Zuoan Fashion Limited Announces Fourth Quarter and Full Year 2012 Financial Results

SHANGHAI, April 25, 2013 /PRNewswire/ -- Zuoan Fashion Limited (NYSE: ZA) ("Zuoan" or the "Company"), a leading design-driven fashion casual menswear company in China, today announced its financial results for the fourth quarter and full year ended December 31, 2012.

James Hong, Founder, Chairman of the Board and Chief Executive Officer, commented, "We are pleased with our fourth quarter performance, as we met our top line guidance forecast and exceeded our bottom line guidance forecast. Fourth quarter sales were driven by solid sales at our distributor stores and our direct stores. In the fourth quarter, we successfully transferred our 26 self-operated flagship stores to our distributors which allows us to better concentrate on our product offering to our growing base of distributor and sub-distributor stores, improves productivity and reduces operating expense."

"During the fourth quarter, we successfully added 3 new distributors bringing our total distributor count to 16. The regions in which our new distributors operate include the Hainan, Shanxi and Guangdong provinces. A total of 40 distributor and sub-distributor stores were opened in the fourth quarter of 2012, resulting in a total of 1,329 store locations at the end of December, 2012."

"We held our first sales fair of the year in March. All of our distributors and sub-distributors participated in this event and placed their purchase orders on the latest 2013 Fall collection. The order volume increased by 5% compared to the same sales fair last year with average selling prices remaining stable compared to last year."

"Zuoan has a strong balance sheet and improved inventory levels at the end of 2012. In spite of the market challenges in the second half of 2012, our ability to deliver high quality, in-demand products for our customers helped drive results. We continue to focus on delivering products that meet our high customer standards on design, quality, and price. We remain optimistic about our long term growth prospects and broadening our brand popularity in China's fashion casual menswear market."

Fourth Quarter 2012 Financial Highlights

• Revenues in the fourth quarter of 2012 were RMB369.6 million ($59.3 million), an increase of 4.0% from RMB355.3 million in the same quarter of 2011.
• Gross profit in the fourth quarter decreased 1.1% year over year to RMB167.9 million ($27.0 million) from RMB169.8 million in the same quarter of 2011. 
• Gross profit margin was 45.4% compared to 47.8% in the prior year period and 46.9% in the 2012 third quarter.    
• Net income was RMB69.0 million ($11.1 million), a decrease of 1.7% from RMB70.2 million in the same quarter of 2011.
• Diluted earnings per ordinary share was RMB0.62 ($0.10) in the fourth quarter, equivalent to RMB2.48 ($0.40) per ADS, compared to diluted earnings per ordinary share of RMB0.63 ($0.10), equivalent to RMB2.52 ($0.40) per ADS, in the fourth quarter of 2011.

Full Year 2012 Financial Highlights

• Total revenue for the full year 2012 increased 16.0% to RMB1.4 billion ($229.1 million) from RMB1.2 billion in 2011.
• Gross profit increased 22.8% to RMB668.1 million ($107.2 million) in 2012 from RMB544.0 million in 2011 and gross profit margin increased 2.6% to 46.8% in 2011 from 44.2% in 2011.
• Net income for the full year 2012 was RMB295.4 million ($47.4 million), an increase of 15.5% from RMB255.7 million in 2011.
• Basic earnings per ordinary share was RMB2.65 ($0.43) in 2012, equivalent to RMB10.62 ($1.70) per ADS, compared to basic earnings per ordinary share RMB2.39 ($0.38) in 2011,  equivalent to RMB9.54 ($1.53) per ADS.
• Diluted earnings per ordinary share was RMB2.65 ($0.43) in 2012, equivalent to RMB10.62 ($1.70) per ADS, compared to diluted earnings per ordinary share RMB2.37 ($0.38) in 2011, equivalent to RMB9.47 ($1.52) per ADS.
• The number of Zuoan stores increased 4.6% to 1,329 at the end of 2012 compared to 1,270 stores at the end of 2011.

