Charles & Colvard (CTHR) 12 Oct 232023 Q4 Earnings call transcript

Good day, and welcome to the Charles & Colvard Q4 Fiscal Year 2023 Earnings Conference Call and Webcast. [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.

Expressions that identify forward speaking statements are based largely on our company's expectations and are subject to a number of risks and uncertainties, some of which cannot be predicted or quantified and are beyond our control. Future developments and actual results could differ materially from those set forth and contemplated by or underlying the forward-looking statements.

In light of these risks and uncertainties, there can be no further assurance that the forward-looking information will prove to be accurate. a Investor slide company's Relations ir.charleandcolvard.com/events. is available which website call the in section today's supporting deck, PowerPoint is at Accompanying of the company at Q&A prepared The hosting of remarks. conclusion the session be will the a you please cthr@lythampartners.com. submit, like e-mail have any Should you'd to questions this being note recorded. Please event is

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

a fiscal weakened and fiscal welcome outlook our challenging to XXXX and financial everyone, quarter The impacted results afternoon, softening Good macroeconomic year. a fourth backdrop, consumer and greatly engagement call. conference our market and quarter

greatly We're raw these and not in these mine overall traditional challenges now not moissanite, heightened gemstone the and grown significant affected pressure created and have market pressure of trends downward for overall affecting headwinds pricing considerable our diamond consumption alone, as materials. diamonds entire lab now, on These put and Until business. both jewelry circumstances the pricing wholesale business on our have industry.

has margin gemstone and we cost, as supply go-to-market sales. strategy, us pricing experienced chain and to This and methodology softer reevaluate erosion our caused

In and for temporarily in IT in company's disrupted limited incident network addition, cybersecurity that the QX, we identified downtime certain late systems. some resulted a

evidence customer this as a incident. Our that result any investigation data revealed of no sensitive was compromised

to were Our threat relationship with our actors. customers negatively impacted the ransomware made has no payments been and not

fiscal incur related XX, year We have, some June the future our in however, continue incurred cost the to to cybersecurity ending of the costs and quarter additional expect in XXXX, enhancements first measures. to to

fiscal with company to manage growth opportunities remains strong, the over sheet $XX.X future free, the in initiatives. our cash quarter the remains of our making all debt continued out The challenges, while strategic support company these balance and Despite million. effectively. Closing year investments and and

highlights Day Father's QX campaigns we Mother's launched successful and notable both on Other include; for Day charlesandcolvard.com.

and a U.S. private and Weekly highlighting to as and New well-known in launched Knot, company's invite-only with expand charlesandcolvardirect.com. property, styles. from expanded York such hosted web jewelry, repeat We spring April NBCU, publications the customer The editors City unisex BXB to we influencers websites look we new showcase XX new jewelry base, in preview our owned men's fine As than our TODAY more and

Selling our assortment, signature our new selected moissanite loose Forever One We moissanite gems, and with unisex lab-grown bands jewelry Charles Caydia both by fine Colvard Forever and including lab-grown moissanite in collections, and assortment our on & maiden diamond color charlesandcolvard.com jewelry of fashion lab-grown One our styles categories, to expanded all moissanite and diamonds. and across in along collection and exotic diamonds retailers.

support an signature Midtown build June, ad our and Association's and Moissanite campaign in magazine. Las nontraditional establish partnerships in X launched Annual Selling vendors in in featuring Vegas with We fine showroom in customers our the of local jewelry. our assortments. brand to in promoting engage launched base awareness customer the Direct company's showcased Arizona by brand and growing new We and product further Conference our partnerships. the attended in & Scottsdale, Colvard drop-ship highlighted to June We We JCK Charles

items. XX% JCK, We moissaniteoutlet.com owned features a such us which seeking our The increased enabled on brand for greater and lower XX jewelry to outlets as in revenue quarter, and of The and consumers And fine Marie Reporter, notable placements capture the Magazine. appeared priced including share Hollywood XX Claire, AC market Brides, property those product by Knot

management is maintaining We competitiveness responsible landscape. economic challenging amidst inventory crucial for a believe

