Acorn International, Inc., a media and branding company in China engaged in developing, promoting and selling products through direct sales and distribution sales platforms, announced its unaudited financial results for the quarter ended March 31.
In a release on May 19, the Company noted that results for the first quarter 2011 :
-Net revenues were $84.0 million, an increase of 19.4 percent from $70.3 million for the first quarter of 2010.
-Gross profit was $37.0 million, an increase of 19.6 percent from $30.9 million for the first quarter of 2010.
-Gross margin was 44.0 percent, same as the first quarter of 2010.
-Operating income was $1.7 million, compared to an operating loss of $0.5 million for the first quarter of 2010.
-Net income was $0.8 million, same as the first quarter of 2010.
-Net income attributable to Acorn was $0.9 million, same as the first quarter of 2010.
-Diluted earnings per American Depositary Share ("ADS") were $0.03 for the first quarter of both 2011 and 2010.
"The year began on a positive note reflecting top-line growth and improved profitability. Direct sales were the primary driver of our growth, as we maintained the momentum in non-TV direct sales, in particular our sales of mobile handsets. During the quarter, we introduced the new Gionee A350 model, which is an updated version of Gionee A320 model, our best selling product in 2010. The new product launch enabled us to introduce premium pricing, improving the profitability of our mobile handset sales," said Don Yang, CEO and President of Acorn. "Following our efforts to re-position our business, we have adopted a new performance review system which focuses on the optimization of our media return and spending. We also plan to further enhance our customers' loyalty through a more effective business strategy: higher product quality and better customer service, thereby achieving higher product profitability."
Business Results for the First quarter of 2011 :
-Direct sales of mobile handsets remained a growth driver in the first quarter of 2011 primarily as a result of the sales of the Gionee A320 and A350 models. Revenues grew 300.3 percent from $9.7 million for the first quarter of 2010 to $38.8 million for the first quarter of 2011.
-Non-TV direct sales remained a principal focus of the Company's business strategy helping reduce dependence on advertising expenditure, stabilize sales and improve utilization of the Company's customer database. Sales from the Company's third-party bank channels, outbound calls, catalogs and Internet increased by 63.4 percent to approximately $34.5 million for the first quarter of 2011 from approximately $21.1 million for the first quarter of 2010. Third-party bank channel sales increased 43.5 percent to approximately $16.7 million for the first quarter of 2011 from approximately $11.6 million for the same period of last year.
Direct sales net revenues contributed 72.9 percent to total net revenues, or $61.2 million, for the first quarter of 2011, an increase of 67.4 percent from $36.5 million for the same period of last year, mainly due to the increase in mobile handset sales led by Gionee's A320 and A350 models, offset by a reduction in the cosmetic and autocare product sales.
Distribution sales net revenues decreased 32.6 percent year-over-year to $22.8 million from $33.8 million for the first quarter of 2010, primarily due to decreased sales of Ozing and Meijin from a market slowdown in the electronic learning and electronic dictionary product lines.
Cost of sales for the first quarter of 2011 was $47.0 million, a 19.2 percent increase from $39.4 million for the same period of last year, largely in line with the increase in sales.
Gross profit for the first quarter of 2011 was $37.0 million, an increase of 19.6 percent compared to $30.9 million for the same period of last year. Gross margin remained flat at 44.0 percent for the first quarter of 2011.
Gross profit from direct sales for the first quarter of 2011 increased 55.1 percent to $29.1 million from $18.7 million for the same period of last year. Gross margin for direct sales for the first quarter of 2011 was 47.5 percent, compared to 51.3 percent for the same period of last year. The decrease in gross margin was mainly due to a decrease in the sales of cosmetics and autocare products which have higher gross margins and an increase in lower-margin non-TV direct sales in the first quarter of 2011.
Gross profit from distribution sales for the first quarter of 2011 decreased 35.0 percent to $7.9 million from $12.2 million for the same period of last year. Gross margin for distribution sales for the first quarter of 2011 was 34.8 percent, compared to 36.0 percent for the same period of last year mainly due to lower gross margin of Ozing and Meijin product lines.
Advertising expenses were $16.6 million for the first quarter of 2011, compared to $15.3 million for the same period of last year. Gross profit over advertising expenses, a benchmark Acorn uses to measure return on multiple sales platforms, was 2.22 for the first quarter of 2011, up from 2.02 for the same period of last year.
Other selling and marketing expenses increased 19.1 percent to $12.1 million from $10.2 million for the first quarter of last year. The increase was mainly due to increased salaries and employee benefits of call centers' sales representatives.
General and administrative expenses were $7.1 million for the first quarter of 2011, a 10.9 percent increase from $6.4 million for the same period of 2010. The increase was due to a $0.6 million increase in general bad debt provisions based on accounts receivable's aging. In the first quarter of 2011, Yiyang Yukang business stopped selling "Uking" branded mobile handsets through its distribution platform and the additional provisions relate to the outstanding accounts receivable from its distributors.
Other operating income, net, was $0.5 million for the first quarter of 2011, compared to $0.4 million for the same period of last year.
As a result, operating income was $1.7 million for the first quarter of 2011, compared to an operating loss of $0.5 million for the first quarter of 2010.
Other income was $0.1 million for the first quarter of 2011, compared to $1.8 million for the first quarter of last year. The decrease was due to a decrease of $1.7 million in investment income.
Share-based compensation was $39,639 for the first quarter of 2011, compared to $101,859 for the same period of last year.
Net income was $0.8 million for the first quarter of both 2011 and 2010.
Net income attributable to Acorn was $0.9 million for the first quarter of both 2011 and 2010.
Diluted earnings per ADS was $0.03 for the first quarter of both 2011 and 2010.
As of March 31, Acorn's cash and cash equivalents totaled $81.7 million, compared to $91.7 million as of December 31, 2010.
For 2011, Acorn intends to centralize the business around its core competencies. The Company's strategy involves the development of a media platform that serves as a sales and marketing channel for products, while improving media efficiency by carefully allocating media resources to products that display the highest return. The Company also expects a continued growth in mobile handsets and collectibles sales from its direct sales platforms.
For fiscal year 2011, the Company maintains its guidance of revenue between $340 million and $380 million and net income between $8 million and $10 million.
These estimates are subject to change. Also, Acorn reminds investors that its operating results in each period are impacted significantly by the mix of products sold in the period and the platforms through which they are sold. Consequently, in evaluating the overall performance of Acorn's multiple sales platforms in any period, management also considers metrics such as operating margin and gross profit return on advertising expenses.
Acorn is a media and branding company in China, operating a TV direct sales businesses in terms of revenues and TV air time, and other direct sales platforms and a nationwide distribution network.
More information:
http://ir.chinadrtv.com
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