SOURCE: LJ International

LJ International

March 29, 2011 08:57 ET

LJ International Reports Rising Revenues and EPS in Q4 and FY 2010

Earnings Are Driven by Sharp Growth in Retail Division

HONG KONG--(Marketwire - March 29, 2011) - LJ International Inc. (LJI) (NASDAQ: JADE)

HIGHLIGHTS:

--  RETAIL DIVISION EXPERIENCES 48% Q4 SALES GAIN AND 155% RISE IN
    OPERATING INCOME

--  OVERALL REVENUES RISE 15% FOR Q4 AND 27% FOR 2010, SURPASSING
    QUARTERLY AND ANNUAL GUIDANCE

--  Q4 EPS RISES 56% YEAR-OVER-YEAR

--  EQUITY RAISE AND CREDIT LINES ENHANCE BALANCE SHEET - WORKING CAPITAL
    EXCEEDS $100M

LJ International Inc. (LJI) (NASDAQ: JADE) today reported financial results for the fourth quarter and fiscal year ended December 31, 2010. Revenues, operating profit, net income, and earnings per share all rose during both periods at double-digit percentage rates, spurred by sharply rising sales from the Company's ENZO retail chain in China.

Key financial results are summarized as follows:

Overall revenues in the fourth quarter of 2010 were $45.0 million, up 15% from $39.1 million a year earlier. Total revenues for 2010 totaled $140.5 million, up 27% from $110.5 million in 2009. Fourth quarter 2010 revenues exceeded earlier guidance of approximately $42.5 million.

Retail revenues totaled $24.7 million in the fourth quarter of 2010, up 48% from $16.7 million a year earlier. Retail revenues for all of 2010 totaled $78.9 million, up 55% from $50.8 million in 2009.

Wholesale revenues totaled $20.3 million in the fourth quarter of 2010, down 9% from $22.4 million in the fourth quarter of 2009. Wholesale revenues for all of 2010 were $61.7 million, a 3% increase from $59.7 million in 2009.

Overall operating income was $5.6 million in the fourth quarter of 2010, up 109% from $2.7 million a year earlier. For all of 2010, overall operating income was $14.3 million, a 209% increase from $4.6 million in 2009.

Retail operating income was $4.2 million in the fourth quarter of 2010, up 155% from $1.7 million a year earlier. For the full year 2010, operating income increased 155%, to $11.6 million from $4.5 million in 2009.

Wholesale operating income was $2.1 million in the fourth quarter of 2010, up 7% year-over-year. For 2010, wholesale operating income continued to be profitable, increasing 145% to $4.5 million from $1.8 million in 2009.

Please note that overall operating income includes retail and wholesale totals with an adjustment for corporate expenses.

Net income for LJI in the fourth quarter of 2010 was $4.0 million, or $0.14 per fully diluted share, up 56% on a per-share basis from $2.2 million, or $0.09 per share, in 2009. Full-year net income for 2010 was $13 million, or $0.49 per fully diluted share, up from $3.7 million, or $0.15 per share, in 2009. Please note that net income for 2010 excludes a non-recurring gain of $1.6 million on the sale of investment property in the third quarter of 2010. EPS for 2010 was $0.43 per share.

2010 Retail Expansion is Paying Off - Management Comments on Accelerated Retail Expansion, Increased Brand Marketing, and Capital Resources

"LIJ's latest financials reflect the major acceleration of ENZO store openings," said LJI Chairman and CEO, Yu Chuan Yih. "In 2008, ENZO underwent an evaluation phase to better streamline operations and increase efficiencies. Starting in Spring 2010, LJI's ENZO retail division resumed its rapid expansion plan. By year end 2010, a net total of 38 new locations were opened, bringing ENZO's total count to 133 stores. Retail revenues have increased accordingly. A gratifying outcome is reflected in greater retail operating margins and profits as well as companywide net income. New retail stores are quickly reaching profitability and contributing to the sharp improvement in LJI's overall operating results."

"In keeping with our efforts to support retail expansion, particular effort was placed on ENZO's marketing and branding strategy. Special promotional events, store opening celebrations, and integrating ENZO jewelry into fashion and makeup trends were activities sponsored by LJI to bring ENZO to the forefront of consumers. In October 2010, a CBNweekly consumer survey rated ENZO one of the most desired luxury brands for jewelry. In the categories 'brand recognition' and 'demonstrated buyer preference,' ENZO placed fourth, preceded only by Cartier, Tiffany and Bulgari. We are proud to showcase ENZO and pleased that both the industry and consumers continue to respond enthusiastically," stated Mr. Yih.

