ZUOAN FASHION LTD (ADR) 
By SHANGHAI, Dec. 20, 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 third quarter ended September 30, 2013.
Third Quarter 2013 Financial Highlights
-- Revenues in the third quarter of 2013 were RMB380.5 million ($62.2
million), a decrease of 20.1% from RMB476.3 million in the same quarter
of 2012.
-- Gross profit in the third quarter decreased 30.3% year over year to
RMB155.8 million ($25.5 million) from RMB223.6 million in the same
quarter of 2012.
-- Gross margin was 40.9% compared with 46.9% in the prior year period and
44.1% in the second quarter of 2013.
-- Net income was RMB23.0 million ($3.8 million), a decrease of 75.3% from
RMB92.8 million in the same quarter of 2012.
-- Diluted earnings per ordinary share was RMB0.21 ($0.03) in the third
quarter, equivalent to RMB0.83 ($0.13) per ADS, compared to diluted
earnings per ordinary share of RMB0.83 ($0.14) or RMB3.34 ($0.55) per
ADS in the third quarter of 2012.
James Hong, Founder, Chairman and Chief Executive Officer, commented, "As addressed last quarter, the softening retail environment in China this year resulted in more challenging market conditions in the third quarter. During the first half of the year, there was a build-up of inventory at the distributor level due to softer market conditions, which resulted in cancelled orders from our distributors. To offset this situation, we enacted several initiatives to stimulate sales and reduce inventory at the distributor level, including increasing our advertising and promotional programs as well as applying heavier discounting at the retail level. We believe our marketing efforts, which include targeted campaigns in ten major cities in China, are an effective use of our resources and we are hopeful we'll experience a gradual improvement in consumer spending in the quarters ahead. We are undertaking a number of operational initiatives, including supply chain enhancements, closer interaction with our distributors and the launch of a leather goods and accessories chain of outlets which we believe can improve our cost structure and improve our market position as we navigate through this challenging market environment.
To further consolidate and better reposition for the future, we closed a net total of 309 distributor and sub-distributor stores in the third quarter, resulting in a total of 1,074 store locations at the end of September. We expect to maintain profitability in the fourth quarter."
Third Quarter 2013 Financial Performance
Revenue for the third quarter of 2013 was RMB380.5 million ($62.2 million), representing a decrease of 20.1% from RMB476.3 million in the same quarter of 2012. The decrease was primarily attributed to a cancellation of sales orders for the Company's Fall/Winter collection 2013 back in June, due to the economic downturn in the menswear sector during the second half of 2013. During the quarter, distributor sales decreased by 16.0% to RMB378.3 million from RMB450.2 million in the same quarter of 2012. Third quarter 2013 self-operated direct store sales decreased to RMB2.2 million from RMB2.9 million in the same quarter of 2012. A net total of 309 distributor and sub-distributor stores were closed in the third quarter of 2013, resulting in a total of 1,074 store locations as of September 30, 2013 compared to 1,383 store locations at the end of the second quarter.
Cost of sales decreased by 11.1% to RMB224.7 million ($36.7 million) in the third quarter of 2013 from RMB252.7 million in the same quarter of 2012, in-line with the revenue decrease associated with cancelled sales orders. As a percentage of revenues, cost of sales increased to 59.1% in the third quarter of 2013 from 53.1% in the same quarter of 2012.
Gross profit decreased by 30.3% to RMB155.8 million ($25.5 million) from RMB223.6 million in the third quarter of 2012. Third quarter 2013 gross margin was 40.9% compared with 46.9% in the same quarter of 2012. The decrease in gross margin was primarily due to the decrease in the Company's wholesale price discount that was implemented in the third quarter of 2013.
Selling and distribution expenses in the third quarter were RMB108.3 million ($17.7 million), or 28.5% of revenue, compared to RMB84.1 million, or 17.7% of revenue in the same quarter of 2012. The percentage increase was primarily due to a planned increase in advertising and marketing expenses in the second half of 2013 to create greater consumer brand awareness.
Administrative expenses in the third quarter were RMB14.5 million ($2.4 million), or 3.8% of revenue, compared with RMB14.0 million, or 2.9% of revenue in the same quarter of 2012.
Effective tax rate in the third quarter was 27.0% compared to 25.6% in the same quarter of 2012.
Net income for the third quarter decreased by 75.3% to RMB23.0 million ($3.8 million) from RMB92.8 million in the same quarter of 2012. Third quarter net margin was 6.0% compared to 19.5% in the third quarter of 2012.
Diluted earnings per ordinary share were RMB0.21 ($0.03) in the third quarter of 2013, equivalent to RMB0.83 ($0.13) per ADS, compared to diluted earnings per ordinary share of RMB0.83 ($0.14) or RMB3.34 ($0.55) per ADS in the third quarter of 2012. The Company's diluted number of shares outstanding was 111.3 million in the third quarter ended September 30, 2013.
As of September 30, 2013, the Company had cash, cash equivalents of RMB1,287.1 million ($210.3 million), compared to RMB918.5 million as of December 31, 2012. Net cash provided by operating activities was RMB78.4 million ($12.8 million) in the three months ended September 30, 2013, compared to a net cash used in operating activities of RMB172.9 million in the three months ended September 30, 2012.
Outlet Type: 3Q2012 3Q2013
Direct Stores 7 8
Distributor and Sub-distributor Stores 1,219 1,003
Self-Operated Flagship Stores 26 0
Distributor-Operated Flagship Stores 37 63
Total: 1,289 1,074
Financial Outlook
For the fourth quarter of 2013, the Company currently anticipates revenue in the range of RMB206-RMB236 million ($33.6-$38.5 million), gross margin of approximately 40-42%, net income of approximately RMB15.6-RMB20.1 million ($2.5-$3.3 million) and basic and fully diluted EPS of approximately RMB0.14-RMB0.18 ($0.02-$0.03), equivalent to RMB0.56-RMB0.72 ($0.09-$0.12) per ADS.
