Lentuo International Inc. (NYSE:LAS) (“Lentuo” or the “Company”), the largest non-state-owned automobile retailer in Beijing as measured by new vehicle sales revenue, today announced unaudited financial results for the first quarter ended March 31, 2011.

First Quarter 2011 Financial Highlights
  • Revenues for the first quarter of 2011 increased 2.9% year-over-year to RMB 598.2 million ($91.3 million).
  • The average unit price for new vehicle sales in the first quarter of 2011 increased 24.4% year-over-year to RMB 209,048 ($31,924).
  • Net income was RMB 29.9 million ($4.6 million), an increase of 4.2% from RMB 28.7 million for the same period in 2010. Diluted earnings per American depositary share (“ADS”) were $0.16.

Mr. Hetong Guo, Founder and Chairman of Lentuo, stated: “Despite the challenges posed by Beijing’s new traffic control measures, we grew revenues and substantially improved our profitability in the first quarter. These positive results underscore our operational expertise and the strength of our brand name. In the months ahead, we will focus on increasing service-driven revenues as a percentage of total sales, broadening our product portfolio to align with market trends, and expanding our dealership network through accretive acquisitions and new dealership openings. We recently opened a new FAW-Volkswagen dealership in eastern Beijing and expect to complete another one of our key expansion projects, the acquisition of a controlling interest in a Honda dealership in Tianjin, during the second quarter of 2011.”

“Our first quarter financial results exceeded our previously issued guidance,” added Ms. Ping Yu, Chief Financial Officer of Lentuo. “The impact of Beijing’s new licensing system on our new vehicle sales was offset by a 35% year-over-year increase in repair and maintenance revenues, which drove margin improvements across the board. China’s rising automobile demand continues to present a tremendous market opportunity for Lentuo, and we remain confident that our current expansion efforts will result in continued sales growth and enhanced shareholder value.”

First Quarter 2011 Financial Performance

Revenues for the three months ended March 31, 2011 increased 2.9% to RMB 598.2 million ($91.3 million) from RMB 581.2 million in the first quarter of 2010. The increase was primarily driven by an increased average unit price for new vehicle sales, and the increased volume of automobile repair and maintenance services as well as other services.

During the first quarter of 2011, the Company sold 2,496 vehicles, representing a 20.7% decrease from 3,146 vehicles in the first quarter of 2010. The decrease was primarily due to the Beijing government’s new traffic congestion control measures introduced in December.

The average new vehicle unit price for the first quarter of 2011 was $31,924, a 24.4% increase over $25,658 for the same period in 2010. In addition, the Company serviced approximately 30,958 vehicles during the three months ended March 31, 2011, representing a 4.5% increase over 29,630 vehicles in the first quarter of 2010. The increase in the average new vehicle unit price was primarily driven by customers’ changing preferences toward higher-end vehicles after the Beijing government adopted policies aimed at curbing traffic congestion and increased the cost of car usage.

Cost of goods sold increased 0.8% to RMB 519.3 million ($79.3 million) in the first quarter of 2011 from RMB 515.4 million in the same period of 2010. The increase was primarily in line with the increased average new vehicle unit price as well as the increase in revenues from automobile repair and maintenance services. As a percentage of revenues, cost of goods sold decreased to 86.8% in the first quarter of 2011 from 88.7% in the first quarter of 2010.

Gross profit increased 19.8% to RMB 78.9 million ($12.0 million), up from RMB 65.8 million in the first quarter of 2010. The increase in gross profit was primarily due to the increase in revenues from automobile repair and maintenance services and other services, as well as a significantly improved gross margin on repair and maintenance services, from 47.9% in the first quarter of 2010 to 58.5% in the first quarter of 2011.

Gross margin for the first quarter of 2011 increased to 13.2% from 11.3% in the first quarter of 2010 due to an increase in the revenues from automobile repair and maintenance services as a percentage of total revenues in the first quarter of 2011 and an increased gross margin on repair and maintenance services in the first quarter of 2011. Specifically, the contribution of repair and maintenance services to our total revenues rose to 11.5%, as compared to 8.8% for the same period in 2010.

Selling, marketing and distribution expenses increased 58.0% to RMB 12.2 million ($1.9 million) in the first quarter of 2011 from RMB 7.7 million in the same period a year ago, primarily as a result of increased maintenance expenses, increased staffing costs related to an increase in employees, and increased advertising expenses. As a percentage of revenues, selling, marketing and distribution expenses increased to 2.0% in the first quarter of 2011 from 1.3% in the first quarter of 2010.

General and administrative expenses increased by 20.1% to RMB 10.2 million ($1.6 million) in the first quarter of 2011 from RMB 8.5 million in the same quarter of 2010, primarily due to increased office maintenance expenses, and increased staffing costs related to an increase in employees. As a percentage of revenues, general and administrative expenses increased slightly to 1.7% in the first quarter of 2011 from 1.5% in the first quarter of 2010.

