LJ International Announces Third Quarter 2009 Financial Results

November 11, 2009 4:35 PM EST

Strong Earnings Contributions and From LJI's ENZO Division Increases Overall Margins and EPS

Highlights:

    --  Revenues total $26.2 million in third quarter, with retail up 24% and
        wholesale down 38% from Q3 of 2008
    --  Gross profit rises 3%, reflecting revenue increases across both
        wholesale and retail divisions
    --  Net income rises 201%; EPS increases to $0.05 from $0.02 from year-ago
        period
    --  ENZO's same-store sales rise 18% year-over-year despite global recession
    --  LJI raises guidance for fourth quarter with revenue expectations of over
        $30 million and earnings of over $1.9 million, or $0.08 per diluted
        share; Full-year 2009 revenues expected to exceed $100 million on
        earnings of $3.35 million, or $0.14 per diluted share
    --  Company's expansion strategy expected to include 100 new ENZO store
        openings over next two years

HONG KONG--(BUSINESS WIRE)-- LJ International Inc. (LJI) (NASDAQ: JADE), a leading jewelry manufacturer and retailer, today reported financial results for its third quarter and nine months ended September 30, 2009.

Revenues for the third quarter of 2009 totaled $26.2 million, down 20% from $33.0 million in the third quarter of 2008. Revenues for LJI's wholesale operations were down 38%, to $14.7 million, from $23.6 million in the year-ago quarter. Revenues from LJI's ENZO retail division rose 24% to a third-quarter record $11.5 million, from $9.3 million in the year-ago quarter.

As expected, the drop in the Company's wholesale revenues was a direct reflection of the global recession, particularly as it relates to the industry-wide slump in demand for luxury items such as jewelry, especially across the United States, LJI's largest wholesale market. However, the decline was offset by continued double-digit revenue gains from its ENZO Division. The increasing success of ENZO is primarily attributable to the growing consumer acceptance of the ENZO brand across China as measured by better than expected sales at existing ENZO stores in addition to successful new store openings. At the end of the third quarter, LJI's ENZO Division had 92 stores in operation, down from 97 a year earlier.

Chairman and CEO - - LJI Positioned to Significantly Benefit from Recovery

"Today's figures clearly highlight how LJ International is uniquely positioned to be one of the first players in the jewelry industry to once again return to a period of rapid expansion and rising profitability as the global economy recovers from its recent slowdown," said LJI Chairman and Chief Executive Officer, Yu Chuan Yih. "On the wholesale side, the most notable aspect of the third-quarter results is in our ability to maintain profitability while we continue to reengineer our overall manufacturing and marketing systems. This is evidence of our 'right-sizing' in wholesale, where we have trimmed overhead to remain profitable in a weak market with healthy cash flows while gaining market share from less robust competitors. In retail, the continued strength of our ENZO retail stores across China, on an overall and comparable-store basis, reflects our success at gaining consumer acceptance and raising the average performance level of our stores. In short, ENZO has earned a significant running start on its planned expansion just as China's economy is once again beginning to emerge as one of the world's largest and most robust markets."

LJI Achieves Margin Improvements at Both Wholesale and ENZO Divisions

The increase in higher-margin retail sales from the Company's ENZO Division as well as a strong Christmas selling season from its wholesale operations resulted in a 3% increase in overall gross profits for the third quarter of 2009, to $9.4 million from $9.1 million in the third quarter of 2008.

The Company's wholesale operations generated $3.1 million in gross profits, or 21% of revenues, compared to $4.4 million, or 19% of revenues, a year earlier. The improvement in wholesale margins was primarily due to higher than expected last minute Christmas orders.

ENZO achieved gross profits of $6.3 million, or 55% of revenues, up from $4.7 million, or 50% of revenues, in the third quarter of 2008. The improvement in gross margins from ENZO was due primarily to changes in the retail chain's inventory mix as well as a continued focus on improving productivity at the store-level.

ENZO'S Record Third-Quarter Earnings Drive Over 200% Growth in Companywide Profits

Net income for the third quarter of 2009 rose 201% to $1.1 million, or $0.05 per fully diluted share, from $0.4 million, or $0.02 per fully diluted share, in the third quarter of 2008. The gain was due primarily to higher operating income, due primarily from growing contributions from the Company's ENZO retail jewelry chain.

Same-Store Sales Growth of 18% at ENZO Sets Path for Accelerated Growth

Same-store sales at ENZO rose 18% in the third quarter of 2009 to an annualized per-store average of $0.5 million from $0.4 million a year earlier. Annualized sales per square foot also rose 18% year-over-year, to $929 from $785 in 2008. The increase was primarily due to ENZO's strengthening brand recognition, new more desirable store locations, a focus on improving overall inventory turns, ongoing improvements in its inventory mix as well as an increase in the total number of transactions. The Company noted that its same-store figures for this period were based on 70 ENZO retail stores that were open for at least 13 months.

