SHANGHAI, April 21, 2012 /PRNewswire-Asia-FirstCall/ -- 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, 2011.
James Hong, Founder, Chairman of the Board and Chief Executive Officer, commented, "We are pleased with our fourth quarter performance, particularly as we exceeded our top and bottom line guidance forecast. We also achieved significant year-over-year growth in our total store count, sales volumes, revenue, gross profit and net profit for full year 2011 compared to the prior year."
"Our fashion collection continues to expand and customers are increasingly recognizing the value and depth of our product collections. We expanded our total number of store locations to 1,270, and our gross number of new store openings exceeded our target for the year. Our fourth quarter gross margin reached a record level of 47.8%, primarily due to greater sales from our higher margin direct flagship stores and from the increase in wholesale prices we successfully implemented at the distributor level last quarter."
"Looking ahead, while we expect some turbulence in our business stemming from a slowdown in domestic consumption brought on by the global recession and potentially slower growth in sales orders for our 2012 Autumn/Winter collections due to an erratic winter this past season, we continue to see the strong potential for growth in our business this year and beyond."
"We have recently surpassed the one year anniversary of our US IPO and we are quite proud of our operational and financial accomplishments thus far. With our focus on innovative, stylish and unique apparel and accessory products, we believe we will continue to have success broadening the popularity of our brand in China's fashion casual menswear market."
Fourth Quarter 2011 Financial Highlights
Full Year 2011 Financial Highlights
Fourth Quarter 2011 Financial Performance
Revenue for the fourth quarter was RMB355.3 million ($56.5 million), a 37.6% increase from RMB258.2 million ($41.0 million) in the same period last year. The increase in revenue was driven by both distributors and direct stores sales volume. Fourth quarter distributor sales increased 31.5% to RMB314.0 million compared to RMB238.7 million in the fourth quarter of 2010 while fourth quarter direct store sales was RMB2.7 million compared to RMB19.5 million in the prior year period, the flagship store sales was RMB38.6 million in the fourth quarter 2011. A net total of 13 distributor and sub-distributor stores, 5 distributor-operated and 6 self-operated flagship stores were opened in the fourth quarter of 2011, resulting in a total of 1,270 store locations at the end of 2011 compared to 1,246 store locations at the end of September 2011.
Cost of sales increased 20.2% to RMB185.5 million ($29.5 million) in the fourth quarter of 2011 from RMB154.4 million ($24.5 million) in the same quarter of 2010, primarily as a result of the increase in sales volume. As a percentage of revenues, cost of sales decreased to 52.2% in the fourth quarter of 2011 from 59.8% in the fourth quarter of 2010.
Gross profit in the fourth quarter increased 63.6% year over year to RMB169.8 million ($27.0 million) from RMB103.8 million ($16.5 million). Fourth quarter 2011 gross profit margin was 47.8% compared to 40.2% in the same period last year and 44.3% in the third quarter of 2011. Fourth quarter 2011 gross margin increased primarily due to the increase of wholesale price to distributors from 35% to 38% since the third quarter 2011 and the higher margin contributed by sales in direct flagship stores. Gross margin at direct flagship stores was 74.8%, 10-15% higher than gross margin at distributor-operated flagship stores.
Selling and distribution expenses in the fourth quarter were RMB60.6 million ($9.6 million), or 17.1% of revenue, compared to RMB17.3 million ($2.7 million), or 6.7% of revenue in the same period last year. This percentage increase was primarily due to the increase in store expansion related rental charges and direct store expenses, advertising and promotion expenses, and costs of renovation and fittings of distributors' new and existing stores.
Administrative expenses in the fourth quarter were RMB13.6 million ($2.2 million), or 3.8% of revenue, compared to RMB9.5 million ($1.5 million), 3.7% of revenue in the same period last year. This percentage increase was primarily a result of an increase in the directors' remuneration, staff salaries, legal professional fees and equity-settled employee benefit expenses since the Company's U.S. IPO.
Effective tax rate in the fourth quarter increased to 26.2% compared to 26.0% in the prior year period.
Net income for the fourth quarter increased 26.8% to RMB70.2 million ($11.1 million) from RMB55.3 million ($8.8 million) in the same period last year. Fourth quarter net income as a percentage of revenue was 19.7% compared to 21.4% in the prior year period.
Basic earnings per ordinary share was RMB0.63 ($0.10) in the fourth quarter of 2011, equivalent to RMB2.52 ($0.40) per ADS, compared to basic earnings per ordinary share RMB0.69 ($0.11), equivalent to RMB2.77 ($0.44) per ADS in the fourth quarter of 2010. The Company's basic number of shares outstanding increased 39.1% to 111.3 million in the fourth quarter ended December 31, 2011 compared to 80.0 million in the 2011 fourth quarter period.
