China Nepstar Chain Drugstore Ltd. Reports Fourth Quarter and Fiscal Year 2014 Financial Results

SHENZHEN, China, March 30, 2015 /PRNewswire/ — 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 fourth quarter and fiscal year ended December 31, 2014.

Financial Highlights

For the quarter ended December 31, 2014:

  • Same store sales increased by 14.2% compared to the fourth quarter of 2013
  • Revenue increased by 13.4% to RMB850.1 million (US$137.0 million) compared to RMB749.8 million in the fourth quarter of 2013
  • Net income increased by 151.1% to RMB33.4 million (US$5.4 million) compared to net income of RMB13.3 million in the fourth quarter of 2013
  • Basic and diluted income per ADS was RMB0.34 (US$0.06) compared to basic and diluted income of RMB0.14 per ADS for the fourth quarter of 2013

For the year ended December 31, 2014:

  • Same store sales increased by 9.0% compared to 2013
  • Revenue increased by 9.4% to RMB2,953.3 million (US$476.0 million) compared to RMB2,699.1 million in 2013
  • Net loss was RMB13.8 million (US$2.2 million)
  • Basic and diluted loss per ADS were RMB0.14 (US$0.02)

Mr. Fuxiang Zhang, Chief Executive Officer of Nepstar, commented, "Our continuous efforts to streamline business operations, optimize individual store performance, improve product mix and market products proactively through in-store promotions have delivered double-digit growth in revenues and same store sales in the fourth quarter of 2014 compared to the same period in 2013. Both our prescription and OTC pharmaceutical products experienced strong sales in the fourth quarter of 2014. We have achieved top line growth for five consecutive years and strengthened customer relationships in a retail environment that continues to be challenging."

Fourth Quarter Results

During the fourth quarter of 2014, the Company opened 36 new stores and closed 104 stores. As of December 31, 2014, the Company had a total of 1,980 directly operated stores.

Revenue for the fourth quarter of 2014 increased by 13.4% to RMB850.1 million (US$137.0 million) from RMB749.8 million for the same period in 2013. Same store sales (for the 1,750 stores opened before December 31, 2012 and which remained in operations as of December 31, 2014) for the fourth quarter of 2014 increased by 14.2% compared to the same period in 2013. The increase in revenue and same store sales was primarily attributable to in-store promotional initiatives and strengthened marketing efforts for pharmaceutical products.

Fourth quarter revenue contribution by product category was 21.6% from prescription drugs (21.8% for the same period in 2013); 43.2% from over-the-counter ("OTC") drugs (40.5% for the same period in 2013); 11.6% from nutritional supplements (13.5% for the same period in 2013); 4.2% from herbal products (4.2% for the same period in 2013); and 19.4% from convenience and other products (20.0% for the same period in 2013).

Gross profit for the fourth quarter increased to RMB360.9 million (US$58.2 million) from RMB317.0 million for the same period in 2013. Gross margin in the fourth quarter of 2014 was 42.4%, compared with 42.3% for the same period in 2013.

The Company’s portfolio of private label products expanded to 2,156 types of products as of December 31, 2014. Sales of private label products represented approximately 14.7% of revenue and 20.4% of gross profit for the fourth quarter of 2014.

Sales, marketing and other operating expenses as a percentage of revenue decreased to 33.0% for the fourth quarter of 2014 from 35.3% for the same period of 2013, whereas sales, marketing and other operating expenses in absolute amount increased slightly for the fourth quarter of 2014.

General and administrative expenses as a percentage of revenue were 3.2% for the fourth quarter of 2014, compared to 3.8% for the same period of 2013. This decrease mainly resulted from management’s cost control efforts.

Income from operations in the fourth quarter of 2014 was RMB50.4 million (US$8.1 million) compared with income from operations of RMB21.2 million for the same period in 2013. This increase was mainly due to higher sales and continued cost control efforts in the fourth quarter of 2014.

Interest income for the fourth quarter of 2014 was RMB1.4 million (US$0.2 million), compared with RMB3.5 million for the same period of 2013.

The Company’s income tax expense was RMB17.9 million (US$2.9 million) for the fourth quarter of 2014, compared with RMB11.4 million for the same period in 2013. The effective tax rate for the fourth quarter of 2014 was 34.9%, compared to 46.2% for the same period in 2013. The decrease in effective tax rate from Q4 2013 to Q4 2014 was primarily attributable to the decreased operating losses generated by certain loss-making subsidiaries in the fourth quarter of 2014 for which full valuation allowances were recorded in respect of the related deferred tax assets. As compared to the PRC statutory tax rate of 25% applicable to our major operating subsidiaries, the difference in the effective income tax rate for the current quarter was primarily due to non-deductible expenses, the tax effect from the waiver of intra-group debts subject to tax bureau’s approval 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. Shareholders are reminded that in the PRC losses in companies which are part of a group are not allowed to be off-set against profits arising in other companies in the same group.