have of taken material diamond write and a gems. grade Given consumer and lab-grown down pressure, the raw seismic constrained pricing million to $X.X moissanite non-Forever shifts in and the lower we certain industry, One position demand,

support the our to at solid remained for Forever foreseeable The product level category One company's inventory demand deem the million, for adequate $XX.XX we future. which

procure more our material fluid that and are are and cutting proprietary to to our navigate ability responsibly. fastening methods We the technology as advancements environment needed SiC alternative confident in enable us

look the consumers a position holiday at positives and moment ahead, believe the look growth short-term. will headwinds to the better our take we let's we predisposed purchase. quarter been strongest that future beyond has approaching, industry in to us As fast season macroeconomic The for as historically are

have we to Our to proprietary with consumer and products the to QX brands by revenue resonate year continues XX% to compared the increase for a seek in offer, as signature collection supported X ago. differentiate we

value price quarter, points to order remains addition, or macroeconomic company's despite stable, the and that AOV the In been reflects backdrop. the fiscal which average we've able during year our maintain

value While we our Caydia gained the lab-grown and comparable will us, that growth significant have witnessed part composition an believe more offer XX% that attractive fine the periods, than overall moissanite the remain integral product quality as proposition looking for become will category price-conscious increase we a the jewelry to market to penetration by also believe consumer diamonds an of for it over continues products. our lab-grown business highest diamonds

and for counterparts, need demand as the way in their to to origin. channels our The products grow lab-grown come the only that capture responsive are diamonds mined Caydia into amplifies we to share seek consumers into the a understand existing of increased business the plays a wallet. greater lab-grown more being difference movement migrate our to hands, We diamonds lab-grown as diamond lab-grown that to identical believe our diamond

years than planning website, lab-grown more as ago. the for the the double of a surveyed, knot.com, to According their just XX,XXX centerstone, ring couple diamonds X/X opted wedding number X

$XX.X lab-grown XXXX. to these trends, double of diamonds are As a by billion expected to of sales result

proposition to landscape impact and overall the move between moissanite and we diamonds evaluate its competitive continue lab-grown and will our we the on business. As forward, value

top state, to invest brand, will our mind. current and to our responsibly our to Look adapt to technology. revenue products streams our We opportunities us of continue and make brand stabilize amplify and diversify seek strategically

initiatives. strategic our to upcoming like Now highlight I'd

to and innovate stay will categories streams. product to diversify XXXX, technology to deliver of company's awareness competition and services, the core revenue unlocking its fiscal products enhance continue new campaigns, the global ahead For its be additional brand to focus its

as awareness, specifically, to the we brand building relates we brand jewelry have it to continue been decades. fine global X strengthening for nearly plan More

As brand are will consumer reinforce decisions to continues factors we is providence. to Mined price, invest more important origin paid continue equity Made, we campaigns purchase shift consumers to and ever. driving believe and and beyond not landscape media trade craftsmanship the our than as in targeting the We

opportunities partnerships quest remain products line continue and will growth verticals will brands, steadfast growth with synergistic and also product our in messaging audiences. new diversify consumer evaluate our our We we offerings. product beyond Emerging influencers. designers will To brand sustained organic lines, for new with as resonates categories, with top current collections, data our and trends for to inform

We values. to and allowances practices explore sustainable our and will growth deliver fuel incremental strategic our core prioritizing shareholder long-term while value,

discover technology how consumers and evolving shape continues purchase. to Lastly, research ultimately

invest innovative will business. continue further to We and our in outlets. We technology investment predictive be believe and our our to analytics technology service to will strategically efficient in and customers that existing in in new maximize agile ability

selling experience products enhance We data. by to immersive our customizable consumer virtual actionable and fully will driven

broadening Expanding moat consumer, attract find digitally characteristics is to overall to and capitalize organic efficiently ability experience Fundamentally, technology our business consumers our reach drive interface growth. while leading-edge audiences, footprint to on continue position cost more market. to to our we'll while with each with controlling the is and effectively new strengthening to our our the broadcast customer streaming and Additionally, unique critical. while in ways directly the goal

