilities
Deferred income 17,391 16,715 2,689
Deferred tax liabilities 16,541 14,331 2,305
Other non-current liabilities 39,163 40,039 6,441
------ ------ -----
Total non-current liabilities 73,095 71,085 11,435
------ ------ ------
Total liabilities 881,589 667,355 107,353
------- ------- -------
Shareholders' equity
Share capital 158 158 25
Treasury stock - - -
Additional paid-in capital 640,341 640,341 103,008
Accumulated other comprehensive loss (41,623) (41,784) (6,722)
Retained earnings 246,650 228,461 36,751
------- ------- ------
Total shareholders' equity 845,526 827,176 133,062
------- ------- -------
Total liabilities and shareholders' equity 1,727,115 1,494,531 240,415
========= ========= =======
SOURCE China Nepstar Chain Drugstore Ltd.
