Business News
QKL Stores, Inc. Reports Fiscal Second Quarter 2008 Financial Results
2008-08-14 09:00:00
-- 2Q08 Revenues Increased 34% to $25.3 Million -- -- 2Q08 Gross Profit Increased 49% to $6.0 Million -- -- 2Q08 Net income increased 31% to $1.3 Million -- DA QING, China, Aug. 14 /Xinhua-EMWNews/ -- QKL Stores, Inc. ("Company") (OTC Bulletin Board: QKLS), a leading regional supermarket chain in Northeast China, today reported its financial results for the second quarter ending June 30, 2008. Revenue Second quarter revenue increased 34.4% to $25.3 million compared to $18.8 million in the second quarter 2007. Direct sales, which consists of revenue derived from 22 supermarkets, represented $25.3 million, or 95.7% of the quarter's total revenue. This retail revenue was primarily driven by increased demand in the Company's three core categories (fresh food, non-food, and grocery) plus the opening of one new supermarket in March 2008. Other operating income, which includes revenue from the Company's lone department store and from renters within its supermarket retail locations, represented $1.1 million, or 4.3% of sales in the second quarter of 2008. Gross Profit In the second quarter 2008, gross profits increased 49.0% to $6.0 million from $4.0 million for the second quarter 2007. Gross margin for the second quarter increased 170 basis points to 22.5%, compared to 20.8% in the same period last year. Gross margin was also up sequentially from 22.2% in the first quarter 2008. The increase in gross margin reflected the growing sales volume of high margin items and increased operating efficiencies. Selling and General and Administrative Expenses Second quarter 2008 selling, general and administrative expenses increased to $4.2 million, or 15.8% of sales, compared to $2.5 million, or 13.0% of sales in the prior year period. This increase was primarily due to growing salary expense as the Company hires new employees and higher marketing expenses, both associated with the company's implementation of its expansion plans. Income Tax Expense Income tax expense was $486,772, or 27.1% of pre-tax income in the second quarter of 2008. Income tax expense in the second quarter of 2007 was $479,398, or 32.3% of pre-tax income. This reduction was due entirely to a decreased income tax rate, from 33% of pre-tax net income to 25% of pre-tax net income, which took effect on January 1, 2008, as a result of changes in PRC tax laws. Net Income and Earnings per Share Net income in the second quarter of 2008 increased 30.6% to $1.3 million, or $0.04 per diluted share, from $1.0 million, or $0.05 per diluted share, in the prior year's second quarter. Diluted shares increased 63.1% to 31.1 million in the second quarter 2008 from 19.1 million in the second quarter 2007. This increase in the diluted share count was due to the Company's reverse merger transaction on March 28, 2008. Cash Flow for the First Six Months of 2008 Net cash flow from operating activities was $8.4 million in the first half of 2008 compared to $2.5 million in the first half of 2007. Net cash flow used by investing activities was $1.1 million in the first half of 2008 compared to $1.0 million in the first half of 2007. Net cash flow provided by financing activities was $10.7 million in the first half of 2008 compared to $517,465 used in the first half of 2007. New Store Development At end of the 2008 second quarter, the Company had 22 supermarkets and one department store for a total of approximately 55,000 square meters. The company opened two new supermarkets in the first half of the year, one in March and the second in July, for an additional 10,000 square meters of retail supermarket space. Mr. Wang Zhuangyi, Chairman and CEO, "We are pleased with our results for the second quarter. Our sales momentum was strong and we produced solid growth primarily through increased efficiency in our operations and an improvement in our sales mix. Increased demand in our core areas, particularly fresh food and non-food consumer items, had the greatest impact on our direct sales. "Since the beginning of the year, we have opened two new stores that total approximately 10,000 square meters. In the second half of 2008, we anticipate that our total net revenue will continue to increase as we open an additional 45,000-50,000 square meters of new stores and increase the volume of merchandise we sell. Our goal is to have a total of approximately 110,000-115,000 square meters of store space by the end of 2008. With nearly $30 million in cash, a sequential quarterly increase of nearly $3 million in cash from operations and continued operating cash flow growth projected for the second half of 2008, we are in a solid position to move forward with our aggressive expansion plans. "In the second half of the year, we believe our gross margin will trend in the 18-19% range as we remain focused on providing our customers with low prices in order to increase market share and long-term sales volume as well as focus on new store openings, which tend to be less profitable during their early months of operation. "We are committed to enhancing our sales opportunity by maximizing productivity within our existing stores and expanding out total store base. Our goal is to become a leading regional supermarket chain in northeast China, which we can accomplish by delivering great value and offering the finest and freshest products to our customers. Our experienced management team, our strategic plan, and our strong capital structure provide us with the right foundation to leverage the growing opportunities in our business. We continue to focus on developing all segments of our business and are confident in our ability to deliver meaningful growth ahead," concluded Mr. Wang.
