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 fourth quarter and full year ended December 31, 2010. James Hong, Founder, Chairman of the Board and Chief Executive Officer, commented, “We were pleased with our results for the fourth quarter and 2010 fiscal year. We enjoyed meaningful double digit growth over the prior year as measured by store count, revenue, gross profit, operating profit and net income. Our growth was primarily driven by distributor sales volume and the expansion of our sales network.” “In order to accelerate the expansion of our successful distributor model, we plan to open direct flagship stores which we believe will motivate distributors to expand their distributor store network at a faster rate, stimulate distributor store sales in the nearby regions as well as to strengthen Zuoan’s brand equity. In order to focus on the opening of our flagship stores, we successfully transferred all 31 of our direct normal stores to our distributors in January 2011. In addition, we appointed three additional distributors in January 2011 in order to continue our sales network expansion efforts.” “We have built an excellent platform for future growth through our initiatives including expanding our distribution network coverage, building our flagship store network and enhancing our marketing activities as well as strengthening our design capabilities. We are excited to continue to build our brand and improve our revenue and profit growth this year and beyond,” concluded Mr. Hong. Fourth Quarter 2010 Financial Highlights
Initial Public Offering On February 15, 2011, Zuoan’s ADSs began trading on the New York Stock Exchange under the ticker symbol “ZA.” Zuoan issued 6,000,000 ADSs, each representing four ordinary shares, at a price of $7.00 per ADS and received total proceeds of US$42.0 million.
- Revenues in the fourth quarter of 2010 were RMB258.2 million ($39.1 million), an increase of 26.9% from RMB203.4 million in the same quarter of 2009.
- Gross profit in the fourth quarter increased 21.0% year over year to RMB103.8 million ($15.7 million) from RMB85.8 million ($13.0 million).
- Gross profit margin was 40.2% compared to 42.2% in the prior year period and 41.2% in the 2010 third quarter. Fourth quarter 2010 gross margin decreased primarily due to the Company’s efforts to effectively manage its inventory by reducing out-of-season inventory at prices discounted below the Company’s general wholesale price range as well as clearing shop level stock as the Company’s direct stores were transitioned to its distributors.
- Net income was RMB55.3 million ($8.4 million), an increase of 43.5% from RMB38.5 million in the same quarter of 2009.
- Basic and diluted earnings per share increased to RMB0.69 ($0.10) in the fourth quarter, equivalent to RMB2.77 ($0.42) per American depositary share (“ADS”), compared to basic and diluted earnings per share of RMB0.48 ($0.07), equivalent to RMB1.93 ($0.29) per ADS, in the fourth quarter of 2009.
- Pro forma diluted earnings per share, which takes into account convertible bonds converted since FY10 , increased to RMB0.66 ($0.10) in the fourth quarter, equivalent to RMB2.63 ($0.40) per ADS, compared to pro-forma diluted earnings per share of RMB0.46 ($0.07), equivalent to RMB1.85 ($0.28) per ADS, in the fourth quarter of 2009.
- Total revenue for the full year 2010 increased 25.8% to RMB872.1 million ($132.1 million) from RMB693.1 million in 2009.
- Gross profit increased 26.6% to RMB356.9 million ($54.1 million) in 2010 from RMB281.9 million ($42.7 million) in 2009 and gross profit margin increased by 20 basis points to 40.9% in 2010 from 40.7% in 2009.
- Net income for the full year 2010 was RMB183.0 million ($27.7 million), an increase of 18.9% from RMB153.9 million in 2009.
- Basic and diluted earnings per ADS increased 18.9% to RMB9.15 ($1.39), equivalent to $0.35 per share, compared to $1.17 diluted earnings per ADS, equivalent to $0.29 per share, in the prior year.
- Pro forma diluted earnings per ADS increased 18.8% to RMB8.75 ($1.33), equivalent to $0.33 per pro forma weighted average diluted share, compared to $1.12 pro forma diluted earnings per ADS, equivalent to $0.28 per pro forma weighted average diluted share, in the prior year.
- The number of Zuoan stores increased 10% to 1,101 at the end of 2010 compared to 1,000 stores at the end of 2009.
