Zuoan Fashion Limited, a leading design-driven fashion casual menswear company in China, announced its financial results for the third quarter ended September 30, 2013.
Third Quarter 2013 Financial Highlights
• Revenues in the third quarter of 2013 were RMB380.5 million ($62.2 million), a decrease of 20.1% from RMB476.3 million in the same quarter of 2012.
• Gross profit in the third quarter decreased 30.3% year over year to RMB155.8 million ($25.5 million) from RMB223.6 million in the same quarter of 2012.
• Gross margin was 40.9% compared with 46.9% in the prior year period and 44.1% in the second quarter of 2013.
• Net income was RMB23.0 million ($3.8 million), a decrease of 75.3% from RMB92.8 million in the same quarter of 2012.
• Diluted earnings per ordinary share was RMB0.21 ($0.03) in the third quarter, equivalent to RMB0.83 ($0.13) per ADS, compared to diluted earnings per ordinary share of RMB0.83 ($0.14) or RMB3.34 ($0.55) per ADS in the third quarter of 2012.
Third Quarter 2013 Financial Performance
Revenue for the third quarter of 2013 was RMB380.5 million ($62.2 million), representing a decrease of 20.1% from RMB476.3 million in the same quarter of 2012. The decrease was primarily attributed to a cancellation of sales orders for the Company's Fall/Winter collection 2013 back in June, due to the economic downturn in the menswear sector during the second half of 2013.
During the quarter, distributor sales decreased by 16.0% to RMB378.3 million from RMB450.2 million in the same quarter of 2012. Third quarter 2013 self-operated direct store sales decreased to RMB2.2 million from RMB2.9 million in the same quarter of 2012. A net total of 309 distributor and sub-distributor stores were closed in the third quarter of 2013, resulting in a total of 1,074 store locations as of September 30, 2013 compared to 1,383 store locations at the end of the second quarter.
Cost of sales decreased by 11.1% to RMB224.7 million ($36.7 million) in the third quarter of 2013 from RMB252.7 million in the same quarter of 2012, in-line with the revenue decrease associated with cancelled sales orders. As a percentage of revenues, cost of sales increased to 59.1% in the third quarter of 2013 from 53.1% in the same quarter of 2012.
Gross profit decreased by 30.3% to RMB155.8 million ($25.5 million) from RMB223.6 million in the thirdquarter of 2012. Third quarter 2013 gross margin was 40.9% compared with 46.9% in the same quarter of 2012. The decrease in gross margin was primarily due to the decrease in the Company's wholesale price discount that was implemented in the third quarter of 2013.
Selling and distribution expenses in the third quarter were RMB108.3 million ($17.7 million), or 28.5% of revenue, compared to RMB84.1 million, or 17.7% of revenue in the same quarter of 2012. The percentage increase was primarily due to a planned increase in advertising and marketing expenses in the second half of 2013 to create greater consumer brand awareness.
Administrative expenses in the third quarter were RMB14.5 million ($2.4 million), or 3.8% of revenue, compared with RMB14.0 million, or 2.9% of revenue in the same quarter of 2012.
Net income for the third quarter decreased by 75.3% to RMB23.0 million ($3.8 million) from RMB92.8 million in the same quarter of 2012. Third quarter net margin was 6.0% compared to 19.5% in the third quarter of 2012.
Diluted earnings per ordinary share were RMB0.21 ($0.03) in the third quarter of 2013, equivalent to RMB0.83 ($0.13) per ADS, compared to diluted earnings per ordinary share of RMB0.83 ($0.14) or RMB3.34 ($0.55) per ADS in the third quarter of 2012. The Company's diluted number of shares outstanding was 111.3 million in the third quarter ended September 30, 2013.
As of September 30, 2013, the Company had cash, cash equivalents of RMB1,287.1 million ($210.3 million), compared to RMB918.5 million as of December 31, 2012. Net cash provided by operating activities was RMB78.4 million ($12.8 million) in the three months ended September 30, 2013, compared to a net cash used in operating activities of RMB172.9 million in the three months ended September 30, 2012.
