LJ International Inc. CEO Sees Double Digit Growth for Company in Letter to Shareholders
23 June 2006 - 12:15AM
PR Newswire (US)
HONG KONG and LOS ANGELES, June 22 /Xinhua-PRNewswire-FirstCall/ --
LJ International Inc. (NASDAQ:JADE), one of the fastest-growing
jewelry companies in the world, today reported that its Chairman
and CEO expects accelerated revenue and earnings growth in the
years ahead. Details of this announcement were published in the
Company's 2005 Letter to Shareholders, a copy of which is attached
below. "Dear Shareholder, It has been another impressive year for
LJ International (NASDAQ:JADE). During 2005, the Company continued
to exceed both internal and external growth targets; achieved new
all-time financial records; launched ENZO, which we quickly grew to
become China's largest foreign-branded jewelry chain; and, perhaps
most impressively, we accomplished these milestones while
maintaining our record of double-digit growth in our core wholesale
business. And from all that we have experienced so far, I am
pleased to report that these trends are continuing in 2006. First,
on the subject of breaking records and exceeding expectations, LJI
ended 2005 with its strongest fourth-quarter revenues ever -- $31.6
million -- bringing its revenues for the full year to $94.6
million, also a new record for the Company since its founding
nearly 20 years ago. Revenues were up 26% year-over-year for the
fourth quarter and up 22% for the full year. The Company also beat
earlier guidance on net income and earnings per fully diluted share
("EPS"), for both the quarter and the full year. What is
particularly noteworthy about our exceeding both net income and EPS
projections is that we had already issued one upward revision in
that guidance. Our performance, therefore, surpassed even raised
expectations. Our third quarter of 2005 ended September 30, was
also a record-breaker, setting all-time highs for revenues,
operating income and net income. The most recent quarter for which
LJI has reported results -- the first quarter ended March 31, 2006
-- shows that our business remains strong on all fronts. Revenues
were up 39% year-over-year, reflecting an acceleration of our
revenue growth rate from 2005. EPS, excluding ENZO start-up cost,
grew 67% compared to same period last year. Once again, both EPS
and revenues exceeded our prior guidance. Growth has been strong on
all fronts, I'd like to stress. That includes the worldwide markets
served by the core business that built the foundation of LJI as we
know it today: the manufacture and wholesaling of fine jewelry to
our global blue-chip partners that include QVC, Wal-Mart, HSN,
Zale, JC Penney and many others representing significant growth
opportunities for us going forward because an ever increasing
number of U.S. retailers are looking to China for their future
suppliers. I will expand on our very positive wholesale results
later in this letter, but for now, I'd like to bring you up-to-date
on the rapid progress being made by our ENZO retail division, which
operates in China, Hong Kong and Macau and, which, as a result of
our first-mover advantage, has grown to become the largest
foreign-branded jewelry retail chain store in China. China's Robust
Economy Fuels ENZO's Nationwide Roll-Out Plan As of the date of
this letter, we have opened 23 wholly-owned ENZO retail stores --
evidence that we're well on our way to achieving our target of
having at least 40 stores by the end of 2006, and 100 by the end of
2008. This again surpasses the projections we disclosed in December
2005. We had timed the soft-opening of our Macau mega store to
coincide with the official unveiling of the Macau Fisherman's Wharf
("MFW") on New Year's Eve last year. However, the MFW project has
been delayed by about a year and is now expected to be fully
operational together with the casino only in late 2006. Our entire
mega store, therefore, will now be fully operational in line with
the new MFW schedule -- approximately a year later than the
original plan. Should ENZO keep its current pace of expansion --
and I fully expect it I to do so -- it will be a high-profile
retail presence in all major Chinese cities by the time of the 2008
Beijjng Olympics. For the year 2008, we are projecting ENZO
revenues of at least $40 million. That would represent
approximately 25% of LJI's total 2008 revenues, which we have
projected to range between $155 million and $165 million -- at a
future compound annual growth rate of between 22% and 25%. During
2005, ENZO reported revenues of $2.5 million -- a figure well above
earlier projections, which had already been revised upwards. In the
first quarter of 2006, ENZO continued its very strong growth with
revenues up more than 65% from the fourth quarter of 2005. That
sequential rise is significant because it came after most of the
ENZO stores now in operation had already opened (there were 20 at
the end of the fourth quarter of 2005, and 23 at the end of the
first quarter of 2006). So while newly opened stores contributed to
the revenue growth, it's likely that same-store sales increases
were playing a big part as well. Indeed, results reported earlier
this year at one of the first ENZO outlets -- the flagship store at
Shanghai's City Plaza -- revealed revenues for January and February
2006 standing at more than double those in the first two months of
2005. But top-line growth is only part of the story, and arguably,
not the most important part for you, the investor. Ultimately,
profit is what builds wealth, and this is where ENZO will make a
truly dramatic difference. The full vertical integration of the
ENZO retail business model -- which is not just mine-to-market, but
mine-to-consumer -- cuts out middlemen up and down the supply chain
and enables us to sell at high gross margins. The gross profit on a
typical ENZO product is about 50% compared to our historical
wholesale margin of about 22%. Expenses related to store openings
have somewhat delayed the impact of the higher gross margins, but
in time they will give our overall EBITDA and net income a sharp
upward push. We currently expect ENZO to reach profitability in
2007. The division's most recent results show that it's on track to
meet or beat those goals. During the first quarter ended March 31,
2006, ENZO's net loss, including the operating and finance expenses
of opening new stores, fell sequentially to $550,000, from $749,000
in the fourth quarter of 2005. We also saw clear evidence that
ENZO's gross margins were beginning to have their expected impact
