Aug 11 2010
Winner Medical Group Inc. (Nasdaq: WWIN; "Winner Medical"), a leading manufacturer of medical dressings, medical disposables and non-woven PurCotton(R) materials for the medical and consumer products industries in China, today reported that third quarter fiscal year 2010 revenue year-on-year increased 27.0%, to $30.9 million, net income increased 10.1% to $3.4 million and a sales of PurCotton(R) products year-on-year increased 114.0%, to $2.6 million.
"Winner Medical delivered solid third-quarter operating results under the shadow of the European debt crisis and an increased in raw material prices. Our operating numbers were benefited from accelerating growth in the North and South American and European markets, as well as a continuing increase in sales for PurCotton(R) products," said Jianquan Li, Chairman and Chief Executive Officer of Winner Medical. "Our PurCotton business is performing well. In addition to opening several new retail stores, we are in the initial phase of launching Business-to-Customer online shopping platform to complement our brick-and-mortar business. We continue to add talents across all aspects of the business, including store management, brand building, and e-commerce. These investments position our PurCotton business for robust long-term top and bottom line growth."
"Looking forward, we will continue to reshape and strengthen our portfolio, by maintaining good relationships with existing large foreign clients, such as Cardinal Health Inc. and Covidien Plc., and expand our distribution network for our medical products sales in China through distributors and direct to hospitals, as a result of China's medical reform, while accelerating sales of PurCotton(R) brand products through retail sales in our chain stores and supermarkets, on-line sales and wholesale distribution sales to large customers. As more consumers around the world buy more products that better protect their health and the environment, our PurCotton(R) products are well positioned to meet their needs. We expect to fund these key strategic investments through our strong cash flows," Mr. Li said.
Third Quarter FY2010 Highlights
Net Sales
Winner Medical reported net sales of $30.9 million for the third quarter of 2010, a 27.0% increase from $24.4 million in the third quarter of 2009. This increase was mainly driven by increased sales orders from North and South American and European customers, as well as increased PurCotton(R) products sales. Net sales to North and South American customers increased approximately 58.1% to $7.2 million in the third quarter of 2010, from $4.6 million in the third quarter of 2009, as a result of more orders from existing customers, such as Cardinal Health Inc. and Covidien Plc. The net sales to customers in Europe were $12.4 million in the third quarter of 2010, an increase of 27.2%, compared to $9.8 million during the same period last year. PurCotton(R) products sales increased approximately 114.0% to $2.6 million in the third quarter of 2010 from $1.2 million in the third quarter of 2009.
Gross Profit
Gross profit in the third quarter of 2010 increased 24.4% to $8.9 million from $7.2 million in the third quarter of 2009. Third quarter 2010 gross margin was 28.9%, compared to 29.5% in the third quarter of 2009. The slight decline in gross margin resulted from an increase in the price of cotton, our principal raw material. In order to reduce this risk, we have increased our selling price progressively, which was accepted by our customers.
Selling, General and Administrative Expenses
In the third quarter of 2010, selling, general and administrative expenses were $5.3 million, versus $3.6 million in the third quarter of 2009. Adjusted selling, general and administrative expenses (non-GAAP), which exclude share-based compensation expenses, for the third quarter were $5.5 million, versus $3.7 million for the same quarter of 2009. This increase was mainly due to increases in transportation expenses, growth in salaries to support higher sales growth, as well as an increase in leasing fees for PurCotton(R) stores.
Income from Operations
Income from operations decreased by 2.1% to $3.6 million in the third quarter of 2010, from $3.7 million in the third quarter of 2009. Adjusted income from operations (non-GAAP), which excludes share-based compensation expenses, was $3.9 million in the third quarter of 2010, compared to $3.8 million in the same period of 2009.
Income Taxes
The Company's effective tax rate for the third quarter of 2010 was 9.3%, compared to 18.5% in the third quarter of 2009. The lower income tax rate was mainly due to the Company's subsidiary, Winner Industries (Shenzhen), obtaining a High and New Technology Enterprise Certificate, which reduced its income tax rate from 18% to 15%, as well as the Company's Research and Development expenses enjoying a 150% tax deductible preferential policy during the third quarter of 2010 compared with a lower deduction during the same quarter of 2009.
Net Income Attributable to Winner Medical Group Inc.
Net income attributable to Winner Medical Group Inc. increased by 10.1% to $3.4 million in the third quarter of 2010, as compared to approximately $3.1 million in the third quarter of 2009. Diluted earnings per share remained unchanged compared to the third quarter of 2009 at $0.14. Adjusted net income attributable to Winner Medical Group Inc. (non-GAAP), which excludes share- based compensation expenses, was $3.6 million for the third quarter of 2010, an increase of 14.0% from the same period a year ago. Excluding share-based compensation expenses, adjusted diluted earnings per share (non-GAAP) was $0.15 in the third quarter, versus $0.14 per share in the comparable quarter of 2009. This increase was primarily driven by rising cotton price and maritime transportation expenses. In response, the Company is increasing its selling prices to its customers to pass along these cost increases. However, there is some time lag for these increases to be passed on to consumers and reflected in the Company's net income.
Nine Months Ended June 30, 2010 Highlights
Net Sales
Winner Medical reported net sales of $86.8 million for the nine months ended June 30, 2010, a 22.7% increase from $70.7 million for the same period of 2009. This increase is mainly attributable to growing product demand from Chinese customers, increased sales orders from existing North and South American customers, as well as a rapid increase in PurCotton(R) products sales to customers in China.
