-- 1Q08 Revenues Increased 177% to $77.6 Million -- 1Q08 Net Income Increased 237% to $6.4 Million, or $0.31 per Diluted Share
SHENZHEN, China, May 15 /Xinhua-PRNewswire-FirstCall/ -- FUQI
International, Inc. (Nasdaq: FUQI) today announced financial results for the
first quarter ended March 31, 2008.
Revenues for the first quarter of 2008 increased 177% to $77.6 million
from $28.0 million in the first quarter of 2007, due to increases in sales
volumes and selling prices.
Gross profit in the first quarter of 2008 increased 175% to $8.8 million
compared to $3.2 million for the same period in the prior year. This increase
in gross profit was primarily attributable to higher selling prices for new
jewelry designs as well as a generally more favorable market environment in
the precious metal jewelry market, which resulted in increased processing fees
on jewelry items delivered during the first quarter.
Gross profit margin for the first quarter increased slightly to 11.36% in
the first quarter of 2008, up from 11.32% in the same period of the prior year.
This increase was primarily due to higher selling prices, as well as increased
design and processing fees.
Operating expenses in the first quarter of 2008 increased to $1.9 million
compared to $615,000 in the same period of the prior year. This increase was
a result of higher administrative expenses required to support a growing
revenue base, as well as higher advertising costs, business taxes, options
granted and increased salaries to certain executives, as well as expenses
incurred as a result of being a publicly traded company. Operating income for
the first quarter increased to $6.9 million from $2.5 million in the first
quarter of 2007.
Net Income for the first quarter of 2008 increased 237% to $6.4 million,
or $0.31 per diluted share, compared to $1.9 million, or $0.12 per diluted
share, in the same period of the prior year. Net margin was 8.2% compared to
6.7% in the prior year period. Non-cash items in the first quarter included a
$149 thousand expense for equity based compensation and a $231 thousand retail
barter revenue gain. (Barter exchanges are incurred when retail customers
trade-in their jewelry to obtain barter credits that can be used in lieu of
cash to buy jewelry products at the Company's retail counters). First quarter
2008 net income also benefited from an $840 thousand non-operating income
derivative gain associated with gold futures the Company purchased to hedge
against its inventory position during the quarter.
At the end of the first quarter, the Company had cash of $28.9 million,
versus $63.3 million of cash at the end of 2007. The primary use of cash
during the first quarter was for investment in inventory to meet expected
demand. Inventory at the end of the first quarter was $64.2 million, up from
$29.6 million at the end of 2007. In addition to the Company anticipating
increased demand for its jewelry products in the second quarter, it is a
standard industry practice in China for top manufacturers to maintain a
sufficient level of inventory in order to attract larger orders from leading
customers. Since the end of the first quarter, the Company's current
inventory position has decreased by approximately one third and its cash
position has risen by a relatively equal amount. Management believes it is
critical to have enough inventory on hand at all times to meet demand, and
will keep its inventory at varying levels that will allow the Company to be
ready to leverage growing demand in the market while at the same time limit
its exposure to the fluctuation of precious metal prices.
Mr. Yu Kwai Chong, Chairman of Fuqi International commented, ''We are
pleased with our results for the first quarter, which exceeded our
expectations. We continue to see increasing demand for our products, and
larger orders from our existing customers. We will continue to build the
necessary foundation so that we are ready to meet our customers' expectations,
and we remain committed to our goal of building the leading provider of luxury
jewelry products in China.''
2008 Financial Outlook
For the full year 2008, the Company is increasing its wholesale revenue,
net income and diluted earnings per share estimates. It now expects total
wholesale revenue of approximately $305 - $315 million, net income of
$21.9 - $23.0 million, and diluted EPS of $0.98 - $1.04, based on a weighted
average share count of 22.2 million shares. In 2008, the Company expects long
term wholesale gross margin of 10.5%, with additional gross margin upside as
its branded retail business becomes more meaningful to overall sales.
For the second quarter, the Company anticipates total wholesale revenue of
approximately $62 - $64 million, which would represent a year-over-year
increase of approximately 136% to 144%, respectively. Net income in the second
quarter is expected to be in the range of $4.5 - $4.6 million, or
$0.20 - $0.21 per diluted share, based on a weighted average share count of
22.2 million shares. Gross margin for the second quarter is expected to be
approximately 10.5%, and net margin is expected to be approximately 7.2%.
