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 first quarter ended March 31, 2011.

James Hong, Founder, Chairman of the Board and Chief Executive Officer, commented, “The first quarter was another strong performing quarter for Zuoan as we beat our quarterly revenue and net income forecast. We continue to gain traction in the China market with our unique design concepts and our ability to expand our sales network. Despite a traditionally slower quarter for the apparel industry due to the Chinese New Year, we expanded our store base by 22 locations, completing the quarter with 1,123 locations, and added three additional distributors to our base in the first quarter bringing our total number of distributors to thirteen. We also successfully transferred 31 of our direct stores to our distributors in January 2011 in order to focus on the development and opening of our flagship stores. Our Company completed a major milestone event during the first quarter with its successful IPO on the New York Stock Exchange. This was a major accomplishment for Zuoan that will assist with certain marketing and branding initiatives going forward.”

“We opened our first self operated flagship store in May and are on plan to meet our store opening plan of 25 flagship stores by year end. We believe the opening of direct flagship stores will motivate distributors to expand their distributor store network at a faster rate, stimulate distributor store sales in nearby regions as well as to strengthen Zuoan’s brand equity. We are off to a good start in 2011 and look forward to generating additional revenue and net profit growth for our shareholders in the coming quarters.”

First Quarter 2011 Financial Performance

Revenue for the first quarter was RMB211.5 million ($32.3 million), a 44.1% increase from RMB146.8 million ($22.4 million) in the same period last year. The increase in revenue was driven by distributor sales volume. First quarter distributor sales increased 51.7% to RMB211.5 million compared to RMB139.4 million in the first quarter of 2010. A total of 22 distributor stores were opened and 31 direct stores were transferred to the Company’s distributors in the first quarter of 2011, resulting in a total of 1,123 distributor locations at the end of March 31, 2011 compared to 990 distributor locations at the end of March 31, 2010.

Cost of sales increased 44.1% to RMB123.6 million ($18.9 million) in the first quarter of 2011 from RMB85.8 million ($13.1 million) in the same quarter of 2010, primarily as a result of the increase in sales volume. As a percentage of revenues, cost of sales remained at 58.4% in the first quarter of 2011 from the first quarter of 2010.

Gross profit in the first quarter of 2011 increased 44.0% to RMB88.0 million ($13.4 million) from RMB61.1 million ($9.3 million). First quarter 2011 gross profit margin remained flat at 41.6% compared to the same period last year, primarily due to the Company’s efforts to effectively control the unit cost of our products as well as maintaining the same cost-based pricing strategy.

Selling and distribution expenses in the first quarter were RMB10.4 million ($1.6 million), or 4.9% of revenue, compared to RMB17.1 million ($2.6 million), or 11.6% of revenue in the same period last year. This percentage decrease was primarily due to the higher advertising and promotion expenses in the first quarter of 2010.

Administrative expenses in the first quarter were RMB11.8 million ($1.8 million), or 5.6% of revenue, compared to RMB8.1 million ($1.2 million), 5.5% of revenue in the same period last year. This percentage increase was primarily due to the increase in the directors’ remuneration, staff salaries, legal professional fees and equity-settled employee benefit expenses since the Company’s U.S. IPO.

Effective tax rate in the first quarter was 26.7% compared to 38.2 % in the prior year period.

Net income for the first quarter of 2011 increased 125.8% to RMB47.8 million ($7.3 million) from RMB21.2 million ($3.2 million) in the same period last year. First quarter net income as a percentage of revenue was 22.6% compared to 14.4% in the prior year period.

Weighted average basic earnings per share increased to RMB0.50 ($0.08) in the first quarter of 2011 from RMB0.26 ($0.04) in the first quarter of 2010. The Company had 95.5 million weighted average number of shares outstanding during the quarter ended March 31, 2011.

Weighted average diluted earnings per share increased to RMB0.49 ($0.07) in the first quarter of 2011 from RMB0.26 ($0.04) in the first quarter of 2010. The Company had 97.9 million weighted average diluted number of shares outstanding during the quarter ended March 31, 2011.

As of March 31, 2011, the Company had cash, cash equivalents of RMB734.3 million ($112.1 million), compared to RMB178.3 million ($27.2 million) as of March 31, 2010. Net cash provided by operating activities was RMB125.7 million ($19.2 million) in the three months ended March 31, 2011, up 604.5% from RMB17.8 million in the three months ended March 31, 2010.
   

Outlet Type:

1Q10

1Q11
Direct Stores 32 0
Distributor and Sub-distributor Stores 990 1,123
 

Total:

1,022

1,123
 

Financial Outlook

For the second quarter of 2011, the Company currently anticipates revenue in the range of RMB205-RMB215 million ($31.3-$32.8 million), gross margin of approximately 41-42%, net income of approximately RMB42-RMB43 million ($6.4-$6.6 million) and diluted EPS of approximately RMB0.38-RMB0.39 ($0.06). Approximately 25-30 new retail stores are expected to be opened by distributors in the second quarter of 2011. The Company expects additional gross margin and average selling price growth in second half of 2011 due to an expected increase in wholesale prices to the Company’s distributors.

Conference Call Information

Zuoan’s management will host an earnings conference call on May 19, 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 May 25, 2011. Listeners may access the replay by dialing #1-858-384-5517, access code: 372557.

