Charles & Colvard (CTHR) 4 Feb 222022 Q2 Earnings call transcript

Good day, and welcome to the Charles & Colvard Second Quarter Fiscal Year 2021 (sic) [2022] Earnings Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] This 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 strategy. Expressions which identify forward-looking statements speak only as of the date of the statement is made. or based a our uncertainties, number which be are are expectations some statements beyond cannot to are subject of predicted forward-looking largely company's on and of our These control. and quantified risks and materially actual contemplated forth underlying forward-looking differ or those statements. set Future developments could from and the results in, by In assurance accurate. information forward-looking to be that these will and there uncertainties, risks of the light can no be prove Investor which today's section call supporting a Company's available at of Relations Accompanying the website PowerPoint slide the is in deck, is ir.charlesandcolvard.com/events. The Company a Q&A the at remarks. session prepared will be hosting conclusion of Should like ir@charlesandcolvard.com. have submit, please you e-mail questions you'd to note, Please is recorded. this event being turn President would Executive Officer. like to to over and the I Chief O'Connell, Don now conference Please go ahead.

earnings that I'm with our At new a XX-year afternoon, gross a to share $XX.X QX, proud in quarter maintains conference almost this XX% call. year-ago quarter highest to everyone. in fiscal Good Welcome revenue you extremely history. margin. and million, strong delivered our XX% the we the second Company's for increase to is the XXXX record quarter

million revenue Additionally, XX% $XX blended a of achieving over XXXX for in increase recorded for a margin year-to-date, the and increase XX% a we XX% XXXX. fiscal over

awareness double-digit brand six campaigns quarters represents towards deployment and the momentum was direct-to-consumer continued Our largely by increased the of our growth initiatives. profitability sequential Company. and for fueled progress capital This of our marketing additional

to paying in our continued are and trajectory. web and support believe So advertising We and our investments paid properties off what this continue are does mean? necessary growth owned of social assets in

$XX.X Grown capture market, diamond by of the XXXX. One between consumers offer the the total be alone opportunity to grown billion Moissanite to ability choice more our Real, us redefine and lab potential to Lab Caydia enables we estimated Forever diamonds market with achievable As the

quality audience anniversary and impact appeal a bridal product fine from broader now for every fine a we to styles have bands, lasting The and now and intersection value is and on becoming more customers. on Unisex Our traditional our is a jewelry assortment and impression consumer. and to the making price, to sales all-encompassing diverse something fashion of positive

Our Not future. consumerism that resonating conscious Mined within Made, messaging the the and is industry is

Here's what know. we

million revenue $X.X by versus revenues XX% channels $X.X online XX% over of quarter. quarter and online year-ago up revenue XX% the quarter. year-to-date, our Our of This million online revenue the revenue $XX.X year-ago XX% XX% represents the the and versus comprised grew $XX.X over for year-to-date at channels total million charlesandcolvard.com for channels represents XX% revenue. quarter particular, of to million. total Fiscal was XX% In over increased the fiscal

our XX%, Our traffic and the XX% versus conversion is website year-ago is up up quarter. rate

are to over sales our year-ago quarter-over-quarter, XXX% are XX% and % versus up the up XX% our while quarter, collection quarter signature business grow compared quarter the Our year-ago quarter-over-quarter. and continues and grown XXX% Moissanite to lab the sales year-ago diamond

Now numbers I'm to CFO, detail. call Clint Clint? the our the to unwrap over to in Pete, going turn more

six-month and key provide summary second quarter XX, for I'll Today, Don. of ended period our Thanks, fiscal a December financials XXXX.