Mr. Chong continued, ''We are excited about the opportunities we see ahead
of us, especially in light of our pending acquisition of Temix, which is
expected to begin contributing to Fuqi revenues in the third quarter, once we
have all necessary government approvals. Temix will allow us to quickly ramp
up our retail strategy, by bringing 45 counters and 5 stores on board. Our
strong capital position has given us the opportunity to expand into the retail
markets through the Temix acquisition, and we will continue to manage our
balance sheet to optimize opportunities and value for the business. We have
ramped up the necessary inventory to enable us to quickly meet customer demand,
which continues to grow, and we are committed to maintaining the right balance
sheet for our business.''
Mr. Chong concluded, ''Understanding that the second quarter tends to be
our seasonally mildest quarter, we remain very encouraged by the growth
trajectory we are seeing. We believe that through our rational balance sheet,
our strong management team and now the addition of Temix, we have put in place
the infrastructure that will help to make Fuqi the leading wholesale and
retail company in our market.''
Conference Call
The Company will conduct a conference call to discuss the first quarter
2008 results today, Thursday, May 15, 2008 before the market open at 8:30 am
ET. Listeners may access the call by dialing # 913-312-1304. To listen to
the live webcast of the event, please go to http://www.viavid.net . A replay
of the call will be available through May 22, 2008. Listeners may access the
replay by dialing # 719-457-0820; Passcode: 8304996.
About FUQI International, Inc.
Based in Shenzhen, China, FUQI International, Inc. is a leading designer
of high quality precious metal jewelry in China, developing, promoting, and
selling a broad range of products in the large and rapidly expanding Chinese
luxury goods market.
Safe Harbor Statement
The statements set forth above include forward-looking statements that may
involve risk and uncertainties that could cause actual results to differ
materially from those in the forward-looking statements. Such risks and
uncertainties include, but are not limited to, the vulnerability of the
Company's business to a general economic downturn in China; fluctuation and
unpredictability of costs related the gold, platinum and precious metals and
other commodities used to make the Company's products; changes in the laws of
the PRC that affect the Company's operations; the Company's recent entry into
the retail jewelry market; competition from competitors; the Company's ability
to obtain all necessary government certifications and/or licenses to conduct
its business; development of a public trading market for the Company's
securities; the cost of complying with current and future governmental
regulations and the impact of any changes in the regulations on the Company's
operations; and other factors detailed from time to time in the Company's
filings with the United States Securities and Exchange Commission and other
regulatory authorities. The forward-looking statements are also identified
through use of the words ''believe,'' ''enable,'' ''may,'' ''will,'' ''could,''
''intends,'' ''estimate,'' ''anticipate,'' ''plan,'' ''predict,'' ''probable,''
''potential,'' ''possible,'' ''should,'' ''continue,'' and other words of
similar meaning. Actual results could differ materially from the expectations
contained in forward-looking statements as a result of several factors,
including regulatory approval requirements and competitive conditions. These
and other factors that may result in differences are discussed in greater
detail in the Company's reports and other filings with the Securities and
Exchange Commission.
