Earnings call transcript Q3 2023

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good day. And welcome to the Charles & Colvard Q3 Fiscal Year 2023 Earnings Conference Call and Webcast. All participants will be in a listen-only. [Operator Instructions]

The earnings call may contain forward-looking statements as defined in Section 27A of the Securities Act of 1933 as amended, including statements regarding, among other things, the company’s business strategy and growth.

cannot speaking are based of control. subject uncertainties, of forward company’s on risks identify quantified some and or expectations to which that statements beyond largely are our and and Expressions are predicted our be a number

evolvements of differ from prove the no uncertainties, can forth results risks those the forward-looking further could or accurate. be the be will contemplated and to by underlying actual forward-looking assurance statements. and set Future materially and In information that light there

is today’s which ir.charlesandcolvard.com/events. Accompanying company’s section PowerPoint is available a at call supporting of slide in website Relations deck, the Investor the

e-mail The company event is Please recorded. of have conclusion Should note, will the being you hosting please be any questions session like cthr@lythampartners.com. at prepared would remarks. Q&A this our you a submit, to

conference like would President Chief Executive now I Please turn and to to O'Connell, ahead. go Officer. Don over the

Don O'Connell

third At backdrop. we XXXX continuation few afternoon, to fiscal of the macroeconomic a earnings everyone. quarters quarter this quarter level, last against call. our challenging conference experienced the high direction overall welcome And of Good a a

This to combined on prompted inventory grown core strategies. while changing with to in the us lab in our also refocus efforts diamonds, some prudent marketplace, particularly capital and of our the short-term dynamics jewelry the and shifting related management, behaviors

they in jewelry to increased fine consumer the We are the pleased towards of that the jewelry the industry response shift responsible interest is now experiencing practices a origins in purchase.

positioning destination those nearly and us on Charles that shift made to we become this three deem equity strengths, gems highlight us and responsibly this a believe fine for and an We to built consumers We & will jewelry. Colvard. circumstance educate be ideal decades, brand favorable maintain at for to the have long-term allow for our

for and lab weights grown options. gaining seeking conscious becoming the in marketplace, and significant more conflict-free Lab carat with are specifically eco-friendly popularity price diamonds mainstream consumers gemstones grown larger

more our with than Caydia mined fashion offer greater assortment consumers Grown engagement Diamonds discerning core Forever a set these options. Lab acquire and value One Our and at to far Moissanite ability comparable the

over Our Forever One perspective diamonds Moissanite lab grown and an both competitive value a offers proposition. from a mined and advantage

recent throughout diamonds industry. pressure lab Look engagement grown the when to the their delivering on most consumers to position fine force felt seek against ourselves considering this being us is pricing jewelry needs. downward to the Admittedly, remain a in fashion quality backdrop aggressively

strategy well Diamonds Forever brands continue of and market to passionately between global of us and We for consumer stay us share our ahead core to vie lows Moissanite offer the values today. key growth. has One positioned These future believe economic to Grown enable we the beyond the Lab curve Caydia our choice our product that the for our and

find pressure facing keeps the will that industry believe while We lab short-term way also grown credibility, value its intrinsic and a its the core. its settle at on its diamond methodology pricing maintaining

by its Forever be in and remains value our to warranty One the essential moissanite proposition its will to premium the reinforced market, and business. continue Moissanite

believe the and over educate to we what inferior what increase composition in be to consumers trade to perfected continue overall and three against nature positioning to comparable will We we alike nearly have claiming decades. to our moissanite be

seek in the predisposed as said, Lab leader competitively priced Caydia being grown that diamond. grow to Diamond industry be we we lab need Grown With way, a Since in become continuously buying vertical lab have amplifies to introducing grown to our a increasing we to fine overall market. a the diamonds, jewelry consumers as responsive more seek lab capture for grown brand diamonds demand the product

from become for the cutting of Diamond our other differentiating enabling support Caydia the Lab us players our We and to ourselves in recently who to fastening growth, trade simply grown buy, and Grown sell self-sufficient in expanded lab bottom. capabilities have diamonds industry while more

act they an the consumers of believe relevant aligned today’s with will and responsibly and and are offer aesthetic seek design times. that interactive forefront the remain delivering these and brands at We that the experiential quality relationship,