Mr. Yih summarized, "The year 2010 also included a significant strengthening to LJI's capital resources and balance sheet. During 2010, LJI raised approximately $38 million of new capital through equity and bank lines of credit. With a solid financial foundation and continued profitability for both retail and wholesale divisions, LJI remains on track to reach the previously announced goal of having 200 ENZO stores open by year end 2011."

Margins Rise Across the Board

LJI's gross profit in the fourth quarter of 2010 was $17.5 million, or 39% of revenues, compared to $12.1 million, or 31% of revenues, in 2009. The margin increase was due largely to the greater share of revenues from the ENZO retail division, which has higher margins than the wholesale division. It should be noted, however, that revenue margins rose within each division. For the ENZO retail division, gross margins for the fourth quarter 2010 rose to 54% from 47% a year earlier. Wholesale gross margin rose to 21% from 19% a year earlier.

For all of 2010, gross profit companywide was $54.8 million, or 39% of revenues, compared to $38.4 million, or 35% of revenues, in 2009. Retail gross margins rose in 2010 to 53% from 52% in 2009. Wholesale gross margins rose to 21% from 20% in 2009.

Operating margins rose year-over-year, spurred by both the increase in gross margins and reductions (relative to revenues) of selling, general and administrative (SG&A) expenses. For the fourth quarter of 2010, the operating margin was 12% of revenues, up from an operating margin of 7% a year earlier. SG&A expenses fell to 14% of revenues from 15% a year earlier. This drop was offset partially by an increase in rental expenses year-over-year to 10% of revenues, from 8% a year earlier. For all of 2010, SG&A expenses were 16% of revenues, down from 18% in 2009. Rental expenses held steady at 10% in both 2009 and 2010.

Balance Sheet Strengthens with New Capital Infusion

Aided by approximately $38 million from two new bank lines of credit and a private placement share issue -- all finalized and announced in the fourth quarter of 2010 -- LJI ended 2010 with additional strength to an already solid balance sheet. Cash and equivalents totaled $13 million on December 31, 2010, or $0.45 per outstanding share, up from $11.3 million at the end of 2009. Working capital (current assets minus current liabilities) rose to $100.6 million at the end of 2010, up from $77.6 million at the end of 2009. Long-term debt fell to $1.7 million from $2.3 million a year earlier.

Company Projects Over 50% Rise in Revenues and Net Income in Q1 2011

In guidance for the first quarter ending March 31, 2011, LJI said it expects revenues to total approximately $40 million, an increase of 48% from the first quarter of 2010. Retail revenues are projected to rise 52% year-over-year to approximately $25 million. Wholesale revenues are expected to rise 44% to approximately $15 million. Net income is expected to be approximately $3 million or $0.10 per fully diluted share in the first quarter of 2011. This figure is an increase of 60% year-over-year.

About LJ International Inc.

LJ International Inc. (LJI) (NASDAQ: JADE) is engaged in the designing, branding, marketing and distribution of a full range of jewelry. It has built its global business on a vertical integration strategy and an unwavering commitment to quality and service. Through its ENZO stores, LJI is now a major presence in China's fast-growing retail jewelry market. As a wholesaler, it distributes to fine jewelers, department stores, national jewelry chains and electronic and specialty retailers throughout North America and Western Europe. Its product lines incorporate all major categories, including earrings, necklaces, pendants, rings and bracelets.

Cautionary Note Regarding Forward-Looking Statements: This press release may contain "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as "anticipates," "intends," "plans," "seeks," "believes," "estimates," "expects" and similar references to future periods. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. We caution you therefore against relying on any of these forward-looking statements. Factors that could cause actual results to differ materially from such statements, as well as additional risk factors, are detailed in the Company's most recent filings with the Securities and Exchange Commission. Any forward-looking statement made by us in this press release speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking information contained in this press release or with respect to the announcements described herein, except as may be required by law.

