ZUOAN FASHION LTD (ADR) 
By 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: 23 (1,480) (241) (687) (2,338) (381)
Foreign exchange difference arising from
translation of foreign currency financial
statements
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 from
financing 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
