• Q2 net loss of CNY2.3m (US$372,000)
  • Gross margin narrows to 30%
  • Revenue falls 22.6%

Chinese casual men's wear retailer Zuoan Fashion has booked a net loss in its second-quarter as a result of continued weak economic conditions and cautious consumer spending.

For the three months ended 30 June, net losses amounted to CNY2.3m (US$372,000). This compared to earnings of CNY67.6m a year earlier.

Gross margin in the period narrowed to 30% from 44.1% in the prior year period, primarily due to lower wholesale pricing from 35% to 33% offered to the company's distributors, as well as decreased pricing at the retail level.

Revenues in the quarter dropped 22.6% to CNY245.7m from CNY317.6m in the same quarter of 2013. The drop was also driven by reduced pricing at the retail level due to a slower economic environment in China.

CEO James Hong, said: "As general economic conditions remain weak, our target customers continued their cautious spending patterns resulting in higher inventories at the distributor and sub-distributor levels. We continued to decrease our wholesale prices and retail prices as well. We also increased our advertising and store renovation costs to reinforce our brand image and market share. However, we believe such adjustments will help ensure our long term growth and will benefit Zuoan as market conditions improve."

Looking to the second half, the company said it will adhere to its strategy of improving product design and quality, prudently investing in store renovation and advertising initiatives, and reducing inventory at the store level.

"These actions are expected to strengthen our customer base and drive higher sales and profits over time," Hong said.

For the third quarter, the company anticipates revenue in the range of CNY290m-CNY310m, gross margin of around 28-30%, and a net loss of around CNY11.7m-CNY12.3m.