-- 3Q08 Revenues Increased 159% to $93.7 Million
-- 3Q08 Net Income Increased 140% to $6.5 Million, or $0.31 per Diluted Share
-- Company Raises Fiscal 2008 Revenue, Net Income and Diluted EPS Forecast
SHENZHEN, China, Nov. 14 /Xinhua-PRNewswire-FirstCall/ -- FUQI International, Inc. (Nasdaq: FUQI) today announced financial results for the quarter ended September 30, 2008.
Revenues for the third quarter of 2008 increased 159% to $93.7 million from $36.2 million in the third quarter of 2007, due to increases in sales volumes and selling prices in the wholesale business. Wholesale contributed $90.5 million to overall revenues, representing growth of 152% year over year, and exceeding expectations. Retail revenues were slightly lower than expected, primarily as a result of slower retail business in Beijing and Shanghai regions during the Olympic Games. Retail contributed $3.2 million to overall revenues during the quarter, with $2.2 million coming from Temix and $1.0 million from Fuqi branded products.
Gross profit in the third quarter of 2008 increased 144% to $11.0 million from $4.5 million for the same period in the prior year. Gross profit was positively impacted by higher than expected sales in the wholesale business and by the contribution of incremental gross profits from the retail business. Gross profit margin was 11.7% in the third quarter of 2008, down from 12.4% in the same period of the prior year.
Operating expenses in the third quarter of 2008 increased to $2.7 million from $807,000 in the same period of the prior year. This increase was a result of expanded administrative costs required to support a growing revenue base, higher promotion costs, payrolls, business taxes, options granted and increased salaries to certain executives, as well as expenses incurred as a result of being a publicly traded company. Additionally, personnel expenses associated with retail expansion, as well as higher security costs during the Olympics contributed to higher operating expenses. Operating income in the third quarter increased 124% to $8.3 million from $3.7 million in the third quarter of 2007.
Net income in the third quarter of 2008 increased 141% to $6.5 million, or $0.31 per diluted share, from $2.7 million, or $0.21 per diluted share, in the same period of the prior year. Net margin was 7.0%, down from 7.5% in the prior year period. The decrease in net margin was primarily a result of increased operating expenses due to infrastructure expansion to support revenue growth. Non-cash items in the third quarter of 2008 included a $149,000 expense for equity based compensation and a $209,000 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). Third quarter 2008 net income also benefited from a $23,000 non-operating income derivative gain associated with gold futures the Company purchased to hedge against its inventory position during the quarter.
On September 30, 2008, the Company had cash of $56.2 million, compared with $63.3 million on December 31, 2007, as the Company invested in inventory to fill up retail counter and store show cases and fulfill large orders generated from jewelry trade fairs, and as the Company paid $3.9 million cash consideration during the quarter for the acquisition of Temix. Total inventory at the end of the third quarter was $50.4 million, up from $35.1 million at the end of the second quarter, which includes inventory valued at approximately $9.8 million from the Temix acquisition. 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 third quarter, which exceeded our expectations, despite some slowing in the growth rate of the global economy, and therefore the Chinese economy, as well as the financial impact of the Olympics, which not only caused slower than expected retail sales, but also higher security expenses. In spite of these issues, we continue to see increasing demand for our products, and larger orders from our existing customers. We also believe that recent government stimulus policies can motivate additional consumer spending. We have a strong balance sheet to support our growth, the right mix of products and distribution and a strong management team. We believe that Fuqi 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 $345 - $350 million. This forecast is comprised of $337 - $341 million in expected wholesale revenue and $8 - $9 million in expected revenue from retail. The Company also anticipates consolidated net income of $25.9 - $26.5 million, and diluted EPS of $1.17 - $1.20, based on a weighted average share count of 22.1 million shares.
For the fourth quarter, the Company anticipates total revenue of approximately $107-112 million, which represents $103 - $107 million in wholesale revenues and $4 - 5 million in retail revenues. Net income in the fourth quarter is expected to be in the range of $7.6 - $8.0 million, or $0.34 - $0.36 per diluted share, based on a weighted average share count of 22.1 million shares. Gross margin for the fourth quarter is expected to be approximately 11.0%, and net margin is expected to be approximately 7.1%.
