Exceed Company Ltd., the owner and operator of “Xidelong” sportswear brand of China reported revenue reached RMB832.4 million (US$124.4 million) in the third quarter ended Sept. 30, up 25.8% from the third quarter a year earlier.
The company outlined the following highlights from the quarter:
- 2011 Spring/Summer sales fair was held at the company's headquarters in Jinjiang in mid-September 2010. The total value of the wholesale orders placed at the sales fair grew by more than 25% over the same sales fair last year, which was one of the strongest growth rates in the industry.
- There were 4,194 Xidelong retail stores as of Sept. 30, 2010, an increase of 557 compared with the number as of Sept. 30, 2009. During the quarter, 207 retail stores were added.
- The company continued to deepen penetration into new cities, with the focus on third-tier cities in affluent provinces such as Guangdong, Jiangsu and Zhejiang provinces. During Sept. 30, 2009 to Sept. 30, 2010, 123 stores were opened in these provinces
- The company has been using the “happy lifestyle” theme in promotional activities and product offerings and engaged By2, a popular Taiwan-based musical group as a spokesgroup in May to align product image and offerings, The company will maintain the new promotion initiatives as they have been effective in enhancing the brand and results.
Revenues
Revenue increased by 25.8% from RMB661.7 million for the third quarter ended September 30, 2009 to RMB832.4 million (US$124.4 million) for the third quarter ended September 30, 2010. Beginning in 2010, we have used the phrase “happy lifestyle” as the main theme in our Xidelong brand promotional activities and product offerings.
The increase in revenue was primarily driven by results from the new advertising and promotional campaign, as well as the successful launch of new series of apparel and footwear products. Meanwhile, strong demand from end customers encouraged the expansion of the Xidelong retail network by our distributors. The number of the Xidelong retail stores increased by 557, from 3,637 as of September 30, 2009 to 4,194 as of September 30, 2010.
Third Quarter 2010 Financial Results
Revenue breakdown | ||||||||
Nine months | Three months | Three months | ||||||
ended | ended | ended | 2010 Q3 | |||||
Sep 30 | Sep 30 | Sep 30 | vs. | |||||
2010 | % of | 2010 | % of | 2009 | % of | 2009 Q3 | ||
RMB'000 | revenue | RMB'000 | revenue | RMB'000 | revenue | growth % | ||
Footwear | 986,283 | 48.3% | 378,372 | 45.5% | 351,127 | 53.1% | 7.8% | |
Apparel | 1,036,253 | 50.7% | 444,256 | 53.4% | 302,952 | 45.8% | 46.6% | |
Accessories | 20,368 | 1.0% | 9,742 | 1.1% | 7,629 | 1.1% | 27.7% | |
Total | 2,042,904 | 100% | 832,370 | 100% | 661,708 | 100% | 25.8% | |
- Footwear: Revenue increased by 7.8%, from RMB351.1 million for the third quarter ended September 30, 2009 to RMB378.4 million (US$56.6 million) for the third quarter ended September 30, 2010, primarily due to a 12.1% increase in ASP. The sales volume in the third quarter decreased by 3.9% compared with the same period in 2009, as the delivery schedule has been shifted, and more products were delivered early this year. However, the sales volume in the first nine months in 2010 increased by 17.8% compared with the same period in 2009. As a result of our continuous marketing and brand promotion efforts, the footwear ASP increased, leading to an increase in overall footwear revenue.
- Apparel: Revenue increased by 46.6%, from RMB303.0 million for the third quarter ended September 30, 2009 to RMB444.3 million (US$66.4 million) for the third quarter ended September 30, 2010. This increase was primarily due to a 29.0% increase in sales volume and a 13.7% increase in ASP. The increase in product varieties, particularly the new lifestyle apparel products, has created a strong demand from end customers. In addition, the increase in the average size of the Xidelong retail stores, which typically now have larger display areas for apparel, has attracted more customer traffic. The increased consumer recognition of our Xidelong brand as a result of our continuous marketing and brand promotion efforts also contributed to the increase in ASP of the apparel products.
- Accessories: Revenue increased by 27.7%, from RMB7.6 million for the third quarter ended September 30, 2009 to RMB9.7 million (US$1.4 million) for the third quarter ended September 30, 2010. This increase was primarily driven by an increase in product varieties.
Gross profit and Gross profit margin
Gross profit increased by 28.3% to RMB252.8 million (US$37.8 million) for the third quarter 2010, from RMB197.1 million for the same period 2009. Gross margin increased by 0.6 percentage points, from 29.8% for the third quarter ended September 30, 2009 to 30.4% for the third quarter ended September 30, 2010. This was primarily due to the increase in the ASP of our footwear and apparel products.
The successful new advertising and promotion campaign has enhanced our brand recognition and we could therefore offer more lifestyle apparel products in a higher price range. A certain portion of footwear products were manufactured in-house, and cost controls within our own footwear production process improved, further enhancing the overall gross margin in this period.
Operating expenses
Selling and distribution costs. Selling and distribution costs decreased by 7.0%, from RMB113.1 million for the third quarter ended September 30, 2009 to RMB105.2 million (US$15.7 million) for the third quarter ended September 30, 2010. The decrease was mainly due to the decrease in advertising and promotional expenses as a percentage of sales by approximately 4.6 percentage points, from 16.3% for the third quarter ended September 30, 2009 to 11.7% for the same period in 2010.