Fourth Quarter 2012 Financial Performance

Revenue for the fourth quarter was RMB369.6 million ($59.3 million), a 4.0% increase from RMB355.3 million ($57.0 million) in the same period last year. The increase in revenue was driven by higher sales volume at the distributor and sub-distributor store level as well as from the Company's seven direct stores located in Shanghai. Fourth quarter distributor sales increased 16.2% to RMB364.8 million compared to RMB314.0 million in the fourth quarter of 2011. Fourth quarter 2012 self-operated direct store and flagship store sales were RMB4.7 million compared to RMB41.3 million in the prior year period. A total of 40 distributor and sub-distributor stores were opened in the fourth quarter of 2012, and 26 self-operated flagship stores were transferred over to our distributors in the fourth quarter of 2012, resulting in a total of 1,329 store locations at the end of December, 2012 compared to 1,289 store locations at the end of September 2012. 

Cost of sales increased 8.7% to RMB201.6 million ($32.4 million) in the fourth quarter of 2012 from RMB185.5 million ($29.8 million) in the same quarter of 2011, primarily as a result of the increase in sales volume. As a percentage of revenues, cost of sales increased to 54.6% in the fourth quarter of 2012 from 52.2% in the fourth quarter of 2011.

Gross profit in the fourth quarter decreased 1.1% year over year to RMB167.9 million ($27.0 million) from RMB169.8 million ($27.3 million) in the same period of 2011. Fourth quarter 2012 gross profit margin was 45.4% compared to 47.8% in the same period last year. Fourth quarter 2012 gross margin decreased primarily due to the transition of the Company's direct flagship stores to its distributors in the fourth quarter. Gross margin at the Company's self-operated direct stores and distributor stores was 61.1% and 45.2%, respectively.   

Selling and distribution expenses in the fourth quarter were RMB45.6 million ($7.3 million), or 12.3% of revenue, compared to RMB60.6 million ($9.7 million), or 17.1% of revenue in the same period last year. This percentage decrease was primarily due to the significant decrease in direct store expenses resulting from the transition of the Company's directly-operated flagship stores to selected distributors.

Administrative expenses in the fourth quarter were RMB30.6 million ($4.9 million), or 8.3% of revenue, compared to RMB13.6 million ($2.2 million), 3.8% of revenue in the same period last year. This percentage increase was primarily due to the loss on disposal of leasehold improvement after the transition of the Company's directly-operated flagship stores to our distributors in October 2012.

The effective tax rate in the fourth quarter decreased to 25.6% compared to 26.2% in the prior year period.

Net income for the fourth quarter decreased 1.7% to RMB69.0 million ($11.1 million) from RMB70.2 million ($11.3 million) in the same period last year. Fourth quarter net income as a percentage of revenue was 18.7% compared to 19.7% in the prior year period.

Diluted earnings per ordinary share was RMB0.62 ($0.10) in the fourth quarter, equivalent to RMB2.48 ($0.40) per ADS, compared to diluted earnings per ordinary share RMB0.63 ($0.10) in the fourth quarter of 2011, equivalent to RMB2.52 ($0.40) per ADS. The Company's diluted number of shares outstanding was 111.3 million in the fourth quarter ended December 31, 2012.

Full Year 2012 Financial Performance

Revenue in 2012 was RMB1.4 billion ($229.1 million), a 16.0% increase from RMB1.2 billion ($197.6 million) in 2011.  The increase in revenue was driven by both distributors and direct stores sales volume, the increase in the average selling price of our products and higher revenue generated from our direct- operated flagship stores compared to direct stores. Full year distributor and sub-distributor store sales increased 15.4% to RMB1.3 billion compared to RMB1.2 billion of 2011. The Company completed 2012 with a total of 1,322 distributor and sub-distributor stores and 7 self-operated retail stores resulting in a total of 1,329 store locations at the end of 2012 compared to 1,270 store locations at the end of 2011. Average selling price ("ASP") in 2012 increased by 12.5% to RMB176 compared to RMB157 in 2011.

Cost of sales increased by 10.5% to RMB759.3 million ($121.9 million) in 2012 from RMB686.9 million ($110.3 million) in 2011, primarily as a result of the increase in line with the sales volume. As a percentage of revenues, cost of sales decreased to 53.2% in 2012 from 55.8% in 2011.

Gross profit in 2012 increased 22.8% year over year to RMB668.1 million ($107.2 million) from RMB544.0 million ($87.3 million). Full year 2012 gross profit margin was 46.8% compared to 44.2% in 2011.

Selling and distribution expenses in 2012 were RMB199.2 million ($32.0 million), or 14.0% of revenue, compared to RMB136.7 million ($21.9 million), or 11.1% of revenue in 2011. This percentage increase was primarily due to the increase in store expansion related rental charges and direct store expenses and from the increase in the Company's discretionary brand promotion allowance  from the Company's distributors for advertising, sales and marketing promotion.

