Company Expects Continued Third-Quarter Growth and Expansion into
China Continues HONG KONG and LOS ANGELES, Aug. 11
/Xinhua-PRNewswire-FirstCall/ -- LJ International, Inc. (LJI)
(Nasdaq/NMS: JADE), one of the fastest-growing jewelry companies in
the world, today reported record financial and operational results
for the second quarter and six-month period ending June 30, 2005.
Highlights of the report include: -- Company exceeds second quarter
revenue guidance by $1 million to a record $19 million. --
Year-over-year revenue gains are 17% for the second quarter and 19%
for the first half to a record $36.5 million. -- Net income, before
ENZO start-up expenses, increases 27% for the second quarter, 38%
for the first half. Including expenses, Company achieves net income
of $303,000, or $0.02 per fully dilute share, in-line with
guidance. -- Company projects higher revenues and earnings in the
third quarter - - $23 - $24 million in revenue, EPS of $0.09 -
$0.10 per fully diluted share. LJI's revenues in the second
quarter, ending June 30, 2005, totaled a record $19.07 million, up
over 17% from $16.26 million in the second quarter of 2004. This
represented more than $1 million above the earlier forecast range
of $17.5 million to $18 million. The Company attributed the rise to
higher-than-expected demand from existing customers. Net Income Up
Sharply Before Retail Rollout Expenses Net income in the second
quarter of 2005, excluding expected start-up expenses of
approximately $300,000 for the ENZO Division, was $603,000, or
$0.04 per fully diluted share. This represented an increase of 27%
from net income of $474,000, or $0.04 per fully diluted share, from
the second quarter of 2004, which did not include any ENZO-related
expenses. The second quarter 2005 EPS was negatively impacted as a
result of the issuance of additional shares from a private
placement. Including the start-up expenses from the ENZO Division,
net income for the second quarter of 2005 was $303,000, or $0.02
per fully diluted share, compared to $0.04 per fully diluted share
in the second quarter of 2004 and in-line with the Company's
previously announced guidance. Gross profit in the second quarter
rose to $4.62 million, or approximately 24% of sales, up nearly 20%
from $3.87 million, or approximately 24% of sales a year earlier.
Along with the slight widening of margins year over year, gross
margins have been rising sharply on a sequential basis, from 21% in
the first quarter of 2005 and 17% from the fourth quarter of 2004.
The Company indicated that this was due to a different product mix
and expects gross margins to stabilize between 20-22% for the
full-year. However, the Company expects gross margins to improve
significantly over time as sales from its higher margin ENZO retail
stores begin to represent a higher percentage of total revenues.
The Company noted that a typical ENZO store is expected to achieve
gross margins of at least 50%. For the six months ending June 30,
2005, revenues reached a record $36.51 million, an increase of
nearly 19% over revenues of $30.76 million in the first half of
2004. First-half net income, excluding approximately $600,000 in
expected start-up expenses for the ENZO Division, was $1,152,000,
up 38% from $829,000 in the first half of 2004. Including these
start-up expenses, first half net income was $552,000, or $0.04 per
fully diluted share compared to $0.07 per fully diluted share in
the first half of 2004. Company Trends Indicate Growth Across All
Segments 'Our record results for the latest quarter clearly
indicate that our core business is continuing to grow at a very
healthy rate,' said Yu Chuan Yih, Chairman and Chief Executive
Officer. 'Although the expenses relating to the opening of our ENZO
retail stores in China will have an impact on our earnings in the
short-term, the higher-margin sales from ENZO will begin to have a
positive effect on our gross margins once it begins to gain
momentum. It also should be noted that this expansion is being
financed internally, primarily from the cash flow of the ENZO
stores themselves. In short, LJ International is expected to
continue to exceed all of our financial expectations as measured by
revenues, margins, earnings and cash flow return on invested
capital in the foreseeable future. As these trends continue, we
expect our number one objective will be met: enhancement of
shareholder value,' continued Mr. Yih. Company Continues to
Strengthen Balance Sheet LJI is continuing to strengthen its
balance sheet as reflected by its strong cash position, positive
financial ratios and nearly zero debt. Cash and cash equivalents
totaled $7.73 million, or approximately $0.57 per fully diluted
share as of June 30, 2005. The Company remained nearly free of
long-term debt, with non-current payables totaling only $61,000.
