SOKO Fitness Reports Second Quarter Fiscal 2010 Results
Net Income Improves by 89% on 61% Revenue Growth Year-over-year; Company to Host Conference Call on Tuesday, January 19 at 8:30 AM Eastern Time
HARBIN, China, Jan. 14 /PRNewswire-Asia-FirstCall/ -- SOKO Fitness & Spa Group, Inc. (OTC Bulletin Board: SOKF) ("SOKO"), an operator of fitness centers and beauty salons and spas in China, today reported financial results for the second quarter and first six months of fiscal 2010, ended November 30, 2009.
Second Quarter and Recent Financial and Business Highlights
-- Revenue increased 61% to $7.4 million, compared with revenue of $4.6
million in the second quarter of fiscal 2009.
-- Revenue increased across each of the company's business segments, with
spa and beauty services and products accounting for 80% of revenue,
fitness centers accounting for 15% of revenue and the beauty school
accounting for 5% of revenue.
-- Total professional services were $5.3 million, up 73% year-over-
year;
-- Total product sales were $598,000, up 102% year-over-year;
-- Membership fees were $1.1 million, up 19% year-over-year; and,
-- Revenue from beauty school tuition was $392,000, compared with
$314,000 in the second quarter of fiscal 2009.
-- Gross profit was $5.2 million, or 70% of revenue, compared with $3.0
million, or 65% of revenue in the second quarter of fiscal 2009.
-- Operating income improved by 76% to $3.2 million, compared with $1.8
million in the second quarter of fiscal 2009.
-- Net income improved by 89% to $3.2 million, or $0.17 per share
(diluted), compared with net income of $1.7 million, or $0.10 per share
(diluted) in the second quarter of fiscal 2009.
-- As of November 30, 2009, cash and cash equivalents were $3.64 million,
an increase of 91% over $1.91 million as of May 31, 2009.
-- Opened its first "non-surgical medical beauty spa" in Harbin, China in
an effort to expand SOKO's range of services and capture potential new
revenue streams.
-- Expanded geographic reach by securing 51% interest in two fitness
centers in suburban Beijing, marking the company's initial entry into
the Beijing market.
"Our quarterly results reflect the strength of our cross-selling business model and continued execution of our business strategy," said Tong Liu, Chief Executive Officer of SOKO. "During the first half of fiscal 2010, we continued to expand our brand by opening new facilities, including Yoga Wave II and the Harbin Queen Medical Beauty Spa, which is our first facility licensed to perform non-surgical medical aesthetic procedures. We believe that the medical beauty segment is a potentially high-growth market where there are significant barriers to entry due to licensing requirements. As such, we believe we are well positioned to secure additional revenue from our existing customer base with these medical beauty services, as well leverage this offering to attract new customers who should be candidates for our full range of fitness, spa and beauty services. In line with our strategy, we will continue to focus on promoting our higher margin business segments such as our yoga centers and spa and beauty service offerings. Importantly, while we continue to open new centers, our operating costs remain in-line with our revenue. With a 62% increase in SG&A expenses in the second quarter, we achieved a 77% year-over-year increase in operating income.
"Following the close of the second quarter, we also acquired a majority interest position in two fitness centers in Beijing. This marks our initial entry into this important region and serves our objective of geographic expansion through strategic acquisitions. These centers are located in a suburban area of Beijing and, as such, we believe they face less competition from peers that are operated in the central Bejing area and are thus consistent with our acquisition strategy. We expect to continue to execute on our growth strategy based in opening centers in second tier cities such as Harbin where we believe we can achieve the swiftest impact. In addition, we will also strategically evaluate opportunities to open centers in or around first tier cities, such as Beijing, so long as they fit in with our core strategy of opening facilities where we believe there is low penetration from peers and we can adequately compete.
"With the expanding breadth of our service offerings and a growing client base, we believe we are well positioned to grow our business, with our existing members and clients representing the ideal target customers for the full breadth of our products and services," Mr. Liu concluded.
SOKO currently operates 15 facilities in key cities in Northeastern China including nine beauty salons and spas, five fitness centers and yoga studios and one beauty school, as well as two fitness centers in suburban Beijing. At the end of the second quarter of fiscal 2010, SOKO had 14,909 fitness club members, and 19,893 beauty salon and spa clients. In addition, SOKO has four facilities under construction: The Da Qing beauty salon and spa, one beauty salon in the Long Dian building in Harbin, as well as one fitness center and one yoga center.
