PR Newswire
FUJIAN, China, May 15, 2013
FUJIAN, China, May 15, 2013 /PRNewswire-FirstCall/ -- 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 unaudited financial results for the first quarter ended March 31, 2013.
Financial Highlights – First quarter ended March 31, 2013(1)
(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 USD1.00 = RMB6.2108, the exchange rate refers to the exchange rate as set forth in the H.10 statistical release of the Federal Reserve Board, on March 31, 2013. The translation of amounts from RMB to United States 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 March 31, 2013. |
Shuipan Lin, Exceed's founder, Chairman and CEO, commented, "As anticipated, our results in the first quarter were impacted by weakening consumer demand in China, which was largely attributable to the domestic economic slowdown. As a result, overall sales volume across our main footwear and apparel product lines decreased, resulting in a decline in revenue. In response to the prevailing market conditions, we took a prudent approach to control the amount of orders placed by our distributors. Even though we face intense competition in the sportswear industry, we continued to stay focused on our mass market positioning. We continue to introduce a range of popular priced sportswear products to target the mass market and to better align with customer preferences.
"While we expect to continue to operate under unfavorable economic conditions for the remainder of this year, we believe we have the right strategy in place to effectively manage our production and inventory levels, maintain a lean operating structure and continue to strengthen our brand awareness. Our priorities for the remainder of this year will focus on strengthening our brand equity through effective marketing and maximizing the efficiency of our distribution network, and the continued execution of our long-term operational plan to align our production facilities and sales network to best capture growth opportunities in China's evolving sportswear market. We believe that the continued execution of our strategy and operational plan will strengthen our competitive position over the long-term and allow us to maximize our growth opportunities in anticipation of an improving macroeconomic environment."
First Quarter 2013 Financial Results
Revenue breakdown
| Three Months Ended | |||||
| Mar 31, 2013 US$'000 | Mar 31, 2013 RMB'000 | % of Revenue | Mar 31, 2012 RMB'000 | % of Revenue | First Quarter YoY Growth |
Footwear | 23,117 | 143,576 | 47.7% | 431,545 | 48.3% | (66.7%) |
Apparel | 24,568 | 152,590 | 50.7% | 453,914 | 50.7% | (66.4%) |
Accessories | 798 | 4,954 | 1.6% | 9,098 | 1.0% | (45.5%) |
Total | 48,483 | 301,120 | 100.0% | 894,557 | 100.0% | (66.3%) |
Revenue. The global macroeconomic environment remained uncertain throughout the first quarter of 2013, which had an adverse impact on the domestic Chinese economy and sportswear industry. In addition, initial forecasts for sports product demand in preceding years proved to be overly optimistic, leading to a build-up of inventory levels industry-wide. In response, most sportswear brands have aggressively cleared their excess inventory during the period. In light of the impact that market headwinds would have on the Chinese sportswear industry for the first quarter of 2013, we continued to carry out a number of strategic initiatives throughout the first quarter of 2013 to maintain our competitive position, pricing power and to manage inventory levels and the efficiency of our distribution network. Among others, we continued to engage our distributors and authorized third party retailers to manage the level of wholesale orders placed with us to prevent an inventory build-up at our distributors in anticipation of weaker consumer demand. As a result, revenue for the first quarter of 2013 was RMB301.1 million (US$48.5 million), a 19.4% decrease from RMB373.7 million for the preceding quarter and a 66.3% decrease from RMB894.6 million for the first quarter ended March 31, 2012. The year-over-year decrease in revenue was primarily due to a decrease in the delivery of products to our distributors.
Gross profit and Gross profit margin. Gross profit for the first quarter ended March 31, 2013 was RMB78.8 million (US$12.7 million), representing a decrease of 22.7% from RMB101.9 million for the preceding quarter, and a decrease of 69.7% from RMB259.8 million for the first quarter ended March 31, 2012. Gross margin was 26.2% for the first quarter ended March 31, 2013, compared to 27.3% in the preceding quarter and 29.0% for the first quarter ended March 31, 2012. The year-over-year decrease in gross margin was primarily due to the increased production costs such as costs of raw materials and labor. We will continue our efforts to maintain our gross margin by balancing product pricing and material cost moving forward.