(Financial Tables on Next Page)
Condensed Consolidated Statements of Income and Comprehensive Income
(Unaudited)
Three Months Ended
March 31,
2008 2007
Net sales $ 77,566,359 $ 27,960,269
Cost of sales 68,754,984 24,796,149
Gross profit8,811,375 3,164,120
Operating expenses:
Selling and marketing397,396193,757
General and administrative 1,509,177421,512
Total operating expenses 1,906,573615,269
Income from operations 6,904,802 2,548,851
Other income (expenses):
Interest expense(363,220) (247,167)
Interest income8,959 --
Change of fair value of inventory loan
payable --(41,161)
Gain from derivative instrument 840,522 --
Miscellaneous126,782 --
Total other income (expenses) 613,043 (288,328)
Income before provision for income taxes7,517,845 2,260,523
Provision for income taxes 1,122,772377,319
Net income 6,395,073 1,883,204
Other comprehensive income - foreign
currency translation adjustments 3,966,733110,060
Comprehensive income$ 10,361,806 $1,993,264
Earnings per share - basic $0.31 $ 0.15
Earnings per share - diluted$0.31 $ 0.12
Weighted average number of common shares
- Basic 20,924,843 12,257,624
Weighted average number of common shares
- Diluted 20,924,843 15,729,008
Condensed Consolidated Balance Sheets
March 31, December 31,
20082007
(Unaudited)
ASSETS
Current assets:
Cash $ 28,856,716 $ 63,293,653
Restricted cash --410,700
Accounts receivable, net of allowance
for doubtful accounts of$729,000 and
$470,000 for 2008 and 2007 29,469,886 23,864,141
Refundable value added taxes 7,694,254 2,094,946
Inventories 64,150,655 29,639,236
Prepaid expenses and other current assets 1,563,868 1,700,432
Deferred taxes 1,893,774 79,402
Total current assets 133,629,153121,082,510
Property, equipment, and improvements, net 1,779,011 1,495,861
Deposits 101,681 97,706
Other assets 38,941 38,513
$ 135,548,786 $ 122,714,590
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 14,247,044 $ 15,743,504
Line of Credit 1,424,704 1,369,000
Accounts payable and accrued liabilities 1,217,277662,662
Accrued business tax 176,391498,792
Customer deposits 7,678,672 5,278,534
Income tax payable 3,034,686 1,902,443
Total current liabilities 27,778,774 25,454,935
STOCKHOLDERS' EQUITY
Preferred stock, $0.001 par value,
5,000,000 shares authorized, none
issued and outstanding -- --
Common stock, $0.001 par value, 100,000,000
shares authorized and 20,924,843 shares
issued and outstanding for 2008 and 2007 20,925 20,925
Additional paid in capital77,597,906 77,449,355
Accumulated foreign currency translation
adjustments 6,951,768 2,985,035
Retained earnings 23,199,413 16,804,340
Total stockholders' equity107,770,012 97,259,655
$ 135,548,786 $ 122,714,590
Condensed Consolidated Statements of Cash Flows (Unaudited)
Increase (Decrease) in Cash
Three Months Ended March 31,
2008 2007
Cash flows provided by operating activities:
Net income $ 6,395,073 $ 1,883,204
Adjustments to reconcile net income to net
cash provided by (used for) operating
activities:
Depreciation and amortization 104,23279,417
Change of fair value of inventory loan
payable --41,161
Bad debt 237,92839,995
Stock based compensation expense 148,551--
Changes in operating assets and liabilities:
Accounts receivable(4,817,841) 49,256
Refundable value added taxes (5,448,855) (1,248,343)
Inventories (32,911,543) (8,396,043)
Prepaid expenses and other current assets 194,92376,057
Deposits related to borrowings on notes
payable -- 642,276
Deferred taxes (1,789,723) (12,173)
Other assets1,126 1,031
Accounts payable, accrued expenses, accrued
business tax, and accrued estimated
penalties (285,464) 221,495
Customer deposits 2,158,525 1,606,579
Inventory loan payable -- 662,446
Income tax payable 1,043,382 344,426
Net cash used for operating activities (34,969,686) (4,009,216)
Cash flows provided by (used for) investing
activities:
Purchase of property, equipment and
improvements (81,722) (7,638)
Decrease (Increase) in restricted cash422,357 (387,047)
Net cash provided by (used for) investing
activities 340,635 (394,685)
Cash flows provided by (used for) financing
activities:
(Repayments to)Proceeds from short-term
borrowing $ (2,111,784) $ 1,935,234
Proceeds from loans borrowed from
stockholder -- 202,272
Repayments to loans payable to stockholder -- (508,249)
Net cash (used for) provided by financing
activities (2,111,784)1,629,257
Effect of exchange rate changes on cash 2,303,898 122,789
Net decrease in cash (34,436,937) (2,651,855)
Cash, beginning of the period 63,293,65313,354,981
Cash, end of the period $ 28,856,716 $ 10,703,126
Supplemental disclosure of cash flow
information:
Interest paid $ 296,120 $231,172
Income taxes paid $ 1,869,312 $ 45,067
Non-cash disclosure:
Non monetary exchanges related to certain
retail sales $ 231,472 $ --
SOURCE FUQI International, Inc.