About QKL Stores, Inc. Based in Da Qing, China, QKL Stores, Inc. is a leading regional supermarket chain in Northeast China. QKL Stores sells a broad selection of merchandise, including groceries, fresh food, and non-food items, through its retail supermarkets, convenience store, and department store; the company also has its own distribution centers that service its supermarkets. 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 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. CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED JUNE 30, 2008 AND 2007 (Stated in US Dollars)(Unaudited) Three months ended June 30, 2008 2007 Net revenues Direct sales $ 25,331,608 $ 18,846,390 Other operating income 1,136,953 386,788 $ 26,468,561 $ 19,233,178 Cost of inventories sold (20,515,551) (15,238,572) Gross profit $ 5,953,010 $ 3,994,606 Selling (3,393,810) (2,301,847) General and administrative (788,742) (192,783) Operating income $ 1,770,458 $ 1,499,976 Interest income 83,346 11,917 Interest expenses (55,643) (28,617) Income before income taxes $ 1,798,161 $ 1,483,276 Income taxes (486,772) (479,398) Net income $ 1,311,389 $ 1,003,878 Basic earnings per share $ 0.06 $ 0.05 Diluted earnings per share $ 0.04 $ 0.05 Basic weighted average share outstanding 20,882,353 19,082,299 Diluted weighted average share outstanding 31,127,457 19,082,299 CONSOLIDATED STATEMENTS OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007 (Stated in US Dollars)(Unaudited) Six months ended June 30, 2008 2007 Net revenues Direct sales $ 58,155,170 $ 45,080,329 Other operating income 2,310,978 757,396 $ 60,466,148 $ 45,837,725 Cost of inventories sold (46,983,058) (36,194,587) Gross profit $ 13,483,090 $ 9,643,138 Selling (6,350,502) (4,495,920) General and administrative (1,198,919) (373,361) Operating income $ 5,933,669 $ 4,773,857 Interest income 107,198 21,876 Interest expenses (128,651) (80,727) Income before income taxes $ 5,912,216 $ 4,715,006 Income taxes (1,520,450) (1,544,193) Net income $ 4,391,766 $ 3,170,813 Basic earnings per share $ 0.21 $ 0.17 Diluted earnings per share $ 0.14 $ 0.17 Basic weighted average share outstanding 20,882,353 19,082,299 Diluted weighted average share outstanding 30,753,466 19,082,299 QKL STORES INC. CONSOLIDATED BALANCE SHEETS AS AT JUNE 30, 2008 AND 2007 (Stated in US Dollars) June 30, December 31, 2008 2007 ASSETS (Unaudited) (Audited) Current assets Cash and cash equivalents $ 29,908,003 $ 10,742,064 Pledged deposits 300,000 -- Other receivables 3,821,284 3,190,205 Inventories and consumables 7,907,723 8,239,770 Advances to suppliers 1,045,210 1,005,824 Prepaid expenses 1,742,923 909,587 Total current assets $ 44,725,143 $ 24,087,450 Property, plant and equipment, net 10,196,727 9,806,545 Lease prepayments, net 798,046 752,844 TOTAL ASSETS $ 55,719,916 $ 34,646,839 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Short-term bank loans $ 2,182,834 $ 2,734,444 Accounts payable 11,646,927 7,856,753 Cash card and coupon liabilities 2,138,578 1,814,229 Deposits received 52,719 873,657 Accruals 745,712 347,486 Other PRC taxes payable 322,584 16,115 Other payables 1,072,729 793,484 Income taxes payable 493,698 374,895 Total