ENZO'S Healthy Balance Sheet to Provide Financial Flexibility to Support Growth Strategy

On the balance sheet, LJI reported cash and cash equivalents totaling $8.9 million on September 30, 2009, down from $13.3 million on December 31, 2008. Total current assets declined by $2.7 million to $119.2 million from $121.9 million at the end of 2008. Current liabilities were cut more sharply, to $43.7 million on September 30, 2009 from $49.9 million at the end of 2008. Reductions in this category included cuts in notes payable, to $5.7 million from $9.2 million, and in trade payables, to $14.9 million from $17.9 million. Total working capital was $75.5 million.

Long-term liabilities on September 30, 2009 totaled $2.8 million, compared to $2.2 million on December 31, 2008. The non-current portion of notes payable constituted the bulk of this long-term debt, at $2.7 million at the end of the third quarter and $2.1 million at the end of 2008.

Nine-Month Results Mirror Quarterly Trends

For the nine months ended September 30, 2009, revenues totaled $71.4 million, down 24% from $94.4 million in the comparable period of 2008. Wholesale revenues fell year-over-year by 46% to $37.3 million from $68.7 million. Retail revenues rose 32% to $34.1 million from $25.7 million.

Gross profit for the first nine months of 2009 was $26.2 million, down 6% from $28 million a year earlier. Wholesale gross margins were the same in both periods at 21% as was retail gross margins at 54%. The rising percentage of revenues from higher-margin ENZO retail stores raised overall gross margins to 37% from 30% a year earlier.

LJI Raises Fourth Quarter Financial Guidance with Revenue Expectations of Over $30 Million and Earnings of Nearly $1.9 Million, or $0.08 Per Fully Diluted Share

The Company today also raised its financial guidance for its fourth quarter ending December 31, 2009 with revenue expectations of over $30 million, which would result in total 2009 revenues of over $100 million. Wholesale revenues for the fourth quarter of 2009 are expected to total between $16.5 million to $17.5 million with ENZO fourth quarter revenues of between $13.3 million to $13.8 million. Net income is expected to reach between $1.7 million to $1.9 million, or between $0.06 to $0.08 per fully diluted share, in the fourth quarter of 2009, bringing net income for all of 2009 to approximately $3.4 million, or $0.14 per fully diluted share. The projected quarterly net income would represent an increase of over 40% from the year-ago quarter and 34% on an annualized basis.

Conference Call Information

The Company will conduct a conference call to review today's third quarter results at 4:30 pm ET by dialing (877) 407-9210 and asking for the LJ International Inc. call. Please call at least 10 minutes prior to the start time, or live over the Internet by visiting http://www.JADE 3Q09 Conference Call.com.

To be added to LJI's investor lists, please contact Haris Tajyar at htajyar@irintl.com or at 818-382-9702.

About LJ International Inc.

LJ International Inc. (LJI) (NASDAQ: JADE) is engaged in the designing, branding, marketing and distribution of a full range of jewelry. It has built its global business on a vertical integration strategy and an unwavering commitment to quality and service. Through its ENZO stores, LJI is now a major presence in China's fast-growing retail jewelry market. As a wholesaler, it distributes to fine jewelers, department stores, national jewelry chains and electronic and specialty retailers throughout North America and Western Europe. Its product lines incorporate all major categories, including earrings, necklaces, pendants, rings and bracelets.

Forward-looking Statements: This press release contains forward-looking statements. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. LJ International ("Company") cautions that any forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) contained in this Press Release or made by the Company's management involve risks and uncertainties and are subject to change based on various important factors, many of which may be beyond the Company's control. Words such as "estimate," "project," "plan," "believe," "expect," "anticipate," "intend," and similar expressions may identify forward-looking statements. The following factors, in addition to those included in the Company's filings with the Securities and Exchange Commission (SEC), in some cases have affected and in the future could cause the Company's actual results, such as its ability to open approximately 100 new ENZO retail stores by the end of 2011 as well as its financial guidance for both the third quarter of 2009 and beyond, to differ materially from those expressed or implied in any of the forward-looking statements included in this Press Release or otherwise made by management: the current global financial crisis and general economic conditions; changes in consumer spending patterns and consumer preferences; the effects of political and economic events and conditions in the U.S., China as well as other foreign jurisdictions in which the Company operates, including, but not limited to; the impact of competition and pricing; market price of key raw materials; ability to source or purchase raw materials, gemstones and other precious or semi-precious metals from its global supplier base; political instability; currency and exchange risks and changes in existing or potential duties, tariffs or quotas; availability of suitable store locations at appropriate terms; ability to develop new merchandise; ability to hire, train and retain associates; estimates of expenses which the Company may incur in connection with the closure of any underperforming ENZO stores and related direct-to-consumer operations; and the outcome of any pending or future litigation. Future economic and industry trends, both in the jewelry industry as well as geographically in the U.S. and China, which could potentially impact revenue and profitability, are difficult to predict. Therefore, there can be no assurance that the forward-looking statements included in this Press Release will prove to be accurate. In light of the significant uncertainties in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company, or any other person, that the Company's expansion plans, particularly its goal to open approximately 100 new ENZO stores by the end of 2011, will be achieved. The forward-looking statements herein are based on information presently available to the management of the Company. Except as may be required by applicable law, the Company assumes no obligation to publicly update or revise its forward-looking statements.

