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QKL Stores Inc. Announces Second Quarter 2014 Financial Results

-- 2Q14 Revenue decreased by 12.4% to $51.7 million from $59.0 million in 2Q13 --

DAQING, China, Aug. 14, 2014 /PRNewswire/ -- QKL Stores Inc. (the "Company") (Nasdaq: QKLS), a leading regional supermarket chain in Northeastern China and Inner Mongolia, today announced its financial results for the second quarter ended June 30, 2014.

Mr. Zhuangyi Wang, Chairman and CEO, said, "The second quarter was a period in which we focused on improving efficiency in our business.  Our existing stores opened for more than a year continued to show stable gross profit margin of 16.8% which helps support the ramp up period of our newer stores, which typically take longer to reach profitability.

"We plan to open 2 additional stores this year.  These two new stores we will open in the future will be located in the Heilongjiang Province where we have stronger relationships with local vendors and the cost of goods is slightly lower than the other two provinces (Liaoning and Jilin) in which we operate." 

"As QKL expands its market presence in northeast China, we are uniquely positioned against our local competitors through our large product offering, strong supplier relationships, efficient distribution network and state-of-the-art IT system.  We are comfortable with our opportunities in the second half of the year and believe we'll see an improvement in operating expenses and net result from the current quarter."

Second Quarter 2014 Financial Results

Net Sales –Net sales decreased by $7.3 million, or 12.4%, to $51.7 million for the three months ended June 30, 2014 from $59.0 million for the three months ended June 30, 2013. The change in net sales was primarily attributable to the following: Same store sales represents sales from stores that were opened for at least one year before the beginning of the comparison period, or by January 1, 2013. Same store (44 stores) sales generated approximately $49.6 million in sales in the second quarter of 2014, a decrease of $3.8 million, or 7.1% compared with $53.4 million in net sales in the second quarter of 2013. New store sales increased, reflecting the opening of two new stores since January 1, 2013. These stores generated approximately $2.1 million in sales in the second quarter of 2014. The number of stores including supermarkets/hypermarkets and department stores at June 30, 2014 was 46 versus 45 at June 30, 2013.

Gross profit, or total revenue minus cost of sales, decreased by $1.4 million, or 14.3%, to $8.7 million, or 16.8% of net sales, in the second quarter of 2014 from $10.1 million, or 17.2% of net sales, in the second quarter of 2013. The change in gross profit was primarily attributable to a decrease in net sales of $7.3 million and a decrease in cost of sales of $5.9 million in the second quarter of 2014 compared to the second quarter of 2013.  We believe that our gross margin is likely to be between 16.8% and 17.3%, over the next few business quarters. New stores tend to be less profitable during their early months of operation. In addition, China's retail industry in general, and its supermarket industry in particular, are becoming more competitive every year. In this competitive marketplace, it is likely that we will focus on providing our customers with low prices in order to increase our market share and long-term sales volume.

Selling expenses decreased by $0.4 million, or 4.3%, to $9.5 million, or 18.3% of net sales, in the second quarter of 2014, and $9.9 million, or 16.7% of net sales, in the second quarter of 2013. The increase in selling expenses relative to net sales was due to the significant decrease in net sales in the three months ended June 30, 2014 compared to the same period in 2013.

General and administrative expenses decreased by $0.1 million, or 5.6%, to $2.0 million, or 3.8% of net sales, in the second quarter of 2014 from $2.1 million, or 3.5% of net sales, in the second quarter of 2013.  There is no significant change to our general and administrative expense.

Our net loss for the second quarter of 2014 was $3.8 million, or $2.47 per diluted share, from net loss of $1.5 million, or $0.96 per diluted share in the prior year period. The number of shares used in the computation of diluted EPS was 1,522,326 for the second quarter of 2014 and 2013.

Conference Call

Management will host a conference call at 8:30 am ET on Thursday, August 14th. To participate, please dial one of the local access numbers, listed below. The conference call identification number is 10017432.

Participant Dial In (Toll Free):

1-877-870-4263

Participant International:

1-412-317-0790

Canadian Dial In (Toll Free):

1-855-669-9657

China (N) Toll Free:

4001-201213

China (S) Toll Free:

4001-201213

Hong Kong Toll Free:

800-905945

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.

Contact Information

QKL Stores, Inc.

In China:
Mike Li, Investor Relations 
+86-459-460-7987  

 

QKL STORES INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets










June 30, 
2014



December 31,
2013




(Unaudited)





ASSETS









Cash


$

47,167,228



$

9,245,212


Restricted cash



8,607,363




8,668,882


Accounts receivable



331,294




557,745


Inventories



47,439,533




64,724,923


Other receivables



22,232,748




21,979,152


Prepaid expenses



4,813,266




9,915,479


Advances to suppliers



4,926,266




7,822,660


Income taxes receivables



1,760,382




1,739,773


Deferred income tax assets – current portion



2,768,651




2,788,918


Total current assets



140,046,731




127,442,744


Property, plant and equipment, net



38,289,047




40,247,576


Land use rights, net



698,564




718,337


Deferred income tax assets – non-current portion



66,956




66,956


Other assets



17,276




17,276


Total assets


$

179,118,574



$

168,492,889


LIABILITIES AND SHAREHOLDERS' EQUITY









Short-term loans


$

60,087,370



$

40,889,761


Accounts payable



34,221,996




35,840,964


Cash card and coupon liabilities



18,040,939




18,465,030


Customer deposits received



1,050,325




984,308


Accrued expenses and other payables



19,580,082




18,827,472


Total current liabilities



132,980,712




115,007,535


Total liabilities



132,980,712




115,007,535











Shareholders' equity









Common stock, $0.001 par value per share, authorized 100,000,000 shares, issued and outstanding 1,522,326 shares at June 30, 2014 and December 31, 2013



