Exceed's revenues decreased by 48.1 percent to 553.3 million yuan renmimbi (€68.7m-$88.9m) in the third quarter ended Sept. 30 compared with the same period last year. The gross margin dropped by 2.0 percentage points to 27.5 percent. The net profit for the quarter was off by 79.0 percent to RMB 30.4 million (€3.8m-$4.9m), or by 80.5 percent excluding the impact of a change in the fair value of contingent share liabilities.
The results of the Chinese company, which sells sports shoes and apparel under the Xidelong brand name, were adversely affected by the lower-than-expected consumer demand for sportswear in China throughout the quarter, linked to the ongoing macroeconomic slowdown at the global level. However, Exceed indicated that sales had improved compared with the spring 2012 season.
Footwear accounted for 44.5 percent of the revenues in the third quarter, with sales down by 9.9 percent from the second quarter of 2012 and by 51.7 percent compared with the same quarter in 2011. The decline was primarily due to a decrease of 53.7 percent in sales volumes against the third quarter of 2011, partially offset by an increase of 4.4 percent in average selling prices. For the first nine months of 2012, revenues from footwear declined by 17.3 percent. A portion of Exceed's footwear production is outsourced.
Sports apparel, whose production is entirely outsourced, accounted for 53.1 percent of the revenues in the third quarter. Sales were down by 45.7 percent compared with the same period in 2011, but they were up by 6.1 percent compared with the second quarter of 2012. The decrease was primarily due to a 48.9 percent drop in sales volumes, partially offset by a 6.2 percent boost in average selling prices from the same quarter in 2011 as a result of continuous marketing and brand promotion efforts. For the nine-month period ended Sept. 30, revenues from apparel dropped by 25.5 percent compared with the same nine months of 2011.
Revenues from sports accessories, whose production is also entirely outsourced, declined by 10.3 percent in the third quarter to RMB 13.0 million (€1.6m-$2.1m), compared with the same period a year ago, but the segment enjoyed a 14.0 percent increase from the second quarter of 2012.
Pre-tax profits decreased by 78.8 percent from the third quarter of 2011 to RMB 35.6 million (€4.4m-$5.7m) in the latest quarter. The company recorded a non-cash and non-operating loss of RMB 11.3 million (€1.4m-$1.8m) from a change in the fair value of contingent share liabilities arising from escrow and earn-out shares that were attributed to the pre-tax profit reported for the third quarter of 2011.
During the third quarter of 2012, Exceed established a new wholly owned subsidiary, Xidelong Jang Xi, which will operate as the new business entity responsible for operation of the company's second factory campus, due to include increased production facilities and offices once it is completed.
For the fourth quarter of 2012, the company expects a decrease in revenues of between 45.2 percent and 52.0 percent compared with the same period of 2011, as the persistent economic headwinds should cause ongoing weakness in consumer demand for sportswear products in the country. In order to maintain its competitive position and pricing power, the company has engaged its distributors and authorized third-party retailers in an effort to more cautiously manage the level of orders that they place before the goods are manufactured.
As of Sept. 30, 2012, the number of Xidelong retail selling locations, which are operated by Exceed's distributors and authorized third-party retail store operators, had increased to 5,021, up from 4,724 as of Sept. 30, 2011.
