Zuoan Fashion Limited Announces Fourth Quarter and Full Year 2013 Financial Results

SHANGHAI, April 30, 2014 /PRNewswire/ -- 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, 2013.

Fourth Quarter 2013 Financial Highlights

• Revenues in the fourth quarter of 2013 were RMB257.8 million ($42.6 million), a decrease of 30.2% from RMB369.6 million in the same quarter of 2012.
• Gross profit in the fourth quarter decreased 36.4% year over year to RMB106.9 million ($17.7 million) from RMB167.9 million in the same quarter of 2012.
• Gross margin was 41.4% compared with 45.4% in the prior year period and 40.9% in the third quarter of 2013.
• Net income was RMB11.0 million ($1.8 million), a decrease of 84.0% from RMB69.0 million in the same quarter of 2012.
• Diluted earnings per ordinary share was RMB0.10 ($0.02) in the fourth quarter, equivalent to RMB0.40 ($0.07) per ADS, compared to diluted earnings per ordinary share of RMB0.62 ($0.10) or RMB2.48 ($0.41) per ADS in the fourth quarter of 2012.

Full Year 2013 Financial Highlights

• Total revenue for the full year 2013 decreased 12.3% to RMB1.3 billion ($206.8 million) from RMB1.4 billion in 2012.
• Gross profit decreased 19.4% to RMB538.3 million ($88.9 million) in 2013 from RMB668.1 million in 2012 and gross profit margin decreased 3.8% to 43.0% in 2013 from 46.8% in 2012.
• Net income for the full year 2013 was RMB175.4 million ($29.0 million), a decrease of 40.6% from RMB295.4 million in 2012.
• Basic earnings per ordinary share was RMB1.58 ($0.26) in 2013, equivalent to RMB6.31 ($1.04) per ADS, compared to basic earnings per ordinary share RMB2.65 ($0.44) in 2012, equivalent to RMB10.62 ($1.75) per ADS.
• Diluted earnings per ordinary share was RMB1.58 ($0.26) in 2013, equivalent to RMB6.31 ($1.04) per ADS, compared to diluted earnings per ordinary share RMB2.65 ($0.44) in 2012, equivalent to RMB10.62 ($1.75) per ADS.
• The number of Zuoan stores decreased 18.6% to 1,082 at the end of 2013 compared to 1,329 stores at the end of 2012.

James Hong, Founder, Chairman and Chief Executive Officer, commented, "We were encouraged that our fourth quarter revenue beat our forecast and gross margin met expectations.  Through our focused marketing efforts, we had success raising overall awareness of Zuoan in the fourth quarter, which contributed to our sales performance and helped reduce excess inventory levels in the channel over last quarter.  We opened eight net new stores in the fourth quarter and believe we have generally concluded our store consolidation efforts."

"For 2014, we estimate positive net growth in new stores, particularly in the second half of the year.  We also believe our overall sales for the year can show strength based on our marketing and product diversification efforts.  Average selling prices are expected to be lower for the foreseeable future as our sales discount to distributors is now 3% higher than last year and we broaden our product assortment of lower price products to drive greater sales during a softer consumer shopping environment.  This will be partially offset by greater supply chain efficiency that will result in lower purchasing costs."

"Finally, we are pleased to announce our dividend to shareholders as we finished the year with a strong cash balance and will be returning approximately $5.6 million in special cash dividends to our shareholders.  Due to our cautious outlook on the consumer environment for the remainder of this year, we are committed to maintaining a strong cash balance yet we also want to reward our loyal investors.  In the future, we will consider paying additional cash dividends subject to overall financial performance, cash position, business and economic conditions."

