VLOV Inc posts Q3 financial results

16 Nov '10

6 min read

VLOV Inc, fashion-forward apparel for men in the People's Republic of China, announced its financial results for the three months and nine months ended September 30, 2010, and revised its fiscal year ending December 31, 2010 financial guidance downward.

Qingqing Wu, Chairman and CEO of VLOV, commented "VLOV has continued executing on its strategy of controlling costs and up-scaling our brand. During the third quarter, we began to outsource 100% of our manufacturing, which allows us to focus on design, marketing and advertising. Our distributors have been very supportive in our efforts to upgrade our brand image by closing counter- and concession-type points of sales to focus on opening stand-alone store locations which enhance our brand appeal.

“We believe that these steps will enable the Company to have a greater gross profit and gross margin in the future as we further establish ourselves as a premium brand. However, as a result of our distributors closing their counters and concessions, we have had to revise our full year guidance downward for the year ended December 31, 2010."

Points of Sale ("POS") - VLOV products were sold through 526 POS operated by its distributors as of November 3, 2010, a decrease of 29.1% compared to 742 locations a year ago. Since March 31, 2010, our distributors have closed over 271 POS, or 29% of total VLOV POS. We anticipate, however, that by the end of the year our distributors will open more than 30 stand-alone store locations.

Revised Guidance for the year ended December 31, 2010
As a result of its distributors closing counter- and concession-type POS as part of the Company's up-brand efforts, the Company has revised its revenue, gross profit, operating income and adjusted net income guidance previously issued for the year ended December 31, 2010.

Compared to the bottom range values of the guidance previously issued by the Company, revenue is expected to be $65.0 million or 8.5% less than previously estimated, operating income is expected to be $15.6 million or 11.8% less than previously estimated, and non-GAAP adjusted net income is expected to be $11.7 million or 11.4% less than previously estimated.

Results for the three and nine months ended September 30, 2010 vs. the three and nine months ended September 30, 2009

Sales - Net sales in the third quarter of 2010 were $13.1 million compared to $13.9 million in the third quarter of 2009, a 5.9% decrease. The decrease was a result of decreased sales to our distributors in Jiangxi, Zhejiang and Yunnan provinces from their closing of their counters and concessions. Net sales for the nine months ended September 30, 2010 was $49.1 million, an increase of 7.2% from $45.8 million for the same period of 2009. Net sales for the nine months ended September 30, 2010 increased as a result of our stronger sales results in the second quarter of 2010.

Gross Profit - Third quarter gross profit increased to $5.4 million from $5.0 million for the third quarter of 2009, an increase of 8.0%. Gross margin improved to 41.2% in the third quarter of 2010, from 36.0%, mainly due to price increases as well as increased production efficiency through outsourcing to O.E.M. manufacturers. Gross profit for the nine months ended September 30, 2010 increased to $19.2 million versus $16.5 million for the nine months ended September 30, 2009. Gross margin improved to 39.1% for the nine months ended September 30, 2010, up from 36.0% in the previous period 2009, as a result of price increases as well as increased production efficiency through complete outsourcing to O.E.M. manufacturers.

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