December 01, 2011 at 17:00 PM EST
Mecox Lane Limited Announces Third Quarter 2011 Results
Net Revenues from Internet Platform Increased to $30.0 Million in the Third Quarter of 2011

SHANGHAI, China, Dec. 1, 2011 (GLOBE NEWSWIRE) -- Mecox Lane Limited ("Mecox Lane" or the "Company") (Nasdaq:MCOX), which operates one of China's leading online platforms for apparel and accessories as measured by revenues in 2010, today announced its unaudited financial results for the third quarter ended September 30, 2011.

Third Quarter 2011 Highlights

  • Internet platform net revenues increased by 7.7% year-over-year
  • Net revenues were $53.1 million, decreasing by 4.0% year-over-year compared to $55.3 million in the year-ago period
  • Gross profit1 decreased by 36.3% year-over-year to $14.0 million from $22.0 million in the year-ago period
  • Net loss was $14.4 million compared to net income of $0.8 million in the year-ago period

Mecox Lane's Director and Chief Executive Officer Mr. Alfred Gu stated, "This past quarter, we continued to execute on our overall strategy, with an emphasis on delivering long-term value to our shareholders. By focusing on brand building, preserving cash flow and enhancing our operational efficiency, we believe that we are laying the groundwork for Mecox Lane's long-term success and positioning ourselves to better serve our existing customers while broadening our appeal among Chinese consumers. In the third quarter, we continued to see strong website traffic, with average monthly unique visitors to our M18.com website increasing by 23% year-over-year, validating our strategic approach."

Mr. Gu continued, "Our operational strength has always been the backbone of our e-commerce platform and an essential component of our customer service platform. With this in mind, we've continued to build upon this strength by enhancing our logistics platform and warehouse management operations. This past quarter, our cash-on-delivery coverage expanded to approximately 1,000 cities, which allows for faster delivery by utilizing third-party couriers. This is complemented by the Express Mail Service (EMS), which substantially includes all cities in China. With our continuous focus on improving our customer shopping experience, we're pleased to announce that we have achieved faster door-to-door delivery, offering 24-hour delivery to Beijing, Shanghai and Guangzhou and 2-day delivery to other major cities. Building on this momentum, we recently hired a new vice president of logistics whose experience in managing nationwide warehouse facilities and logistics centers will help drive the efficiency of our back-end operations, allowing us to serve our customers more quickly and effectively." 

"Going forward, we will continue to execute on our strategies in building a strong foundation to grow our business in a prudent manner. By leveraging our competitive advantages of operational efficiency, a seasoned management team and an acute focus on customer service, we are confident that we will be able to enhance and expand our presence in China's B2C e-commerce industry," Mr. Gu concluded.

Third Quarter 2011 Results

Due to the seasonal nature of its business, the Company presents its financial results on a year-over-year basis between the third quarter of 2011 and the third quarter of 2010 as in the following paragraphs.

Total Net Revenues

Total net revenues were $53.1 million in the third quarter of 2011, representing a decrease from $55.3 million in the third quarter of 2010. This was primarily due to the combined effects of an increase in the net revenues from the Company's Internet platform and a decrease in the net revenues from the call center as explained below.  

Internet Platform

Net revenues from the Internet platform were $30.0 million in the third quarter of 2011, representing an increase of 7.7% from $27.9 million in the third quarter of 2010. The growth was primarily attributed to an increase in the number of active customers due to greater online advertising and marketing efforts, partially offset by coupons and discount promotions that were offered to customers due to increased competition.

Call Center

Net revenues from the call center were $12.0 million in the third quarter of 2011, representing a decrease of 25.3% from $16.0 million in the third quarter of 2010. The decrease was primarily attributed to a decline in orders placed through the call center due to the corresponding growth in the e-commerce sector and a reduction in the Company's catalog circulation.

Directly Operated Stores & Franchised Stores

Net revenues from directly operated stores were $5.8 million in the third quarter of 2011, representing a decrease of 11.2% from $6.5 million in the third quarter of 2010. The decrease was primarily due to a decline in the number of directly operated stores from an average of 143 stores in the third quarter of 2010 to an average of 115 stores in the third quarter of 2011.

Net revenues from franchised stores were $5.3 million in the third quarter of 2011, representing an increase of 8.9% from $4.9 million in the third quarter of 2010. The growth in net revenues was primarily due to higher same store sales.