1,522




1,522


Series A convertible preferred stock, par value $0.01, authorized 10,000,000 shares, issued and outstanding 529,412 shares at June 30, 2014 and December 31, 2013



5,294




5,294


Additional paid-in capital



93,541,985




93,337,957


Retained earnings – appropriated



8,329,586




8,329,586


Retained earnings



(68,965,143)




(62,145,794)


Accumulated other comprehensive income



13,224,618




13,956,789


Total shareholders' equity



46,137,862




53,485,354


Total liabilities and shareholders' equity


$

179,118,574



$

168,492,889


 

QKL STORES INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income











(Unaudited)



(Unaudited)




Three Months
Ended June 30,



Six Months
Ended June 30,




2014



2013



2014



2013


Net sales


$

51,655,611



$

58,995,918



$

137,688,287



$

156,053,109


Cost of sales



42,968,964




48,862,015




114,269,481




129,279,758


Gross profit



8,686,647




10,133,903




23,418,806




26,773,351



















Operating expenses:

















Selling expenses



9,456,970




9,879,874




22,737,153




23,204,087


General and administrative expenses



1,963,838




2,080,136




5,197,248




4,598,472


Total operating expenses



11,420,808




11,960,010




27,934,401




27,802,559



















Loss from operations



(2,734,161)




(1,826,107)




(4,515,595)




(1,029,208)



















Non-operating income (expense):

















Interest income



254,517




261,991




484,616




455,564


Interest expense



(1,279,388)




(226,280)




(2,778,631)




(523,888)


Total non-operating income (expense)



(1,024,871)




35,711




(2,294,015)




(68,324)



















Loss before income taxes



(3,759,032)




(1,790,396)




(6,809,610)




(1,097,532)



















Income taxes



3,867




(336,185)




9,739




(46,591)



















Net loss


$

(3,762,899)



$

(1,454,211)



$

(6,819,349)



$

(1,050,941)



















Comprehensive income statement:

















Net loss


$

(3,762,899)



$

(1,454,211)



$

(6,819,349)



$

(1,050,941)


Foreign currency translation adjustment



21,002




447,273




(732,171)




1,633,053


Comprehensive (loss) income 


$

(3,741,897)



$

(1,006,938)



$

(7,551,520)



$

582,112



















Weighted average number of shares outstanding:

















Basic



1,522,326




1,522,326




1,522,326




1,516,140


Diluted



1,522,326




1,522,326




1,522,326




1,516,140



















Losses per share:

















Basic


$

(2.47)



$

(0.96)



$

(4.48)



$

(0.69)


Diluted


$

(2.47)



$

(0.96)



$

(4.48)



$

(0.69)


 

QKL STORES INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows






(Unaudited)




Six Months Ended June 30,




2014



2013


CASH FLOWS FROM OPERATING ACTIVITIES:









Net loss


$

(6,819,349)



$

(1,050,941)


Depreciation



3,279,750




3,280,567


Amortization



14,708




16,172


Share-based compensation



204,029




408,234


Deferred income tax



-




390,291


Loss on disposal of fixed assets



-




25,646


Adjustments to reconcile net income to net cash provided by operating activities:









Accounts receivable



222,985




40,727


Inventories



16,863,267




21,299,200


Other receivables



(314,995)




1,669,983


Prepaid expenses



5,042,852




2,861,272


Advances to suppliers



2,847,162




7,603,073


Accounts payable



(1,367,629)




(4,713,502)


Cash card and coupon liabilities



(293,696)




501,696


Customer deposits received



73,164




(117,765)


Accrued expenses and other payables



447,597




(2,776,056)


Income taxes payable



(33,029)




20,322


Net cash provided by operating activities



20,166,816




29,458,919











CASH FLOWS FROM INVESTING ACTIVITIES:









Purchases of property, plant and equipment



(1,603,149)




(538,595)


Net cash used in investing activities



(1,603,149)




(538,595)











CASH FLOWS FROM FINANCING ACTIVITIES:









Bank loan borrowing



35,806,650




-


Bank loan repayment



(16,275,750)




(16,005,275)


Net cash provided by (used in) financing activities



19,530,900




(16,005,275)











Effect of foreign currency translation



(172,551)




295,196











Net increase in cash



38,094,567




12,915,049


Cash – beginning of period



9,245,212




8,479,413


Cash – end of period


$

47,167,228



$

21,689,658











Supplemental disclosures of cash flow information:









Interest paid


$

2,789,480



$

523,888


Income taxes paid


$

23,252



$

205,035


 

SOURCE QKL Stores Inc.

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