ZUOAN FASHION LTD (ADR) SHANGHAI, Oct 9, 2014 /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, 2014.
Second Quarter 2014 Financial Highlights
-- Revenues in the second quarter of 2014 were RMB245.7 million ($39.6
million), a decrease of 22.6% from RMB317.6 million in the same quarter
of 2013.
-- Gross profit in the second quarter decreased 47.4% year over year to
RMB73.8 million ($11.9 million) from RMB140.1 million in the same
quarter of 2013.
-- Gross margin was 30.0% compared with 44.1% in the prior year period and
39.9% in the first quarter of 2014.
-- Net loss was RMB2.3 million ($372,000) compared with net income of
RMB67.6 million in the same quarter of 2013.
-- Diluted loss per ordinary share was RMB0.02 ($0.003) in the second
quarter, equivalent to RMB0.08 ($0.01) per ADS, compared to diluted
earnings per ordinary share of RMB0.61 ($0.10) or RMB2.43 ($0.39) per
ADS in the second quarter of 2013.
James Hong, Founder, Chairman and Chief Executive Officer, commented, "As general economic conditions remain weak, our target customers continued their cautious spending patterns resulting in higher inventories at the distributor and sub-distributor levels. We continued to decrease our wholesale prices and retail prices as well. We also increased our advertising and store renovation costs to reinforce our brand image and market share. Together, these efforts negatively impacted our revenue and profit margin in the quarter, however, we believe such adjustments will help ensure our long term growth and will benefit Zuoan as market conditions improve."
"Looking to the second half of 2014, we will adhere to our strategy of improving product design and quality, prudently invest in store renovation and advertising initiatives, and reduce our inventory at the store level and through our online initiatives. These actions are expected to strengthen our customer base and drive higher sales and profits over time," concluded Mr. Hong.
Second Quarter 2014 Financial Performance
Revenue for the second quarter of 2014 was RMB245.7 million ($39.6 million), representing a decrease of 22.6% from RMB317.6 million in the same quarter of 2013. The decrease was primarily driven by lower wholesale prices offered to the Company's distributors as well as reduced pricing at the retail level due to a slower economic environment in China. During the quarter, distributor sales decreased by 22.1% to RMB243.7 million from RMB312.8 million in the same quarter of 2013. Second quarter 2014 self-operated direct store sales were RMB2.0 million, compared to RMB4.7 million in the same quarter of 2013. A net total of 161 distributor and sub-distributor stores and one self-operated direct store were closed in the second quarter of 2014, resulting in a total of 925 store locations as of June 30, 2014 compared to 1,383 store locations in the same period of the prior year.
Cost of sales decreased by 3.1% to RMB171.9 million ($27.7 million) in the second quarter of 2014 from RMB177.4 million in the same quarter of 2013, primarily due to the slightly lower sales volume. As a percentage of revenues, cost of sales increased to 70.0% in the second quarter of 2014 from 55.9% in the same quarter of 2013.
Gross profit decreased by 47.4% to RMB73.8 million ($11.9 million) from RMB140.1 million in the second quarter of 2013. Second quarter 2014 gross margin was 30.0% compared with 44.1% in the same quarter of 2013. The decrease in gross margin was primarily due to lower wholesale pricing from 35% to 33% offered to the Company's distributors as well as decreased pricing at the retail level. Gross margin at the Company's direct stores and distributor stores were 41.9% and 29.9%, respectively.
Selling and distribution expenses in the second quarter were RMB59.6 million ($9.6 million), or 24.3% of revenue, compared to RMB31.1 million, or 9.8% of revenue in the same quarter of 2013. The percentage increase was primarily due to advertising expenses incurred for the marketing activities and sales promotions in the second quarter of 2014 as well as an increase in renovation costs.
Administrative expenses in the second quarter were RMB14.1 million ($2.3 million), or 5.8% of revenue, compared with RMB15.3 million, 4.8% of revenue in the same quarter of 2013.
Effective tax rate in the second quarter was 10.9% compared to 26.0% in the same quarter of 2013. The lower effective tax rate stems from an operating loss from the investment holding companies and SH Mingfu, one of the Company's PRC subsidiaries.
Net loss for the second quarter was RMB2.3 million ($372,000) compared to RMB67.6 million in the same quarter of 2013.
Diluted loss per ordinary share were RMB0.02 ($0.003) in the second quarter of 2014, equivalent to RMB0.08 ($0.01) per ADS, compared to diluted earnings per ordinary share RMB0.61 ($0.10) or RMB2.43 ($0.39) per ADS in the second quarter of 2013. The Company's diluted number of shares outstanding was 111.3 million in the second quarter ended June 30, 2014.
As of June 30, 2014, the Company had cash, cash equivalents of RMB1,364.7 million ($220.0 million), compared to RMB1,227.4 million as of December 31, 2013. Net cash provided by operating activities was RMB181.9 million ($29.3 million) in the six months ended June 30, 2014, compared to RMB278.3 million in the prior year period.
Outlet Type: 2Q2013 2Q2014
Direct Stores 8 5
Distributor and Sub-
distributor Stores 1,312 866
Distributor-Operated
Flagship Stores 63 54
Total: 1,383 925
Financial Outlook
For the third quarter of 2014, the Company currently anticipates revenue in the range of RMB290-RMB310 million ($46.7-$50.0 million), gross margin of approximately 28-30%, net loss of approximately RMB11.7-RMB12.3 million ($1.9-$2.0 million) and basic and fully diluted loss per share of approximately RMB0.11 ($0.02) - RMB0.11 ($0.02), equivalent to RMB0.42 ($0.07) - RMB0.44 ($0.07) per ADS.