on margins of LJI as a whole. During the first quarter of 2006, the
Company's overall gross profit was $5.8 million, or 24% of
revenues, compared to $3.7 million, or 21% of revenues, in the
first quarter of 2005. We anticipate overall gross profit to rise
from 23% in 2005 to about 30% in 2008. Accordingly, we expect net
income to rise at a compounded annual growth rate of 38% to 42% --
a much faster rate than for overall revenues. On a per-share basis,
we see EBITDA reaching between 65 and 70 cents by 2008, and EPS
hitting between 45 and 50 cents. In other words, we see EPS
approximately doubling in three years' time from the 24 cents
recorded in 2005. What It Means to Be a First Mover The story of
China's economic dynamism is so well known by now that I do not
need to go into great detail about it here. Investors all over the
globe can see that the world's most populous country, currently
reporting economic growth of 10% a year, offers vast opportunities
for well-positioned retailers. One aspect of China's business
climate may have received less attention than it should have,
though. That is the impact of the nation's entry, at the end of
2004, into the World Trade Organization. By joining the WTO, China
gave unprecedented market access to foreign-based retail firms such
as LJI. And the firms that were the first to take advantage of this
window of opportunity gained a substantial edge on the competition
by staking out the best locations and introducing their brand to
the most affluent consumers. LJI, through its ENZO stores, is the
first-mover among non-China-based jewelry retailers in China, and
has quickly become a revenue leader in the upscale shopping
districts of Beijing, Shanghai and other large cities. ENZO is
positioned to become the largest foreign-based jewelry retailer
chain in China. Growing Globally Our revenues outside China will
continue to be our primary revenue source for several years to
come. We expect this side of our business to continue growing
within its long-term historic range, although not quite at the
20%-plus levels of the previous three years. Specifically, we're
looking at a year-over-year growth rate of between 10-15% in our
wholesale business from now to 2008. I consider this a conservative
forecast of the revenue expansion that we can achieve in markets
that are mature and highly competitive. In the near term, LJI's
wholesale growth certainly seems likely to stay ahead of that
long-term forecast. In 2005, revenues from our core business rose
about 20% over 2004. In the first quarter of 2006, core revenues
were 29% above overall LJI revenues in the first quarter of 2005
(ENZO revenues were not reported separately in the earlier quarter,
although they were starting to have a significant impact on
company-wide results). LJI continues to widen and deepen its
relationships with major retailers worldwide, and it holds a strong
global position among its competitors. We have well-established
customer relationships with the three largest TV shopping channels
in the US, most of the major national jewelry chains, and retailers
of global reach such as Wal-Mart and Carrefour. We were named
"Vendor of the Year" by ShopNBC in 2005 and our product lines have
been recognized by the jewelry industry for design excellence. In
October 2005, for instance, we won the Champion and First Runner-Up
awards at the 7th Buyers' Favorite Jewelry Design Competition in
Hong Kong. We expect to collect more such honors in the coming
months and years for our creative team, spearheaded by renowned
designer Omar Torres of Bvlgari and Movado fame. During the first
quarter of 2006, we reported a single order of over $1 million from
one of the largest mass merchants in the U.S. and a longstanding
LJI customer. LJI will continue to generate exciting news in the
coming months as we open new stores and expand our wholesale
business around the world. We expect great things, for instance,
from the new store in Macau, the gaming capital of East Asia, and
one of the region's prime tourist destinations. I will continue to
keep you posted from time to time with letters such as this, both
to express my appreciation of your continued interest and support,
and to keep you current on the execution of our growth strategy."
Yours truly, /s/ Yu Chuan Yih Chairman and Chief Executive Officer
If you would like to be added to LJI's investor email lists, please
contact Haris Tajyar with Investor Relations International at .
About LJ International LJ International, Inc. (LJI) (NASDAQ:JADE)
is a publicly-owned company, based in Hong Kong and the U.S.,
engaged in designing, branding, marketing and distributing a full
range of jewelry. It has built its global business, currently one
of the fastest-growing in the jewelry industry, on a vertical
integration strategy and an unwavering commitment to quality and
service. LJI distributes to fine jewelers, department stores,
national jewelry chains and electronic and specialty retailers
throughout North America and Western Europe, with a growing retail
presence in China through stores and e-shopping sites. Its product
lines incorporate all major categories sought by major retailers,
including earrings, necklaces, pendants, rings and bracelets. It
trades on the Nasdaq National Market under the symbol JADE. For
more information on LJI, please visit the Company's Web site at
http://www.ljintl.com/ . Forward looking statement: Except for the
historical information, the matters discussed in this news release
may contain forward-looking statements, including, but not limited
to, factors relating to future sales. These forward-looking
statements may involve a number of risks and uncertainties. Actual
results may vary significantly based on a number of factors,
including, but not limited to, uncertainties in product demand, the
impact of competitive products and pricing, changing economic
conditions around the world, release and sales of new products and
other risk factors detailed in the company's most recent annual
report and other filings with the Securities and Exchange
Commission. For further information: AT LJI: AT INVESTOR RELATIONS
INTL: Betty Ho Haris Tajyar Vice President, Corporate Development
Managing Partner Ph: 011-852-2170-0001 Ph: 818-382-9702 Email:
Email: DATASOURCE: LJ International, Inc. CONTACT: Betty Ho of LJ
International, +852-2170-001, or ; Haris Tajyar of Investor
Relations Intl for LJ International, +1-818-382-9702 or Web site:
http://www.ljintl.com/
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