Diluted earnings per ordinary share was RMB0.63 ($0.10) in the fourth quarter of 2011, equivalent to RMB2.52 ($0.40) per ADS, compared to diluted earnings per ordinary share RMB0.66 ($0.10) in the fourth quarter of 2010, equivalent to RMB2.63 ($0.42) per ADS. The Company's diluted number of shares outstanding increased 28.3% to 111.3 million in the fourth quarter ended December 31, 2011 compared to 86.7 million in the 2010 fourth quarter period.
Full Year 2011 Financial Performance
Revenue in 2011 was RMB1.2 billion ($195.6 million), a 41.1% increase from RMB872.1 million ($138.6 million) in 2010. The increase in revenue was driven by both distributors and direct stores sales volume. Full year distributor sales increased 40.7% to RMB1,166.8 million compared to RMB829.0 million of 2010. 31 of our direct stores were transferred to our distributors in January 2011 in order to focus on the development and opening of our flagship stores. We completed 2011 with a total of 1,212 distributor stores, 23 self-operated flagship and 3 self-operated direct stores and 32 distributor-operated flagship stores were opened resulting in a total of 1,270 store locations at the end of 2011 compared to 1,101 store locations at the end of 2010. Average selling price ("ASP") in 2011 increased by 19.7% to RMB157 compared to RMB131 in 2010.
Cost of sales increased by 33.3% to RMB686.9 million ($109.1 million) in 2011 from RMB515.2 million ($81.9 million) in 2010, primarily as a result of the increase in line with the sales volume. As a percentage of revenues, cost of sales decreased to 55.8% in 2011 from 59.1% in 2010.
Gross profit in 2011 increased 52.4% year over year to RMB544.0 million ($86.4 million) from RMB356.9 million ($56.7 million). Full year 2011 gross profit margin was 44.2% compared to 40.9% in 2010.
Selling and distribution expenses in 2011 were RMB136.7 million ($21.7 million), or 11.1% of revenue, compared to RMB61.5 million ($9.8 million), or 7.1% of revenue in 2010. This percentage increase was primarily due to the increase in store expansion related rental charges and direct store expenses, advertising and promotion expenses and costs of renovation and fittings of new distributor stores and 165 existing stores.
Administrative expenses in 2011 were RMB56.6 million ($9.0 million), or 4.6% of revenue, compared to RMB 37.4 million ($5.9 million), 4.3% of revenue in 2010. This percentage increase was primarily a result of an increase in the directors' remuneration, staff salaries, legal professional fees and equity-settled employee benefit expenses since the Company's U.S. IPO.
Effective tax rate in 2011 decreased to 26.7% compared to 26.9% in 2010.
Net income in 2011 increased 39.7% to RMB255.7 million ($40.6 million) from RMB183.0 million ($29.1 million) in 2010. Net income as a percentage of revenue was 20.8% compared to 21.0% in 2010 due to the higher selling and distribution expenses.
Basic earnings per ordinary share was RMB2.39 ($0.38) in 2011, equivalent to RMB9.54 ($1.52) per ADS, compared to basic earnings per ordinary share RMB2.29 ($0.36), equivalent to RMB9.15 ($1.45) per ADS in 2010.
Diluted earnings per ordinary share was RMB2.37 ($0.38) in 2011, equivalent to RMB9.47 ($1.50) per ADS, compared to diluted earnings per ordinary share RMB2.19 ($0.35) in 2010, equivalent to RMB8.75 ($1.39) per ADS.
As of December 31, 2011, the Company had cash, cash equivalents of RMB690.5 million ($109.7 million), compared to RMB367.7 million as of December 31, 2010. Net cash provided by operating activities was RMB81.7 million ($13.0 million) in the twelve months ended December 31, 2011, from RMB165.5 million in the twelve months ended December 31, 2010 mainly due to an increase in trade receivables.
Outlet Type: | 4Q2010 | 4Q2011 |
Direct Stores | 31 | 3 |
Distributor and Sub-distributor Stores | 1,063 | 1,212 |
Self-Operated Flagship Stores | 0 | 23 |
Distributor-Operated Flagship Stores | 7 | 32 |
Total: | 1,101 | 1,270 |
Financial Outlook
For the first quarter of 2012, the Company currently anticipates revenue in the range of RMB275-RMB280 million ($43.7-$44.5 million), gross margin of approximately 46-48%, net income of approximately RMB60.0 - RMB65.0 million ($9.5 - $10.3 million) and basic and fully diluted EPS of approximately RMB0.54 ($0.09) - RMB0.58 ($0.09). The Company expects to have approximately 111.3 million number of shares (27.8 million ADSs) outstanding during the quarter ending March 31, 2012.
