Chinese retail drugstore China Nepstar Chain Drugstore Ltd. (NPD) Tuesday reported an increase in profit for the third quarter, helped by lower sales, marketing and other operating expenses, despite a decline in revenues.
Net income for the quarter was RMB 36.89 million or RMB 0.18 per share, up from RMB 35.65 million or RMB 0.16 per share a year ago. Earnings per American depository shares grew to RMB 0.35 from RMB 0.32 last year.
Revenues declined to RMB 556.18 million from RMB 612.98 million in the same quarter last year. On a pro forma basis, revenues grew 8% from previous year.
Same store sales for the quarter increased 3.8%, due mainly to streamlining of operations and further optimization of product mix and recovery of the overall Chinese economy.
Sales, marketing and other operating expenses declined to RMB 213.64 million from RMB 251.76 million a year ago, primarily due to reduction in headcount and a reduction in rental expenses as well as due to the closing of non-performing stores. As a result, operating income increased to RMB 34 million from RMB19 million in the same period in 2008.
China Nepstar noted that, in January 2009, it has terminated a voting rights assignment agreement of 30% of the total voting rights of Yunnan JianZhiJia Chain Drugstore Co. Ltd. to Nepstar. As a result, China Nepstar no longer consolidated Yunnan JianZhiJia financials beginning in the first quarter of 2009 and the company presented pro forma financial information to show the accounting impact of the termination of the voting rights assignment agreement.
During the quarter, the company opened 47 new stores and closed 22 stores. As of September 30, Nepstar had a total of 2,337 stores in operation.
Looking ahead, the company cautioned that the Chinese government's implementation of the Essential Drug List has had an adverse effect on many smaller drugstore chains.
Chief executive officer Ian Wade said, "We are also more optimistic on the outlook for acquisitions, as we expect more smaller-sized competitors may look to exit the sector due to increasing margin erosion on Essential Drug List products which may lead to their worsened financial conditions."
NPD closed Monday's regular trading at $7.60 on the New York Stock Exchange.
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