• Q3 loss of CNY14.1m versus CNY23m profit 
  • Revenues down 20.9% to CNY301.1m
  • Gross margin fell to 28.2% from 40.9%

Chinese casual men's wear retailer Zuoan Fashion has swung to a loss during the third quarter as sales and margins fell.

The company's net loss amounted to CNY14.1m (US$2.3m) for the three months to 30 September, compared to a net income of CNY23m in the same period a year ago.

Revenues declined 20.9% to CNY301.1m from CNY380.5m last year, due to a drop in sales volume, lower wholesale prices offered to the company's distributors, as well as reduced pricing at the retail level due to a slower economic environment in China.

Meanwhile, gross margin fell to 28.2% from 40.9% in the prior year.

"Market conditions at the retail store level remain challenging driven by an industry downturn and the continued rise of e-commerce," said founder, chairman and CEO James Hong. "Customer spending at Zuoan retail stores continues to be restrained while orders from our distributors declined in the third quarter over the prior year period as inventories remain at elevated levels."

He added that the company continues to offer lower prices to our customers and are increasing its advertising efforts to boost brand awareness.

"While these efforts resulted in margin pressure this quarter, we believe these actions along with our latest growth initiatives will strengthen our performance and benefit Zuoan as market conditions improve."

Zuoan said a major initiative it will focus on is the integration of its supply chain structure to establish a brand new online-to-offline (OTO) business.

A pilot programme in which the company launched a new lower priced collection in 12 Zuoan stores in October has had positive results, and will be expanded to 40-50 stores over the next few quarters.

For the fourth quarter, Zuoan expects to post a net loss of CNY2.4-2.8m, revenues of CNY190-210m and gross margin of around 21-23%.