Cost of Goods Sold2

Cost of goods sold was $39.1 million in the third quarter of 2011, representing an increase of 17.3% from $33.3 million in the third quarter of 2010. The increase was primarily due to an increase in the cost of goods sold attributed to the Internet platform, corresponding to an increase in sales and additional inventory provisions of $3.0 million against the inventory purchased in the second half of 2010.

Gross Profit1 and Gross Margin

Gross profit was $14.0 million in the third quarter of 2011, representing a decrease of 36.3% from $22.0 million in the third quarter of 2010. Gross margin was 26.4% in the third quarter of 2011, compared to 39.8% in the third quarter of 2010. The decrease in gross margin was primarily due to the combined effects of (i) the increase in weighting of the Internet business in total net revenues, which generated a lower margin than other segments; (ii) the increase in net revenues from third-party products, for which the profit margin is lower than for products under the Company's own proprietary brands; (iii) the increase of coupon and discount promotions that were offered to customers due to increased competition; and (iv) additional inventory provisions of $3.0 million against the inventory purchased in the second half of 2010.

Operating Expenses

Total operating expenses were $26.8 million in the third quarter of 2011, representing an increase of 27.0% from $21.1 million in the third quarter of 2010.

Selling, general and administrative expenses were $26.4 million in the third quarter of 2011, representing an increase of 31.3% from $20.1 million in the third quarter of 2010, which was primarily due to an increase in marketing costs and an increase in labor costs in order to attract and retain personnel. 

Loss from Operations

Loss from operations was $12.8 million in the third quarter of 2011, compared to the income from operations of $0.9 million in the third quarter of 2010.

Income Tax Expense

Income tax expense was $3.0 million in the third quarter of 2011, compared to an income tax expense of $0.2 million in the third quarter of 2010. The increase was primarily due to a valuation allowance of $1.1 million that the Company provided against its deferred tax assets as well as adjustments to its estimated annual effective tax rate resulting in additional income tax expense of $1.9 million.

Net Loss and Loss per ADS

Net loss was $14.4 million in the third quarter of 2011, compared to net income of $0.8 million in the third quarter of 2010. Non-GAAP net loss3 was $13.5 million in the third quarter of 2011, compared to Non-GAAP3 net income of $1.6 million in the third quarter of 2010. Basic and diluted loss per American depositary share ("ADS") attributable to Mecox Lane shareholders was $0.25 in the third quarter of 2011. One ADS represents seven ordinary shares.

Cash and Cash Equivalents

As of September 30, 2011, Mecox Lane had cash and cash equivalents totaling $70.0 million, compared to $86.0 million as of December 31, 2010.

Conference Call Information

Mecox Lane management will hold an earnings conference call at 8 p.m. U.S. Eastern Time on December 1, 2011 (9 a.m. Shanghai/Hong Kong Time on December 2, 2011) to discuss results and highlights from the quarter and answer questions. A brief presentation to accompany the earnings call will be available on the Company's website, http://ir.m18.com, at 6:30 p.m. U.S. Eastern Time on December 1, 2011 (7:30 a.m. Shanghai/Hong Kong Time on December 2, 2011).

The dial-in numbers and passcode for the conference call are as follows:

U.S. Toll Free:     +1-855-500-8701
International:     +65-6723-9385
Hong Kong:     +852-3051-2745
Passcode:    30665987

Additionally, an archived webcast of this call will be available on the Investor Relations section of Mecox Lane's website at http://ir.m18.com.

About Mecox Lane Limited

Mecox Lane Limited (Nasdaq:MCOX) operates one of China's leading online platforms for apparel and accessories as measured by revenues in 2010. The Company offers a wide selection of fashion products through its www.m18.com e-commerce website and physical store network. Product offerings include apparel and accessories, home products, beauty and healthcare products and other products, under the Company's own proprietary brands, such as Euromoda and Rampage, as well as under selected third-party brands, including established international and Chinese brands in addition to independent and emerging brands. For more information on Mecox Lane, please visit http://ir.m18.com.

