American Lorain is the leading producer and distributor of chestnut products in China. The worldwide chestnut market is an estimated $2.1 billion, and China accounts for approximately 60% of sales. With rising operation costs causing chestnut production to decline in South Korea and Japan, Chinese companies such as American Lorain are positioned to gain a larger share of the international chestnut market.
Lorain-branded products are carried by 4,980 retail stores across 26 provinces and administrative regions in China. Data collected on March 23, 2010 indicated that American Lorain added 1,312 stores to its retail network over the previous month, a 36.7% increase in a one-month period and an approximate 144% increase over the number of stores that carried Company products in the middle of 2009. Two agreements signed in the first quarter promise to expand the company’s reach even further. The Company signed an agreement in March with Jinluo Group to distribute Lorain Candied Bean and Bean Paste through Jinluo’s network of approximately 3,000 retail food stores in China. Also in March, 7-Eleven agreed to sell American Lorain’s ready-to-heat-and-eat “Lunch Box” products in 550 7-Eleven stores located in Guangzhou. American Lorain’s strategy of diversification appears to be paying off, as convenience foods sales were up 586% year-over-year in the first quarter of 2010, reaching $7.1 million.
In May, the Company announced that it had begun promoting sales of open-bottom frozen chestnuts at Lorain-branded retail food counters in 40 locations in Beijing and Chongqing, which it plans to expand to 70. The promotion, designed to counter the seasonality of chestnut sales, is expected to generate approximately $3.6 million in revenues for the fiscal year.
Based on current growth, the Company expects to meet its full year 2010 goal of having 5,000 stores selling American Lorain products sometime in the second quarter of 2010. The Company projects sales growth of 24.1% to 29.5% and net income growth of 23.6% to 31.9% for the year.
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Disclosure: We are Long