Gross Profit
Gross profit for the nine months ended June 30, 2010 increased to $25.7 million, a 31.3% increase from $19.6 million for the same period of 2009. Gross margin was 29.6% for the nine months ended June 30, 2010, compared to 27.7% for the nine months ended June 30, 2009, which resulted from the Company's strategy of targeting the Chinese medical market combined with high-margin sales of PurCotton(R) products, as well as benefits derived from our lean production management.
Selling, General and Administrative Expenses
For the nine months ended June 30, 2010, selling, general and administrative expenses were $14.7 million, versus $11.9 million for the same period of 2009. Adjusted selling, general and administrative expenses (non- GAAP), which exclude share-based compensation expenses, for the nine months ended June 30, 2010 were $15.5 million, versus $12.2 million for the same period of 2009. This increase was primarily driven by increases in transportation expenses for the domestic and export markets, increases in salaries for management and administrative staff and consulting expenses for brand-building projects, as well as an increase in leasing fees resulting from the launching of PurCotton(R) products.
Income from Operations
Income from operations increased by 50.4% to $11.4 million for the nine months ended June 30, 2010, from $7.6 million for the same period of 2009. Adjusted income from operations (non-GAAP), which excludes share-based compensation expenses, was $12.2 million for the nine months ended June 30, 2010, compared to $7.9 million for the same period of 2009.
Income Taxes
The Company's effective tax rate for the nine months ended June 30, 2010 was 13.5%, compared to 18.8% for the same period last year for the reasons discussed previously.
Net Income Attributable to Winner Medical Group Inc.
Net income attributable to Winner Medical Group Inc. increased by 26.3% to $10.0 million for the nine months ended June 30, 2010, as compared to approximately $6.2 million for the same period of 2009. Diluted earnings per share increased by 53.6% to $0.43 for the nine months ended June 30, 2010, versus $0.28 per share for the comparable period last year. Adjusted net income attributable to Winner Medical Group Inc. (non-GAAP), which excludes share-based compensation expenses, was $10.8 million for the nine months ended June 30, 2010, an increase of 65.8% from the same period of 2009. Excluding share-based compensation expenses, adjusted diluted earnings per share (non-GAAP) was $0.47 for the nine months ended June 30, 2010, versus $0.29 per share for the comparable period last year, an increase of 62.1%. This increase was primarily driven by high demand for PurCotton(R) products, rapidly increasing sales of our more traditional medical offerings to Chinese customers and lean production management.
Other Selected Financial Data
Average accounts receivable days outstanding were 43 days as of June 30, 2010 compared to 45 days as of September 30, 2009.
As of June 30, 2010, the Company had $12.7 million in cash and cash equivalents, compared to $9.5 million as of September 30, 2009. Net cash provided by operating activities and net cash used in investing activities during the nine months ended June 30, 2010 were $5.6 million and $5.2 million, respectively. Working capital as of June 30, 2010 was $41.1 million compared to $23.0 million as of September 30, 2009.
Operational Highlights Year to Date
PurCotton(R) Business Update
PurCotton(R) product sales of $7.0 million for the nine months ended June 30, 2010 represented a 121.7% increase versus the $3.2 million of sales for the same period of 2009. Sales growth benefited from an increase in sales from PurCotton(R) chain stores and PurCotton(R) jumbo rolls to customers in China and Japan that produce consumer products, including sanitary and incontinence products, as well as from the processing of orders for PurCotton(R) finished medical products, such as operating room towels and sponges, for customers in China, Europe and the United States.
As of August 11, 2010, the Company owned and operated 17 PurCotton(R) chain stores in Shenzhen, Guangdong Province. Each store contains four types of PurCotton(R) branded personal products and healthcare supplies, which include PurCotton(R) baby personal products, feminine personal products, daily home care products and medical care products. The main distribution channels for these products include chain stores (PurCotton(R) stores), on-line sales, supermarkets and wholesale to large customers. PurCotton(R) stores are mainly located in downtown shopping malls. The projected average total cost of each store, with sizes ranging from 50 to 200 square meters, is approximately $40,000 to $60,000, which includes the lease, deposit, build out, instruments, inventory stocking and one month's salary for salespersons. The Company is slowing down the pace of chain stores opening because management has been operating the PurCotton's consumer business for less than one year. In order to build a healthy and sustainable retail business, the Company is carefully evaluating all relevant operating and financial metrics, including store location and size, product packaging and pricing, brand image, customer service and marketing. We will provide ongoing updates related to the performance of our PurCotton(R) stores on a regular basis so investors can better understand and evaluate our progress.
Recently, the Company opened its first online PurCotton(R) store featuring its entire array of products on Taobao.com, the largest online trading platform in China. This is the Company's first initiative to establish PurCotton Business-to-Consumer (B2C) online stores in order to address the consumers' evolving shopping preferences. The Company is also planning to build its own B2C trading website that will be co-branded through its retail stores, in addition to other online mediums to reach a much broader customer base throughout China. We expect our collective B2C efforts to provide incremental sales to new and existing customers and help drive significant growth in the overall PurCotton(R) franchise.
As of 11 August, the first two PurCotton(R) manufacturing lines are producing at full capacity, with a total production capacity of 200 tons per month. The third production line commenced production in March 2010 and the fourth production line is expected to commence operation before December 2010.
Source:
Winner Medical Group Inc.