KBS Fashion Group Limited Announces Financial Results for the Second Quarter and First Half of 2017

SHISHI, China, Dec. 19, 2017 /PRNewswire/ -- KBS Fashion Group Limited ("KBS" or the "Company") (KBSF), a leading fully-integrated casual menswear company in China, today announced its unaudited financial results for the second quarter and the first half of 2017.

Second Quarter of 2017 Financial Highlights


For the Three Months Ended June 30,

($ millions, except per share data)

2017


2016


% Change

Revenues

4.07


7.91


-48.6%

Distribution network

3.47


6.83


-49.2%

Corporate stores

0.13


0.48


-72.2%

OEM

0.47


0.61


-23.2%

Gross profit

0.86


1.75


-50.6%

Gross margin

21.2%


22.1%


-0.9 pp

Operating income (loss)

-2.93


0.40


-840.6%

Operating (loss) margin

-72.1%


5.0%


-77.1 pp

GAAP net income (loss)

-2.24


0.08


-2959.9%

GAAP Earnings (loss) per share

-1.26


0.05


-2897.0%

  • Net revenues decreased by 48.6% to $4.07 million for the second quarter of 2017 from $7.91 million for the same period of last year. The decrease was related to the reduction of sales from the distribution network, corporate stores and OEM.
  • Gross profit decreased by 50.6% to $0.86 million for the second quarter of 2017 from $1.75 million for the same period of last year. Gross margin was 21.2% for the second quarter of 2017, compared to 22.1% for the same period of last year.
  • GAAP net loss was $2.24 million, or $1.262 per basic and diluted share, for the second quarter of 2017, compared to net income of $0.08 million, or $0.045 per basic and diluted share, for the same period of last year.
  • Non-GAAP net loss, which excludes the provision of the change in fair value of warrants, was $2.24 million, or $1.26per basic and diluted share, for the second quarter of 2017, compared to non-GAA net income of $0.07 million, or $0.043 per basic and diluted share, for the same period of last year.

Mr. Xiaowen Zheng, Chief Executive Officer of the Company commented, "The garment industry continued to face significant headwinds with slowdown of demand and industry-wide inventory build-up this year, leading to continued decline of our business in the second quarter. While we are disappointed with the second quarter results, we are exploring alternatives to reposition the KBS brands and believe that the Company has the solid fundamentals to come out stronger from the downturn."

Second Quarter of 2017 Financial Results

Revenues

Total revenues decreased by $3.84 million, or 48.6%, to $4.07 million for the second quarter of 2017 from $7.91 millionfor the same period of last year. The decrease was related to decreased sales from distribution network, corporate stores and OEM.



For the Three Months Ended June 30,



2017


2016

($ millions)


Revenues


Gross Profit


Gross Margin


Revenues


Gross Profit


Gross Margin

Distribution network


3.47


0.66


19.1%


6.83


1.37


20.0%

Corporate stores


0.13


0.06


47.7%


0.48


0.16


34.3%

OEM


0.47


0.14


29.5%


0.61


0.22


35.9%

Total


4.07


0.86


21.2%


7.91


1.75


22.1%

Revenues from the Company's distribution network decreased by $3.36 million, or 49.2%, to $3.47 million for the second quarter of 2017 from $6.83 million for the same period of last year. Distribution network contributed 85.3% of total revenues for the second quarter of 2017, compared to 86.3% for the same period of last year. The Company's distributor network consisted of 24 distributors in 12 provinces during the second quarter of 2017, compared to 30 distributors in 15 provinces during the same period of last year. Most of these distributors, either directly or through their sub-distributors, operate KBS-branded stores. Some wholesale distributors sold the products to multi-branded stores and online stores. As of June 30, 2017, the Company operated 49 branded franchise stores, primarily in second and third tier cities. KBS products distributed to the fourth and fifth tier cities are primarily sold in multi-branded department stores and online shops. As a comparison, the Company operated 60 branded franchise stores as of June 30, 2016.

The following table lists by region the number of retail stores operated by distributors and sub-distributors as of June 30, 2017:





Location


As of June 30, 2017


Fujian


8


Guangdong


2


Guangxi


6


Jiangsu


4


Anhui


1


Zhejiang


2


Chongqing


5


Inner Mongolia


1


Tianjin


3


Hebei


5


Heilongjiang


5


Sichuan


7


Total


49


Revenues from corporate stores sales decreased by $0.35 million, or 72.2%, to $0.13 million for the second quarter of 2017 from $0.48 million for the same period of last year. Corporate stores accounted for 3.3% of total revenues for the second quarter of 2017, compared to 6.1% for the same period of last year. The decrease in corporate stores sales was due to the closure of more corporate stores. As of June 30, 2017, the Company operated 1 corporate store, compared to 2 corporate stores as of June 30, 2016.

Revenues from OEM sales decreased by $0.14 million, or 23.2%, to $0.47 million for the second quarter of 2017 from $0.61 million for the same period of last year. OEM accounted for 11.5% of total revenues for the second quarter of 2017, compared to 7.7% for the same period of last year. The OEM segment is comprised of products that are designed by the customers and manufactured by the Company. The decrease in revenues from OEM sales was primarily due to competitive pressure.

Cost of Sales and Gross Profit

Total cost of sales decreased by $2.96 million, 48.0%, to $3.21 million for the second quarter of 2017 from $6.17 millionfor the same period of last year.

Total gross profit decreased by $0.89 million, or 50.6%, to $0.86 million for the second quarter of 2017 from $1.75 million for the same period of last year. Gross profits for distribution network, corporate stores and OEM were $0.66 million, $0.06 million, and $0.14 million, respectively, for the second quarter of 2017, compared to $1.37 million, $0.16 million, and $0.22 million, respectively, for the same period of last year.

Overall gross margin was 21.2% for the second quarter of 2017, compared to 22.1% for the same period of last year. On a segment basis, gross margins for distribution network, corporate stores and OEM were 19.1%, 47.7%, and 29.5%, respectively, for the second quarter of 2017, compared to 20.0%, 34.3%, and 35.9%, respectively, for the same period of last year. The decrease in gross margin for distribution network was due to decreases in average selling prices per unit to our distributors while the increase in gross margin for corporate stores was primarily due to the reduction of promotions made by our corporate store.