Cost of Sales and Gross Profit Margin (amounts in thousands, in U.S. Dollars, except for percentages)
During the third quarter of 2010 we began to fully outsource our manufacturing to third parties. Our products are manufactured on our behalf, based on orders for our products that we receive from our distributors, which orders are based on the clothing samples we design and create.
Historically, we outsourced to two types of manufacturers: (1) sub-contractors, which require us to provide them with the raw materials for our products, and (2) O.E.M. manufacturers, which supply their own raw materials. Beginning in 2009, we have shifted our outsourcing entirely to O.E.M. manufacturers.
As we shifted away from sub-contract manufacturing and manufacturing product ourselves entirely to O.E.M. manufacturing in 2010, the components of our cost of sales have correspondingly shifted. Raw material costs accounted for 1.50%, of our total net sales in 2010, compared with 4.72% in 2009. With the shift to O.E.M. manufacturing, O.E.M. finished goods cost, representing our purchase of finished products from the O.E.M. manufacturers, correspondingly increased accounting for 57.37% of our total net sales in 2010, compared with 56.89% in 2009.
Labor cost accounted for 0.38% of our total net sales in 2010, compared with 1.82% in 2009. The decrease was primarily attributable to our increase in outsourcing our manufacturing to third parties.
Overhead and other expenses were 0.16% of our total net sales in 2010, compared with 0.42% for 2009. The decrease was primarily attributable to our increase in outsourcing our manufacturing to third parties.
Total cost of sales for 2010 was $43,863, an increase of 6.77% from $41,080 for 2009. As a percentage of total net sales, our cost of sales decreased to 59.41% of total net sales for 2010, down from 63.85% of total net sales for 2009. Consequently, gross margin as a percentage of total net sales increased to 40.59% for 2010 from 36.15% for 2009. Our gross margin increased due to the increased outsourcing of our manufacturing to third parties as well as focusing production and marketing on higher margin items such as suits, down jackets and leather jackets.
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.jpg?tr=w-120,h-60,c-at_max,cm-pad_resize,bg-ffffff "UBM China (Shanghai)")
-Ltd..jpg?tr=w-120,h-60,c-at_max,cm-pad_resize,bg-ffffff "Thermore (Far East) Ltd.")
