Country Style Cooking Restaurant Chain Reports Fourth Quarter and Fiscal Year 2011 Financial Results

4Q11 Revenues up 29.5% YoY to RMB272.4 Million

4Q11 Net Loss was RMB18.9 Million

4Q11 Adjusted Net Loss was RMB13.7 Million

FY11 Revenues up 36.7% YoY to RMB1.0 Billion

FY11 Net Loss was RMB7.0 Million

FY11 Adjusted Net Income was RMB26.6 Million

Country Style Cooking Restaurant Chain Co., Ltd. (NYSE: CCSC), a fast-growing quick service restaurant chain in China, today announced its unaudited financial results for the fourth quarter and fiscal year 2011.

Fourth Quarter 2011 Financial Highlights

• Revenues in the fourth quarter of 2011 were RMB272.4 million ($43.3 million), an increase of 29.5% from RMB210.3 million in the same quarter of 2010.
• Comparable restaurant sales decreased by 1.8% from the same quarter of 2010. There were 108 restaurants in the comparison.
• Restaurant level operating margin was 6.4%, a decrease of 910 basis points from a year ago.
• Net loss for the fourth quarter 2011 was RMB18.9 million ($3.0 million), compared to net income of RMB14.1 million in the same quarter of 2010. Adjusted net loss (non-GAAP), which excludes share-based compensation expenses, was RMB13.7 million ($2.2 million), compared to adjusted net income (non-GAAP) of RMB16.3 million in the same quarter of 2010.
• Basic and diluted net loss per American depositary share ("ADS") was RMB0.73 ($0.12). Adjusted diluted net loss per ADS (non-GAAP), which excludes share-based compensation expenses, was RMB0.53 ($0.08). Each ADS represents four ordinary shares of the Company.
• Total number of restaurants increased by 13 in the fourth quarter of 2011 to 199, covering 18 cities as of December 31, 2011, up from 131 as of December 31, 2010.

• Revenues in 2011 were RMB1.0 billion ($162.0 million), an increase of 36.7% from RMB745.9 million in 2010.
• Comparable restaurant sales increased by 2.8% from 2010. There were 79 restaurants in the comparison.
• Restaurant level operating margin was 14.5%, a decrease of 310 basis points from 2010.
• Net loss in 2011 was RMB7.0 million ($1.1 million), compared to net income of RMB62.8 million in 2010. Adjusted net income (non-GAAP), which excludes share-based compensation expenses and a one-time income tax levy in the second quarter 2011, was RMB26.6 million ($4.2 million), decreased from adjusted net income of RMB68.5 million in 2010.
• Basic and diluted net loss per ADS was RMB0.27 ($0.04). Adjusted diluted net income per ADS (non-GAAP), which excludes share-based compensation expenses and the one-time tax levy, was RMB1.01 ($0.16). Each ADS represents four ordinary shares of the Company.

Ms. Hong Li, chairman and chief executive officer of Country Style Cooking, commented, "We are pleased to have maintained steady revenue growth for the fourth quarter 2011, reaching our previous guidance despite the negative impact to our Chengdu restaurants sales following a short period of negative press coverage regarding sanitary issues at one of our restaurants in late November. During the fourth quarter 2011, we continued network expansion and added a net of 13 new restaurants, including our first restaurant in Yunnan Province and our second and third restaurants in Beijing. We are excited about the opportunities in these new markets and plan to further expand our footprint in these strategically important regional markets in 2012."

Ms. Hong Li continued, "Along with encouraging revenue growth, unfortunately we have also incurred an operating loss. Factors contributing to this loss were increases in certain cost items and a targeted short-term sales promotion program that involved discounted food pricing. Our value lunch campaign in Sichuan, though successful in attracting increased customer volume and raising brand awareness, also resulted in squeezing our overall gross margin. Coupled with the short period of negative press coverage regarding sanitary conditions in one of our Chengdu restaurants, sales in around 60 Chengdu area restaurants dipped temporarily. I am pleased to report that sanitary issues have been addressed to the satisfaction of our customers, negative press coverage is no longer a significant issue, and the discount pricing campaign has smoothly concluded. We have learned tremendously from these developments and have implemented measures that we believe have put our company back on the path to growth with profitability."

"We are also especially happy that Adam Zhao has joined our senior management team as chief financial officer since the beginning of last month. Adam has over 15 years' experience in corporate finance, including experience as chief financial officer, with private and U.S.-listed companies. He shares our vision for bringing increased financial discipline to support our company's ongoing objectives for growth. We believe that Adam's solid knowledge and in-depth experience will enhance our company's financial management and internal controls, as well as support communications between investors and our company."