Net income for the fourth quarter of 2014 was RMB33.4 million (US$5.4 million), or RMB0.34 (US$0.06) basic and diluted income per ADS, compared to net income of RMB13.3 million, or RMB0.14 basic and diluted income per ADS for the fourth quarter of 2013. As of December 31, 2014, the Company had approximately 197.4 million outstanding ordinary shares. Each ADS represents two ordinary shares of the Company.

In the fourth quarter of 2014, net cash inflow provided by operating activities was RMB44.1 million (US$7.1 million), compared to net cash outflow of RMB25.2 million for the same period in 2013. This net cash inflow was primarily due to the higher operating income achieved and lower inventories storage during the fourth quarter of 2014 compared to the same period in 2013.

Fiscal Year 2014 Financial Results

In 2014, the Company opened 130 new stores and closed 216 stores. As of December 31, 2014, Nepstar had a total of 1,980 stores in operations.

Total revenue for 2014 increased to RMB2,953.3 million (US$476.0 million) from RMB2,699.1 million in 2013. Same store sales (for the 1,750 operating stores opened before December 31, 2012 and which remained in operations as of December 31, 2014) for 2014 increased by 9.0% compared to 2013. The increase in revenue and same store sales was driven by the closure of underperforming stores and continued in-store promotional initiatives and strengthened marketing efforts for pharmaceutical products.

In 2014, revenue contribution from prescription drugs was 22.3%, OTC drugs was 40.1%, nutritional supplements was 13.3%, herbal products was 4.2% and convenience and other products was 20.1%. Revenue from private label products accounted for 17.5% of total revenue and 24.8% of gross profit, respectively.

Gross profit was RMB1,230.5 million (US$198.3 million) for 2014 compared to RMB1,178.3 million in 2013. Gross margin was 41.7% in 2014, compared to 43.7% in 2013. The decrease in gross margin was mainly the result of continued sales promotion initiatives designed to increase market share.

Total operating expenses decreased to 41.4% of total revenue in 2014, compared to 42.5% recorded in 2013. Loss from operations was RMB2.9 million (US$0.5 million) for 2014, compared to income from operations of RMB23.0 million for 2013.

Interest income for 2014 was RMB7.2 million (US$1.2 million), compared to RMB15.7 million in 2013. Dividend income from cost method investments was RMB5.9 million (US$0.9 million) for 2014, compared to RMB5.2 million in 2013. Other income was RMB3.1 million (US$0.5 million) in 2014, compared to nil in 2013. Other income in 2014 mainly represented the gain from the transfer of 100% of the ownership equity interest in one of the Company’s subsidiaries, Weifang Nepstar Pharmaceutical Co., Ltd., to an independent third party.

The Company’s effective tax rate was 208.4% in 2014, compared to 73.1% in 2013. The Company’s income tax expense was RMB26.5 million (US$4.3 million) for 2014, compared to RMB32.1 million in 2013. The difference in effective income tax rate was primarily attributable to high operating losses sustained by certain loss-making subsidiaries in 2014, for which full valuation allowances were made on their deferred tax assets, and the tax effect from the waiver of intra-group debts subject to tax bureau’s approval.

Net loss was RMB13.8 million (US$2.2 million) for 2014, which represented RMB0.14 (US$0.02) basic and diluted loss per ADS, compared to net income of RMB11.8 million in 2013, which represented RMB0.12 basic and diluted income per ADS.

Net cash outflows from operating activities were RMB58.7 million (US$9.5 million) for 2014, compared with cash inflow of RMB6.9 million achieved in 2013. The net cash outflows were primarily due to more prepayments made to suppliers.

As of December 31, 2014, the Company’s total cash, cash equivalents, bank deposits and restricted cash were RMB316.9 million (US$51.1million) and its shareholders’ equity was RMB831.6 million (US$134.0 million), compared to RMB622.8 million and RMB845.5 million, respectively, as of December 31, 2013.

Business Outlook

"Now that we have regained momentum in overall revenues and same store sales, we will turn our focus to improving income from operations through continued stringent expenses control and achieving more sustainable growth in sales going forward," commented Mr. Zhang. "Our goal is to expand our market share continuously by leveraging our nationwide network of quality retail drugstores, upgrading promotional campaigns and optimizing our product mix."

Conference Call Information

The Company will host a conference call, to be simultaneously webcasted, on Monday, March 30, 2015 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 web cast of the conference call will be available on the Nepstar website at http://www.nepstar.cn.

A replay of the call will be available shortly after the conclusion of the conference call through April 6, 2015 at 11:59 p.m. Eastern 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 conference ID number 13603145.

About China Nepstar Chain Drugstore Ltd.

