Dogness Reports Financial Results for the Six Months Ended December 31, 2023

Rhea-AI Summary

Dogness (International) reported financial results for the six months ended December 31, 2023, highlighting challenges from intense competition and trade disputes impacting revenue. Despite a revenue decrease of 35.8% to $6.7 million, the company focuses on expanding its customer base, developing new high-tech products, and implementing cost-saving measures. Dogness aims to target younger consumers and pursue merger opportunities to enhance market presence and improve profitability.

Positive

• Revenue declined by 35.8% to $6.7 million, with significant drops in sales volume and average selling price of intelligent pet products.
• Revenue from traditional pet products decreased by 23.7%, intelligent pet products by 54.5%, while climbing hooks and other products increased by 5.5%.
• International sales dropped by 33.7%, and domestic sales decreased by 39.9% due to intense competition and price decreases.
• Cost of revenues decreased to $5.4 million, with a rise in cost of goods sold as a percentage of revenues.

Negative

• Revenue decline of 35.8% due to intense competition and trade disputes affecting sales.
• Significant revenue drops in traditional and intelligent pet products.
• Decrease in domestic and international sales by 39.9% and 33.7% respectively.
• Cost-saving measures and merger pursuits to mitigate revenue challenges.

Insights

Financial Analyst

Dogness' significant revenue decline by 3.7 million or 35.8% is a clear indicator of current operational and market challenges. A granular analysis reveals that the intelligent pet products, which faced a 54.5% drop, are significantly impacted. This suggests an aggressive price reduction strategy, which has not sufficed to maintain, let alone increase, revenue streams. The cost of revenues decrease coupled with the decline in revenue indicates a significant reduction in operational scale. Investors should consider the company's ability to reduce costs further without compromising growth potential. In light of the CEO's mention of M&A opportunities, one should be cautious about potential dilution of current shareholder value, as the company could be looking to raise capital or issue new shares to finance such activities.

Supply Chain Analyst

The steps Dogness is taking to streamline the supply chain and enhance production efficiency are critical given the context of decreasing sales volumes. These efforts may help counterbalance reduced margins by lowering overall production costs. However, this must not distract from innovating and staying competitive in intelligent pet products. Moreover, the increase in climbing hooks sales could indicate a shift towards products with stable demand and better pricing power. The company’s focus on younger consumers aligns with broader market trends, but the effectiveness of these strategies will only be proven in subsequent financial results.

Market Analyst

Notably, Dogness is experiencing a stronger decrease in international sales compared to domestic sales, which is particularly concerning as it hints at diminished global competitiveness. The trade dispute between China and the United States may exacerbate this situation. The company's strategy to target younger consumers and develop new high-tech products has potential, as this segment is known for valuing innovation and is less price-sensitive. However, the short-term gains from these strategies may be limited if Dogness cannot differentiate sufficiently in a highly competitive market. The increase in service revenue, while small, may signal a strategic pivot to diversify revenue streams, which could be promising if scalable.

PLANO, Texas, April 18, 2024 /PRNewswire/ -- Dogness (International) Corporation ("Dogness" or the "Company") (NASDAQ: DOGZ), a developer and manufacturer of a comprehensive line of Dogness-branded, OEM and private label pet products, today announced its financial results for the six months ended December 31, 2023.

Silong Chen, Chairman and Chief Executive Officer of Dogness, commented, "We continue to face challenges due to intense competition in the domestic market and the ongoing trade dispute between China and the United States, which are impacting and will likely continue impacting our domestic and export sales in the near future."

"The decrease in the Company's revenue during the half year ended December 31, 2023 was also partially caused by a significant drop in the average selling price of our intelligent pet products and further affected by decreases in sales volume. To counter the effects of weak sales, we are actively focused on expanding our customer base and exploring new markets by developing more new high-tech products to differentiate us from competitors and meet customer demands. In particular, we are targeting younger consumers who show a strong interest in our smart pet products. We are also implementing cost-saving measures to streamline supply chain processes, enhance production efficiency and improve profit margins."