Advertising and promotional expenses decreased by 10.0%, from RMB107.9 million for the third quarter ended September 30, 2009 to RMB97.1 million (US$14.5 million) for the third quarter ended September 30, 2010, primarily due to the change in capital spending cycle, whereby more significant advertising and promotional activities have been adopted in the first half of 2010. However, the advertising and promotional expenses in the first nine months ended September 2010 increased by 38.7%, from RMB172.3 million for the first nine months ended September 30, 2009 to RMB238.9 million (US$35.7 million) for the same period in 2010, representing 11.7% of sales during the period, as the Company has continued its strong effort and commitment in brand building.
Administrative expenses increased by 14.8%, from RMB10.2 million for the third quarter ended September 30, 2009 to RMB11.7 million (US$1.8 million) for the third quarter ended September 30, 2010, primarily due to the increased legal and consulting fees and other professional fees after the NASDAQ listing.
Research and development expenses increased by 15.7%, from RMB7.0 million for the third quarter ended September 30, 2009 to RMB8.1 million (US$1.2 million) for the third quarter ended September 30, 2010, primarily due to the continued investment in the design of new products and product parts to improve our product offering, as well as our research and development efforts with the China Institute of Sport Science.
Accordingly, total operating expenses decreased by approximately 4.1% to RMB125.0 million (US$18.7 million) for the third quarter ended September 30, 2010 from RMB130.3 million for the same period in 2009.
Finance costs. Finance costs decreased by 95.7%, from RMB9.2 million for the third quarter ended September 30, 2009 to RMB0.4 million (US$64,000) for the third quarter ended September 30, 2010, primarily due to preferred shares issued to Elevatech on March 28, 2008, which carried an interest rate of 12%, were redeemed at the time of our business combination in late 2009.
Finance costs. Finance costs decreased by 95.7%, from RMB9.2 million for the third quarter ended September 30, 2009 to RMB0.4 million (US$64,000) for the third quarter ended September 30, 2010, primarily due to preferred shares issued to Elevatech on March 28, 2008, which carried an interest rate of 12%, were redeemed at the time of our business combination in late 2009.
Profit
As a result of the foregoing, profit before tax increased by 120.8%, from RMB57.8 million for the third quarter ended September 30, 2009 to RMB127.6 million (US$19.1 million) for the third quarter ended September 30, 2010.
As a result of the foregoing, profit before tax increased by 120.8%, from RMB57.8 million for the third quarter ended September 30, 2009 to RMB127.6 million (US$19.1 million) for the third quarter ended September 30, 2010.
As a result of the above factors, profit for the third quarter ended September 30, 2010 was RMB111.0 million (US$16.6 million), an increase of 98.6% from RMB55.9 million for the third quarter ended September 30, 2009.
The average trade receivables turnover days for the third quarter ended September 30, 2010 and 2009 were 64 days and 74 days, respectively. This was within the credit period given to our distributors. Our credit period was extended from two months to four months in 2009 to ease the financial pressure of our distributors after the global financial crisis; however, we have reviewed and tightened our credit control policy in 2010, given the business and financial status of our distributors has returned to normal. As a result, the trade receivables balance decreased to RMB585.9 million as of September 30, 2010, from RMB812.7 million as of December 31, 2009. We will continue our efforts to maintain tight control on trade receivables balance.
The average trade receivables turnover days for the third quarter ended September 30, 2010 and 2009 were 64 days and 74 days, respectively. This was within the credit period given to our distributors. Our credit period was extended from two months to four months in 2009 to ease the financial pressure of our distributors after the global financial crisis; however, we have reviewed and tightened our credit control policy in 2010, given the business and financial status of our distributors has returned to normal. As a result, the trade receivables balance decreased to RMB585.9 million as of September 30, 2010, from RMB812.7 million as of December 31, 2009. We will continue our efforts to maintain tight control on trade receivables balance.
The average trade payables turnover days for the third quarter ended September 30, 2010 and 2009 were 19 days and 47 days, respectively. Average trade payables turnover days decreased as a result of our proactive strategy to maximize the bulk purchase discounts offered by the suppliers in exchange for quicker payment for raw materials and products.
Cash and bank balances and pledged time deposits. Cash and bank balances and pledged time deposits increased to RMB655.7 million (US$98.0 million) as of September 30, 2010 from RMB277.2 million as of December 31, 2009, primarily as a result of shorter payment time from our distributors.
Cash inflow from operations was RMB129.2 million (US$19.3 million) for the third quarter ended September 30, 2010, compared to an outflow of RMB20.0 million for the same period in 2009, primarily due to shorter payment time from our distributors.
Fourth Quarter and Fiscal Year 2010 Guidance
Exceed expects to generate net revenues in the range of RMB2,639.1 million to RMB2,680.6 million in the fiscal year 2010, representing a year-over-year increase of 27% to 29%, as compared with RMB2,078.0 million in 2009. This represents the company's preliminary estimates, and is subject to change.
Exceed expects to generate net revenues in the range of RMB2,639.1 million to RMB2,680.6 million in the fiscal year 2010, representing a year-over-year increase of 27% to 29%, as compared with RMB2,078.0 million in 2009. This represents the company's preliminary estimates, and is subject to change.
EXCEED COMPANY LTD. AND SUBSIDIARIES CONDENSED STATEMENTS OF COMPREHENSIVE INCOME | ||||||||||
Three months ended September 30 | Nine months ended September 30 | |||||||||
2010 | 2010 | 2009 | 2010 | 2009 | ||||||
US$'000 | RMB'000 | RMB'000 | RMB'000 | RMB'000 | ||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | ||||||
Revenue | 124,411 | 832,370 | 661,708 | 2,042,904 | 1,478,548 | |||||
Cost of sales | (86,629) | (579,588) | (464,599) | (1,399,686) | (1,044,366) | |||||
Gross profit | 37,782 | |||||||||