Operating income for the first quarter of 2011 increased 13.9% to RMB 56.6 million ($8.6 million) from RMB 49.7 million for the same period in 2010.

Operating margin for the first quarter of 2011 was 9.5%, compared to 8.5% for the same quarter in 2010. The increase in operating margin was primarily attributable to the increase in gross margin.

Income tax expenses for the first quarter of 2011 were RMB 12.8 million ($2.0 million), representing an effective tax rate of 30.0%, up from 28.5% for the same period in 2010.

Net income was RMB 29.9 million ($4.6 million), an increase of 4.2% from RMB 28.7 million for the same period in 2010.

Diluted earnings per ADS were RMB $1.02 ($0.16) for the first quarter of 2011 compared to RMB 1.44 for the first quarter of 2010.

Liquidity and Capital Resources

As of March 31, 2011, the Company had cash and cash equivalents of RMB 766.6 million ($117.1 million), compared to RMB 177.8 million as of March 31, 2010. Net cash used in operating activities was RMB 400.0 million ($61.1 million) in the first quarter of 2011, compared to net cash provided by operating activities of RMB 67.5 million in the first quarter of 2010.

Strategic Acquisition and Expansion

Lentuo has completed the due diligence process on the Honda dealership in Tianjin and plans to finalize the deal in early June. This acquisition demonstrates the Company’s proactive response to the strong demand for automobiles in China and is in line with Lentuo’s business development strategy of expanding its 4S dealership network into surrounding areas of Beijing. The Company believes that the acquisition will enhance Lentuo’s targeted market positioning. Pending completion of the acquisition, the Company expects not only to have a controlling interest in the Tianjin dealership but also to gain a local strategic ally who will serve as the junior partner in this joint venture. The junior partner will be committed to helping Lentuo expand into Tianjin, a major metropolitan market, in a rapid and cost-effective manner.

The Company believes acquisitions will be a significant driver to grow its business in the future. We plan to purchase franchises to expand our business portfolio and generate attractive returns for the Company and its shareholders. We will continue to seek strong acquisition targets and are pursuing additional acquisition opportunities in geographies other than Tianjin as well. We remain confident that we are on track to fulfill our mid-term expansion plan of adding 10 dealerships to our growing national operations.

Lentuo opened a new FAW-Volkswagen dealership in the central area of eastern Beijing last week and expects to generate sales from this dealership beginning this week. We expect the dealership to generate revenue within the range of RMB 180 million to RMB 200 million ($27.5 million to $30.5 million) for the year 2011. As we observe increasing demand for premium passenger vehicles to be a long-term trend among China’s growing number of affluent households, we expect a limited impact on the premium car segment of our business from Beijing’s new quota system. In addition, the prime location of the new dealership in Beijing will be a key competitive advantage for us in this market--both in terms of repair and maintenance services and new car sales.

Financial Outlook

The Company estimates that its revenues for the second quarter of 2011 will be approximately RMB 650 million to RMB 680 million ($99.3 million to $103.8 million), representing a year-over-year decrease of approximately 11.2% to 7.1%.

This guidance is based on current market conditions and reflects the Company’s current and preliminary estimates of market and operating conditions and customer demand, which are all subject to change.

The Chairman concluded: “Although we expect second-quarter sales to be impacted by the recent policy changes in Beijing, we are working to overcome this challenge by enhancing and promoting our repair, maintenance and other service offerings, which generate significantly higher margins compared to new vehicle sales. Additionally, we plan to leverage our leadership position in Beijing to capitalize on local market consolidation opportunities and support our geographic expansion. We firmly believe that we have the right platform to take full advantage of China’s huge, rapidly growing auto market.”

Conference Call

The Company will hold a conference call on Tuesday, May 31, 2011 at 10:00 a.m. Eastern time (7:00 a.m. Pacific) to discuss its first quarter 2011 financial results. To participate in the call, please dial (877) 941-2068, or (480) 629-9712 for international calls, approximately 10 minutes prior to the scheduled start time. Interested parties can also listen via a live Internet webcast, which can be found via the Company’s website at http://ir.lentuo.net, or alternately at http://ViaVid.net.

A replay of the call will be available for two weeks from 11:30 a.m. EDT on May 31, 2011, until 11:59 p.m. EDT on June 14, 2011. The number for the replay is (877) 870-5176, or (858) 384-5517 for international calls; the pass code for the replay is 4444028. In addition, a recording of the call will be available via the Company’s website at http://ir.lentuo.net for one year.

Exchange Rate

This announcement contains translations of certain Renminbi amounts into U.S. dollars at specified rates solely for the convenience of readers. Unless otherwise noted, all translations from Renminbi to U.S. dollars were made at the exchange rate of RMB 6.5483 to US $1.00, as set forth in the H.10 statistical release of the Federal Reserve Board on March 31, 2011.