Mr. Chong continued, "Having handily exceeded our own expectations for the third quarter, in the face of a slowing global economy, we remain optimistic about the future growth of Fuqi in China, as evidenced by our increase in guidance. Our growth will continue to be driven by wholesale revenue in the near term, but we believe that longer term the Temix and Fuqi retail brands can have a significant impact on our margins. We believe we are well positioned in both the wholesale and the retail business to capture ongoing demand for luxury jewelry products - primarily gold, but also platinum and diamond. Our Temix expansion is complete in the larger markets and we are beginning to focus our expansion into Tier 2 and 3 cities, where we believe the best future opportunities for revenue growth are. To serve the overall business, we will continue to manage our balance sheet to be prepared to capitalize on opportunities we see in the marketplace."
Conference Call
The Company will conduct a conference call to discuss the third quarter 2008 results today, Friday, November 14, 2008 before the market open at 8:30 am ET. Listeners may access the call by dialing #1-913-312-4374. 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 November 21, 2008. Listeners may access the replay by dialing # 719-457-0820; Passcode: 6545879.
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, 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; 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.
(Financial Tables to Follow)
Fuqi International, Inc.
Condensed Consolidated Statements of Income and Comprehensive Income
(Unaudited)
Three-Months Ended, Nine-Months Ended,
September 30, September 30,
2008 2007 2008 2007
Net sales
Wholesale and
distribution $ 90,523,143 $35,860,974$233,011,441 $89,823,682
Retail 3,154,558 386,837 5,108,874 665,094
93,677,701 36,247,811 238,120,315 90,488,776
Cost of sales
Wholesale and
distribution 80,723,212 31,467,727 207,616,922 79,288,647
Retail 1,956,227 303,487 3,596,854 506,150
82,679,439 31,771,214 211,213,776 79,794,797
Gross profit 10,998,262 4,476,597 26,906,539 10,693,979
Operating expenses:
Selling and marketing 1,559,892 268,334 2,486,020 648,907
General and
administrative 1,153,666 539,153 3,222,725 1,700,751
Total operating
expenses 2,713,558 807,487 5,708,745 2,349,658
Income from operations 8,284,704 3,669,110 21,197,794 8,344,321
Other income (expenses):
Interest expense (400,799) (384,406) (1,086,954) (914,182)
Interest income 6,715 2,850 20,050 5,859
Change of fair value of
inventory loan payable -- 2,683 -- (45,692)
Gain from derivative
instrument 22,954 -- 1,584,220 --
Miscellaneous 16,111 88 272,271 5,702
Total other income
(expenses) (355,019) (378,785) 789,587 (948,313)
Income before provision
for income taxes 7,929,685 3,290,325 21,987,381 7,396,008
Provision for income taxes 1,409,127 560,026 3,820,983 1,293,521
Net income 6,520,558 2,730,299 18,166,398 6,102,487
Other comprehensive
income - foreign
currency
translation adjustments 707,332 228,320 7,213,788 553,239
Comprehensive income $ 7,227,890 $ 2,958,619$ 25,380,186 $ 6,655,726
Earnings per share -
basic $ 0.31 $ 0.21$ 0.86 $ 0.49
Earnings per share -
diluted $ 0.31 $ 0.21$ 0.86 $ 0.42
Weighted average number of
common shares - Basic 21,247,868 12,835,955 21,033,701 12,497,006
Weighted average number of
common shares- Diluted 21,247,868 12,835,955 21,033,701 14,531,517
Fuqi International, Inc.
