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China Nepstar Chain Drugstore Reports Third Quarter 2012 Financial Results

- Same Store Sales Increased by 12.8% -

SHENZHEN, China, Nov. 28, 2012 /PRNewswire-FirstCall/ -- 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 third quarter ended September 30, 2012.

Financial Highlights

For the quarter ended September 30, 2012:

  • Revenue increased by 4.3% to RMB634.6 million (US$101.0 million), compared to RMB608.6 million in the third quarter 2011
  • Same store sales increased by 12.8% over the same period of 2011
  • Income from operations was RMB4.2 million (US$0.7 million), compared to RMB3.0 million in the third quarter 2011
  • Net income was RMB1.9 million (US$0.3million), compared to RMB1.2 million in the third quarter 2011

Mr. Fuxiang Zhang, Chief Executive Officer, commented, "Despite a reduction in the number of our stores, we continue to see growth in our total revenue and same store sales, which had been driven by our proactive sales and marketing campaigns and by optimizing our product offerings. After a modest growth of 10% in the second quarter, our pharmaceutical categories, prescription and over-the-counter ("OTC") drugs, together, grew over 19% during the third quarter on the same store basis, year over year.

"Store productivity and profitability remain our top priorities as we strive to strengthen our competitiveness and maintain leadership position in the market. During the third quarter, we attempted to expand market share in certain regions through more intense sales promotions, which temporarily adversely affected our gross margin. However, we believe that our strategy will pay off in a long run as we have already seen a moderate growth in number of customers' visits to our stores for two consecutive quarters on the same store basis, year on year."

Third Quarter Results

During the third quarter of 2012, the Company opened 11 new stores and closed 77 underperforming stores that show no signs of turning around. As of September 30, 2012, Nepstar had a total of 2,191 stores in operation.

Revenue for the quarter ended September 30, 2012 increased by 4.3% to RMB634.6 million (US$101.0 million), compared to RMB608.6 million for the same period in 2011.

Same store sales (for 2,088 stores opened before December 31, 2010) for the third quarter of 2012 increased by 12.8% compared to the same period in 2011. This growth was mainly attributable to a more than 19% increase in the sales of pharmaceutical products on the same store basis year over year as a result of the company's successful proactive marketing campaign and the closure of underperforming stores during the quarter.

Third quarter revenue contribution from prescription drugs was 18.9%, OTC drugs was 39.6%, nutritional supplements was 15.9%, traditional Chinese herbal products was 3.5% and convenience and other products was 22.1%.

Nepstar's portfolio of private label products included 1,977 products as of September 30, 2012. Sales of private label products represented approximately 26.7% of revenue and contributed 38.2% of gross profit for the third quarter of 2012. This compares to approximately 30.9% of revenue contribution and 43.2% of gross profit contribution by private label products during the same period of 2011. The decline of private label products' contribution to revenue and gross profit was mainly due to the introduction of more locally procured pharmaceutical products as a response to local customer demand.

Third quarter gross profit was RMB293.0 million (US$46.6 million), compared to RMB289.3 million for the same period of 2011. Gross profit margin in the third quarter of 2012 was 46.2%, compared to 47.5% for the same period of 2011. The decrease in gross profit margin was mainly due to the proactive  sales promotion across all product categories during the quarter.

Sales, marketing and other operating expenses as a percentage of revenue in the third quarter of 2012 decreased to 40.1% from 42.6% in the same period of 2011. The decrease was primarily due to the growth in same store sales and closure of underperforming stores.

General and administrative expenses as a percentage of revenue in the third quarter of 2012 were 5.0%, compared to 4.2% for the same period of 2011. The increase was mainly due to higher labor cost reflecting the inflationary economic environment.

Impairment loss of RMB3.0 million (US$0.5 million) was recognized in the third quarter of 2012, compared to RMB1.0 million in the same period of 2011. The impairment loss represented the reduction to the carrying amount of the property and equipment of certain underperforming stores, some of which will be closed in the 4th quarter of 2012.

As a result of the factors discussed above, income from operations in the third quarter of 2012 was RMB4.2 million (US$0.7 million), compared to RMB3.0 million in the same period of 2011.

