Winner Medical reiterates FY 2011 revenue guidance of $138-150 mn

Winner Medical Group Inc, a leading manufacturer of medical dressings, medical disposables and non-woven fabric made from 100% natural PurCotton products in China, reported consolidated financial results for the first quarter ended December 31, 2010.

Mr. Jianquan Li, Chairman and Chief Executive Officer of Winner Medical, commented, "During the first quarter of fiscal year 2011, cotton prices continued to increase and these raw material price increases were shifted to our customers. Early in the quarter, some customers chose to delay purchases and reduced their inventory while monitoring cotton price trends.

“Starting in November, having depleted the majority of their inventory, our customers increased their purchases again, resulting in December sales being one of the strongest months that Winner Medical has recorded in recent years. I believe the medical dressings and medical disposables markets have now largely accepted the cotton price increases from last year and we expect positive margin and sales growth for the remainder of 2011."

First Quarter 2011 Unaudited Financial Results

Winner Medical reported net sales of $33.7 million, an increase of 13.2% compared to the same period last year. The increase was mainly attributable to higher average sales prices and increased sales orders from Chinese, North American and South American customers. Export sales to North and South America remained robust, increasing 50.2% year over year, driven by increased orders from American and Brazilian clients who recognized Winner Medical's high quality products and timely delivery capabilities.

Orders in Europe remained stable year-over-year as customers in Sweden increased purchases while clients in Greece and Spain postponed orders as a result of the debt crisis. Sales were up 1.0% in China, with steady improvements in November and December. Strong sales of medical dressings and disposables were offset by lower sales of protective gowns and face masks, which were unusually strong in the first quarter of 2010 due to the H1N1 virus outbreak.

Cost of goods sold increased 19.0% to $24.2 million in the first quarter of fiscal 2011, from $20.4 million in the first quarter of fiscal 2010. Cost of goods sold as a percentage of net revenues were 71.9% and 68.3% for the first quarter in fiscal 2011 and 2010, respectively. This increase was mainly attributable to increased raw material prices. To minimize the impacts brought by increased cotton prices, the Company increased its selling price progressively and purchased cotton futures contracts to hedge against the volatility of cotton prices.

Gross profit increased 0.5% to $9.5 million compared to the first quarter of fiscal 2010. Gross margin decreased to 28.1% as compared to 31.7% in the first quarter of fiscal 2010. The decrease in gross margin was mainly attributable to time lag for customers to accept higher selling prices, especially in the months of October and earlier November 2010, as well as lower sales of protective gowns and face masks, which were unusually strong in the first quarter of 2010 due to the H1N1 virus outbreak.

Selling, general and administrative expenses increased by 13.8% to $6.1 million in the first quarter of fiscal 2011, from $5.3 million in the first quarter of fiscal 2010. Adjusted selling, general and administrative expenses (non- GAAP), which exclude share-based compensation expenses, for the first quarter of fiscal 2011 were $5.8 million, versus $5.0 million for the same period of 2010. The increase was primarily due to increased of salary and leasing expenses compared to the same period of last year.

The income tax provision for the first quarter of fiscal 2011 was $0.4 million, compared to $0.6 million for the same period in 2010. This decrease was primarily due to a tax deduction accrued in the reporting quarter for the 150% tax deductible preferential policy applicable to Winner Medical’s Research and Development expenses while such an accrual was not made in the same period last fiscal year.

Net income attributable to Winner Medical decreased by 15.1% to $3.3 million, or $0.14 per basic and diluted share, compared to net income of $3.9 million, or $0.18 per basic share and $0.17 per diluted share, for the first quarter of fiscal 2010. The weighted average diluted shares outstanding were 24.1 million, up 7.8% year-over-year. Adjusted net income attributable to Winner Medical Group Inc. (non-GAAP), which excludes non-cash share-based compensation expenses, was $3.6 million for the first quarter of fiscal 2011, a decrease of 14.54% from the same period of 2010.

Excluding non-cash share-based compensation expenses, adjusted basic earnings per share (non-GAAP) was $0.15 for the three months ended December 31, 2010, versus $0.19 per share for the comparable period last year, a decrease of 20.75%. The decrease was mainly driven by our customers’ delayed acceptance of increased selling prices and lower high-margin protective products sales, which were unusually strong in the first quarter of 2010 due to the H1N1 virus outbreak.