Call Center

Net revenues from the call center were $48.0 million for the full year 2012, representing a decrease of 9.1% from $52.8 million for the full year 2011. The decrease was primarily attributed to a decline in the number of orders placed through the call center, which is consistent with the market-wide trend in consumer behavior in China in favor of e-commerce shopping, and to a reduction in the Company's catalog circulation.

Directly Operated Stores & Franchised Stores

Net revenues from directly operated stores were $17.3 million for the full year 2012, representing a decrease of 32.7% from $25.8 million for the full year 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 2011 to an average of 91 stores in 2012.

Net revenues from franchised stores were $14.7 million for the full year 2012, representing a decrease of 29.6% from $20.8 million for the full year 2011. The decrease was primarily due to the decline in average store sales and the decline in the number of franchised stores from an average of 306 stores in 2011 to an average of 266 stores in 2012.

Cost of Goods Sold 2

Cost of goods sold was $97.5 million for the full year 2012, a decrease of 32.7% from $144.7 million for the full year 2011. The decrease is consistent with the overall decline in revenues.

Gross Profit 1 and Gross Margin

Gross profit for the full year 2012 was $54.3 million, representing a decrease of 25.7% from $73.2 million for the full year 2011. Gross margin was 35.8% for the full year 2012, compared to 33.6% for the full year 2011. The slight increase in gross margin was primarily due to the decrease in the weighting of the Internet business in total net revenues, which generated a lower margin than other segments, and to selling more high-margin products through the call center.

Operating Expenses

Total operating expenses were $78.7 million for the full year 2012, representing a decrease of 27.1% from $108.0 million for the full year 2011.

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