SHANGHAI, Dec. 23, 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 third quarter ended September 30, 2014.

Third Quarter 2014 Financial Highlights


    --  Revenues in the third quarter of 2014 were RMB301.1 million ($49.1
        million), a decrease of 20.9% from RMB380.5 million in the same quarter
        of 2013.
    --  Gross profit in the third quarter decreased 45.6% year over year to
        RMB84.8 million ($13.8 million) from RMB155.8 million in the same
        quarter of 2013.
    --  Gross margin was 28.2% compared with 40.9% in the prior year period and
        30.0% in the second quarter of 2014.
    --  Net loss was RMB14.1 million ($2.3 million) compared with net income of
        RMB23.0 million in the same quarter of 2013.
    --  Diluted loss per ordinary share was RMB0.13 ($0.02) in the third
        quarter, equivalent to RMB0.51 ($0.08) per ADS, compared to diluted
        earnings per ordinary share of RMB0.21 ($0.03) or RMB0.83 ($0.13) per
        ADS in the third quarter of 2013.

James Hong, Founder, Chairman and Chief Executive Officer, commented, "Market conditions at the retail store level remain challenging driven by an industry downturn and the continued rise of e-commerce. Customer spending at Zuoan retail stores continues to be restrained while orders from our distributors declined in the third quarter over the prior year period as inventories remain at elevated levels. In response to the current market environment, we continue to offer lower prices to our customers and are increasing our advertising efforts to boost brand awareness. While these efforts resulted in margin pressure this quarter, we believe these actions along with our latest growth initiatives will strengthen our performance and benefit Zuoan as market conditions improve."

Mr. Hong continued, "A major new initiative for Zuoan going forward focuses on the integration of our supply chain structure to establish a brand new online-to-offline (OTO) business. This October, we conducted a pilot program in which we launched a new and lower priced collection in twelve Zuoan stores. This new collection is tailored according to customer fashion trends and sold at very competitive prices in these twelve stores. This new initiative received very positive results during the trial period and we plan to expand the trial program to forty to fifty stores over the next several quarters. When implemented fully, customers will also have the ability to purchase this special collection online on PCs and mobile devices. We believe the OTO business can serve as a model for Zuoan's future development. This interactive shopping experience will enable Zuoan to attract a new group of target customers that prefer the convenience and low price of online shopping while also seeking a recognized brand and reliable sourcing channel. We aim to significantly improve our overall customer experience by seamlessly integrating our online and offline product offerings."

"As we look to 2015, in addition to maintaining product quality and strengthening our brand image, we actively look for new growth drivers to improve our performance. We will continue optimizing supply chain which can result in lower pricing for our customers, incorporate online resources to offer customers a wide range of quality products at different levels of affordable prices and evaluate new business lines for growth. For example, earlier this year, we separated our new leather accessories business to ensure greater focus on product development and marketing. We have opened over fifty special stores as of September 30th. We expect these actions to improve our brand popularity, reinforce Zuoan's leadership in the fashion casual menswear sector and boost sales in 2015 and beyond," concluded Mr. Hong.

Third Quarter 2014 Financial Performance

Revenue for the third quarter of 2014 was RMB301.1 million ($49.1 million), representing a decrease of 20.9% from RMB380.5 million in the same quarter of 2013. The decrease was primarily driven by decreased sales volume, 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 20.7% to RMB299.9 million from RMB378.3 million in the same quarter of 2013. Third quarter 2014 self-operated direct store sales were RMB1.2 million, compared to RMB2.2 million in the same quarter of 2013. A net total of 120 distributor and sub-distributor stores and two self-operated direct store were closed in the third quarter of 2014, resulting in a total of 803 store locations as of September 30, 2014 compared to 1,074 store locations in the same period of the prior year.

Cost of sales decreased by 3.8% to RMB216.3 million ($35.2 million) in the third quarter of 2014 from RMB224.7 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 71.8% in the third quarter of 2014 from 59.1% in the same quarter of 2013.

Gross profit decreased by 45.6% to RMB84.8 million ($13.8 million) from RMB155.8 million in the third quarter of 2013. Third quarter 2014 gross margin was 28.2% compared to 40.9% 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 20.4% and 28.2%, respectively.

Selling and distribution expenses in the third quarter were RMB72.1 million ($11.8 million), or 24.0% of revenue, compared to RMB108.3 million, or 28.5% of revenue in the same quarter of 2013. The actual amount and percentage decreases were primarily due to lower advertising expenses incurred for the marketing activities and sales promotions in the third quarter of 2014 offset by an increase in renovation costs of the existing stores.