Zuoan expects to open approximately 25 self-operated flagship stores in the full year 2012. Approximately 175 new retail stores and 25 flagship stores are expected to be opened by distributors and sub-distributors in of the full year 2012.
Conference Call Information
Zuoan's management will host an earnings conference call on April 23, 2012 at 8:30 a.m. U.S. Eastern Time. Listeners may access the call by dialing #1-201-493-6780. A webcast will also be available via www.viavid.net. A replay of the call will be available through April 30, 2012. Listeners may access the replay by dialing #1-858-384-5517, access code: 392923.
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 RMB6.2939 to US$1.00, as set forth in the H.10 statistical release of the Federal Reserve Board on December 30, 2011.
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 29 of China's 32 provinces and municipalities. As of December 31, 2011, Zuoan had 1,270 stores located in China.
Unaudited Financial Information
Except for certain audited consolidated financial information as of or for the year ended December 31, 2010 included in the Company's 20-F filed with the SEC on June 27, 2011, the financial information included herein is unaudited, consolidated and prepared in accordance with International Financial Reporting Standards. Such financial information is generated internally and has not been subjected to the same review and scrutiny, including internal auditing procedures and audit by independent auditors, to which we subject our annual consolidated financial statements, and may vary materially from the audited consolidated financial information for the same period. Any evaluation of the financial information included herein should also take into account our published audited consolidated financial statements and the notes to those statements. In addition, the financial information included herein is not necessarily indicative of our results for any future period.
Forward-Looking Statements
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, including, among other things, those relating to our anticipated growth strategies, our future business development, our ability to promote our brand based on consumer preference or demand, our relationship with distributors and sub-distributors, and trends and competition in the fashion casual menswear industry. 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: john.low@zuoancn.com
ICR, LLC
William Zima
Phone: +86-10-6583-7511
Zuoan Investor Relations Department
U.S.: +1-646-308-1614
Zuoan Fashion Limited Unaudited Condensed Consolidated Statements of Income | |||||||
Three months period ended December 31 | Year ended December 31 | ||||||
2010 | 2011 | 2011 | 2010 | 2011 | 2011 | ||
(in thousands) | RMB | RMB | US$ | RMB | RMB | US$ | |
Revenues | 258,207 | 355,313 | 56,454 | 872,085 | 1,230,881 | 195,567 | |
Cost of sales | (154,368) | (185,482) | (29,470) | (515,158) | (686,890) | (109,136) | |
Gross profit | 103,839 | 169,831 | 26,983 | 356,927 | 543,991 | 86,431 | |
Other income | 262 | 706 | 112 | 868 | 2,414 | 384 | |
Selling and distribution expenses | (17,269) | (60,596) | (9,628) | (61,486) | (136,704) | (21,720) | |
Administrative expenses | (9,497) | (13,631) | (2,166) | (37,382) | (56,590) | (8,991) | |
Finance costs | (2,539) | (1,188) | (189) | (8,602) | (4,194) | (666) | |
Profit before taxation | 74,796 | 95,122 | 15,113 | 250,325 | 348,917 | 55,437 | |
Income tax expense | (19,478) | (24,969) | (3,967) | (67,324) | (93,226) | (14,812) | |
Profit after taxation | 55,318 | 70,153 | 11,146 | 183,001 | 255,691 | 40,625 | |
Other comprehensive profit/(loss): | 769 | (979) | (156) | 1,555 | (4,763) | (757) | |
Total comprehensive income for the year | 56,087 | 69,174 | 10,991 | 184,556 | 250,928 | 39,868 | |
Earnings per share (RMB): | |||||||
Basic earnings per share | 0.69 | 0.63 | 0.10 | 2.29 | 2.39 | 0.38 | |
Diluted earnings per share | 0.66 | 0.63 | 0.10 | 2.19 | 2.37 | 0.38 | |
Weighted average basic no. of shares ('000) | 80,000 | 111,276 | 80,000 | 107,163 | |||