Administrative expenses in 2012 were RMB70.7 million ($11.3 million), or 5.0% of revenue, compared to RMB 56.6 million ($9.1 million), or 4.6% of revenue in 2011.

Effective tax rate in 2012 decreased to 25.7% compared to 26.7% in 2011.

Net income in 2012 increased 15.5% to RMB295.4 million ($47.4 million) from RMB255.7 million ($41.0 million) in 2011. Net income as a percentage of revenue was 20.7% compared to 20.8% in 2011.

Basic earnings per ordinary share was RMB2.65 ($0.43) in 2012, equivalent to RMB10.62 ($1.70) per ADS, compared to basic earnings per ordinary share RMB2.39 ($0.38), equivalent to RMB9.54 ($1.53) per ADS in 2011.

Diluted earnings per ordinary share was RMB2.65($0.43) in 2012, equivalent to RMB10.62 ($1.70) per ADS, compared to diluted earnings per ordinary share RMB2.37 ($0.38) in 2011, equivalent to RMB9.47($1.52) per ADS.

As of December 31, 2012, the Company had cash, cash equivalents of RMB918.5 million ($147.4 million), compared to RMB690.5 million as of December 31, 2011. Net cash provided by operating activities was RMB181.0 million ($29.0 million) in the twelve months ended December 31, 2012, compared to RMB76.0 million in the twelve months ended December 31, 2011.

Financial Outlook

For the first quarter of 2013, the Company currently anticipates revenue in the range of RMB280-RMB300 million ($44.9 - $48.2 million), gross margin of approximately 44-46%, net income of approximately RMB64.4 – RMB69.0 million ($10.3 - $11.1 million) and basic and fully diluted EPS of approximately RMB0.58 ($0.09) - RMB0.62 ($0.10).  The Company expects to have approximately 111.3 million shares (27.8 million ADSs) outstanding during the quarter ending March 31, 2013. 

Approximately 10 new retail stores are expected to be opened by distributors and sub-distributors in of the first quarter of 2013. 

Conference Call Information

Zuoan's management will host an earnings conference call on April 25^th, 2013 at 8:30 a.m. U.S. Eastern Time. Listeners may access the call by dialing # 1-719-325-2448. A webcast will also be available via www.viavid.net. A replay of the call will be available through May 2^nd, 2013. Listeners may access the replay by dialing #1-858-384-5517, access code: 5822730.

Exchange Rate

This announcement contains translations of certain Renminbi amounts into U.S. dollars at specified rates solely for the convenience of readers. Unless otherwise noted, all translations from Renminbi to U.S. dollars were made at the exchange rate of RMB6.2301 to US$1.00, as set forth in the H.10 statistical release of the Federal Reserve Board on December 31, 2012.

About Zuoan Fashion Limited

Zuoan Fashion Limited is a leading design-driven fashion casual menswear company in China, and is head-quartered in Shanghai.  Zuoan offers a wide range of products, including men's casual apparel, footwear and lifestyle accessories, primarily targeting urban males between the ages of 20 and 40 who prefer stylish clothing that represents a sophisticated lifestyle.  Through extensive networks of distributors and retail stores, Zuoan sells its products in 31 of China's 32 provinces and municipalities.  As of December 31, 2012, Zuoan had 1,329 stores located in China.

Safe Harbor

This news release may contain forward-looking information about Zuoan Fashion Limited, which is covered under the safe harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not historical facts. These statements can be identified by the use of forward- looking terminology such as believe, expect, may, will, should, project, plan, seek, intend, or anticipate or the negative thereof or comparable terminology, and include discussions of strategy, and statements about industry trends and Zuoan Fashion Limited's future performance, operations, and products.

Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Actual performance results may vary significantly from expectations and projections. Further information regarding this and other risk factors are contained in Zuoan's public filings with the U.S. Securities and Exchange Commission.

All information provided in this news release and in any attachments is as of the date of the release, and the companies do not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under law.

Contact Information
John Low
Email: [email protected]

ICR, LLC
William Zima
Phone: +86-10-6583-7511 
Zuoan Investor Relations Department
US: 1-646-308-1614

SOURCE Zuoan Fashion Limited