Insights, the majority consumers Deloitte while saving must business. economic to ourselves believe on upon We economic these focused compared turbulent the during to uncertainty strategies that to According of our bridge managing responsibly are past we to execute continue times. global core spending our

position to price a advantage of years diversified in gems lab and few and posture sourced jewelry past value. more to fine considerable shift time amount jewelry and have marketplace the by that we spent of The our responsibly in towards a grown fine the capital take quality, company consumers provide

to prudent our and elevate infrastructure in revenue in monetize that and our years our come in efforts quarters expand meaningfully we new of to intend technology Our continued the support to reinvest in streams XXXX. business fiscal to

enable product shareholder inclusive of designs sales that over our customer deliberate greater base a will signature these believe value portfolio we create will to expanded along us have we seeks reach to offer. new Additionally, believe initiatives time. our what with investments several We broader proprietary collection

challenging consumers of jewelry. and the becoming their purchasing used practices of market still conditions, aware resources the are in the fine more Despite while high-end creation jewelry

growth for market continues focus annual our We and well XXXX a estimated grow, of growth. be which gems pleased us the commitment continued recycle will and by lab future with sourced pace to are the responsibly by rate position precious metals X.X% our believe to to on we compound grown

to has of effectively to to overall find engagements Colvard ways prove greater market & diamond the to Fundamentally, while Signet, in goal position our our more poised of share of this the Charles reach strengthening jewelry, largest in the opportunity. is market. that Should and believe capture that case, moat XXXX. we consumer a surge be XXXX predicted that is a world’s and retailer

Simon-Kucher study various movement the purchase Partners, have to in people by XX% disrupted with firm. sustainable eco has and published they jewelry & traditional ethical of according consulting to saying a The industry more shifted habits ways, a

risk are XXX% company ethical losing we are in lab to brands practices to entrants that committed Established precious to share create. jewelry the new metals to recycled a respond we their always has Colvard Charles can utilizing and & facing market pressure fine concerns. grown or adjust been gemstone

shift sustainability customer’s to to lasting not gain be fad, the The rather consumers industry discerning, becoming more passing to in a landscape to a needs needs. to even able informed adapt With traction. to changing movement the the just but set industry appears jewelry more and meet be

to competitive like By ours. and brands emphasizing demand to According eco-friendly for embracing and the responsible buying Forbes, brands can from social ethical responsibility to companies conflict-free practices, stay and by driving earth-friendly and appeal millennials practice ethical are growing jewelry. jewelry

industry that responsible jewelry to changing industry quarters, an practices, more consumer with experiential emphasis jewelry design driven to retail is and of also a convenience. commerce. on interactive buying in key the purchases movement shoppable habits towards values, terms and responding in has preferences been another the has recent addition aesthetic consumer Over the In brand shift

enable us, and showcase in includes quality own For value properties, real charlesandcolvard.com price consultations time. this us our virtual to and our our that moissaniteoutlet.com,

form Our at expansion our retail customers located most headquarters jewelry streaming to capability. firsthand a showroom developing premium signature our recent experience long shoppable selection campus, into allows our and which

in By come. and provide well positioned drive years to we these confident values, our continuing in becoming to our invest in remain is take on value the mission drivers. Colvard growth and & to key and of ability diligently focus Charles advantage to

us investments, I broader for enhance was earlier, market. with resonate our continued to XXXX segment a total by fiscal are, time positioning achievable These of QX which highlighted & success to by investments meet strategic setting discerning long-term up demand. believe, marked experience and Charles the a consumer brand we Colvard

made to a of brand greater will focus long-term our which share continue our brands decisions and growth Ultimately, we our presence on with of by wallet. capture business be relationships, a direct-to-consumer product elevating anticipate and stability

a new To of to support offer fine bands. meet Most and we discerning of engagement designs and signature launched patented collection assorted during broad demands. our our jewelry business, rings XX we wedding notably, QX, consumer range

