China Jo-Jo Drugstores' CEO Discusses F1Q 2014 Results - Earnings Call Transcript

| About: China Jo (CJJD)

China Jo-Jo Drugstores (NASDAQ:CJJD)

F1Q 2014 Results - Earnings Call Transcript

August 19, 2013 8:00 AM ET

Executives

Frank Zhao - Chief Financial Officer

Dr. Lei Liu - Chairman and Chief Executive Officer

Operator

Good morning. My name is Grace and I'll be your conference operator today. At this time, I would like to welcome everyone to the China Jo-Jo Drugstores for fiscal year 2014, first quarter earnings conference call. All lines have been place on mute to prevent any background noise. After the speakers’ conference, there will be a question-and-answer session. (Operator Instructions) Thank you, Mr. Zhao. You may begin your conference.

Frank Zhao

Thank you, operator. Good morning, ladies and gentlemen. Good evening to those of you joining us from the U.S. Welcome to China Jo-Jo Drugstores fiscal 2014 first quarter earnings call conference. I am Frank Zhao, this company’s Chief Financial Officer. Also on the call today is China Jo-Jo Drugstores’ Chairman and Chief Executive Officer, Dr. Lei Liu. I'll provide translation for Dr. Liu during his opening remarks and the Q&A session. If you prefer to join us on online, our conference call slide website is also available on our corporate website under the Investor Relations section.

The company’s earnings press release was issued on Friday August 16; I would like to remind our listeners that on this call management’s prepared remarks contains forward-looking statements which are subject to risks and uncertainties. And the management may make additional forward-looking statements in response to your questions.

Therefore, the company claims the protection of the Safe Harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors that could cause actual results of the company to differ materially from the results expressed or implied by such statement.

Such factors include a change from anticipated levels of sales due to international, national or regional economic and competitive condition, change in relationship with customers, access of capital, difficulties in developing and marketing new product and services, marketing existing products and services, our customer acceptance of existing and new products and service, and other factors detailed from time-to-time and are filed with Securities and Exchange Commission.

In addition, any projection as to the company’s future performance represent management’s estimates as of today August 19, 2013. China Jo-Jo Drugstores assumes no obligations to update these projections of future as market conditions change. On the call today the management will refer to certain non-GAAP financial measures. The company views these measures are meaningful to investor as they allow investors to analyze operating performance across all periods by eliminating non-cash or non-operational items. Please see our earnings release for a reconciliation of these non-GAAP items with the corresponding GAAP measures.

Now it’s my pleasure to turn the call over to Dr. Liu, who will make a brief opening remark in Chinese, afterward I will translate and follow with a detailed discussion of the company’s first quarter results.

Liu Lei

Good morning ladies and gentlemen. On behalf of the company I would like to welcome everyone joining our fiscal 2014 first quarter earnings conference call.

[Foreign Language]

In the three months ended at June 30, 2013, our retail business sales increased due to continuous efforts to promote our sales by hiring more in-store doctors to balance customers providing an inland terrestrial action targeted to drug stores demographics and the majority stores opening in the past two years.

In Hangzhou, clinics adjacent to our store tend to attract more patients and in turn drive our sales. We have hired more doctors to meet potential customer, additionally we are in the process of buying four new clinics in Xiasha district of Hangzhou.

In the past year we have continued search for process of products popular among our customers. Furthermore, our store opening in the past two years are now able to accept the state-sponsored medical insurance, as insurance reimbursement accounted for approximately 50% of our drugstore revenue from Hangzhou in the past year, the ability to accept medical insurance is a significant factor in the store’s operating performance.

Overall, our gross profit margin slightly decreased from 26% to 25.7% due to government drug price control which caused us to reduce our drug sales price. As of August, 14 2013, we had 51 pharmacies same as fiscal year 2013 throughout headcount Zhejiang in Shanghai.

Our online sales represent 11.6% of our total retail sales and are included in our retail business segment, grew 125.2% period-over-period, as a result of our flows of operations with large Chinese business to customer and online vendors, by posting our product on to the online platforms.