"We also target to actively seek merger and acquisition opportunities to capitalize on industry challenges and expand our market presence. By acquiring complementary companies, we can strengthen our industrial chain and exercise greater control over manufacturing costs. Through effective cost control we aim to improve sales performance and margins, so to deliver strong return on investment for our valued shareholders in the near future."

Financial Results for the Half Year Ended December 31, 2023

Revenues decreased by approximately $3.7 million, or 35.8%, to approximately $6.7 million for the six months ended December 31, 2023 from approximately $10.4 million for the same period in 2022. The decrease in revenue was primarily attributable to the significant decrease in sales for both domestic and international markets.

The following table breaks down Dogness' revenue by product and service type for the six months ended December 31, 2023 and 2022:

		For the six months ended December 31,
		2023			2022
Products and services category		Revenue			Revenue		Variance %
Products
Traditional pet products		$	3,601,676		$	4,720,547		(23.7)	%
Intelligent pet			2,234,220			4,909,115		(54.5)	%
Climbing hooks and others			761,742			722,312		5.5	%
Total revenue from products			6,597,638			10,351,974		(36.3)	%
Services
Dyeing services			77,049			-		-	%
Other services			-			46,633		(100.0)	%
Total revenue from services			77,049			46,633		65.2	%
Total		$	6,674,687		$	10,398,607		(35.8)	%

 

─ Traditional pet products

Revenue from traditional pet products decreased by $1.1 million or 23.7%, from $4.7 million in the six months ended December 31, 2022, to $3.6 million in the six months ended December 31, 2023. The decline was due to a $0.40 decrease in average selling price per unit.

─ Intelligent pet products

Revenue from intelligent pet products decreased by $2.7 million or 54.5%, from $4.9 million in the six months ended December 31, 2022, to $2.2 million in the six months ended December 31, 2023. The decrease was driven by a $28.40 decrease in average selling price per unit, and more low-value intelligent pet products were sold during the six months ended December 31, 2023, compared to the same period in 2022.

─ Climbing hooks and others

Revenue from climbing hooks and other products increased by $39 thousand from $0.7 million in the six months ended December 31, 2022, to $0.8 million in the six months ended December 31, 2023. The increase was due to a $0.10 increase in average selling price per unit.

─ Dyeing service

For the six months ended December 31, 2023 and 2022, the Company earned approximately $0.1 million and $Nil, respectively, in dyeing service fees.

─ International vs. Domestic sales

International sales decreased by approximately $2.3 million or 33.7%, to $4.5 million for the six months ending December 31, 2023, compared to $6.8 million in the same period in 2022. The decline was primarily driven by a significant drop in the average selling price of intelligent pet products during this period.

Domestic sales decreased by approximately $1.4 million or 39.9%, from approximately $3.5 million for the six months ended December 31, 2022, to approximately $2.1 million for the six months ended December 31, 2023. The decrease was mainly due to a decrease in customer orders caused by intense competition in the domestic market.

Cost of revenues was approximately $5.4 million during the six months ending December 31, 2023, compared to around $7.7 million for the same period in 2022. This decrease was due to a significant drop in the average unit cost of intelligent pet products. The cost of goods sold as a percentage of revenues increased by about 6.5 percentage points, reaching 80.4% for the six months ending December 31, 2023, compared to 73.9% in 2022.

Gross profit decreased by approximately $1.4 million or 51.7%, to about $1.3 million for the six months ending December 31, 2023, compared to around $2.7 million in 2022. This decline was primarily due to the lower average selling price of our intelligent pet products. The overall gross profit margin was 19.6%, a decrease of 6.5 percentage points from the 26.1% margin achieved in 2022.

Total operating expenses decreased by approximately $1.4 million or 21.8%, to about $4.9 million for the six months ending December 31, 2023, compared to around $6.2 million for the same period in 2022.

