SHANGHAI, China, Aug 22, 2011 (BUSINESS WIRE) -- --~2Q11 Revenue Increased 53.4% to RMB 239.3million from RMB 156.0 million in 2Q10~
--~ 2Q11 Net Income Increased 28.0% to RMB45.6 million from RMB 35.6 million in 2Q10~
Zuoan Fashion Limited /quotes/zigman/3779222/quotes/nls/za ZA -7.46% ("Zuoan" or the "Company"), a leading design-driven fashion casual menswear company in China, today announced its financial results for the second quarter ended June 30, 2011.
James Hong, Founder, Chairman, CEO and Chief Designer, commented, "Our second quarter performance was driven by a combination of sales volume growth and total store growth, both at the distributor level. We opened 7 self-operated flagship stores in the second quarter and expect to open another 18 in the second half of the year. In addition to increasing our future revenue and profit performance, we believe the opening of new flagship locations is important for overall growth as it will also provide greater confidence to distributors and motivate them to open additional stores more rapidly on their own."
"At our distributor store locations, we experienced double digit increases in several areas. Average wholesale selling prices per unit increased nearly 13.8% to RMB104 compared to RMB92 in the second quarter of 2010, the total number of units sold to our distributors increased 39.8% to 2.3 million compared to 1.6 million in the second quarter of 2010 and average wholesale revenue per distributor-operated store increased 32.3% to RMB198,000 compared to RMB150,000 in the second quarter of 2010. We also recently raised our wholesale prices at the distributor level for our Fall/Winter collection which we expect will result in improved gross profit margin in the second half of 2011."
"Going forward, we look forward to continuing our efforts with a focus on expanding our distribution network coverage, strengthening our design capabilities, rolling out our flagship store network and furthering our marketing activities. We are confident with our efforts to establish Zuoan as a leading domestic menswear brand in China's fast growing fashion casual menswear market."
Second Quarter 2011 Financial Performance
Revenue for the second quarter was RMB239.3 million ($37.0 million), a 53.4% increase from RMB156.0 million ($24.1 million) in the same period last year. The increase in revenue was driven by distributor sales volume. Second quarter distributor sales increased 59.1% to RMB237.0 million compared to RMB148.9 million in the second quarter of 2010. A total of 37 distributor stores and 7 self- operated flagship stores were opened in the second quarter of 2011, resulting in a total of 1,167 store locations at the end of June 30, 2011 compared to 1,123 store locations at the end of March 31, 2011 and 1,026 store locations at the end of June 30, 2010.
Cost of sales increased 53.4% to RMB141.2 million ($21.8 million) in the second quarter of 2011 from RMB92.0 million ($14.2 million) in the same quarter of 2010, primarily as a result of the increase in sales volume. As a percentage of revenues, cost of sales remained at 59.0% in the second quarter of 2011 from the second quarter of 2010.
Gross profit in the second quarter of 2011 increased 53.3% to RMB98.1 million ($15.2 million) from RMB64.0 million ($9.9 million). Second quarter 2011 gross profit margin remained flat at 41.0% compared to the same period last year, primarily due to the Company's efforts to effectively control the unit cost of its products as well as maintaining the same cost-based pricing strategy
Selling and distribution expenses increased 48.8% to RMB19.1 million ($3.0 million) in second quarter of 2011 from RMB12.9 million ($2.0 million) in the same period last year, mainly due to (i) an increase in renovation costs and cost of fittings for the distributors' existing retail stores and new normal and flagship stores and (ii) an increase in direct flagship stores expenses.
Administrative expenses in the second quarter were RMB15.6 million ($2.4 million), or 6.5% of revenue, compared to RMB5.7 million ($0.9 million), 3.7% of revenue in the same period last year. This percentage increase was primarily due to an increase in the directors' remuneration, staff salaries, legal professional fees and equity-settled employee benefit expenses since the Company's U.S. IPO.
Effective tax rate in the second quarter was 27.6% compared to 18.5 % in the prior year period.
Net income for the second quarter of 2011 increased 28.0% to RMB45.6 million ($7.0 million) from RMB35.6 million ($5.5 million) in the same period last year. Second quarter net income as a percentage of revenue was 19.0% compared to 22.8% in the prior year period.
Diluted earnings per share decreased to RMB0.41 ($0.06) in the second quarter of 2011 from RMB0.43 ($0.07) in the second quarter of 2010. The Company's diluted number of shares outstanding increased 28.4% to 111.3 million in the second quarter ended June 30, 2011 compared to 86.7 million in the 2010 second quarter period.
As of June 30, 2011, the Company had cash, cash equivalents of RMB716.5 million ($110.9 million), compared to RMB734.3 million ($113.6 million) as of March 31, 2011. Net cash used in operating activities was RMB1.2 million ($0.2 million) in the three months ended June 30, 2011, down from RMB44.8 million ($6.9 million) in the three months ended June 30, 2010.
