Zuoan Fashion Limited Announces Third Quarter 2013 Financial Results

SHANGHAI, Dec. 20, 2013 /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 third quarter ended September 30, 2013.

Third Quarter 2013 Financial Highlights

• Revenues in the third quarter of 2013 were RMB380.5 million ($62.2 million), a decrease of 20.1% from RMB476.3 million in the same quarter of 2012.
• Gross profit in the third quarter decreased 30.3% year over year to RMB155.8 million ($25.5 million) from RMB223.6 million in the same quarter of 2012. 
• Gross margin was 40.9% compared with 46.9% in the prior year period and 44.1% in the second quarter of 2013.    
• Net income was RMB23.0 million ($3.8 million), a decrease of 75.3% from RMB92.8 million in the same quarter of 2012.
• Diluted earnings per ordinary share was RMB0.21 ($0.03) in the third quarter, equivalent to RMB0.83 ($0.13) per ADS, compared to diluted earnings per ordinary share of RMB0.83 ($0.14) or RMB3.34 ($0.55) per ADS in the third quarter of 2012.

James Hong, Founder, Chairman and Chief Executive Officer, commented, "As addressed last quarter, the softening retail environment in China this year resulted in more challenging market conditions in the third quarter. During the first half of the year, there was a build-up of inventory at the distributor level due to softer market conditions, which resulted in cancelled orders from our distributors. To offset this situation, we enacted several initiatives to stimulate sales and reduce inventory at the distributor level, including increasing our advertising and promotional programs as well as applying heavier discounting at the retail level. We believe our marketing efforts, which include targeted campaigns in ten major cities in China, are an effective use of our resources and we are hopeful we'll experience a gradual improvement in consumer spending in the quarters ahead. We are undertaking a number of operational initiatives, including supply chain enhancements, closer interaction with our distributors and the launch of a leather goods and accessories chain of outlets which we believe can improve our cost structure and improve our market position as we navigate through this challenging market environment.

To further consolidate and better reposition for the future, we closed a net total of 309 distributor and sub-distributor stores in the third quarter, resulting in a total of 1,074 store locations at the end of September. We expect to maintain profitability in the fourth quarter."     

Third Quarter 2013 Financial Performance

Revenue for the third quarter of 2013 was RMB380.5 million ($62.2 million), representing a decrease of 20.1% from RMB476.3 million in the same quarter of 2012. The decrease was primarily attributed to 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. During the quarter, distributor sales decreased by 16.0% to RMB378.3 million from RMB450.2 million in the same quarter of 2012. Third quarter 2013 self-operated direct store sales decreased to RMB2.2 million from RMB2.9 million in the same quarter of 2012. A net total of 309 distributor and sub-distributor stores were closed in the third quarter of 2013, resulting in a total of 1,074 store locations as of September 30, 2013 compared to 1,383 store locations at the end of the second quarter. 

Cost of sales decreased by 11.1% to RMB224.7 million ($36.7 million) in the third quarter of 2013 from RMB252.7 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 59.1% in the third quarter of 2013 from 53.1% in the same quarter of 2012.

Gross profit decreased by 30.3% to RMB155.8 million ($25.5 million) from RMB223.6 million in the third quarter of 2012. Third quarter 2013 gross margin was 40.9% compared with 46.9% 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 in the third quarter of 2013.

Selling and distribution expenses in the third quarter were RMB108.3 million ($17.7 million), or 28.5% of revenue, compared to RMB84.1 million, or 17.7% 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 third quarter were RMB14.5 million ($2.4 million), or 3.8% of revenue, compared with RMB14.0 million, or 2.9% of revenue in the same quarter of 2012.

Effective tax rate in the third quarter was 27.0% compared to 25.6% in the same quarter of 2012.

Net income for the third quarter decreased by 75.3% to RMB23.0 million ($3.8 million) from RMB92.8 million in the same quarter of 2012. Third quarter net margin was 6.0% compared to 19.5% in the third quarter of 2012.

Diluted earnings per ordinary share were RMB0.21 ($0.03) in the third quarter of 2013, equivalent to RMB0.83 ($0.13) per ADS, compared to diluted earnings per ordinary share of RMB0.83 ($0.14) or RMB3.34 ($0.55) per ADS in the third quarter of 2012. The Company's diluted number of shares outstanding was 111.3 million in the third quarter ended September 30, 2013.

As of September 30, 2013, the Company had cash, cash equivalents of RMB1,287.1 million ($210.3 million), compared to RMB918.5 million as of December 31, 2012. Net cash provided by operating activities was RMB78.4 million ($12.8 million) in the three months ended September 30, 2013, compared to a net cash used in operating activities of RMB172.9 million in the three months ended September 30, 2012.

Financial Outlook

For the fourth quarter of 2013, the Company currently anticipates revenue in the range of RMB206-RMB236 million ($33.6-$38.5 million), gross margin of approximately 40-42%, net income of approximately RMB15.6-RMB20.1 million ($2.5-$3.3 million) and basic and fully diluted EPS of approximately RMB0.14–RMB0.18 ($0.02-$0.03), equivalent to RMB0.56–RMB0.72 ($0.09-$0.12) per ADS.

Conference Call Information

Zuoan's management will host an earnings conference call on December 20^th, 2013 at 8:30 a.m. U.S. Eastern Time. Listeners may access the call by dialing # 1-719-325-2454. A webcast will also be available via http://public.viavid.com/index.php?id=107244. A replay of the call will be available through December 27^th, 2013. Listeners may access the replay by dialing # 1-858-384-5517, access code: 7653253.

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 6.12 to US$1.00, as set forth in the H.10 statistical release of the Federal Reserve Board on September 30, 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 September 30, 2013, Zuoan had 1,074 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.

Contact Information

John Low 
Email: [email protected]

ICR, LLC
William Zima
Phone: +86-10-6583-7511

Zuoan Investor Relations Department
US: 1-646-308-1614

SOURCE Zuoan Fashion Limited