Zuoan Fashion Limited Announces First Quarter 2013 Financial Results

Zuoan Fashion Limited Announces First Quarter 2013 Financial Results

~1Q13 Revenue Increased 5.8% YoY to RMB296.3 million ~

~ 1Q13 Net Income Increased 9.5% YoY to RMB73.8 million ~


~ Company Beats 1Q13 Gross Margin, Net Income and EPS Guidance ~

SHANGHAI, China--(BUSINESS WIRE)-- Zuoan Fashion Limited (NYS: ZA) ("Zuoan" or the "Company"), a leading design-driven fashion casual menswear company in China, today announced its financial results for the first quarter ended March 31, 2013.

First Quarter 2013 Financial Highlights

  • Revenues in the first quarter of 2013 were RMB296.3 million ($47.7 million), an increase of 5.8% from RMB279.9 million in the same quarter of 2012.

  • Gross profit in the first quarter increased 3.3% year over year to RMB135.5 million ($21.8 million) from RMB131.1 million in the same quarter of 2012.

  • Gross margin was 45.7% compared to 46.8% in the prior year period and 45.4% in the four quarter of 2012.

  • Net income was RMB73.8 million ($11.9 million), an increase of 9.5% from RMB67.4 million in the same quarter of 2012.

  • Diluted earnings per ordinary share was RMB0.66 ($0.11) in the first quarter,equivalent to RMB2.65 ($0.43) per ADS, compared to diluted earnings per ordinary share of RMB0.61 ($0.10) or RMB2.42 ($0.39) per ADS in the first quarter of 2012.

James Hong, Founder, Chairman and Chief Executive Officer, commented, "We are pleased to start off 2013 with healthy top line and bottom line results in the first quarter. Our sales were primarily driven by growth at the distributor level and through our direct stores as well as higher average selling prices achieved as we incorporated higher quality raw materials into our product offering. Our operating and net income improvements demonstrate the success of our store model transition, which helped streamline our operational infrastructure, improve productivity and reduce operating expenses. During the first quarter, a total of 33 distributor and sub-distributor stores were opened, resulting in a total of 1,362 store locations. We were also pleased to announce that order demand at our May 2013 sales fair was up a respectable 2-3% from the same period in the prior year."

"As China's consumer spending environment continues to stabilize and show signs of improvement, we are confident our revenue and profitability can continue to grow with the anticipated recovery as well as through our efforts to enhance our distribution network, maximize operational efficiencies and increase Zuoan's brand awareness." concluded Mr. Hong.

First Quarter 2013 Financial Performance

Revenue for the first quarter of 2013 was RMB296.3 million ($47.7 million), representing an increase of 5.8% from RMB279.9 million in the same quarter of 2012. The increase was primarily driven by distributor sales volume growth and increased average selling prices. During the quarter, distributor sales increased by 12.6% to RMB293.1 million from RMB260.4 million in the same quarter of 2012. First quarter 2013 self-operated direct store sales decreased to RMB 3.1 million from RMB19.6 million in the same quarter of 2012. A net total of 33 distributor and sub-distributor stores were opened in the first quarter of 2013, resulting in a total of 1,362 store locations as of March 31, 2013 compared to 1,329 store locations at the end of 2012.

Cost of sales increased by 8.0% to RMB160.8 million ($25.9 million) in the first quarter of 2013 from RMB148.8 million in the same quarter of 2012, primarily due to the sales increase in the first quarter. As a percentage of revenues, cost of sales increased to 54.3% in the first quarter of 2013 from 53.2% in the same quarter of 2012.

Gross profit increased by 3.3% to RMB135.5 million ($21.8 million) from RMB131.1 million in the first quarter of 2012. First quarter 2013 gross margin was 45.7% compared to 46.8% in the same quarter of 2012. The decrease in gross margin was primarily due to the transition of the Company's direct-operated flagship stores to its distributors in the fourth quarter of 2012. Gross margin at the Company's self-operated direct stores and distributor stores was 60.4% and 45.6%, respectively.