primary is our comprised wholesale loose is and to segment channels to buying challenges open that the interact by that look XX% enable the the by channels, with in was their customer all shrinking will fourth of highlighted continue primarily points and new quarter. we This seek journey. at in wholesale shows part numbers As segment directly the a a traditional gemstones which along down quick design during at reason us our

and To with back building broadcasting, it, media streaming a announcement connected of Amazon consumers growth Pin of being Pinterest's partnership. opportunity Amazon's by today's strategic for is such environment leaders and TV, a step This this, the on Taking recent of believe meet we satellite technology shoppable, as a Live and achieve TV. for is linear announcement Shopify's live those this are we embraced platforms. an Roku social not company. familiar interactive with industry announcement to

of is billion X% annually along the Fueling TVs, makes these with and usage increased easier expected smart grow by shopping streamlined. payment alternatives, market to which the shopping The global $XXX more is by vast and to trends new via TV XXXX. TV size

shopping addition, offering categories this within product the by among XXXX. within market, and this vertical selling jewelry expected the In the largest be dominate several to space TV is

cable via and and shopping time year to diamonds and our TV Caydia Mined, an Moissanite to streaming of holiday households. beta shopping our to this introduce YouTube, Forever weekly ideal initiative going lab-grown interactive broadcasting, by live million not select of excited Facebook, content, over We're LinkedIn our on potentially to Made is debut. XX providers highlighting Made, believe of season One the We millions phase satellite households

enhance believe accretive destiny infrastructure in utilizing resources and business control a our perhaps new opportunity our verticals. opportunity, existing be will we existing channel consumers we to as addition, this In our and view different our as to this growth meet and

our enhancing the we affected the While by elements disruptions, pricing in growth our negatively initiatives the campaigns, years strategic come. diversifying innovating measurable been our operations will product technology to categories brand our and help of macro awareness of global and have economy our believe drive

Clint provide into turn performance. presentation the will I now over financial to QX's CFO, detailed proceed. our insight Clint, please Pete, to

a summary ended XXXX. June Thanks, for of the fourth Don. financials key provide I'll Today, XX, quarter

our Additional June and note be the XX-K, to that afternoon which are to this release all Form XX, comparisons in percentage file XXXX, Please quarter issued expect evening. we we press details earnings unless otherwise. fourth that ended specified can our this found

ago, is for year of XX% X of primarily the sales down sales moissaniteoutlet.com, million XX% pure-play up in to a $X.X the quarter First, compared position customers of decrease of sales drop-ship and In finished sales, segment, further direct-to-consumer as now XX%, brick-and-mortar total, million, the jewelry total fourth our period direct-to-consumer in X we'll strategies, million sales XX%, the $X.X sales quarter, sales for due Slide the for ago. XX% of a includes XX% decrease many to ago primarily representing of of mentioned. Net $X.X while net and part the other XX% totaled totaled domestic XXXX or net in overall due represented decreased of X economic our marketplaces, now sales, quarter. Finished channel jewel with the XX% total factors XX% the through consists segment, of million jewelry charlesandcolvard.com, the comparative international inventories the totaled versus fine net jewelry charlesandcolvarddirect.com, we analysis ourselves which net net shift for year quarter calls, of on total from in year we as but reduced online traditional net to QX from same in XX% sales and retail the forecast quarter, XXXX decrease Don for year wholesale $X.X for quarter quarter which start representing in softer fiscal the a decreased distributors the for their and outlets, XX%, sales environment. mentioned market. Loose X and of towards fourth from previously quarter, ago. Net prior and or up our

net in by jewelry the the geography. Nearly were derived opportunities, in reported remain were sales net company in jewel Direct-to-consumer jewelry sales the sales finished evidenced loose net the and $XXX,XXX. fourth international finished as impacted all the at sales. Looking U.S. particular, quarter while sales in in lesser in by only which less channels online to our somewhat decline segment, were traditional and core quarter the

