9-12-13 7:30 AM EDT | Email Article

~ 2Q13 Revenue Increased 5.3% YoY to RMB317.6 million

~~ Meets Second Quarter Revenue and Gross Margin Guidance and Beats 2Q13 Net Income and EPS Guidance

SHANGHAI, Sept. 12, 2013 /PRNewswire/ -- Zuoan Fashion Limited (NYSE: ZA) ("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, 2013.

Second Quarter 2013 Financial Highlights

  • Revenues in the second quarter of 2013 were RMB317.6 million ($51.7 million), an increase of 5.3% from RMB301.6 million in the same quarter of 2012.
  • Gross profit in the second quarter decreased 3.7% year over year to RMB140.1 million ($22.8 million) from RMB145.5 million in the same quarter of 2012. 
  • Gross margin was 44.1% compared with 48.2% in the prior year period and 45.7% in the first quarter of 2013.    
  • Net income was RMB67.6 million ($11.0 million), an increase of 2.2% from RMB66.2 million in the same quarter of 2012.
  • Diluted earnings per ordinary share was RMB0.61($0.10) in the second quarter,equivalent to RMB2.43($0.40) per ADS, compared to diluted earnings per ordinary share of RMB0.60($0.10) or RMB2.38($0.39) per ADS in the second quarter of 2012.

James Hong, Founder, Chairman and Chief Executive Officer, commented, "We are pleased to announce a healthy second quarter 2013, as our bottom line results exceeded our previous guidance. Our revenue increased from the previous quarter despite a noticeable drop in average selling prices thanks to the strong growth in sales through our distributors and direct stores.  Selling and distribution costs were further reduced, as we continued our store model transition to improve our operational efficiency and infrastructure. During the second quarter, a total of 20 distributor and sub-distributor stores and 1 self-operated direct store were opened, resulting in a total of 1,383 store locations."

"In the back half of the year, we expect to experience more challenging market conditions due to a cancellation of orders by certain distributors, a 3% decrease in wholesale prices offered to our distributors and increased advertising costs as we ramp up marketing efforts to capture greater market share. In spite of these near-term challenges, we remain comfortable with our ability to strengthen our brand presence and grow our profits over the long-term," concluded Mr. Hong.

Second Quarter 2013 Financial Performance

Revenue for the second quarter of 2013 was RMB317.6 million ($51.7 million), representing an increase of 5.3% from RMB301.6 million in the same quarter of 2012. The increase was primarily driven by growth in distributor sales volume. During the quarter, distributor sales increased by 15.3% to RMB312.8 million from RMB271.2 million in the same quarter of 2012. Second quarter 2013 self-operated direct store sales increased to RMB 4.7 million from RMB3.2 million in the same quarter of 2012. A net total of 20 distributor and sub-distributor stores and 1 self-operated direct store were opened in the second quarter of 2013, resulting in a total of 1,383 store locations as of June 30, 2013 compared to 1,362 store locations at the end of the first quarter. 

Cost of sales increased by 13.7% to RMB177.4 million ($28.9 million) in the second quarter of 2013 from RMB156.1 million in the same quarter of 2012, primarily due to the higher quality of raw materials used in the Company's production of its products as well as the increased sales volume.  As a percentage of revenues, cost of sales increased to 55.9% in the second quarter of 2013 from 51.8% in the same quarter of 2012.

Gross profit decreased by 3.7% to RMB140.1 million ($22.8 million) from RMB145.5 million in the second quarter of 2012.  Second quarter 2013 gross margin was 44.1% compared with 48.2% in the same quarter of 2012. The decrease in gross margin was primarily due to higher unit costs the Company was not able to pass on to its customers as well as decreased revenue  associated with the transition of the Company's higher margin, self-operated flagship stores to its distributors at the end of 2012. Gross margin at the Company's self-operated direct stores and distributor stores was 60.7% and 43.9%, respectively.

