Q4 2014 Ever-Glory International Group Inc Earnings Call

Mar 31, 2015 AM EDT
EVK - Ever-Glory International Group Inc
Q4 2014 Ever-Glory International Group Inc Earnings Call
Mar 31, 2015 / 12:00PM GMT 

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Corporate Participants
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   *  Wilson Baugh
      Ever-Glory International Group, Inc.
   *  Edward Yihua Kang
      Ever-Glory International Group, Inc. - CEO
   *  Jason Jiansong Wang
      Ever-Glory International Group, Inc. - CFO

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Conference Call Participants
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   *  John Sheehy
      - Private Investor
   *  Rob Cope
      Trillium - Analyst

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Presentation
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Operator   [1]
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 Good day, and welcome to the Ever-Glory International Group full-year 2014 earnings conference call. Today's conference is being recorded. At this time I would like to turn the conference over to [Wilson Baugh] of Ever-Glory International Group. Please go ahead.

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 Wilson Baugh,  Ever-Glory International Group, Inc.   [2]
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 Thank you, operator. Good morning and welcome to Ever-Glory International full-year 2014 earnings conference call. Before we begin, we would like to take a moment to go through the Company's safe harbor policy. The statements contained in the conference call which are not historical facts will be deemed to constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual future results may differ materially from those projected in such statements due to a number of risks and uncertainties, all of which are described in the Company's filings with the SEC. Ever-Glory does not undertake any obligation to update forward-looking statements except as required by applicable law.

 Now I would like to turn the call over to Edward Yihua Kang, Chief Executive Officer, for the strategic overview for business, followed by Jason Jiansong Wang, Chief Financial Officer, who will provide a financial review. Edward, thank you.

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 Edward Yihua Kang,  Ever-Glory International Group, Inc. - CEO   [3]
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 Thank you, Wilson, and good morning, everyone. Welcome to Ever-Glory's full-year 2014 earnings conference call. Although the market environment remained challenging in 2014, we are pleasure to see our business making stable growth.

 Now I would like to refer to the highlights of our full-year 2014 financial results. Total net sales increased 25% year over year to $460.1 million. Gross profit increased 29.2% year over year to $122.2 million. Operating income increased 20.2% year over year to $21.8 million. Net income increased 52.4% year over year to $16.4 million. 2014 EPS of $1.11 compared to 2013 EPS of $0.73.

 In 2014, retail sales from the Company's branded fashion apparel retail division increased 29% to $244.7 million, compared to $189.7 million in 2013. In 2014, our retail business added two another retail brands, Velwin and Sea To Sky, which also sell women's apparel but have different brand positioning than our La Go Go.

 We believe the multibrand strategy will improve our market share and expand our competitive position through the accurate positioning of each brand.

 In 2014, wholesale sales increased 20.8% to $215.5 million, compared to $178.3 million in 2013. In our wholesale business, we remain dedicated to service well-known brands and retail stores by providing a complete set of supply chain management. In 2015, we will continue to focus on high value-added solutions.

 Now, I will turn the call over to Jason Jiansong Wang, our CFO, who will take you through the numbers for the year of 2014. Jason.

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 Jason Jiansong Wang,  Ever-Glory International Group, Inc. - CFO   [4]
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 Thank you, Edward. By now, you have all seen Ever-Glory's press release with our detailed financial results. So I will use this time to highlight key points in year of 2014. Total sales for the year ended December 31, 2014, were $460.1 million, an increase of 25% from the year ended December 31, 2013. This increase was mainly due to our 29% in the retail business and realized a 20.8% increase in the wholesale business.

 In 2014, retail sales from the Company's branded fashion apparel retail division increased 29% to $244.7 million, compared to $189.7 million in 2013. This increase was mainly due to the increase in both new stores opened and same-store sales.

