FUQI International, Inc. Reports First Quarter 2008 Financial Results |
-- 1Q08 Revenues Increased 177% to $77.6 Million |
-- 1Q08 Net Income Increased 237% to $6.4 Million, or $0.31 per Diluted Share |
-- Company Raises Fiscal 2008 Revenue, Net Income and Diluted EPS Forecast |
SHENZHEN, China, May 15 /Xinhua-PRNewswire-FirstCall/ -- FUQI International, Inc. (Nasdaq: FUQI - News) 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 profit | 8,811,375 | 3,164,120 | |||||
| Operating expenses: | |||||||
| Selling and marketing | 397,396 | 193,757 | |||||
| General and administrative | 1,509,177 | 421,512 | |||||
| Total operating expenses | 1,906,573 | 615,269 | |||||
| Income from operations | 6,904,802 | 2,548,851 | |||||
| Other income (expenses): | |||||||
| Interest expense | (363,220 | ) | (247,167 | ) | |||
| Interest income | 8,959 | -- | |||||
| Change of fair value of inventory loan | |||||||
| payable | -- | (41,161 | ) | ||||
| Gain from derivative instrument | 840,522 | -- | |||||
| Miscellaneous | 126,782 | -- | |||||
| Total other income (expenses) | 613,043 | (288,328 | ) | ||||
| Income before provision for income taxes | 7,517,845 | 2,260,523 | |||||
| Provision for income taxes | 1,122,772 | 377,319 | |||||
| Net income | 6,395,073 | 1,883,204 | |||||
| Other comprehensive income - foreign | |||||||
| currency translation adjustments | 3,966,733 | 110,060 | |||||
| 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, 2008 | December 31, 2007 | ||||||
| (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 | 133,629,153 | 121,082,510 | |||||
| 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 | 1,217,277 | 662,662 | |||||
| Accrued business tax | 176,391 | 498,792 | |||||
| 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 capital | 77,597,906 | 77,449,355 | |||||
| Accumulated foreign currency translation | |||||||
| adjustments | 6,951,768 | 2,985,035 | |||||
| Retained earnings | 23,199,413 | 16,804,340 | |||||
| Total stockholders' equity | 107,770,012 | 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 | 104,232 | 79,417 | |||||
| Change of fair value of inventory loan | |||||||
| payable | -- | 41,161 | |||||
| Bad debt | 237,928 | 39,995 | |||||
| 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 | 194,923 | 76,057 | |||||
| Deposits related to borrowings on notes | |||||||
| payable | -- | 642,276 | |||||
| Deferred taxes | (1,789,723 | ) | (12,173 | ) | |||
| Other assets | 1,126 | 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 cash | 422,357 | (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 | 63,293,653 | 13,354,981 | |||||
| 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 | $ | -- | |||