Zuoan Fashion (NYSE:ZA)

Fourth Quarter 2012 Financial Results

• Revenues in the fourth quarter of 2012 were RMB369.6 million ($59.3 million), an increase of 4.0% fromRMB355.3 million in the same quarter of 2011.
• Gross profit in the fourth quarter decreased 1.1% year over year to RMB167.9 million ($27.0 million) fromRMB169.8 million in the same quarter of 2011.
• Gross profit margin was 45.4% compared to 47.8% in the prior year period and 46.9% in the 2012 third quarter.
• Net income was RMB69.0 million ($11.1 million), a decrease of 1.7% from RMB70.2 million in the same quarter of 2011.
• Diluted earnings per ordinary share was RMB0.62 ($0.10) in the fourth quarter, equivalent to RMB2.48 ($0.40)per ADS, compared to diluted earnings per ordinary share of RMB0.63 ($0.10), equivalent to RMB2.52 ($0.40) per ADS, in the fourth quarter of 2011.

James Hong, Founder, Chairman of the Board and Chief Executive Officer, commented, "We are pleased with our fourth quarter performance, as we met our top line guidance forecast and exceeded our bottom line guidance forecast. Fourth quarter sales were driven by solid sales at our distributor stores and our direct stores. In the fourth quarter, we successfully transferred our 26 self-operated flagship stores to our distributors which allows us to better concentrate on our product offering to our growing base of distributor and sub-distributor stores, improves productivity and reduces operating expense."

"During the fourth quarter, we successfully added 3 new distributors bringing our total distributor count to 16. The regions in which our new distributors operate include the Hainan, Shanxi and Guangdong provinces. A total of 40 distributor and sub-distributor stores were opened in the fourth quarter of 2012, resulting in a total of 1,329 store locations at the end of December, 2012."

"We held our first sales fair of the year in March. All of our distributors and sub-distributors participated in this event and placed their purchase orders on the latest 2013 Fall collection. The order volume increased by 5% compared to the same sales fair last year with average selling prices remaining stable compared to last year."

"Zuoan has a strong balance sheet and improved inventory levels at the end of 2012. In spite of the market challenges in the second half of 2012, our ability to deliver high quality, in-demand products for our customers helped drive results. We continue to focus on delivering products that meet our high customer standards on design, quality, and price. We remain optimistic about our long term growth prospects and broadening our brand popularity in China's fashion casual menswear market."

Financial Outlook

For the first quarter of 2013, the Company currently anticipates revenue in the range of RMB280-RMB300 million($44.9 - $48.2 million), gross margin of approximately 44-46%, net income of approximately RMB64.4 - RMB69.0 million ($10.3 - $11.1 million) and basic and fully diluted EPS of approximately RMB0.58 ($0.09) - RMB0.62 ($0.10). The Company expects to have approximately 111.3 million shares (27.8 million ADSs) outstanding during the quarter ending March 31, 2013.

Approximately 10 new retail stores are expected to be opened by distributors and sub-distributors in of the first quarter of 2013.

Third Quarter 2012 Financial Performance

• Revenue for the third quarter was RMB476.3 million ($75.8 million), a 12.1% increase from RMB424.8 million ($67.6 million) in the same period last year.
• Net income for the third quarter increased 0.7% to RMB92.8 million ($14.8 million) from RMB92.2 million ($14.7 million) in the same period last year. Third quarter net income as a percentage of revenue was 19.5% compared to 21.7% in the prior year period.
• Diluted earnings per ordinary share was RMB0.83 ($0.13) in the third quarter of 2012, equivalent to RMB3.34($0.53) per ADS, compared to diluted earnings per ordinary share RMB0.83 ($0.13) in the third quarter of 2011, equivalent to RMB3.31 ($0.53) per ADS. The Company's diluted number of shares outstanding was 111.3 million in the third quarter ended September 30, 2012.