Selling and distribution expenses in the first quarter were RMB26.5 million ($4.3 million), or 8.9% of revenue, compared to RMB28.5 million, or 10.2% of revenue in the same quarter of 2012. The percentage decrease was primarily due to the significant decrease in direct store expenses resulting from the transition of the Company's direct-operated flagship stores to selected distributors as well as decreased advertising expenses.

Administrative expenses in the first quarter were RMB10.3 million ($1.7 million), or 3.5% of revenue, compared to RMB11.6 million, 4.1% of revenue in the same quarter of 2012. This percentage decrease was primarily a result of decreased rental expenses at the Company's new Shanghai headquarters as the first quarter was a temporary rent-free period for the Company.

Effective tax rate in the first quarter was 25.2% compared to 25.6% in the same quarter of 2012.

Net income for the first quarter increased by 9.5% to RMB73.8 million ($11.9 million) from RMB67.4 million in the same quarter of 2012. First quarter net margin was 24.9% compared to 24.1% in the first quarter of 2012.

Diluted earnings per ordinary share were RMB0.66 ($0.11) in the first quarter of 2013, equivalent to RMB2.65 ($0.43) per ADS, compared to diluted earnings per ordinary share RMB0.61 ($0.10) or RMB2.42 ($0.39) per ADS in the first quarter of 2012. The Company's diluted number of shares outstanding were 111.3 million in the first quarter ended March 31, 2013.

As of March 31, 2013, the Company had cash, cash equivalents of RMB1,130.4 million ($182.0 million), compared to RMB918.5 million as of December 31, 2012. Net cash provided by operating activities was RMB208.2 million ($33.5 million) in the three months ended March 31, 2013, compared to RMB257.1 million in the three months ended March 31, 2012.

Outlet Type:

1Q2012

1Q2013

Direct Stores

3

7

Distributor and Sub-distributor Stores

1,237

1,292

Self-Operated Flagship Stores

22

0

Distributor-Operated Flagship Stores

33

63

Total:

1,295

1,362

Financial Outlook

For the second quarter of 2013, the Company currently anticipates revenue in the range of RMB304-RMB324 million ($48.9-$52.2 million), gross margin of approximately 44-46%, net income of approximately RMB58.2- RMB62.8 million ($9.4 - $10.1 million) and basic and fully diluted EPS of approximately RMB0.52 ($0.08) - RMB0.56 ($0.09), equivalent to RMB2.09 ($0.34) - RMB2.26 ($0.36) per ADS.

Approximately 20-30 new retail stores are expected to be opened by distributors and sub-distributors in the second quarter of 2013.

Conference Call Information

Zuoan's management will host an earnings conference call on June 6, 2013 at 8:30 a.m. U.S. Eastern Time. Listeners may access the call by dialing # 1-719-325-2452. A webcast will also be available via www.viavid.net. A replay of the call will be available through June 13, 2013. Listeners may access the replay by dialing #1-858-384-5517, access code: 5730753.

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 RMB 6.2108 to US$1.00, as set forth in the H.10 statistical release of the Federal Reserve Board on March 29, 2013.

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 31 of China's 32 provinces and municipalities. As of March 31, 2013, Zuoan had 1,362 stores located in China.

Safe Harbor

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. 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.