─ Selling expenses

Selling expenses decreased by approximately $1.0 million or 64.8%, from around $1.5 million to about $0.5 million. The decrease was due to reduced marketing research activities. As a percentage of sales, selling expenses were 7.9% in 2023 and 14.4% in 2022.

─ General and administrative expenses

General and administrative expenses decreased by about $0.3 million or 7.6%, from around $4.2 million to approximately $3.9 million. The decrease was mainly due to lower consultant fees and expenses associated with furnishing the new facility. As a percentage of sales, general and administrative expenses were 58.0% in 2023 and 40.3% in 2022.

─ Research and development expenses

Research and development expenses decreased by $0.1 million or 12.4%, from $0.6 million to approximately $0.5 million. As a percentage of sales, research and development expenses were 7.3% in 2023 and 5.3% in 2022.

Net loss was approximately $3.2 million for the six months ended December 31, 2023, as compared to approximately $3.0 million for the six months ended December 31, 2022. The increased net loss was the result of decreased sales and gross profit, offset by decreased operating expenses as discussed above.

About Dogness

Dogness (International) Corporation was founded in 2003 from the belief that dogs and cats are important, well-loved family members. Through its smart products, hygiene products, health and wellness products, and leash products, Dogness' technology simplifies pet lifestyles and enhances the relationship between pets and pet caregivers. The Company ensures industry-leading quality through its fully integrated vertical supply chain and world-class research and development capabilities, which has resulted in over 200 patents and patents pending. Dogness products reach families worldwide through global chain stores and distributors. For more information, please visit: ir.dogness.com.

Forward Looking Statements

No statement made in this press release should be interpreted as an offer to purchase or sell any security. Such an offer can only be made in accordance with the Securities Act of 1933, as amended, and applicable state securities laws. Certain statements in this press release concerning our future growth prospects are forward-looking statements regarding our future business expectations intended to qualify for the "safe harbor" under the Private Securities Litigation Reform Act of 1995, which involve a number of risks and uncertainties that could cause actual results to differ materially from those in such forward-looking statements. The risks and uncertainties relating to these statements include, but are not limited to, risks and uncertainties regarding lingering effects of the Covid-19 pandemic on our customers' businesses and end purchasers' disposable income, our ability to raise capital on any particular terms, fulfillment of customer orders, fluctuations in earnings, fluctuations in foreign exchange rates, our ability to manage growth, our ability to realize revenue from expanded operation and acquired assets in China and the U.S., our ability to attract and retain highly skilled professionals, client concentration, industry segment concentration, reduced demand for technology in our key focus areas, our ability to successfully complete and integrate potential acquisitions, and unauthorized use of our intellectual property and general economic conditions affecting our industry. Additional risks that could affect our future operating results are more fully described in our United States Securities and Exchange Commission filings. These filings are available at www.sec.gov. Dogness may, from time to time, make additional written and oral forward-looking statements, including statements contained in the Company's filings with the Securities and Exchange Commission and our reports to shareholders. In addition, please note that any forward-looking statements contained herein are based on assumptions that we believe to be reasonable as of the date of this press release. The Company does not undertake to update any forward-looking statements that may be made from time to time by or on behalf of the Company unless it is required by law.

For investor and media inquiries, please contact:

Wealth Financial Services LLC
Connie Kang, Partner
Email: ckang@wealthfsllc.com
Tel: +86 1381 185 7742 (CN)

 

