Q4 2022 Charles & Colvard Ltd Earnings Call
Hello and welcome to the Charles & Colvard Fourth Quarter and Full Fiscal Year 2022 Earnings Conference Call. Our participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions.
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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 the statement is made.
These forward-looking 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.
Further developments and actual results could differ materially from those...
to set forth in, contemplated by, or underlying the forward-looking statements.
In light of these risks and uncertainties, there can be no assurance that the forward-looking information will prove to be accurate.
Accompanying today's call is a supporting PowerPoint slide deck which is available in the investor relations section of the company's website at ir.charlesandcolvard.com slash events.
The company will be hosting a Q&A session at the conclusion of prepared remarks. Should you have questions you'd like to submit, please email IR at Charles and Colvard dot com. Please note, this event is being recorded.
I would now like to turn the conference over to Don O'Connell, President and Chief Executive Officer. Please go ahead.
Good afternoon everyone. Welcome to our fourth quarter in full fiscal 2022 earnings conference call.
Our fourth quarter fiscal 2022 revenue of $9.3 million represents the second highest for the comparable period in company history. In addition, we achieved a record setting year for our company, driving $43.1 million in revenue, the highest for any 12-month period ending June 30th.
This represents a 10% increase over last fiscal year and a 48% increase over fiscal 2020.
We attribute these positive results to our continued increase in brand recognition campaigns, demonstrating that our flagship Forever One Moissanite and expanded Cadia Lab-Grown Diamond product assortments are resonating with consumers.
On our transactional website, CharlesandCovard.com, Moistenite revenue grew 13% year over year, while lab grown diamond sales were up 173% year over year and 50% quarter over quarter.
revenue from our online channel segment continued to grow. Most notably,
Charles and Colvard.com experienced an increase of 24% over the prior fiscal year, from $14.7 million to $18.1 million. And, Moist9Outlet.com experienced exciting growth in its first full year of existence.
further validating our business strategy and underscoring the importance of our focus on direct-to-consumer initiatives.
Our Q4 margin was 41%, primarily related to prudent end-of-year inventory considerations and disposition strategies.
with our blended margin for the full fiscal year remaining strong, comped the last year at 47%.
Our gross profit was $20.2 million compared to $18.4 million last year.
cash flow from operations for fiscal 2022 was $600,000.
income from operations for fiscal year with $2.9 million as we concluded our eighth consecutive quarter of profitability.
So what does this mean? It means that we've demonstrated over the past two years that we continue to fortify the company by building our cash position to $21.2 million.
Bolstering our inventory position to $33.5 million.
maintaining a healthy working capital position of $29.1 million, all while growing our infrastructure and capacity, adding key talent, and optimizing our technology and facility.
including our innovative digital and broadcast studio capabilities and our very first signature retail store, all with zero debt.
I'll turn it over to Clint Peat, our CFO , to unwrap these numbers in more detail, and later on the call, I'll share additional insight on our results and updates on key
What?
Thanks Don.
Today, I'll provide a summary of key financials for the fourth quarter and fiscal year ended June 30, 2022.
Additional details can be found in our earnings press release that we issued this afternoon in our Form 10-K which we expect to file tomorrow.
Please note all percentage comparisons go to the year-ago quarter and prior fiscal year end, unless otherwise noted.
start with Q4 2022 revenue.
In total, net sales for Q4 2022 totaled $9.3 million versus $9.7 million, or a decrease of 4%.
Net sales for our online channel segment, which includes charlesandcovar.com.
MoistenantOutlet.com, Marketplaces.
Drop Ship Retail and other peer-pay outlets total $5.7 million for the quarter.
or an increase of 3%, now representing 62% of total net sales.
Net sales from our transactional website, charlesandcovard.com, decreased by 3%.
We believe due to the timing of Prime Day this year versus last year.
Net sales for our traditional segment, which consists of wholesale and brick-and-mortar customers, totaled $3.6 million for the quarter, or a decrease of 14%, representing 38% of total net sales. Net sales for our traditional segment, which consists of $3.6 million for the quarter,
Finished jewelry net sales increased 9% for the quarter as we continue to see strong demand for our premium jewelry on our online direct-to-consumer channels and with our brick-and-mortar retail customers.
Loose jewel net cells decreased 22% for the quarter.
This is due to the decreased demand from our domestic and international distributors.
