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Exceed Company Limited Fourth Quarter and Full Year 2013 Financial Results

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PR Newswire

FUJIAN, China, April 30, 2014

FUJIAN, China, April 30, 2014 /PRNewswire/ -- Exceed Company Ltd. (NASDAQ: EDS) ("Exceed" or the "Company"), the owner and operator of the "Xidelong" brand, one of the leading domestic sportswear brands in China, today released its financial results for the fourth quarter and the year ended December 31, 2013.

Financial Highlights – Fourth Quarter ended December 31, 2013 (unaudited)⁽¹⁾

Revenue was RMB495.9 million (US$81.9 million), representing a 32.7% year-over-year increase.
Gross profit was RMB135.3 million (US$22.3 million), representing a 32.8% year-over-year increase. Gross margin was 27.3%, which remained the same as the fourth quarter ended December 31, 2012.
Operating profit was RMB31.6 million (US$5.2 million), representing a 137.6% year-over-year increase.
Net profit was RMB21.7 million (US$3.6 million), representing a 104.7% year-over-year increase.

Financial Highlights – Full Year ended December 31, 2013 (audited)⁽¹⁾

Revenue was RMB1,629.6 million (US$269.2 million), representing a 31.6% year-over-year decrease.
Gross profit was RMB441.0 million (US$72.8 million), representing a 34.7% year-over-year decrease. Gross margin was 27.1%, representing a decrease of 1.2 percentage points year-over-year.
Operating profit was RMB94.5 million (US$15.6 million), representing a 59.2% year-over-year decrease.
Net profit was RMB65.5 million (US$10.8 million), representing a 67.1% year-over-year decrease.

⁽¹⁾

The Company's reporting currency is Renminbi ("RMB"). RMB numbers included in this press release have been translated into U.S. dollars at the rate of US$1.00 = RMB6.0537, the exchange rate set forth in the H.10 statistical release of the Board of Governors of the Federal Reserve on December 31, 2013. The translation of amounts from RMB to U.S. dollars is solely for the convenience of the reader. No representation is made that RMB amounts could have been, or could be, converted into U.S. dollars at that rate or at any other rate on December 31, 2013.

Shuipan Lin, Exceed's founder, Chairman and CEO, commented, "2013 proved to be a challenging year for Exceed and the Chinese sportswear industry in general. Our financial results for the fourth quarter and the year ended December 31, 2013 continued to be impacted by the weakening consumer demand in China for our products, which was primarily due to the ongoing global macroeconomic uncertainties and the slowdown of economic growth in China. However, we have seen signs of a slow market recovery in the domestic sportswear industry, and we believe that the excessive inventory or stocking, which bothered the domestic sportswear industry for quite some time, is gradually reducing. In response to the prevailing market conditions, we took a prudent approach to control the amount of orders placed by our distributors. In addition, we continue to enhance the efficiency of our distribution network by closing or relocating inefficient retail selling locations. We believe that these initiatives will help to reduce the overall inventory of finished products in the retail selling locations."

"Despite the unfavorable operating environment and volatile prospects, we are still confident in the outlook of China's sportswear industry. We believe that the economic slowdown will not hinder the development of the domestic sportswear industry in the long run. Our experience over the years has led us to believe that market demand for leisure sportswear will be a dominant driving force behind the growth of the industry. The increase in demand is mainly attributable to the increase in the disposable income of consumers and changes in the attitude of consumption, and we are optimistic about the long-term development of the domestic sportswear industry. We believe Exceed is in a good position to consolidate its leading position in its target market segments as the market develops."