Other income and gains. Other income and gains decreased by 15.8% from RMB3.8 million for the first quarter ended March 31, 2012 to RMB3.2 million (US$0.5 million) for the first quarter ended March 31, 2013. The decrease in other income and gains for the first quarter of 2013 was mainly attributable to a decrease in interest income derived from short-term time deposits, with an average outstanding balance of RMB400.0 million (US$64.4 million) in the first quarter of 2013, bearing interest of 2.85% per annum. The decrease was primarily due to a decrease in the average interest rate for our short-term time deposits.
Operating expenses. Total operating expenses for the first quarter ended March 31, 2013 were RMB67.0 million (US$10.8 million), a decrease of approximately 42.4% from RMB116.4 million for the same period in 2012.
Selling and distribution costs. Selling and distribution costs decreased by 48.1%, from RMB85.7 million for the first quarter ended March 31, 2012 to RMB44.5 million (US$7.2 million) for the first quarter ended March 31, 2013. The decrease was mainly due to the decrease in advertising and promotional expenses, which decreased from RMB80.0 million for the first quarter ended March 31, 2012 to RMB40.2 million (US$6.5 million) for the first quarter ended March 31, 2013, primarily because fewer new Xidelong retail selling locations were opened during the first quarter of 2013. During the first quarter of 2013, 20 new Xidelong retail selling locations were opened, certain of which received renovation subsidies from Exceed in the form of standardized promotional materials and display equipment. In contrast, 78 new Xidelong retail selling locations were opened in the first quarter of 2012. In 2013, our advertising and promotional activities will continue to focus on events relating to the Nationwide "Fitness for All" Sports Campaign organized by China's General Administration of Sport, the government agency responsible for sports in China, and the continued engagement of By2 as our official product series spokespersons.
Administrative expenses. Administrative expenses decreased by 33.8%, from RMB19.8 million for the first quarter ended March 31, 2012 to RMB13.1 million (US$ 2.1 million) for the first quarter ended March 31, 2013, primarily due to decreases in Urban Maintenance and Construction("UMC Tax"), Educational Surcharge, Local Educational Surcharge, consultancy fees and employee share-based payment. Other taxes, including UMC Tax, Educational Surcharge, Local Educational Surcharge, etc., decreased from RMB4.1 million for the first quarter ended March 31, 2012 to RMB1.3 million (US$0.2 million) for the first quarter ended March 31, 2013, primarily because of the decline in revenue.
Research and development expenses. Research and development expenses decreased by 13.8%, from RMB10.9 million for the first quarter ended March 31, 2012 to RMB 9.4 million (US$ 1.5 million) for the first quarter ended March 31, 2013, primarily due to improved efforts to increase the efficiency of our research and development activities and the effect of our cost-cutting initiatives.
Finance costs. Finance costs increased by 200.0%, from RMB0.1 million for the first quarter ended March 31, 2012 to RMB 0.3 million (US$50,000) for the first quarter ended March 31, 2013, primarily due to an increase in the average balance of our short-term bank borrowings.
Profit before tax. As a result of the foregoing, profit before tax decreased by 90.0%, from RMB147.2 million for the first quarter ended March 31, 2012 to RMB 14.7 million (US$ 2.4 million) for the first quarter ended March 31, 2013.
Tax. Tax expenses decreased from RMB19.3 million for the first quarter ended March 31, 2012 to RMB4.8 million (US$ 0.8 million) for the first quarter ended March 31, 2013 due to the decrease in operating profit, the effects of which were partially offset by an increase in the applicable PRC income tax rate. Xidelong (China) Co. Ltd., our principal PRC subsidiary, was entitled to a 50% reduction in the PRC corporate income tax until December 31, 2012, after which it is subject to the standard tax rate of 25%. The effective tax rate for the first quarter ended March 31, 2012 and 2013 was 13.1 % and 32.7%, respectively. Excluding the losses of the non-operating companies, the effective tax rates became 12.5% and 25.1%, respectively.