 Ever-Glory had 1201 retail stores as of December 31, 2014, compared to 960 retail stores at December 31, 2013. In 2014, wholesale sales increased 20.8% to $215.5 million compared to $178.3 million in 2013. The increase was mainly due to increased sales in Republic of China, Germany, United States and Europe, partially offset by decreased sales in United Kingdom and Japan.

 Total gross profit for the year 2014 was $122.2 million or 26.6% of total sales compared to $94.6 million or 25.7% of total sales last year. Selling expenses for the year 2014 increased 30.8% to $67.7 million, compared to $51.8 million last year. As a percentage of sales, selling expenses increased 60 basis points to 14.7% compared to 14.1% last year.

 General and administrative expenses for the year 2014 increased 32.5% to $32.7 million compared to $24.7 million last year. As a percentage of sales, general and administrative expenses increased 40 basis points to 7.1% compared to 6.7% last year.

 Income from operations increased by 20.2% to $21.8 million in 2014, from $18.1 million in 2013. As a percentage of sales, income from operations decreased 20 basis points to 4.7% compared to 4.9% last year. For 2014, net income was $16.4 million or $1.11 per diluted share, an increase of 52.4% from $10.7 million or $0.73 per diluted share in 2013.

 Net income for 2013 includes approximately $0.3 million or $0.02 per diluted share of non-cash income related to the change in fair value of a derivative liability. That is all. Thank you.

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 Edward Yihua Kang,  Ever-Glory International Group, Inc. - CEO   [5]
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 Thank you, Jason. Before we take any questions, I wanted to express my thanks to our investors for your continued support and confidence in our management team. This ends our prepared results remarks. Operator, we are ready to take some questions. Thank you.

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Questions and Answers
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Operator   [1]
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 (Operator Instructions) [John Sheehy], private investor.

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 John Sheehy,  - Private Investor   [2]
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 Congratulations on these great results, and thank you for taking my call. The first question I would like to ask is, can you comment about your online sales effort and the impact of online competition on your retail stores?

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 Edward Yihua Kang,  Ever-Glory International Group, Inc. - CEO   [3]
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 Yes, we are just starting online business from last year. So for our brand [Talbol], [Taung-Taung], [Shindou] and some other, inline in our business table. And Alibaba -- Alibaba, yes.

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 John Sheehy,  - Private Investor   [4]
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 Yes, I know all of those. Is your strategy to sell like the overstock and out-of-season items, or do you sell the new collections? How do you use those online stores?

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 Edward Yihua Kang,  Ever-Glory International Group, Inc. - CEO   [5]
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 Yes, for the in-line and off-line -- online or off-line, our price policy is the same. But generally now from the Alibaba or (inaudible) the business table, always (inaudible) how would say -- the stock, right?

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 Jason Jiansong Wang,  Ever-Glory International Group, Inc. - CFO   [6]
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 Stock.

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 Edward Yihua Kang,  Ever-Glory International Group, Inc. - CEO   [7]
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 Stock. Get my comments?

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 John Sheehy,  - Private Investor   [8]
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 Okay, thank you. And then can you describe the style and positioning of your new brands, and how many stores are selling those brands?

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 Edward Yihua Kang,  Ever-Glory International Group, Inc. - CEO   [9]
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 Yes. You know, -- no, you know, for our La Go Go we have already about -- yes, La Go Go bought already 1,100 something, right? And for our La Go Go just up to now, about 1,200 something, right?

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 John Sheehy,  - Private Investor   [10]
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 Right.

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 Edward Yihua Kang,  Ever-Glory International Group, Inc. - CEO   [11]
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 One single brand in China, the total in the (inaudible) up to now I think are maximum about 1,500 to 2,000. So if we looking for how to, for the future how to close our business, we should be addition or some in a new brand. This is why we (inaudible) new brand, but a different position.

 So now for Velwin, the new brand now have about 75 stores in China, and I think end of this year should become to 113 something.

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 John Sheehy,  - Private Investor   [12]
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 That sounds great. Can you tell me a little bit about the positioning of the new brands, like are they targeted at a different age group or different price range or different style and image?

