Gross Profit 1 and Gross Margin

Gross profit was $25.2 million in the fourth quarter of 2010, representing a decrease of 9.3% from $27.8 million in the fourth quarter of 2009. Gross margin was 39.3% in the fourth quarter of 2010, compared to 45.8% in the fourth quarter of 2009. The decrease in gross margin was primarily due to the combined effects of (i) the increase in weighting of the Internet business in total net revenues, (ii) an increase in net revenues from third-party branded products, for which the profit margin is lower than for the Company's own branded products; and (iii) the increased number of franchised stores in operation, where the Company offered a higher average discount rate to its franchisees.

Operating Expenses

Total operating expenses were $24.1 million in the fourth quarter of 2010, remaining substantially unchanged compared to $24.2 million in the fourth quarter of 2009.

Selling, general and administrative expenses were $23.5 million in the fourth quarter of 2010, representing an increase of 1.3% from $23.2 million in the fourth quarter of 2009.

Depreciation and amortization expenses were $1.1 million in the fourth quarter of 2010, representing an increase of 7.5% from $1.0 million in the fourth quarter of 2009.

Income from Operations and Operating Margin

Income from operations was $1.1 million in the fourth quarter of 2010, representing a decrease of 69.7% from $3.6 million in the fourth quarter of 2009. Operating margin was 1.7% in the fourth quarter of 2010, compared to 6.0% in the fourth quarter of 2009.

Net Income and Earnings per ADS

Net income was $1.1 million in the fourth quarter of 2010, representing a decrease of 61.7% from $2.9 million in the fourth quarter of 2009. Non-GAAP net income 3 was $2.0 million in the fourth quarter of 2010, representing a decrease of 46.1% from $3.7 million in the fourth quarter of 2009. Diluted earnings per American depositary share ("ADS") attributable to Mecox Lane shareholders was $0.018 in the fourth quarter of 2010. One ADS represents seven ordinary shares.

Cash and short-term investments

As of December 31, 2010, Mecox Lane had cash and cash equivalents totaling $86.0 million, compared to $18.8 million as of December 31, 2009. Short-term investments on December 31, 2010 were $30.2 million compared to $7.3 million as of December 31, 2009, all of which are structured term bank deposits.

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