Overall, international net sales increased 12%.
while cross-border trade sales on our transactional website, charlesandcovar.com, remain steady to the year go quarter.
For the full physical year of 2022, we reported $43.1 million in net sales, a 10% increase in physical year 2021.
There are two noteworthy highlights for the full year that I'd like to draw your attention to.
First, in our online channel segment, net sales for fiscal year 2022 increased 15% to $26.8 million, or 62% of total net sales.
evidencing our continued growth as an e-commerce driven business.
Second, finished jewelry net sales for the fiscal year 2022 increased 22% to $29.7 million for 69% of net sales, up to 62% of net sales in fiscal year 2021.
further distinguishing ourselves as a global fine jewelry company.
Moving on, we delivered a gross margin of 41% versus 45% in the year ago quarter, delivering $3.8 million in gross profit versus $4.4 million in year ago quarter.
For Q4 2022, in continued support of our growth initiatives, total operating expenses increased 14%. For more information about the smoke space, visit our website or our website at www.sh Hera.org
representing 40% of total net sales compared to 34% in the year-go-quarter.
Sales and marketing expenses increased 25% to $2.7 million and G&A expenses decreased 8% to $1.1 million for the quarter.
We reported net income for Q4 2022 of $41,000, or 0 cents per diluted share, compared with a net income of $8.4 million, or 27 cents per diluted share in the year-old period, which included an income tax benefit of $6.3 million, driven by the release of our deferred tax valuation allowance on our Net Operating Loss Carry Board.
and a $974,000 extinguishment of death related to our PPP loan, which was forgiven by the SBA in June 2021.
Included in net income for Q4 2022 is income tax expense of $34,000.
For fiscal 2022, in-contact expense was $519,000.
Our weighted average share is outstanding used in the calculation of diluted earnings per share for the quarter with approximately 31.2 million shares at June 30, 2022.
compared to 31.1 million shares at June 30, 2021.
As an update to our $5 million stock repurchase program, we announced in May 2022 during our Q3 2022 earnings call.
As of August 26, 2022, 273,257 shares of the company's common stock have been repurchased.
that are held in treasury stock for an aggregate purchase price of $356,122 and an average purchase price per share of $1.30.
As of June 30, 2022, we purchased 30,287 shares of the company's common stock for an aggregate purchase price of $38,164 at an average purchase price of $1.26.
Now, let's move on to Snapshot of a Balance Sheet.
Our liquidity and capital position remains solid as we have a quarter with $21.2 million of total cash compared to $21.4 million that our last fiscal year ended June 30, 2021.
Our cash flow using operations was $530,000 for the quarter.
Compare the cash flows provided by operations of $1.8 million in the year of the quarter.
Our working capital at June 30, 2022 decreased from June 30, 2021 by $1 million to $29.1 million.
In terms of other liquidity, we have access to our $5 million cash secured credit facility with JPMorgan Chase Bank.
which we renewed on July 29, 2022 for one year.
As of June 30, 2022, and through today, we have not accessed funds through our credit facility agreement. Now the Senate is
Inventory as of June 30, 2022 totaled $33.5 million compared to $29.2 million as of June 30, 2021.
Luce Jules' inventory was $16.2 million compared to $16.8 million as of June 30, 2021.
Finished jewelry inventory was $17.2 million compared to $12.3 million as of June 30, 2021.
to maintain stock levels for our growing demand requirements.
In conclusion, we are proud of the results we delivered, particularly for the full year 2022.
We look forward to building our success in physical year 2023 and beyond.
With that, I'll turn the call back over to Don.
Now let's analyze our results a bit more closely and talk about the company's key initiatives for Fiscal 2023.
As we continue to focus on and invest in increasing awareness and positioning our overarching house brand and Cadia Lab-Grown diamond products, we increase our operating expenses by 14% for the quarter and 34% for the fiscal year. We understand the growing need to spend in order to increase our impact in the lab-grown and creative diamond market.
The most recent industry research demonstrates that this market is slated to reach 10% of the total diamond market share in 2022.
This spend has been paying off as our strategic initiatives generated double digit growth in sales this past fiscal year.
Our sales and marketing expenses reflect increased digital and social media engagement opportunities to drive organic growth and awareness initiatives.
as well as increased resources to drive content development and subject matter expertise.