Weighted average diluted no. of shares ('000) | 86,723 | 111,276 | 86,515 | 107,981 | |||
Note: Diluted earnings per share for the three month periods and year ended December 31, 2010 are pro forma results as adjusted to reflect the dilutive impact of the convertible loans assuming that would be issuable. Pro forma diluted earnings per share for the three months periods and year ended December 31, 2010 reflects an adjustment to increase profit after taxation by approximately RMB1,629,000 and RMB6,270,000 for the effect of the interest related to the convertible loans. | |||||||
Zuoan Fashion Limited Unaudited Condensed Consolidated Balance Sheet | ||||
As of December 31 | As of December 31 | |||
(in thousands) | 2010 | 2011 | 2011 | |
ASSETS | RMB | RMB | US$ | |
Non-current assets | ||||
Property, plant and equipment | 2,720 | 17,511 | 2,782 | |
Deferred offering costs | 5,757 | - | - | |
8,477 | 17,511 | 2,782 | ||
Current assets | ||||
Inventories | 22,339 | 26,082 | 4,144 | |
Trade and other receivables | 249,857 | 446,897 | 71,005 | |
Prepayments | 2,313 | 223 | 35 | |
Fixed deposits - pledged | 1,054 | 1,670 | 265 | |
Cash and cash equivalents | 367,731 | 690,457 | 109,703 | |
643,294 | 1,165,329 | 185,152 | ||
Total assets | 651,771 | 1,182,840 | 187,934 | |
EQUITY AND LIABILITIES | ||||
Share capital | 134 | 185 | 29 | |
Share premium | 129,599 | 426,165 | 67,711 | |
Reserves | 19,360 | 47,743 | 7,586 | |
Retained profits | 314,610 | 538,711 | 85,593 | |
Total equity | 463,703 | 1,012,804 | 160,918 | |
LIABILITIES | ||||
Current liabilities | ||||
Trade and other payables | 70,582 | 70,760 | 11,243 | |
Interest-bearing bank borrowings | 56,700 | 74,950 | 11,908 | |
Convertible loans | 40,961 | - | - | |
Current income tax payable | 19,825 | 24,326 | 3,865 | |
Total liabilities | 188,068 | 170,036 | 27,016 | |
Total equity and liabilities | 651,771 | 1,182,840 | 187,934 | |
Zuoan Fashion Limited Unaudited Condensed Consolidated Statements of Cashflows | ||||
Year ended December 31 |
Year ended December 31 | |||
2010 | 2011 | 2011 | ||
(in thousands) | RMB | RMB | US$ | |
Cash flows from operating activities | ||||
Profit before taxation | 250,325 | 348,917 | 55,437 | |
Adjustments for : | ||||
Depreciation of property, plant and equipment | 680 | 3,382 | 537 | |
Equity-settled employee benefit costs | - | 7,805 | 1,240 | |
Interest expenses on bank borrowings | 2,332 | 4,194 | 666 | |
Interest expense on convertible loans | 6,270 | - | - | |
Interest income | (868) | (2,414) | (384) | |
Operating profit before working capital changes | 258,739 | 361,884 | 57,498 | |
Increase in inventories | (4,930) | (3,743) | (595) | |
Increase in trade and other receivables | (34,403) | (197,040) | (31,307) | |
Decrease/(Increase) in prepayments | (5,661) | 7,847 | 1,247 | |
(Increase)/Decrease in fixed deposits pledged | 1,121 | (616) | (98) | |
Increase in trade and other payables | 14,371 | 6,327 | 1,005 | |
Cash generated from operations | 229,237 | 174,659 | 27,751 | |
Interest paid | (2,332) | (4,194) | (666) | |
Income tax paid | (61,426) | (88,725) | (14,097) | |
Net cash generated from operating activities | 165,479 | 81,740 | 12,987 | |
Cash flows from investing activities | ||||
Acquisition of property, plant and equipment | (1,357) | (18,173) | (2,887) | |
Interest received | 868 | 2,414 | 384 | |
Net cash used in investing activities | (489) | (15,759) | (2,504) | |
Cash flows from financing activities | ||||
Bank loans obtained | 57,700 | 94,000 | 14,935 | |
Repayment of bank loans | (18,050) | (75,750) | (12,035) | |
Issuance of ordinary shares | - | 41 | 7 | |
Net IPO proceeds | - | 243,381 | 38,669 | |
Convertible loan obtained | 21,522 | - | - | |
Net cash generated from financing activities | 61,172 | 261,672 | 41,575 | |
Net increase in cash and cash equivalents | 226,162 | 327,653 | 52,059 | |
Exchange difference | - | (4,927) | (783) | |
Cash and cash equivalents at beginning of the year | 141,569 | 367,731 | 58,427 | |
Cash and cash equivalents at end of the year | 367,731 | 690,457 | 109,703 | |