drop release note million sales for million for net XXXX, Please sales ended our year-ago December the begin $XX.X or or file to And are unless charlesandcolvard.com, an pure-play online for outlets, channel to $X.X XXXX Net period retail period. increase XX%, our which that segment, quarter net can of or from XX% marketplaces, all detail In $XX December sales of or moissaniteoutlet.com, QX million $XX.X we comparisons totaled million the XX-Q increase six-month that Net net million earnings sales. representing $XX.X sales the be by net XXXX, to total, specified. total found other period sales XX, an six-month XX%. year-ago Form this charlesandcolvard.com, ship transactional expect ended our with press otherwise in XX% includes Online from and total our increased the increase and XX% tomorrow. revenue. for issued We'll of from totaled versus Additional increased website, of channel percentage net an afternoon the million we XX%. XX% totaled versus of $XX.X sales. XX, quarter,

of Traditional from consists which customers, million the by XX% totaled sales website,.com, a $X.X X%, retail sales. sales increased net Net Our total transactional of net wholesale quarter, segment, and our XX%. of for decrease for representing our

from direct-to-consumer for As online from were sales million increased ended brick-and-mortar due net for see continue of the sales year-ago December six-month sales six-month XX, saw XX% retail This quarter ended for increased Loose to for net International our period last last strong period of demand and brick-and-mortar the in net we XXXX, for period for XXXX, demand we international in the sales our $X.X total period. Finished demand noted. customers. December XX XX% domestic offset quarter net Traditional customers. decrease up decreased our distributors year-ago X% where net previously to hoarding of domestic jewel holiday, increased six-month for the as advance net sales to XX% XX% XX% or ended jewelry see retail or increased pandemic. to jewel our six-month the and from period $X.X mentioned jewelry XX, impacts XX% of ended quarter into jewelry gearing premium channels, from sales, XXXX, XXXX. demand of $XX.X sales. the QX of we December December to net for sales decreased quarter, flowed X% for was XXXX, the Loose million the as the Net in total or XX, by million year XX% to up our Finished and segment net sales. flat the distributors net more this our quarter as we last to unlike holidays, strong from XX% strong with QX our continue continued sales the

delivered on, steady for quarter. margin a gross Moving we of year-ago XXXX, the QX strong XX% to

total million per XX% sales brand $X.X was for expenses diluted the with XX% driver or In quarter. to initiatives, increased expenses of compared XX% increased expenses The For XX% $X.XX G&A the the XX%, to main $X.X Net year-ago in per in XXXX, awareness of our million to increase increases period. share increased for compensation. the marketing quarter. XXXX net QX stock-based or million of in share performance-based and million, $X.X $X.XX diluted sales year-ago support and total representing was compared operating QX G&A income in $X.X

net ended per $X. XXXX was compared diluted income compared $X.XX the $X million expense million XXXX, per of income or Included income QX is in to period period. For in the six-month for or in net quarter. $XXX,XXX year-ago to share the $XXX December $X.X tax XX, year-ago share

XX, was for six-month $XXX,XXX $X,XXX compared XXXX, period year-ago December income to the ended tax period. the expense For

executives. outstanding for and as December quarter weighted average the average million XX, by were XXXX, directly fiscal These at X the driven well exercises the and outstanding quarter of stock insiders tax options Our XX, shares as factors, and year-to-date. compared approximately XXXX. approximately in for income restricted of weighted issuance diluted million of to shares calculation diluted an was our shares stock, XX.X million impacted using by in shares to at increase earnings option exercises XX.X share per our restricted share the expense earnings shares increase The higher per December

snapshot Now move of let's sheet. to a balance on our

to compared cash with XXXX, liquidity compared million million by the and ended in position $XX.X increasing million year remains cash fiscal $XX.X XX, last to $X.X quarter solid and of the $XX.X ended Our quarter, capital our total as previous at our we position million. June

to the million million for strong the year-ago at Our compared cash operations $X.X flow quarter from remained $X.X for quarter.

