-- Revenue Increases 22% to $78.5 Million --
-- Net Income Increases 37% to $7.6 Million --
-- Diluted EPS Increases 40% to $0.14 --
HANGZHOU, China, Aug. 11 /Xinhua-PRNewswire-FirstCall/ -- China 3C Group
(OTC Bulletin Board: CHCG), a retailer and wholesale distributor of consumer
and business products in China, today announced financial results for the
three months ended June 30, 2008.
Results for the three months ended June 30, 2008
Net sales for the second quarter of 2008 totaled $78.5 million, compared
to $64.5 million for the same period of the prior year. This 21.7% sales
increase for the second quarter was primarily attributable to successful
advertising and promotional efforts by the Company in conjunction with two
major Chinese holidays in the second quarter and a net increase in new doors.
Net sales decreased $3-4 million from preliminary 2008 second quarter sales
estimates announced on July 10, 2008, after the Company accounted for supplier
rebate activity and finalized the RMB to USD conversion exchange rate. The
Company's wholesale business generated $25.4 million, or 32.3% of sales, while
the retail business generated $53.1 million, or 67.7% of sales, in the second
quarter.
The net combined retail and wholesale revenue contribution of each of the
Company's four major operating subsidiaries was as follows:
-- WangDa (cell phones) second quarter 2008 revenue increased 38.1% to
$26.9 million, compared to $19.5 million in the prior year period.
Second quarter gross profit margin for WangDa was 14.1%.
-- SanHe (appliances) second quarter 2008 revenue increased 20.3% to
$19.3 million compared to $16.1 million in the prior year period.
Second quarter gross profit margin for SanHe was 18.3%.
-- YongXin (communications/office electronic equipment) second quarter
2008 revenue increased 29.1% to $18.6 million compared to $14.4 million
in the prior year period. Second quarter gross profit margin for
YongXin was 15.9%.
-- Joy & Harmony (consumer electronics) second quarter 2008 revenue
increased 25.6% to $18.3 million compared to $14.6 million in the prior
year period. Second quarter gross profit margin for Joy & Harmony was
14.8%.
WangDa's mobile phone business was the fastest growing segment in the four
major retail subsidiaries. Some of the leading brands sold by China 3C in the
second quarter included Nokia, Motorola, Apple, Sony, Philips, Panasonic,
Brothers, SanSui, Galanz, LongDe, and TCL, among other international and
domestic brands.
Gross profit margin for the second quarter of 2008 was $12.9 million,
compared to $11.4 million in the prior year period. Second quarter 2008 gross
profit margin was 16.4% compared to 17.7% for the prior year period and 15.5%
in the first quarter of 2008. The year-over-year gross margin decrease was
primarily attributable to an increased competitive environment and a rising
rate of inflation, which has impacted the company both in the cost of
purchases and sales of goods.
General and administrative expense for the second quarter of 2008 totaled
$3.3 million, or approximately 4.2% of net sales, compared with $3.0 million,
or approximately 4.7%, for the same period in 2007. The G&A decrease on a
percentage basis was due to strengthening cost controls such as a
rationalization of management structure and increasingly sophisticated use of
computerized systems.
Income from operations for the second quarter of 2008 was $9.5 million, or
12.2% of net sales, compared to income from operations of $8.4 million for the
second quarter of 2007, or 13.1% of net sales.
The Company's second quarter 2008 tax rate decreased to 23.8% from 34.8%
in the prior year period. The Company expects its tax rate for the 2008
fiscal year to be in the 25% range, compared to 35.9% in 2007.
Net income increased 37.3% to $7.6 million, or 9.6% of net sales for the
second quarter of 2008 compared to $5.5 million, or 8.5% of net sales for the
second quarter of 2007 largely due to the increase in net sales, strengthening
cost controls and lower statutory tax rate effective for 2008. Diluted
earnings per share increased to $0.14 from $0.10 in the prior year period.
Mr. Zhenggang Wang, Chairman and Chief Executive Officer, commented, 'We
are pleased to have rebounded from a difficult first quarter with strong sales
and net income results for the second quarter. During the second quarter, we
increased our promotional efforts for the May 1st Golden Week and Dragon Boat
Festival holidays, which are two important spending periods for Chinese
consumers. Sales also benefitted from increased targeted advertising programs
that included direct mail advertising, advertising booklets and other special
offers.
We were pleased with our 90 basis point sequential improvement in gross
margin as well as a year-over-year increase in net income, both on an absolute
and percent of sales basis. We had a net increase of 31 retail locations and
the total number of store-within-stores stood at 1,001 at the end of the
second quarter. We opened 30 retail locations in Shanghai YongLe and 6 in
Wal-Mart and closed 2 non-competitive retail locations in Gome and 3 in Suning.