We continue to make strategic investments to funnel additional consumers to the brand by way of digital streaming, live direct response shopping and education.
We intend to continue to focus our efforts on these growth drivers during fiscal 2023.
As we continue to scale our operations, increase awareness, and grow revenue,
We are utilizing a data-driven approach when investing in the increasingly competitive digital advertising space.
By analyzing consumer behaviors, audience signals, and tapping into our rich first party data, we were able to target high-intent shoppers, enabling a strong return on our digital advertising investments.
Our inventory composition also reflects our continued reinvestments in CTHR.
Revenue from our patented signature collection, which features our iconic floret, increased 33% year over year and comprised nearly 10% of all jewelry sales during fiscal 2022.
Finish jewelry inventory which carries higher intrinsic value than loose gemstones for Q4 increased 9% from the prior year quarter as we continue to strive to become a leader in the finished jewelry and direct consumer space, further positioning Charles and Colvard as a leading fine jewelry destination.
This increased high quality finished jewelry inventory supports our influencer marketing campaigns, gifts for style editors, features on programs such as the Bachelorette and other awareness initiatives and we believe puts us in the best position to capitalize on our critical holiday season.
We've taken proactive steps related to our inventory in order to head off any unforeseen pricing pressure, logistics, and supply chain issues as we prepare for what historically has been our busiest season.
We attended JCK, the industry's largest market week this summer, in order to make product selections for holiday. Stay tuned for planned exciting product releases this fall.
In addition to expanding our online direct consumer presence via broader product assortments,
We've expanded online with some of our largest traditional customers, including Helzberg Diamonds, and have additional expansions planned for our brick and mortar business partners in time for holiday to support the growing demand in both channels.
We've introduced elevated lab-grown diamond fashion collections, recently launched our new high-carat conscious couture collection and pave lab-grown diamond collection, and have added our moistenite engagement and bridal assortment.
We've continued to broaden our assortments with our dropship retail partners and that business remains steady for the year, despite Overstock.com's exit from the jewelry and gemstone category.
We've introduced our moistenite outlet assortment to our drop ship retail partners to better compete with lower-end moistenite providers and capture a greater share of this wallet.
This strategy allows for cross utilization of inventory and resources.
I'm pleased to report that you can now find our moisture night outlet products on Amazon as well.
Recent meaningful Charles and Colvard press conventions include Brides, MSN, RetailMeNot, and JCK, which featured our lab-grown diamond jewelry on the cover of its summer 2022 edition.
We're further pleased to have recently secured appointments with style editors from Oprah Magazine and Brides positioning us for added holiday press.
We continue to drive awareness to our house brand and our transactional websites, CharlesatGolbert.com and MoistnightOutlet.com.
where we have the ability to control the narrative.
Revenues from these channels generally brings higher product margins.
which can help offset the opportunistic buys consumers are making as the economy constricts and also against the global geopolitical and economic uncertainty fueled by inflation.
We strive to invest in our brand to help ensure that Charles & Colbar remains top of mind under the current economic and market environment.
We intend to continue to invest in our direct consumer business and the lab-grown diamond space in order to become a leading Destination for all things made not mind. We believe these strategies are working.
Though up 2% for fiscal 2022, our traditional segment remained a challenge for Q4, as we believe both domestic and international distributors responded apprehensively to worldwide economic indicators.
This segment remains an important element of our business strategy.
The truth is, inflationary impacts are being felt globally, as well as across our industry.
And we are striving to mitigate these impacts by purchasing in bulk in advance while we establish consolidation points in order to further streamline and reduce our overall cost.
Regardless of the worldwide economic uncertainties, we feel it's critical that we invest in remaining top of mind for conscious fine jewelry consumers.
So we intend to continue to fund.
initiatives to help us capture increased market share.
We continue to invest in optimizing our Enterprise Resource Planning System and our distribution platforms and have recently upgraded our marketing automation platform and implemented SMS.
We continue to host successful live streaming and shopping events from our direct consumer owned properties as well as on social media platforms, allowing us to engage with customers in real time. We've crafted and monetized upon experiential relationships with customers through enhanced marketing capabilities, direct response marketing, and video technology.
Despite supply chain constraints, our own innovative studio in support of our direct response digital strategy, which we've been testing and phasing in throughout Q4, is starting to bear fruit. Our soft launch and our first signature showroom is scheduled for September , with a grand opening event planned for October , in time for the holiday season.