James Hong, Founder, Chairman of the Board and Chief Executive Officer, commented, "Our revenue growth was a result of increased distributor sales volumes as well as increased sales volume from our direct stores. We came in slightly below our third quarter top line revenue forecast largely due to an inventory shipment delay to distributors of approximately RMB58.8 million, resulting in a shift in revenue recognition to the fourth quarter instead of our third quarter. Gross margin held steady as we benefited from increased wholesale prices implemented over the past year as well as increased contribution from our self-operated direct stores and flagship stores which contributed to higher overall gross margin. Operating expenses trended higher than anticipated due to the increased cost associated with the expansion and management of our self-operated flagship stores and direct stores. This was further compounded by a slowdown in consumer spending in China resulting in elevated inventory at the distributor and sub-distributor store level. We are working with our distributors and sub-distributors to reduce inventory in their store channel."

"During the course of the third quarter, we made the decision to transition our 26 self-operated flagship stores over to our distributors. As consumer demand in China has moderated recently, we felt it was important to streamline our internal operational infrastructure to lower expenses and improve performance. The distributors we work with are highly experienced in retail store operations and the transition of our flagship stores allows us to concentrate on design-driven casual menswear fashion, our core area of strength. This move, which will be fully implemented in the fourth quarter, is expected to reduce our future consolidated gross margin but can also lower our operating expenses, lower inventory levels at the company level and improve net margin."

"We have a healthy balance sheet and a strong cash position of approximately $134 million at the end of the third quarter. In spite of slower market conditions, recent economic data from China indicates the domestic economy is improving which can lead to a pick-up in consumer spending environment in the coming quarters. We continue to execute on our initiatives to raise the visibility of Zuoan and broaden our presence in China. We remain optimistic about the long-term growth opportunities in our business and are confident our revenue and profit can continue to grow with the expected recovery of the domestic economy along with our efforts to enhance our distribution network, maximize operational efficiencies and increase our brand recognition." concluded Mr. Hong.

Financial Outlook

For the fourth quarter of 2012, the Company currently anticipates revenue in the range of RMB352-RMB372 million($56.0 - $59.2 million), gross margin of approximately 44-46%, net income of approximately RMB43.7 - RMB47.8 million ($7.0 - $7.6 million) and basic and fully diluted EPS of approximately RMB0.39 ($0.06) - RMB0.43 ($0.07). The Company expects to have approximately 111.3 million shares (27.8 million ADSs) outstanding during the quarter ending December 31, 2012.

Approximately 40 new retail stores and 2 flagship stores are expected to be opened by distributors and sub-distributors in of the fourth quarter of 2012.

Second Quarter 2012 Financial Performance

• Revenue for the second quarter was RMB301.6 million ($47.5 million), a 26.0% increase from RMB239.3 million ($37.7 million) in the same period last year.
• Gross profit in the second quarter increased 48.3% year over year to RMB145.5 million ($22.9 million) from RMB98.1 million ($15.4 million) in the same period of 2011.
    Second quarter 2012 gross profit margin was 48.2% compared to 41.0% in the same period last year.
• Diluted earnings per ordinary share was RMB0.60 ($0.09) in the second quarter of 2012, equivalent to RMB2.38($0.37) per ADS, compared to diluted earnings per ordinary share RMB0.41($0.06) in the second quarter of 2011, equivalent to RMB1.64 ($0.26) per ADS. The Company's diluted number of shares outstanding was 111.3 million in the second quarter ended June 30, 2012.

James Hong, Founder, Chairman of the Board and Chief Executive Officer, commented, "We had another strong quarter of top line revenue and bottom line earnings growth, exceeding our financial second quarter forecast. Our growth was primarily fueled by an increase in wholesale prices implemented last year as well as higher revenue derived from direct and flagship stores."

"We experienced elevated inventory positions at the end of the second quarter by our distributors and sub-distributors compared to last year due to a general slowdown in the Chinese consumer market. We are actively working with our distributors to clear through any excess inventory so our fall/winter collections can be prominently displayed throughout our distributor and sub-distributor Zuoan stores in the second half of the year. We look forward to improving our inventory channels through the implementation of our ERP system which is scheduled for October. The installation of this system will initially benefit our company-owned stores but are expected to be deployed in our distributors' warehouse and logistic systems within the next 12 months."