increased million at June compared $XX.X capital XX, December to working to XXXX, Our XXXX. at XX, million $XX.X

to in Don. the of efforts as to million levels June and and as we our the million JPMorgan sources facility as and other $XX.X the our secured our requirements inventory December of holiday preparation million in through summary, XX, compared in to million $XX.X XXXX. totaled June credit XXXX. brick-and-mortar have over XXXX, the for was Bank. direct-to-consumer that, of funds XX, as XX, we $X credit support upcoming liquidity, to we growing I'll not Chase $XX.X to our December compared terms XXXX. continued with Valentine's With for accessed remain confident call million our Day over $XX.X In XX, stock facility. of strength XXXX to million cash jewelry $XX.X of healthy inventory maintain $XX was In back XX, demand access growth. season. To and At in turn today, business Inventory Finished the long-term million of financial June jewels Loose of have

Clint. Thanks,

the systems more support our strategic and Now systems, We We some warehouse our ever-growing management quarter efficiency. ERP product XX% proved I'd this be maximizing for internal expanded and including impactful and season, to like sales bangles, optimized launched forecasting to collections point ahead our drivers processes audiences. offerings pendants. zodiac more pipeline, demand. scaled We to methods We packages our investments the holiday reach and this busy both enhance diversified that demand, traditional the XXXX key to compared We ample out and quarter. holiday broader to capacity new stepped our to the tennis operations last year. distributed men's the assortments create flexible Moissanite including holiday We proactively necklaces, of Lab and brand. sales featuring inventory rings visibility ahead and Grown diamonds outside One of to Forever

produced events Women's and traffic investing on demand product approach site real-time conversion made streaming We and Championship Cup we website As World enhanced digital U.S. we meet We our their behaviors, segmentation rings our launched performance engagement and increasing Soccer marketing infrastructure. official in customer strategy XXXX times, and our to designed overall partner, users' teams. digital online to in and for improvements shoppable shopping jewelry consumer flexed significant rates. XXXX load We the and by our charlesandcolvard.com.

brand our content against in lastly, Charles enabling our across us mind, our We capabilities, key marketing markets. top advertising initiatives multiple out-of-home even platforms, including in-house and expanded video And boosted Colvard utilize competitive set. keep to production of also the the to digital & we

gemstones grown has been As for a almost pioneer Charles XX years. in & the lab space, growing Colvard

To of align that our other that mindset. with the demand sourced want just their integrate believe just can know that beginning indicative is their entire customers origin to grown consumer quality. solutions began with see market to is in conflict-free product diamonds values. confidently ethos. the product The of expect with we to have for understand larger that sustainable be more Many the we market new our in many evolved. year say demand align for personal we and values collections responsibly share. are also forward-thinking We a consumer and values. in to the significant operations, XXXX ready make this and lab we investments offering consumer They into While intersection with lab-grown the continues a demand increased repertoire, consumer to of our to for increase brands than growth the fine product in it and technology industry, the the continue infrastructure jewelry capture

As This be we customer. whether and new our via a they consumer, e-commerce expand showrooms. brick-and-mortar to streaming, beyond it reach the virtual accessible we conscious or today's shop, also TV, where to traditional to meeting the brand messaging means platforms evolve customer and making the live adapt wish to

for brilliant for our that, operator open XXXX more to XXXX over about direct-to-consumer brand stand I'd back forward and we the a like While as is place lines industry. for to the was illuminating a it questions. turn With brand, your amplifying path about for the solidifying the and to what

Matt [Operator Capital. Instructions] Koranda Our from is from first question Roth

about quarter of call speak year? where off start to a benefit item? that If respect with are we've dollars half the from result more the with front, to that results of if in a and we And opportunity, incremental line terms detail better may Where that from then granularly maybe any this spent? could marketing bit you on the more like could running? lastly, sort of in there marketing. this any into little of where see wanted the you efficiency? little Just in back the campaigns the the that we've growth being And been are spending just And bit if then step-up ramp out in there's sales incremental headwinds to dollars unpack sort heading wondering you're seen just spillover