Condensed Consolidated Balance Sheets (Unaudited)
September 30, December 31,
2008 2007
ASSETS
Current assets:
Cash $ 56,182,097 $ 63,293,653
Restricted cash -- 410,700
Accounts receivable, net of
allowance for doubtful accounts
of $606,000 for 2008 and
$470,000 for 2007 50,700,802 23,864,141
Refundable value added taxes 5,255,645 2,094,946
Inventories, net of reserve of
$1,958,552 50,436,588 29,639,236
Prepaid expenses and other current
assets 1,191,873 1,700,432
Deferred taxes 2,369,407 79,402
Total current assets 166,136,412 121,082,510
Property, equipment, and improvements,
net 3,222,620 1,495,861
Deposits 104,674 97,706
Acquired intangibles, less accumulated
amortization 3,229,280 --
Goodwill 1,678,068 --
Other assets 143,074 38,513
$ 174,514,128 $ 122,714,590
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Notes payable $ 21,999,619 $ 15,743,504
Line of Credit - 1,369,000
Accounts payable and accrued
liabilities 6,277,781 662,662
Other payable, related party 7,009,165 -
Accrued business tax 387,538 498,792
Customer deposits 8,013,480 5,278,534
Income tax payable 3,730,128 1,902,443
Total current liabilities 47,417,711 25,454,935
Long term debt -- --
Total liabilities 47,417,711 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,
shares issued and outstanding -
22,005,509 shares for 2008 and
20,924,843 shares for 2007 22,006 20,925
Additional Paid in capital 81,905,297 77,449,355
Accumulated foreign currency
translation adjustments 10,198,376 2,985,035
Retained earnings 34,970,738 16,804,340
Total stockholders' equity 127,096,417 97,259,655
$ 174,514,128 $ 122,714,590
Fuqi International, Inc.
Condensed Consolidated Statement of Cash Flows (Unaudited)
Increase (Decrease) in Cash
Nine-Months Ended September 30,
2008 2007
Cash flows provided by operating
activities:
Net income $ 18,166,398 $ 6,102,487
Adjustments to reconcile net income
to net cash provided by (used for)
operating activities:
Depreciation and amortization 363,644 242,160
Provision for inventory reserve 1,958,552 --
Bad debt 100,633 158,129
Stock based compensation expense 445,653 --
Loss on disposal of fixed assets 18,189 --
Changes in operating assets and
liabilities, net of effects of
acquisition in 2008:
Accounts receivable (24,737,675) (4,301,122)
Refundable value added taxes (2,951,671) (929,785)
Inventories (10,614,653) (8,795,197)
Prepaid expenses and other current
assets (115,136) (48,536)
Deposits - short term -- 684,617
Deferred offering costs -- (217,674)
Deferred taxes (2,239,121) (23,719)
Other assets (111,561) 3,061
Accounts payable, accrued
expenses, accrued business, and
accrued estimated penalties 4,957,894 1,830,231
Customer deposits 2,311,975 2,446,706
Income tax payable 1,658,344 1,175,777
Net cash used for operating
activities (10,788,535) (1,672,865)
Cash flows provided by (used for) investing
activities:
Purchase of property, equipment and
improvements (959,435) (25,347)
Business acquisition (3,911,646) -
Decrease (Increase) in restricted cash 431,282 (392,054)
Net cash used for investing
activities (4,439,799) (417,401)
Cash flows provided by (used for)
financing activities:
Proceeds from short-term borrowing $ 3,594,019 $ 1,960,272
Proceeds from exercise of warrants,
net of financing cost -- 2,755,479
Proceeds from loans borrowed from
stockholder -- 203,506
Repayments to loans payable to
stockholder -- (642,295)
Net cash provided by financing
activities 3,594,019 4,276,962
Effect of exchange rate changes on cash 4,522,759 555,609
Net increase (decrease) in cash (7,111,556) 2,742,305
Cash, beginning of period 63,293,653 13,354,981
Cash, end of period $ 56,182,097 $ 16,097,286
Supplemental disclosure of cash flow information:
Interest paid $ 604,505 $ 904,194
Income taxes paid $ 4,449,155 $ 141,463
Non-cash activities:
Issuance of common stock for the
Temix acquisition $ 4,021,160 $ --
Non monetary exchanges related to
certain retail sales $ 607,186 $ --
Transfer of acquisition deposit
as a payment of the purchase
price for business acquisition $ 718,804 $ --