About Lentuo International Inc.

Lentuo is the largest non-state-owned automobile retailer in Beijing, China as measured by new vehicle sales revenue in 2009, according to the China Automobile Dealers Association (“CADA”). Lentuo operates six franchise dealerships, ten automobile showrooms, one automobile repair shop and one car leasing company in Beijing, the largest new passenger vehicle market among all cities in China. Three of Lentuo’s six dealerships are among the leading dealerships in China for their respective brands, as measured by the volume of new vehicle sales by individual dealership.

Safe Harbor Statement

This press release contains forward-looking statements. These statements constitute “forward-looking” statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as “will,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” “target,” “going forward,” “outlook” and similar statements. Such statements are based upon management’s current expectations and current market and operating conditions, and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the Company’s control, which may cause the Company’s actual results, performance or achievements to differ materially from those in the forward-looking statements. Further information regarding these and other risks, uncertainties or factors is included in the Company’s filings with the U.S. Securities and Exchange Commission. The Company does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under applicable law.
 

LENTUO INTERNATIONAL INC.

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares)
 
March 31,

 

2010
 

2011
RMB RMB   US$
ASSETS
 
Current assets:
Cash and cash equivalents 177,803 766,557 117,062
Restricted cash 95,930 248,980 38,022
Accounts receivable (net of allowance for doubtful accounts of nil as of March 31, 2010 and 2011) 22,659 44,520 6,799
Inventories, net 349,039 390,961 59,704
Advances to suppliers 206,158 199,315 30,438
Prepaid expenses and other current assets 28,985 51,456 7,858
Amounts due from related parties 290,554 - -
Deferred tax assets - 5,006 764
     
Total current assets 1,171,128 1,706,795 260,647
 
Non-current assets:
Property and equipment, net 262,843 222,415 33,965
Land use rights, net 9,086 5,771 881
Deferred initial public offering costs 6,034 - -
Deferred tax assets 465 860 131
     
Total non-current assets 278,428 229,046 34,977
 
TOTAL ASSETS 1,449,556 1,935,841 295,624
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
Current liabilities:
Accounts payable 10,979 1,925 294
Bills payable 315,711 274,460 41,913
Advances from customers 18,500 40,781 6,228
Deposits from third parties 142,738 111,486 17,025
Accrued expenses and other current liabilities 216,856 391,052 59,717
Amounts due to related parties 7,436 14,145 2,160
Unrecognized tax benefits 49,525 4,963 758
Taxes payable 60,637 108,443 16,560
Short-term loans 316,108 222,233 33,938
     
Total current liabilities 1,138,490 1,169,490 178,593
 
Total liabilities 1,138,490 1,169,490 178,593
 
 
 
Shareholders’ equity:
Ordinary shares, par value US$0.00001 per share

Authorized – 500,000,000 shares as of March 31, 2010 and 2011
1 4 1
Issued and outstanding –39,908,389 and 58,937,912 shares as of March 31, 2010 and 2011
Additional paid-in capital 53,973 469,761 71,738
Retained earnings 257,092 296,588 45,292
 
Total shareholders’ equity 311,066 766,353 117,031
 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 1,449,556 1,935,841 295,624
 

LENTUO INTERNATIONAL INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Amounts in thousands of Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data)
 
  Three months ended March 31,
2010   2011
RMB RMB   US$
Revenues:
Sales of automobiles 528,571 521,784 79,682
Automobile repair and maintenance services 51,057 68,940 10,528
Other services 1,611 7,459 1,139
581,239 598,183 91,349
 
Cost of goods sold:
Sales of automobiles (488,589) (490,596) (74,920)
Automobile repair and maintenance services (26,576) (28,639) (4,374)
Other services (247) (58) (9)
(515,412) (519,292) (79,302)
Gross profit 65,827 78,891 12,048
 
Operating expenses:
Selling, marketing and distribution expenses (7,695) (12,156) (1,856)
General and administrative expenses (8,456) (10,154) (1,551)
Total operating expenses (16,151) (22,310) (3,407)
 
Operating income 49,676 56,581 8,641
 
Interest income 68 578 88
Interest expenses (10,056) (10,828) (1,654)
Exchange loss - (3,592) (549)
Other income, net 451 2 -
 
Income before income tax expenses 40,139 42,741 6,527
Income tax expenses (11,442) (12,841) (1,961)
 
Income from continuing operations 28,697 29,900 4,566
Income from discontinued operations, net of tax - - -
 
Net income attributable to ordinary shareholders and comprehensive income 28,697 29,900 4,566
 
Earnings per ordinary share:
from continuing operations 1 1 0.08
from discontinued operations - - -
 
Basic and diluted earnings per ordinary share 1 1 0.08
 
Weighted average ordinary shares outstanding:
Basic and diluted 39,908,389 58,937,912 58,937,912

Copyright Business Wire 2010

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