Directly Operated Stores & Franchised Stores

Net revenues from directly operated stores were $3.7 million in the fourth quarter of 2012, representing a decrease of 54.9% from $8.1 million in the fourth quarter of 2011. The decrease was primarily due to the decline in average store sales and the decline in the number of directly operated stores from an average of 117 stores in the fourth quarter of 2011 to an average of 62 stores in the fourth quarter of 2012.

Net revenues from franchised stores were $3.6 million in the fourth quarter of 2012, representing a decrease of 39.7% from $6.0 million in the fourth quarter of 2011. The decrease in net revenues was primarily due to the decline in average store sales and the decline in the number of franchised stores from an average of 328 stores in the fourth quarter of 2011 to an average of 261 stores in the fourth quarter of 2012.

Cost of Goods Sold 2

Cost of goods sold was $26.0 million in the fourth quarter of 2012, representing a decrease of 30.9% from $37.6 million in the fourth quarter of 2011. The decrease is consistent with the overall decrease in revenues.

Gross Profit 1 and Gross Margin

Gross profit was $13.7 million in the fourth quarter of 2012, representing a decrease of 32.7% from $20.3 million in the fourth quarter of 2011. Gross margin was 34.5% in the fourth quarter of 2012, compared to 35.1% in the fourth quarter of 2011.

Operating Expenses

Total operating expenses were $21.7 million in the fourth quarter of 2012, representing a decrease of 29.8% from $30.8 million in the fourth quarter of 2011.

Selling, general and administrative expenses were $20.5 million in the fourth quarter of 2012, representing a decrease of 30.6% from $29.6 million in the fourth quarter of 2011 due to decreases in marketing and labor costs, partially offset by a write-down for some IT equipment related to the change in control of the M18.com website, as of January 2013, from Mecox Lane to the Company's joint venture, Giosis Mecoxlane.

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