We expand created additional Caydia Lab line necklace, continue Diamond bracelet Couture Lab styles. Grown Diamonds. earring ring, featuring and Grown expanded to products We to Collection of our Caydia color our include

customer to product response positive the this by energized addition. are We

our Yahoo!, Magazine. fine and featured national multiple products print The publications, and in including have finished Byrdie.com jewelry and Knot, Brides Insider.com, electronic Magazine, And been local AC

strategy drive expanding our brand the centric product position Colvard’s in believe initiatives, focusing offerings our leveraging growth unique will customer we & and Charles on upcoming of quarters.

operations We a in marketing are infrastructure, confident to and ensure to help and demands in way. we that optimizing continue brand technology yet our plan conscious customer initiatives meet more can efficient

larger response including This we grown offerings, mean? consumer in to demands. weights expand this carat diamond does What total our will lab means the

to proposition our bolster to our We continue will moissanite there. assortment shift value

to to the accordingly. between and will competitive and diamonds responsibly moissanite ourselves We lab grown and its elevate proposition continue and position impact landscape our business value overall the

better alliances investments seek and direct-to-consumer calculated capabilities video make as we consumers. reach broadcast in will And partnerships and order strategic to in consolidates. will We properties new form and continue industry to the web streaming our to

the XX% revenue market continues making are to to we put segments XXXX, in present share. believe With that a QX solid opportunity. online investments this in we representing believe a position fiscal will We the long-term of us capture

customer continue our the capitalize We industry Executive to in on ability strategic investments. and our expectations. about management optimistic future is position

I into to will more CFO, now financial provide our the Pete, performance. insight Clint presentation Clint? turn to detailed QX’s over

Clint Pete

ended I March third a will provide quarter summary of financials Don. Today, key Thanks, for XXXX. the XX,

Form press release which XXXX otherwise. that in to issued found third expect XX-Q, tomorrow. afternoon unless note specified to be can our we the Please percentage March detail that earnings we Additional ended file and quarter our are comparisons all XX, this

primarily comparative slide XXXX with economic one XXXX we total, $X.X to $X.X the QX of sales a First, on the year due will of fiscal of third start Don decrease the net XX, million discussed. versus XX%, million, the In ago. analysis for factors same compared totaled quarter to period

our charlesandcolvard.com, pure-play XX%, total totaled drop or other $X.X XX% net direct-to-consumer and quarter online which a of sales, segment, one for decrease ago. outlets, and now for representing sales of channel ship XX% includes is moissaniteoutlet.com, from year the but primarily retail million up Net marketplaces,

segment, wholesale a which approximately ago. total net in Net XX% the down quarter customers consists XX% the now $X and a decrease of XX%, million of of from brick-and-motor same of totaled sales sales, from representing our year sales for quarter or traditional

Finished in decreased quarter, ago. sales up the XX% sales the quarter, year of jewelry one net quarter XX% from represented in third the total for sales but of XX%

the due finished we calls, quarter, towards for direct-to-consumer strategies. net part as XX% jewel mentioned jewelry sales in shift and prior in to decreased our Loose

distributors forecasts softer inventories overall While and economic environment. the due many domestic to and international their reduced

geography, were the sales in quarter sales net the quarter nearly sales were at third international by in U.S., Looking only $XXX,XXX. while reported the all derived in

ongoing overall to geopolitical consumer partners due has As inflation, as our COVID-XX discussed slowed concerns restrictions unrest. quarters, and the continued facing distribution of certain recessionary in global we international enclosures, demand and recent

strategic of including traditional finished jewelry as areas you can the by evidenced than direct-to-consumer jewelry finished loose our focus see the decline As less at jewels and and impacted net in high sales. levels, lesser net were our somewhat and channels online segment sales

discuss to versus XX profit gross slide delivering gross gross year margin versus $X.X onto XX% ago million the we and XX% in Moving year in ago the $X.X of in quarter. delivered profit, million quarter, margin a

in nonperforming monetize certain took notably, principally, along gross the we margin sales was an continued decrease advantage Most the the to with because jewelry of items in promotions. quarter opportunity

quarter. For expenses sales, XX% year X%, XX% net ago compared of total QX in XXXX representing operating total increased the to

ago million Sales of expenses were $X.X in and the for initiatives in $X.XX or support million the brand $X.X growth million decrease. awareness compared expenses and marketing quarter, G&A year XX% a to X% and to quarter increased our

that allow consumer. direct We upon us believe our marketing in access to brands continue initiatives brand we to build have to awareness and and invest the will

