China Jo-Jo Drugstores, Inc. (NASDAQ: CJJD), (the “Company”), a retail and wholesale distributor of pharmaceutical and other healthcare products in Zhejiang and Shanghai, today reported earnings results for the third quarter of fiscal 2013 ended December 31, 2012. The Company will hold its earnings call on Tuesday, February 19, 2013, at 8:00 a.m. Eastern Time. Please see below for dial in information.
Third Quarter Highlights:
- Revenue decreased 39.1% from a year ago to $15.6 million
- Third quarter retail drugstore sales revenue improved 7.3% from the second quarter fiscal year 2013
- Wholesale business accounted for 28.0% of total revenue
- Gross profit was $3.0 million and gross margin of retail business and wholesale business was 23.3% and 8.6%, respectively
Mr. Lei Liu, the Company’s Chairman and CEO, stated, “Despite tighter budget for government-sponsored insurance and increased regulations of retail pharmacies, we were able to improve retail sales from a quarter ago. On the other hand, we are reconsidering our volume-driven strategy for our wholesale business.”
Dr. Liu continued, “Looking forward, we anticipate a transition in our wholesale business strategy and a moderate growth in our retail drugstores sales. We also anticipate to harvest Chinese Herbs in the next twelve months and growth in our online drugstore business.”Comparison of three months ended December 31, 2012 and 2011 The following table summarizes our results of operations for the three months ended December 31, 2012 and 2011:
|Three months ended December 31,|
Percentage of total revenue
Percentage of total Revenue
|General and administrative expenses||$||3,300,064||21.2||%||$||2,175,615||8.5||%|
|Income (loss) from operations||$||(3,488,930||)||(22.4||)%||$||2,152,362||8.4||%|
|Other (expense) income, net||$||(25,380||)||(0.2||)%||$||16,343||0.1||%|
|Impairment of goodwill||$||-||0.0||%||$||-||0.0||%|
|Change in fair value of purchase option derivative liability||$||(12,095||)||(0.1||)%||$||19,404||0.1||%|
|Income tax (benefits) expense||$||(39,613||)||(0.3||)%||$||610,910||2.4||%|
|Net (loss) income attributable to controlling interest||$||(3,486,521||)||(22.4||)%||$||1,573,982||6.1||%|
|Net (loss) attributable to noncontrolling interest||$||(271||)||(0.0||)%||$||(3,217||)||(0.0||)%|
Wholesale, which represented approximately 28.0% of total revenue for the three months ended December 31, 2012, decreased by $3,041,477 or 61.5% to $4,368,398, from $7,409,875 primarily due to a shift in our wholesale strategy. Since starting the wholesale business in August 2011, we have been using competitive pricing to stimulate sales and ramp up sales volume. The attendant low margins from such practice hurt our profitability. Accordingly, we ceased certain low margin sales in the quarter ended December 31, 2012 and are reconsidering our volume-driven wholesale strategy.
Retail sales, which accounted for approximately 72.0% of our total revenue for the three months ended December 31, 2012, decreased by $7,006,459 or 38.4% to $11,227,615 from $18,234,074, primarily as a result of stricter government policies and an increasingly competitive retail market. Our retail store count decreased to 52 as of December 31, 2012, from 60 stores a year ago. Such closings, however, had little or no impact on our operations given the small size of these stores and their operations when compared to the whole of our pharmacy business. Same-store sales decreased by approximately $7,156,174 or 41.6%, while new stores and online pharmacy collectively contributed approximately $832,878 in revenue. Our pharmacies usually perform better in the second half of our fiscal year when more national holidays such as the Chinese Spring Festival take place. Partially due to such seasonality, our retail sales changed quarter by quarter within the fiscal 2013. We do not expect same-store sales will recover quickly in the near future as the frequency of government-mandated price controls and the number of drugs subject to price controls continue to rise.
|Three months ended December 31,|
|% of total||% of total||Variance by|
|Amount||revenue||Amount||revenue||amount||% of change|
|Revenue from retail business|
|Revenue from drugstores||$||10,337,237||66.5||%||$||17,639,448||68.8||%||$||(7,262,211||)||(41.2||)%|
|Revenue from online sales||850,378||5.5||%||594,626||2.3||%||255,752||43.0||%|
|Sub-total of retail revenue||11,227,615||72.0||%||18,234,074||71.1||%||(7,006,459||)||(38.4||)%|
|Revenue from wholesale business||4,368,398||28.0||%||7,409,875||28.9||%||(3,041,477||)||(41.0||)%|
|Revenue from farming business||-||0.0||%||-||0.0||%||-||0.0||%|
Drugstore revenue decreased by approximately $7.3 million or 41.2% quarter over quarter, primarily due to three reasons. First, local government has been trying to control the costs of its insurance program in the face of budgetary constraints, and is whittling down the types and number of subsidized drugs. Second, as the local government subjects more drugs to price control, we must in turn either reduce our prices for the affected drugs or stop carrying them at our pharmacies. Third, the retail drug market in Hangzhou, where our stores are still predominantly located, has become very competitive with many neighborhood drugstores. As a result, we do not expect our retail sales to recover quickly in the near future.
Our online pharmacy sales increased by $255,752 or 43.0% quarter over quarter. Since cooperating with business-to-consumer online vendors such as Taobao beginning in the second half of calendar 2011, our online pharmacy has gained wider recognition and we have seen a steady growth in sales.
Three months ended
|Average gross margin for retail business||23.3||%||36.7||%|
|Average gross margin for wholesale business||8.6||%||1.9||%|
|Average gross margin for farming business||N/A||N/A|