current liabilities $ 18,655,781 $ 14,811,063 Long-term bank loans -- 2,050,833 TOTAL LIABILITIES $ 18,655,781 $ 16,861,896 Commitments and contingencies $ -- $ -- QKL STORES INC. CONSOLIDATED BALANCE SHEETS (Continued) AS AT JUNE 30, 2008 AND 2007 (Stated in US Dollars) June 30, December 31, 2008 2007 (Unaudited) (Audited) STOCKHOLDERS' EQUITY Common stock, par value $0.001, 100,000,000 shares authorized, 20,882,353 and 19,082,299 issued and outstanding respectively $ 20,882 $ 19,082 Series A convertible preferred stock, par value $0.01, 10,000,000 shares authorized, 9,117,647 and nil issued and outstanding respectively 91,176 -- Additional paid-in capital 19,805,207 4,457,653 Statutory reserves 2,703,742 2,703,742 Retained earnings 10,803,372 9,179,694 Accumulated other comprehensive income 3,639,756 1,424,772 $ 37,064,135 $ 17,784,943 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 55,719,916 $ 34,646,839 QKL STORES INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007 (Stated in US Dollars)(Unaudited) Six months ended June 30, 2008 2007 Cash flows from operating activities Net income $ 4,391,766 $ 3,170,813 Depreciation 872,058 711,906 Amortization 8,111 1,731 Loss on disposal of plant and equipment 184,684 22,536 Adjustments to reconcile net income to net cash provided by operating activities: Other receivables (413,108) (3,620,377) Inventories and consumables 837,907 869,052 Advances to suppliers 24,633 854,490 Prepaid expenses (749,020) 519,965 Accounts payable 3,191,214 249,305 Cash card and coupon liabilities 201,683 373,288 Deposits received (852,263) (849,228) Accruals 344,202 154,563 Other PRC taxes payable 296,759 (55,740) Other payables (13,089) 427,938 Income taxes payable 91,984 (325,224) Net cash provided by operating activities $ 8,417,521 $ 2,505,018 Cash flows from investing activities Purchase of plant and equipment $ (822,573) $ (979,087) Payment of lease prepayments (4,949) (3,816) Increase in pledged deposits (300,000) -- Net cash used in investing activities $ (1,127,522) $ (982,903) Cash flows from financing activities Issue of capital, net of transaction costs of $1,976,470 $ 13,521,730 $ -- Bank borrowings -- 4,527,820 Bank repayments (2,827,802) (5,045,285) Net cash provided by (used in) financing activities $ 10,693,928 $ (517,465) QKL STORES INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) FOR THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007 (Stated in US Dollars)(Unaudited) Six months ended June 30, 2008 2007 Net cash and cash equivalents sourced $ 17,983,927 $ 1,004,650 Effect of foreign currency translation on cash and cash equivalents 1,182,012 117,897 Cash and cash equivalents- beginning of year 10,742,064 4,116,600 Cash and cash equivalents-end of year $ 29,908,003 $ 5,239,147 Supplementary cash flow information: Interest received $ 107,199 $ 21,876 Interest paid 128,651 80,727 Tax paid 1,428,466 1,869,417 For more information, please contact: Company Contact QKL Stores, Inc. Rhett Xudong Wang Tel: +86-45-9460-7987 Investor Relations: In the U.S.: Abbie Gellman & Bill Zima Tel: +1-203-682-8200 In Asia: Annie Chen Tel: +86-10-8523-3087
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