KBS Fashion Group Limited Reports Robust First Quarter 2019 Financial Results

SHISHI, China, June 3, 2019 /PRNewswire/ -- KBS Fashion Group Limited ("KBS" or the "Company") (NASDAQ: KBSF), a leading fully-integrated casual menswear company in China, today announced its unaudited financial results for the first quarter ended March 31, 2019.

First quarter of 2019 Financial Highlights

• Net revenues increased by 3.5% to $4.62 million for the first quarter of 2019 from $4.46 million for the same period of last year.
• Gross profit increased by 48.3% to $1.61 million for the first quarter of 2019 from $1.09 million for the same period of last year. Gross margin was 34.9% for the first quarter of 2019, compared to 24.0% for the same period of last year. 
• Operating profit increased by 127.0% to $0.54 million for the first quarter of 2019 from operating loss of $2.01 million for the same period of last year.
• IFRS net income was $0.31 million, or $0.135 earnings per basic and diluted share, for the first quarter of 2019, compared to net loss of $1.90 million, or $0.886 loss per basic and diluted share, for the same period of last year. 

Mr. Keyan Yan, Chief Executive Officer of the Company commented, "we are very pleased with our operating and financial results for the first quarter, which demonstrated strong profitability given the first quarter being a slow season. The management team is working diligently to keep strong momentum by continuing to improve our operational efficiencies and increase our sales from different channels. Looking forward to the remaining of 2019, we are excited about the sales potential from the recently signed contract and integration of our potential acquisition of Tribe which is expected to put us in a prominent position in the smart clothe technology market. We are confident about our ability to outperform in 2019 and beyond."

First quarter of 2019 Financial Results Analysis

Revenues

• Total revenues increased by $0.16 million, or 3.5%, to $4.62 million for the first quarter of 2019 from $4.46 million for the same period of last year. The increase was mainly contributable to the increased orders from OEM segment.

Revenues from the Company's distribution network decreased by $0.87 million, or 22.3%, to $3.04 million for the first quarter of 2019 from $3.91 million for the same period of last year. Distribution network contributed 65.9% of total revenues for the first quarter of 2019, compared to 87.8% for the same period of last year. The Company's distributor network consisted of 11 distributors in 10 provinces during the first quarter of 2019, compared to 14 distributors in 12 provinces during the same period of last year. Most of these distributors, either directly or through their sub-distributors, operate KBS-branded stores. Some wholesale distributors sold the products to multi-branded stores and online stores. As of March 31, 2019, there were 32 KBS-branded franchise stores operated by our distributors and sub-distributors, primarily in second and third tier cities. KBS products distributed to the fourth and fifth tier cities are primarily sold in multi-branded department stores and online shops. As a comparison, we had 39 KBS-branded franchise stores operated by our distributors and sub-distributors as of March 31, 2018. 

The following table lists by regions the number of retail stores operated by distributors and sub-distributors as of March 31, 2019: 

Revenues from corporate store sales increased by $0.02 million, or 13.3%, to $0.17 million for the first quarter of 2019 from $0.15 million for the same period of last year. We currently have one corporate store operated directly by us, sales of which accounted for 3.8% of total revenues for the first quarter of 2019, compared to 5.5% for the same period of last year. The increase in corporate store sales was due to the overall improvement on products this year.

Revenues from OEM sales increased by $1.00 million, or 247%, to $1.40 million for the first quarter of 2019 from $0.4 million for the same period of last year. OEM accounted for 30% of total revenues for the first quarter of 2019, compared to 7% for the same period of last year. The OEM segment is comprised of products that are designed by the customers and manufactured by the Company. The increase in revenues from OEM sales was primarily due to the increased orders from our two major customers: Hangzhou Ziyin and Hangzhou Yiyuan

Cost of Sales and Gross Profit

Total cost of sales decreased by $0.37 million, 11.0%, to $3.00 million for the first quarter of 2019 from $3.38 million for the same period of last year. The decrease in cost of sales was primarily due to higher products  pricing strategy this year comparing same period of last year.

Total gross profit increased by $0.52 million, or 48.3%, to $1.61 million for the first quarter of 2019 from $1.09 million for the same period of last year. Gross profits for distribution network, corporate stores and OEM were $0.97 million, $0.07 million, and $0.58 million, respectively, for the first quarter of 2018, compared to $0.89 million, $0.06 million, and $0.14 million, respectively, for the same period of last year. 

Overall gross margin was 34.9% for the first quarter of 2019, compared to 24.4% for the same period of last year. On a segment basis, gross margins for distribution network, corporate stores and OEM were 31.9%, 37.4%, and 41.2%, respectively, for the first quarter of 2019, compared to 22.9%, 39.0%, and 33.7%, respectively, for the same period of last year. The increase in overall gross margin was due to the rolling out of our new products. Our products of new styles have gained additional advantages in pricing which helped increase our gross margin during the first quarter of 2019. 

Operating Expenses and Operating Income (Loss)

Distribution and selling expenses decreased by $0.43 million, or 59.1%, to $0.30 million for the first quarter of 2019 from $0.73 million for the same period of last year. The decrease in distribution and selling expenses was mainly due to the Company's new cost effective business strategy, resulting in reduced cost in marketing and advertising as well as the labor. Additionally, the Company adjusted the allowance standard for the dealer rental allowance to save the cost.

Administrative expenses decreased by $1.53 million, or 63.8%, to $0.87 million for the first quarter of 2019 from $2.40 million for same period of last year. The decrease in administrative expenses was mainly due to the Company's new business strategy plan resulting in reduced labor salary, R&D expenses, and outsourced marketing team expanse. The depreciation expense was reduced relatively after the impairment of our Anhui facility at the end of 2018.

Other operating expenses, including other income and other gains and loss, totaled $95,314 for the first quarter of 2019, compared to $30,354 for the same period of last year. Operating profit was $0.54 million for the first quarter of 2019, compared to operating loss of $2.01 million for the same period of last year. Operating profit margin was 11.8% for the first quarter of 2019, compared to operating loss margin of 45.0% for the same period of last year.

Income (Loss) before Income Taxes

Profit before income taxes was $0.31 million for the first quarter of 2019, compared to loss before taxes of $2.04 million for the same period of last year. 

Income tax expense was $0.22 million for the first quarter of 2019, compared to income tax gain of $0.14 million for the same period of last year. 

About KBS Fashion Group Limited

Headquartered in Shishi, China, KBS Fashion Group Limited, through its subsidiaries, is engaged in the business of designing, manufacturing, selling and distributing casual menswear through a network of 33 KBS branded stores (as of March 31, 2019) and over a number of multi-brand stores. To learn more about the Company, please visit its corporate website at www.kbsfashion.com.

Safe Harbor Statement

This press release may contain certain "forward-looking statements" relating to the business of KBS Fashion Group Limited, and its subsidiary companies. All statements, other than statements of historical fact included herein, are "forward-looking statements" in nature within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, often identified by the use of forward-looking terminology such as "believes," "expects" or similar expressions, involve known and unknown risks and uncertainties. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, they do involve assumptions, risks and uncertainties, and these expectations may prove to be incorrect. Investors should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those discussed in the Company's periodic reports that are filed with the Securities and Exchange Commission and available on its website (http://www.sec.gov). All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these factors. Other than as required under the securities laws, the Company does not assume a duty to update these forward-looking statements.

For further information, please contact:

Lisa Tu
Chief Financial Officer
T: +86 158-5972-2469
E: lingsantu@hotmail.com

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