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Results for the three months ended December 31, 2008
Net sales for the fourth quarter of 2008 increased 22.9% to $84.9 million compared to $69.1 million for the same period of the prior year. This 22.9% sales increase for the fourth quarter was primarily attributable to the rollout of new consumer electronic products and increased marketing initiatives within the Company's store-in-store locations. The Company's retail business generated approximately 68% of sales while the wholesale business generated approximately 32% of sales in the fourth quarter.
Among the Company's four major operating subsidiaries, the net combined retail and wholesale revenue contribution of each subsidiary was as follows:
-- WangDa (cell phones) fourth quarter 2008 revenue increased over 40.5% to $28.2 million compared to the prior year period. Fourth quarter gross profit margin for WangDa was 14.4%.
-- Joy & Harmony (consumer electronics) fourth quarter 2008 revenue increased over 27.0% to $22.6 million compared to the prior year period. Fourth quarter gross profit margin for Joy & Harmony was 14.5%.
-- SanHe (appliances) fourth quarter 2008 revenue decreased 4.4% to $17.8 million compared to the prior year period. Fourth quarter gross profit margin for SanHe was 17.8%.
-- YongXin (communications/office electronic equipment) fourth quarter 2008 revenue increased 29.4% to $16.4 million compared to the prior year period. Fourth quarter gross profit margin for YongXin was 17.6%.
Gross profit for the fourth quarter of 2008 was $13.4 million compared to $11.2 million in the same period of the prior year. Fourth quarter 2008 gross margin was 15.7% compared to 16.2% for the same period of the prior year and 15.0% in the third quarter of 2008. This gross margin rate was within the Company's previously announced 14.5%-16% forecast guidance range. The year over year decrease in gross margin was a result of a slightly more promotional sales environment on certain products within the Company's store-in-store locations.
General and administrative expense for the fourth quarter of 2008 totaled $4.1 million, or approximately 4.8% of net sales, compared to $4.0 million, or approximately 5.8% of net sales, for the same period of the prior year. The G&A decrease on a percentage basis was a result of strict cost controls implemented by the Company.
Income from operations for the fourth quarter of 2008 was $9.3 million, or 10.9% of net sales, compared to income from operations of $7.2 million for the fourth quarter of 2007, or 10.4% of net sales.
The Company's tax rate for the 2008 fourth quarter decreased to 24.2% from 38.9% in the prior year period. In the future, the Company expects a tax rate of approximately 25%.
Fourth quarter net income was $7.1 million, or $0.14 per diluted share, for the fourth quarter of 2008 compared to $4.4 million, or $0.08 per diluted share, for the fourth quarter of 2007.
The Company's cash position increased 29% to $32.2 million compared to $25.0 million at the end of December 31, 2007. The Company does not currently have any debt. The increase in accounts receivable in 2008 was due to the extension of payment terms from all the Company's retail partners from 15 days to 30 days. The collection of debt is based on the terms of legal binding documents. The Company has not changed its policy on reserving for bad debt and has not found any abnormal increases in bad debt.
Results for the fiscal year ended December 31, 2008
Net sales for 2008 increased 13% to $310.6 million, compared to $276.0 million for 2007. Gross margin decreased 220 basis points to 15.7% compared to 17.9% in 2007. General and administrative expenses for 2008 totaled $14.1 million, or approximately 4.5% of sales, compared to $13.6 million, or 4.9% of sales, in 2007. Income from operations for 2008 was $34.5 million, as compared to income from operations of $35.8 million in the prior year. Net income was $26.8 million for 2008, compared to $22.9 million in 2007. Diluted earnings per share increased to $0.51 for 2008 compared to $0.44 in 2007.
Mr. Zhenggang Wang, Chairman and Chief Executive Officer, commented, "We are very pleased to report solid full year and fourth quarter 2008 financial results, particularly as our fourth quarter results exceeded our preliminary revenue, net income and diluted EPS results announced in mid-January 2009. We believe that China 3C Group continues to benefit uniquely from its size and scale, strong customer and supplier relationships, its product breadth and selection and its pricing, all of which, in our view, have allowed us to expand our market position even during these challenging economic times.
''At the end of the fourth quarter, we operated 1,014 store-in-stores located in 277 branded retail store locations. Our sizeable presence allows us to negotiate better terms and prices from our suppliers and our product breadth helps us to more broadly penetrate retail locations and meet customer demand. We enjoyed a monthly per-store revenue increase in 2008 which we attribute to our introduction of new branded products and our customer-oriented quality service programs. The retail stores that we operate are located in some of China's best-known consumer electronic retail chains. These chains include Gome, where we operate 93 store-in-store locations, Suning (92 store-in-stores), Yongle (88 store-in-stores), Lianhua Holdings (87 store-in-stores), Trust-Mart (65 store-in-stores), Tesco (30 store-in-stores), and Carrefour (25 store-in-stores), among others.
''We continue to see steady improvement to our balance sheet. We finished the year with over $32 million in cash. This was an increase from both the prior year and prior quarter and also takes into account a partial cash payment of approximately $7.3 million for the acquisition of Jinhua Boafa announced in late December 2008. We are pleased with the efficiencies of our operations, which are best demonstrated by our inventory turns, which turned 24 times in 2008. In addition, we have no debt, were cash flow positive from operations and ended 2008 with a book value per share of $1.66.
