SOKO Fitness & Spa Group, Inc. (SOKF.OB) Posts Solid Q3 Financial Results

QualityStocks would like to highlight SOKO Fitness & Spa Group, Inc. (OTCBB: SOKF). SOKO Fitness & Spa Group is an operator of fitness centers and beauty salons and spas in key cities in Northeastern China as well as in suburban Beijing. The company provides programs, services, and products combined with exercise, education and nutrition to help their members lead a healthy life and achieve their fitness goals In the company’s news yesterday, SOKO Fitness & Spa Group Inc. posted its financial results for the third quarter of fiscal 2010.

For the third quarter ended February 28, 2010, SOKO posted revenue at $8.1 million, an increase of 58 percent, compared with revenue of $5.1 million in the third quarter of fiscal 2009. Among the company’s three business segments, spa and beauty services and products accounted for 75 percent of revenue; fitness centers accounted for 21 percent of revenue; and the beauty school accounted for 4 percent of revenue. The company posted gross profit for the third quarter at $5.8 million compared with $3.3 million for the third quarter of fiscal 2009. The company attributes the increase in margins to the addition of SOKO’s non-surgical medical beauty service offering, which carries relatively high margins.

Net income for the third quarter increased 49 percent to $2.8 million, or $0.15 per diluted share, based on 18.2 million weighted average shares outstanding, compared with $1.9 million, or $0.11 per share, based on 17.0 million weighted average shares outstanding, for third quarter of fiscal 2009. The increase in net income was primarily related to the increase in revenue. In the third quarter the company secured a 51 percent interest in two fitness centers in suburban Beijing, and opened its first yoga center in Harbin – and the company said it anticipates further growth in the near future.

“We continue to grow our top and bottom line, improve our margins and increase our operating cash flow,” Tong Liu, CEO of SOKO stated in the press release. “We are focused on an aggressive growth strategy to build or acquire new facilities, and we are seeing the results in our revenue and profit growth. As we pursue this strategy, we expect our SG&A and other costs to increase as we ramp up new facilities. In particular, during the quarter we incurred various one-time expenses related to our Beijing fitness center acquisition, as well as other existing and new facilities. With our newly opened Harbin Yoga Wave facility, we are already attracting significant business and expect this center to make a meaningful contribution to our revenue growth in future periods to offset our investment in the facility.”

SOKO currently operates 17 facilities, including nine beauty salons and spas, one non-surgical medical beauty center, six fitness centers and yoga studios, including two fitness centers in suburban Beijing, and one beauty school. Li said that while the company is still in its early stages, it remains on track to establish multiple new facilities this year. “We are still in our initial stages of growth,” Liu stated. “Currently only nine of our 16 facilities have been operated under the SOKO brand for more than two years. With four new facilities already open during calendar 2010, and three facilities engaged in pre-opening activities, we are well on our way to meet our previously announced expansion goals of opening seven to nine new facilities this calendar year, all of which we believe can be funded by current operating cash flow and cash flow from organic growth.”

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