As we look forward to fiscal 2023, our key strategic initiatives are strengthening our brand presence, increasing awareness through marketing strategy, enhancing and expanding product assortment, and broadening our footprint.
We've been building our brand for the past 27 years and we intend to continue to lean into this initiative. As a live grown gemstone category continues to gain momentum, the need to differentiate ourselves and articulate our unique offerings becomes imperative.
Our focus this year will be on differentiation, education, organic growth and innovation, and we intend for every step we take in the upcoming year to be a step towards crafting a destination for all things made not mined and increasing our market share and overall brand equity.
We plan to maintain the commitment we've made to our customers to continue providing the highest quality of lab-grown gemstones and fine jewelry set with our Premium Forever One Moistenite and Katia Lab-Grown Diamond.
We plan to develop and present new proprietary collections and on-trend luxury styles that resonate with our consumers.
We intend to elevate the breadth of our current marketing to reach not only more consumers, but the right consumers.
This includes optimizing our paid media campaigns while also making a deliberate and meaningful push towards sustained top line organic growth.
Lastly, our goal is to meet the fine jewelry consumer wherever those consumers are shopping.
as we continue expanding our omni-channel brand strategy in the fine jewelry space in brick and mortar and digitally and through our strategic partners.
We are committed to growth from every angle and from the inside out. Growth for the brand as we work to sharpen our positioning and creative to communicate our commitment to redefining love.
growth for our infrastructure as we purposely work to scale the business and technology and operations to support it.
Growth for our product development as we demonstrate that conscious luxury is not only possible, but necessary. Growth beyond the traditional platforms for selling jewelry and into a world that prioritizes experience and accessibility for the new consumer culture.
growth for our own community as we evolve the Charles and Colvard culture for our team including philanthropic initiatives that may deepen our relationship with the environment.
We know that our conscious consumer is fast evolving their values and expectations and adapting to their needs remains at the core of our brand.
Listening to them and learning from them is a daily practice throughout the business and one that sets us apart. It allows us not only to own the May Not Mind movement, but to create a brand that is largely influenced by its community and anchored in love. With that, I'd like to turn it back over to the operator to open the lines for questions.
Thank you. We will now begin the question and answer session.
To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys.
Please limit yourself to one question and one follow-up. If you have further questions, you may re-enter the question queue.
To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster.
The first question comes from Matt Caronda with Roth Capital Partners.
please go ahead.
Hey guys, this is Rayhan for MAT.
So I just I wanted to talk a little bit about the gross margins It looked like they dropped about 400 bits every year Can you give any color on this and what are the main drivers for the change there?
Yeah, sure. So let's talk a little bit about the blended margin first for the full year. And we appreciate your call today. So 47% blended margin for the full year is comp to last year. And we're pretty pleased with the comp year over year. Certainly every business looks at, you know, the bottom line and looks at, you know, the drivers to move forward into the next year. So we did that in Q4. It's no different than we did in the prior quarters too as well. We always look at our inventory.
We always look at opportunity and this quarter we saw the opportunity to be able to pretty much move some of the legacy goods or obsolescence goods throughout the pipeline through a little bit more discounting and a little bit more incentive to that consumer. Also given the current environment and the economic conditions, you know, itís pretty interesting. We offer whatís called brilliant savings which is a little bit more down in the bottom of the funnel and also right before we decided to move into our Moistenite outlet broad.
solve those particular matters. Those are economies of scale. As we start to elevate the lab-grown diamond positioning, as we start to become more of a major player within the industry, we're being in a much better position to be able to purchase at a bigger level and capitalize on those positions. So also look to our inventory composition too as well. We'll start to plan a little bit ahead.
in the coming quarters to be able to solidify that pricing and the methodology moving forward. We do not feel that the margin of 41% is any indication of the forward progression. We just feel that it's just a...
a circumstance that occurred in Q4 and it's good business practice for us.
Thank you, that was super detailed and helpful. And then that kind of brings me into my follow-up question. How have the lab-grown products been performing versus the moist night products and...
How has that affected the overall AOV?
Thank you. Yeah, so another great question. Are AOVs right now remaining pretty consistent and very strong?