DOGNESS (INTERNATIONAL) CORPORATION
CONSOLIDATED BALANCE SHEETS
(All amounts in USD)
(Unaudited)
		As of December 31,				As of June 30,
		2023				2023
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	2,479,010			$	4,483,308
Accounts receivable from third-party customers, net			2,101,516				1,492,762
Accounts receivable from related parties			1,118,431				1,272,384
Inventories, net			3,087,595				2,679,275
Due from related parties			94,281				87,430
Prepayments and other current assets			4,925,636				3,748,955
Advances to supplier- related party			115,863				239,729
Total current assets			13,922,332				14,003,843
NON-CURRENT ASSETS
Property, plant and equipment, net			61,743,326				61,686,849
Operating lease right-of-use lease assets			17,303,060				17,537,096
Intangible assets, net			1,853,039				1,845,006
Long-term investments in equity investees			1,548,800				1,516,900
Deferred tax assets			1,586,428				1,281,634
Total non-current assets			84,034,653				83,867,485
TOTAL ASSETS		$	97,956,985			$	97,871,328
LIABILITIES
CURRENT LIABILITIES
Short-term bank loans		$	705,200			$	887,000
Current portion of long-term bank loans			625,274				2,959,918
Accounts payable			1,347,606				895,694
Accounts payable – related parties			-				-
Due to related parties			99,281				85,843
Advances from customers			231,029				121,687
Taxes payable			1,198,575				1,015,444
Accrued expenses and other current liabilities			1,024,780				1,026,218
Operating lease liabilities, current			2,364,014				2,326,162
Total current liabilities			7,595,759				9,317,966
NON-CURRENT LIABILITIES
Long term bank loans			3,855,168				1,595,549
Operating lease liabilities, non-current			11,038,675				10,612,508
Total non-current liabilities			14,893,843				12,208,057
TOTAL LIABILITIES			22,489,602				21,526,023
Commitments and Contingencies (Note 6)
EQUITY
Class A Common shares, no par value, unlimited shares authorized; 1,557,566 and 1,552,762 issued and outstanding as of December 31, 2023 and June 30, 2023, respectively			86,369,647				85,716,578
Class B Common shares, no par value, unlimited shares authorized; 9,069,000 issued and outstanding as of both December 31, 2023 and June 30, 2023			18,138				18,138
Statutory reserve			291,443				291,443
Retained earnings			(2,532,613)				664,004
Accumulated other comprehensive loss			(8,679,275)				(10,345,832)
Equity attributable to owners of the Company			75,467,340				76,344,331
Non-controlling interest			43				974
Total equity			75,467,383				76,345,305
TOTAL LIABILITIES AND EQUITY		$	97,956,985			$	97,871,328

 

 

DOGNESS (INTERNATIONAL) CORPORATION
STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
(All amounts in USD)
(Unaudited)
		For The Six Months Ended December 31,
		2023				2022
Revenues–third party customers		$	6,573,379			$	9,388,291
Revenues – related parties			101,308				1,010,316
Total Revenues			6,674,687				10,398,607
Cost of revenues – third party customers			(5,280,923)				(7,012,038)
Cost of revenues – related parties			(82,835)				(671,876)
Total Cost of revenues			(5,363,758)				(7,683,914)
Gross Profit			1,310,929				2,714,693
Operating expenses:
Selling expenses			529,021				1,501,469
General and administrative expenses			3,873,442				4,192,810
Research and development expenses			485,849				554,393
Total operating expenses			4,888,312				6,248,672
Loss from operations			(3,577,383)				(3,533,979)
Other income (expense):
Interest expense, net			(113,690)				(100,255)
Foreign exchange transaction gain			32,469				76,962
Other income, net			80,891				64,719
Rental income from related parties, net			148,406				165,656
Total other income, net			148,076				207,082
Loss before income taxes			(3,429,307)				(3,326,897)
Income taxes benefit			(231,756)				(315,036)
Net loss			(3,197,551)				(3,011,861)
Less: net loss attributable to non-controlling interest			(934)				(57,103)
Net loss attributable to Dogness (International) Corporation			(3,196,617)				(2,954,758)
Other comprehensive loss
Foreign currency translation			1,666,560				(2,326,099)
Comprehensive loss			(1,530,991)				(5,337,960)
Less: comprehensive loss attributable to non-controlling interest			(931)				(66,346)
Comprehensive loss attributable to Dogness (International) Corporation		$	(1,530,060)			$	(5,271,614)
Loss Per share
Basic		$	(0.30)			$	(0.28)
Diluted		$	(0.30)			$	(0.28)
Weighted Average Shares Outstanding
Basic			10,622,663				10,580,323
Diluted			10,622,663				10,580,323

