Zuoan Fashion beats second quarter revenue

24 Aug '11

5 min read

Selling and distribution expenses increased 48.8% to RMB19.1 million ($3.0 million) in second quarter of 2011 from RMB12.9 million ($2.0 million) in the same period last year, mainly due to (i) an increase in renovation costs and cost of fittings for the distributors' existing retail stores and new normal and flagship stores and (ii) an increase in direct flagship stores expenses.

Administrative expenses in the second quarter were RMB15.6 million ($2.4 million), or 6.5% of revenue, compared to RMB5.7 million ($0.9 million), 3.7% of revenue in the same period last year. This percentage increase was primarily due to 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 second quarter was 27.6% compared to 18.5 % in the prior year period.

Net income for the second quarter of 2011 increased 28.0% to RMB45.6 million ($7.0 million) from RMB35.6 million ($5.5 million) in the same period last year. Second quarter net income as a percentage of revenue was 19.0% compared to 22.8% in the prior year period.

Diluted earnings per share decreased to RMB0.41 ($0.06) in the second quarter of 2011 from RMB0.43 ($0.07) in the second quarter of 2010. The Company's diluted number of shares outstanding increased 28.4% to 111.3 million in the second quarter ended June 30, 2011 compared to 86.7 million in the 2010 second quarter period.

As of June 30, 2011, the Company had cash, cash equivalents of RMB716.5 million ($110.9 million), compared to RMB734.3 million ($113.6 million) as of March 31, 2011. Net cash used in operating activities was RMB1.2 million ($0.2 million) in the three months ended June 30, 2011, down from RMB44.8 million ($6.9 million) in the three months ended June 30, 2010.

Financial Outlook
For the third quarter of 2011, the Company currently anticipates revenue in the range of RMB410-RMB430 million ($63.4-$66.5 million), gross margin of approximately 43-44%, net income of approximately RMB80.1-RMB84.3 million ($12.4-$13.0 million) and basic and fully diluted EPS of approximately RMB0.72 ($0.11) - RMB0.76 ($0.12). The Company expects to have approximately 111.3 million number of shares (27.8 million ADSs) outstanding during the quarter ending September 30, 2011.

For the full year 2011, the Company currently anticipates revenue in the range of RMB1.16-RMB1.2 billion ($179.5-$185.7 million), net income of approximately RMB235.2-RMB244.0 million ($36.4-$37.8 million) and basic and fully diluted EPS of approximately RMB2.1 ($0.33) – RMB2.2 ($0.34).

Zuoan expects to open approximately 12 and 6 self-operated flagship stores in the third and fourth quarters, respectively. Approximately 60-70 new retail stores and 12 flagship stores are expected to be opened by distributors in the third quarter of 2011.

Zuoan Fashion Limited

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