in value Moving non-Forever impacted QX and XXXX in gems, our The positive gross a $X.X inventory versus to One $X.X margin write-down constrained quarter. reported the XX% below year million or margin a certain quarter the a realizable pressure carrying of primary ago in current Moissanite gross to demand gross gross a XX% diamond margin gross of the loss falling ago grades driver of raw pricing net of We margin. negative the this as and lab-grown million is Slide negative material costs. consumer and for versus in million year X $X discuss gross profit

or in XX% a QX expenses expenses For compared total in XX% increased representing million for year quarter expenses ago in of sales top-of-funnel net awareness total increased G&A million and our the of XX% quarter. million the to year brand XX%, XX% were ago increase. compared operating $X.X $X.X Sales the $X quarter XXXX, initiatives marketing to to and support

million reported to compared the year-ago a upon of XXXX was For per to net The will million or that in $X.XX bad net or us of brand of expense build sales and net G&A increased and increase earlier our to access main legal to primary our and marketing, $XX,XXX in invest a noted loss large have loss $X.X in for $X.XX drivers incurred allow income the believe in loss direct write-down $X.X inventory diluted for fees. brands in due to share QX support and we initiatives marketing for share debt XXXX per continue in marketing. top-of-funnel we We increase was diluted a earnings expenses period. The awareness QX an and part consumer.

share a for ended XXXX period quarter for XXXX. shares weighted on to compared outstanding in million loss XX, June shares XX.X average for million shares diluted the XX.X calculation XX, the June used per ended period approximately or the the basis Our of

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

capital and Working the of $XX.X million million total the remained XXXX. strong with cash quarter $XX.X million. strong remained as XXXX, ended end capital of XX, at third we the as liquidity March XX, million quarter position ended of at to Our and $XX $XX.X June compared

company to addition, In the continues debt-free. be

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

in million to Bank, other XX, with of another of terms facility we In secured our sources was XXXX. Chase have credit renewed liquidity, for access year $X which JPMorgan cash June

due $XX.X inventory of have through jewels write-down write-down to credit loose June to funds our XX, not at through of million jewels totaled was inventory. compared June was million. Loose due compared June jewels the XXXX, as XX, Inventory March a today, March XX, was $X.X June accessed June of reduction previously As XX, of facility million inventory XXXX, XX, agreement. as again, $X.X Inventory we mentioned. $XX.X to at to XXXX, million XXXX, inventory XXXX, million of XX, million $XX.X Loose all XX, as of XXXX, as the was XXXX, which and to $XX.X million. related $XX.X inventories nearly

focused March of Finished $XX.X in of XX, maintaining a a $XX.X channels, above million end remain million compared agreements. June higher management rates and the as With jewelry year to towards as XX% of our described allowance while that, forward. Finished I'll XXXX, percentage at $XX.X XX, June to to diligently meet jewelry service of share, per share inventory FY while going in support earlier value of XXXX. In reduction it finished inventory showing in-stock million. level the demonstrating growth XX, jewelry quarters our due was of XXXX, and XX, over as my to our was to strategies solid advancements remain Plan per on cash inventory $XXX,XXX, XXXX, online valuation our business QX prudent $X.XX of sell-through Book the XXXX Don. at tax a direct-to-consumer initiatives well technology as summary, the in back management as in ongoing turn and and sequentially losses I was brand the lower further our of XXXX, the deploying and comments we and over steadfast June capital cumulative write-downs that to awareness. quarter

our In year, conclusion, company. throughout about Clint. of the optimistic fiscal future headwinds remain and the you, full despite excited we facing Thank the

While we acknowledge the challenges we've encountered.

progress believe also We will enhance initiatives implementing drive made we overall have strategic significant and in performance. growth our that

leveraging are strategies forward, capitalizing new our and Moving strengths, refining we committed our on opportunities. to

overcome in positions and us our the with us have for with team, proactive for measures, encountered coupled a future. believe will brighter years. way our obstacles unwavering combined enable dedicated paved firmly success coming that to determination the the innovative our we We well Our approach

emerge lines time, over stronger our challenges, this these business the We who the are we back valued confident will questions. I and stakeholders value long-term continued for operator, ever. At and yield call to our any will create in and and trust to their for strategy will the long-term extend for our will favorable results our we our company. navigate investors, We shareholders. believe, employees turn support Together, than gratitude open