"As the consumer market in China becomes more challenging, we are taking all relevant actions to manage our cost structure and maximize operational efficiency. As part of this effort, we have applied additional cost and quality controls to our supply chain, reduced our total number of suppliers to obtain more favorable pricing and implemented stricter requirements on quality to ensure customer loyalty. Despite slower market conditions, we continue to believe that 2012 will result in respectable revenue and net profit growth for Zuoan. Our brand recognition in China continues to grow through our domestic marketing efforts and international design collaborations and trade show participation. We continue to build on this momentum through our upcoming involvement inChina Fashion Week, one of China's largest fashion events."

Financial Outlook

For the third quarter of 2012, the Company currently anticipates revenue in the range of RMB490-RMB510 million ($77.1 - $80.3 million), gross margin of approximately 46-48%, net income of approximately RMB99.9 - RMB104.1 million ($15.7 - $16.4 million) and basic and fully diluted EPS of approximately RMB0.90 ($0.14) - RMB0.94 ($0.15). The Company expects to have approximately 111.3 million number of shares (27.8 million ADSs) outstanding during the quarter ending September 30, 2012.

Zuoan expects to open approximately 25 self-operated flagship stores in the full year 2012. Approximately 175 new retail stores and 25 flagship stores are expected to be opened by distributors and sub-distributors in of the full year 2012. 

First Quarter 2012 Financial Results

• Revenue for the first quarter was RMB279.9 million ($44.5 million), a 32.3% increase from RMB211.5 million ($33.6 million) in the same period last year.
• Gross profit in the first quarter increased 49.1% year over year to RMB131.1 million ($20.8 million) from RMB88.0 million ($14.0 million) in the same period of 2011. First quarter 2012 gross profit margin was 46.8% compared to 41.6% in the same period last year.
• Diluted earnings per ordinary share was RMB0.61 ($0.10) in the first quarter of 2012, equivalent to RMB2.42 ($0.38) per ADS, compared to diluted earnings per ordinary shareRMB0.49 ($0.08) in the first quarter of 2011, equivalent to RMB1.95 ($0.31) per ADS. The Company's diluted number of shares outstanding increased 13.6% to 111.3 million in the first quarter ended March 31, 2012 compared to 97.9 million in the 2011 first quarter period.

James Hong, Founder, Chairman of the Board and Chief Executive Officer, commented, "We are very pleased that 2012 is off to a good start and believe we remain well-positioned to deliver on our strategic and financial objectives this year. Our solid first quarter performance reflects our ability to further penetrate China's domestic market for fashion casual menswear. First quarter revenue was within our forecasted range and net income exceeded our estimates.

"We believe our marketing efforts over the past year have led to increased brand recognition and greater customer demand. Much of this success stems from our international initiatives which include our active participation in several international trade shows and our collaborations withParis-based Nelly Rodi, and Japan fashion designer, Mr. Okada Hiroyuki, which together have culminated in a more fashionable and complete collection with greater variety and style. The sequential growth of our business in terms of our total store count and sales volumes reflects our ability to increasingly strengthen our brand equity among local customers and efficiently execute of our network expansion plan, with a total of 1,295 store locations at the end of March 31, 2012.

"Looking ahead, we will continue to fortify our position in China's fashion casual menswear market by executing our development strategy and expanding our geographic presence. We have a very strong balance sheet including a record level of cash, minimal debt and a much lower trade receivables position compared to last quarter. While we remain cautious due to a softening retail environment impacted by the global economic slowdown, we remain positive on our longer-term sales and profit growth opportunities."

Financial Outlook

For the second quarter of 2012, the Company currently anticipates revenue in the range ofRMB290-RMB300 million ($46.1-$47.6 million), gross margin of approximately 45-47%, net income of approximately RMB61.7-RMB64.0 million ($9.8 -$10.2 million) and basic and fully diluted EPS of approximately RMB0.55 ($0.09) - RMB0.58 ($0.09). The Company expects to have approximately 111.3 million number of shares (27.8 million ADSs) outstanding during the quarter ending June 30, 2012.