LJ INTERNATIONAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

                          Three months ended          Nine months ended

                          September 30                September 30

                          2009          2008          2009          2008

                          US$           US$           US$           US$

Operating revenues

Wholesale                 14,701        23,627        37,299        68,675

Retail                    11,532        9,333         34,058        25,731

                          26,233        32,960        71,357        94,406

Costs of goods sold

Wholesale                 (11,634    )  (19,209    )  (29,633    )  (54,529    )

Retail                    (5,201     )  (4,665     )  (15,523    )  (11,920    )

                          (16,835    )  (23,874    )  (45,156    )  (66,449    )

Gross profit              9,398         9,086         26,201        27,957

Operating expenses

Selling, general and      (4,651     )  (5,975     )  (13,891    )  (20,438    )
administrative expenses

Rental expenses           (2,667     )  (2,316     )  (8,135     )  (6,598     )

Net (loss) gain on        (289       )  642           (503       )  452
derivatives

Depreciation              (493       )  (815       )  (1,713     )  (2,628     )

Total operating expenses  (8,100     )  (8,464     )  (24,242    )  (29,212    )

Operating income (loss)   1,298         622           1,959         (1,255     )

Other income (expenses)

Interest income           48            36            142           168

Gain on currency          -             92            -             1,473
translation

Gain on sales of          -             49            -             49
securities

Gain on disposal of       -             -             -             2,210
property

Interest expenses         (215       )  (416       )  (640       )  (1,402     )

Total other income        (167       )  (239       )  (498       )  2,498
(expenses)

Income before taxes and   1,131         383           1,461         1,243
minority interests

Income taxes              (11        )  (5         )  (26        )  (67        )

Income before minority    1,120         378           1,435         1,176
interests

Minority interests        6             (4         )  13            (5         )

Net income                1,126         374           1,448         1,171

Earnings per share:

Basic                     0.05          0.02          0.06          0.05

Diluted                   0.05          0.02          0.06          0.05

Weighted average number
of shares used in         24,427,465    22,759,949    23,889,045    22,336,579
calculating diluted
earnings per share

LJ INTERNATIONAL INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

                                           As of               As of

                                           September 30, 2009  December 31, 2008

                                           (Unaudited)         (Audited)

                                           US$                 US$

ASSETS

Current assets

Cash and cash equivalents                  8,891               13,348

Restricted cash                            6,427               6,493

Trade receivables, net of allowance for    19,531              20,570
doubtful accounts

Available-for-sale securities              2,354               2,288

Inventories                                77,968              76,637

Prepayments and other current assets       3,998               2,609

Total current assets                       119,169             121,945

Properties held for lease, net             725                 750

Property, plant and equipment, net         6,158               6,863

Deferred tax assets                        111                 111

Goodwill, net                              1,521               1,521

Total assets                               127,684             131,190

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities

Bank overdrafts                            2,857               2,724

Notes payable                              5,680               9,194

Capitalized lease obligation, current      107                 78
portion

Letters of credit                          14,479              13,384

Trade payables                             14,867              17,925

Accrued expenses and other payables        3,885               4,802

Income taxes payable                       1,452               1,441

Deferred taxation                          339                 339

Total current liabilities                  43,666              49,887

Long-term liabilities

Notes payable, non-current portion         2,700               2,115

Capitalized lease obligation, non-current  109                 103
portion

Total liabilities                          46,475              52,105

Minority interests                         743                 756

Shareholders' equity

Common stock, par value US$0.01 each,

Authorized 100 million shares;

Issued 23,761,172 shares as of September
30, 2009

and 22,911,172 shares as of December 31,   238                 229
2008

Additional paid-in capital                 55,902              55,286

Accumulated other comprehensive loss       (290    )           (354    )

Retained earnings                          24,616              23,168

Total shareholders' equity                 80,466              78,329

    Source: LJ International Inc.

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