Administrative expenses in the third quarter were RMB26.7 million ($4.3 million), or 8.9% of revenue, compared with RMB14.5 million, 3.8% of revenue in the same quarter of 2013.

Effective tax rate in the third quarter was nil compared to 27.0% in the same quarter of 2013 as a result of the operating loss in the third quarter of 2014.

Net loss for the third quarter was RMB14.1 million ($2.3 million) compared to net income of RMB23.0 million in the same quarter of 2013.

Diluted loss per ordinary share were RMB0.13 ($0.02) in the third quarter of 2014, equivalent to RMB0.51 ($0.08) per ADS, compared to diluted earnings per ordinary share of RMB0.21 ($0.03) or RMB0.83 ($0.13) per ADS in the third quarter of 2013. The Company's diluted number of shares outstanding was 111.3 million in the third quarter ended September 30, 2014.

As of September 30, 2014, the Company had cash, cash equivalents of RMB1,411.9 million ($230.0 million), compared to RMB1,227.4 million as of December 31, 2013. Net cash provided by operating activities was RMB215.6 million ($35.1 million) in the nine months ended September 30, 2014, compared to RMB356.7 million in the prior year period.



    Outlet Type:         3Q2013       3Q2014

    Direct Stores                   8          3

    Distributor and Sub-
     distributor Stores         1,003        746

    Distributor-Operated
     Flagship Stores               63         54

    Total:                      1,074        803

Financial Outlook

For the fourth quarter of 2014, the Company currently anticipates revenue in the range of RMB190-RMB210 million ($31.0-34.2 million), gross margin of approximately 21-23%, net loss of approximately RMB2.4-2.8 million ($0.4-$0.5 million) and basic and fully diluted loss per share of approximately RMB0.02 ($0.004) - RMB0.03 ($0.004), equivalent to RMB0.09 ($0.01) - RMB0.10 ($0.02) per ADS.

Conference Call Information

Zuoan's management will host an earnings conference call on December 23, 2014 at 8:30 a.m. U.S. Eastern Time. Listeners may access the call by dialing # 1-719-325-2420. A webcast will also be available via http://public.viavid.com/index.php?id=112369. A replay of the call will be available through December 30, 2014. Listeners may access the replay by dialing #1-858-384-5517, access code: 1268188.

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 6.12 to US$1.00, as set forth in the H.10 statistical release of the Federal Reserve Board on September 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 803 stores located in China as of September 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.

Contact Information

John Low
Email: john.low@zuoancn.com

ICR, LLC
William Zima
Phone: +86-10-6583-7511

Zuoan Investor Relations Department
US: 1-646-308-1614




                                            ZUOAN FASHION LIMITED

                            UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME


                                                            Three months period ended           Nine months period ended
                                                                  September 30                      September 30

                                                      2013          2014                    2014          2013          2014         2014

                                                    RMB          RMB                    US$          RMB          RMB         US$

    (in thousands)

    Revenues                                       380,501       301,077                  49,051       994,310       735,921      119,896

    Cost of goods sold                           (224,705)    (216,272)               (35,235)    (562,921)    (501,819)    (81,756)
                                                  --------      --------                             --------      --------

    Gross profit                                   155,796        84,805                  13,816       431,389       234,102       38,140

    Other income                                     1,181         2,795                     455         4,187         5,778          941

    Selling and
     distribution expenses                       (108,270)     (72,123)               (11,750)    (165,832)    (156,388)    (25,479)

    Administrative expenses                       (14,482)     (26,654)                (4,342)     (40,119)     (53,159)     (8,661)

    Finance costs                                  (2,787)      (2,968)                  (484)      (8,205)      (8,852)     (1,442)
                                                    ------        ------                               ------        ------

    (Loss/)Profit before
     taxation                                       31,438      (14,145)                (2,304)      221,420        21,481        3,500

    Income tax expense                             (8,473)            -                      -     (57,013)     (10,032)     (1,634)
                                                    ------           ---                             -------       -------

    (Loss)/Profit after
     taxation                                       22,965      (14,145)                (2,304)      164,407        11,449        1,865


    Other comprehensive
     (loss)/profit:                                  (687)        (152)                   (25)      (3,025)          769          125

    Foreign exchange
     difference arising
     from translation of
     foreign currency
     financial statements


    Total comprehensive
     (loss)/income for the
     periods                                        22,278      (14,297)                (2,329)      161,382        12,218        1,991
                                                    ======       =======                              =======        ======


