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Press Release Source: FUQI International, Inc.


FUQI International, Inc. Reports Third Quarter 2008 Financial Results
Friday November 14, 7:30 am ET
-- 3Q08 Revenues Increased 159% to $93.7 Million
-- 3Q08 Net Income Increased 140% to $6.5 Million, or $0.31 per Diluted Share
-- Company Raises Fiscal 2008 Revenue, Net Income and Diluted EPS Forecast


SHENZHEN, China, Nov. 14 /Xinhua-PRNewswire-FirstCall/ -- FUQI International, Inc. (Nasdaq: FUQI - News) today announced financial results for the quarter ended September 30, 2008.
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Revenues for the third quarter of 2008 increased 159% to $93.7 million from $36.2 million in the third quarter of 2007, due to increases in sales volumes and selling prices in the wholesale business. Wholesale contributed $90.5 million to overall revenues, representing growth of 152% year over year, and exceeding expectations. Retail revenues were slightly lower than expected, primarily as a result of slower retail business in Beijing and Shanghai regions during the Olympic Games. Retail contributed $3.2 million to overall revenues during the quarter, with $2.2 million coming from Temix and $1.0 million from Fuqi branded products.

Gross profit in the third quarter of 2008 increased 144% to $11.0 million from $4.5 million for the same period in the prior year. Gross profit was positively impacted by higher than expected sales in the wholesale business and by the contribution of incremental gross profits from the retail business. Gross profit margin was 11.7% in the third quarter of 2008, down from 12.4% in the same period of the prior year.

Operating expenses in the third quarter of 2008 increased to $2.7 million from $807,000 in the same period of the prior year. This increase was a result of expanded administrative costs required to support a growing revenue base, higher promotion costs, payrolls, business taxes, options granted and increased salaries to certain executives, as well as expenses incurred as a result of being a publicly traded company. Additionally, personnel expenses associated with retail expansion, as well as higher security costs during the Olympics contributed to higher operating expenses. Operating income in the third quarter increased 124% to $8.3 million from $3.7 million in the third quarter of 2007.

Net income in the third quarter of 2008 increased 141% to $6.5 million, or $0.31 per diluted share, from $2.7 million, or $0.21 per diluted share, in the same period of the prior year. Net margin was 7.0%, down from 7.5% in the prior year period. The decrease in net margin was primarily a result of increased operating expenses due to infrastructure expansion to support revenue growth. Non-cash items in the third quarter of 2008 included a $149,000 expense for equity based compensation and a $209,000 retail barter revenue gain. (Barter exchanges are incurred when retail customers trade-in their jewelry to obtain barter credits that can be used in lieu of cash to buy jewelry products at the Company's retail counters). Third quarter 2008 net income also benefited from a $23,000 non-operating income derivative gain associated with gold futures the Company purchased to hedge against its inventory position during the quarter.

On September 30, 2008, the Company had cash of $56.2 million, compared with $63.3 million on December 31, 2007, as the Company invested in inventory to fill up retail counter and store show cases and fulfill large orders generated from jewelry trade fairs, and as the Company paid $3.9 million cash consideration during the quarter for the acquisition of Temix. Total inventory at the end of the third quarter was $50.4 million, up from $35.1 million at the end of the second quarter, which includes inventory valued at approximately $9.8 million from the Temix acquisition. Management expects inventory and cash positions to fluctuate from time to time as the Company anticipates periods of high demand and increases of inventory to meet that expected demand.

Mr. Yu Kwai Chong, Chairman of Fuqi International, commented, "We are very pleased with our results for the third quarter, which exceeded our expectations, despite some slowing in the growth rate of the global economy, and therefore the Chinese economy, as well as the financial impact of the Olympics, which not only caused slower than expected retail sales, but also higher security expenses. In spite of these issues, we continue to see increasing demand for our products, and larger orders from our existing customers. We also believe that recent government stimulus policies can motivate additional consumer spending. We have a strong balance sheet to support our growth, the right mix of products and distribution and a strong management team. We believe that Fuqi is poised to build the leading provider of luxury jewelry products in China."

2008 Financial Outlook

For the full year 2008, the Company is raising its 2008 revenue, net income and diluted earnings per share estimates. It now expects total revenue of approximately $345 - $350 million. This forecast is comprised of $337 - $341 million in expected wholesale revenue and $8 - $9 million in expected revenue from retail. The Company also anticipates consolidated net income of $25.9 - $26.5 million, and diluted EPS of $1.17 - $1.20, based on a weighted average share count of 22.1 million shares.

For the fourth quarter, the Company anticipates total revenue of approximately $107-112 million, which represents $103 - $107 million in wholesale revenues and $4 - 5 million in retail revenues. Net income in the fourth quarter is expected to be in the range of $7.6 - $8.0 million, or $0.34 - $0.36 per diluted share, based on a weighted average share count of 22.1 million shares. Gross margin for the fourth quarter is expected to be approximately 11.0%, and net margin is expected to be approximately 7.1%.

Mr. Chong continued, "Having handily exceeded our own expectations for the third quarter, in the face of a slowing global economy, we remain optimistic about the future growth of Fuqi in China, as evidenced by our increase in guidance. Our growth will continue to be driven by wholesale revenue in the near term, but we believe that longer term the Temix and Fuqi retail brands can have a significant impact on our margins. We believe we are well positioned in both the wholesale and the retail business to capture ongoing demand for luxury jewelry products - primarily gold, but also platinum and diamond. Our Temix expansion is complete in the larger markets and we are beginning to focus our expansion into Tier 2 and 3 cities, where we believe the best future opportunities for revenue growth are. To serve the overall business, we will continue to manage our balance sheet to be prepared to capitalize on opportunities we see in the marketplace."

Conference Call

The Company will conduct a conference call to discuss the third quarter 2008 results today, Friday, November 14, 2008 before the market open at 8:30 am ET. Listeners may access the call by dialing #1-913-312-4374. To listen to the live webcast of the event, please go to http://www.viavid.net. A replay of the call will be available through November 21, 2008. Listeners may access the replay by dialing # 719-457-0820; Passcode: 6545879.

About FUQI International, Inc.

Based in Shenzhen, China, FUQI International, Inc. is a leading designer of high quality precious metal jewelry in China, developing, promoting, and selling a broad range of products in the large and rapidly expanding Chinese luxury goods market.