Business

Acorn Blames Sichuan Earthquake For 25% Net Revenue Drop

Chinese TV shopping company Acorn International (ATV) says quarterly net revenues were USD47.2 million, a decrease of 25.4% compared to USD63.3 million in the second quarter of 2007, as it announced its second quarter financial results for the three months ended June 30, 2008.

Commenting on the poor results, James Hu, chairman and CEO of Acorn International stated, "The second quarter was a particularly challenging time for us. On top of being a traditionally slow season for us, China experienced the tragic Wenchuan earthquake in the second quarter of 2008, which not only reduced our advertising airtime due to the suspension and disruption of TV commercials but also affected the success rate for the delivery of our products to areas affected by the earthquake. The stricter shipping and delivery guidelines implemented for the 2008 Beijing Olympics also added additional costs to our business. Overall, we faced a combination of industry specific and macro-environment issues."

Gross margin for the company was 53.8%, compared to 52.4% in the same period of 2007, and an operating loss of USD6.3 million was incurred, compared to a USD3.3 million operating profit in the second quarter of 2007. Net loss attributable to shareholders was USD7.8 million, compared to a net profit of USD6.1 million in the second quarter of 2007.

Acorn's third party bank sales continued to perform well. During the second quarter of 2008, the company signed up one additional bank partner, the Guangdong Branch for Bank of China and sales from the overall business line reached over USD20,000 per day. Acorn's Internet platform also maintained steady growth. Sales in the second quarter of 2008 reached over USD2.0 million, compared to roughly USD1.5 million in the first quarter of 2008. The company continued to make investments in its e-commerce platform by extending its product portfolio to include more established domestic and international brands.

Acorn's revenues fell in the second quarter of 2008 due to more intense competition in the TV direct sales industry as well as a tougher operating environment brought about by Sichuan's Wenchuan earthquake. Direct sales net revenues were USD37.6 million, down 27.6% compared to the second quarter of 2007. The decrease in direct sales net revenues was largely due to a 74.7% year-over-year decline in sales of mobile handsets, despite growth in its GPS products, cosmetics and posture correction products.

Acorn's cash and cash equivalents totaled USD147.5 million at the end the second quarter of 2008, nearly the same as at the end of the first quarter of 2008.

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