                           LJ INTERNATIONAL INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)



                              Three months ended         Year ended
                                 December 31             December 31
                            ----------------------  ----------------------
                               2010        2009        2010        2009
                            ----------  ----------  ----------  ----------
                                US$         US$         US$         US$

Operating revenue               45,046      39,166     140,548     110,523
Costs of goods sold            (27,505)    (27,017)    (85,737)    (72,173)
                            ----------  ----------  ----------  ----------
Gross profit                    17,541      12,149      54,811      38,350

Operating expenses
Selling, general and
 administrative expenses       (11,065)     (9,013)    (37,303)    (31,039)
Net loss on derivatives           (178)          -        (476)       (503)
Depreciation                      (748)       (484)     (2,779)     (2,197)
                            ----------  ----------  ----------  ----------


Operating income                 5,550       2,652      14,253       4,611

Other revenue and expense
Interest income                     23           5          69         147
Gain on currency
 translation                       482           -         643           -
Gain on sales of securities          -           -         258           -
Gain on disposal of
 property held for lease             -           -       1,635           -
Interest expenses                 (292)       (202)       (978)       (842)
                            ----------  ----------  ----------  ----------

Income before income taxes
 and noncontrolling
 interests                       5,763       2,455      15,880       3,916
Income taxes expense            (1,765)       (205)     (2,877)       (231)
                            ----------  ----------  ----------  ----------

Net Income                       3,998       2,250      13,003       3,685
Net (income) loss
 attributable to
 noncontrolling interest            (1)         (9)         (9)          4

                            ----------  ----------  ----------  ----------
Net income attributable to
 LJ International Inc.
 common shareholders             3,997       2,241      12,994       3,689
                            ==========  ==========  ==========  ==========

Earnings per share:
   Basic                          0.14        0.09        0.51        0.16
   Diluted                        0.14        0.09        0.49        0.15


   Weighted average number
    of shares used in
    calculating diluted
    earnings per share      29,293,340  24,734,382  26,656,995  24,101,854
                            ==========  ==========  ==========  ==========


                         LJ INTERNATIONAL INC.
               CONDENSED CONSOLIDATED BALANCE SHEETS
               (IN THOUSANDS, EXCEPT PER SHARE DATA)


                                                    As of         As of
                                                 December 31,   December 31,
                                                    2010          2009
                                                ------------- -------------
                                                    US$           US$
ASSETS
Current assets
Cash and cash equivalents                              13,048        11,282
Restricted cash                                        11,009         6,425
Trade receivables, net of allowance for
 doubtful accounts                                     25,889        21,679
Available-for-sale securities                           2,344         2,360
Inventories                                           107,666        81,401
Prepayments and other current assets                    3,635         1,861
                                                ------------- -------------

Total current assets                                  163,591       125,008
Properties held for lease, net                            419           717
Property, plant and equipment, net                     10,115         6,400
Deferred tax assets                                       111           111
Goodwill, net                                           1,521         1,521
                                                ------------- -------------

Total assets                                          175,757       133,757
                                                ============= =============

Liabilities and shareholders' equity
Current liabilities
 Bank overdrafts                                        2,879         2,908
 Notes payable                                         10,720         5,551
 Capitalized lease obligation, current portion             48            98
 Letters of credit, gold loan and others               21,539        13,481
Derivatives                                               571             -
 Trade payables                                        19,172        18,545
 Accrued expenses and other payables                    5,555         5,354
 Income taxes payable                                   2,255         1,147
 Deferred taxation                                        268           310
                                                ------------- -------------

Total current liabilities                              63,007        47,394
Notes payable, non-current portion                      1,621         2,244
Capitalized lease obligation, non-current
 portion                                                   30            78
                                                ------------- -------------

Total liabilities                                      64,658        49,716
                                                ------------- -------------

Equity
Common stocks, par value US$0.01 each,
 Authorized 100 million shares; Issued 29,153,672
 shares as of December 31, 2010 and 23,768,672
 shares as of December 31, 2009                           292           238
Additional paid-in capital                             69,941        56,675
Accumulated other comprehensive income                    837           102
Retained earnings                                      39,851        26,857
                                                ------------- -------------

Total LJ International Inc. shareholders'
 equity                                               110,921        83,872
Noncontrolling interest                                   178           169
                                                ------------- -------------

Total equity                                          111,099        84,041
                                                ------------- -------------

Total liabilities and equity                          175,757       133,757
                                                ============= =============

Contact Information

  • Contacts
    Corporate:
    Mr. Ringo Ng
    Chief Financial Officer
    LJ International Inc.
    Tel: 011-852-2170-0018
    ringong@ljintl.com

    Investor Relations
    Ms. Jennifer K. Zimmons / Richard Cooper
    Managing Director/President
    Cooper Global Communications
    Tel: 212-317-1400
    jzimmons@cgc-us.com
    rcooper@cgc-us.com