Fourth Quarter 2013 Financial Performance

Revenue for the fourth quarter of 2013 was RMB257.8 million ($42.6 million), representing a decrease of 30.2% from RMB369.6 million in the same quarter of 2012. The decrease was primarily attributed to decreased sales volume resulted from a cancellation of sales orders for the Company's Fall/Winter collection 2013 back in June, due to the economic downturn in the menswear sector during the second half of 2013 as well as a decrease in the wholesale price to our distributors from 38% to 35% of the retail prices since the third quarter of 2013. During the quarter, distributor sales decreased by 30.8% to RMB252.3 million from RMB364.8 million in the same quarter of 2012. Fourth quarter 2013 self-operated direct store sales increased to RMB5.5 million from RMB4.7 million in the same quarter of 2012. A total of 9 distributor and sub-distributor stores were opened and one direct store was closed in the fourth quarter of 2013, resulting in a total of 1,082 store locations as of December 31, 2013 compared to 1,074 store locations at the end of the third quarter. 

Cost of sales decreased by 25.1% to RMB151.0 million ($24.9 million) in the fourth quarter of 2013 from RMB201.6 million in the same quarter of 2012, in-line with the revenue decrease associated with cancelled sales orders.  As a percentage of revenues, cost of sales increased to 58.6% in the fourth quarter of 2013 from 54.6% in the same quarter of 2012.

Gross profit decreased by 36.4% to RMB106.9 million ($17.7 million) from RMB167.9 million in the fourth quarter of 2012.  Fourth quarter 2013 gross margin was 41.4% compared with 45.4% in the same quarter of 2012. The decrease in gross margin was primarily due to the decrease in the Company's wholesale price discount that was implemented since the third quarter of 2013.

Selling and distribution expenses in the fourth quarter were RMB75.1 million ($12.4 million), or 29.1% of revenue, compared to RMB45.6 million, or 12.3% of revenue in the same quarter of 2012.  The percentage increase was primarily due to a planned increase in advertising and marketing expenses in the second half of 2013 to create greater consumer brand awareness.

Administrative expenses in the fourth quarter were RMB14.6 million ($2.4 million), or 5.7% of revenue, compared with RMB30.6 million, or 8.3% of revenue in the same quarter of 2012.

Effective tax rate in the fourth quarter was 30.8% compared to 25.6% in the same quarter of 2012.

Net income for the fourth quarter decreased by 84.0% to RMB11.0 million ($1.8 million) from RMB69.0 million in the same quarter of 2012.  Fourth quarter net margin was 4.3% compared to 18.7% in the fourth quarter of 2012.

Diluted earnings per ordinary share were RMB0.10 ($0.02) in the fourth quarter of 2013, equivalent to RMB0.40 ($0.07) per ADS, compared to diluted earnings per ordinary share of RMB0.62 ($0.10) or RMB2.48 ($0.41) per ADS in the fourth quarter of 2012. The Company's diluted number of shares outstanding was 111.3 million in the fourth quarter ended December 31, 2013.

Full Year 2013 Financial Performance

Revenue in 2013 was RMB1.3 billion ($206.8 million), a 12.3% decrease from RMB1.4 billion ($235.8 million) in 2012.  The decrease in revenue was driven by both distributors and direct stores sales volume, as well as a decrease in the wholesale price to our distributors from 38% to 35% of the retail prices since the third quarter of 2013.  Full year distributor store sales decreased 8.2% to RMB1.2 billion compared to RMB1.3 billion in 2012, while self-operated retail store sales increased 28.8% to RMB15.5 million compared to RMB12.1 million in 2012. The Company ended 2013 with a total of 1,075 distributor stores and 7 self-operated retail stores resulting in a total of 1,082 store locations, compared with 1,329 store locations at the end of 2012. Average selling price ("ASP") in 2013 increased 0.6% to RMB177.3 compared with RMB176.2 in 2012.

Cost of sales decreased by 6.0% to RMB713.9 million ($117.9 million) in 2013 from RMB759.3 million ($125.4 million) in 2012, primarily as a result of the decrease in line with the sales volume. As a percentage of revenues, cost of sales decreased to 57.0% in 2013 from 53.2% in 2012.

