QING Qingdao Footwear Inc (CE)

Qingdao Footwear, Inc. (OTCBB:QING) ("Qingdao Footwear" or the "Company"), a China-based designer and retailer of footwear sold under the brand name "Hongguan," announced yesterday its financial results for the second quarter ended June 30, 2011.

Second Quarter 2011 Financial Highlights:

• Revenue increased 28%, from $6.48 million in Q2 2010 to $8.30 million in Q2 2011.
• Gross profit improved 18%, from $3.06 million in Q2 2010 to $3.60 million in Q2 2011

Summarized Second Quarter 2011 Results: 

	Q2 2011	Q2 2010	CHANGE
Revenue	$8.30 million	$6.48 million	+28%
Gross profit	$3.60 million	$3.06 million	+18%
Net Income	$0.30 million	$1.97 million	(85%)
EPS (Diluted)*	$0.03	$0.20	(85%)

*Earnings per diluted share of $0.03 on 12.0 million shares. For the second quarter of 2010, the Company reported fully diluted earnings per share of $0.20 on 10 million shares.

"We are very happy with our second quarter results," said Tao Wang, Chief Executive officer of Qinqdao Footwear. He continued, "Many of our newer designs sold well, helping drive substantial revenue growth. Moreover, we increased our number of sales outlets to better accommodate our expanding customer base. Over the past 15 years, China's domestic consumption has increased in line with rapid urbanization and improved disposable income. As China continues to prosper, we are very confident that we will maintain our progress as well. Our brand is gaining a loyal following, and we anticipate that our growing recognition will further translate into improved profits in the future."

2011 Second Quarter Financial Results

Revenue

In the three months ended June 30, 2011, Qingdao Footwear had sales of $8.30 million, as compared to sales of $6.48 million during the same period in 2010, an increase of $1.82 million or 28 percent. Given that retail sales trends and broader economic growth in China have been positive despite a global economic downturn, during the three months ended June 30, 2011, the Company increased prices by 3 percent in order to achieve higher gross profit, which resulted in an increase in sales volume of 24.7 percent, as compared to the same period of 2010.

Net sales from Qingdao Footwear's wholesale operations were $6.29 million during the three months ended June 30, 2011, as compared to its $4.55 million net sales during the same period in 2010, an increase of approximately $1.74 million or 38.3 percent. The average selling price per pair within the Company's wholesale operations increased to $18.58 per pair in the three months ended June 30, 2011, as compared to $17.76 per pair during the same period last year, an increase of 5 percent. This increase is primarily due to acceptance of new designs and higher pricing of the products the Company promoted. Apart from the increase in selling price, Qingdao Footwear's sales volume this past quarter also contributed a 32.2 percent increase when compared to the same period in 2010.

Net sales from the Company's retail operations increased $0.074 million or 3.8 percent to $2.01 million during the three months ended June 30, 2011, as compared to $1.93 million in net sales from net sales from its retail operations during the same period in 2010. When comparing these two periods, the average selling price per pair within Qingdao Footwear's retail operations increased from $25.90 to $27.15 per pair this past quarter. Apart from the increase of the Company's selling price, its sales volume increase was the result of Qingdao Footwear's expansion of the number of its sales outlets from 9 to 13, from the three months ended June 30, 2011 to this past quarter. The increase in the Company's unit selling price was mainly the result of its sales strategy to promote higher price products to the market to achieve higher gross profit.

Cost of Sales

For the three months ended June 30, 2011, Qingdao Footwear's cost of sales amounted to $4.70 million or approximately 57 percent of net revenues, as compared to cost of sales of $3.42 million or approximately 53 percent of net revenues for the same period in 2010. The increase of cost of sales of 37 percent over the same period of 2010 was mainly caused by a rise in sales of 28 percent. This increase was due in large part to selling more high-unit price model products this past quarter, compared to lower price products sold during the same period in 2010.  

Gross Profit & Gross Margin

For the three months ended June 30, 2011, Qingdao Footwear's gross profit was $3.60 million, as compared to $3.06 million during the three months ended June 30, 2010, an increase of $0.54 million or 18 percent.

The Company's gross profit for wholesale operations increased $0.54 million or 28.2 percent, from $1.92 million for the three months ended June 30, 2010, to $2.47 million for the three months ended June 30, 2011. Moreover, its wholesale operations contributed margins of 39.2 percent and 42.3 percent for the three months ended June 30, 2011 and 2010, respectively.

Qingdao Footwear's gross profit for retail operations increased $465 for the three months ended June 30, 2011, as compared to the same period in 2010.  Retail margins decreased to 56.7 percent during the three months ended June 30, 2011, from 58.8 percent for the three months ended June 30, 2010. The increase of gross profit was mainly caused by increased unit selling prices and sales volume in retail operations as explained above.

Net Income

For the three months ended June 30, 2011, Qingdao Footwear's net income was $0.30 million, as compared to $1.97 million for the same period in 2010, this is a decrease of $1.67 million. This decrease was mainly due to increased operating expenses of sales commission.

Liquidity & Capital Resources

Qingdao Footwear had a cash position of $0.83 million at the end of the three months ended June 30, 2011, as compared to $0.049 million at the end of the same period of 2010, an increase of $0.78 million or 1,594 percent. 

Business Outlook

"In order to maintain our price competitiveness and sales volume growth, we will continue to review our pricing strategy regularly and make adjustments based on a variety of factors, including the market response to existing recommended retail prices, level of sales, expected product margin on individual products, prices of our competitors' products, anticipated market trends and expected demand from customers. Moreover, we are working hard on new designs to further diversify our product mix and provide a wider range of footwear styles to shoppers, which is vital to attracting new customers and accordingly, to increasing our revenue. We are determined to develop innovative styles and technologies to incorporate into our shoes to better meet the high standards of our customers. As we head into 2012, we will continue to monitor demand and adjust our products accordingly to maximize sales and profit," said Mr. Wang, the CEO of the company.

About Qingdao Footwear Inc.

Qingdao Footwear's principal businesses include designing and selecting designs for men's and women's leather shoe lines, sourcing and purchasing contract-manufactured footwear and selling these lines of footwear under its proprietary brand, "Hongguan," sometimes presented as "HonGung." The Company does not manufacture or assemble any shoes.  Qingdao Footwear operates a number of flagship stores throughout greater Qingdao, China. The Company's products are also brought to market through its extensive distribution network of authorized independent distributors, as well as through third party retailers selected to operate exclusive "Hongguan" brand stores on Qingdao Footwear's behalf.  The Company believes that the sale of its products through distributors and third parties has enabled it to grow by leveraging distributors and third parties' local retail expertise and economies of scale, while minimizing its expenditure on fixed asset and human resources.  Qingdao Footwear's headquarters and main sales offices are located in Shandong province in northern China, in the city of Jimo, which is less than 25 miles from the major urban center of Qingdao.

Forward Looking Statements

The information contained herein includes forward-looking statements.  These statements relate to future events or to our future financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.  You should not place undue reliance on forward-looking statements since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and which could, and likely will, materially affect actual results, levels of activity, performance or achievements.  Any forward-looking statement reflects our current views with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategy and liquidity.  We assume no obligation to publicly update or revise these forward-looking statements for any reason, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

CONTACT: Investor Contact:
         
         Mr. Kevin Fickle, President
         NUWA Group, LLC
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         Mr. Kevin Ma
         NUWA Group, LLC
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         Email: qma@nuwagroup.com