China Jo-Jo Drugstores, Inc. (NASDAQ:CJJD)
F2Q 2014 Earnings Conference Call
November 15, 2013 08:00 AM ET
Frank Zhao - Chief Financial Officer
Lei Liu - Chairman and CEO
Good morning. My name is Ted and I'll be your conference operator today. At this time, I would like to welcome everyone to the China Jo-Jo Drugstores Fiscal Year 2014 Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions). Thank you, Mr. Zhao. You may begin your conference.
Thank you, Ted. Good morning, ladies and gentlemen and good evening to those of you joining us from China. Welcome to China Jo-Jo Drugstores fiscal 2014 second quarter earnings call conference. I am Frank Zhao, the company’s Chief Financial Officer. Also on the call today is China Jo-Jo Drugstores’ Chairman and Chief Executive Officer, Dr. Lei Liu. I will provide translation for Dr. Liu during his opening remarks and in the Q&A session. If you prefer to join us from online, our conference call slide webcast is also available on our corporate website under the Investor Relations section.
The company’s earnings press release was issued on Thursday, November 14, 2013. I would like to remind our listeners that on this call management’s prepared remarks contain 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 statements.
Such factors include a change from anticipated levels of sales future international, national or regional economic and competitive conditions, change in relationship with customers, access of capital, difficulties in developing and marketing new products 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 represents management’s estimates as of today November 15, 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 and non-operational items. Please see our earnings release for the 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 second quarter results.
Good morning ladies and gentlemen, on behalf of the company I would like to welcome everyone joining our fiscal 2014 second quarter earnings conference call. Due to the closures of our 16 stores in the past calendar year, our drugstore sales declined slightly quarter-over-quarter. However, our same-store sales grew. Looking forward, we will continue to focus on our competitive advantages in the retail drugstore segment, hire additional clinic staff to better advice on drug selection, open additional clinics next to our drugstores, and stock each store locations to barricade to the neighborhood in Guangzhou having clinics adjacent to our stores and to attract some locations which in turn drive sales. And we have also hired more doctors. We open a new clinic in Xiasha District, Hangzhou, in August 2013.
In the past year, we have continued to identify products popular with our customers. Overall our gross profit margin slightly decreased from 26.6% to 23.0% due to government drug supplies control which forces us to reduce our drug sales price.
As of November 15, 2013, we had 51 pharmacies throughout Jiuzhou Province in Shanghai the same number we had as of the end of the fiscal 2013. Additionally our online pharmacy grew by about 85.6% quarter-over-quarter reflecting our efforts in collaborating with large B2C vendors, finding product should go for online customer and the controlling of our cost.
For the three months ended September 30, 2013 our wholesale business provided approximately 34.4% 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 7.6% from 3.9% a year ago. Although this strategy may impact our ability to achieve first-tier distributor status, we believe that focusing on profitability rather than volume is critical for our overall operations going forward.
During the three months ended September 30, 2013 we did not harvested herbs to farm, because market prices were lower than anticipated, we decided to postponed harvesting and to keep what we had previously harvested in inventory until prices reach an acceptable level. And just a reminder, our herbs can grow either in the fields just some herbs can grow for a couple of years before harvesting. So looking forward, we expected continue planting, harvesting and selling our herbs during the next 12 months.
For the three months ended September 30, 2013, we recorded net loss of $0.5 million. Taking into account $1.3 million of marketing practice related to Jo-Jo Pharmacy’s 10 year anniversary [Hangzhou]. To boost our performance and profit in the future, we plan to open more clinics adjacent to our drugstores to better serve customers and to continue to look for ways to reduce our general and administrative expenses and also finance expenses.
Additionally, we are now focusing on more profitable wholesale customers such as hospital rather than driving sales volumes through low margin sales as we had previously done. At three of our huge -- is confident with development of our business in the future.
Thank you, Dr. Lui. Now I will review our fiscal 2014 second quarter financial results and balance sheet information. China Jo-Jo’s revenue in fiscal 2014 second quarter decreased 36.8% from a year ago to $16.9 million compared to $26.7 million in the same period a year ago. The decrease is primarily due to the sales decline in our wholesale business.
For the three months ended September 30, 2013 gross profit decreased 13.8% to $2.9 million period-over-period primary as a result of decrease in wholesale. Our gross margin increased period-over-period from 12.5% to 17.8% as a result of increase in our wholesale profit margin.
The average gross margin of our retail business for the three months ended September 30, 2013 is 23% while the average gross margin of the wholesale business was 10.6%. Our online pharmacy sales increased 85.6% from $0.9 million to $1.6 million as we started business cooperation with certain local business-to-consumer online vendors such as Taobao, our online pharmacy has become more and more widely exposed to potential customers.
Sales and marketing expenses increased by -- 41.5% period-over-period the increase in absolute dollar is mainly due to marketing expenses related to the commemoration of Jo-Jo Pharmacy 10 year anniversary in August and September 2013. However, such expenses as a percentage of our revenue increased to 17.5% from 7.9% as a percentage of our overall revenue for the same period a year ago due to significantly lower wholesale revenue that decreased the overall revenue base. We expect the sales and marketing expenses to lower in the third quarter of fiscal 2014.
General and administrative expenses decreased by $0.8 million or 62.5% period-over-period. Such expenses as a percentage of revenue decreased to 2.9% from 2.9% for the same period a year ago. The decrease in absolute dollar, as well as a percentage of revenue mainly reflects the decrease in the allowance for advances to supply. If we exclude our additional allowance adjustment, it may significantly impact general and administrative expense in the future period.
Loss from operation is $0.5 million as compared to income from operations of $9,000 a year ago. Our operating margin for the three month ended September 30, 2013 and 2012 was negative 3.3% and 0.0% respectively.
For the three months ended September 30, 2013 we recorded a net loss of $1 million, as of September 30, 2013 the company had $6.3 million of cash, $46.8 million in current assets and $32.3 million in current liabilities.
With that, we will now open the call to the questions. Operator?
(Operator Instructions). There are no questions at this time, please continue.
Okay. If there are no further questions, then our CEO wants to add like ending remarks and so after that we will close this call.
So answering that Dr. Liu as CEO actually believes that market condition in China becomes different because of the China view (inaudible) plans and he actually believes that the market condition becomes better at the end of the year, the company will become more -- will grow more faster in three years and we actually welcome the investors to visit the company in the future and actually pay attention to the company and welcome to China and welcome to investors in the future.
And also the new healthcare reforms in China and the healthcare industries will become very – will have a bright future with the development in the future, so we have like the [confidence] in the future. So I think that’s all.
Thank you. And 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 call. For any of you traveling to China, we welcome and encourage you to visit us. This concludes China Jo-Jo Drugstores fiscal 2014 second quarter earnings call. Thank you.
In the future if you have any questions, you can call our management, CEO to answer your questions.
So welcome. Thank you.
This concludes today’s conference call. You may now disconnect.
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