United States Reply To Enquiry Letter: Profitability Continues To Improve

On the evening of May 24th, the United States replies to the 2018 annual report of the Shenzhen Stock Exchange. In response to the 14 questions raised by the Shenzhen Stock Exchange, the company made a detailed reply. The company believes that, after unremitting efforts in recent years, the profitability of the main business of clothing has been continuously improved, attributable to the net profit of shareholders of listed companies after deducting non profits, and has continued to reduce losses, and realized profitability in 2018.

In view of the question of whether the main business of the Shenzhen Stock Exchange has sustainable profitability, the United States believes that in recent years, the company has focused on its main business and returned to specialties, in depth promoting the transformation and innovation of its own brand business, optimizing and expanding the channel structure, and improving the retail management capabilities. These strategies have ensured the continuous improvement of the company's profitability, and in 2018, the results are beginning to show. According to the annual report, in the 2016-2018 years, the net profit attributable to the shareholders of the listed companies was 36 million 158 thousand and 600 yuan, -30479.98 million yuan and 40 million 361 thousand and 600 yuan respectively. In the future, the company will continue to follow the path of brand upgrading, product upgrading, channel upgrading and retail upgrading, and is committed to satisfying the rising consumer demand with better fashion products and shopping experience. At the same time, we should further strengthen cooperation with multiple business partners, and promote the implementation of the channel development strategy of shopping centers plus traditional business circles in parallel, so as to further optimize the terminal store structure.

With regard to the reasons for the higher proportion of the company's total inventory assets and the existence of a large amount of long-term inventory problems, the United States clothing company replied that, at the end of 2018, the company's inventory accounted for 32.58% of the total assets. Compared with the same industry companies, although the company accounted for a higher level of total inventory assets at the end of 2018, the trend of changes in the proportion with other parts of the same industry was opposite. Compared with the end of the reporting period, the total inventory assets accounted for 6.19 percentage points lower than the same period last year.

On the other hand, the company's direct income in 2018 accounted for 60.48%, which is at a relatively high level in the same industry. Direct shops need a large number of commodities for display shops, to a certain extent, pushing up the proportion of inventory to total assets. From the perspective of inventory turnover efficiency, the number of days of inventory turnover in 2018 was 208 days, 25 days less than that in the same period last year, and there was no longer a large amount of long-term unsalable goods. Only 3 of the goods stored for more than 3 years accounted for only 1.30% of the company's inventory.

For the question raised by the Shenzhen Stock Exchange on the obvious improvement of the net cash flow generated by the company's business activities, it explains that the net cash flow generated by business activities in 2018 is 622 million yuan, up 294.73% from the same period in 2017, mainly due to the corresponding increase of 889 million in cash received by sellers, which is due to the increase in sales revenue in the current year. The clothing industry in the company, consumers mainly purchase goods in cash, the company's direct revenue in 2018 accounted for 60.48%, retail revenue growth is the main reason for the increase in operating net cash flow, and joined the income rose by 32.98% over the same period, the corresponding increase in the corresponding amount, so sales revenue growth driven business net cash flow increased.

The Shenzhen Stock Exchange noted that for the first time in 2018, sales exceeded production in the past three years. This explains that in the beginning of 2018, with the opening of new stores, the commodities for new stores were digested. At the same time, in order to further enhance the efficiency of commodity operation, the company will set aside a larger amount of merchandise space for digestion in the formulation of the 2018 merchandise sales plan, and appropriately reduce the planning of new product production. At the same time, the revenue of the company's direct channel grew by 11.19%, and the revenue from affiliate channels increased by 32.98% over the same period last year. The franchisee orders the company according to the actual sales demand, and the company delivers goods according to the order and purchase and sale agreement of the franchisee. There is no case of using the franchisee to pressure the goods to assist the company to confirm the revenue in advance.

It is worth noting that the average per capita operating income of 2018 was 963 thousand and 400 yuan, which increased by 60.34% compared with the same period last year. The company attributed it to a year-on-year increase in operating revenue and a reduction in the total number of employees. It is understood that in 2018, the United States and costumes apparel channel transformation and upgrading, intensify efforts to develop the market, while optimizing the direct channel, closing the direct and inefficient stores. By optimizing the organizational structure and human resources, the per capita output efficiency of the company has been improved.