Conference Call Information
Zuoan's management will host an earnings conference call on October 9, 2014 at 8:30 a.m. U.S. Eastern Time. Listeners may access the call by dialing # 1-719-325-2469. A webcast will also be available via http://public.viavid.com/index.php?id=111216. A replay of the call will be available through October 16, 2014. Listeners may access the replay by dialing #1-858-384-5517, access code: 6575501.
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 6.2036 to US$1.00, as set forth in the H.10 statistical release of the Federal Reserve Board on June 30, 2014.
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 925 stores located in China as of June 30, 2014.
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
2013 2014 2014 2013 2014 2014
RMB RMB US$ RMB RMB US$
(in thousands)
Revenues 317,555 245,665 39,600 613,809 434,844 70,095
Cost of goods sold (177,414) (171,886) (27,707) (338,216) (285,547) (46,029)
-------- -------- -------- --------
Gross profit 140,141 73,799 11,893 275,593 149,297 24,066
Other income 1,118 1,553 250 3,006 2,983 481
Selling and distribution expenses (31,099) (59,635) (9,613) (57,562) (84,265) (13,583)
Administrative expenses (15,328) (14,149) (2,281) (25,637) (26,505) (4,273)
Finance costs (3,477) (3,628) (585) (5,418) (5,884) (948)
------ ------ ------ ------
Profit/(Loss) before taxation 91,355 (2,080) (335) 189,982 35,626 5,743
Income tax expense (23,718) (226) (36) (48,540) (10,032) (1,617)
------- ---- ------- -------
Profit/(Loss) after taxation 67,637 (2,306) (372) 141,442 25,594 4,126
Other comprehensive (loss)/profit: (1,480) 116 19 (2,338) 921 148
Foreign exchange difference arising from
translation of foreign currency financial
statements
Total comprehensive income/(loss) for the 66,157 (2,190) (353) 139,104 26,515 4,274
periods
Earnings/(Loss) per share (RMB):
Basic earnings/(loss) per share 0.61 (0.02) (0.003) 1.27 0.23 0.04
Diluted earnings/(loss) per share 0.61 (0.02) (0.003) 1.27 0.23 0.04
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) 2013 2014 2014
ASSETS RMB RMB US$
Non-current assets
Property, plant and equipment 17,377 10,870 1,752
------ ------
Current assets
Inventories 24,629 30,071 4,847
Trade and other receivables 450,983 333,664 53,786
Prepayments 94 - -
Fixed deposits - pledged 41,800 45,800 7,383
Cash and cash equivalents 1,227,402 1,364,664 219,979
--------- ---------
1,744,908 1,774,199 285,995
--------- ---------
Total assets 1,762,285 1,785,069 287,747
========= =========
EQUITY AND LIABILITIES
Share capital 185 185 30
Share premium 426,165 426,165 68,696
Reserves 49,165 50,385 8,122
Retained profits 1,007,517 998,482 160,953
--------- -------
Total equity 1,483,032 1,475,217 237,800
--------- ---------
LIABILITIES
Current liabilities
Trade and other payables 124,398 173,623 27,987
Interest-bearing bank borrowings 149,550 135,610 21,860
Income tax payable 5,305 619 100
----- ---
Total liabilities 279,253 309,852 49,947
------- -------
Total equity and liabilities 1,762,285 1,785,069 287,747
========= =========
ZUOAN FASHION LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOWS
Six months period ended June 30
2013 2014 2014
(in thousands) RMB RMB US$
Cash flows from operating activities
Profit before taxation 189,982 35,626 5,743
Adjustments for :
Depreciation of
property, plant and
equipment 2,973 6,329 1,020
Equity-settled
employees benefit
expenses 908 299 48
Interest expenses on
bank borrowings 5,418 5,884 948
Loss on disposal of
property, plant and
equipment 183 178 29
Interest income (3,006) (2,983) (481)
------ ------ ----
Operating profit
before working
capital changes 196,458 45,333 7,308
Increase in
inventories (10,697) (5,442) (877)
Decrease in trade and
other receivables 142,897 117,319 18,911
Decrease in
prepayments 100 94 15
Increase in fixed
deposits pledged (9,421) (4,000) (645)
Increase in trade and
other payables 13,007 49,225 7,935
------ ------ -----
Cash generated from
operations 332,344 202,529 32,647
Interest paid (5,418) (5,884) (948)
Income tax paid (48,608) (14,718) (2,372)
------- ------- ------
Net cash generated
from operating
activities 278,318 181,927 29,326
Cash flows from investing activities
Acquisition of
property, plant and
equipment (21,879) - -
Interest received 3,006 2,983 481
----- ----- ---
Net cash (used
in)/generated from
investing activities (18,873) 2,983 481
------- ----- ---
Cash flows from financing activities
Dividend paid - (34,629) (5,582)
Bank loans obtained 143,400 93,310 15,041
Repayment of bank
loans (114,450) (107,250) (17,288)
Net cash generated
from/(used in)
financing activities 28,950 (48,569) (7,829)
------ ------- ------
Net increase in cash
and cash equivalents 288,395 136,341 21,978
Exchange difference (2,338) 921 148
Cash and cash
equivalents at
beginning of the
periods 918,451 1,227,402 197,853
------- --------- -------
Cash and cash
equivalents at end of
the periods 1,204,508 1,364,664 219,979
========= ========= =======
SOURCE Zuoan Fashion Limited