[Operator Instructions]

from This to questions is Adam to Partners. going a team. pose Sarah. I'm Lowensteiner Lytham management few the

Adam, Sure. ahead. go

do you Made Don, going? see company Where Clint. the streaming, Shopping,

bringing up. Well, for that thanks

they buy the into broadcasting phase, about beta streaming look learned shopping and be be experience, also and we're we've Made able be in those DirecTV streaming, to allows us they products shopping and bring. anywhere buy and standpoint And So interactive Facebook, a offer from the offerings we direct broadcasting, like either conjunction the stream cable, which the give it and LinkedIn, but we're that of either that to demographic going Shopping, they're and from them data target allowing able is also, week a geo-target where us basically, are, are diverse able consumer them or satellite that, across with be whether we're digital where gather learnings customers. and we more to cable providers, opportunities ability to be to type YouTube, shop side also different and mediums right a of response-type Made want, see spread those able the our in customers that located the to our wherever to want click through to Instagram, they we're to kind to the there. In to product where and through

moving we're mean, a really interested, madeshopping.com. and we really beautiful now, forward, I those anticipate great believe ahead right broadcasting signal. broadcasting we're moving for actually A and that So show.

find us, us streaming. find can you could You

Also show really, about well. And state-of-the-art, best we're noise we an to marketing, It's can answer way as the We per and streaming to probably So going reach different the showcase just product a we've XK, we way go the out it's and look out. been in to can it's pretty bigger, this competition also that before. we we're really there just our our too think a And if what be brands, able product best enabling in XXXXp up us click we're believe and that's to believe of expensive audience. and of navigate you the performance cost initiative. all to HD. this able there, another technology. never putting of the broader that do like this new producing at We're quality clear incredibly the you producing excited showcase is other in and

we For it. what example, the developed consumers And One this moissanite. it to educate in is consumers equity brand market. and innovated know that let to really Forever We they're for. that why content long-form actually those create looking us better all premium to and the to along We that's it it. they created enables We brand with the it. We that much brought need can to need shopping advantage comes competitive show with way be as our the and a

certifications, example, lab-grown sensitive, the order, like price pricing For the will that separate perspective. that, very is very across short it's down different very board your coming the it's and the on us in also diamond a for lifetime everyone. from market, moissanite things And and gemstone, warranty space crowded and

diamond brand I word, that, Adam. But is be can't to symbolic -- able means sorry is believe bring diamond. -- So our which we pure so in pronounce Greek forward, that think symbolic so in Cay some we need about I -- to Caydia, own

And lab-grown way where to are leader are far gravitating incredible a bringing to more and and beautiful the we diamonds as physical our out designs. in customers brand diamonds brands. as pure we're push same that need to we're space, market order concerned, we lab-grown be in So our believe in them through a properties, to chemical

for Made for So different a in light. stay Stay bigger tuned tuned footprint. a much seeing

to brands And enable offer and also brands in the will us network stream. or able Made to bring be brands shopping those this to the different to able Shopping those be forward highlight

believe out we and primarily but the us I brings enables lot how that with shareholders for that's a limiting just the a to aligned in a we just company, to get much that jewelry, and I we that bigger fine to way, as Colvard. with aligned but to not So more and there. Charles to & grow what was long-winded, brand anything believe figured value know and out stand

in the appreciate I revenue decline wholesale a Was color. the surprise?

quarter-over-quarter been Well, more that kind pushing we've we've diluting of been direct-to-consumer.

yet, part the make that's them. And lab-grown is us. of business for support Helzberg can a of fact, didn't that wholesale moving strategy of that announcement not we and diamonds very we to in our did not we launch the say matter statement to ahead brick-and-mortar partners And dear and press are go I but top make and mind as the Now forward brick-and-mortar the our heart Caydia stores.