Net working capital totaled $27.4 million, up 16% since the end of
2004. The Company noted that its strengthening balance sheet
coupled with the cash flow generated from its growing ENZO Division
should provide it with the necessary financial flexibility to
continue to execute on its China retail expansion plan without
having to tap into the capital markets in the near future. Second
Quarter Experiences Significant Retail Expansion During the second
quarter, LJI opened four ENZO stores -- two in Beijing, one in
Shanghai and one in Harbin -- bringing the total ENZO stores opened
to date to seven at the end of the second quarter. Since then, it
has announced that it will open its largest ENZO store yet by the
end of 2005. This is an 8,000-square-foot site in the Fisherman's
Wharf development in Macau, one of the world's most popular
destinations for gaming and tourism. In all, LJI expects to have 12
ENZO stores open by the end of 2005. In another significant
development during the second quarter, LJI booked a record volume
of orders, approximately $20 million, at the annual JCK jewelry
show held in Las Vegas during June. This was 20% above its orders
booked at JCK in 2004 and 33% over its volume at the 2003 show. It
expects the revenues from these orders to be reflected in results
for the third and fourth quarters of 2005. Mr. Yih continued, 'Our
investments made into China years ago in anticipation of the
country being accepted into the World Trade Organization (WTO) are
finally beginning to bear fruit. As a result of us moving in a more
aggressive, yet systematic, manner than our global competitors, we
have benefited from having a first-mover advantage into China's
lucrative jewelry retailing industry. We truly are becoming one of
the only vertically integrated jewelry companies in the world
considering we mine our own stones, manufacture them out of our
cost-effective factories in China and distribute them directly to
the end consumer through our ENZO retail stores. This unique model
is enabling us to post 50% gross margins on our ENZO stores, which
could represent the highest margins any major jewelry retailer has
ever experienced,' concluded Mr. Yih. Third Quarter Guidance Points
to Continued Growth For the third quarter ended September 30, 2005,
LJI is projecting revenues between $23 million to $24 million, with
EPS in a range of $0.09 to $0.10 per fully diluted share. This
would represent be a year-over-year revenue increase of 6% to 11%
over the third quarter of 2004, with EPS on a fully diluted basis
equal to or above the $0.09 reported in the year-ago quarter. On a
sequential basis, third quarter 2005 revenues are expected to be
21% to 26% above the second quarter 2005 revenues, with EPS on a
fully diluted basis up between 350% to 400%. These EPS figures
include start-up costs for future ENZO store openings that are
expected to occur during the third quarter. Conference Call
Information The Company will conduct a conference call today,
August 11, 2005 at 11:00 am EST to discuss today's financial
results and for a Q&A session. The call will be hosted by Betty
Ho, Vice President of Corporate Development. The conference call is
accessible live via phone by dialing 888-338-6461, or 973-935-8509
for international callers, and asking for the LJ International
call. Please call at least 10 minutes prior to the start time, or
hear the call live over the Internet by logging on to the Company's
Website at http://www.ljintl.com/ . If you would like to be added
to LJI's investor email lists please contact Haris Tajyar with
Investor Relations International at . About LJ International LJ
International, Inc. (LJI) is a publicly-owned company, based in
Hong Kong and the U.S., engaged in designing, branding, marketing
and distributing a full range of jewelry. It has built its global
business, currently one of the fastest-growing in the jewelry
industry, on a vertical integration strategy and an unwavering
commitment to quality and service. LJI distributes to fine
jewelers, department stores, national jewelry chains and electronic
and specialty retailers throughout North America and Western
Europe, with a growing retail presence in China through its ENZO
stores and e-shopping sites. Its product lines incorporate all
