Gross profit at Zuoan Fashion tanks 47.7% in Q2

14 Oct '14

3 min read

Gross profit at NYSE-listed Zuoan Fashion Limited, a Chinese fashion casual menswear company, slid precariously by 47.4% year-on-year, in the second quarter ended June 30, 2014.

Gross profit declined steeply by 47.4% to RMB73.8 million in the second quarter of 2014 or $11.9 million from RMB140.1 million in the second quarter of 2013.

Second quarter 2014 gross margin also dropped dearly to 30.0% in the quarter under preview from 44.1% in the prior year quarter.

Zuoan Fashion attributed the fall to lower wholesale pricing from 35% to 33% offered to its distributors as well as a lower pricing at the retail level.

It said the gross margin at its direct stores and distributor stores stood at 41.9% and 29.9%, respectively.

Revenue for the second quarter of 2014 amounted to RMB245.7 million or $39.6 million, down 22.6% from RMB317.6 million in the same quarter of 2013.

“The decrease was primarily driven by lower wholesale prices offered to distributors as well as reduced pricing at the retail level due to a slower economic environment in China,” Zuoan Fashion explained.

During the second quarter of 2014, distributor sales decreased by 22.1% to RMB243.7 million from RMB312.8 million in the same quarter of 2013.

Second quarter 2014 self-operated direct store sales were RMB2.0 million, compared to RMB4.7 million in the same quarter of 2013.

It said a total of 161 distributor and sub-distributor stores and one self-operated direct store were closed in the second quarter of 2014.

This resulted in a total of 925 store locations as of June 30, 2014 compared to 1,383 store locations in the same period of the prior year.

Lower sales volume led to cost of sales falling by 3.1% to RMB171.9 million or $27.7 million in the second quarter of 2014 from RMB177.4 million in the prior year quarter.

As a percentage of revenues, cost of sales increased to 70.0% in the second quarter of 2014 from 55.9% in the same quarter of 2013.

Selling and distribution expenses in the quarter under review also rose higher to RMB59.6 million or $9.6 million, or 24.3% of revenue, compared to RMB31.1 million, or 9.8% of revenue in the same quarter of 2013.

The apparel marketer said the percentage increase was primarily due to advertising expenses incurred for the marketing activities and sales promotions in the second quarter of 2014 as well as an increase in renovation costs.

Administrative expenses in the second quarter of 2014 were RMB14.1 million or $2.3 million, or 5.8% of revenue, compared with RMB15.3 million, 4.8% of revenue in the same quarter of 2013.

CEO James Hong said, "Looking to the second half of 2014, we will adhere to our strategy of improving product design and quality, prudently invest in store renovation and advertising initiatives, and reduce our inventory at the store level and through our online initiatives.

He added, “These actions are expected to strengthen our customer base and drive higher sales and profits over time." (AR)

Fibre2fashion News Desk - India

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