So our demand AOV is running between 1200 to 1300. We anticipate to push that up a little bit in the coming year as we start to expand the LGD and kind of our market share and awareness and the destination for lab-grown. Certainly a bigger category for us. It's certainly filling a lot more of the consumer needs for us. Moistenite still remains very strong and actually we increased by 13%, and really the growth right now for us is in the lab-grown diamond space.
So we anticipate those higher ticket values. And to the consumers, we've kind of answered their call in the lab-grown diamond too as well. We just launched our conscious luxury campaign and couture collection. We're finding that the consumer is resonating with a lot of the products that our incredible sales and product development team is bringing forward. This couture collection is higher-end items. We're doing a lot of different things.
full diamond carat weights and diamond necklaces. We're doing bigger, higher ticket items and those are resonating too as well. So we've just expanded on that and just launched that collection. So we believe there will be a nice blend between the consistency of our moissanite business and kind of that value proposition to that consumer that's targeting those particular items. In conjunction with the higher ticket items with the blended averages in the lab-grown diamond, we believe consistently we could remain the same. If not, I do believe that margins.
and the actual AOVs will rise.
Great, thank you.
The next question comes from Paul Johnson, Private Investor. Please go ahead.
Good afternoon. Can you talk more about the traditional channels? I think it's down 14% you said in the current quarter. And obviously we know what's going on at retail, but are you seeing any kind of normalization or is it continuing to be soft?
Yeah, hi Paul, great question. Our traditional segment is comprised of our wholesale distribution partners as well as our brick and mortar partners. From the retail side, throughout the year and even in this quarter, it's been very, very consistent. We've done a really good job and my sales team has done a good job in bringing new products forward, expanding those products, primarily in Helzberg Diamonds too as well, as well as Macy's.
The distribution kind of side of the business is absolutely where that shrinkage and that market is starting to.
kind of impact the overall look of the traditional segment. So the distribution partners are feeling some weakness within that category. International is also weak given the COVID constraints between the Asia-Pac market in which we were very strong and we had a nice position there. We have not been able to rebound that, but fortunately for us, it's still delivering the highest revenue at 43.1 million. It just means that we've been vigilant in overcoming those gaps and overcoming those weaknesses.
you know, kind of the future state will come from the direct consumer as witnessed in, you know, kind of our online business growing exponentially year over year.
So it makes sense, and it's a good thing that you've developed those other channels. I guess......
You know, obviously you are seeing high percentage growth in those new channels. And so we understand why the sjna has gone up that much but
If you look at overall, you know
SG&A went up $4 million for the year, just ended, and sales went up $4 million for the year, just ended. So looking on that basis, it hardly seems like a good investment. But I know what you're probably going to say is that it's well worth it because all that SG&A money is really going towards the new channels. And if they grow, particularly the lab diamond, then it will have been well worth it. And correct me if I'm wrong, I'll put words in your mouth. But I guess the bigger question is, is it worth it?
At what point do we start to see a little bit better return on these SG&A dollars? Yeah, you know, there's different types of philosophies, right? Some people get preoccupied with, you know, kind of that, you know, 40% of revenue is all, you know.
you know, on the total OpEx side, on the net income, and it impacts that. But in order to grow a business and find the catalyst that's going to take this company to another level, management has to make those really, really firm decisions in growing it and looking where that revenue is and looking where that consumer is shopping. In our particular case, in our digital spend, we believe that we've got a methodology in place that really defines the ROAS that's profitable for us.
And we know by our digital spend that our ROAS is working in that space. So the dollars represented in those digital spends are bearing fruit and paying off.
But as a business, we have to look forward. We have to think ahead. We have to build the business. So that means we need to bring in subject matter expertise. We have to bring in resources. That means we have to look to expand our entire marketing team and our entire capability. So if you recall, we've been building out a digital production studio. Now this studio, we believe, will bear fruit in the end.
designer and influencer.
campaigns, those are things that cost money to build out the future state of direct consumer. Whereas, when you are looking at our business, if you're modeling it over the past years, be mindful of the fact that the last two years under the new transition we call new management is considerably different both in revenue and profitability.
