Shares of FUQI International, Inc. (FUQI), the Chinese jewelry manufacturer and retailer, got hammered today on news that the company will be restating earnings for the first three quarters of 2009 due to accounting errors.
Based on an initial investigation, the company said it overstated EPS by about 15 to 19 cents per share through Sep 30, 2009.
While accounting deficiencies, on their own, are enough to give investors the heebie-jeebies, FUQI pulled a double whammy when it also released preliminary earnings per share results for its fourth quarter which were nearly 50% under its prior guidance range.
The company now expects fourth quarter EPS between 24 to 28 cents when its prior guidance was 55 to 60 cents. The Zacks Consensus Estimate is currently at 58 cents.
Revenue is also forecast to be lighter than the guidance. Revenue is projected in the range of $175 to $180 million, down from the prior guidance of $182 to $191 million.
Final fourth quarter and full year results will be delayed while it investigates and updates the accounting errors.
The Big Warning on EPS
Outside of the accounting error issue, which already has lawyers jumping into the fray and filing shareholder class action lawsuits, how could FUQI get the quarter so wrong in its initial EPS guidance last November?
In its press release, the company reported that sales were slightly lower in the fourth quarter as customers delayed orders to coincide with the Chinese New Year holiday which occurred in mid-February. It also saw a higher product mix of lower margin wholesale products which resulted in lower gross margins than expected.
The company did sound upbeat about its retail segment, however.
“As we evaluate the 2009 fourth quarter performance of our retail business, we continue to be pleased with its expansion,” said Mr. Yu Kwai Chong, Chairman and CEO of FUQI International.
“Our retail segment for fourth quarter 2009 is expected to be in the range of $15.5-16.5 million compared to $6.0 million in the prior year period. Fourth quarter 2009 retail gross margin is expected to be in the range of 27%-28%,” he added.
As for 2010, FUQI said that general order demand in both of its segments, retail and wholesale, remains solid.
FUQI International is currently a Zacks #3 Rank (hold) stock. Analysts revisions to estimates are sure to come in the next few days, however.
[The author of this article owns shares of FUQI International, Inc.]
Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service.
Read the full analyst report on “FUQI”
Zacks Investment Research
