<0> China Jo-Jo Drugstores, Inc. Reports Fiscal First Quarter 2013 Revenue and Schedules First Quarter FY 2013 Conference Call </0>
China Jo-Jo Drugstores, Inc.Ming Zhao, Chief Financial Officer561-372-5555
China Jo-Jo Drugstores, Inc. (NASDAQ:CJJD), (the “Company”), a retail and wholesale distributor of pharmaceutical and other healthcare products in Zhejiang and Shanghai, today reported earnings results for the first quarter of fiscal 2013 ended June 30, 2012.
The Company will hold a conference on Thursday, August 16, 2012, at 8:00 a.m. Eastern Time. Please see below for dial-in information.
First Quarter Fiscal 2013 Highlights:
Dr. Lei Liu, Chairman and CEO, stated, “We are very pleased to deliver another quarter of revenue growth, reflecting the benefits of our strategic entrance into the wholesale business and the vertical integration of our supply chain. While China’s slower economic and increased regulatory environment growth posed challenges to our retail drugstore sales, our wholesale business continued to grow, accounting for the majority of our first-quarter revenue.”
Since August 2011, stricter government policies towards the marketing practices of retail drugstores, competition and the shift of certain group sales to our wholesale operations have impacted the sales at our retail drugstores. Quarter over quarter, the Company’s retail drugstores sales revenue improved to $8,954,456 during the three months ended June 30, 2012 over revenue of $7,722,663 during the three months ended March 31, 2012.
Dr. Liu further commented, “Looking at the next twelve months, we anticipate that our revenues will be primarily from our wholesale operations with additional contributions from our retail drugstores. We also hope to see continued production from our Chinese herb farming and growth in our online drugstore business.”
During the three months ended June 30, 2012, Chinese herb farming accounted for less than 10% of revenues, while contributing more than 44.6% to the overall gross margin during the three months ended June 30, 2012.
We had three revenue streams for the three months ended June 30, 2012: (i) store and online retail sales of pharmaceutical and other healthcare products, (ii) wholesale distribution of pharmaceutical and other healthcare products, and (iii) our self-cultivated TCM herbs, that were sold primarily to third-party pharmaceutical trading companies. Included in our wholesale revenue are: (i) wholesales of pharmaceutical and healthcare products that we purchased from third-party manufacturers or suppliers, and (ii) direct group sales or sales to non-distributors. In contrast, store retail sales provided all of our revenue for the three months ended June 30, 2011.
Our revenue increased by $11,419,471 or 53.3% period over period, primarily due to the expansion of our wholesale business and Chinese herb farming business, offset by a decrease in our retail business:
The following table breaks down the revenue for our three business segments for the three months ended June 30, 2012 and 2011:
The revenue fluctuation period over period reflected the following combined factors:
Our gross profit decreased by $1,724,546 or 25.1% period over period primarily as a result of decreased retail sales. Our gross margin decreased period over period from 32.1% to 15.7% as a result of decline in our retail sale profit margin as well as a lower profit margin from our wholesale business. The average gross margin of our retail, wholesale businesses and farming business for the three months ended June 30, 2012 were as follows:
Our retail gross margin decreased to 26.0% in the three months ended June 30, 2012 from 32.1% in the three months ended June 30, 2011. Beginning in August 2011, the Chinese government included more and more prescription and OTC drugs on the price control list. Some of our products’ prices were higher than the prices set by the Chinese government. Hence, we had to adjust these products’ prices. As a result, the profit margin for these products declined. In addition, due to the economic slowdown, stringent government policies relating to insurance reimbursements and the expansion of Essential Drug List (EDL), the retail drugstore business became much more challenging. For example, drugs listed in the EDL were being sold at a price equal to its cost at local community hospitals that, in turn, receive government subsidies. In order to stay competitive, we lowered certain drug prices resulting in an overall decrease in our retail gross profit margin.
Our wholesale gross margin for the three months ended June 30, 2012 was 2.5%, which is slightly lower than the profit margin of a traditional wholesale drug distributor. Because we introduced competitive prices to stimulate sales, our traditional wholesale business, where we purchase from third-party manufacturers or suppliers and resell, had a low profit margin. Although the margins for our group sales are usually higher than our traditional wholesale business, they vary depending on specific products we carried and sold.