We estimate that we will have approximately 1,020 store-within-stores by the
end of 2008.
We believe we have a strong opportunity to enhance our competitive
position in the market by continuing to improve profitability and efficiency
per store, develop a broad product selection, selectively open new store-
within-stores in established, well-known retail locations, develop customer
service programs such as our after sales warranty support programs, and
leverage our wholesale business to create new opportunities at the retail
level.
As part of our growth efforts, we continue to evaluate the market for
acquisition opportunities. Our strong and growing cash position provides us
with us flexibility and the focus of any acquisition target continues to be on
businesses that have the ability to increase our scale, enhance our product
portfolio, optimize distribution, and immediately add to overall profitability
For the remaining two quarters of 2008, we expect to see a mid-single
digit increase in year-over-year quarterly revenue growth, excluding any new
acquisitions and that our gross margin will range between 14.5%-16.0%. We
expect our profitability for the remaining two quarters of the year to benefit
from a lower tax rate which can lead to net income that will slightly exceed
the third and fourth quarter of the prior year.
We have a great opportunity to expand our presence in China's electronic
consumer market in the months and years ahead and are committed to developing
the right product and service offering within our retail and wholesale
businesses to enhance our position in the marketplace,' concluded Wang.
Accounts receivable increased to $19.1 million at June 30, 2008 from $8.1
million at December 31, 2007 and $14.8 million at the end of the 2008 first
quarter. The increase was primarily due to strong sales growth in the second
quarter. The accounts receivable position at the end of the second quarter
met the Company's internal plan and management believes it can trend lower in
subsequent quarters.
Inventory increased to approximately $13.0 million at June 30, 2008 from
$6.7 million at December 31, 2007 and $11.0 million at the end of the 2008
first quarter. This increase was mainly attributable to the increase in net
sales during the quarter. The Company remains comfortable with its current
inventory position and continues to ensure that a sufficient level of
electronics products are supplied to each store-in-store location.
The Company's cash position improved to $26.0 million at June 30, 2008,
compared to $25.0 million at December 31, 2007 and $23.4 million at the end of
the 2008 first quarter. The Company expects a quarterly increase in its cash
and operating cash flow position for the remaining two quarters of 2008,
excluding acquisitions.
About China 3C
China 3C is a leading wholesale distributor and retailer of 3C merchandise:
computers, communication products and consumer electronics. The company
specializes in wholesale distribution and retail sales of 3C products in
Eastern China, focusing on products that make life more comfortable,
convenient and connected. The company's goal is to become the number one
retailer of 3C products in China. For more information, visit
http://www.china3cgroup.com .
Forward-looking Statements:
Certain of the statements set forth in this press release constitute
'Forward looking statements' within the meaning of the Private Securities
Litigation Reform Act of 1995. We have included and from time to time may
make in our public filings, press releases or other public statements, certain
forward-looking statements, including, without limitation, those under
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' in Part II, Item 7 of our Annual Report on Form 10-K. In some
cases these statements are identifiable through the use of words such as
'anticipate,' 'believe,' 'estimate,' 'expect,' 'intend,' 'plan,' 'project,'
'target,' 'can,' 'could,' 'may,' 'should,' 'will,' 'would' or words or
expressions of similar meaning. You are cautioned not to place undue reliance
on these forward- looking statements. In addition, our management may make
forward-looking statements to analysts, investors, representatives of the
media and others. These forward-looking statements are not historical facts
and represent only our beliefs regarding future events, many of which, by
their nature, are inherently uncertain and beyond our control. There can be
no assurance that such forward-looking statements will prove to be accurate
and China 3C Group undertakes no obligation to update any forward-looking
statements or to announce revisions to any of the forward-looking statements.