Interest income for the third quarter of 2012 was RMB3.6 million (US$0.6 million), compared to RMB6.1 million for the same period of 2011. Interest income decreased as a result of reduced cash balance after distribution of a special dividend in the second quarter of this year.

Dividend income from cost method investments was nil for the third quarter of 2012, compared to RMB0.7 million for the same period of 2011. Equity in income of an equity method investee was RMB0.3 million (US$0.05 million) for the third quarter of 2012, compared to a loss of RMB0.6 million for the same period of 2011.

Nepstar's effective tax rate was 77.2 % for the third quarter of 2012, compared to 87.0% for the same period in 2011. As compared to the PRC statutory tax rate of 25% applicable to our major operating subsidiaries, the difference in the effective income tax rates was primarily due to non-deductible expenses and the relatively high amounts of operating losses from loss-making subsidiaries, for which full valuation allowances were made on their deferred tax assets, as compared to the overall results of the Company.

Net income in the third quarter of 2012 was RMB1.9 million (US$0.3 million), which represented RMB0.018 (US$0.002) basic and diluted earnings per American Depositary Share ("ADS"). This compares to a net income of RMB1.2 million, which represented RMB0.012 basic and diluted earnings per ADS for the same period of 2011.

The total number of outstanding ordinary shares of the Company as of September 30, 2012 was 197.4 million. The weighted average number of ordinary shares in the third quarter of 2012 was 197.6 million. Each ADS represents two ordinary shares of the Company.

As of September 30, 2012, Nepstar's total cash, cash equivalents and bank deposits were RMB570.4 million (US$90.8 million) and its shareholders' equity was RMB947.7 million (US$150.8 million).

In the third quarter of 2012, net cash flow from operations was RMB0.05 million (US$0.01 million) as compared to RMB34.1 million in the same period of 2011. The lower net cash-flow from operations, compared to the same period of last year, was partially caused by the increases in inventory of the non-pharmaceutical categories due to the optimization of the Company's product portfolio. It was also partially caused by stocking of certain best selling pharmaceutical products, for which the Company has relatively shorter credit terms than the other merchandise items, for the peak sales season of the coming quarter.

Business Outlook

"The fourth quarter is traditionally a strong quarter for drugstores due to the flu season and increased consumption of nutritional products towards the year-end. As our store network has already gone through a series of operational optimization since the beginning of this year, we expect our same store productivity to keep the momentum of robust sales in the fourth quarter. We will continue to broaden our product portfolio and strengthen our marketing programs to encourage customers to visit our stores more frequently and buy more products across categories each visit. At the same time, we will also focus on maintaining our high quality customer service and building customers' trust in our stores," stated Mr. Zhang.

Conference Call Information

The Company will host a conference call, to be simultaneously webcasted, on Wednesday, November 28, 2012 at 8:00 a.m. Eastern Time / 9:00 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 web cast of the conference call will be available on the Nepstar website at www.nepstar.cn.

A replay of the call will be available shortly after the conclusion of the conference call through December 5, 2012 at 11:59 p.m. Eastern Time or December 6, 2012 at 12:59 p.m. Beijing Time. An archived Web cast of the conference call will be available on the Nepstar 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 account number 286 and conference ID number 403401.

About China Nepstar Chain Drugstore Ltd.

China Nepstar Chain Drugstore Ltd. (NYSE: NPD) is China's largest retail drugstore chain based on the number of directly operated stores. As of September 30, 2012, the Company had 2,191 stores across 73 cities, one headquarter distribution center and 15 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 pharmacy services and a wide variety of other merchandise, including OTC drugs, nutritional supplements, herbal products, personal care products, family care products, and convenience products including consumables. Nepstar's strategy of centralized procurement, competitive pricing, customer loyalty programs and private label offerings has enabled it to capitalize on the robust economic growth in China and to 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 for the convenience of the reader were calculated at the certified exchange rate of  US$1.00 = RMB6.2848 on September 30, 2012 as set forth in the H.10 weekly statistical release of the Federal Reserve Board. No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate on September 30, 2012, or at any other date. The percentages stated are calculated based on RMB amounts.

