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FUQI gross margin fall in Q4 2007
22
Feb '08
FUQI International Inc announced selected financial results for the fourth quarter of 2007.

For the fourth quarter of 2007, the Company expects revenues of between $54 million and $55 million and net income of between $6.9 million and $7.2 million.

The Company also expects the gross profit margin and net profit margin will be approximately 10.5% and 13.1%, respectively.

The results of operations for the fourth quarter of 2007 include a one-time reversal of a tax penalty of approximately $4.2 million and equity-based compensation expense of approximately $900,000.

Revenues for the fourth quarter are expected to be between $54-55 million, which represents a year-over-year increase of more than 117%.

Revenues were higher than expectations, driven by a sales event hosted by the Company in December, which generated not only significant sales for the Chinese New Year, but also repeat sales in the remainder of the quarter.

Additionally, Fuqi's brand name is becoming increasingly visible, especially following its listing on the NASDAQ Global Market, which is helping to drive sales.

Gross margin in the fourth quarter was 10.5%, down from third quarter gross margin of 12.4%, and below management expectations of 11.5-12%. The lower than expected gross margin is primarily attributable to higher inventory costs during the quarter.

As a result of increased demand, the Company replenished its lower-cost inventoryin November in preparation for its December sales event. Raw materials prices in both November and December were higher than the inventory that had already been used in the quarter.

The Company accounts for inventory using the FIFO (first in, first out) method, and this accounting impacted gross margin by approximately 105 basis points.

The Company's higher than expected revenues during the quarter, combined with ongoing efficiencies in its operating structure, led to net income margin of approximately 13.1%, resulting in 4Q07 diluted EPS estimate of $0.36-$0.38, based on a weighted average diluted share count of 19 million shares.


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