KBS Fashion Group Limited Announces Financial Results for the First Quarter of 2018

First quarter of 2018 Financial Highlights

  • Net revenues decreased by 21.1% to $4.46 million for the first quarter of 2018 from $5.51 million for the same period of last year. The decrease was related to the termination of bad contracts with some customers and the liquidation of excess inventory.
  • Gross profit decreased by 10.3% to $1.09 million for the first quarter of 2018 from $1.21 million for the same period of last year. Gross margin was 24.2% for the first quarter of 2018, compared to 22.0% for the same period of last year.
  • Operating profit decreased by 10.0% to $2.01 million for the first quarter of 2018 from $2.23 million for the same period of last year.
  • GAAP net loss was $1.90 million, or $0.886 loss per basic and diluted share, for the first quarter of 2018, compared to net income of $1.73 million, or $0.977 loss per basic and diluted share, for the same period of last year.
  • *Non-GAAP net loss, was $1.90 million, or $0.886 loss per basic and diluted share, for the first quarter of 2018, compared to non-GAAP net loss of $1.73 million, or $0.977 loss per basic and diluted share, for the same period of last year.

Mr. Keyan Yan, Chief Executive Officer of the Company commented, "while our sales performance for the first quarter reflects a challenging garment market, we remain optimistic about our business as we continue to execute operationally, focus on financial discipline, and aggressively pursue contracting opportunities. The management team is also working on exploring various options by cooperating with e-commerce stores to generate sales momentum for our business. With our continuous efforts, we are confident to deliver improved results going forward."

*Non-GAAP Financial Measures: This press release contains certain non-GAAP financial measures. A reconciliation of these non-GAAP measures to their nearest comparable GAAP measures is included below. Management believes the use of non-GAAP measures is an additional useful method of evaluating our financial condition and results of operations. The non-GAAP financial measures disclosed should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and the expected results calculated in accordance with GAAP and reconciliations to those expected results should be carefully evaluated. The non-GAAP financial measures we use may be calculated differently from, and therefore may not be comparable to similarly titled measures used by other companies. Management uses this information to measure performance over time on a consistent basis and to identify trends related to the Company's financial condition and results of operations. Management believes that these non-GAAP measures provide investors with information regarding the underlying performance of the company's core business operating results. References to GAAP refer to International Financial Reporting Standards, as issued by the International Accounting Standards Board (IFRS).

First quarter of 2018 Financial Results Analysis


For the Three Months Ended March 31,


($ millions, except per share
data)

2018


2017


%
Change

Revenues

4.46


5.51


(21.1)%

Distribution network

3.91


4.86


(19.5)%

Corporate stores

0.15


0.21


(28.6)%

OEM

0.40


0.43


(7.0)%

Gross profit

1.09


1.21


10.3%

Gross margin

24.2%


22.0%


10.3%

Operating income (loss)

(2.01)


(2.23)


(10.0)%

Operating (loss) margin

(45.0)%


(40.5)%


(10.0)%

GAAP net income (loss)

(1.90)


(1.73)


(9.5)%

Non-GAAP Earnings (loss) per
share

(0.886)


(0.977)


(9.3)%

Revenues

  • Total revenues decreased by $0.92 million, or 21.4%, to $4.46 million for the first quarter of 2018 from $5.51 million for the same period of last year. The decrease was related to the termination of bad contracts with some customers and the liquidation of excess inventory. The Company tries to avoid overstock due to the weak demand.


For the Three Months Ended March 31,



2018


2017

($ millions)


Revenues


Gross
Profit


Gross
Margin


Revenues


Gross
Profit


Gross
Margin

Distribution
network


3.91


0.89


22.9%


4.86


0.97


20.0%

Corporate
stores


0.15


0.06


39.0%


0.21


0.12


55.0%

OEM


0.40


0.14


33.7%


0.43


0.13


20.0%

Total


4.46


1.09


24.4%


5.51


1.21


22.0%

Revenues from the Company's distribution network decreased by $0.95 million, or 19.6%, to $3.91 million for the first quarter of 2018 from $4.86 million for the same period of last year. Distribution network contributed 87.6% of total revenues for the first quarter of 2018, compared to 87.8% for the same period of last year. The Company's distributor network consisted of 14 distributors in 12 provinces during the first quarter of 2018, 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 sell our products to multi-branded stores and online stores. As of March 31, 2018, the Company operated 39 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 52 branded franchise stores as of March 31, 2017.

The following table lists by region the number of retail stores operated by distributors and sub-distributors as of March 31, 2018:





Location


As of March 31,
2018


Fujian


6


Guangdong


2


Guangxi


3


Jiangsu


4


Anhui


1


Zhejiang


2


Chongqing


4


Inner Mongolia


1


Tianjin


3


Hebei


4


Heilongjiang


4


Sichuan


5


Total


39


Revenues from corporate stores sales decreased by $0.06 million, or 29.4%, to $0.15 million for the first quarter of 2018 from $0.21 million for the same period of last year. Corporate stores accounted for 3.4% of total revenues for the first quarter of 2018, compared to 5.5% for the same period of last year. The decrease in corporate stores sales was due to the competitive pressure. As of March 31, 2018, the Company operated 1 corporate store same as March 31, 2017.

Revenues from OEM sales decreased by $0.03 million, or 6.7%, to $0.40 million for the first quarter of 2018 from $0.43 million for the same period of last year. OEM accounted for 9.0% of total revenues for the first quarter of 2018, compared to 6.7% 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 the competitive pressure.