We were predominantly a gemstone company which required less resources to be able to run that business, whereas a direct-to-consumer brand or a lifestyle brand and a company that's trying to find its voice that separates us from the rest of the market, it costs us money and we're going to need to put that capital forward. I understand the investor who is conservative and wants to see some real nice things happen.
consistent growth with profitability. We are certainly of that mindset, but if we're looking to find a catalyst to move us to another level, to make our shareholders, you know.
you know, for all intents and purposes, to create higher shareholder value, we have to do something to be able to create that brand equity and that value proposition to not only the consumer, but to our shareholders as well.
to create higher shareholder value, we have to do something to be able to create that brand equity and that value proposition to not only the consumer, but to our shareholders as well. Yeah.
No, I appreciate that and and it is sort of a balance I mean one concern is how strong is our competitive position and grab grown diamonds given the size of the category and given that There are a lot of big players out there that that could spend tons more money than we ever could I mean, that's
You worry about that. Another fantastic question. And also there's a huge consolidation on the retail front, not only on the e-commerce side, but the brick and mortar retail. But I would tell you that the pie is tremendous, right? So it's in the billions and billions of dollars. We represent a small fraction of that. So we believe there's a tremendous amount of runway there. We also believe that the knowledge and skill set that we have internally is probably one of the best, if not, you know, the best in our category or may not mind category.
And we believe that the product and presentation that we're bringing forward is that we do have to build more awareness and campaign in that sea of all these big players. But we aspire to be in the top 10. I mean, that's really where we want to be. The big behemoths are there, but there's plenty of room. So you know, I had a call and this is just my opinion. It's not, you know, don't quote me on it. But I believe there's a few very strong players, but there's a tremendous amount of smaller one to $5 million players. We believe that our position overall in the jewelry space for the revenue at 43.1
and what we're creating within our studio, our ability to reach millions of customers in a short order is about to take shape. So we're excited about that, my team is excited about that, so we believe we'll build a broader audience and that consumer will come. So I would say- Well sure enough, I appreciate the color on that. Yeah, no problem, we appreciate call ball.
The next question is from Bittul Patel, retail investor. Please go ahead.
Thank you for the for providing the chance. So to your comments on previous questions, you know, it looks to me like a lot of investment that you are doing will be fixed cost.
It should not be repeated. So when when we look at Selson marketing when you look at setting a digital studio Is there a point where date of investment will slow down?
compared to the percentage of sales.
because it will fix investment
And if so, when will we start seeing those in the future?
Thank you, Vitol. We certainly have some incredible initiatives moving forward, so we'll continue to capitalize and make prudent investments along the way as we see fit to grow the brand and grow the business and grow our overall presence.
Certainly, a lot of the infrastructure that you're kind of alluding to and the costs associated with that have already been kind of in place. But we do have costs related to co-op advertising supporting our brick and mortar. So going back to sales and marketing side and the increase, as our brick and mortar partners increase, we certainly want to incentivize them to promote Charles and Colvard, promote our brands and increase our brand equity. So we do some co-op with them.
We also spent dollars, and I'll just shed a little bit of color too as well, on the U.S. women's soccer championship partnership that we've had this past year. So where we made all the U.S. women's soccer championship rings for two years. So those were dollars there that will not be repeated, certainly. Co-op will be, you know, as we consider, but that's all, you know, driven by the revenue. So obviously the success of our brick and mortar partners will increase our co-op support.
We'll have some normalization across the way. But as we expand our direct to consumer presence, and now which represents the bulk of our business, there's advertising, vis-a-vis other types of channels that there's a cost associated with building out a lifestyle brand.
Thank you. My next question would be, you know, really our business is mainly focusing on the discretionary spending and it looks like our business is going through headwinds.
with inflation and you know interest rate and all those things.
So looking at the numbers, even gross margin is on the downtrend, sales and marketing is on the uptrend.
So by connecting all the doors, when we say our inventory is little more than 33 and a half million dollar, shouldn't, or shouldn't we, should, will it be possible that it will, it will basically lead to write off inventory because of all the headwinds that business is facing? If not, why not? If yes, what are you, how are you trying to basically just discount sale or just do anything?
Thank you, Patil. So let's talk about that. So first I'll start off that Charles and Colvard, we have no debt, right? And we have 21.
keep it told. So let's talk about that. So first I'll start off that Charles and Colvard we have no debt right and we have 21 you know we're north of 21 million dollars in cash.
So $33.5 million in the composition of that inventory in comparison to where it's been over the years.
For us, we believe it's a great place to be. That $33.5 million and the concentration of that...
