VLOV’s fashion forward designs get tremendous response

VLOV Inc, which designs, sources and markets VLOV-brand fashion-forward apparel for men aged 18-45 in the People's Republic of China, announced its financial results for the first fiscal quarter ended March 31, 2011.

Qingqing Wu, Chairman and CEO of VLOV, commented, "We are pleased to report another strong quarter of financial performance, which reflects the positive consumer response to our fashion forward designs. We are also seeing increased excitement from our distributors as a result of our continued investments in innovative advertising and marketing programs. At the same time, we maintained solid operating margins of 27.2%, reflecting the underlying strength of our operating model, which includes outsourced manufacturing."

Mr. Wu added, "We anticipate an enthusiastic response from our distributors at our 2011 Fall/Winter Sales Fair, which commenced this month; the initial feedback has been tremendous. As of March 31, 2011, our distributors operated 552 POS and 36 stand-alone store locations."

Results for the three months ended March 31, 2011 as compared to the three months ended March 31, 2010

Net Sales (amounts in thousands, in U.S. Dollars, except for percentages)

Net sales were $21,172 for the three months ended March 31, 2011, compared with $18,067 for the same period in 2010, an increase of $3,105 or 17.19%. We generate revenue primarily from the sales of our apparel products to our 12 distributors, who retail them at their POS throughout northern, central and southern China. The increase in our net sales was primarily attributable to increases in sales to our distributors in Beijing, Zhejiang and Fujian and an increase in the average unit price of 144.3% period over period.

We have continued to upscale our product offerings to our distributors and have been working with our distributors to sell our products primarily via stand-alone stores and store-in-stores and not through counters and concessions as we believe that stand-alone stores and store-in-stores strengthen our brand image with consumers. As of March 31, 2011, our distributors operated 552 POS that included 36 stand-alone store locations, as compared to 742 POS as of March 31, 2010.

Cost of Sales and Gross Profit Margin (amounts in thousands, in U.S. Dollars, except for percentages)

All of our products are manufactured by third parties, based on orders for our products that we receive from our distributors. Historically, we have outsourced to two types of manufacturers: (1) sub-contractors, which require us to provide them with the raw materials for our products, and (2) O.E.M. manufacturers, that supply their own raw materials. Beginning in 2009, we have shifted our outsourcing entirely to O.E.M. manufacturers. We did not use sub-contractors for manufacturing during the three months ended March 31, 2011 and such type of manufacturing was under 2% of total net sales for the three months ended March 31, 2010.

Total cost of sales for the three months ended March 31, 2011 was $11,856, an increase of $711 or 6.38% from $11,145 for the same period in 2010. As a percentage of total net sales, our cost of sales decreased to 56.00% of total net sales for the three months ended March 31, 2011, down from 61.69% of total net sales for the same period in 2010. Consequently, gross margin as a percentage of total net sales increased to 44.00% for the three months ended March 31, 2011 from 38.31% for the same period in 2010. Our gross margin increased mainly due to an increase of 144.3% in our average selling prices.

Selling, General and Administrative Expenses (amounts in thousands, in U.S. Dollars, except for percentages)

Selling expenses were $2,219 for the three months ended March 31, 2011, compared with $1,484 for the same period in 2010, an increase of $735 or 49.53%. The increase was mainly due to an increase in advertising expenses related to our marketing efforts in Beijing, Fujian and Zhejiang, from $1,364 for the three months ended March 31, 2010 to $1,414 for the three months ended March 31, 2011. We expect that our selling expenses will continue to increase as we continue our marketing efforts to support our existing distribution network as well as to penetrate potential new markets in these regions.

General and administrative expenses increased to $1,341 for the three months ended March 31, 2011, from $835 for the same period in 2010, an increase of $506 or 60.60%. The increase was mainly due to the hiring of an outside consulting firm to assist us with brand marketing and positioning for our designs.