Zuoan expects to open approximately 25 self-operated flagship stores in the full year 2012. Approximately 175 new retail stores and 25 flagship stores are expected to be opened by distributors and sub-distributors in of the full year 2012.

Fourth Quarter 2011 Financial Highlights

• Revenues in the fourth quarter of 2011 were RMB355.3 million ($56.5 million), an increase of 37.6% fromRMB258.2 million in the same quarter of 2010.
• Gross profit in the fourth quarter increased 63.6% year over year to RMB169.8 million ($27.0 million) fromRMB103.8 million.
• Gross profit margin was 47.8% compared to 40.2% in the prior year period and 44.3% in the 2011 third quarter. Fourth quarter 2011 gross margin increased primarily due to the increase of wholesale price to distributors from 35% to 38% since the third quarter 2011 and the higher margin contributed by sales in direct flagship stores.
• Net income was RMB70.2 million ($11.1 million), an increase of 26.8% from RMB55.3 million in the same quarter of 2010.
• Basic earnings per ordinary share was RMB0.63 ($0.10) in the fourth quarter, equivalent to RMB2.52($0.40) per American Depositary Share ("ADS"), compared to basic earnings per ordinary share of RMB0.69($0.11), equivalent to RMB2.77 ($0.44) per ADS, in the fourth quarter of 2010.
• Diluted earnings per ordinary share was RMB0.63 ($0.10) in the fourth quarter, equivalent to RMB2.52($0.40) per ADS, compared to diluted earnings per ordinary share of RMB0.66 ($0.10), equivalent toRMB2.63 ($0.42) per ADS, in the fourth quarter of 2010.

James Hong, Founder, Chairman of the Board and Chief Executive Officer, commented, "We are pleased with our fourth quarter performance, particularly as we exceeded our top and bottom line guidance forecast. We also achieved significant year-over-year growth in our total store count, sales volumes, revenue, gross profit and net profit for full year 2011 compared to the prior year."

"Our fashion collection continues to expand and customers are increasingly recognizing the value and depth of our product collections. We expanded our total number of store locations to 1,270, and our gross number of new store openings exceeded our target for the year. Our fourth quarter gross margin reached a record level of 47.8%, primarily due to greater sales from our higher margin direct flagship stores and from the increase in wholesale prices we successfully implemented at the distributor level last quarter."

"Looking ahead, while we expect some turbulence in our business stemming from a slowdown in domestic consumption brought on by the global recession and potentially slower growth in sales orders for our 2012 Autumn/Winter collections due to an erratic winter this past season, we continue to see the strong potential for growth in our business this year and beyond."

"We have recently surpassed the one year anniversary of our US IPO and we are quite proud of our operational and financial accomplishments thus far. With our focus on innovative, stylish and unique apparel and accessory products, we believe we will continue to have success broadening the popularity of our brand in China's fashion casual menswear market."

Financial Outlook

For the first quarter of 2012, the Company currently anticipates revenue in the range of RMB275-RMB280 million ($43.7-$44.5 million), gross margin of approximately 46-48%, net income of approximately RMB60.0 - RMB65.0 million ($9.5 - $10.3 million) and basic and fully diluted EPS of approximately RMB0.54 ($0.09) - RMB0.58 ($0.09). The Company expects to have approximately 111.3 million number of shares (27.8 million ADSs) outstanding during the quarter ending March 31, 2012.

Zuoan expects to open approximately 25 self-operated flagship stores in the full year 2012. Approximately 175 new retail stores and 25 flagship stores are expected to be opened by distributors and sub-distributors in of the full year 2012.