in to X.X is our So we basically so our partners. continue segment wholesale We'll very just launched that brick-and-mortar ago, weeks still support strong. brick-and-mortar very,

I talking wholesale. wholesale becoming top, as because downward remarks is. the down I also been the the prior But moissanite on XX%, of nearly I It about diamonds quotes. industry On we side, that the secret dropping about everybody the the has pushing actual pricing. drop I could alluded be a the And is to downward a starts in believe talking facts the diamonds declining a natural for that downward the and problem, pushing from lab-grown right? we've can pricing. market into So and moissanite pressure that been XX% pressure no the it's on my on it's natural on get in because believe mean, of number

Direct, and our on & here, looking in launched beta. the business looking wholesale need here. we Charles our recently and to at we in then that's strategic to is the also partners have model. And we and distribution bit more need maybe kind and with maintaining in Maybe just while been need focusing closely brick-and-mortar about and presence okay, Direct, what key brand, them on our Charles saying, our of Colvard spoke is Colvard at we So consolidate brick-and-mortar, little the very within & strength all also, direct-to-consumer, to that do supporting we customers our what a so over quarters doing we just

a and independent of that goods select competitive outside amount basically can are on them give have certain One. that better more of we Forever we direct relationships and have the So pricing with retailers be quality we that

we automated to the to becoming wholesale is brand process So our this all consumers that able categories. with an that's be all could support believe right entire really be solution direct-to-consumer in meaningful, market. But to products, a more a now, all resonates focus pushing in

that? do analyzing for how we We do located giving purchase. that So through do do We looking through and this new it customer customer streaming they're that to that is what technology. where

And no okay, we So the because really very x be by wholesale make that have to quarter-over-quarter in mistake, important again, and is declining say, something this believe us, business. for difficult now could the side, wholesale we decline it's report to that's the percent. of it's significant and given number

some anticipate to lab-grown as But more pushing in additional then in on strength expand keep product well. continue more more that the we introduce the direct-to-consumer. brick-and-mortar going long we we'll side, reality to brick-and-mortar to partners as And too decline is as to diamond we some strength as the it's brands

for. answer -- you what hopefully, were So but it covered again, I long-winded there, asking

going Will move less lab-grown should diamonds, towards lab-grown the moissanite build inventory? investors you the and Given forward? more company's view diamonds how

question. That's a great

ample or has come support anybody business carbide years, this a a write-down future. overall silicon maintained accumulated have inventory we've history, it's and agreement been the our But significant over much little for we That tracking our as in we earlier, inventory -- the bit solid I amount or that different of moissanite we've we down following our inventory. strategic that did. through a the that And than through business. company a pretty if business, just foreseeable down inventory the has supply had a to comfortable We're has diamond pretty So recently partner. with said

buy from and able lab-grown in alliances we're material our the business, more readily community, So the vendor partnerships there's that's and just market relationships in diamond the and time. strategic much available to in with so

getting scenario Now wasn't and large there due believe that's move early and where that offer early lab-grown was it in side, the pressure for market to part the material is was the today. to of pricing not to to that great company, bundled market of consumer. But some that we there pushed on space was we really difficult from lab-grown intense the write-down, and say was which to the choice our the the up that entry days now in into down a the

that full this year-to-date year, we So as then worth purchased in and what understand that then of can did the which we at we'll and diamond the anyone lot year-to-date, we're for you -- there. look look as believe that our in the time we but write-down, our material, agreement, options consumption was. you we if just weigh to just $X.X of million the a purchasing far that, look at of kind needs. And with the position great a inventory in of on But supply if of consideration wants to back moissanite, material, consumption continue have but not our kind from

material. had all that our of believe foreseeable we plenty servicing We of So any it is all Forever that more needed One, customers, for We're beyond. future of the pinnacle to the and material. and the we feel and be didn't we so will needs, continue

to O'Connell closing I conference would Don back remarks. Instructions] the like for any turn [Operator over to

and with to and forward Thank like progress in in sharing our to future. company. belief you We everyone our and you, achievements Sarah. thank else you the continued for look attention your I'd

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

disconnect. now may You