And the percentage that's in finished jewelry
which has a
intrinsic value associated with because the commodity is based on the market, right? So we believe we're very confident there. We believe that we did do a responsible write-off several years ago of obsolescence inventory that we felt that was not good for the company or good for our future. So the increase in inventory, don't forget we built a new business and a new business is in the lab-grown diamond space.
So as that business starts to grow, we have to support that. We needed to build product and merchandise to be able to drive that consumer.
confidence where we have it in stock and it's ready to pick back and ship. We also have SLA requirements for our strategic partners in brick and mortar. So for example, Helzberg Diamonds, we're in all of their doors and we have showcase representation in every single one of those doors. So that means whether we have six foot of showcase, four foot of showcase, and pretty much close to 150 doors, those dollars in inventory are there for that consumer right at that time supporting our brick and mortar partner.
Same thing with Macy's, we have to kind of deal with that too as well. Now if I can go back to the first part of your question, I do agree with you that the headwinds were there and are there and will be there, you know, as it relates to a specific economy conditions and economic conditions for the traditional distribute, you know, pretty much the distributors and distribution partners.
Our CDC and online business has been growing and our CDC online business has been performing quite well. And that's the shift and that's the direction we're going with the business. So as far as the inventory and a write-off and a composition, you know, we make those value-based decisions every single day. But we believe that the composition of that inventory is good, given our cash position, given where we are in business, and given where we are heading into the holiday season, that we need to support.
kind of that holiday which is traditionally our biggest selling season of the year. So we're positioned right, we believe we're in good shape. We could talk next quarter, we could have another conversation in the quarter after. But I certainly appreciate the commentary and. roof.
kind of that holiday which is traditionally our biggest selling season of the year. So we're positioned right. We believe we're in good shape. You know, we could talk next quarter. We could have another conversation in the quarter after. I certainly appreciate the commentary and the question.
Thank you and good luck. Thank you. Again, if you have a question, please press star then 1.
The next question comes from Sanjay Raigaga, Private Investor. Please go ahead.
Hi, good afternoon. I just wanted to ask about the signature showroom. So, Don, I believe on the last conference call in May, you had anticipated that it would be open by the end of June .
So could you just talk a little bit about what has caused the delay and has the cost for the forum gone over budget?
Don, thank you for that question. I will tell you, let me lead off by saying the good part of this answer is that it has not been an area where we've been able to monetize yet because we have not gotten the store open yet. The upside is that the store and the retail showroom will be open and opening soon and will then start to contribute to our overall revenue stream.
The unfortunate side of it is that supply chain constraints that are beyond our control between shipping and logistics of, you know, I'll be very candid with you and transparent showcases, also inspections from construction from the local municipalities, you know, we're beholden to them when there's inspections and when they have the ability to issue a certificate of occupancy to be able to kind of have our opening. So, unfortunately, that has been a little bit of a drag and
has been really the reasoning for the store not opening. Nothing more than that, it's very simple. And as far as the the
the cost associated and contributed with that, if you recall, you know, we talked about some of the household improvement allowances when we renegotiated our lease, so some of that was subsidized, so we're good there. And our costs have been right in line with expectations or where we anticipated.
Okay, thanks. And just a follow up on the loose jewels sales, they seem to be trending down quite a bit. So is that something that...
Is that something you're actively...
pursuing to reduce the percentage of loose fuel sales in comparison to the finished oil research.
Yeah, so those have been modeling or paying attention to our earnings over the last two years since the transition. Would take note that we had a reduction in our supply agreement with our strategic partner to reduce the amount of raw material that we were actually procuring and purchasing, which is in line with really the consumption, so that was a good thing. So we have, to answer your question, we have made a conscious effort to reduce the volume of loose jewels within the business because we're targeting more of a direct-to-consumer
and more finished jewelry is being sold as opposed to just becoming, you know, just as we were before Fryer, we were primarily just a loose gemstone company. So as that kind of transformation occurs from a loose gemstone distribution company into this globally recognized fine jewelry company, making jewelry, establishing new collections and assortments, that is by design.
Thanks, Don. I appreciate it. I appreciate the call.
This concludes our question and answer session. I would like to turn the conference back over to Mr. Don O'Connell for any closing remarks.
Thank you, MJ. We appreciate your time today. On behalf of everybody at Charles & Colvard, I just want to thank you for your continued support of and interest in CTHR and Made Not Mind movement. Thank you.
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right. I Again you