 

 

DOGNESS (INTERNATIONAL) CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in USD)
(Unaudited)
		For The Six Months Ended December 31,
		2023				2022
Cash flows from operating activities:
Net loss		$	(3,197,551)			$	(3,011,861)
Adjustments to reconcile loss income to net cash     provided by operating activities:
Depreciation and amortization			1,414,937				1,553,520
Share-based compensation for services			399,470				18,583
Gain from disposal of property, plant and equipment			(9,845)				-
Change in bad debt allowance			111,105				-
Deferred tax benefit			(275,121)				(336,131)
Accrued interest income			-				(97,622)
Amortization of right-of-use lease assets			591,705				408,602
Warrants modification			239,308				-
Changes in operating assets and liabilities:
Accounts receivable			(682,445)				(37,436)
Accounts receivable-related parties			177,374				(445,099)
Inventories			(359,976)				(630,430)
Prepayments and other current assets			(1,080,158)				(589,816)
Advances to supplier-related party			126,527				(102,305)
Accounts payables			425,101				291,728
Accounts payables-related party			-				(370,662)
Accrued expenses and other current liabilities			16,516				(156,628)
Advance from customers			104,887				182,887
Operating lease liabilities			188,379				(1,320,452)
Taxes payable			159,612				220,999
Net cash used in operating activities			(1,650,175)				(4,422,123)
Cash flows from investing activities:
Purchase of property, plant and equipment			(294,828)				(1,084,008)
Proceeds from disposition of property, plant and equipment			56,000				-
Proceeds upon maturity of short-term investments			-				(10,374,920)
Net cash used in investing activities			(238,828)				(11,458,928)
Cash flows from financing activities:
Net proceeds from exercise of warrants			15,101				-
Reverse split shares			(810)
Proceeds from short-term bank loans			691,000				400,000
Repayment of short-term bank loans			(885,800)				(50,000)
Proceeds from long-term bank loans			2,625,800				-
Repayment of long-term bank loans			(2,793,472)				(447,438)
Proceeds from related-party loans			6,498				585,157
Net cash (used in) provided by financing activities			(341,683)				487,719
Effect of exchange rate changes on cash and restricted cash			226,388				(489,499)
Net decrease in cash and cash equivalents			(2,004,298)				(15,882,831)
Cash and cash equivalents, beginning of period			4,483,308				16,605,872
Cash and cash equivalents, end of period		$	2,479,010			$	723,041
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest		$	154,884			$	208,134
Non-Cash Investing Activities
Right-of-assets obtained in exchange for operating lease obligations		$	-			$	14,939,726
Reduction of construction-in-progress through accounts payable and other payable		$	(40,251)			$	-
Prepaid share-based compensation for services		$	(223,000)			$	315,917

 

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SOURCE Dogness (International) Corporation

FAQ

What were Dogness' revenue results for the six months ended December 31, 2023?

Dogness reported a revenue decrease of 35.8% to $6.7 million.

Why did revenue decrease for Dogness in the half year ending December 31, 2023?

Revenue decline was due to intense competition, trade disputes, and lower sales volume and average selling price of intelligent pet products.

How did Dogness plan to counter the effects of weak sales?

Dogness plans to expand its customer base, develop new high-tech products, target younger consumers, and implement cost-saving measures.

What were the revenue figures for Dogness' traditional pet products in 2023?

Revenue from traditional pet products decreased by 23.7% to $3.6 million.

What was the impact on Dogness' international sales in 2023?

International sales decreased by 33.7% due to a significant drop in the average selling price of intelligent pet products.

How did Dogness aim to improve profitability for shareholders?

Dogness targets merger opportunities, cost control, and market expansion to enhance profitability and deliver strong return on investment for shareholders.