Our profit margin from our farming business was approximately 90.9% for the three months ended June 30, 2012. As we monitored our cultivated herbs through our specialists, we were able to maintain good quality that, in turn, enabled us markup our herbs to market prices. The cultivation costs for TCM’s are traditionally low therefore increasing the gross margin.
Our sales and marketing expenses increased by $479,925 or 34.8% period over period due to increased rent, labor, and depreciation & amortization expense. Such expenses as a percentage of our revenue decreased to 5.7%, from 6.4% for the same period a year ago as wholesale business contributed significant sales revenue. We expect that our sales and marketing expenses will increase as we continue to expand our infrastructure, online pharmacy and wholesale business.
Our general and administrative expenses increased by $1,771,795 or 164.9% period over period. Such expenses as a percentage of our revenue increased to 8.7% from 5.0% for the same period a year ago. The increase in absolute dollars as well as a percentage of revenue related to professional fees incurred as a U.S. publicly traded company, more reserves for accounts receivables and advances to suppliers, increased salaries, and administration costs related to our new businesses such as Jiuxin Medicine. For example, due to the expansion of our wholesale business, we had significant amount of accounts receivable and advance to suppliers as of June 30, 2012. As a result, we recorded an additional $1.1 million of bad debt expense, that is included in general and administration expenses. As we continue to open drugstores, further develop our infrastructure, and incur expenses related to being a U.S. public company, we anticipate that our general and administrative expenses will increase in absolute dollars.
As a result of lower profit margins, increases in selling and marketing expenses, and increases in general and administration expenses, our income from operations decreased by $3,976,266 or 90.0% period over period. Our operating margin for the three months ended June 30, 2012 and 2011 was 1.3% and 20.6%, respectively.
Our income tax expense decreased by $1,251,681 period over period, as a result of lower taxable income and an income tax waiver granted to Qianhong Agriculture, our entity that cultivates TCM.
As a result of the foregoing, our net income decreased by $2,707,842 period over period.
The Company will host a conference call to discuss its first quarter fiscal year 2013 results on Thursday, August 16, 2012, at 8 a.m. Eastern Time. To participate in the conference call, please dial 1-877-941-4774 from North America. International participants can access the call by dialing 1-480-629-9760. A live audio webcast of this conference call will be available under the Investors Relations section of the Company's website at . A replay of the call will be available beginning the same day at approximately 11a.m. Eastern Time by dialing 1-877-870-5176 or -1-858-384-5517 with pin #4560312. The replay will also be available on the company website.
Balance Sheet Highlights
As of June 30, 2012, the Company had $3.6 million of cash, $57.4 million in current assets and $30.7 million in total liabilities.
New Store Openings
During the first quarter of fiscal 2013, the Company opened 4 new stores, operating a total of 65 stores as of August 13, 2012.
About China Jo-Jo Drugstores, Inc.
China Jo-Jo Drugstores, Inc., through its subsidiaries and contractually controlled affiliates, is a retailer and wholesale distributor of pharmaceutical and other healthcare products in the People’s Republic of China. As of June 30, 2012, the Company has 65 retail pharmacies throughout Zhejiang Province and Shanghai.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: Certain of the statements made in the press release constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by the use of forward-looking terminology such as “believe,” “expect,” “may,” “will,” “should,” “project,” “plan,” “seek,” “intend,” or “anticipate” or the negative thereof or comparable terminology. Such statements typically involve risks and uncertainties and may include financial projections or information regarding the progress of new product development. Actual results could differ materially from the expectations reflected in such forward-looking statements as a result of a variety of factors, including the risks associated with the effect of changing economic conditions in The People’s Republic of China, variations in cash flow, reliance on collaborative retail partners and on new product development, variations in new product development, risks associated with rapid technological change, and the potential of introduced or undetected flaws and defects in products, and other risk factors detailed in reports filed with the Securities and Exchange Commission from time to time.