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 RMB6.5483 to US$1.00, as set forth in the H.10 statistical release of the Federal Reserve Board on March 31, 2011.

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 27 of China’s 32 provinces and municipalities. As of March 31, 2011, Zuoan had 1,123 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 ended March 31
2010   2011   2011
RMB RMB US$
(in thousands)
Revenues 146,822 211,525 32,302
Cost of goods sold (85,750) (123,563) (18,869)
Gross profit 61,072 87,962 13,433
Other income 150 398 61
Selling, marketing and distribution expenses (17,076) (10,361) (1,582)
General and administrative expenses (8,145) (11,809) (1,803)
Finance costs (1,739) (945) (144)
Profit before taxation 34,262 65,245 9,964
Income tax expenses (13,086) (17,423) (2,661)
Profit after taxation 21,176 47,822 7,303
 
Other comprehensive loss:

Foreign exchange difference arising from translation of foreign currency financial statements
(45) (490) (75)
Total comprehensive income for the period 21,131 47,332 7,228
 
Earnings per share (RMB):
Basic earnings per share 0.26 0.50 0.08
Diluted earnings per share 0.26 0.49 0.07
 
Weighted average basic no. of shares (‘000) 80,000 95,487
Weighted average diluted no. of shares (‘000) 85,915 97,915
 

Note: Diluted earnings per share for the three months ended March 31, 2010 are pro forma result as adjusted to reflect the dilutive impact of the convertible loans assuming that would be issuable. Pro forma diluted earnings per share for the three months ended March 31, 2010 reflects an adjustment to increase profit after taxation by approximately RMB1,500,000 for the effect of the interest related to the convertible loans.
 
ZUOAN FASHION LIMITED
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
     
As of December 31

 

As of March 31
(in thousands) 2010 2011 2011
ASSETS RMB RMB US$
 
Non-current assets
Property, plant and equipment 2,720 2,517 384
Deferred offering costs 5,757 - -
8,477 2,517 384
Current assets
Inventories 22,339 41,460 6,331
Trade and other receivables 249,857 161,600 24,678
Prepayments 2,313 1,800 275
Fixed deposits – pledged 1,054 1,358 207
Cash and cash equivalents 367,731 734,267 112,131
643,294 940,485 143,623
Total assets 651,771 943,002 144,007
 
EQUITY AND LIABILITIES
 
Share capital 134 184 28
Share premium 129,599 419,916 64,126
Reserves 19,360 20,091 3,068
Retained profits 314,610 362,432 55,347
Total equity 463,703 802,623 122,570
 
LIABILITIES
 
Current liabilities
Trade and other payables 70,582 68,812 10,508
Interest-bearing bank borrowings 56,700 53,750 8,208
Convertible loans 40,961 - -
Current income tax payable 19,825 17,817 2,721
Total liabilities 188,068 140,379 21,437
 
Total equity and liabilities 651,771 943,002 144,007
 
 

ZUOAN FASHION LIMITED

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOWS
 
Three months ended March 31
2010   2011   2011
(in thousands) RMB RMB US$
Cash flows from operating activities
Profit before taxation 34,262 65,245 9,964
Adjustments for :
Depreciation of property, plant and equipment 167 210 32
Equity-settled employees benefit expenses - 1,221 186
Interest expenses on bank borrowings 278 945 144
Interest expense on convertible loans 1,461 - -
Interest income (150) (398) (61)
 
Operating profit before working capital changes 36,018 67,223 10,266
Increase in inventories (63,401) (19,121) (2,920)
Decrease in trade and other receivables 60,484 88,257 13,478
Decrease/(Increase) in prepayments (776) 6,270 958
Increase in fixed deposits pledged (571) (304) (46)
Increase/(Decrease) in trade and other payables (104) 3,725 569
Cash generated from operations 31,650 146,050 22,303
Interest paid (278) (945) (144)
Income tax paid (13,534) (19,431) (29,67)
Net cash generated from operating activities 17,838 125,674 19,192
 
Cash flows from investing activities
Acquisition of property, plant and equipment - (7) (1)
Interest received 150 398 61
Net cash generated from investing activities 150 391 60
 
 
Cash flows from financing activities
Bank loans obtained - 2,150 328
Repayment of bank loans (750) (5,100) (779)
Issuance of ordinary shares - 40 6
Net IPO proceeds - 243,381 37,167
Convertible loan obtained 19,482 - -
Net cash generated from financing activities 18,732 240,471 36,723
 
Net increase in cash and cash equivalents 36,720 366,536 55,974
Cash and cash equivalents at beginning 141,569 367,731 56,157
Cash and cash equivalents at end 178,289 734,267 112,131
 

Copyright Business Wire 2010

If you liked this article you might like

3 Stocks Pushing The Consumer Goods Sector Lower

3 Stocks Pushing The Consumer Goods Sector Lower

3 Stocks Pushing The Consumer Goods Sector Lower

3 Stocks Pushing The Consumer Goods Sector Lower

3 Stocks Improving Performance Of The Consumer Non-Durables Industry

3 Stocks Improving Performance Of The Consumer Non-Durables Industry

3 Stocks Pushing The Consumer Non-Durables Industry Lower

3 Stocks Pushing The Consumer Non-Durables Industry Lower

3 Consumer Goods Stocks Driving The Sector Higher

3 Consumer Goods Stocks Driving The Sector Higher