Yes. and questions. pointy I the appreciate Matt, questions, so all

Also little that As greater as build it diamond we of a last spend, player costs fact relates totally bit space, started with We click. design. to wanted associated a to space become the to is the that's that being a we by in top speaking the start more funnel. cost per significant the quarter lab-grown in to much

be order leader kind we're in have to spend bit a to player in in or So be to that a space, space more. the of little that going

we'd to well too kind association that As be a leader that, spoke put we in outlet, capital performance-based important phrases, marketing all start as these in word on deploying we have that towards of a strategies that that, things, to place as well. Moissanite

in push to particular pushing us pushing ROAs we're envelope forth we'll So we to envelope direct-to-consumer set as time that is believe kind businesses that's into want of to how performing know a XX% long And continue believe we the is now our and ROAs benchmark further know run we channel we the grow the business. QX. efficient. on envelope We increase. towards and We our to significant grow getting well, believe of, the business. mean well. really and do the capital Certainly, the and started our We're of so we I Six continue strong, for QX, quarters really believe that ebb that performing we to very sequential the we as quite that of that as we're we flows real the had a to as are business. deployment believe that business. that especially charlesandcolvard.com the

traffic well. of is conversion sales. and kind to The rate as time it's too more increasing Now drive more

that. business pleased we're the believe by And So forward that the foot to properly. right we we're grow putting very

trends Great. And bit how little It a several gross if the for curious could then over you like a quarters? just the on set took of next quarter-over-quarter. seem of of does margin level margins, expectations step-down sort sort gross we

it or down of that margin speak understand us be quarter, drove revenue? that just help provide any the just that'd could quarter-over-quarter then sort whether you this And despite basis, to sort freight, go-forward a costs the first, of mix some would trends, maybe can on gross of commentary sort you higher those of inbound of sort helpful. sort drivers where be of So to of product

Yes.

margin is gross XX% in industry-wide, strong, So very opinion. my

of or look regard. that went is we happens to a XX%. some our for of forgo holiday from margin much margin to margin blended But business, creep have margin, the So as which kind sure, XX% category season, critical we the of cadence one to certainly, Collection, all points continue business. sales throughout certainly, because we the we some pretty we number in the that that kind the at kind Signature want increases overall grow in But

keeps So on Signature margins with up. healthy side, increase it actually XX% the

that very and consistently drive mistake, on next the So look on for believe percentage. we you'll as quarters you'll items of sure. can margin we're leaning quarters, look to more margin Signature, into us make that XX%, more the higher-margin We through XX% no to couple But that lifting margin. pleased forward our the with at

for just could me, last channel. in wholesale one if one on I And squeeze the Great. then

be unpack really wondered those you in you this more domestic some if Just and In that how could you a of trended? would trends in helpful. sort saw terms I'm the international revenue particular, sort That quarter. maybe that the retail of of distributor interested have versus just sort of of bit the

Yes.

So retail front, remains very on still strong. the domestic

consumer. are well for buying jewelry us we their beneficial option that have stores a to and lot that So certainly consumers of offering retail too the because at and as that

between international the difficulty between facing overall headwinds distributors kind side, our the having we still pandemic, of region. are there within On definitely the

headwinds us continue particular in of regard. to face that some you'll So kind see

in actually domestic Our pulled QX. distributors forward

so recall, me we with in to thinking increase ahead had us And and quite early plan a a in to But have Colvard, the capacity bit just to basis -- and operations the of increased due bought XX% business business. for that or off half sales -- a & that side is did which drop XX% the our and able in side. QX. more can for the Clint Traditional was distributor they the health you half domestic we mean, correct schedule had and CEO kind And me right of grow direct-to-consumer first revenue I ship ahead certainly there made-to-order year, direction. distributors or be to significant would the the get QX, on for little overall $XX at If proactively definitely the really businesses, pretty the But able increase year forecasting much we holiday. team for significant in the of as full because with the those that and nice. Charles our of very and as moving million of primarily and be I them the our half first in responsible look was year to kind our enough for it's for allowed of the of

the This I'd There are the remarks. over questions like Don no back queue. more question-and-answer conference to O'Connell for turn our any in session. to concludes closing