CHINA 3C GROUP AND SUBSIDIARIES
CONSOLIDATED STATEMENTSOF INCOME
FOR THE THREE MONTHS ENDING JUNE 30, 2008 AND 2007
2008 2007
Sales, net $78,515,392 $64,498,473
Cost of sales 65,639,675 53,060,275
Gross profit 12,875,717 11,438,198
General and administrative
expenses 3,326,044 3,014,233
Income from operations 9,549,673 8,423,965
Other (Income) Expense
Interest income (29,472) (17,655)
Other expense (326,904) (1,171)
Total Other (Income) Expense (356,376) (18,826)
Income before income taxes 9,906,049 8,442,791
Provision for income taxes 2,354,054 2,941,264
Net income $7,551,995 $5,501,527
Net income per share:
Basic $0.14 $0.1
Diluted $0.14 $0.1
Weighted average number of
shares outstanding:
Basic 52,673,938 52,608,938
Diluted 53,073,938 52,608,938
Comprehensive Income
Net Income $7,551,995 $5,501,527
Foreign currency translation
adjustment 1,222,590 393,131
Comprehensive Income $8,774,585 $5,894,658
CHINA 3C GROUP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDING JUNE 30, 2008 AND 2007
2008 2007
Sales, net $146,668,847 $149,021,667
Cost of sales 123,246,750 123,651,187
Gross profit 23,422,097 25,370,480
General and administrative
expenses 6,312,088 6,740,395
Income from operations 17,110,009 18,630,085
Other (Income) Expense
Interest income (65,567) (31,446)
Other (income)expense (311,929) 5,693
Gain on asset disposal (2,161) --
Total Other (Income)
Expense (379,657) (25,753)
Income before income taxes 17,489,666 18,655,838
Provision for income taxes 4,164,627 6,690,523
Net income $13,325,039 $11,965,315
Net income per share:
Basic $0.25 $0.23
Diluted $0.25 $0.23
Weighted average number of
shares outstanding:
Basic 52,673,938 52,608,938
Diluted 53,073,938 52,608,938
Comprehensive Income
Net Income $13,325,039 $11,965,315
Foreign currency
translation adjustment 2,822,640 386,280
Comprehensive Income $16,147,679 $12,351,595
CHINA 3C GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2008 AND DECEMBER 31, 2007
ASSETS 6/30/2008 12/31/2007
Current Assets
Cash and cash
equivalents $25,993,638 $24,952,614
Accounts receivable,
net 19,099,910 8,077,533
Inventory 12,991,176 6,725,371
Advance to supplier 2,478,134 2,572,285
Prepaid expenses 147,185 382,769
Total Current Assets 60,710,043 42,710,572
Property & equipment,
net 79,709 89,414
Goodwill 20,348,278 20,348,278
Refundable deposits 52,619 48,541
Total Assets $81,190,649 $63,196,805
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and
accrued expenses $5,210,024 $3,108,235
Income tax payable 2,428,862 2,684,487
Total Current
Liabilities 7,638,886 5,792,722
Stockholders' Equity
Common stock, $.001
par value,
100,000,000
shares authorized,
52,673,938 and
52,673,938 issued and
outstanding 52,674 52,674
Additional paid in
capital 19,465,776 19,465,776
Subscription
receivable (50,000) (50,000)
Statutory reserve 7,234,295 7,234,295
Other comprehensive
income 4,694,974 1,872,334
Retained earnings 42,154,044 28,829,004
Total Stockholders'
Equity 73,551,763 57,404,083
Total Liabilities and
Stockholders' Equity $81,190,649 $63,196,805
CHINA 3C GROUP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH
FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007
2008 2007
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $13,325,040 $11,965,315
Adjustments to
reconcile net income
to net cash
provided by operating
activities:
Depreciation 20,069 21,767
Gain on asset disposition (2,161) --
Provision for bad debts 17,445 2,419
Stock based compensation 226,293 851,400
Amortization of
deferred consulting expense --
(Increase) / decrease
in assets:
Accounts receivables (11,039,822) 726,962
Inventory (6,265,805) (2,094,249)
Prepaid expense 9,291 28,585
Advance to supplier 94,151 (30,695)
Deposits (4,078) (37,649)
Increase / (decrease)
in current liabilities:
Accounts payable and
accrued expenses 2,101,789 1,092,296
Income tax payable (255,625) 381,880
Total Adjustments (15,098,453) 942,716
Net cash provided by
(used in) operating
activities (1,773,413) 12,908,031
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property &
equipment (10,650) (62,253)
Proceeds from asset sales 2,447 --
Net cash used by
Investing activities (8,203) (62,253)
CASH FLOWS FROM FINANCING ACTIVITIES -- (4,500,000)
Payments of notes-other
Net cash provided in
financing activities (4,500,000)
Effect of exchange
rate changes on cash
and cash equivalents 2,822,640 386,280
Net change in cash and
cash equivalents 1,041,024 8,732,058
Cash and cash
equivalents,
beginning balance 24,952,614 6,498,450
Cash and cash
equivalents, ending
balance $25,993,638 $15,230,508
SUPPLEMENTAL DISCLOSURES:
Cash paid during the
year for:
Income tax payments $4,420,252 $6,308,643
Interest payments $ -- $ --
SOURCE China 3C Group