Profit. As a result of the above factors, profit for the first quarter ended March 31, 2013 was RMB9.9 million (US$1.6 million), a decrease of 92.3% from RMB128.0 million for the first quarter ended March 31, 2012.
Balance Sheet
Inventory. The average inventory turnover days for the first quarters ended March 31, 2013 and 2012 were 4 days and 5 days, respectively. The average inventory turnover days and inventory to revenue ratio remained relatively stable because of our effective production planning and effective procurement control and logistics management.
Trade receivables. The average trade receivables turnover days for the first quarters ended March 31, 2013 and 2012 were 280 days and 83 days, respectively. The increase in turnover days is more the result of the decrease in sales rather than actual days outstanding. We have been closely monitoring trade receivable balances that are overdue by 30 days or more by taking into account, among others, the ability and intent of the distributor to settle the balance. We, however, will not make any provision for the overdue balance if (1) we have ongoing trading with the distributor; (2) we receive payments on other invoices from the distributor; and (3) we have no dispute on the amount overdue with the distributor.
Trade payables. The average trade payables turnover days for the first quarters ended March 31, 2013 and 2012 were 11 days and 19 days, respectively. Average trade payables turnover days were within the Company's payment policy.
Cash and cash equivalents. Cash and cash equivalents increased to RMB979.5 million (US$157.7 million) as of March 31, 2013 from RMB637.2 million as of December 31, 2012, primarily as a result of cash inflow from operating activities of RMB351.6 million (US$56.6 million).
Cash Flow
Cash inflow from operating activities was RMB351.6 million (US$56.6 million) for the first quarter ended March 31, 2013, compared to RMB75.9 million for the same period in 2012, an increase that was primarily due to the decrease in trade receivables during the period ended March 31, 2013.
Business Highlights and Outlook
About Exceed Company Ltd.
Exceed Company Ltd. designs, develops and engages in wholesale of footwear, apparel and accessories under its own brand, XIDELONG, in China. Since it began operations in 2002, Exceed has targeted its growth on the consumer markets in second and third-tier cities in China. Exceed has three principal categories of products: (i) footwear, which comprises running, leisure, basketball, skateboarding and canvas footwear, (ii) apparel, which mainly comprises sports tops, pants, jackets, track suits and coats, and (iii) accessories, which mainly comprise bags, socks, hats and caps. Exceed Company Ltd. currently trades on Nasdaq under the symbol "EDS".
Safe Harbor Statement
This announcement contains forward-looking statements that are based on our current expectations, assumptions, estimates and projections about us and our industry. All statements other than statements of historical fact in this form are forward-looking statements. These forward-looking statements can be identified by words or phrases such as "may", "will", "expect", "anticipate", "estimate", "plan", "believe", "is/are likely to" or other similar expressions.
These forward-looking statements involve various risks and uncertainties. Although we believe that our expectations expressed in these forward-looking statements are reasonable, we cannot assure you that our expectations will turn out to be correct. Our actual results could be materially different from and worse than our expectations. A number of factors could cause actual results to differ materially from those contained in these forward-looking statements, including but not limited to changes in our goals and strategies, our ability to control costs and expenses, success of our products, competition in the sportswear industry in China, and changes in PRC government preferential tax treatment and financial incentives. The forward-looking statements made in this announcement relate only to events or information as of the date on which this announcement is published. We undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date this announcement is published or to reflect the occurrence of unanticipated events.
Contacts:
Investor Relations
Exceed Company Ltd.
Vivien Tai
+852 2153-2771
ir@xdlong.cn
– FINANCIAL TABLES TO FOLLOW –
EXCEED COMPANY LTD.AND SUBSIDIARIES | |||||
CONDENSED CONSOLIDATED STATEMENTS OF INCOME | |||||
| |||||
| Three months ended March 31 | ||||
| (in thousands except for share and per share data) | ||||
| |||||
| 2013 | | 2013 | | 2012 |
| US$'000 | | RMB'000 | | RMB'000 |
| (Unaudited) | | (Unaudited) | | (Unaudited) |
| | | | | |
Revenue | 48,483 | | 301,120 | | 894,557 |
| | | | | |
Cost of sales | (35,794) | | (222,307) | | (634,741) |
| | | | | |
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