FUQI reports 1Q 2008 results

FUQI International, Inc. has 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.

Source : Fuqi International, Inc.

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