Outlet Type: 2Q2010 2Q2011
Direct Stores 32 0
Distributor and Sub-distributor Stores 994 1,145
Company-Operated Flagship Stores 0 7
Distributor-Operated Flagship Stores 0 15
Total: 1,026 1,167
Financial Outlook
For the third quarter of 2011, the Company currently anticipates revenue in the range of RMB410-RMB430 million ($63.4-$66.5 million), gross margin of approximately 43-44%, net income of approximately RMB80.1-RMB84.3 million ($12.4-$13.0 million) and basic and fully diluted EPS of approximately RMB0.72 ($0.11) - RMB0.76 ($0.12). The Company expects to have approximately 111.3 million number of shares (27.8 million ADSs) outstanding during the quarter ending September 30, 2011.
For the full year 2011, the Company currently anticipates revenue in the range of RMB1.16-RMB1.2 billion ($179.5-$185.7 million), net income of approximately RMB235.2-RMB244.0 million ($36.4-$37.8 million) and basic and fully diluted EPS of approximately RMB2.1 ($0.33) -- RMB2.2 ($0.34).
Zuoan expects to open approximately 12 and 6 self-operated flagship stores in the third and fourth quarters, respectively. Approximately 60-70 new retail stores and 12 flagship stores are expected to be opened by distributors in the third quarter of 2011.
Conference Call Information
Zuoan's management will host an earnings conference call on August 22, 2011 at 9:00 a.m. U.S. Eastern Time. Listeners may access the call by dialing #1-201-689-8471. A webcast will also be available via www.viavid.net . A replay of the call will be available through August 29, 2011. Listeners may access the replay by dialing #1-858-384-5517, access code: 377427.
Exchange Rate
This announcement contains translations of certain Renminbi amounts into U.S. dollars at specified rates solely for the convenience of readers. Unless otherwise noted, all translations from Renminbi to U.S. dollars were made at the exchange rate of RMB6.4635 to US$1.00, as set forth in the H.10 statistical release of the Federal Reserve Board on June 30, 2011.
About Zuoan Fashion Limited
Zuoan Fashion Limited is a leading design-driven fashion casual menswear company in China, and is head-quartered in Shanghai. Zuoan offers a wide range of products, including men's casual apparel, footwear and lifestyle accessories, primarily targeting urban males between the ages of 20 and 40 who prefer stylish clothing that represents a sophisticated lifestyle. Through extensive networks of distributors and retail stores, Zuoan sells its products in 27 of China's 32 provinces and municipalities. As of June 30, 2011, Zuoan had 1,167 stores located in China.
Unaudited Financial Information
Except for certain audited consolidated financial information as of or for the year ended December 31, 2010 included in the Company's 20-F filed with the SEC on June 27, 2011, the financial information included herein is unaudited, consolidated and prepared in accordance with U.S. GAAP. Such financial information is generated internally and has not been subjected to the same review and scrutiny, including internal auditing procedures and audit by independent auditors, to which we subject our annual consolidated financial statements, and may vary materially from the audited consolidated financial information for the same period. Any evaluation of the financial information included herein should also take into account our published audited consolidated financial statements and the notes to those statements. In addition, the financial information included herein is not necessarily indicative of our results for any future period.
Forward-Looking Statements
This news release may contain forward-looking information about Zuoan Fashion Limited, which is covered under the safe harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not historical facts. These statements can be identified by the use of forward-looking terminology such as believe, expect, may, will, should, project, plan, seek, intend, or anticipate or the negative thereof or comparable terminology, and include discussions of strategy and statements about industry trends and Zuoan Fashion Limited's future performance, operations, and products.
Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected, including, among other things, those relating to our anticipated growth strategies, our future business development, our ability to promote our brand based on consumer preference or demand, our relationship with distributors and sub-distributors, and trends and competition in the fashion casual menswear industry. Actual performance results may vary significantly from expectations and projections. Further information regarding this and other risk factors are contained in Zuoan's public filings with the U.S. Securities and Exchange Commission.
All information provided in this news release and in any attachments is as of the date of the release, and the companies do not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under law.