Second Quarter Financial Summary:
Total Revenue for the second quarter of fiscal 2010, ended November 30, 2009, was $7.4 million, an increase of 61%, over revenue of $4.6 million in the second quarter of fiscal 2009. The increase in revenue was largely attributed expansion of our facilities and services including increased sales from existing members and clients, sales of add-on services to members and clients and continued efforts to add new members and clients in new and existing facilities.
Gross profit for the quarter was $5.2 million, or 69.5% of revenue, compared with $3.0 million, or 65.5% of revenue for the comparable quarter in fiscal 2009. The increase in margins for the period was [primarily the result of the addition of the non-medical beauty service offering].
Selling, general and administrative expenses were $2.0 million, an increase of approximately 62% over $1.2 million in the second quarter of fiscal 2009.
Net Income increased 89% to $3.2 million, or $0.17 per share, based on 18.2 million weighted average shares outstanding, compared with $1.7 million, or $0.10 per share, based on 17.0 million weighted average shares outstanding, for the year-ago period. The increase in net income was related to the increase in revenue, as well as a reduction in interest and other expenses.
As of November 30, 2009, SOKO had cash and cash equivalents of $3.6 million, an increase of 2% compared with $3.6 million in the prior quarter, and a 91% increase over $1.9 million reported on May 31, 2009.
Company and Market Outlook
"As we move into the second half of our 2010 fiscal year, we believe SOKO is positioned to continue its growth," said Mr. Liu. "Our strong member retention rate of approximately 81% remains above the industry average and provides a potential base of recurring and predictable revenue while we execute on our growth initiatives. We continue to expand our product and service offerings with an emphasis on growing our client and membership bases to drive our existing facilities into maturity, a cycle we typically achieve within two to three years following each center's opening. With new SOKO- operated facilities opened earlier this year and four new facilities currently under construction, we believe we are well on our way toward reaching our goal of adding 7-9 new centers to our portfolio in calendar 2010.
"We further believe that the number of potential customers for SOKO's fitness and aesthetic offerings are expanding as the upper and middle classes in the cities in which we operate are becoming increasingly affluent. With an established, well-respected brand and a loyal existing customer base, we are confident that we can capitalize on these favorable market trends in order to continue growing our business," Mr. Liu concluded.
Conference Call
SOKO will host a conference call for interested investors and analysts on Tuesday, January 19, 2010, at 8:30 a.m. Eastern time. To participate in the conference call, please dial 877-941-8416 toll free from the U.S, or 1-480- 629-9808 for international callers.
An audio replay will be available approximately one hour after the conclusion of the call and will be made available through Tuesday, February 2, 2010. The audio replay can be accessed by dialing 1-800-406-7325 toll free from the U.S., or 1-303-590-3030 for international callers, and entering access ID number 4201679.
About SOKO Fitness & Spa Group, Inc.
SOKO Fitness & Spa Group, Inc., an OTCBB listed company (SOKF.OB), is an operator of fitness centers and beauty salons and spas key cities in Northeastern China as well as in suburban Beijing. SOKO provides programs, services, and products combined with exercise, education, and nutrition to help their members lead a healthy life and achieve their fitness goals. For further information, please go to http://www.sokofitness.com .
To be added to SOKO's email distribution for future news releases, please send your request to [email protected].
Cautionary Note Regarding Forward Looking Statements
This press release and the statements of representatives of SOKO Fitness & Spa Group, Inc. (the "Company") related thereto contain, or may contain, statements that are not historical facts and are therefore "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve significant risks and uncertainties. Such statements may include, without limitation, statements with respect to the Company's plans, objectives, projections, beliefs, expectations and intentions and other statements identified by words such as "projects," "may," "could," "would," "should," "believe," "expect," "anticipate," "estimate," "intend," "plan," or similar expressions. These statements are based upon the current beliefs and expectations of the Company's management and are subject to significant risks and uncertainties, including those detailed in the Company's filings with the Securities and Exchange Commission. Actual results, including, without limitation, results regarding the Company's service offerings, client and customer base, proposed new center openings and prospects and strategies for growth, may differ significantly from those set forth in the forward-looking statements. These forward-looking statements involve certain risks and uncertainties that are subject to change based on various factors (many of which are beyond the Company's control). The Company does not undertake any obligation to update any forward-looking statement, except as required under applicable law.
For more information, please contact:
The Piacente Group, Inc.