Mr. Adam Zhao, chief financial officer of Country Style Cooking, added, "I am thrilled to have joined Country Style Cooking and am committed to helping our company more fully realize its potential as one of China's leading quick service restaurant chains. Aware of the challenges facing Country Style Cooking during its expansion process in today's inflationary macro-environment, I have confidence that growth can be achieved with improved cost management. I am working with other senior managers to develop various Key Performance Indicators ("KPI's") for different business departments. The KPIs are intended to provide staff with a clear understanding of their respective work objectives and how those tasks contribute to the overall success of the company. Through the KPI program and other initiatives, we hope not only to further cultivate employees' enthusiasm but also to better monitor and control expenditures."

Fourth Quarter 2011 Financial Performances

Revenues in the fourth quarter 2011 increased by 29.5% to RMB272.4 million ($43.3 million) from RMB210.3 million in the same period in 2010. The revenue growth was mainly driven by an increase in the number of restaurants. During the fourth quarter 2011, the Company opened a net of 13 new restaurants, bringing the total restaurant count to 199 as of December 31, 2011, compared to its total restaurant count of 131 as of December 31, 2010. Comparable restaurant sales decreased by 1.8% from the same quarter of 2010. There were 108 restaurants in the comparison.

Costs of food and paper increased by 41.5% to RMB140.4 million ($22.3 million) in the fourth quarter of 2011 from RMB99.2 million in the same quarter of 2010, primarily as a result of restaurant expansion and increased food costs. As a percentage of revenues, cost of food and paper increased to 51.5% in the fourth quarter of 2011 from 47.2% in the same quarter of 2010.

Restaurant wages and related expenses increased by 46.5% to RMB49.3 million ($7.8 million) in the fourth quarter of 2011 from RMB33.7 million in the same quarter of 2010, mainly due to increased headcount and wage levels. As a percentage of revenues, restaurant wages and related expenses increased to 18.1% in the fourth quarter of 2011 from 16.0% in the same period in 2010.

Restaurant rent expenses increased by 45.6% to RMB27.8 million ($4.4 million) in the fourth quarter of 2011 from RMB19.1 million in the same quarter of 2010. As with other expense categories, the increase primarily arose from expansion of the Company's restaurant network. As a percentage of revenues, restaurant rental expenses increased to 10.2% in the fourth quarter of 2011 from 9.1% in the fourth quarter of 2010.

Restaurant utility expenses increased by 40.4% to RMB18.5 million ($2.9 million) in the fourth quarter of 2011 from RMB13.2 million in the same quarter of 2010, mainly due to the increase in the number of restaurants. As a percentage of revenues, restaurant utility expenses were 6.8% in the fourth quarter of 2011, down slightly from 6.3% in the fourth quarter of 2010.

Other restaurant operating expenses increased by 50.6% to RMB18.8 million ($3.0 million) in the fourth quarter of 2011 from RMB12.5 million in the same quarter of 2010, primarily due to increased spending in warehousing, logistics and in-store promotions. As a percentage of revenues, other restaurant operating expenses increased to 6.9% in the fourth quarter of 2011 from 5.9% in the fourth quarter of 2010.

Restaurant-level operating margin was 6.4% in the fourth quarter 2011, a decrease of 910 basis points over the same period in 2010. The decrease was primarily driven by the "value lunch" campaign and the large number of newly-opened restaurants, where operations take time to ramp up to higher levels of profitability.

Selling, general and administrative (SG&A) expenses increased by 132.5% to RMB22.7 million ($3.6 million) in the fourth quarter of 2011, compared to RMB9.8 million in the same period in 2010, reflecting more sales and marketing activities during the fourth quarter of 2011 and increased spending on administrative staff cost, including higher share-based compensation expenses. Share-based compensation expenses included in SG&A amounted to RMB4.0 million ($0.6million) in the fourth quarter of 2011, compared to RMB1.8 million in the fourth quarter of 2010. As a percentage of revenues, SG&A expenses increased to 8.3% in the fourth quarter 2011 from 4.6% in the same quarter of 2010.

Depreciation expense for the fourth quarter 2011 amounted to RMB12.1 million ($1.9 million), representing an increase of 83.9% as compared to RMB6.6 million in the same quarter of 2010, primarily because of the increase in total fixed assets as a result of restaurant network expansion. As a percentage of revenues, depreciation expense increased to 4.4% in the fourth quarter of 2011 from 3.1% in the same quarter of 2010.