$X.X of $X.X deferred was tax expense on net $XX,XXX QX an loss with in diluted million, net the loss $X.XX allowance primarily period. ago establishment tax a in year asset deferred year income per expense to our of tax or XXXX $X.X income earnings tax in tax of million compared period, $XXX,XXX driven a ago is Included loss a QX diluted for net share reported $X.XX in compared share, income the assets. our million valuation We expense per of an net the or of XXXX by

available expectation determined income loss taxable of our assets. deferred utilization As that operating we to other years net in may not tax of be and in the upcoming future carryforwards sufficient tax result full

company’s compared were period used the the quarter million calculation a March shares weighted period per diluted for loss ended Our shares XX, the the outstanding shares basis million in the on XX.X program. partially the share repurchase March XXXX, of XX, is shares driven the of ended for approximately share XX.X XXXX. by in Decrease average impact outstanding to for

of snapshot a balance let’s Now onto our move sheet.

December at liquidity XXXX. cash, million to quarter million the strong as quarter ended the Our and capital the position compared total second end $XX of we $XX remained ended of with XX,

capital strong, Working remained million. at $XX.X ending

believe the In geopolitical capital addition, continues to in our and remains to inflationary able debt-free. We the structure the company be strong factors near-term. weather and

$X cash operations used operations was flow to $XXX,XXX year cash quarter in the million in same from compared of Our the flow quarter, provided a during ago.

other access our facility $X secured JPMorgan In to sources cash liquidity, Chase terms credit we of with have of Bank. million

of As through today, accessed through facility XXXX and March we our not XX, credit have funds agreement.

of March XXXX, as of December compared Inventory to as nearly of XX, million, million. reduction $X.X XXXX, XX, $XX.X a $XX totaled million

quarter compares year million XX, Loose ago. jewels March inventory a of to of million XXXX and as was the $XX.X $XX same as

still reduction to $XX.X sell-through million, a of as Finished our of jewelry million as a solid December $XX.X XXXX, March finished of $X.X compared inventory when demonstrating XX, million of XXXX, was XX, direct-to-consumer to prudent strategies in our remain to percentage agreements. inventory of meet rates management online jewelry a the forward. service channels, We in-stock focused maintaining level higher going plan while on

value deferred deferred asset tax $X.XX Book share previously net $X.X of valuation as our assets per allowance due mentioned. tax share, to per the XXXX QX million sequentially of to lower establishment the I but a on was

confident in In we shareholder value. remain our summary, efforts continued increase and financial our strength to

business we of necessary the environment, continue our which current all making on of diligent to focus expenses, while inventories macroeconomic and fundamentals actions investments during the As cash, the business. to grow include management the

it turn will I over that, Don. to With back

Don O'Connell

first. today’s is premium destination a direct-to-consumer to At customer’s Clint. with with consumer, brand driven e-commerce core aesthetics & on become goal that and Charles interactive that’s quality resonates an Colvard, that’s our and complex you, values aligned that Thank focuses

practices value, diamond moissanite prudent A the and the grown advance jewelry strategic meaningful and fine ethical utilize highest to responsible continue at our We through curve. a available offer further to leader stay and products sourcing in quality strive investments. of technology lab ahead to

industry. we future, As position we responsibly happening consumer and ourselves jewelry that into move remain to shifts to committed customer We of through innovation are to the advantage take will education. the needs the continue the meeting continued in

evolve, strategies successful industry in will remain refine continue competitive the we As jewelry continues to to the our to market.

few quarters, that implemented innovative, last have strategic ensure the to Over we reliable remains & initiatives Charles Colvard help and current.

growth right XXXX, we move confident success. remain our plan the is for into we on QX that long-term As fiscal path

like above employees shareholders and but Last certainly who continue difficult these and during to our not go would least, thank for beyond times, to we our their continued support.

who I for time, Operator, call to open the turn lines At this will back over questions. the the, any up will

Operator

[Operator Instructions]

Adam Lowensteiner

Can is will repeat behind levels? to reasons lower questions. this a should to the This past the XX% Don, trends. new going Scott. we ask normal Hi, margin be few management or was shortfall? team Adam Lowensteiner. you the the to regain gross to forward Is again able I XX%

