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"Our quarterly results reflect the strength of our cross-selling businessmodel and continued execution of our business strategy," said Tong Liu, ChiefExecutive Officer of SOKO. "During the first half of fiscal 2010, we continuedto expand our brand by opening new facilities, including Yoga Wave II and theHarbin Queen Medical Beauty Spa, which is our first facility licensed toperform non-surgical medical aesthetic procedures. We believe that themedical beauty segment is a potentially high-growth market where there aresignificant barriers to entry due to licensing requirements. As such, webelieve we are well positioned to secure additional revenue from our existingcustomer base with these medical beauty services, as well leverage thisoffering to attract new customers who should be candidates for our full rangeof fitness, spa and beauty services. In line with our strategy, we willcontinue to focus on promoting our higher margin business segments such as ouryoga centers and spa and beauty service offerings. Importantly, while wecontinue to open new centers, our operating costs remain in-line with ourrevenue. With a 62% increase in SG&A expenses in the second quarter, weachieved a 77% year-over-year increase in operating income.
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"Following the close of the second quarter, we also acquired a majorityinterest position in two fitness centers in Beijing. This marks our initialentry into this important region and serves our objective of geographicexpansion through strategic acquisitions. These centers are located in asuburban area of Beijing and, as such, we believe they face less competitionfrom peers that are operated in the central Bejing area and are thusconsistent with our acquisition strategy. We expect to continue to execute onour growth strategy based in opening centers in second tier cities such asHarbin where we believe we can achieve the swiftest impact. In addition, wewill also strategically evaluate opportunities to open centers in or aroundfirst tier cities, such as Beijing, so long as they fit in with our corestrategy of opening facilities where we believe there is low penetration frompeers and we can adequately compete.
"With the expanding breadth of our service offerings and a growing clientbase, we believe we are well positioned to grow our business, with ourexisting members and clients representing the ideal target customers for thefull breadth of our products and services," Mr. Liu concluded.
SOKO currently operates 15 facilities in key cities in Northeastern Chinaincluding nine beauty salons and spas, five fitness centers and yoga studiosand one beauty school, as well as two fitness centers in suburban Beijing. Atthe end of the second quarter of fiscal 2010, SOKO had 14,909 fitness clubmembers, and 19,893 beauty salon and spa clients. In addition, SOKO has fourfacilities under construction: The Da Qing beauty salon and spa, one beautysalon in the Long Dian building in Harbin, as well as one fitness center andone 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 inthe second quarter of fiscal 2009. The increase in revenue was largelyattributed expansion of our facilities and services including increased salesfrom existing members and clients, sales of add-on services to members andclients and continued efforts to add new members and clients in new andexisting 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 infiscal 2009. The increase in margins for the period was [primarily the resultof the addition of the non-medical beauty service offering].
Selling, general and administrative expenses were $2.0 million, anincrease of approximately 62% over $1.2 million in the second quarter offiscal 2009.
Net Income increased 89% to $3.2 million, or $0.17 per share, based on18.2 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 theincrease in revenue, as well as a reduction in interest and other expenses.
As of November 30, 2009, SOKO had cash and cash equivalents of $3.6million, 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 SOKOis positioned to continue its growth," said Mr. Liu. "Our strong memberretention rate of approximately 81% remains above the industry average andprovides a potential base of recurring and predictable revenue while weexecute on our growth initiatives. We continue to expand our product andservice offerings with an emphasis on growing our client and membership basesto drive our existing facilities into maturity, a cycle we typically achievewithin two to three years following each center's opening. With new SOKO-operated facilities opened earlier this year and four new facilities currentlyunder construction, we believe we are well on our way toward reaching our goalof adding 7-9 new centers to our portfolio in calendar 2010.
"We further believe that the number of potential customers for SOKO'sfitness and aesthetic offerings are expanding as the upper and middle classesin the cities in which we operate are becoming increasingly affluent. With anestablished, well-respected brand and a loyal existing customer base, we areconfident that we can capitalize on these favorable market trends in order tocontinue growing our business," Mr. Liu concluded.
Conference Call
SOKO will host a conference call for interested investors and analysts onTuesday, January 19, 2010, at 8:30 a.m. Eastern time. To participate in theconference 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 theconclusion 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 freefrom the U.S., or 1-303-590-3030 for international callers, and enteringaccess ID number 4201679.
About SOKO Fitness & Spa Group, Inc.
SOKO Fitness & Spa Group, Inc., an OTCBB listed company (SOKF.OB), is anoperator of fitness centers and beauty salons and spas key cities inNortheastern China as well as in suburban Beijing. SOKO provides programs,services, and products combined with exercise, education, and nutrition tohelp their members lead a healthy life and achieve their fitness goals. Forfurther information, please go to http://www.sokofitness.com .
To be added to SOKO's email distribution for future news releases, pleasesend 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-lookingstatements" within the meaning of the Private Securities Litigation Reform Actof 1995. Such forward-looking statements involve significant risks anduncertainties. Such statements may include, without limitation, statementswith 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. Thesestatements are based upon the current beliefs and expectations of theCompany's management and are subject to significant risks and uncertainties,including those detailed in the Company's filings with the Securities andExchange Commission. Actual results, including, without limitation, resultsregarding the Company's service offerings, client and customer base, proposednew center openings and prospects and strategies for growth, may differsignificantly from those set forth in the forward-looking statements. Theseforward-looking statements involve certain risks and uncertainties that aresubject to change based on various factors (many of which are beyond theCompany's control). The Company does not undertake any obligation to updateany forward-looking statement, except as required under applicable law.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.
SOURCE SOKO Fitness & Spa Group, Inc.