    (Loss)/Earnings per
     share (RMB):

    Basic (loss)/earnings
     per share                                        0.21        (0.13)                 (0.02)         1.48          0.10         0.02

    Diluted (loss)/earnings
     per share                                        0.21        (0.13)                 (0.02)         1.48          0.10         0.02


    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 September 30

    (in thousands)                                                                       2013         2014     2014

    ASSETS                                                                             RMB         RMB      US$


    Non-current assets

    Property, plant and equipment                                                      17,377        7,806    1,272
                                                                                       ------        -----


    Current assets

    Inventories                                                                        24,629       50,855    8,285

    Trade and other receivables                                                       450,983      361,046   58,821

    Prepayments                                                                            94            -       -

    Fixed deposits - pledged                                                           41,800       45,800    7,462

    Cash and cash equivalents                                                       1,227,402    1,411,891  230,025
                                                                                    ---------    ---------

                                                                                    1,744,908    1,869,592  304,593
                                                                                    ---------    ---------

    Total assets                                                                    1,762,285    1,877,398  305,865
                                                                                    =========    =========


    EQUITY AND LIABILITIES


    Share capital                                                                         185          185       30

    Share premium                                                                     426,165      426,165   69,431

    Reserves                                                                           49,165       50,233    8,184

    Retained profits                                                                1,007,517      984,337  160,368
                                                                                    ---------      -------

    Total equity                                                                    1,483,032    1,460,920  238,012
                                                                                    ---------    ---------


    LIABILITIES


    Current liabilities

    Trade and other payables                                                          124,398      269,074   43,837

    Interest-bearing bank borrowings                                                  149,550      147,010   23,951

    Income tax payable                                                                  5,305          394       64
                                                                                        -----          ---

    Total liabilities                                                                 279,253      416,478   67,852
                                                                                      -------      -------

    Total equity and liabilities                                                    1,762,285    1,877,398  305,865
                                                                                    =========    =========


                         ZUOAN FASHION LIMITED

       UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOWS


                                                        Nine months period ended
                                                               September 30

                                                   2013           2014         2014

    (in thousands)                              RMB           RMB          US$

    Cash flows from operating activities

    Profit before taxation                      221,420         21,481        3,500

    Adjustments for :

    Depreciation of
     property, plant and
     equipment                                    6,301          9,191        1,497

    Equity-settled
     employees benefit
     expenses                                     1,356            299           49

    Interest expenses on
     bank borrowings                              8,205          8,852        1,442

    Loss on disposal of
     property, plant and
     equipment                                      183            827          135

    Provision for obsolete
     inventory                                        -        14,897        2,427

    Interest income                             (4,187)       (5,778)       (941)
                                                 ------         ------


    Operating profit before
     working capital changes                    233,278         49,769        8,108

    Increase in inventories                    (11,233)      (41,123)     (6,700)

    Decrease in trade and
     other receivables                          129,383         89,937       14,652

    Decrease in prepayments                         100             94           15

    Increase  in fixed
     deposits pledged                          (20,181)       (4,000)       (652)

    Increase in trade and
     other payables                             105,902        144,676       23,571
                                                -------        -------

    Cash generated from
     operations                                 437,249        239,353       38,995

    Interest paid                               (8,205)       (8,852)     (1,442)

    Income tax paid                            (72,327)      (14,943)     (2,435)
                                                -------        -------

    Net cash generated from
     operating activities                       356,717        215,558       35,119


    Cash flows from investing activities

    Acquisition of property,
     plant and equipment                       (22,690)         (447)        (73)

    Interest received                             4,187          5,778          941
                                                  -----          -----

    Net cash generated from/
     (used in) investing
     activities                                (18,503)         5,331          869
                                                -------          -----



    Cash flows from financing activities

    Dividend paid                                     -        34,629        5,642

    Bank loans obtained                         171,200        131,870       21,484

    Repayment of bank loans                   (137,750)     (134,410)    (21,898)

    Net cash (used
     in)/generated from
     financing activities                        33,450       (37,169)     (6,056)
                                                 ------        -------


    Net increase in cash and
     cash equivalents                           371,664        183,720       29,932

    Exchange difference                         (3,025)           769          125

    Cash and cash
     equivalents at
     beginning of the
     periods                                    918,451      1,227,401      199,968
                                                -------      ---------

    Cash and cash
     equivalents at end of
     the periods                              1,287,090      1,411,891      230,025
                                              =========      =========

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SOURCE Zuoan Fashion Limited