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Exceed Company

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Unaudited Fourth Quarter and Audited Fiscal Year 2013 Financial Results

Revenue breakdown

	Quarter Ended
	Dec 31, 2013 US$'000	Dec 31, 2013 RMB'000	% of Revenue	Dec 31, 2012 RMB'000	% of Revenue	Fourth Quarter YoY Growth
Footwear	37,386	226,327	45.6%	193,731	51.8%	16.8 %
Apparel	43,705	264,574	53.4%	173,075	46.3%	52.9 %
Accessories	821	4,968	1.0%	6,932	1.9%	(28.3)%
Total	81,912	495,869	100.0%	373,738	100.0%	32.7 %
	Year Ended
	Dec 31, 2012 US$'000	Dec 31, 2013 RMB'000	% of Revenue	Dec 31, 2012 RMB'000	% of Revenue	Fiscal Year YoY Growth
Footwear	123,965	750,448	46.1%	1,144,843	48.0%	(34.5)%
Apparel	141,135	854,391	52.4%	1,198,186	50.3%	(28.7)%
Accessories	4,093	24,777	1.5%	40,487	1.7%	(38.8)%
Total	269,193	1,629,616	100.0%	2,383,516	100.0%	(31.6)%

Revenue. Although a slow recovery occurred towards the end of 2013, the global macroeconomic environment had remained difficult for much of the year, which had an adverse impact on the Chinese economy and its sportswear industry. In addition, initial forecasts for sports products demand in preceding years proved to be overly optimistic, leading to an industry-wide build-up in inventory levels. In response, most sportswear brands aggressively cleared their excessive inventory. In an effort to maintain our competitive position and pricing power and to manage inventory levels and the efficiency of our distribution network, we enacted a number of strategic initiatives throughout the year. Among others, as all of our products are sold to distributors, we actively engaged our distributors and authorized third party retailers to manage the level of wholesale orders placed with us but not yet manufactured. In anticipation of weaker consumer demand and to prevent a buildup of inventory at our distributors, we trimmed our production and delivery activities. As a result, revenue for the fourth quarter of 2013 was RMB495.9 million (US$81.9 million), representing a 32.7% increase from RMB373.7 million for the same period in 2012. However, revenue decreased by 31.6%, from RMB2,383.5 million for 2012 toRMB1,629.6 million (US$269.2 million)for 2013. The year-over-year decrease in revenue was primarily due to a decrease in the volume of products produced and sold.

Footwear. Revenue from footwear accounted for 45.6% and 46.1% of our total revenue for the fourth quarter and the full year of 2013, respectively. Our footwear products include nine categories: running footwear, leisure footwear, basketball footwear, skateboarding footwear, canvas footwear, tennis footwear, outdoor footwear, vintage design footwear and cross-training footwear. A portion of our footwear production is outsourced.

Revenue from footwear decreased by 34.5%, from RMB1,144.8 million for 2012 to RMB750.4 million (US$124.0 million) for 2013, primarily due to a 32.7% decrease in sales volume and a 2.7% decrease in the average selling price ("ASP"). The decrease in ASP was attributable to the introduction of a range of lower priced footwear products to target the mass market and to better align with customer preferences.

Revenue from footwear was RMB226.3 million (US$37.4 million) for the fourth quarter of 2013, representing an increase of 16.8% from RMB193.7 million for the same period in 2012. This increase was primarily due to a 5.4% increase in sales volume and a 10.8% increase in ASP as a result of a slow market recovery in the fourth quarter of 2013.
Apparel. Revenue from apparel accounted for 53.4% and 52.4% of our total revenue for the fourth quarter and the full year of2013, respectively. Our apparel products primarily include sports tops, sports pants, jackets and track suits. Our apparel production is entirely outsourced.

Revenue from apparel decreased by 28.7%, from RMB1,198.2 million for 2012 to RMB854.4 million (US$141.1 million) for 2013. This decrease was primarily due to a 42.8% decrease in sales volume, which was partially offset by a 24.6% increase in ASP. The increase in ASP was primarily caused by the improvement of the design and quality of certain apparel products to better align with consumer demand. To a lesser extent, the increase in ASP was also attributable to the increase in the proportion of sales of higher priced winter collection. For 2013, higher priced winter collection apparel accounted for 19.6% of the total apparel sales, compared with 9.4% for 2012.