Third Quarter 2011 Results

• Revenue for the third quarter was RMB424.8 million ($66.6 million), a 36.6% increase from RMB311.1 million ($48.8 million) in the same period last year.
• Gross profit in the third quarter of 2011 increased 46.9% to RMB188.1 million ($29.5 million) from RMB128.1 million ($20.1 million).
• Net income for the third quarter of 2011 increased 30.0% to RMB92.2 million ($14.4 million) from RMB70.9 million ($11.1 million) in the same period last year.
• EPS was RMB0.83 ($0.13) in the third quarter of 2011 compared to RMB0.84 ($0.13) in the third quarter of 2010.

James Hong, Founder, Chairman, CEO and Chief Designer, commented, “Our third quarter results reflect continuing robust growth to our top and the bottom lines, both of which exceeded expectations. Our growth benefitted from greater levels of distributor stores sales and from higher revenue generated from our direct flagship stores. We experienced strong demand for our products at our recent sales fairs which helped increase distributor level sales volume over the prior year period. We also benefitted from our increase in wholesale prices to distributors which allowed us to capture greater revenue and improved margin.”  

Financial Outlook

For the fourth quarter of 2011, the Company currently anticipates revenue in the range of RMB310-RMB330 million ($48.6-$51.7 million), gross margin of approximately 43-44%, net income of approximately RMB62.2-RMB66.6 million ($9.8 -$10.4 million) and basic and fully diluted EPS of approximately RMB0.56 ($0.09) - RMB0.60 ($0.09). The Company expects to have approximately 111.3 million number of shares (27.8 million ADSs) outstanding during the quarter ending December 31, 2011.

For the full year 2011, the Company currently anticipates revenue in the range of RMB1.19-RMB1.21 billion ($185.9-$189.0 million), net income of approximately RMB247.7-RMB252.1 million ($38.8-$39.5 million) and basic and fully diluted EPS of approximately RMB2.23 ($0.35) - RMB2.27 ($0.36).

Zuoan expects to open approximately 5 self-operated flagship stores in the fourth quarter. Approximately 10-20 new retail stores and 5 flagship stores are expected to be opened by distributors and sub-distributors in the fourth quarter of 2011.

Second Quarter 2011 Results

• Revenue for the second quarter was RMB239.3 million ($37.0 million), a 53.4% increase from RMB156.0 million ($24.1 million) in the same period last year.
• Diluted earnings per share decreased to RMB0.41 ($0.06) in the second quarter of 2011 from RMB0.43 ($0.07) in the second quarter of 2010.

James Hong, Founder, Chairman, CEO and Chief Designer, commented, “Our second quarter performance was driven by a combination of sales volume growth and total store growth, both at the distributor level. We opened 7 self-operated flagship stores in the second quarter and expect to open another 18 in the second half of the year. In addition to increasing our future revenue and profit performance, we believe the opening of new flagship locations is important for overall growth as it will also provide greater confidence to distributors and motivate them to open additional stores more rapidly on their own.”

“At our distributor store locations, we experienced double digit increases in several areas. Average wholesale selling prices per unit increased nearly 13.8% to RMB104 compared to RMB92 in the second quarter of 2010, the total number of units sold to our distributors increased 39.8% to 2.3 million compared to 1.6 million in the second quarter of 2010 and average wholesale revenue per distributor-operated store increased 32.3% to RMB198,000 compared to RMB150,000 in the second quarter of 2010. We also recently raised our wholesale prices at the distributor level for our Fall/Winter collection which we expect will result in improved gross profit margin in the second half of 2011.”

“Going forward, we look forward to continuing our efforts with a focus on expanding our distribution network coverage, strengthening our design capabilities, rolling out our flagship store network and furthering our marketing activities. We are confident with our efforts to establish Zuoan as a leading domestic menswear brand in China’s fast growing fashion casual menswear market.”

Financial Outlook

For the third quarter of 2011, the Company currently anticipates revenue in the range of RMB410-RMB430 million ($63.4-$66.5 million), gross margin of approximately 43-44%, net income of approximately RMB80.1-RMB84.3 million ($12.4-$13.0 million) and basic and fully diluted EPS of approximately RMB0.72 ($0.11) - RMB0.76 ($0.12). The Company expects to have approximately 111.3 million number of shares (27.8 million ADSs) outstanding during the quarter ending September 30, 2011.