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 Edward Yihua Kang,  Ever-Glory International Group, Inc. - CEO   [13]
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 Okay, I know. I'll give you idea. For La Go Go, the positioning for the age is 23 to 28. And for our Velwin, the age from 28 to 33. This meaning if for age, this in a more modern, La Go Go the one thing. And second thing for price, labor, the Velwin is a more competitive than La Go Go, about 30%.

 And for the [starting], La Go Go is generally for young ladies very, how to say, very active. But for Velwin, almost for woman should be more ladies elegant, you know.

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 John Sheehy,  - Private Investor   [14]
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 Okay, I got it. That is great. Then can you suggest some reasons why your company has been able to achieve so much success when the overall environment for retail stores in China is difficult; it's such a challenging environment?

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 Edward Yihua Kang,  Ever-Glory International Group, Inc. - CEO   [15]
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 You know, I think the first thing is already thank the investors (inaudible) and give our support. And another thing is our management team and our staff, very hard work and good direction. I think only two things, good direction and hard work, very hard worker.

 So maybe in the future if you have time, come to our Ever-Glory; you can see our staff, very, very hard worker. And always looking for the marketing requirement, customer requirement, and how to management and how to control our product development and so on. That's why.

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 John Sheehy,  - Private Investor   [16]
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 Okay, thank you. And do you know the approximate sellthrough rate of your fall and winter collections?

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 Edward Yihua Kang,  Ever-Glory International Group, Inc. - CEO   [17]
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 Pardon, sorry?

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 John Sheehy,  - Private Investor   [18]
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 Like from the 2014 collections, what was the sellthrough rate of your new items, and how much did not sell and it is in inventory?

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 Edward Yihua Kang,  Ever-Glory International Group, Inc. - CEO   [19]
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 Oh, okay, I know. So we always say more than 75%, totally averages 75% have sold. This mean 25% is in store for this year; you know what I mean?

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 John Sheehy,  - Private Investor   [20]
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 Yes, I understand. So do you think that that is a healthy level or better than normal, or a little bit worse than normal?

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 Edward Yihua Kang,  Ever-Glory International Group, Inc. - CEO   [21]
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 No more in China almost (inaudible) no more, about [50] or [60]. So this why (inaudible) the brand always booking in the future; in the past or in the future. You know what I mean?

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 John Sheehy,  - Private Investor   [22]
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 Okay, I understand.

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 Edward Yihua Kang,  Ever-Glory International Group, Inc. - CEO   [23]
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 (multiple speakers) So this why our management team always focus this area. And now for the (inaudible), for the selling (inaudible) almost more than 82% or 85%. So this is the gap from our La Go Go to the [Zara], the very famous brand; you know what I mean?

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 John Sheehy,  - Private Investor   [24]
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 Yes, I understand.

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 Edward Yihua Kang,  Ever-Glory International Group, Inc. - CEO   [25]
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 Okay.

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 John Sheehy,  - Private Investor   [26]
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 Okay, that's --.

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 Edward Yihua Kang,  Ever-Glory International Group, Inc. - CEO   [27]
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 So we (multiple speakers) our best how to do, achieve step-by-step, come to from 75% to 80% or to 82% or 85% or more (inaudible). You know what I mean?

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 John Sheehy,  - Private Investor   [28]
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 Yes.

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 Edward Yihua Kang,  Ever-Glory International Group, Inc. - CEO   [29]
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 Okay.

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 John Sheehy,  - Private Investor   [30]
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 Can you share some comments about your outlook for 2015?

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 Edward Yihua Kang,  Ever-Glory International Group, Inc. - CEO   [31]
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 For what?

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 John Sheehy,  - Private Investor   [32]
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 For 2015, do you have any outlook for your revenues or the number of new stores to open or anything about the market environment?

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 Edward Yihua Kang,  Ever-Glory International Group, Inc. - CEO   [33]
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 Of course, of course. You know, because in Chinese and now the economic situation not so good, but not so bad. Right?