Don O'Connell

a Certainly, doing? you driven elected are that by that to is of do. situation couple How to short-term Adam. primarily Hey, a was this decisions be we we what Yeah. believe business

cash, we or time some is move kind additional opportunities to So, where our that of kind position. want and was nonperforming we to sought able obsolescence of of number preserve took we were we call we maintain and that advantage cash out raise cash so the a is thing, inventory, some good through one to what so this

an keep eye that’s need situation commodities on we really market important to now. other right the The that is

right now, gold ounce. new $$X,XXX of If an you look gold at upwards trading is $X,XXX,

environment. So, starting the that kind situation of against of the everyone take economic is note within to industry

Thank of for it. have shelf, kind of really on increases best that So, commodity good we which we inventory with inventory can. appreciating that’s ample of is because as as the that we thing inventory goodness look to for that, day-by-day a finished kind to have as against hedge certainly, jewelry. that us market But, the well

However, so procure have those need don’t into we stock, to when the we piece goods, some do we compression that. to have in made-to-order, we margin a got get on the and market we go

a in diamonds lab few pressure last industry had our and lab entire diamond grown just every have on in lab lastly, a the pricing about last to talk within the bit quarter, impact let’s diamonds sector. more then, with so primarily little quarters, that grown the business downward And the grown in

are at was price. to is, the inventory us, Lab the normalization diamonds areas on that lot some lot that purchased and at where find trying higher of of grown of end was shelf of a inclusive a we had the the higher market, inventory

price. in significant seen a have We drop

the good into On and goods price and the was us selling at were get it enables current where procure current part, that at. that off inventory at convert price. that cash it’s it to the able discounted we first a Also, by level new to inventory

have So, these, remarks, three believe we we the of decisions believe pressures a make business try of to are call, moving a opening good my and and executive necessary taking what sure steps every making to there main I said properly will to answer we that ourselves there we in to day the kind are it believe normalization we be through we we and got manage we position forward.

there what on. we the some in think certainly, are short-term, are I in will but be long-term the planning for we compression optimistic

Adam Lowensteiner

You diamonds moissanite trends. mined a compete, and pivot their so, happens if towards how what discussed gems and then Can grown to then? lab

Don O'Connell

consumers belief it a my the I in mean, just mined strength that diamond because I predisposed that’s mined having and are mean they will gems show always I those here. way always diamonds is. that believe, it’s to market, and will be there’s the

who trying those to behind haven’t is strategy you much left and been grown very prevalent country up. catch in have are and single that every play it’s lab movement adopted kind the I in that here, and will strong tell the very retailer of

putting downward against have alluded pressure the is and carry we the between additional just what pricing this of of pressure really I that problem some is The diamonds. lab of grown the offer this pinnacle moissanite that to that gemstones the we we kind

So, with proposition whereas the kind tightening. we had an between proposition, two incredible that is of the delta valuation

that of to choice a really the has prudent to that to two. nice that So able kind that between competitiveness decisions maintain the gap look to pricing to consumer delta make offering moissanite, us maintain be with and

us assortment to we of other larger we a of not to transitioning to grown It’s So, value lab is weights with. has be a kind able our believe kind Also, answer entire accentuate moissanite why Adam, bit time to an one navigate. of to going little is that greater that. have take of carat diamonds still products consideration, competitive in

whereas be So, would a had clearly. before, difference carat we X carat had able moissanite the a X we to see you diamond, and very

they grown carat X probably, big X carats, carats, closer. lab Xx there a in getting leaning though or is carats. are going a X still we Now much toward in consumer more X carats diamond pretty X where are to weights carat Even and the difference, moissanite larger closer and Xx, are and

So, will that variables in inventory anything a of We that to again, a continue believe take lot we look at competitive look and well is our believe different against be also supply, the premium we necessary believe at positioned. we One all of a look us. our take our take Forever to are at we a comes at more And market. the that that are

lab rarer, in should claim a rarer we becomes if find become more elevate will and intrinsic moissanite the able and and Moissanite be can to diamond. another than higher. be prevalent they to take that Forever commercialized, actually brand is is that’s put catalyst therefore, value it everywhere, that The grown mean I is some more fact. the and the energy that I here, step believe One, elevate it diamonds and as bottomline are And a I may. we