For the full year 2011, the Company currently anticipates revenue in the range of RMB1.16-RMB1.2 billion ($179.5-$185.7 million), net income of approximately RMB235.2-RMB244.0 million ($36.4-$37.8 million) and basic and fully diluted EPS of approximately RMB2.1 ($0.33) – RMB2.2 ($0.34).

Zuoan expects to open approximately 12 and 6 self-operated flagship stores in th

First Quarter Results:

James Hong, Founder, Chairman of the Board and Chief Executive Officer, commented, "The first quarter was another strong performing quarter for Zuoan as we beat our quarterly revenue and net income forecast. We continue to gain traction in the China market with our unique design concepts and our ability to expand our sales network. Despite a traditionally slower quarter for the apparel industry due to the Chinese New Year, we expanded our store base by 22 locations, completing the quarter with 1,123 locations, and added three additional distributors to our base in the first quarter bringing our total number of distributors to thirteen. We also successfully transferred 31 of our direct stores to our distributors in January 2011 in order to focus on the development and opening of our flagship stores. Our Company completed a major milestone event during the first quarter with its successful IPO on the New York Stock Exchange. This was a major accomplishment for Zuoan that will assist with certain marketing and branding initiatives going forward."

• Revenue for the first quarter was RMB211.5 million ($32.3 million), a 44.1% increase from RMB146.8 million ($22.4 million) in the same period last year.
• Net income for the first quarter of 2011 increased 125.8% to RMB47.8 million ($7.3 million) from RMB21.2 million ($3.2 million) in the same period last year. First quarter net income as a percentage of revenue was 22.6% compared to 14.4% in the prior year period.
• Weighted average diluted earnings per share increased to RMB0.49 ($0.07) in the first quarter of 2011 from RMB0.26 ($0.04) in the first quarter of 2010. The Company had 97.9 million weighted average diluted number of shares outstanding during the quarter ended March 31, 2011.

For the second quarter of 2011, the Company currently anticipates

• revenue in the range of RMB205-RMB215 million ($31.3-$32.8 million)
• gross margin of approximately 41-42%
• net income of approximately RMB42-RMB43 million ($6.4-$6.6 million) and diluted EPS of approximately RMB0.38-RMB0.39 ($0.06).

Approximately 25-30 new retail stores are expected to be opened by distributors in the second quarter of 2011. The Company expects additional gross margin and average selling price growth in second half of 2011 due to an expected increase in wholesale prices to the Company’s distributors.

Fourth Quarter Highlights:

• Revenues in the fourth quarter of 2010 were RMB258.2 million ($39.1 million), an increase of 26.9% from RMB203.4 million in the same quarter of 2009.
• Gross profit in the fourth quarter increased 21.0% year over year to RMB103.8 million ($15.7 million) from RMB85.8 million ($13.0 million).
• Net income was RMB55.3 million ($8.4 million), an increase of 43.5% from RMB38.5 million in the same quarter of 2009.
• Basic and diluted earnings per share increased to RMB0.69 ($0.10) in the fourth quarter, equivalent to RMB2.77 ($0.42) per American depositary share ("ADS"), compared to basic and diluted earnings per share of RMB0.48 ($0.07), equivalent to RMB1.93 ($0.29) per ADS, in the fourth quarter of 2009.
• Pro forma diluted earnings per share, which takes into account convertible bonds converted since FY10, increased to RMB0.66 ($0.10) in the fourth quarter, equivalent to RMB2.63 ($0.40) per ADS, compared to pro-forma diluted earnings per share of RMB0.46 ($0.07), equivalent to RMB1.85 ($0.28) per ADS, in the fourth quarter of 2009

James Hong, Founder, Chairman of the Board and Chief Executive Officer, commented, "We were pleased with our results for the fourth quarter and 2010 fiscal year. We enjoyed meaningful double digit growth over the prior year as measured by store count, revenue, gross profit, operating profit and net income. Our growth was primarily driven by distributor sales volume and the expansion of our sales network."

