Tax hike hurts leading mens apparel firm biz in Q3
China Xiniya Fashion Limited, a leading provider of men's business casual apparel in China, reported financial results for the third quarter of 2011. The financial statements and other financial information included in this press release have been prepared in conformity with International Financial Reporting Standards (IFRS).
Third Quarter 2011 Highlights
• Total revenue in the third quarter of 2011 increased by 17.4% to RMB361.1 million, as compared to RMB307.6 million in the third quarter of 2010. The increase was below the prior guidance of 20%-24% as goods sold totaling approximately RMB23.3 million were shipped before the end of September 2011 but reached the customers at the beginning of October 2011.
The timing difference negatively impacted third quarter revenue by 7.6%. If the RMB23.3 million worth of sales reached the customers before the end of September 2011, the revenue growth in the third quarter of 2011 would have been at 25.0%. Instead, the RMB23.3 million was recognized in October 2011.
• Gross margin was 34.4% in the third quarter of 2011—exceeding prior guidance of 33%-34%.
• Profit before taxation in the third quarter of 2011 decreased by 7.5% to RMB94.8 million as compared to RMB102.4 million in the third quarter of 2010.
• Net profit in the third quarter of 2011 decreased by 19.9% to RMB71.8 million. The decrease was adversely impacted by the increase in the Company's effective tax rate to 24.3% in the third quarter of 2011 from an effective tax rate of 12.5% in the third quarter of 2010, due to the expiration of the Company's preferential PRC tax treatment at the end of 2010.
• Earnings per ADS were $0.19 in the third quarter of 2011—within the prior guidance of $0.18-$0.21 per ADS.
• Xiniya's network of authorized retailers added 72 new retail outlets in the third quarter of 2011, bringing the total number of authorized retail outlets to 1,567, as compared to 98 new retail outlets added in the third quarter of 2010.
• In August 2011, the Company announced that its board of directors approved a $1.8 million share repurchase program of its American depositary shares (ADS) in the open market in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. Mr. Qiming Xu, Xiniya's Chairman and Chief Executive Officer, and Mr. Chee Jiong Ng, Xiniya's Chief Financial Officer, have committed to purchase up to $200,000 and $50,000 of ADSs, respectively, with personal funds.
The share repurchase program became effective on September 1, 2011, and is authorized to be in effect through December 31, 2012. As at September 30, 2011, the Company, Mr. Xu and Mr. Ng purchased $112,500, $12,500 and $3,125 worth of ADSs, respectively, or 48,569, 5,392 and 1,360 ADSs at average prices of $2.32, $2.32 and $2.30, respectively.
• In August 2011, the Company also announced its new media campaign that will run until December 2011 on CCTV-2, the business channel of China Central Television (CCTV). This represents an expansion of Xiniya's existing advertising campaign to promote its brand on CCTV-5, the sports channel, and CCTV-12, the "society and law" channel.