This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

China Jo-Jo Drugstores Reports Third Quarter Earnings Results

Stocks in this article: CJJD

Our wholesale gross margin for the three months ended December 31, 2012 was 8.6% as compared to 1.9% for the three months ended December 31, 2011. We ceased certain low profit margin wholesale business in the three months ended December 31, 2012, and are reconsidering our volume-driven sales strategy. In addition, in our efforts to become a first-tier distributor for certain medicines, and thus able to purchase them at lower costs, we advanced payments to certain vendors. Such advances are refundable if we do not purchase an equal amount of inventory from these vendors later on. As a result, our overall wholesale business profit margin increased.

Selling and Marketing Expenses.  Our sales and marketing expenses increased by $680,276 or 27.2% period over period primarily due to promotional activities and advertising, as well as year-end employee bonuses. We spent approximately $290,000 on promotional activities such as leaflets and product give-aways, and approximately $240,000 on related advertising in newspapers. Given the increased competition amongst employers for top performing employees, we also awarded approximately $570,000 in year-end bonuses to our employees. Coupled with smaller revenue, selling and marketing expenses as a percentage of our revenue increased to 20.4%, from 9.7% for the same period a year ago.

General and Administrative Expenses. Our general and administrative expenses increased by $1,124,449 or 51.7% period over period primarily due to additional bad debt expense of approximately $1,173,959 we accrued for advance to suppliers during the three months ended December 31, 2012. As a percentage of our revenue, general and administrative expenses increased to 21.2% from 8.5% for the same period a year ago also due to our smaller revenue.

Income (Loss) from Operations. Mainly as a result of lower profit margins and higher selling and general and administrative expenses, our income from operations decreased by $5,641,292 period over period, resulting in an operating loss of $3,488,930. Our operating margin for the three months ended December 31, 2012 and 2011 was (22.4)% and 8.4%, respectively.

Income Taxes. For the current period, our income tax expense decreased by $650,523, primarily as a result of our net loss.

Net Income (Loss). As a result of the foregoing, our net income decreased by $5,060,503 period over period, to a net loss of $3,486,792.

Comparison of nine months ended December 31, 2012 and 2011

The following table summarizes our results of operations for the nine months ended December 31, 2012 and 2011:

        Nine months ended December 31,
2012     2011
Amount    

Percentage of total revenue

Amount    

Percentage of total Revenue

Revenue $ 75,108,458 100.0 % $ 69,296,755 100.0 %
Gross profit $ 11,557,276 15.4 % $ 19,954,088 28.8 %
Selling expenses $ 7,140,013 9.5 % $ 6,588,686 9.5 %
General and administrative expenses $ 7,456,956 9.9 % $ 4,570,919 6.6 %
(Loss) income from operations $ (3,039,693 ) (4.0 )% $ 8,794,483 12.7 %
Other (expense) income, net $ (75,178 ) (0.1 )% $ 222,929 0.3 %
Impairment of goodwill $ 1,473,606 (2.0 )% $ - 0.0 %
Change in fair value of purchase option derivative liability $ 13,652 0.0 % $ 116,392 0.2 %
Income tax (benefit) expense $ (93,886 ) (0.1 )% $ 2,684,463 3.9 %
Net (loss) income attributable to controlling interest $ (4,480,083 ) (6.0 )% $ 6,450,424 9.3 %
Net (loss) attributable to noncontrolling interest $ (856 ) (0.0 )% $ (1,083 ) (0.0 )%
 

Revenue. We had three revenue streams for the nine months ended December 31, 2012: (i) store and online retail sales of pharmaceutical and other healthcare products, and (ii) wholesale distribution of pharmaceutical and other healthcare products, and (iii) sales of our self-cultivated TCM herbs, primarily to third-party pharmaceutical trading companies. In contrast, retail sales and wholesale provided all of our revenue for the nine months ended December 31, 2011.

Our revenue increased by $5,811,703 or 8.4% period over period, primarily due to the expansion of our wholesale business and the addition of our farming business, offset by a decrease in our retail business:

(1)     Since its start, our wholesale business expanded rapidly through competitive pricing, from approximately 16.4% of total revenue for the 2011 period to approximately 55.8% for the 2012 period. However, the low margins from such practice hurt our profitability. As a result, in the three months ended December 31, 2012, we ceased certain low margin sales and are reconsidering our wholesale strategy. Hence, we had declined sales as compared with the same period a year ago. In addition, until we are able to achieve first-tier distributor status for more than one or two vendors, we do not expect our wholesale business to grow quickly in the immediate future.
 