The Mecox Lane Limited logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=11140

Safe Harbor: Forward Looking Statements

This press release contains forward-looking statements made under the "safe harbor" provisions of Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements can be identified by terminology such as "may," "will," "expects," "anticipates," "future," "intends," "plans," "believes," "aims," "estimates," "confident," "likely to" and similar statements. Among other things, the quotations from management in this press release, as well as the Company's strategic and operational plans, contain forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: the Company's business strategies and initiatives as well as its business plans; the Company's future business development, results of operations and financial condition; changes in the Company's revenues and certain cost or expense items; the Company's expectations with respect to increased revenue growth and its ability to sustain profitability; the Company's products under development or planning; the Company's ability to attract customers and further enhance its brand recognition; trends and competition in the e-commerce and apparel and accessories industry; the e-commerce and apparel and accessories industry in China may not grow at the rates projected by market data, or at all; the failure of the markets to grow at the projected rates may have a material adverse effect on the Company's business and the market price of its ADSs; in addition, the rapidly changing nature of the e-commerce and apparel and accessories industry in China subjects any projections or estimates relating to the growth prospects or future condition of the Company's market to significant uncertainties. If any one or more of the assumptions underlying the market data turns out to be incorrect, actual results may differ from the projections based on these assumptions. You should not place undue reliance on these forward-looking statements. Further information regarding these and other risks is included in the Company's annual report on Form 20-F as well as in its other filings with the Securities and Exchange Commission. All information provided in this press release is current as of the date of the press release, and the Company undertakes no duty to update such information, except as required under applicable law.

About Non-GAAP Financial Measures

To supplement Mecox Lane's consolidated financial results presented in accordance with United States Generally Accepted Accounting Principles ("GAAP"), Mecox Lane uses in this press release non-GAAP net income (loss), which excludes share-based compensation expenses. The presentation of the non-GAAP financial measure is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP.

Mecox Lane believes that the non-GAAP financial measure facilitates investors' and management's comparisons to Mecox Lane's historical performance and assists management's financial and operational decision making. A limitation of using the non-GAAP financial measure is that share-based compensation expenses are recurring expenses that will continue to exist in Mecox Lane's business for the foreseeable future. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from the non-GAAP measure. The accompanying table has more details on the reconciliation between the non-GAAP financial measure and its most directly comparable GAAP financial measure.

1 Gross profit excludes the impact of depreciation and amortization expenses.

2 Cost of goods sold excludes depreciation and amortization expenses.

3 Non-GAAP net loss and Non-GAAP net income exclude share-based compensation expenses. The non-GAAP measures and related reconciliations to GAAP measures are described in the accompanying sections of "About Non-GAAP Financial Measures" and the accompanying table of "Mecox Lane Limited – Consolidated Statement of Operations Information – Reconciliations of Non-GAAP Financial Measures to Comparable GAAP Measures" at the end of this press release.