|Distributor and Sub-distributor Stores||1,070||978|
Financial OutlookFor the first quarter of 2011, the Company currently anticipates revenue in the range of RMB200-RMB205 million ($30.3-$31.1 million), gross margin of approximately 41-42%, net income of approximately RMB43-RMB44 million ($6.5-$6.7 million) and diluted EPS of approximately RMB0.44-RMB0.45 ($0.07). Approximately 22 new retail stores are expected to be opened by distributors in the first quarter of 2011. Revenue in the first half of 2011 is expected in the range of RMB415-RMB425 million ($62.9-$64.4 million). Gross margin is expected to be in the 41-42% range in the first half of 2011, with additional gross margin and ASP growth expected in second half of 2011 due to an expected increase in wholesale prices to Company’s distributors. Conference Call Information Zuoan’s management will host an earnings conference call on April 14, 2011 at 8:30 a.m. U.S. Eastern Time. Listeners may access the call by dialing #1-201-689-8471. A webcast will also be available via www.viavid.net. A replay of the call will be available through April 21, 2011. Listeners may access the replay by dialing #1-858-384-5517, access code: 370479. 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 RMB6.6 to US$1.00, as set forth in the H.10 statistical release of the Federal Reserve Board on December 31, 2010. About Zuoan Fashion Limited Zuoan Fashion Limited is a leading design-driven fashion casual menswear company in China. 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 27 of China’s 32 provinces and municipalities. As of December 31, 2010, Zuoan had 1,101 stores located in China.
Safe HarborThis 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 ended December 31||Year ended December 31|
|Cost of goods sold:||(117,604)||(154,368)||(23,389)||(411,165)||(515,158)||(78,054)|
|Selling, marketing and distribution expenses||(25,361)||(17,269)||(2,617)||(53,373)||(61,486)||(9,316)|
|General and administrative expenses||(8,543)||(9,497)||(1,439)||(22,176)||(37,382)||(5,664)|
|Profit before taxation||52,077||74,796||11,333||206,255||250,325||37,928|
|Income tax expenses||(13,533)||(19,478)||(2,951)||(52,357)||(67,324)||(10,201)|
|Profit after taxation||38,544||55,318||8,382||153,898||183,001||27,727|
|Other comprehensive (loss)/profit: Foreign exchange difference arising from translation of foreign currency financial statements||(26)||769||117||(27)||1,555||236|
|Total comprehensive income for the year||38,518||56,087||8,498||153,871||184,556||27,963|
|Earnings per share (RMB):|
|Basic and diluted earnings per share||0.48||0.69||0.10||1.92||2.29||0.35|
|Pro forma earnings per share:|
|Diluted earnings per share||0.46||0.66||0.10||1.85||2.19||0.33|
|Basic and diluted no. of shares (‘000)||80,000||80,000||80,000||80,000|
|Pro forma weighted average diluted no. of shares (‘000)||83,562||86,722||83,366||86,515|
|ZUOAN FASHION LIMITED UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET|
|As of December 31||As of December 31|
|Property, plant and equipment||2,043||2,720||412|
|Deferred offering costs||-||5,757||872|
|Trade and other receivables||215,454||249,857||37,857|
|Fixed deposits – pledged||2,175||1,054||160|
|Cash and cash equivalents||141,569||367,731||55,717|
|EQUITY AND LIABILITIES|
|Retained profits / (deficit)||132,894||314,610||47,668|
|Trade and other payables||51,496||70,582||10,694|
|Interest-bearing bank borrowings||17,050||56,700||8,591|
|Current income tax payable||13,927||19,825||3,004|
|Total equity and liabilities||381,059||651,771||98,753|
|ZUOAN FASHION LIMITED UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOWS|
|Year ended December 31||Year ended December 31|
|Cash flows from operating activities|
|Profit before taxation||206,255||250,325||37,928|
|Adjustments for :|
|Depreciation of property, plant and equipment||780||680||103|
|Loss on disposal of property, plant and equipment||7||-|
|Interest expenses on bank borrowings||1,018||2,332||353|
|Interest expense on convertible loans||-||6,270||950|
|Operating profit before working capital changes||207,556||258,739||39,203|
|Increase in inventories||(9,090)||(4,930)||(747)|
|Increase in trade and other receivables||(73,388)||(34,403)||(5,213)|
|Increase in prepayments||(2,436)||(5,661)||(858)|
|Decrease in fixed deposits pledged||3,730||1,121||170|
|Increase/(Decrease) in trade and other payables||(35,238)||14,371||2,177|
|Cash generated from operations||91,134||229,237||34,733|
|Income tax paid||(48,844)||(61,426)||(9,307)|
|Net cash generated from operating activities||41,272||165,479||25,073|
|Cash flows from investing activities|
|Acquisition of property, plant and equipment||(271)||(1,357)||(206)|
|Net cash (used in)/generated from investing activities||233||(489)||(74)|
|Cash flows from financing activities|
|Bank loans obtained||18,550||57,700||8,742|
|Repayment of bank loans||(8,550)||(18,050)||(2,735)|
|Convertible loan obtained||19,439||21,522||3,261|
|Net cash generated from financing activities||29,439||61,172||9,268|
|Net increase in cash and cash equivalents||70,944||226,162||34,267|
|Cash and cash equivalents at beginning||70,625||141,569||21,450|
|Cash and cash equivalents at end||141,569||367,731||55,717|