QKL Stores Inc. Announces Fourth Quarter and Full Year 2012 Financial Results

DAQING, China, April 15, 2013 /PRNewswire/ -- QKL Stores Inc. (the "Company") (QKLS), a leading regional supermarket chain in Northeastern China and Inner Mongolia, today announced its financial results for the fourth quarter and full year financial results ended December 31, 2012.

Mr. Zhuangyi Wang, Chairman and CEO, said, "In the fourth quarter, we were more active with the level of promotional activities among our existing stores opened at least one year in order to strengthen our competitive position. Our 47 older stores that have been operating for more than one year have outperformed our younger stores as many of our new store locations are in new smaller markets which typically take longer to ramp up sales and profit. We believe our product quality, assortment and value can result in improved performance over time."

"In 2012, we opened up one new store that has approximately 5,700 square meters of space. During the fourth quarter, we closed three stores that have approximately 26,800 square meters of space. As of December 31, 2012, we operated 30 supermarkets, 14 hypermarkets, 4 department stores and 3 distribution centers situated in Daqing, Shenyang and Harbin, respectively.

As we advance into 2013, we plan to slow down the pace of our new store openings. Currently, we expect to open three new supermarket or hypermarket stores this year. We maintain confidence in our strategy of strengthening our store presence in Tier 4 and 5 cities in northeastern China as well as in our core region of operation around Daqing where the majority of our older stores are based."

Fourth Quarter 2012 Financial Results


Revenue in the fourth quarter of 2012 decreased by 17.1% to $86.0 million from $103.7 million in the fourth quarter of 2011. Comparable stores are stores that were opened for at least one year before the beginning of the comparison period, or by January 1, 2011. Those 47 stores generated approximately $84.4 million in sales in the fourth quarter of 2012, representing a decrease of $8.4 million, or 9.1% compared with $92.8 million in sales in fiscal 2011.

Gross profit decreased by 13.1% year over year to $14.6 million, compared to $16.8 million in the prior year period. Gross profit as a percentage of revenue for the fourth quarter of 2012 was 17.0%, compared to 16.2% for the fourth quarter of 2011. The decrease in gross profit percentage was primarily attributable to increased competition and the low profit margin in our new stores.

Operating expenses increased by 35.7% to $20.9 million compared to $15.4 million in the prior year period. This was primarily a result of increases in labor costs, depreciation, rent expense and other operating costs for 2012 compared with the same period in 2011.

We had a net loss of $30.8 million in the fourth quarter of 2012 compared with net income of $18.4 million in the fourth quarter of 2011. Excluding the impairment of goodwill, we had a net loss of $4.1 million in the fourth quarter of 2012 compared with net income of $0.8 million in the fourth quarter of 2011.

Full Year 2012 Financial Results



Revenue decreased by 1.4% to $365.6 million for fiscal 2012 from $370.5 million for fiscal 2011. Comparable stores are stores that were opened for at least one year before the beginning of the comparison period, or by January 1, 2011. Those 35 stores generated approximately $294.0 million in sales in fiscal 2012, an increase of $0.9 million, or 0.3% compared with $293.1 million in sales in fiscal 2011. New store sales increased, reflecting the opening of 13 new stores since January 1, 2011. One store opened in fiscal 2012 generated approximately $2.0 million for fiscal 2012, and 11 stores opened in fiscal 2011 generated $48.6 million in sales for fiscal 2012 and $38.4 million in sales for fiscal 2011, respectively.

Gross profit decreased by 2.0% to $62.4 million in fiscal 2012, compared to $63.7 million in fiscal 2011. Gross profit as a percentage of revenue for fiscal 2012 was 17.1%, compared to 17.2% for fiscal 2011. The slight decrease in gross profit percentage was primarily attributable to increased competition and the low profit margin in our new stores.

Operating expenses increased by 13.5% to $68.3 million for fiscal 2012 compared to $60.2 million in the prior year. This was primarily a result of increase in labor costs, depreciation, rent expense and other operating costs for 2012 compared with 2011.

We had a net loss of $31.0 million in fiscal 2012 compared with net loss of $16.6 million in fiscal 2011. Excluding the impairment of goodwill, adjusted net loss for fiscal 2012 changed to $4.3 million, or $3.31 per diluted share, from adjusted net income of $2.6 million, or $2.07 per diluted share for fiscal 2011. The number of shares used in the computation of diluted EPS (excluding the impairment of goodwill) increased by 3.37% to 1.31 million shares in fiscal 2012 from 1.27 million shares in fiscal 2011.

As of December 31, 2012, the Company operated 48 stores totaling 297,800 sq. meters compared to 48 stores totaling 324,400 sq. meters in the prior year period.

About QKL Stores Inc.:

Based in Daqing, China, QKL Stores, Inc. is a leading regional supermarket chain company operating in Northeastern China and Inner Mongolia. QKL Stores sells a broad selection of merchandise, including groceries, fresh food, and non-food items, through its retail supermarkets, hypermarkets and department stores; the company also has its own distribution centers that service its supermarkets. For more information, please access the Company's website at:www.qklstoresinc.com.

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 those contemplated by 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.

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