However, greater of maintain proposition cost the our though value customer we to in even mind. will a valuation it is

of course, So, that’s I to subjective believe. what

are go But a to That’s mainstream our the organization the Colvard. the lab our built to of channels right choice know on. we all going get there. for was grown we are That’s it & within much expanding be diamonds our Charles factor of are into are but if we we into we don’t start to We in believe pretty what the we the it’s choice believe think that and more us growth tremendous answered I I channels. and that once foundation. question

Adam Lowensteiner

you can initiatives? elaborate on add future, Don, some you. the it Can Thank start your How we want investments type to environment? when investments And to also you them? technology we gauge also, get cost the just Okay. mentioned of those some certain cash these on side. runway implement macroeconomic color clarity making during take or to should given a these long for will a to investments expect hearing the on be, what some difficult initiatives,

Don O'Connell

Yeah.

Another great question.

really, really we debt. At So, good feel cash. focused about feel on We That’s feel cash. the we cash, about million that’s have good really that We really critical. preserving $XX important. no in

are we of kind to have stay as of make that continuing position feel to future the strategic in to ahead curve, of stay We the we times, the the hard competition. ahead these for investments company to

So does means the web of look practices. mean? to make we have are that and best reface -- of all properties, we moissaniteoutlet.com, we kind that functionality sure That have charlesandcolvard.com, at our what

cash, coming make to doing doing just using we flow that’s So having we and regular down to so what we without in drawing have are out do. been and cash there investments need and

strategically we what consumers, in us to companies of the Look with getting in ether looking interest specific, to like in targeting our opt have to are them without those practices, third-party partner that we that that that that are being retargeting products, going route. best offer, SMS, consumers to in in, to kind for do shown best-of-breed

enhance that to do need that better Email We done marketing, we retargeting, it’s a have before. something job. we to need

in our out and our be want platforms to partnerships product. able and endorse and as with Influencer that continuing influencers investments are capability. too touch reach make to to marketing to that become We product, well, that ambassadors

touch. really systems that our make cutting on consumer first are will the consumer capture had have and make where on to cutting consumer need where that the and all to able and systems touch really consumer, telephony that to of at on that be can CRM data that make last we informed we we be Those edge the edge then important decisions upgrade there. success the to really and and investments ingredients And continue sure started to to journey, really, finishes from we

then really been in convert commerce for that capability, lastly, now And that we ways. we in have simulcast important talking quarters is streaming believe we live the our is ability about to the to shoppable quarters that future multiple future video, and believe video into the interactive

And and simulcast that quarters been could we investments in I the better, that anywhere know domestic getting One are and and shopping live could doing have are choose. imagine in we more the international, more past we should both a opportunity interactive so. few talking and in talking do making we world, and we would better

an to And that, come to for to can’t opportunity then really for great. us but kind we we wait like. we looks believe play be and can’t that’s disclose More going of to what shout on be that too that’s it’s going us exciting long-term a much, and

Operator

Okay.

question… next Our

Adam Lowensteiner

I Operator, that’s the questions sorry. all I have. am

Operator

Okay.

Adam Lowensteiner

all That’s questions have. I the

Operator

Great. to to Don over turn session. the [Operator and our Chief would Officer remarks. Executive closing for like Instructions] concludes President conference back I question-and-answer O'Connell, This any

Don O'Connell

at a believe $XX.X and We million. we believe operate need the we make no we strategic that there’s have I no of plenty take of prudent are believe we Yeah. how cash, got challenging we forward question, that mix levels we target. that said. We times, These of have Thanks, decisions are debt, look business, have Inventory but to we Scott. that like kind the customers that and a the products bring on we inventory.

is under consumer the right now. Certainly, pressure some

that. navigate through we So will

We will some to and maintain at, that the business do forward. are to creative confident things business and strive be continue we where able we grow we to will are the

jewelry. I incredible, want supporting have some kind employees us, thank certainly, get And everyone to very, our of very and hard to just worked that for again, beautiful for the investors

it. Appreciate thank you. So

Operator

The now Thank conference presentation. attending for has you concluded. today’s

disconnect. now may You

Charles & Colvard (CTHR) 4 May 232023 Q3 Earnings call transcript