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 John Sheehy,  - Private Investor   [34]
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 Yes.

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 Edward Yihua Kang,  Ever-Glory International Group, Inc. - CEO   [35]
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 Challenge and a big change, the one thing. So for La Go Go, because we are now -- we are also have 1200 stores. So our focus at just some not so good at the stores should be (inaudible), and additional some more good stores should be open for the La Go Go.

 And for the new brand, for Velwin's and Sea To Sky, I should be open some more stores. For Sea To Sky I should be open another 100 Sea To Sky, just deciding now, for this year I should be opening 100 stores in China.

 And for Velwin, I should be open another 50 or 60 stores. Because Velwin is the high labor than the La Go Go. And the Sea To Sky is similar with La Go Go, but a different styling. You know what I mean?

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 John Sheehy,  - Private Investor   [36]
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 Yes, I understand.

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 Edward Yihua Kang,  Ever-Glory International Group, Inc. - CEO   [37]
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 Thank you.

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 John Sheehy,  - Private Investor   [38]
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 Okay, that is great. Thank you for sharing that. Then the last question I would like to ask is the Company's financial position has become so much stronger than before. So do you expect to pay any dividend?

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 Edward Yihua Kang,  Ever-Glory International Group, Inc. - CEO   [39]
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 I think so, but now because for the cash flow is good but not so good, so I should be hope(inaudible) the first thing should be expanding our business. You know what I mean?

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 John Sheehy,  - Private Investor   [40]
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 Yes.

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 Edward Yihua Kang,  Ever-Glory International Group, Inc. - CEO   [41]
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 Because up to now for Ever-Glory not to get much more investor from the outside. You know what I mean?

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 John Sheehy,  - Private Investor   [42]
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 Yes.

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 Edward Yihua Kang,  Ever-Glory International Group, Inc. - CEO   [43]
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 Because 2008 when Ever-Glory becomes a public Company, the crisis -- crisis, right?

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Unidentified Company Representative   [44]
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 Crisis.

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 Edward Yihua Kang,  Ever-Glory International Group, Inc. - CEO   [45]
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 Crisis, right? Yes, because of crisis, so Ever-Glory, EVK, not get the more investor from outside. So for the outside, the investor, the cash not so enough. This why we step-by-step push our inside for the cash flow. You know what I mean?

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 John Sheehy,  - Private Investor   [46]
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 I understand.

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 Edward Yihua Kang,  Ever-Glory International Group, Inc. - CEO   [47]
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 Okay, thanks.

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 John Sheehy,  - Private Investor   [48]
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 Thank you very much for all of that information. Thank you for answering my questions. I know on the previous conference calls, many times there were no questions. But I always appreciate that you always come every three months and explain your business update. So thank you again.

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 Edward Yihua Kang,  Ever-Glory International Group, Inc. - CEO   [49]
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 So thank you. If you any questions, please contact with our -- in the Company, okay?

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 John Sheehy,  - Private Investor   [50]
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 Thank you very much.

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Operator   [51]
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 At this time, we have one question remaining in the queue. (Operator Instructions) [Rob Cope], Trillium.

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 Rob Cope,  Trillium - Analyst   [52]
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 Thank you very much; it was a great quarter. My questions have been answered. Good luck for 2015.

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Operator   [53]
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 There are currently no questions in the queue. I will turn the call back to the speakers for any additional or closing remarks.

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 Edward Yihua Kang,  Ever-Glory International Group, Inc. - CEO   [54]
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 Thank you. You have some another question?

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Operator   [55]
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 There are no questions in the queue.

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 Edward Yihua Kang,  Ever-Glory International Group, Inc. - CEO   [56]
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 Okay. Okay, thank you so much.

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 Wilson Baugh,  Ever-Glory International Group, Inc.   [57]
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 Thank you, everybody, for joining us on this morning's call. We look forward to providing updates for you in a future quarter. Thank you.

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Operator   [58]
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 This concludes today's call. Thank you for your participation.




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