Revenue zooms 26% at apparel firm Zuoan Fashion in Q2

Gross profit in the second quarter increased 48.3% year over year to RMB145.5 million ($22.9 million) from RMB98.1 million ($15.4 million) in the same period of 2011.  Second quarter 2012 gross profit margin was 48.2% compared to 41.0% in the same period last year.  Second quarter 2012 gross margin increased primarily due to an increase in wholesale prices to distributors implemented in the third quarter 2011 and the higher margin contributed by sales of the Company's self-operated direct stores and flagship stores. Gross margin at the Company's self-operated direct stores was 68.0% and 76.6% at its flagship store, respectively.  Combined gross margin at Company self-operated locations was 75.7%.

Selling and distribution expenses in the second quarter were RMB41.0 million ($6.4 million), or 13.6% of revenue, compared to RMB19.1 million ($3.0 million), or 8.0% of revenue in the same period last year.  This percentage increase was primarily due to the increase in store expansion related rental charges and direct store expenses, advertising and promotion expenses, and costs of renovation and fittings of distributors' new and existing stores.

Administrative expenses in the second quarter were RMB14.5 million ($2.3 million), or 4.8% of revenue, compared to RMB15.6 million ($2.5 million), 6.5% of revenue in the same period last year. This percentage decrease was primarily a result of the decrease in equity-settled employee benefit costs.

Effective tax rate in the second quarter increased to 26.1% compared to 27.6% in the prior year period.

Net income for the second quarter increased 45.3% to RMB66.2 million ($10.4 million) from RMB45.6 million ($7.2 million) in the same period last year.  Second quarter net income as a percentage of revenue was 22.0% compared to 19.0% in the prior year period.

Diluted earnings per ordinary share was RMB0.60 ($0.09) in the second quarter of 2012, equivalent to RMB2.38($0.37) per ADS, compared to diluted earnings per ordinary share RMB0.41 ($0.06) in the second quarter of 2011, equivalent to RMB1.64 ($0.26) per ADS. The Company's diluted number of shares outstanding was 111.3 million in the second quarter ended June 30, 2012.

As of June 30, 2012, the Company had cash, cash equivalents of RMB1,013.6 million ($159.5 million), compared to RMB690.5 million ($108.7 million) as of December 31, 2011.  Net cash provided by operating activities was RMB42.9 million ($6.7 million) in the three months ended June 30, 2012, compared to RMB1.2 million ($0.2 million) used in operating activities in the three months ended June 30, 2011.

For the third quarter of 2012, the Company currently anticipates revenue in the range of RMB490-RMB510 million ($77.1 - $80.3 million), gross margin of approximately 46-48%, net income of approximately RMB99.9 - RMB104.1 million ($15.7 - $16.4 million) and basic and fully diluted EPS of approximately RMB0.90 ($0.14) - RMB0.94 ($0.15).  The Company expects to have approximately 111.3 million number of shares (27.8 million ADSs) outstanding during the quarter ending September 30, 2012.

Zuoan expects to open approximately 25 self-operated flagship stores in the full year 2012.  Approximately 175 new retail stores and 25 flagship stores are expected to be opened by distributors and sub-distributors in of the full year 2012.

Zuoan Fashion Limited