Mecox Lane Limited
Unaudited Consolidated Balance Sheet Information 
December 31, 2010 September 30, 2011 
$$
ASSETS 
Current assets: 
Cash and cash equivalents  86,011,952  69,970,355
Short-term investments  30,199,200  -- 
Accounts receivable, net of allowances of $77,338 and $68,663 as of December 31, 2010 and September 30, 2011, respectively  1,487,298  643,404
Other receivables  9,662,105  8,941,090
Advances to suppliers and prepaid expenses  1,410,510  2,054,375
Merchandise inventories  35,809,524  33,321,218
Deferred tax assets—current portion  1,672,078  1,672,078
Total current assets   166,252,667  116,602,520
Property and equipment, net  8,696,636  39,391,385
Prepaid land use right  --   6,021,800
Intangible assets, net  1,283,370  1,402,270
Deferred tax assets—long term portion  1,271,691  103,305
Other non-current assets  439,798  832,578
TOTAL ASSETS  177,944,162  164,353,858
LIABILITIES, MEZZANINE EQUITY AND EQUITY
Current liabilities: 
Accounts payable   24,117,767  24,504,308
Advances from customers  5,839,069  5,633,231
Amount due to related parties  8,529  -- 
Accrued expenses  6,553,143  7,772,364
Other current liabilities  4,311,094  5,422,119
Income tax payable  1,429,415  1,235,480
Total current liabilities   42,259,017  44,567,502
Mezzanine equity:
Redeemable noncontrolling interests  38,855  875,962
Equity:
Ordinary shares ($0.0001 par value; 10,000,000,000 shares authorized,
 405,192,228 shares issued and outstanding as of December 31, 2010 and September 30, 2011)
 40,519  40,519
Additional paid-in capital   159,437,097  160,802,216
Accumulated deficit  (26,223,473)  (47,825,459)
Accumulated other comprehensive income  2,292,147  5,793,118
Total Mecox Lane Limited equity   135,546,290  118,810,394
Noncontrolling interests  100,000  100,000
Total equity  135,646,290  118,910,394
TOTAL LIABILITIES, MEZZANINE EQUITY AND EQUITY  177,944,162  164,353,858
Mecox Lane Limited
Unaudited Consolidated Statement of Operations Information 
Three-month Periods Ended September 30
20102011
$$
Net revenues:
Internet platform  27,874,382  30,016,282
Call center  16,039,222  11,986,791
Directly operated stores  6,525,743  5,793,511
Franchised stores  4,896,132  5,331,126
Total net revenues  55,335,479  53,127,710
Cost of goods sold (excluding depreciation and amortization)
Internet platform  19,218,643  26,302,520
Call center  8,076,103  5,840,881
Directly operated stores  2,834,811  3,044,969
Franchised stores  3,210,150  3,933,602
Total cost of goods sold (excluding depreciation and amortization)  33,339,707  39,121,972
Operating expenses:
Selling, general and administrative expenses  20,122,843  26,416,679
Depreciation and amortization  1,072,001  1,079,672
Other operating income, net  (115,211)  (735,119)
Total operating expenses  21,079,633  26,761,232
Income (loss) from operations  916,139  (12,755,494)
Interest income  58,683  569,937
Other income, net  --   757,313
Income (loss) before income taxes and noncontrolling interests  974,822  (11,428,244)
Income tax benefit (expense)  (177,418)  (3,009,721)
Net income (loss)  797,404  (14,437,965)
Net income (loss) attributable to noncontrolling interests  --   (52,247)
Net income (loss) attributable to Mecox Lane Limited shareholders  797,404  (14,385,718)
Earnings (loss) per ordinary share:
Basic  0.00  (0.04)
Diluted  0.00  (0.04)
Earnings (loss) per ADS
Basic  0.02  (0.25)
Diluted  0.01  (0.25)
Weighted average ordinary shares used in per share calculation
Basic  205,381,732  405,192,233
Diluted  383,594,914  405,192,233
Weighted average ADS used in per share calculation
Basic  29,340,247  57,884,604
Diluted  54,799,273  57,884,604
Reconciliations of Non-GAAP Financial Measures to Comparable GAAP Measures
Non-GAAP net income (loss) (1)  1,620,021  (13,539,096)
Note (1) We define non-GAAP net income (loss), a non-GAAP financial measure, as net income (loss) excluding share-based compensation expenses. We review non-GAAP net income (loss) together with net income (loss) to obtain a better understanding of our operating performance. We also believe it is useful supplemental information for investors and analysts to assess our operating performance without the effect of non-cash sharebased compensation expenses, which have been and will continue to be significant recurring expenses in our business. However, the use of non-GAAP net income (loss) has material limitations as an analytical tool. One of the limitations of using non-GAAP net income (loss) is that it does not include all items that impact our net income (loss) for the period. In addition, because non-GAAP net income (loss) is not calculated in the same manner by all companies, it may not be comparable to other similar titled measures used by other companies. In light of the foregoing limitations, you should not consider non-GAAP net income (loss) in isolation from or as an alternative to net income (loss) prepared in accordance with U.S. GAAP.
The following table sets forth the reconciliation of non-GAAP net income (loss), a non-GAAP financial measure, from net income (loss), our most directly comparable financial measure presented in accordance with U.S. GAAP, for the periods indicated.
Three-month Periods Ended September 30
20102011
$$
Net income (loss)  797,404  (14,437,965)
Add back: Share-based compensation expenses  822,617  898,869
Non-GAAP net income (loss)  1,620,021  (13,539,096)
CONTACT: For investor and media inquiries please contact:
         
         In China:
         
         Phili Xu
         Mecox Lane Limited
         Tel: +86-21-6495-0500 or +86-21-5464-9900 Ext. 8161
         Email: ir@m18.com
         
         Candice Sun
         Ogilvy Financial, Beijing
         Tel: +86-10-8520-6524
         Email: mcox@ogilvy.com
         
         In the U.S.:
         
         Jessica Barist Cohen
         Ogilvy Financial, New York
         Tel: +1-646-460-9989
         Email: mcox@ogilvy.com
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