Winner Medical Group Inc., a leading manufacturer of medical dressings, medical disposables and non-woven PurCotton materials for the medical and consumer products industries in China, reported that second quarter fiscal year 2010 revenue increased 26.4% to $26.1 million, net income increased 62.8% to $2.7 million and diluted earnings per share increased 71.4% to $0.12. Adjusted net income, which excludes share-based compensation expenses, increased 78.6% to $3.1 million for the second quarter of fiscal 2010, and adjusted diluted earnings per share, which exclude share-based compensation expenses, increased 75.0% to $0.14 in the second quarter.

Winner Medical delivered solid second-quarter results as our operating numbers were enhanced by accelerating growth in the Chinese market for our Winner brand and finished medical products, as well as a sequential increases in sales of PurCotton products," said Jianquan Li, Chairman and Chief Executive Officer of Winner Medical. "Our business is performing well and our domestic and PurCotton businesses are on track for increased profit growth this quarter."

"Looking forward, we will continue to reshape and strengthen our portfolio, by expanding medical products sales into the Chinese marketplace directly to hospitals, distributors and chain drugstores, while accelerating sales of PurCotton brand products with retail sales through our chain stores, on- line sales and supermarkets as well as wholesale distribution to large customers. We expect that these products and sales to the Chinese marketplace will fuel our growth in an increasingly competitive marketplace. We also expect to drive growth this year through these key strategic investments funded by our continued strong cash flow and recent capital raising," Mr. Li said.

Second Quarter FY2010 Highlights

Net Sales

Winner Medical reported net sales of $26.1 million for the second quarter of 2010, a 26.4% increase from $20.6 million in the second quarter of 2009. This increase was partially attributable to increased sales to North and South American customers in the second quarter of 2010, which increased approximately 26.2% to $5.1 million from $4.0 million in the second quarter of 2009. PurCotton products sales increased approximately 71.1% to $1.9 million in the second quarter of 2010 from $1.1 million in the second quarter of 2009.

Gross Profit

Gross profit in the second quarter of 2010 increased 26.8% to $7.4 million from $5.8 million in the second quarter of 2009. Second quarter 2010 gross margin was 28.2%, compared to 28.1% in the second quarter of 2009. The modest increase in gross margin resulted from high-margin sales of Winner brand products and PurCotton products, which were partially offset by an increase in the price of cotton, our principal raw material.

Selling, General and Administrative Expenses

In the second quarter of 2010, selling, general and administrative expenses were $4.1 million, versus $3.9 million in the second quarter of 2009. Adjusted selling, general and administrative expenses , which exclude share-based compensation expenses, for the second quarter were $3.7 million, versus $3.8 million for the same quarter of 2009. This increase was mainly due to increases in transportation expenses for export markets, increases in salaries for management, administrative staff and sales personnel, as well as an increase in leasing fees for PurCotton stores.

Income from Operations

Income from operations increased by 52.9% to $3.2 million in the second quarter of 2010, from $2.1 million in the second quarter of 2009. Adjusted income from operations , which excludes share-based compensation expenses, was $3.7 million in the second quarter of 2010, compared to $2.2 million in the same period of 2009.

Income Taxes

The Company's effective tax rate for the second quarter of 2010 was 19.1%, compared to 21.6% in the second quarter of 2009. The lower income tax rate was mainly due to the Company's subsidiary, Winner Industries (Shenzhen), obtaining the High and New Technology Enterprise Certificate, which reduced its income tax rate from 18% to 15%.

Net Income Attributable to Winner Medical Group Inc.

Net income attributable to Winner Medical Group Inc. increased by 62.8% to $2.7 million in the second quarter of 2010, as compared to approximately $1.6 million in the second quarter of 2009. Diluted earnings per share increased 71.4% to $0.12 in the second quarter, compared to $0.07 per share in the comparable quarter of last year. Adjusted net income attributable to Winner Medical Group Inc. , which excludes share-based compensation expenses, was $3.1 million for the second quarter of 2010, an increase of 78.6% from the same period a year ago. Excluding share-based compensation expenses, adjusted diluted earnings per share was $0.14 in the second quarter, versus $0.08 per share in the comparable quarter of last year, an increase of 75.0%. This increase was primarily driven by high demand for PurCotton products, increased sales to North and South American customers, lean production management and favorable foreign exchange rates.