Selling and distribution expenses in the second quarter were RMB31.1 million ($5.1 million), or 9.8% of revenue, compared to RMB41.0 million, or 13.6% of revenue in the same quarter of 2012.  The percentage decrease was primarily due to the significant decrease in direct store expenses resulting from the transition of the Company's direct-operated flagship stores to selected distributors.

Administrative expenses in the second quarter were RMB15.3 million ($2.5 million), or 4.8% of revenue, compared with RMB14.5 million, 4.8% of revenue in the same quarter of 2012.

Effective tax rate in the second quarter was 26.0% compared to 26.1% in the same quarter of 2012.

Net income for the second quarter increased by 2.2% to RMB67.6 million ($11.0 million) from RMB66.2 million in the same quarter of 2012.  Second quarter net margin was 21.3% compared to 22.0% in the second quarter of 2012.

Diluted earnings per ordinary share were RMB0.61($0.10) in the second quarter of 2013, equivalent to RMB2.43($0.40) per ADS, compared to diluted earnings per ordinary share RMB0.60($0.10) or RMB2.38($0.39) per ADS in the second quarter of 2012. The Company's diluted number of shares outstanding was 111.3 million in the second quarter ended June 30, 2013.

As of June 30, 2013, the Company had cash, cash equivalents of RMB1,204.5 million ($196.3 million), compared to RMB918.5 million as of December 31, 2012.  Net cash provided by operating activities was RMB70.1 million ($11.4 million) in the three months ended June 30, 2013, compared to RMB42.9 million in the three months ended June 30, 2012.

Outlet Type:

2Q2012

2Q2013

Direct Stores

5

8

Distributor and Sub-distributor Stores

1,265

1,312

Self-Operated Flagship Stores

26

0

Distributor-Operated Flagship Stores

35

63

Total:

1,331

1,383

Financial Outlook

For the third quarter of 2013, the Company currently anticipates revenue in the range of RMB370-RMB390 million ($60.3-$63.5 million), gross margin of approximately 40-42%, net income of approximately RMB30.8– RMB34.3 million ($5.0 - $5.6 million) and basic and fully diluted EPS of approximately RMB0.28($0.05)RMB0.31($0.05), equivalent to RMB1.11($0.18)RMB1.23($0.20) per ADS.

Conference Call Information

Zuoan's management will host an earnings conference call on September 12, 2013 at 8:30 a.m. U.S. Eastern Time. Listeners may access the call by dialing # 1-719-325-2354. A webcast will also be available via http://public.viavid.com/index.php?id=105957. A replay of the call will be available through September 19, 2013. Listeners may access the replay by dialing #1-858-384-5517, access code: 9676501.

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 RMB 6.1374 to US$1.00, as set forth in the H.10 statistical release of the Federal Reserve Board on June 28, 2013.

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 31 of China's 32 provinces and municipalities. As of June 30, 2013, Zuoan had 1,383 stores located in China.

Safe Harbor

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. 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 period ended June 30

Six months period ended June 30



2012

2013


2013

2012

2013

2013



RMB

RMB


US$

RMB

RMB

US$

(in thousands)









Revenues


301,562

317,555


51,741

581,509

613,809

100,011

Cost of goods sold


(156,103)

(177,414)


(28,907)

(304,936)

(338,216)

(55,107)

Gross profit


145,459

140,141


22,834

276,573

275,593

44,904

Other income


1,036

1,118


182

1,898

3,006

490

Selling and distribution expenses


(40,969)

(31,099)


(5,067)

(69,447)

(57,562)

(9,379)

Administrative expenses


(14,501)

(15,328)


(2,497)

(26,072)

(25,637)

(4,177)

Finance costs


(1,376)

(3,477)


(567)

(2,756)

(5,418)

(883)

Profit before taxation


89,649

91,355


14,885

180,196

189,982

30,955

Income tax expense


(23,436)

(23,718)


