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Article Excerpt
OPERATOR: Greetings, and welcome to the China Nepstar Chain Drugstore fiscal fourth quarter earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host, Rachel Levine, Grayling Global, for China Nepstar Chain Drugstore. Thank you. Miss Levine, you may begin.
RACHEL LEVINE, IR, GRAYLING GLOBAL: Thank you. Good morning and good evening, everyone. If you have not received a copy of Nepstar's fourth quarter 2008 and fiscal earnings press release, it is currently available on the Company's website at www.nepstar.cn. A presentation to accompany today's call and live webcast has also been made available on the website under the Investor Relations section.
Before we start, I would like to remind you that certain statements are not of historical fact made during the course of this conference call about future events, and financial results constitute forward-looking statements that are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.
You should note that the Company's actual results may differ materially from those projected in these statements due to a variety of factors affecting the business. Forward-looking statements are subject to risks and uncertainties. Discussions of factors that may affect future results are contained in our filings with the Securities and Exchange Commission. We undertake no obligation to correct or update any forward-looking statements provided as a result of new information, future events, or even changes in expectations.
Joining us on today's call are Dr. Simin Zhang, Chairman of the Board, Mr. Ian Wade, Co-Chief Executive Officer, Mr. Jiannong Qian, Co-Chief Executive Officer, Mr. William Dai, Chief Financial Officer, and Ms. Lucia Qian, VP Investor Relations. Ms. Qian will also be our translator during the question and answer session. We will be translating questions and answers, and ask for your patience at that time.
With that, I would like to turn the call over to Ms. Qian. Please go ahead, Lucia.
LUCIA QIAN, VP, IR, CHINA NEPSTAR CHAIN DRUGSTORE LTD: Thank you, Rachel. Good morning and good evening. I would like to welcome you all to China Nepstar Chain Drugstore's fourth quarter and fiscal 2008 financial results conference call.
Before we get started, I would like to take a few moments to introduce some new members of our management team. As we announced in January, we are pleased to welcome Mr. Ian Wade as Co-Chief Executive Officer, and Mr. William Weili Dai, as Chief Financial Officer.
Before joining us, Ian was with AS Watson, one of the world's largest and fastest-growing global retailing companies, with over 8,000 stores in 37 countries. During his 25 year tenure as Group Managing Director, he turned the Hong Kong-based business, which had 16 stores then, into a highly profitable international retail chain, with extensive reach throughout Asia and Europe.
William brings over 15 years of experience in financial management and accounting to us. He most recently served as CFO at MicroPort Medical, a leading medical device company in China. Before that, William also served as executive positions in China for global companies such as Mundipharma Pharmaceuticals, Boston Scientific, and Case Corporation.
Ian and William will share some perspective on Nepstar's results and outlook on today's call, and we'll look forward to their contribution to our ongoing success. Ian?
IAN WADE, CO-CEO, CHINA NEPSTAR CHAIN DRUGSTORE LTD: Thank you, Lucia. I'm pleased to be here today and quite confident about China Nepstar's prospects for the future. Nepstar has built a broad network of stores, brand name recognition, and has established a private-label strategy and central procurement infrastructure.
As you all know, the overall economic climate in China is now slowing down. It's getting more difficult, guys. As a result, the Company will be confronted with a rather different operational environment. But the team is prepared to adapt our business model to the new environment.
We believe our continued focus on enhancing store productivity and controlling costs will keep Nepstar competitive in these challenging economic times. As we enter 2009, we expect to continue to generate positive cash flow from our operations and effectively leverage our balance sheet for growth.
I'll now turn over to William to review the financial results for the quarter and the year.
WILLIAM DAI, CFO, CHINA NEPSTAR CHAIN DRUGSTORE LTD: Thank you, Ian. I too am very pleased to be joining the Nepstar team. And I believe there is a significant opportunity to further enhance the Company's already strong competitive position, even with the challenges ahead.
Now let me provide a detailed breakdown of the financials for the fourth quarter and of the year. Revenue for the fourth quarter increased 25.2% to RMB656 million, equivalent to $96 million, from RMB524 million for the same period in 2007.
Same store sales for stores opened before December 31, 2006, for fourth quarter, increased by 0.9%. Same store sales were calculated based on the 1,379 stores open as of December 31, 2006.
Fourth quarter revenue contribution from prescription drugs was 19.7%, over-the-[counter] drugs were 38.3%, nutritional supplements was 20.4%, traditional Chinese herbal products was 3.4%, and other products was 18.2%.
Nepstar's portfolio of private-label products included 1,455 products as of December 31, 2008. Sales of private-label products represented approximately 26% of the revenue, and a 39.6% of gross profit in the fourth quarter.
Gross profit increased 17.7% to RMB299 million, equivalent to $44 million from RMB254 million for the same period in 2007.
Gross margin was 45.6% compared to 48.5% for the same period in 2007. The increase in gross margin was largely due to aggressive discount promotion campaigns in December in preparation for Chinese New Year in January 2009.
Sales marketing and other operating expenses as a percentage of the revenue for the fourth quarter 2008 increased to 36.2% from 32.3% for the same period in 2007, but decreased from 41.1% for...
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