major categories sought by major retailers, including earrings,
necklaces, pendants, rings and bracelets. It trades on the Nasdaq
National Market under the symbol JADE. For more information on LJI,
go to its Web Site at http://www.ljintl.com/ . Forward looking
statement: Except for the historical information, the matters
discussed in this news release may contain forward-looking
statements, including, but not limited to, factors relating to
future sales. These forward-looking statements may involve a number
of risks and uncertainties. Actual results may vary significantly
based on a number of factors, including, but not limited to,
uncertainties in product demand, the impact of competitive products
and pricing, changing economic conditions around the world, release
and sales of new products and other risk factors detailed in the
company's most recent annual report and other filings with the
Securities and Exchange Commission. LJ INTERNATIONAL INC CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS,
EXCEPT SHARE AND PER SHARE DATA) Three months ended Six months
ended June 30 June 30 2005 2004 2005 2004 US$ US$ US$ US$ Operating
revenue 19,074 16,259 36,513 30,756 Costs of goods sold (14,454)
(12,392) (28,243) (23,453) Gross profit 4,620 3,867 8,270 7,303
Selling, general and administrative expenses (3,936) (3,170)
(7,555) (6,034) Operating income 684 697 715 1,269 Other revenue
and expense Other revenues 72 36 108 68 Share of results of
investment securities -- 4 215 (62) Impairment loss on goodwill --
-- (1,493) -- Interest expenses (402) (203) (726) (385) Income
(Loss) before income taxes, minority interest and extraordinary
gain 354 534 (1,181) 890 Income taxes (48) (60) (150) (61) Income
(Loss) before minority interest and extraordinary gain 306 474
(1,331) 829 Minority interest (3) -- (3) -- Income (Loss) before
extraordinary gain 303 474 (1.334) 829 Extraordinary gain in
negative goodwill -- -- 1,886 -- Net income 303 474 552 829
Earnings per share: Basic 0.02 0.04 0.04 0.08 Diluted 0.02 0.04
0.04 0.07 Weighted average number of shares used in calculating
diluted earnings per share 13,463,017 11,906,139 13,599,965
11,905,463 LJ INTERNATIONAL INC. CONDENSED CONSOLIDATED BALANCE
SHEETS (IN THOUSANDS, EXCEPT SHARE DATA) As of As of June 30
December 31 2005 2004 (Unaudited) ASSETS US$ US$ Current assets:
Cash and cash equivalents 2,156 3,228 Restricted cash 5,578 6,393
Investment in capital guaranteed fund 2,370 -- Trade receivables,
net of allowance for doubtful accounts (US$284 as of June 30,2005
and December 31, 2004) 13,405 15,653 Inventories 46,647 36,629
Prepayments and other current assets 1,580 2,539 Total current
assets 71,736 64,442 Properties held for lease, net 1,424 1,452
Property, plant and equipment, net 5,692 4,673 Due from related
parties 491 491 Goodwill, net 1,521 1,521 Investment securities,
net -- 1,792 Total assets 80,864 74,371 LIABILITIES AND
STOCKHOLDERS' EQUITY Current liabilities: Bank overdrafts 3,352 607
Notes payable, current portion 2,674 2,487 Capitalized lease
obligation, current portion 22 19 Letters of credit, gold and other
loans 24,603 21,911 Embedded derivative 1,442 1,462 Trade payables
9,036 9,553 Accrued expenses and other payables 2,934 4,631 Income
taxes payable 152 68 Deferred taxation 87 87 Total current
liabilities 44,302 40,825 Other payables, non-current 61 58 Total
liabilities 44,363 40,883 Minority interest 112 -- Stockholders'
equity Common stocks, par value US$0.01 each, Authorized - 100
million shares, Issued - 13,122,658 shares as of June 30, 2005;
12,304,658 shares as of December 31, 2004 131 123 Additional
paid-in capital 26,281 23,382 Accumulated other comprehensive loss
(277) (151) Unearned compensation (469) (37) Retained earnings
10,723 10,171 Total stockholders' equity 36,389 33,488 Total
liabilities and stockholders' equity 80,864 74,371 For further
information: AT LJI: AT INVESTOR RELATIONS INTL: Betty Ho Haris
Tajyar Vice President, Corporate Development Managing Partner Tel:
011-852-2170-0001 Tel: 818-382-9702 Email: Email: DATASOURCE: LJ
International, Inc. CONTACT: Betty Ho of LJ International,
+011-852-2170-001, or ; Haris Tajyar of Investor Relations Intl,
+818-382-9702 or , for LJ International Web site:
http://www.ljintl.com/
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