Pre-opening expense for the fourth quarter 2011 amounted to RMB6.0 million ($1.0 million), representing an increase of 136.1% as compared to RMB2.5 million in the same quarter of 2010, primarily because of the expansion in the Company's restaurant network. As a percentage of revenues, pre-opening expense increased to 2.2% in the fourth quarter of 2011 from 1.2% in the same quarter of 2010.

Impairment charges were RMB0.8 million ($0.1 million) in the fourth quarter of 2011, representing costs related to asset impairment charges in an underperforming restaurant.

Loss from operations for the fourth quarter 2011 was RMB24.0 million ($3.8 million), compared to an income from operations of RMB11.7 million in the same period in 2010.

Income tax expenses in the fourth quarter of 2011 decreased by 115.7% to a reverse of RMB0.3 million ($0.05 million) from RMB2.1 million in the same period in 2010.

As previously disclosed, the Company recognized a one-time additional income tax ("EIT") of RMB17.8 million ($2.8 million) in the second quarter of 2011, which related to the change in the tax rate applicable Chongqing subsidiary, from the preferential EIT rate of 15% (the "Preferential Tax Treatment"), to the standard EIT rate of 25%, for each of the three years ended December 31, 2008, 2009 and 2010. Of the total additional EIT, RMB6.4 million ($1.0 million) relevant to 2009 was paid during the third quarter of 2011 in accordance with instructions received from the local tax authority.

In February 2012, the State Tax Bureau in Chongqing issued a written notice to the company which confirmed that the Company's Chongqing subsidiary would be permitted to apply the Preferential Tax Treatment for each of the three years ended December 31, 2008, 2009 and 2010. Further, the local tax authority has refunded the additional EIT of RMB6.4 million paid by the Company The Company believes this determination by the tax authorities, which represents a reversal of an earlier decision taken, is analogous to a settlement of tax position in a tax examination which is a non-recognized subsequent event under and as such shall not be recognized prior to February 2012.

Net loss was RMB18.9 million ($3.0 million), compared to net income of RMB14.1 million in the fourth quarter of 2010. Adjusted net loss (non-GAAP), which excludes share-based compensation expenses, was RMB13.7 million ($2.2 million) in the fourth quarter of 2011 compared to adjusted net income of RMB16.3 million in the fourth quarter of 2010.

Basic and diluted net loss per ADS was RMB0.73 ($0.12) in the fourth quarter of 2011, compared to diluted net income per ADS of RMB0.52 in the fourth quarter of 2010. Adjusted diluted net loss per ADS (non-GAAP), which excludes share-based compensation expenses, was RMB0.53 ($0.08) in the fourth quarter of 2011, compared to adjusted diluted net income of RMB0.61 in the fourth quarter of 2010. The Company had approximately 26.0 million weighted average diluted ADSs outstanding during the quarter ended December 31, 2011.

EBITDA loss (non-GAAP), defined as net loss before interest, income tax expense, depreciation and amortization, was RMB12.5 million ($2.0 million) in the fourth quarter of 2011, compared to EBITDA (non-GAAP)  RMB19.7 million from the same quarter of 2010. Adjusted EBITDA loss (non-GAAP), defined as EBITDA loss excluding foreign exchange loss, other income, impairment charges, goodwill write-off and share-based compensation, was RMB5.6 million ($0.9 million) in the fourth quarter of 2011, compared to Adjusted EBITDA of  RMB22.6 million in the same quarter of 2010.

As of December 31, 2011, the Company had cash, cash equivalents and short-term investments of RMB517.5 million ($82.2 million), compared to RMB613.3 million as of December 31, 2010.

Net cash provided by operating activities was RMB62.6 million ($9.9 million) in the twelve months ended December 31, 2011, down from RMB89.8 million in the same period in 2010.

Outlook

For the full year 2012, the Company plans to open around 70 new restaurants. For the first quarter of 2012, the Company currently estimates that its revenues will be between RMB270 million ($42.9 million) and RMB280 million ($44.5 million), representing a year-over-year growth of between approximately 21.3% and 25.8%.

These forecasts reflect the Company's current and preliminary view, which are subject to change.

About Country Style Cooking Restaurant Chain Co., Ltd.

Country Style Cooking Restaurant Chain Co., Ltd. (NYSE: CCSC) ("Country Style Cooking") is a fast-growing quick service restaurant chain in China, offering delicious, everyday Chinese food to customers who desire fast and affordable quality meals. Country Style Cooking directly operates all of its restaurants and is the largest quick service restaurant chain in Chongqing municipality, home to Sichuan cuisine, one of the best-known Chinese regional cuisines.


Logos, product and company names mentioned are the property of their respective owners.

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