ZUOAN FASHION LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Three months period ended March 31

2012

2013

2013

RMB

RMB

US$

(in thousands)

Revenues

279,947

296,254

47,700

Cost of goods sold

(148,833)

(160,802)

(25,891)

Gross profit

131,114

135,452

21,809

Other income

862

1,888

304

Selling and distribution expenses

(28,478)

(26,463)

(4,261)

Administrative expenses

(11,571)

(10,309)

(1,660)

Finance costs

(1,380)

(1,941)

(313)

Profit before taxation

90,547

98,627

15,880

Income tax expense

(23,159)

(24,822)

(3,997)

Profit after taxation

67,388

73,805

11,883

Other comprehensive loss:

Foreign exchange difference arising from translation of foreign currency financial statements

(710)

(858)

(138)

Total comprehensive income for the periods

66,678

72,947

11,745

Earnings per share (RMB):

Basic earnings per share

0.61

0.66

0.11

Diluted earnings per share

0.61

0.66

0.11

Weighted average basic no. of shares ('000)

111,276

111,276

Weighted average diluted no. of shares ('000)

111,276

111,276

ZUOAN FASHION LIMITED
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET

As of December 31

As of March 31

(in thousands)

2012

2013

2013

ASSETS

RMB

RMB

US$

Non-current assets

Property, plant and equipment

4,658

3,896

627

Current assets

Inventories

24,340

42,249

6,803

Trade and other receivables

608,466

464,853

74,846

Prepayments

100

100

16

Fixed deposits - pledged

9,619

8,598

1,384

Cash and cash equivalents

918,451

1,130,433

182,011

1,560,976

1,646,233

265,060

Total assets

1,565,634

1,650,129

265,687

EQUITY AND LIABILITIES

Share capital

185

185

30

Share premium

426,165

426,165

68,617

Reserves

48,922

48,521

7,812

Retained profits

834,091

907,896

146,180

Total equity

1,309,363

1,382,767

222,639

LIABILITIES

Current liabilities

Trade and other payables

103,841

111,146

17,896

Interest-bearing bank borrowings

128,250

131,000

21,092

Income tax payable

24,180

25,216

4,060

Total liabilities

256,271

267,362

43,048

Total equity and liabilities

1,565,634

1,650,129

265,687

ZUOAN FASHION LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOWS

Three months period ended March 31

2012

2013

2013

(in thousands)

RMB

RMB

US$

Cash flows from operating activities

Profit before taxation

90,547

98,627

15,880

Adjustments for :

Depreciation of property, plant and equipment

1,835

588

95

Equity-settled employees benefit expenses

461

457

74

Interest expenses on bank borrowings

1,380

1,941

313

Loss on disposal of property, plant and equipment

655

183

29

Interest income

(862)

(1,888)

(304)

Operating profit before working capital changes

94,016

99,908

16,086

Increase in inventories

(12,055)

(17,909)

(2,884)

Decrease in trade and other receivables

187,376

143,613

23,123

Decrease in prepayments

123

-

-

(Increase)/decrease in fixed deposits pledged

(7,131)

1,021

164

Increase in trade and other payables

20,107

7,305

1,176

Cash generated from operations

282,436

233,938

37,666

Interest paid

(1,380)

(1,941)

(313)

Income tax paid

(23,933)

(23,786)

(3,830)

Net cash generated from operating activities

257,123

208,211

33,524

Cash flows from investing activities

Acquisition of property, plant and equipment

(4,397)

(9)

(1)

Interest received

862

1,888

304

Net cash (used in)/generated from investing activities

(3,535)

1,879

303

Cash flows from financing activities

Bank loans obtained

5,300

16,150

2,600

Repayment of bank loans

(11,900)

(13,400)

(2,158)

Net cash (used in)/generated from financing activities

(6,600)

2,750

443

Net increase in cash and cash equivalents

246,988

212,840

34,269

Exchange difference

(710)

(858)

(138)

Cash and cash equivalents at beginning of the periods

690,457

918,451

147,880

Cash and cash equivalents at end of the periods

936,735

1,130,433

182,011



Zuoan Fashion Limited
John Low
Email: john.low@zuoancn.com
or
ICR, LLC
William Zima
Phone: +86-10-6583-7511
or
Zuoan Investor Relations Department
US: 1-646-308-1614

KEYWORDS: Asia Pacific China

INDUSTRY KEYWORDS:

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