-- 2Q08 Revenues Increased 154% to $66.9 Million --
-- 2Q08 Net Income Increased 253% to $5.3 Million, or $0.25
per Diluted Share --
-- Company Raises Fiscal 2008 Revenue, Net Income and Diluted EPS Forecast -
-- Provides Retail Revenue Forecast for Second Half of 2008 --
SHENZHEN, China, Aug. 12 /Xinhua-PRNewswire-FirstCall/ -- FUQI International, Inc. (Nasdaq GM: FUQI) today announced financial results for the second quarter ended June 30, 2008.
Revenues for the second quarter of 2008 increased 154% to $66.9 million from $26.3 million in the second quarter of 2007, due to increases in sales volumes and selling prices. A higher inventory level going into the quarter provided existing and potential customers with sufficient comfort to begin increasing the size of orders overall.
Gross profit in the second quarter of 2008 increased 129% to $7.1 million compared to $3.1 million for the same period in the prior year. This increase in gross profit was primarily attributable to higher selling prices for new jewelry designs, which resulted in increased processing fees on jewelry items delivered during the second quarter.
Gross profit margin for the second quarter was 10.6% in the second quarter of 2008, within the Company’s previous 2008 second quarter guidance estimate of 10.5%, and down from 11.6% in the same period of the prior year. This decrease was primarily due to higher raw materials prices, which more than offset the increase in sales. It is important to note that management prepared for fluctuating raw materials prices by entering into futures contracts, which resulted in a below-the-line gain of $721,000 during the quarter.
Operating expenses in the second quarter of 2008 increased to $1.1 million compared to $927,000 in the same period of the prior year. This increase was a result of higher administrative expenses required to support a growing revenue base, higher advertising costs, business taxes, options granted and increased salaries to certain executives, as well as expenses incurred as a result of being a publicly traded company. These expenses were offset by a year-over-year decrease in bad debt expense, as well as the absence of a
one-time discretionary bonus of $88,000 that was issued to the Company’s CFO in the prior year’s period. Operating income for the second quarter increased to $6.0 million from $2.1 million in the second quarter of 2007.
Net Income for the second quarter of 2008 increased 253% to $5.3 million, or $0.25 per diluted share, compared to $1.5 million, or $0.10 per diluted share, in the same period of the prior year. Net margin was 7.9% compared to 5.7% in the prior year period. The increase in net margin was primarily a result of our strong growth in revenue in excess of the increase in our operating expenses. Non-cash items in the second quarter of 2008 included a $149 thousand expense for equity based compensation and a $167 thousand retail barter revenue gain. (Barter exchanges are incurred when retail customers trade-in their jewelry to obtain barter credits that can be used in lieu of cash to buy jewelry products at the Company’s retail counters). Second quarter 2008 net income also benefited from a $721 thousand non-operating income derivative gain associated with gold futures the Company purchased to hedge against its inventory position during the quarter.
At the end of the second quarter, the Company had cash of $76.9 million, versus $28.9 million of cash at the end of the first quarter 2008. The primary reasons for the increase in cash were 1) an increase in the operating profits resulting in strong sales during the quarter and 2) the use of existing inventory, which had been built up going into the second quarter in anticipation of strong demand. Total inventory at the end of the second quarter was $35.1 million, down from $64.2 million at the end of the first quarter. Management expects inventory and cash positions to fluctuate from time to time as the Company anticipates periods of high demand and increases of inventory to meet that expected demand.
Mr. Yu Kwai Chong, Chairman of Fuqi International commented, “We are very pleased with our results for the second quarter, which exceeded our expectations, despite some slowing in the growth rate of the Chinese economy, and the economic impact of the May earthquake in the Sichuan Province. In spite of these issues, we continue to see increasing demand for our products, and larger orders from our existing customers. With our strong capital position, the right mix of products and distribution and a strong management team, Fuqi, along with our recent retail acquisition Temix, is poised to build the leading provider of luxury jewelry products in China.”
2008 Financial Outlook
For the full year 2008, the Company is raising its 2008 revenue, net income and diluted earnings per share estimates. It now expects total revenue of approximately $325 - $333 million. This forecast is comprised of $315.5 - $323 million in expected wholesale revenue and $9.5 - $10 million in expected revenue from retail. The Company also anticipates consolidated net income of $23.7 - $24.3 million, and diluted EPS of $1.07 - $1.09, based on a weighted average share count of 22.2 million shares. In 2008, the Company expects long term wholesale gross margin of 10.5%, with additional gross margin upside as its branded retail business becomes more meaningful to overall sales.
For the third quarter, the Company anticipates total wholesale revenue of approximately $75 - $77 million, which would represent a year-over-year increase of approximately 108% - 114%, respectively. Additionally, the Company expects retail revenue in the third quarter of approximately $3.8 - $4 million. Net income in the third quarter is expected to be in the range of $5.8 - $5.9 million, or $0.26 - $0.27 per diluted share, based on a weighted average share count of 22.1 million shares. Gross margin for the third quarter is expected to be approximately 10.5%, and net margin is expected to be approximately 7.3%.
Mr. Chong continued, “We remain optimistic about the future growth of Fuqi, as evidenced by our increase in guidance. Our acquisition of Temix is complete and we are anticipating smooth execution of our integration plans. We are well on track to meet our goals for the year of opening or acquiring 60-80 retail counters and 8 to 10 stores. We have been evaluating the marketplace and are excited about the opportunities we see ahead of us, and in fact have already identified other possible locations. Our aggressive growth strategy combined with our strong capital position will allow us to quickly ramp up our retail business, while meeting the demand in our wholesale markets as well. We will continue to manage our balance sheet to be prepared to capitalize on opportunities we see in the marketplace.”
Mr. Chong concluded, “As a result of the momentum we have built this year in our wholesale business, combined with our growing potential in the retail business, we are very encouraged about our future potential. Our ability to eport strong growth in our second quarter - our seasonally mildest quarter -- while the growth in the Chinese economy slowed a bit and we faced some negative impact from the earthquake is a testament to our ability to grow this business even in relatively challenging quarters. We are excited about the future of our wholesale and retail businesses and look forward to continuing on this growth trajectory to optimize value for our shareholders by making Fuqi the leading wholesale and retail company in our market.”
Conference Call
The Company will conduct a conference call to discuss the second quarter 2008 results today, Tuesday, August 12, 2008 before the market open at 8:00 am ET. Listeners may access the call by dialing #1-913-312-1429. To listen to the live webcast of the event, please go to http://www.viavid.net . A replay of the call will be available through August 20, 2008. Listeners may access the replay by dialing # 719-457-0820; Passcode: 8401949.
About FUQI International, Inc.
Based in Shenzhen, China, FUQI International, Inc. is a leading designer of high quality precious metal jewelry in China, developing, promoting, and selling a broad range of products in the large and rapidly expanding Chinese luxury goods market.
Safe Harbor Statement
The statements set forth above include forward-looking statements that may involve risk and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such risks and uncertainties include, but are not limited to, the vulnerability of the Company’s business to a general economic downturn in China; fluctuation and unpredictability of costs related the gold, platinum and precious metals and other commodities used to make the Company’s products; changes in the laws of the PRC that affect the Company’s operations; the Company’s recent entry into the retail jewelry market; competition from competitors; the Company’s ability to obtain all necessary government certifications and/or licenses to conduct its business; development of a public trading market for the Company’s securities; the cost of complying with current and future governmental regulations and the impact of any changes in the regulations on the Company’s operations; and other factors detailed from time to time in the Company’s filings with the United States Securities and Exchange Commission and other regulatory authorities. The forward-looking statements are also identified through use of the words “believe,” “enable,” “may,” “will,” “could,” “intends,” “estimate,” “anticipate,” “plan,” “predict,” “probable,” “potential,” “possible,” “should,” “continue,” and other words of similar meaning. Actual results could differ materially from the expectations contained in forward-looking statements as a result of several factors, including regulatory approval requirements and competitive conditions. These and other factors that may result in differences are discussed in greater detail in the Company’s reports and other filings with the Securities and Exchange Commission.
FUQI International, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
June 30, December 31,
2008 2007
ASSETS
Current assets:
Cash $ 76,941,893 $ 63,293,653
Restricted cash -- 410,700
Accounts receivable, net of allowance
for doubtful accounts of $525,000
and $470,000 for 2008 and 2007 25,663,907 23,864,141
Refundable value added taxes 2,782,347 2,094,946
Inventories 35,126,615 29,639,236
Prepaid expenses and other current
assets 1,581,726 1,700,432
Deferred taxes 1,898,900 79,402
Total current assets 143,995,388 121,082,510
Property, equipment, and improvements, net 1,946,830 1,495,861
Deposits 104,052 97,706
Other assets 38,683 38,513
$ 146,084,953 $ 122,714,590
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Notes payable $ 17,932,382 $ 15,743,504
Line of Credit -- 1,369,000
Accounts payable and accrued liabilities 1,218,139 662,662
Accrued business tax 179,726 498,792
Customer deposits 8,108,680 5,278,534
Income tax payable 2,936,973 1,902,443
Total current liabilities 30,375,900 25,454,935
STOCKHOLDERS’ EQUITY
Preferred stock, $0.001 par value,
5,000,000 shares authorized,
none issued and outstanding -- --
Common stock, $0.001 par value,
100,000,000 shares authorized for 2008
and 2007, 20,924,843 shares issued and
outstanding for 2008 and 2007 20,925 20,925
Additional Paid in capital 77,746,457 77,449,355
Accumulated foreign currency translation
adjustments 9,491,491 2,985,035
Retained earnings 28,450,180 16,804,340
Total stockholders’ equity 115,709,053 97,259,655
$ 146,084,953 $ 122,714,590
FUQI International, Inc.