Conference Call Information
Zuoan's management will host an earnings conference call on December 20(th), 2013 at 8:30 a.m. U.S. Eastern Time. Listeners may access the call by dialing # 1-719-325-2454. A webcast will also be available via http://public.viavid.com/index.php?id=107244. A replay of the call will be available through December 27(th), 2013. Listeners may access the replay by dialing # 1-858-384-5517, access code: 7653253.
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, 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 September 30, 2013, Zuoan had 1,074 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.
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 September 30 Nine months period ended September 30
2012 2013 2013 2012 2013 2013
RMB RMB US$ RMB RMB US$
(in thousands)
Revenues 476,299 380,501 62,173 1,057,808 994,310 162,469
Cost of goods sold (252,725) (224,705) (36,717) (557,661) (562,921) (91,981)
-------- -------- -------- --------
Gross profit 223,574 155,796 25,457 500,147 431,389 70,488
Other income 767 1,181 193 2,665 4,187 684
Selling and distribution expenses (84,109) (108,270) (17,691) (153,556) (165,832) (27,097)
Administrative expenses (13,969) (14,482) (2,366) (40,041) (40,119) (6,555)
Finance costs (1,603) (2,787) (455) (4,359) (8,205) (1,341)
------ ------ ------ ------
Profit before taxation 124,660 31,438 5,137 304,856 221,420 36,180
Income tax expense (31,862) (8,473) (1,384) (78,457) (57,013) (9,316)
------- ------ ------- -------
Profit after taxation 92,798 22,965 3,752 226,399 164,407 26,864
Other comprehensive (loss)/profit: 316 (687) (112) (371) (3,025) (494)
Foreign exchange difference
arising from translation of
foreign currency financial
statements
Total comprehensive income for the 93,114 22,278 3,640 226,028 161,382 26,370
periods
Earnings per share (RMB):
Basic earnings per share 0.83 0.21 0.03 2.03 1.48 0.24
Diluted earnings per share 0.83 0.21 0.03 2.03 1.48 0.24
Weighted average basic no. of 111,276 111,276 111,276 111,276
shares ('000)
Weighted average diluted no. of 111,276 111,276 111,276 111,276
shares ('000)
ZUOAN FASHION LIMITED
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
As of December 31 As of September 30
(in thousands) 2012 2013 2013
---- ----
ASSETS RMB RMB US$
Non-current assets
Property, plant and equipment 4,658 20,864 3,409
----- ------
Current assets
Inventories 24,340 35,573 5,813
Trade and other receivables 608,466 479,083 78,282
Prepayments 100 - -
Fixed deposits - pledged 9,619 29,800 4,869
Cash and cash equivalents 918,451 1,287,090 210,309
------- ---------
1,560,976 1,831,546 299,272
--------- ---------
Total assets 1,565,634 1,852,410 302,681
========= =========
EQUITY AND LIABILITIES
Share capital 185 185 30
Share premium 426,165 426,165 69,635
Reserves 48,922 47,253 7,721
Retained profits 834,091 998,498 163,153
------- -------
Total equity 1,309,363 1,472,101 240,539
--------- ---------
LIABILITIES
Current liabilities
Trade and other payables 103,841 209,743 34,272
Interest-bearing bank borrowings 128,250 161,700 26,422
Income tax payable 24,180 8,866 1,449
------ -----
Total liabilities 256,271 380,309 62,142
------- -------
Total equity and liabilities 1,565,634 1,852,410 302,681
========= =========
ZUOAN FASHION LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOWS
Nine months period ended
September 30
2012 2013 2013
(in thousands) RMB RMB US$
Cash flows from operating activities
Profit before taxation 304,856 221,420 36,180
Adjustments for :
Depreciation of property, plant and equipment 6,289 6,301 1,030
Equity-settled employees benefit expenses 1,383 1,356 222
Interest expenses on bank borrowings 4,359 8,205 1,341
Loss on disposal of property, plant and equipment 655 183 30
Interest income (2,665) (4,187) (684)
------ ------
Operating profit before working capital changes 314,877 233,278 38,117
Increase in inventories (60,429) (11,233) (1,835)
(Increase)/Decrease in trade and other receivables (161,036) 129,383 21,141
Decrease in prepayments 123 100 16
Increase in fixed deposits pledged (12,820) (20,181) (3,298)
Increase in trade and other payables 121,241 105,902 17,304
------- -------
Cash generated from operations 201,956 437,249 71,446
Interest paid (4,359) (8,205) (1,341)
Income tax paid (70,527) (72,327) (11,818)
------- -------
Net cash generated from operating activities 127,070 356,717 58,287
Cash flows from investing activities
Acquisition of property, plant and equipment (9,015) (22,690) (3,708)
Interest received 2,665 4,187 684
----- -----
Net cash used in investing activities (6,350) (18,503) (3,023)
------ -------
Cash flows from financing activities
Bank loans obtained 107,750 171,200 27,974
Repayment of bank loans (77,000) (137,750) (22,508)
Net cash generated from financing activities 30,750 33,450 5,466
------ ------
Net increase in cash and cash equivalents 151,470 371,664 60,729
Exchange difference (371) (3,025) (494)
Cash and cash equivalents at beginning of the periods 690,457 918,451 150,074
------- -------
Cash and cash equivalents at end of the periods 841,556 1,287,090 210,309
======= =========
SOURCE Zuoan Fashion Limited