Contacts

Lucia Qian
China Nepstar Chain Drugstore Ltd.
Vice President, IR
Phone: +86-755-2641-4065
Email: [email protected]

Dixon Chen
Grayling
Investor Relations
Tel: +1-646-284-9403
Email: [email protected]

Ivette Almeida
Grayling
Media Relations
Tel: +1-646-284-9455
Email: [email protected]

Tables follow

China Nepstar Chain Drugstore Ltd.

Unaudited Condensed Consolidated Statements of Comprehensive Income

(amounts in thousands – except per-share data and per ADS data)




Three-month period ended

September 30,


2011

2012

2012


RMB

RMB

USD





Revenue

608,626

634,552

100,966

Cost of goods sold

(319,340)

(341,602)

(54,354)

Gross profit

289,286

292,950

46,612

Sales, marketing and other operating expenses

(259,540)

(254,162)

(40,441)

General and administrative expenses

(25,752)

(31,650)

(5,036)

Impairment losses of property and equipment

(1,012)

(2,956)

(470)

Income from operations

2,982

4,182

665

Interest income

6,101

3,638

579

Dividend income from cost method investments

682

-

-

Equity in income of an equity method investee

(630)

301

48

Income before income tax expense

9,135

8,121

1,292

Income tax expense

(7,948)

(6,270)

(998)

 

Net income

1,187

1,851

294





Basic earnings per ordinary share

0.006

0.009

0.001

Basic earnings per ADS

0.012

0.018

0.002

Diluted earnings per ordinary share

0.006

0.009

0.001

Diluted earnings per ADS

0.012

0.018

0.002

Net income

1,187

1,851

294

 

Other comprehensive income, net of tax:




 

Foreign currency translation adjustments

148

(457)

(73)





Comprehensive income

1,335

1,394

221





 

China Nepstar Chain Drugstore Ltd.

Unaudited Condensed Consolidated Balance Sheets

(amounts in thousands)






As of

As of

As of

December 31,

September 30,

September 30,


2011

2012

2012


RMB

RMB

USD

ASSETS




Current assets




Cash and cash equivalents

767,885

277,298

44,122

Short-term bank time deposits

43,000

273,100

43,454

Accounts receivable, net of allowance for doubtful accounts

102,937

107,186

17,055

Amounts due from related parties

4,649

7,017

1,117

Prepaid expenses, deposits and other current assets

122,831

141,097

22,450

Inventories

437,058

469,474

74,700

Deferred tax assets

2,009

3,195

508

Total current assets

1,480,369

1,278,367

203,406





Non-current assets




Long-term bank time deposits

169,000

20,000

3,182

Property and equipment, net

141,817

126,623

20,147

Rental deposits

39,559

38,928

6,194

Cost method investments

12,638

12,638

2,011

Equity method investment

36,703

36,752

5,848

Intangible assets, net

3,087

2,869

457

Goodwill

51,819

51,819

8,245

Deferred tax assets

3,151

2,598

413

Deposits for acquisition

1000

-

-

Accrued interest income

3,054

281

45

Total non-current asset

461,828

292,508

46,542

Total Assets

1,942,197

1,570,875

249,948





LIABILITIES AND SHAREHOLDERS'  EQUITY




Current liabilities




Accounts payable

352,386

381,645

60,725

Bills payable

-

6,195

986

Amounts due to related parties

18,169

16,765

2,667

Accrued expenses and other payables

118,121

116,310

18,507

Income tax payable

28,480

22,429

3,569

Deferred Income

10,662

16,141

2,568

Total current liabilities

527,818

559,485

89,022

 

Non-current liabilities




Deferred income

17,078

16,920

2,692

Deferred tax liabilities

12,032

12,574

2,001

Other non-current liabilities

31,015

34,214

5,444

Total non-current liabilities

60,125

63,708

10,137





Total liabilities

587,943

623,193

99,159





Shareholders' equity




Share capital

161

158

25

Treasury stock

(1,736)

-

-

Additional paid-in capital

1,252,232

833,519

132,624





Accumulated other comprehensive loss

(41,133)

(42,060)

(6,692)

Retained earnings

144,730

156,065

24,832





Total shareholders' equity

1,354,254

947,682

150,789





Total liabilities and shareholders' equity

1,942,197

1,570,875

249,948

SOURCE China Nepstar Chain Drugstore Ltd.

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