''We believe that 2009 will be another solid year for China 3C Group. Consumer demand for our products remains steady and we continue to focus on expanding profits and minimizing operating expenses within our store-in-store locations. We also expect to see growth coming from our direct and franchise stores we expect to open this year. With the establishment of our franchise business, we believe that we have a great opportunity to increase our sales and profitability, create additional operating leverage and improve our brand visibility. We look forward to further establishing China 3C Group as a leading retailer and distributor of consumer electronic products in the eastern China region,'' concluded Wang.
About China 3C Group
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 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.
For more information, please contact:
Jason Yuan, Vice President
China 3C Group
Email: ir@china3cgroup.com
Bill Zima
ICR, Inc.
Tel: +1-203-682-8200
(Financial tables on the following pages)
CHINA 3C GROUP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
2008 2007 2006
Net sales $ 310,644,661 $ 276,026,673 $ 148,218,848
Cost of sales $ 262,002,877 $ 226,656,242 $ 125,411,758
Gross profit 48,641,784 49,370,431 22,807,090
Selling, general and
administrative expenses 14,132,473 13,614,500 5,544,924
Income from operations 34,509,311 35,755,931 17,262,166
Other Income (Expense)
Interest income 146,344 88,413 31,293
Other income 1,149,537 -- --
Other expense (359,682) (74,215) (100,646)
Interest expense -- -- (7,565)
Total Other Income
(Expense) 936,199 14,198 (76,918)
Income before income
taxes 35,445,510 35,770,129 17,185,248
Provision for income
taxes 8,611,298 12,850,429 5,908,122
Net income $ 26,834,212 $ 22,919,700 $ 11,277,126
Net income per share:
Basic & diluted $ 0.51 $ 0.44 $ 0.24
Weighted average
number of shares
outstanding:
Basic & diluted 52,696,327 52,671,438 46,179,507
CHINA 3C GROUP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
2008 2007
ASSETS
Current Assets
Cash and cash equivalents $ 32,157,831 $ 24,952,614
Accounts receivable, net 23,724,587 8,077,533
Inventories 12,716,631 6,725,371
Advance to supplier 2,491,518 2,572,285
Prepaid expenses 87,773 382,769
Total Current Assets 71,178,340 42,710,572
Property & equipment, net 64,100 89,414
Goodwill 20,348,278 20,348,278
Deposit for acquisition
of subsidiary 7,318,501 --
Refundable deposits 32,076 48,541
Total Assets $ 98,941,295 $ 63,196,805
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued
expenses $ 9,162,606 $ 3,108,235
Income tax payable 2,140,624 2,684,487
Total Current Liabilities 11,303,230 5,792,722
Stockholders' Equity
Common stock, $.001 par value,
100,000,000 shares authorized,
52,696,327 and 52,673,938 issued
and outstanding as of December 31,
2008 and December 31,
2007, respectively 52,696 52,674
Additional paid in capital 19,465,754 19,465,776
Subscription receivable (50,000) (50,000)
Statutory reserve 11,109,379 7,234,295
Other comprehensive income 5,272,104 1,872,334
Retained earnings 51,788,132 28,829,004
Total Stockholders' Equity 87,638,065 57,404,083
Total Liabilities and
Stockholders' Equity $ 98,941,295 $ 63,196,805
CHINA 3C GROUP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
2008 2007 2006
CASH FLOWS FROM OPERATING
ACTIVITIES
Net Income $ 26,834,212 $ 22,919,700 $ 11,277,126
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 36,116 40,714 20,191
Gain on asset disposition (2,161) -- (936)
Provision for bad debts 261,515 9,021 82,686
Stock based compensation 336,668 2,113,270 --
Amortization of deferred
consulting expense -- -- 387,945
Effect of changes in:
Accounts receivables (15,908,569) (73,483) (2,375,209)
Inventories (5,991,260) (3,945,865) (487,593)
Prepaid expense and other
current asset (41,672) (322,710) 85,216
Advance to supplier 80,767 (356,444) (848,848)
Refundable Deposits 16,465 (41,974) (5,929)
Accounts payable and accrued
expenses 6,054,371 1,143,572 1,356,272
Income tax payable (543,863) 87,970 1,477,695
Net cash provided by operating
activities 11,132,589 21,573,771 10,968,616
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of property & equipment (11,088) (64,325) (30,591)
Proceeds from asset sales 2,447 -- 1,508
Deposits for acquisition of
subsidiary (7,318,501) -- --
Net cash used in Investing
activities (7,327,142) (64,325) (29,083)
CASH FLOWS FROM FINANCING
ACTIVITIES
Payments of acquisition notes -
net of cash acquired -- (4,500,000) (6,550,157)
Payments of notes - other -- -- (7,769)
Net cash used in financing
activities -- (4,500,000) (6,557,926)
Effect of exchange rate changes
on cash and cash equivalents 3,399,770 1,444,718 167,621
Net change in cash and cash
equivalents 7,205,217 18,454,164 4,549,228
Cash and cash equivalents,
beginning balance 24,952,614 6,498,450 1,949,222
Cash and cash equivalents,
ending balance $ 32,157,831 $ 24,952,614 $ 6,498,450
SOURCE China 3C Group
http://www.china3cgroup.com
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