ZUOAN FASHION LIMITED
UNAUDITED CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
Three months ended June30 Six Months ended June30
2010 2011 2011 2010 2011 2011
RMB RMB US$ RMB RMB US$
(in thousands)
Revenues 155,999 239,278 37,020 302,821 450,803 69,746
Cost of goods sold (92,049) (141,213) (21,848) (177,799) (264,776) (40,965)
-------- --------- --------- ---------
Gross profit 63,950 98,065 15,172 125,022 186,027 28,781
Other income 201 566 88 351 964 149
Selling, marketing and distribution expenses (12,858) (19,129) (2,960) (29,934) (29,490) (4,563)
General and administrative expenses (5,717) (15,579) (2,410) (13,862) (27,388) (4,237)
Finance costs (1,883) (969) (150) (3,622) (1,914) (296)
-------- --------- --------- ---------
Profit before taxation 43,693 62,954 9,740 77,955 128,199 19,834
Income tax expenses (8,094) (17,391) (2,691) (21,180) (34,814) (5,386)
-------- --------- --------- ---------
Profit after taxation 35,599 45,563 7,049 56,775 93,385 14,448
Other comprehensive (loss)/profit: 232 (2,472) (382) 187 (2,962) (458)
Foreign exchange
difference arising from translation of foreign currency financial
statements
-------- --------- --------- ---------
Total comprehensive income for the periods 35,831 43,091 6,667 56,962 90,423 13,990
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Earnings per share (RMB):
Basic earnings per share 0.44 0.41 0.06 0.71 0.91 0.14
Diluted earnings per share 0.43 0.41 0.06 0.69 0.89 0.14
Weighted average basic no. of shares ('000) 80,000 110,723 80,000 103,147
Weighted average diluted no. of shares ('000) 86,723 111,279 86,321 104,634
Note:
Diluted earnings per share for the three months and six months
ended June 30, 2010 are pro forma result as adjusted to reflect
the dilutive impact of the convertible loans assuming that would
be issuable. Pro forma diluted earnings per share for the three
months and six months ended June 30, 2010 reflects an adjustment
to increase profit after taxation by approximately RMB1,460,000
and RMB2,921,000 for the effect of the interest related to the
convertible loans.
ZUOAN FASHION LIMITED
UNAUDITED CONDENSED
CONSOLIDATED BALANCE SHEET
As of December31 As of June30
(in thousands) 2010 2011 2011
---------------- ------- -------
ASSETS RMB RMB US$
Non-current assets
Property, plant and equipment 2,720 9,021 1,396
Deferred offering costs 5,757 - -
---------------- ------- -------
8,477 9,021 1,396
---------------- ------- -------
Current assets
Inventories 22,339 30,307 4,689
Trade and other receivables 249,857 226,164 34,991
Prepayments 2,313 5,242 811
Fixed deposits - pledged 1,054 1,554 240
Cash and cash equivalents 367,731 716,509 110,855
---------------- ------- -------
643,294 979,776 151,586
---------------- ------- -------
Total assets 651,771 988,797 152,982
================ ======= =======
EQUITY AND LIABILITIES
Share capital 134 184 28
Share premium 129,599 419,916 64,967
Reserves 19,360 21,218 3,283
Retained profits 314,610 407,995 63,123
---------------- ------- -------
Total equity 463,703 849,313 131,401
---------------- ------- -------
LIABILITIES
Current liabilities
Trade and other payables 70,582 78,099 12,083
Interest-bearing bank borrowings 56,700 43,600 6,746
Convertible loans 40,961 - -
Current income tax payable 19,825 17,785 2,752
---------------- ------- -------
Total liabilities 188,068 139,484 21,581
---------------- ------- -------
Total equity and liabilities 651,771 988,797 152,982
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ZUOAN FASHION LIMITED
UNAUDITED CONDENSED
CONSOLIDATED STATEMENTS OF CASHFLOWS
Six months ended June 30
2010 2011 2011
(in thousands) RMB RMB US$
Cash flows from operating activities
Profit before taxation 77,955 128,199 19,834
Adjustments for :
Depreciation of property, plant and equipment 326 634 98
Equity-settled employees benefit expenses - 4,820 746
Interest expenses on bank borrowings 701 1,914 296
Interest expense on convertible loans 2,921 - -
Interest income (351) (964) (149)
-------- -------- -------
Operating profit before working capital changes 81,552 134,603 20,825
Increase in inventories (28,195) (7,968) (1,233)
Decrease in trade and other receivables 61,264 23,693 3,666
Decrease/(Increase) in prepayments (1,962) 2,828 438
(Increase)/Decrease in fixed deposits pledged 929 (500) (77)
Increase/(Decrease) in trade and other payables (23,638) 10,540 1,631
-------- -------- -------
Cash generated from operations 89,950 163,196 25,249
Interest paid (701) (1,914) (296)
Income tax paid (26,619) (36,854) (5,702)
-------- -------- -------
Net cash generated from operating activities 62,630 124,428 19,251
-------- -------- -------
Cash flows from investing activities
Acquisition of property, plant and equipment (4) (6,935) (1,073)
Interest received 351 964 149
-------- -------- -------
Net cash (used in)/generated from investing activities 347 (5,971) (924)
-------- -------- -------
Cash flows from financing activities
Bank loans obtained 40,900 41,550 6,428
Repayment of bank loans (14,750) (54,650) (8,455)
Issuance of ordinary shares - 40 6
Net IPO proceeds - 243,381 37,655
Convertible loan obtained 19,505 - -
-------- -------- -------
Net cash generated from financing activities 45,655 230,321 35,634
-------- -------- -------
Net increase in cash and cash equivalents 108,632 348,778 53,961
Cash and cash equivalents at beginning of the periods 141,569 367,731 56,893
-------- -------- -------
Cash and cash equivalents at end of the periods 250,201 716,509 110,855
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