For the first quarter of 2011, the Company currently anticipates revenue in the range of RMB200-RMB205 million ($30.3-$31.1 million), gross margin of approximately 41-42%, net income of approximately RMB43-RMB44 million ($6.5-$6.7 million) and diluted EPS of approximately RMB0.44-RMB0.45 ($0.07). Approximately 22 new retail stores are expected to be opened by distributors in the first quarter of 2011.

Revenue in the first half of 2011 is expected in the range of RMB415-RMB425 million ($62.9-$64.4 million). Gross margin is expected to be in the 41-42% range in the first half of 2011, with additional gross margin and ASP growth expected in second half of 2011 due to an expected increase in wholesale prices to Company’s distributors.

Zuoan Fashion Limited plans for Initial Public Offering.

Company Snapshot:

A leading design-driven fashion casual menswear company in China

Industry Snapshot:

China is one of the largest and fastest-growing menswear markets in the world, driven primarily by a rapidly growing economy and increasing disposable income of consumers. According to the Frost & Sullivan Report, total retail sales of menswear in China increased from RMB147.2 billion in 2004 to RMB300.3 billion (US$44.9 billion) in 2009 and are estimated to reach RMB627.1 billion in 2014, representing a 10-year CAGR of 15.8%.

Along with increased purchasing power, male consumers in China are becoming more conscious of and sensitive to the branding, design and quality of menswear. As a result, fashion casual menswear, a sub-sector of casual menswear, has become increasingly popular in China because it caters to consumers who desire variety and fashion that highlight an individual's personality while participating in recreational, social or leisure activities. According to the Frost & Sullivan Report, total retail sales of fashion casual menswear in China grew from RMB13.9 billion in 2004 to RMB36.8 billion (US$5.5 billion) in 2009. Frost & Sullivan estimates that total retail sales of fashion casual menswear will grow to RMB111.9 billion by 2014, representing a 10-year CAGR of 23.2%, and account for 40.7% of the casual menswear market in China.

The fashion casual menswear market in China is relatively fragmented, with more than 500 fashion casual menswear providers, according to the Frost & Sullivan Report. Among them, only a small number of providers have in-house design capabilities that enable them to provide branded fashion casual menswear products and to retain leading market positions.

Use Of proceeds:

We intend to use the net proceeds we receive from this offering primarily for the following purposes:

• approximately 35% to open our directly operated flagship stores in China with current plans to open 50 directly operated flagship stores by 2012;
• approximately 35% to support our distributors in opening new retail stores and renovating current Zuoan retail stores;
• approximately 17% to enhance our advertising and promotional activities and to strengthen our design and product development capabilities;
• approximately 12% to establish a logistics center in Shishi for the purpose of stocking our finished products;
• the remaining amount to fund working capital and for other general corporate purposes.

Underwriter:

• Cowen and Company
• RBC Capital Markets
• Samsung Securities (Asia) Limited
• Janney Montgomery Scott

Proposed offering price: $10.50 to $12.50

Post IPO Share Calculation: (Using a 4 to 1 Ordinary to ADS conversion ratio).

• 20,743,478: Pre IPO fully diluted share count used in EPS calculation.
•   6,900,000: Newly issued ADS shares
• : Shares from warrants issued to underwriters
• : Underwriter over-allotments ADS shares 
• : Miscellaneous

GeoTeam® best effort calculation of total post IPO ADS count to be used in EPS calculations, assuming full conversions and a Ordinary to ADS conversion ratio of 4 to 1:  27,643,478

Financial Snapshot: December Year End

2009 vs. 2008

• Revenues: $103.6 million vs $89.3 million
• Net Income: $23.0 million vs. $19.8 million

Nine Months 2010 vs 2009

• Revenues: $91.8 million vs. $73.1 million
• Net Income: $19.1 million vs. $17.2 million 

Pro Forma Valuation: using $11.50 price and new share count

• Trailing EPS (ADS): $0.90
• Trailing P/E: 12.78