(2)

During the three months ended March 31, 2012, we began distributing the TCM herbs such as Peucedanum that we have been cultivating, to third-party pharmaceutical trading companies. Although we have hired several specialists to oversee our farming business, we are mainly relying on the local village government to manage the cultivation process. For example, the local government organizes local farmers to plant, fertilize and harvest. In turn, we pay for the expenses incurred by the local farmers based on our agreements with the local government. Sales from our farming business accounted for $2,524,091 or approximately 3.4% of our total revenue for the nine months ended December 31, 2012. In calendar 2012, we planted certain new herbs and continued to cultivate grown herbs. We usually harvest and sell herbs when they become mature and market demands are high. We anticipate that we will harvest and sell herbs again in approximately six months.

 

(3)

Our retail sales, which accounted for approximately 40.8% of total revenue for the nine months ended December 31, 2012, decreased by $27,264,887 or 47.1% to $30,680,020, primarily as a result of stricter government policies and a 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 $29,795,922 or 52.2%, while new stores and online pharmacy collectively contributed approximately $2,507,927 in revenue. 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 control continue to rise.

Nine-Month Revenue by Segment.  The following table breaks down the revenue for our two business segments for the nine months ended December 31, 2012 and 2011:

        Nine months ended December 31,        
2012     2011
    % of total     % of total Variance by
Amount revenue Amount revenue amount % of change
Revenue from retail business
Revenue from drugstores $ 28,411,652 37.9 % $ 57,173,648 82.5 % $ (28,761,996 ) (50.3 )%
Revenue from online sales   2,268,368 2.9 %   771,259 1.1 %   1,497,109   194.1 %
Sub-total of retail revenue 30,680,020 40.8 % 57,944,907 83.6 % (27,264,887 ) (47.1 )%
 
Revenue from wholesale business 41,904,347 55.8 % 11,351,848 16.4 % 30,552,499 72.9 %
Revenue from farming business 2,524,091 3.4 % - 0.0 % 2,524,091 N/A
Total revenue $ 75,108,458 100.0 % $ 69,296,755 100.0 % $ 5,811,703   8.4 %
 

The revenue fluctuation period over period reflected the following combined factors:

(1)    

Drugstore revenue decreased by approximately $28.8 million or 50.3% period over period for the same reasons that revenue declined during the quarter, as a result: (a) smaller pool of insurance-subsidized medicines, (b) government-mandated price control, and (c) increasing competition.

 

(2)

The growth of our wholesale business is a reflection of the second half of fiscal 2012, and as discussed earlier, we ceased certain low margin sales in the three months ended December 31, 2012, and are reconsidering our volume-driven wholesale strategy.

 

(3)

Our online pharmacy sales increased by $1,497,109 or 194.1% period over period, and we expect the business to grow as we gain wider consumer awareness through our continuing cooperation with business-to-consumer online vendors such as Taobao.

Gross Profit. Our gross profit decreased by $8,396,812 or 42.1% period over period from substantial decline in retail sales. Our gross margin also decreased, from 28.8% to 15.4%, as a result of lower retail and wholesale profit margins. The average gross margin of our three business segments for the nine months ended December 31, 2012 are as follows:

          Nine months ended

December 31,

2012   2011
Average gross margin for retail business 25.2 % 33.9 %
Average gross margin for wholesale business 3.6 % 2.7 %
Average gross margin for farming business 90.9 % N/A
 

Our retail gross margin decreased to 25.2% in the nine months ended December 31, 2012 from 33.9% in the nine months ended December 31, 2011. The Chinese government has included more and more prescription and OTC drugs in the price control list. Some of our products’ prices were higher than the prices set by the Chinese government. Hence, we had to adjust these products’ prices. As a result, the profit margin for these products declined. In addition, due to the economic slowdown and stricter government policies such as stricter insurance reimbursement policy and the expansion of Essential Drug List (EDL), the retail drugstore market became much more competitive. For example, drugs listed in the EDL were being sold at a price close to its cost at local community hospitals which, in turn, receive government subsidies. Correspondently, we had to either abandon sale of these drugs or sell them at minimal profit margins. Furthermore, in order to keep competitive in the competitive drug retail market, we had to cut prices of certain drugs. As a result, our overall retail gross profit margin decreased.

2 of 5

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,356.87 +288.00 1.69%
S&P 500 2,012.89 +40.15 2.04%
NASDAQ 4,644.3120 +96.4780 2.12%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs