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FUQI International, Inc. Reports Second Quarter 2009 Financial Results

2009-08-06 16:24 1272

2Q09 Revenues Increase 50.6% to $100.8 Million

2Q09 Gross Margin Increases 660 Basis Points to 17.2%

2Q09 Net Income Increases 86.8% to $9.9 Million, or $0.45 per Diluted Share

Raises Full Year Revenue and Net Income Guidance

SHENZHEN, China, Aug. 6 /PRNewswire-Asia-FirstCall/ -- FUQI International, Inc. (Nasdaq: FUQI) today announced financial results for the second quarter ended June 30, 2009.

"I am pleased to report that, our team has once again delivered strong second quarter results. We believe this is an indication that our wholesale and retail strategy, combined with our vertically integrated operations and growing brand recognition, provides us with a blueprint for success and reflects the strength of our position in the growing Chinese jewelry marketplace. We look forward to capitalizing on opportunities that present themselves and putting the capital from our recently closed $120 million public offering in accretive use in the near future. We are excited about our opportunities to continue growing both our wholesale and retail businesses as well as focusing on our long-term goals. We continue to explore opportunities to enhance our growth and which will enable us to become a more efficient and productive organization so that we can continue to deliver solid results for our shareholders," commented Mr. Yu Kwai Chong, CEO and Chairman of Fuqi International.

Revenues for the second quarter of 2009 increased 50.6% to $100.8 million from $66.9 million in the second quarter of 2008. The increase was attributable to an increase of sales volume in the wholesale business as well as from increased revenues derived from the Company’s retail business. Wholesale revenue contributed approximately $92.5 million to overall revenues for the quarter, representing year-over-year growth of approximately 39.9%, and retail revenue contributed approximately $8.3 million to overall revenue for the quarter, which is a 10.2 times increase compared to the same period in the prior year.

Gross profit in the second quarter of 2009 increased 145.1% to $17.4 million from $7.1 million for the same period in the prior year. Gross profit margin for the second quarter of 2009 increased 660 basis points to 17.2% compared to 10.6% in the same period in the prior year. The improvement in gross margin was primarily due to an increase of product segments, an expansion in retail sales, which resulted from an increase in brand awareness, and opening additional jewelry counters as well as our acquisition of Temix’s 50 retail counters/stores in 2008. Second quarter wholesale gross margin increased 510 basis points to 15.7% compared to 10.6% in the prior year period while retail gross margin increased significantly to 33.7% in the second quarter of 2009 compared to 7.4% in the second quarter of the prior year.

Operating expenses in the second quarter increased 281.8% to $4.2 million compared to $1.1 million in the prior year period. The increase was primarily a result of an increase in legal and professional fees as a public company, salary expenses incurred in relation to the expansion of our wholesale and retail business and an increase in variable rents and fees to department stores and malls for retail business. Income from operations for the second quarter increased 120% to $13.2 million from $6.0 million in the second quarter of 2008.

Net income for the second quarter of 2009 increased 86.8% to $9.9 million, or $0.45 per diluted share, compared to $5.3 million, or $0.25 per diluted share in the same period of the prior year.

On June 30, 2009, the Company had cash and cash equivalents of $49.3 million, compared with $56.6 million at the end of 2008. Inventory at the end of the second quarter was $86.8 million, up from $44.4 million at the end of 2008. This increase reflects the Company’s desire to have available product quantities and varieties on hand to meet demand in the wholesale business as well as its strategic expansion into the retail business.

2009 Financial Outlook

Mr. Chong continued, "As a result of the successful offering as well as market opportunities, we are raising our revenue and net income guidance for the remainder of this year. We believe that we have laid the foundation to successfully build a fully-integrated wholesale and retail operation that can capture a sizeable market share in the growing Chinese middle class market. We are enthusiastic about our future growth prospects, and believe we have the vision to build the leading jewelry provider in China."

For the third quarter, the Company anticipates total revenue between approximately $121.5 - $131.3 million which includes wholesale and retail revenues. Net income in the third quarter is expected to be in the range of $10.1 - $11.1 million, or $0.40 - $0.44 per diluted share, based on a weighted average share count of approximately 25.3 million shares. The share count will partially reflect the 5.58 million shares issued in the stock offering that closed on August 5, 2009.

For the fourth quarter, the Company anticipates total revenue between approximately $177.5 - $185.5 million which includes wholesale and retail revenues. Net income in the fourth quarter is expected to be in the range of $14.4 - $16.2 million, or $0.52 - $0.59 per diluted share, based on a weighted average share count of approximately 27.6 million shares.

For the full year 2009, the Company now expects full-year revenue of approximately $509.2 - $527.0 million. These estimates include both wholesale and retail revenues and exclude the impact from any potential acquisitions. The Company also anticipates net income of approximately $44.0 - $46.8 million, or diluted EPS of $1.83 - $1.94, based on a weighted average share count of approximately 24.1 million shares, reflecting the partial-year impact of the shares issued in our recent offering.

Conference Call

The Company will conduct a conference call to discuss its second quarter 2009 results today, Thursday, August 6th before the markets open at 8:30 am ET. Listeners may access the call by dialing #1-201-689-8471. To listen to the live webcast of the event, please go to http://www.viavid.net . Listeners may access the call replay, which will be available through August 13th, by dialing #201-612-7415; account no: #3055; passcode: 329841.

About FUQI International

Based in Shenzhen, China, FUQI International, Inc. is a leading designer, producer and seller of high quality precious metal jewelry in China. Fuqi develops, promotes, manufactures and sells a broad range of products consisting of unique styles and designs made from gold and other precious metals such as platinum and Karat gold.

Safe Harbor Statement

The statements set forth above include forward-looking statements based upon preliminary information currently available to us 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, completion of quarterly close procedures and final adjustments, review by our independent registered public accounting firm, and other developments that may arise before our financial results for the quarter are finalized, as well as risks related to our acquisition of Temix in August 2008, adverse capital and credit market conditions, 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; the Company’s ability to obtain all necessary government certifications and/or licenses to conduct its business; the Company’s recent entry into the retail jewelry market; changes in the laws of the PRC that affect the Company’s operations; competition from competitors; the Company’s reliance on one source for gold; 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. Accordingly, you should not place undue reliance on the foregoing financial estimates. This release speaks only as of its date and, except to the extent required by law, we disclaim any obligation to revise these forward-looking statements or to provide any updates regarding information contained in this release resulting from new information, future events or otherwise.

(Financial Tables to Follow)

FUQI INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)

Three Months Ended Six Months Ended

June 30, June 30,

2009 2008 2009 2008

Net sales:

Wholesale and

distribution $92,504,318 $66,129,787 $189,330,171 $142,488,298

Retail 8,337,927 746,468 20,872,084 1,954,316

100,842,245 66,876,255 210,202,255 144,442,614

Cost of sales:

Wholesale and

distribution 77,960,527 59,088,244 160,593,482 126,893,710

Retail 5,526,081 691,109 14,201,770 1,640,627

83,486,608 59,779,353 174,795,252 128,534,337

Gross Profit 17,355,637 7,096,902 35,407,003 15,908,277

Operating expenses:

Selling and marketing 2,855,884 461,267 5,838,471 926,128

General and

administrative 1,328,014 627,347 3,861,619 2,069,059

Total operating

expenses 4,183,898 1,088,614 9,700,090 2,995,187

Income from

operations 13,171,739 6,008,288 25,706,913 12,913,090

Other income

(expenses):

Interest expense (377,535) (322,935) (795,973) (686,155)

Interest income 32,275 4,376 60,625 13,335

Gain from derivative

instrument 17,212 720,744 95,671 1,561,265

Miscellaneous 35,799 129,378 40,257 256,161

Total other income

(expenses) (292,249) 531,563 (599,420) 1,144,606

Income before

provision for income

taxes 12,879,490 6,539,851 25,107,493 14,057,696

Provision for income

taxes 3,012,249 1,289,084 5,579,753 2,411,856

Net income 9,867,241 5,250,767 19,527,740 11,645,840

Other comprehensive

income (loss) -

foreign currency

translation

adjustments 4,979 2,539,723 (8,779) 6,506,456

Comprehensive income $9,872,220 $7,790,490 $19,518,961 $18,152,296

Earnings per share -

basic $0.46 $0.25 $0.91 $0.56

Earnings per share -

diluted $0.45 $0.25 $0.91 $0.56

Weighted average

number of common

shares - basic 21,494,081 20,924,843 21,479,708 20,924,843

Weighted average

number of common

shares- diluted 21,700,421 20,924,843 21,517,171 20,924,843

FUQI INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

June 30, December 31,

2009 2008

(Unaudited)

ASSETS

Current assets:

Cash $49,320,954 $56,569,733

Accounts receivable, including

amount due from related party of

$13,157,401 for 2009 and $2,837,907

for 2008, net of allowance for

doubtful accounts of $1,481,000 for

2009 and $1,620,000 for 2008 60,041,347 73,949,200

Value added taxes receivable 6,653,192 2,170,669

Inventories 86,839,054 44,409,645

Prepaid expenses and other current

assets 722,703 286,405

Advances to suppliers 7,835,492 8,468,971

Gold future contracts 73,762 1,426,236

Deferred taxes 90,904 142,608

Total current assets 211,577,408 187,423,467

Property, equipment, and improvements,

net 3,730,988 3,400,642

Deposits 115,065 104,414

Goodwill 585,444 583,269

Acquired intangibles, net 3,134,710 3,197,344

Other assets 109,479 140,278

$219,253,094 $194,849,414

LIABILITIES AND STOCKHOLDERS’

EQUITY

Current liabilities:

Notes payable $32,201,876 $21,944,904

Accounts payable and accrued

liabilities 6,117,966 12,511,519

Other payable, related parties 7,447,372 6,287,102

Customer deposits 13,300,774 14,474,178

Income tax payable 3,581,828 2,802,110

Total current liabilities 62,649,816 58,019,813

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,

shares issued and outstanding -

22,047,261 for 2009 and 22,005,509

for 2008 22,047 22,006

Additional paid in capital 82,758,313 82,503,638

Accumulated foreign currency

translation adjustments 9,611,745 9,620,524

Retained earnings 64,211,173 44,683,433

Total stockholders’ equity 156,603,278 136,829,601

$219,253,094 $194,849,414

FUQI INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

INCREASE (DECREASE) IN CASH

Six Months Ended

June 30,

2009 2008

Cash flows provided by operating activities:

Net income $19,527,740 $11,645,840

Adjustments to reconcile net income to net

cash provided by (used for) operating

activities:

Depreciation and amortization 572,188 220,113

Bad debt provision (139,596) 24,220

Stock-based compensation 254,716 297,102

Loss on disposal on property, equipment and

improvements 8,640 --

Changes in operating assets and liabilities:

Accounts receivable 14,079,966 (268,315)

Value added taxes receivable (4,480,064) (538,773)

Inventories (42,394,276) (3,481,151)

Prepaid expenses and other current assets (135,517) 36,987

Gold future contracts 1,352,768 245,357

Advances to suppliers 635,067 (71,607)

Deferred taxes 51,759 (1,773,008)

Rental deposits (10,596) --

Other assets 30,859 2,278

Accounts payable, accrued expenses, accrued

business tax, and other payable (6,586,029) (125,501)

Customer deposits (1,180,245) 2,431,032

Income tax payable 778,085 889,845

Net cash (used for) provided by operating

activities (17,634,535) 9,534,419

Cash flows (used for) investing activities:

Purchase of property, equipment and

improvements (963,470) (566,809)

Proceeds from disposal of property,

equipment and improvements 79,017 --

Decrease in restricted cash -- 427,411

Net cash used for investing activities (884,453) (139,398)

Cash flows provided by (used for) financing

activities:

Proceeds from (repayments to) short-term

borrowing 10,242,903 (284,941)

Repayments to a related party (965,759) --

Advances from a related party 2,052,202 --

Net cash provided by (used for) financing

activities 11,329,346 (284,941)

Effect of exchange rate changes on cash (59,137) 4,538,160

Net (decrease) increase in cash (7,248,779) 13,648,240

Cash, beginning of the period 56,569,733 63,293,653

Cash, end of the period $49,320,954 $76,941,893

Supplemental disclosure of cash flow

information:

Interest paid $823,306 $599,079

Income taxes paid $4,749,914 $3,293,418

Non-cash disclosure:

Non monetary exchanges related to certain

retail sales $997,742 $398,057

For more information, please contact:

Mr. Frederick Wong

Chief Financial Officer

Phone: +852-6199-0741 (Hong Kong)

Ms. Charlene Hua

EVP of Financial, Capital Market & Corporate Development

Phone: +852-9468-2497 (Hong Kong)

IR Email: IR@FuqiIntl.com

Bill Zima

ICR Inc. (US)

Phone: +1-203-682-8200

Source: FUQI International, Inc.
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