Condensed Consolidated Statements of Income and Comprehensive
Income (Unaudited)
Three-Months Ended, Six-Months Ended,
June 30, June 30,
2008 2007 2008 2007
Net sales $66,876,255 $26,280,696 $144,442,614 $54,240,965
Cost of sales 59,779,353 23,227,434 128,534,337 48,023,583
Gross profit 7,096,902 3,053,262 15,908,277 6,217,382
Operating expenses:
Selling and
marketing 461,267 186,816 926,128 380,573
General and
administrative 627,347 740,086 2,069,059 1,161,598
Total
operating
expenses 1,088,614 926,902 2,995,187 1,542,171
Income from
operations 6,008,288 2,126,360 12,913,090 4,675,211
Other income
(expenses):
Interest expense (322,935) (282,609) (686,155) (529,776)
Interest income 4,376 3,009 13,335 3,009
Loss on change
of fair value
of inventory
loan payable -- (7,214) (48,375)
Gain from
derivative
instrument 720,744 -- 1,561,265 --
Miscellaneous 129,378 5,614 256,161 5,614
Total other
income
(expenses) 531,563 (281,200) 1,144,606 (569,528)
Income before
provision for
income taxes 6,539,851 1,845,160 14,057,696 4,105,683
Provision for
income taxes 1,289,084 356,176 2,411,856 733,495
Net income 5,250,767 1,488,984 11,645,840 3,372,188
Other
comprehensive
income -
foreign currency
translation
adjustments 2,539,723 204,300 6,506,456 314,360
Comprehensive
income $7,790,490 $1,693,284 $18,152,296 $3,686,548
Earnings per share
- basic $0.25 $0.12 $0.56 $0.27
Earnings per share
- diluted $0.25 $0.10 $0.56 $0.22
Weighted average
number of
common shares -
Basic 20,924,843 12,391,049 20,924,843 12,324,705
Weighted average
number of
common shares -
Diluted 20,924,843 15,061,345 20,924,843 15,393,332
FUQI International, Inc.
Condensed Consolidated Statement of Cash Flows
(Unaudited)
Increase (Decrease) in Cash
Three months June 30,
2008 2007
Cash flows provided by operating activities:
Net income $ 5,250,767 $ 1,488,984
Adjustments to reconcile net income to net
cash provided by (used for) operating
activities:
Depreciation and amortization 115,881 80,730
Loss on change of fair value of inventory
loan payable -- 7,214
Bad debt (213,708) 58,655
Stock based compensation expense 148,551 --
Changes in operating assets and liabilities:
Accounts receivable 4,549,526 (1,404,380)
Refundable value added taxes 4,910,082 (812,609)
Inventories 29,430,392 (6,011,940)
Inventory loan payable -- 4,041
Prepaid expenses 15,814 530,647
Deferred taxes 16,715 (9,893)
Deposits related to borrowings on notes
payable/long term debt -- (642,276)
Other assets 1,152 1,045
Accounts payable, accrued expenses, accrued
business, and accrued estimated penalties 159,963 1,060,555
Customer deposits 272,507 361,995
Income tax payable (153,536) 315,707
Net cash provided by (used for)
operating activities 44,504,106 (4,971,525)
Cash flows provided by (used for) investing
activities:
Purchase of property, equipment and
improvements (485,087) (551)
Decrease (Increase) in restricted cash 5,054 (2,361)
Net cash (used for) investing activities (480,033) (2,912)
Cash flows provided by (used for) financing
activities: -- --
(Repayments to) Proceeds from short-term
borrowing 1,826,843 11,806
Proceeds from exercise of warrants, net of
financing cost -- 2,755,479
Proceeds from loans borrowed from stockholder -- 1,234
Repayments to loans payable to stockholder -- (134,046)
Net cash provided by financing
activities 1,826,843 2,634,473
Effect of exchange rate changes on cash 2,234,261 130,342
Net increase (decrease) in cash 48,085,177 (2,209,622)
Cash, beginning of period 28,856,716 10,703,126
Cash, end of period $ 76,941,893 $ 8,493,504
Supplemental disclosure of cash flow
information:
Interest paid $ 302,959 $ 279,584
Income taxes paid $ 1,424,106 $ 50,361
Non-cash activities:
Non monetary exchanges related to certain
retail sales $ 166,585 $ --