[Foreign Language]

In the three months ended June 30, 2013, our wholesale business provided approximately 28.8% of our revenue. Starting in the third quarter of fiscal 2013, we have been focusing on profitability instead of achieving sales volume. As a result, our gross margin increased to 18.6% from 2.5% a year ago. Although this strategy may impact our ability to achieve first-tier distributor status, we believe that focusing on profitability rather than volumes is critical for our overall operations going forward.

In the three months ended June 30, 2013, we have not harvested herbs to farm. Because market prices were lower than anticipated, we decided to hold off harvesting certain herbs, such as ginkgo trees, which, although can be harvested, will increase in value with age, and to keep what we have harvested in inventory, until price reached an acceptable level. Looking forward we expected to continue planting, harvesting and sell herbs during the next 12 months.

For the three months ended June 30, 2013 we recorded a net loss of $0.8 million that included $1.2 million of bad debt allowance and write-off. To boost our performance and profit in the future, we plan to open more clinics adjacent to our drug stores to better serve customers and have begun to look for ways to reduce our general and administrative expenses.

Additionally, we are now focusing on more profitable wholesale customer rather than driving sales volumes through low margin sales as we had previously done. Given the challenges that we have faced with regards to write-off, we plan to continue closely monitor our credit policy with regards to our wholesale business segment.

Frank Zhao

Thank you, Mr. Lui. Now I will review our fiscal 2014 first quarter financial results and balance sheet information. China Jo-Jo’s revenue in fiscal 2014 first quarter decreased 53.3% from a year ago to $15.3 million compared to $32.8 million in the same period a year ago. The decrease is mainly due to the sales decline both our wholesale business.

For the three months ended June 30, 2013 gross profit decreased 30.0% to $1.5 million period-over-period primary as a result of decrease in wholesale. Our gross margin increased period-over-period from 15.7% to 23.6% as a result of increase of our wholesale profit margin.

The average gross margin of our retail business for the three months ended March 31, 2013 is 25.7% while the average gross margin of the wholesale business was 18.6%. Our online pharmacy sales increased 125.5% from $0.6 million to $1.3 million as we started a business cooperation with certain local business-to-consumer online vendors such as Taobao, our online pharmacy has become more and more widely and exposed to potential customers, as a result we have seen a steady growth in our online sales.

Sales and marketing expenses decreased by $177,383 or 9.5% period over period is a decrease in absolute dollar is mainly due to the strict expense budget we implemented in 2013 as well as closure of low performing drugstores, which slowed down rental increase and lowered depreciation expense related to store improvement.

However, such expenses as a percentage of our revenue increased to 11%, from 5.7% for the same period a year ago as a result of significantly lower wholesale revenue. We expect future sales and marketing expenses to not deviate significantly from its current level.

General and administrative expenses decreased by $205,760 or 7.2% period over period. Such expenses as a percentage of revenue increased to 17.2% from 8.7% for the same period a year ago. The decrease in absolute dollar reflect our tight budget control as well as closure of low performing drugstores, which stemmed related overhead.

The increase in percentage of revenue is mainly a result of lower overall revenue pace for the three months ended June 30, 2013. We expect future general and administrative expenses to remain at its current level.

Loss from operations of $720,000 as compared to income from operations of $439,000 a year ago. Our operating margin for the three month ended June 30, 2013 and 2012 was negative 4.7% and positive 1.3% respectively.

For the three months ended June 30, 2013 we recorded a net loss of $0.8 million, as of June 30, 2013 the company had $2.7 million of cash, $47.1 million in current assets and $31.5 million in current liabilities. We will now open the call to the questions. Operator?

Operator

(Operator Instructions) There are no questions at this time.

Frank Zhao

Okay, great. If there are no further questions at this time on behalf of the entire China Jo-Jo Drugstores management team we would like to thank you for your interest in the company and the participation on this

We're really happy to thank you for your interest in the company and the participation of this call. For any of you traveling to China, management welcomes and (inaudible) to bidders, please come to China Jo-Jo Drugstores fiscal 2014 first quarter earnings call. Thank you.

Operator

This concludes today’s conference call. You may now disconnect.

Question-and-Answer Session

[No Question-and-Answer Session]

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