Gross profit in 2013 decreased 19.4% year over year to RMB538.3 million ($88.9 million) from RMB668.1 million ($110.4 million).  Full year 2013 gross profit margin was 43.0% compared to 46.8% in 2012.

Selling and distribution expenses in 2013 were RMB241.0 million ($39.8 million), or 19.2% of revenue, compared to RMB199.2 million ($32.9 million), or 14.0% of revenue in 2012.  This percentage increase was primarily due to a planned increase in advertising and marketing expenses in the second half of 2013 to create greater consumer brand awareness and the increase in the discretionary brand promotion allowance from 3% to 6% of the total purchase orders from Company's distributors for advertising and sales and marketing promotion since third quarter of 2012.

Administrative expenses in 2013 were RMB54.7 million ($9.0 million), or 4.4% of revenue, compared to RMB70.7 million ($11.7 million), or 5.0% of revenue in 2012.

Effective tax rate in 2013 increased to 26.1% compared to 25.7% in 2012.

Net income in 2013 decreased 40.6% to RMB175.4 million ($29.0 million) from RMB295.4 million ($48.8 million) in 2012.  Net income as a percentage of revenue was 14.0% compared to 20.7% in 2012.

Basic earnings per ordinary share was RMB1.58 ($0.26) in 2013, equivalent to RMB6.31 ($1.04) per ADS, compared to basic earnings per ordinary share RMB2.65 ($0.44),  equivalent to RMB10.62 ($1.75) per ADS in 2012.

Diluted earnings per ordinary share was RMB1.58 ($0.26) in 2013, equivalent to RMB6.31 ($1.04) per ADS, compared to diluted earnings per ordinary share RMB2.65 ($0.44) in 2012, equivalent to RMB10.62 ($1.75) per ADS.

As of December 31, 2013, the Company had cash, cash equivalents of RMB1,227.4 million ($202.8 million), compared to RMB918.5 million as of December 31, 2012.  Net cash provided by operating activities was RMB308.5 million ($51.0 million) in the twelve months ended December 31, 2013, compared with RMB181.0 million in the twelve months ended December 31, 2012.

Dividend Payment

The Company today announced that its Board of Directors has approved and declared a special cash dividend of US$0.05 per ordinary share on its outstanding shares to shareholders of record as of the close of trading on May 16, 2014.   Holders of American Depositary Shares ("ADS"), each representing 4 ordinary shares of Zuoan, are accordingly entitled to the cash dividend of US$0.20 per ADS. The depository bank, Deutsche Bank, will distribute the dividends on June 10, 2014.

Financial Outlook

For the first quarter of 2014, the Company currently anticipates revenue in the range of RMB180-RMB200 million ($29.7-$33.0 million), gross margin of approximately 39-42%, net income of approximately RMB32.4-RMB33.0 million ($5.4-$5.9 million) and basic and fully diluted EPS of approximately RMB0.29-RMB0.32 ($0.05-$0.05), equivalent to RMB1.16-RMB1.29 ($0.19-$0.21) per ADS.

In the first quarter of 2014, the Company expects a total of 30 new store openings, of which 12 will be used for Zuoan's leather goods business.

Conference Call Information

Zuoan's management will host an earnings conference call on April 30^th, 2014 at 8:30 a.m. U.S. Eastern Time. Listeners may access the call by dialing # 1-719-325-2435. A webcast will also be available via http://public.viavid.com/index.php?id=108833. A replay of the call will be available through May 7^th, 2014. Listeners may access the replay by dialing # 1-858-384-5517, access code: 2309989.

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 RMB 6.0537 to US$1.00, as set forth in the H.10 statistical release of the Federal Reserve Board on December 31, 2013.

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 31 of China's 32 provinces and municipalities. As of December 31, 2013, Zuoan had 1,082 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.

SOURCE Zuoan Fashion Limited