Investor Relations
Brandi Floberg
Tel: +1-212-481-2050
Email: [email protected]
SOKO Fitness & Spa Group, Inc.
Shawn Qu
Tel: +1-908-208-8681
Email: [email protected]
SOKO Fitness & Spa Group, Inc.
Judy Jiang
Tel: +86-451-8770-2280
Email: [email protected]
SOKO FITNESS & SPA GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN US DOLLARS)
(UNAUDITED)
FOR THE SIX MONTHS FOR THE THREE MONTHS
ENDED ENDED
NOVEMBER 30, NOVEMBER 30,
2009 2008 2009 2008
(RESTATED) (RESTATED)
Net Sales $13,843,683 $8,885,158 $7,413,179 $4,608,291
Cost of Sales (4,451,744) (3,015,436)(2,262,805) (1,590,281)
Gross Profit 9,391,939 5,869,722 5,150,374 3,018,010
Selling, General and
Administrative Expenses: 3,899,759 2,576,336 2,001,385 1,234,151
Operating Income 5,492,180 3,293,386 3,148,989 1,783,859
Other Income and
Expenses
Interest expenses (31,564) (106,632) 961 (56,624)
Other income 33,298 2,606 17,776 191
Other expenses (3,934) (165,721) (3,463) (96,380)
Total Other Income and
(Expense) (2,200) (269,747) 15,274 (152,813)
Income Before Income
Taxes 5,489,980 3,023,639 3,164,265 1,631,046
Provision for Income
Taxes 47,904 51,437 24,024 26,305
Net Income 5,442,076 2,972,202 3,140,240 1,604,741
Less: net (loss)
attributable to the
noncontrolling interest (162,151) (147,544) (36,384) (71,664)
Net Income Attributable
to SOKO Fitness & Spa
Group, Inc. $5,604,227 $3,119,746 $3,176,623 $1,676,405
Other Comprehensive
Income
Foreign currency
translation
adjustment 4,695 260,748 25,977 17,788
Comprehensive Income $5,608,922 $3,380,494 $3,202,600 $1,694,193
Basic and Diluted Income
per common share
Basic $0.33 $0.18 $0.19 $0.10
Diluted $0.31 $0.18 $0.17 $0.10
Weighted average common
share outstanding
Basic 17,000,000 17,000,000 17,000,000 17,000,000
Diluted 18,168,443 17,000,000 18,168,443 17,000,000
SOKO FITNESS & SPA GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN US DOLLARS)
NOVEMBER 30, 2009 MAY 31, 2009
(UNAUDITED)
ASSETS
Current Assets:
Cash & cash equivalents $3,638,308 $1,907,640
Restricted cash -- 7,233
Accounts receivable, net 411,431 110,541
Inventories 1,430,666 1,391,302
Advances to suppliers 2,861,514 993,084
Employee advance 87,531 54,783
Prepaid expense 192,019 146,959
Total Current Assets 8,621,469 4,611,542
Property, plant and equipment, net of
accumulated depreciation 24,637,890 19,674,394
Other Assets
Security deposit 109,711 47,853
Deferred rent 719,338 589,188
Deposit to suppliers 1,464,847 1,464,530
Investment advance 1,171,795 399,750
Goodwill 2,793,607 2,525,778
Total Other Assets 6,259,298 5,027,099
Total Assets 39,518,657 29,313,035
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term loans 3,310,322 2,196,795
Accounts payable, accrued expenses and
other payable 833,606 471,457
Unearned revenue 5,084,363 1,909,755
Taxes payable 423,134 360,229
Contingent liability 200,000 200,000
Total Current
Liabilities 9,851,425 5,138,236
Stockholders' Equity
Preferred Stock, $.001 par value;
10,000,000 shares authorized;
- 0 - shares issued and outstanding at
November 30, 2009 and May 31,2009 -- --
Common stock, $0.001 Par value;
500,000,000 shares authorized;
17,000,000 shares issued and outstanding
at November 30 and May 31, 2009 17,000 17,000
Additional paid-in-capital 2,361,716 2,346,397
Additional paid-in-capital - Warrants 639,253 639,253
Accumulated other comprehensive income 1,915,447 1,910,752
Retained earnings 24,819,341 19,215,114
Total Stockholders'
Equity 29,752,757 24,128,516
Noncontrolling interest (85,525) 46,283
Total Equity 29,667,232 24,174,799
Total Liabilities and Stockholders'
Equity $39,518,657 $29,313,035
SOURCE SOKO Fitness & Spa Group, Inc.
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