Exceed Company CEO Discusses F3Q10 Results - Earnings Call Transcript

Exceed Company Limited ( EDS)

F3Q10 Earnings Call

November 16, 2010 8:00 a.m. ET

Executives

Vivien Tai – VP, Finance & Company Secretary

Shuipan Lin - Chairman and Chief Executive Officer

Terence Wong - Chief Financial Officer

Presentation

Operator

Welcome to Exceed Company’s third quarter 2010 earnings conference call. All lines have been placed on mute to prevent background noise. After the presentation, there will be a question-and-answer session. Please follow the instructions given at that time if you would like to ask a question. Now I would like to transfer the call to Ms. Vivien Tai, VP of Finance and Company Secretary of Exceed Company Limited.

Vivien Tai

Good day, everyone, and welcome to the Exceed Company Ltd. Third Quarter Results conference call. With me today are our Chairman and Chief Executive Officer, Mr. Shuipan Lin, and our Chief Financial Officer, Mr. Terence Wong. As we proceed through our prepared remarks, we will refer to our results presentation which can be downloaded from our website at www.ir.xdlong.cn. Following the remarks, Mr. Lin and Mr. Wong will be happy to take your questions.

The primary purpose of today's call is to provide you with information regarding our fiscal third-quarter 2010 performance. Some of our discussion and responses to your questions may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding future events and future performance of Exceed. These statements are based on management’s current expectations or beliefs. Actual results may vary materially from those expressed or implied by the statements herein. This information is qualified in its entirety by cautionary statements and risk factor disclosure contained in certain of Exceed's Securities and Exchange Commission filings. For a description of certain factors that could cause actual results to vary from current expectations and forward-looking statements, please refer to documents that Exceed files with the Securities and Exchange Commission. Exceed is under no obligation to, and expressly disclaims any obligation to, update or alter its forward looking statements, whether as a result of new information, future events, changes in assumptions or otherwise. Now I’d like to pass the call over to our Chairman and Chief Executive Officer, Mr. Shuipan Lin. He will give you some highlights of the Q3 results of Exceed Company Ltd, the owner and operator of “Xidelong” brand, one of the leading domestic sportswear brands in China.

Shuipan Lin

Thank you, Vivien. Good morning and good evening everyone. Thank you for joining us today for Exceed Company Ltd (Xidelong)’s third quarter results call. We once again posted strong results for the third quarter, with solid revenue growth of 25.8% and net profit that almost doubled versus last year.

Before Terence covers our financial results in more detail, I’d like to review our successful progress this quarter on our key operational initiatives and growth drivers. People in China are increasingly interested in leading a fit, healthy lifestyle. This trend goes hand in hand with China’s economic growth and growing urbanization. Our goal is for the Chinese population to turn to Exceed, and our XIDELONG brand, to fit this happy, healthy lifestyle. In the large and fragmented sportswear market, we have focused our efforts on the second- and third-tier cities in China, where we believe we can gain the most traction. In order to deepen our market penetration, we opened 557 new stores in the twelve months leading up to September 30 2010, and many of them were within our target 2nd and 3rd tier Chinese cities.

We are continuing our initiative to strengthen our market position through investments in advertising and promotions. We are smart about our A&P spend – and we allocate these resources carefully in our recent Happy Lifestyle campaign to build awareness in the market about both the qualities that our brand stands for and the features and functionality of our products. Our work to enhance our brand value will solidify and extend our leading market positions, and we are growing revenue by attracting higher store traffic volume and by commanding greater pricing power in the market, evident by our double- digit growth in ASP during the quarter. We were also able to improve production efficiency and our careful spend on operating expenses allow us to sustain our margin improvement in the quarter. Our 3Q results underlined the potential of our addressable market and the success of our growth strategies. Looking ahead, we expect our strong growth momentum to continue, as we continue to benefit from China’s consumer and sportswear market growth, and our proven growth initiatives. This is demonstrated by the 25% sales value growth in our 2011 Spring/Summer sales fair, which is one of the strongest in the industry. In all, we remain confident in our ability to improve both our top- and bottom-lines, and to drive significant growth in the coming quarters. With that, I will pass the call over to Terence Wong. Terence?

Terence Wong

Thank you, Mr. Lin. I will begin on slide 7 of the presentation, which is a snapshot of our third quarter results. Total net revenue in the quarter grew by 25.8% year-over-year to RMB 832.4 million. Sales growth was driven by our successful advertising and promotional campaigns, as well as our new apparel and footwear product launches. Gross profit was RMB252.8million, an increase of 28.3%. Gross margin was 30.4%, versus 29.8% last Q3; the improvement was due to our increased ASP and improved production cost controls. Operating profit increased by 91.1% year-over-year to RMB 128.1 million. A lower A&P spend allowed us to expand our operating margin, which was 15.4% in Q3 of this year versus 10.1% in Q3 of 2009. Profit attributable to equity shareholders for the third quarter was RMB111.0 million, an increase of 98.6% over the third quarter last year. Basic and diluted earnings per share were RMB4.39 dollars and RMB3.98 dollars, respectively, down 54.9% and 55.1%, respectively. The EPS decrease is due to a greater number of shares outstanding after our Nasdaq listing in late 2009.

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