(3,865)

(46,595)

(48,540)

(7,909)

Profit after taxation


66,213

67,637


11,020

133,601

141,442

23,046










Other comprehensive (loss)/profit:

Foreign exchange difference arising from
      translation of foreign currency financial 
      statements                         


23

(1,480)


(241)

(687)

(2,338)

(381)

Total comprehensive income for the periods


66,236

66,157


10,779

132,914

139,104

22,665










Earnings per share (RMB):









Basic earnings per share


0.60

0.61


0.10

1.20

1.27

0.21

Diluted earnings per share


0.60

0.61


0.10

1.20

1.27

0.21










Weighted average basic no. of shares ('000)


111,276

111,276



111,276

111,276


Weighted average diluted no. of shares ('000)


111,276

111,276



111,276

111,276




ZUOAN FASHION LIMITED

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET



 As of December 31

As of June 30

(in thousands)

2012

2013

2013

ASSETS                                        

RMB

RMB

US$





Non-current assets




Property, plant and equipment

4,658

23,381

3,810





Current assets




Inventories

24,340

35,037

5,709

Trade and other receivables

608,466

465,569

75,858

Prepayments

100

-

-

Fixed deposits - pledged

9,619

19,040

3,102

Cash and cash equivalents

918,451

1,204,508

196,257


1,560,976

1,724,154

280,926

Total assets

1,565,634

1,747,535

284,735





EQUITY AND LIABILITIES








Share capital

185

185

30

Share premium

426,165

426,165

69,437

Reserves

48,922

47,492

7,739

Retained profits

834,091

975,533

158,949

Total equity

1,309,363

1,449,375

236,155





LIABILITIES








Current liabilities




Trade and other payables                       

103,841

116,848

19,039

Interest-bearing bank borrowings

128,250

157,200

25,613

Income tax payable

24,180

24,112

3,929

Total liabilities

256,271

298,160

48,581

Total equity and liabilities

1,565,634

1,747,535

284,735

ZUOAN FASHION LIMITED

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOWS



           Six months period ended June 30


2012

2013

2013

(in thousands)

RMB

RMB

US$

Cash flows from operating activities




Profit before taxation      

180,196

189,982

30,955

Adjustments for :




Depreciation of property, plant and equipment

3,886

2,973

484

Equity-settled employees benefit expenses

921

908

148

Interest expenses on bank borrowings

2,756

5,418

883

Loss on disposal of property, plant and equipment

655

183

30

Interest income

(1,898)

(3,006)

(490)





Operating profit before working capital changes

186,516

196,458

32,010

Increase in inventories  

(24,420)

(10,697)

(1,743)

Decrease in trade and other receivables

160,366

142,897

23,283

Decrease in prepayments

123

100

16

Increase  in fixed deposits pledged

(7,233)

(9,421)

(1,535)

Increase in trade and other payables

34,497

13,007

2,119

Cash generated from operations

349,849

332,344

54,151

Interest paid        

(2,756)

(5,418)

(883)

Income tax paid       

(47,091)

(48,608)

(7,920)

Net cash generated from operating activities

300,002

278,318

45,348





Cash flows from investing activities




Acquisition of property, plant and equipment      

(6,167)

(21,879)

(3,565)

Interest received      

1,898

3,006

490

Net cash used in investing activities

(4,269)

(18,873)

(3,075)









Cash flows from financing activities




Bank loans obtained

85,550

143,400

23,365

Repayment of bank loans

(57,500)

(114,450)

(18,648)

Net cash generated fromfinancing activities   

28,050

28,950

4,717





Net increase in cash and cash equivalents

323,783

288,395

46,990

Exchange difference

(687)

(2,338)

(381)

Cash and cash equivalents at beginning of the periods

690,457

918,451

149,648

Cash and cash equivalents at end of the periods

1,013,553

1,204,508

196,257

SOURCE Zuoan Fashion Limited

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