Revenue from apparel was RMB264.6 million (US$43.7 million) for the fourth quarter of 2013, an increase of 52.9% from RMB173.1 million for the same period in 2012. This increase was due to a 17.9% increase in sales volume and 29.7% increase in ASP, which was mainly attributable to the slow market recovery in the fourth quarter of 2013. To a lesser extent, the increase in ASP was also attributable to the increase in the proportion of sales of higher priced winter collection compared with the same period of 2012.
Accessories. Revenue from accessories accounted for 1.0% and 1.5% of our total revenue for the fourth quarter and the full year of 2013, respectively. Our accessories products primarily include sports caps, sports socks, bags and backpacks. Our accessories production is entirely outsourced.

Revenue from accessories decreased by 38.8%, from RMB40.5 million for 2012 to RMB24.8 million (US$4.1 million) for 2013. Revenue from accessories was RMB5.0 million (US$0.8 million) for the fourth quarter of2013, representing a decrease of 28.3% from RMB6.9 million for the same period in 2012. The decreases in revenue for the fourth quarter and for the full year of 2013 were primarily attributable to the decrease in overall sales of our main products.

Gross profit and Gross profit margin. Ourgross profit for 2013 decreased by 34.7% to RMB441.0 million (US$72.8 million) from RMB675.7 million for 2012, primarily as a result of the decrease in revenue. Overall gross profit margin for 2013 decreased by 1.2 percentage points to 27.1% from 28.3% for 2012, primarily as a result of the increase in supply and outsourcing costs, which was largely attributable to the increasing costs of raw materials and labor and costs of finished goods purchased from contract manufacturers. We will continue our efforts to maintain our gross margin by balancing product pricing and production cost moving forward.

As a result of the slow market recovery, gross profit for the fourth quarter of 2013 increased by 32.8% to RMB135.3 million (US$22.3 million) from RMB101.9 million for the same period for 2012. Gross profit margin was 27.3% for the fourth quarter of 2013, which remained the same as the same period of 2012.

Other income and gains. Other income and gains decreased by 38.5%to RMB2.4 million (US$0.4 million) for the fourth quarter of 2013 from RMB3.9 million for the same period in 2012. Other income and gains decreased by 23.3% to RMB12.2 million (US$2.0 million) for 2013 from RMB15.9 million for 2012.

The decrease in other income and gains for the fourth quarter and full year of 2013 was mainly attributable to the decrease in the average interest rate and the average amount of deposits. Other income and gains in 2013 mainly consisted of interest income derived from short-term time deposits, with an average outstanding balance of RMB371.0 million (US$61.3 million) for 2013, bearing interest of 2.85% per annum.

Selling and distribution costs. Selling and distribution costs for the fourth quarter of 2013 was RMB76.5 million (US$12.6 million), representing an increase of 13.0% from RMB67.7 million for the same period for 2012. Selling and distribution costs for 2013 were RMB260.8 million (US$43.1 million), representing a decrease of 25.0% from RMB347.7 million for 2012.

The decrease in selling and distribution costs for the full year of 2013 was primarily due to decreases in advertising and promotional expenses. Advertising and promotional expenses decreased from RMB328.4 million for 2012 to RMB246.6 million (US$40.7 million) for 2013, primarily because of the decrease of renovation subsidies provided to our distributors and third-party retailers for their renovation of certain existing Xidelong retail selling locations, some of which were received in the form of standardized promotional materials and display equipment. The decrease was mainly due to the decrease in the average size of retail selling locations renovated. The average size of retail selling locations renovated decreased from 87 sq. meters in 2012 to 74 sq. meters in 2013. We focused on renovating retail selling locations with relatively smaller areas in 2013. Moreover, in 2013, our advertising and promotional activities continued to focus on events relating to the Nationwide "Fitness for All" Sports Campaign organized by China's General Administration of Sport, the government agency responsible for sports activities administration in China.

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