China Nepstar Chain Drugstore Ltd. (NYSE: NPD) is a leading retail drugstore chain in China. As of December 31, 2014, the Company had 1,980 directly operated stores across 74 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 ofUS$1.00 = RMB6.2046 on December 31, 2014 as set forth in the H.10 weekly statistical release of the Federal Reserve Board. No representation is made that the RMB amounts could have been, or could be, converted into US$ at that rate 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

Shiwei Yin
Grayling
Investor Relations
+1-646-284-9474
npd@grayling.com

(Tables Follow)

China Nepstar Chain Drugstore Ltd.

Unaudited Condensed Consolidated Statements of Comprehensive Income

(amounts in thousands – except per-share data)

Three-month period ended

Year ended

December 31,

December 31,

2013

2014

2014

2013

2014

2014

RMB

RMB

USD

RMB

RMB

USD

Revenue

749,829

850,146

137,019

2,699,103

2,953,314

475,988

Cost of goods sold

(432,840)

(489,260)

(78,854)

(1,520,796)

(1,722,792)

(277,664)

Gross profit

316,989

360,886

58,165

1,178,307

1,230,522

198,324

Sales, marketing and other operating
expenses

(264,509)

(280,205)

(45,161)

(1,026,798)

(1,098,000)

(176,965)

General and administrative expenses

(28,721)

(27,324)

(4,404)

(121,542)

(125,577)

(20,239)

Impairment losses of property and
equipment

(2,556)

(2,955)

(476)

(6,984)

(9,877)

(1,592)

Income/(loss) from operations

21,203

50,402

8,124

22,983

(2,932)

(472)

Interest income

3,492

1,355

218

15,713

7,234

1,166

Dividend income from cost method
investments

5,232

5,852

943

Other income

126

20

3,082

497

Other loss

(535)

(86)

(535)

(86)

Income before income tax expense

24,695

51,348

8,276

43,928

12,701

2,048

Income tax expense

(11,415)

(17,916)

(2,888)

(32,100)

(26,472)

(4,267)

Net income/(loss)

13,280

33,432

5,388

11,828

(13,771)

(2,219)

Basic earnings / (loss) per ordinary share

0.07

0.17

0.03

0.06

(0.07)

(0.01)

Basic earnings / (loss) per ADS

0.14

0.34

0.06

0.12

(0.14)

(0.02)

Diluted earnings / (loss) per ordinary share

0.07

0.17

0.03

0.06

(0.07)

(0.01)

Diluted earnings / (loss) per ADS

0.14

0.34

0.06

0.12

(0.14)

(0.02)

Other comprehensive income, net of tax:

Foreign currency translation adjustments

798

23

4

65

(123)

(20)

Comprehensive income / (loss) attributable to
China Nepstar Chain Drugstore Ltd.

14,078

33,455

5,392

11,893

(13,894)

(2,239)

China Nepstar Chain Drugstore Ltd.

Unaudited Condensed Consolidated Balance Sheets

(amounts in thousands)

As of

As of

December 31,

December 31,

2013

2014

2014

RMB

RMB

USD

ASSETS

Current assets

Cash and cash equivalents

361,146

252,174

40,643

Short-term bank time deposits

184,440

24,000

3,868

Long-term bank time deposits due within one year

3,256

525

Restricted cash

37,000

37,423

6,031

Accounts receivable, net of allowance for doubtful
accounts

131,984

136,568

22,011

Bills receivable

400

64

Amounts due from related parties

379

3,366

543

Prepaid expenses, deposits and other current assets

169,210

245,254

39,528

Inventories

551,783

546,312

88,050

Deferred tax assets

6,330

2,038

328

Total current assets

1,442,272

1,250,791

201,591

Non-current assets

Long-term bank time deposits

40,256

Property and equipment, net

123,183

137,750

22,201

Rental deposits

41,946

42,257

6,811

Cost method investments

12,638

12,638

2,037

Intangible assets, net

2,509

2,509

404

Goodwill

51,819

51,819

8,352

Deferred tax assets

11,723

16,340

2,633

Accrued interest income

769

Total non-current assets

284,843

263,313

42,438

Total Assets

1,727,115

1,514,104

244,029

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities

Accounts payable

403,558

409,428

65,988

Bills payable

4,334

Amounts due to related parties

29,247

25,636

4,132

Accrued expenses and other payables

123,065

122,236

19,700

Income tax payable

34,567

25,743

4,149

Dividend payable

191,246

Deferred Income

22,477

25,715

4,145

Total current liabilities

808,494

608,758

98,114

Non-current liabilities

Deferred income

17,391

15,677

2,527

Deferred tax liabilities

16,541

14,711

2,371

Other non-current liabilities

39,163

43,326

6,983

Total non-current liabilities

73,095

73,714

11,881

Total liabilities

881,589

682,472

109,995

Shareholders’ equity

Share capital

158

158

25

Additional paid-in capital

640,341

640,341

103,204

Accumulated other comprehensive loss

(41,623)

(41,746)

(6,728)

Retained earnings

246,650

232,879

37,533

Total shareholders’ equity

845,526

831,632

134,034

Total liabilities and shareholders’ equity

1,727,115

1,514,104

244,029

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