Yes, more we question have in. I do believe one

Capital. Eric BML Yes, we do. Landry from

the about marketing, The how level you should new expect are forward? that Or $X sort is that? sales here thinking million that going and we in of

still million in delivered want Well, and certainly, net $X.X top growth. operations to we income continue income. from million line We in $X.X

is line We're strong. So flow our still remaining bottom cash comfortable, strong. still is really

to the keep opportunity an envelope. pushing us gives that So

going of at this So but was This level holiday to quarter. to I not that continue grow, the quarter. we're and anticipate spend the would certainly maybe

of And keywords. and in as the grow diamond, there crowded for as in but months the at terms we quarters that this the point, grown players start the a it's a of and not lot lab crowded more getting sandbox space buying by. kind business more and kind it's and business to the was move search So the were go of

per spend anticipate your we will that $X million, us. steady, bit the with is come going pretty to continue quarter if point, holiday increase. that not because this not be and would I quarter a that the much click to cost for But it's believe that So that, little within to down

this to hear the the of indicating parts different business drive that Is CEO something more I it's that the Or you of taking old like correctly? is now -- So back if funnel, we the I if to correctly, than that did. or it are assumption? investment had correct the remember strategy you're

Yes.

So myself compare I that anyone is do past Company the actually strategy. This envelope kind started to to to wouldn't test offerings. marketing other grown campaigns. else. was Certainly, and to a the in Also we've the the space the done specific out-of-home is done didn't different We've offer the to some be able We've in of Company revenue driving quarter single of not see the pretty prior, diamond performing. strong. history what's product the lab highest in campaigns

top the without there revenue was the getting growth. the spend profitability. in the and We're Whereas we're without line past, getting revenue. So the the

result spending, past, the for diamonds in we in differences Also, where see the didn't where growth we're the we we're ROAs, do have we fundamental now. two where and and there, lab-grown opportunity So getting where the the getting business.

to we accretive that category. revenue category, product means and get we in that revenue want that go the after So to business can or additive

that we're and way see wouldn't and the of myself the and the kind along performing it forward I on different certainly, a the kind way I past. completely going. new solid growth too in over profitability of the way leaning the six to what well. is or management the change we're call as we'll where compare last way of Company believe a of kind all fundamentals So just But to quarters

I bit to profitable that. of least I great. I a don't sort next -- less the just be little know Company in quarter, than I hopefully, me now the going as But how to of the -- others but alarming, that appears into this, of That's the because profitability Traditional but the segment. frame at keeps decrease Okay. the along is quarters in few don't appreciate to forward, online chugging is perhaps going and for bit even was is, guess, which hopefully, And the pullback I going maybe it most a -- assumed segment it some

that Let's a talk little bit. about

they they have cash. $XX.X stability, strong So for, value what right? We They to we look to do very how the cash. in for look cash, we're growing right? million in know look So cash. investor, grow for cash, We're

stability itself still in or So profitability. is We're to million in a producing the $X that a really close factor million $X for business. quarter important

it to also million strong. deploy get have this $XX-plus we that in investor increase year the the We're well. capital as do now to the growth value fiscal past, into $XX where $XX-ish that's was going to million? from get How million company just to this So that last too to company to

where be. somewhere drive we and value to to to So between is that's unless And money not going Charles & be able Colvard growth. growth start is spend to going to happen

depends based. So then is spend? on for really will specific Absolutely. I conversion advertising much top get and a specifically different continue spend these a return type just mean, it levels, the we offering or channel But of we to products us channel. and how funnel the from on ad At

soccer still We'll new inventive do converting. but but it's advertising the still So of it's lower, do campaigns do to converting. mid- like top funnel, some we'll We'll championship.

a our type of those the associated along play occur there's are nuances the intend space, being the the way. with things in will awareness next quarter, those with in fiscally the in cost that that type growing and quarter. shareholders' responsible and didn't But all the are we of that prior So money campaigns, occur while business probably not to

that. wanted I dollars on appreciate these that spending. to ad I we're make return or just sure All getting right. Don,

Absolutely.

Ursaner Holdings. question next Jason from comes Our from Bumbershoot

profitability growth, grow now you've just sort In and it's on had, time I growth. to profitable follow-up. business. six last it continued quarters I and wanted the of think, call, the to guess on the answered you the Congrats your first in remark, of I the but question,

how see this to do terms last opportunity? the greenfield I and can grow, mean seizing in to time kind things a kind is is this that something obviously? you working of putting the feedback kind of spending? money is you you that How And keep question -- much working what's not are versus space can the on tell competition, quickly the is the it? if how the get of mechanism of towards time, So this and

Yes.

question. So I the Jason. thanks, appreciate

So -- and seizing moment. I the appreciate also

correct the So and is The now. that grown moving what's exactly very probably space. diamond right whole is is strong. our very, The for the time time is in strong nomenclature Lab industry happening. this to space lab It's it's grown very diamond our momentum kind get foothold for leaders a we've doing gemstone time what if Mined we become really in been Not our kind in Made, the of a industry, what long and do of is lead jewelry, better and than most. the forte one of which not and

in able time. can of campaign. it's we we able if believe certainly, see those data. to more we're able campaign almost visually whatever the We're arise, they that. spend see in the a and moment decisions. making is, that have we we're that But to moments to we So seize kind we data-driven react Basically, we'll campaign when And continue We're to to deploy to. have actually -- real it real-time performance

versus lab with feels difference the -- little with diamonds, just you it versus grown diamond, supply maybe you advantage in have where Moissanite between Moissanite brand about can different. the, I the talk And a guess, Okay.

space what it the building Or the path how different makes is the Moissanite? just have So lab-grown in versus, a I the brand specifically same? brand competitively, built in guess, historically, guys diamond you to

Certainly, We being certainly of that as carbide three leader. over me bring -- That's Yes. of market best sure. gemstones decades, quality to silicon the opinion. of it crafted in the well beautifully and the in as anyone the do of. three for believe that the in proud jewelry. couple now, for we We've leader am my a industry breed of for couple decades Moissanite a literally, the almost space, than been decades better We we're

to it's kind mix. As grown a of it lab relates diamonds, different a

and the pieces shapes opportunities So sizes. Moissanite that size it's shapes all different have Doesn't do. the and

us. do product style, increase of the looking it, and lead multiple in So we that's not as that diamond stones, upon kind down, quality we that we're believe with call we vertical, fact we're quarters well with believe sales small, of we for our be quite knowing we lane to versus that. that actually in basically gemstones aspect for have we course, crafted But a the beautifully year-ago because build to faceted. for because to and on to a design that had category jewelry we already position quarter, new a melee XXX%. talk it's our is consumer about And did breed is what And what are best last that that resonating those in that's early that significant basically in the it's market can us, that of lab and and that particular why bringing over of went kind there, a market, and consumers. of consumer the certainly, continue identified is we're we there we'll ourselves. And grown and regard. of we We're we But couple taking -- fashion

sandbox If We're to the until qualities the opportunity. low-margin kind specialize goods, in center the belt at larger prime position you a in of on. we our and the of us stones, play we a in and that inventory look related those letting the and we standard learnings our the kind focus due others under certainly above of what securing standard that's for some And larger the kind get now the lab in bit rest. of with increased is quality grown center that's being more a space little to

like no the are There I more Don O'Connell in remarks. would turn conference closing any queue. to to concludes for over the Instructions] question-and-answer [Operator back questions This session.

Yes. Thanks, Jason.

your appreciate next time Colvard. until time. weekend for your & have we in So Charles that, great With today. a you and Thank continued support

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