Q1 2023 Brilliant Earth Group Inc Earnings Call
Okay.
Good day, and thank you for standing by and welcome to the brilliant Earth first quarter 2023 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star.
Our one one on your telephone.
Then here an automated message advising your hand is raised to withdraw your question. Please press star. One again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Allison Malkin of ICR.
Thank you good afternoon, everyone. Thank you for joining us for our first quarter fiscal year 2023 earnings Conference call. Joining me today are Beth Gerstein, our Chief Executive Officer, and Jeff <unk>, Our Chief Financial Officer for our call.
Today that will begin with highlights of our first quarter financial and operational performance and update the progress we have made on our strategic priorities.
Jeff will follow with more details on the quarter and share our outlook.
Following this the operator will begin the Q&A session with our presenter at Jeff and Jeff available can answer the questions you have for us today.
Before we start I would like to remind you that management will make certain remarks today that are forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995. These future forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially. Please.
Please refer to our SEC filings for a description of the risks that could cause our actual performance and results to differ materially from those expressed or implied in these forward looking statements.
These forward looking statements reflect our opinions only as of the date of this call and we undertake no obligation to revise or publicly release the results of any.
Revision to these forward looking statements in light of new information or future events unless required by law.
During this call we will discuss both GAAP and non-GAAP financial measures you will find additional information regarding these GAAP financial measures and a reconciliation of these GAAP to non-GAAP measures in today's earnings release, which is available at the Investor Relations section of our website at <unk>.
After that Brian our dot com.
A live broadcast of this call is also available at the Investor Relations section of our website and with that I'll turn the call over to that.
Good afternoon, and thank you for joining us today to review our first quarter fiscal 2023 results. It's been a good start to the year with our performance, reflecting the continued execution against our near and long term growth goals with an unrelenting focus on building our brands growing our share in a dynamic and <unk>.
Really fragmented market and delivering ongoing sustained profitability.
I am pleased to report that in the eight weeks since we shared our yearend performance. We are reporting first quarter results today that have again exceeded our expectations. We're pleased to deliver these results in a macro environment that has remained relatively unchanged from just two months ago.
Highlights include revenue was $97 7 million, which represents minus 2% year over year growth and a 27% four year CAGR.
Gross margin was 54, 9%, a 480 basis point increase versus Q1 2022.
And we delivered adjusted EBITDA of $5 $5 million or a 6% adjusted EBITDA margin.
For those of you who know brilliant Earth, you will recognize the consistency of our mission driven focus to disrupt and transform the jewelry industry.
To extend our lead as the jeweler for today's consumer as.
As I said on our year end earnings call our priorities for 2023 will remain consistent.
To continue on our path to become the Premier Global jewelry brand for today's and Tomorrow's consumer driving awareness.
Didn't and relevance to.
To expand and refine our product offerings to create distinctive high quality products to.
To expand and elevate a seamless omnichannel experience across our showrooms and e-commerce.
And to invest in the technology and systems to enable our growth.
Today I'd like to touch briefly on a few of the first quarter drivers of our performance against those priorities.
As always it starts with our brands.
For us sustainability transparency and inclusivity are embedded in our DNA and we aim to reflect them in the product and stories that we share with our customers.
As we do we see growing awareness and share gains for our brand.
In Q1, we grew our share of voice with 85% more media impressions than last year by featuring our trend leading product with Influencers like Nick file from the Bachelor who shared his proposal with a brilliant Earth ring with is one 1 million Instagram followers.
Or singer songwriter Kelcey ballerina wearing brilliant earth at the grammy's.
Our ability to execute milestone moments with our distinctive product and social and cultural influencers.
Our reach has the largest single brand independent jewelry company in the U S. It is also elevated our position to be among the top jewelry brands for share of voice.
And our most recent brand survey.
<unk> brand awareness with our demographic grew to 66%. This is a 12 point increase from our measurement approximately two years ago and an indicator of the continuing success, we've had in engaging with our millennial and Gen Z target audience.
Over the past many years word of mouth recommendations have been primary building blocks for the brand. We expect that to continue while we also expand the channels platforms and people that amplify our voice and bring new consumers to brilliance.
<unk> seen expansion of our reach reflected in our total customer growth as well as growing fine jewelry self purchase rates one of the biggest moments in Q1 was of course Valentine's day.
We take tremendous pride in our ability to capture moments of celebration and love for our customers and what better example than Valentine's day.
Our heart time and assortment generated strong results, along with our expanding assortment of personalized and customizable products.
And as a result for the Valentine's day holiday gifting period, we generated approximately 70% year over year growth in fine jewelry orders.
This is sustainability transparency and inclusivity are core to our brand. So too is the quality craftsmanship and uniqueness of our product.
Our partnership with Steph shop founder of future Earth is a great example of how we bring those principles to life with beautiful and meaningful product.
This Earth day together with staff, we launched a 10 day campaign to advance our shared mission. In addition to educating our community about small steps they can take toward a more sustainable Earth. This partnership highlights what makes our fine jewelry special we use recycled precious metals and ethically sourced and sustainably created diamonds and gemstones.
To deliver on our promise to provide beautiful unique trend, leading and coveted products to our customers.
This builds on our already strong bridal offerings customers recognized <unk> as a leader and innovator in bridal from the new trend, leading and proprietary designs, we create to the varied entre in fancy shapes and broad selection of natural and lab diamonds across all budgets.
In Q1, we launched the music collection exclusively available at brilliant Earth fare.
Further reinforcing our design leadership with distinctive engagement rings and wedding bands as you've heard me say often bridal is a highly resilient category, even as we know we're coming off an unprecedented period for weddings.
We anticipate some normalizing throughout this year, we are quite confident in our ability to continue to grow both demand and market share as we are increasingly recognized as the go to brand for high quality distinctive bridal jewelry.
As planned we started the year with openings of six new showrooms in Charlotte, Brooklyn, Tampa, Pasadena, Nashville, and Fairfax, bringing our total showrooms to 31.
The overall sales uplift at our Sharon's generate when we opened in new markets is of course, an important business driver and we've continued to see strong performance, including a year one post opening metro bookings uplift of approximately 100% for showrooms open at least one year.
Chevron's are also an important part of our overall brand building efforts take Brooklyn. For example, we had our eyes on Williamsburg in Brooklyn for some time as we all know that it's a vibrant community and our data suggests it would be a great market for us given its popularity with Gen Z and millennials.
We opened in a great location on sixth Street, which is a popular spot for other luxury retailers and DTC millennial focused brands.
Opening weekend was a huge success as our appointment schedule was 100% booked and we've had great early response to both our bridal and fine jewelry collections as.
As we progress through the year you can expect that we will continue to test and evolve our showroom concept and executions, including new formats, such as mall based showrooms and evolving the overall customer experience.
We're on track to end the year with at least 35 showrooms in total.
As a digital first company our success in scaling our Omnichannel model is fueled by the investments we continue to make in the technology and systems that will enable our growth as well as our continuous.
Learn and iterate approach, our agile development cycle allows us to release, new features and functionality every several weeks, including features that enhance our ability to adapt and individualized customer shopping experience to their preferences.
Ongoing refinements to curation, and personalization and our ever improving and evolving E. Commerce experience. These all reflect our obsession with the customer and in turn our commitment to providing the most personalized and joyful experience for them.
I'll close by reiterating how pleased we are with our start to the year and by thinking our team and expressing my confidence in our team's ability to continue to execute both our near and long term growth plans with mothers' day only three days away. We're excited to help our customers celebrate a great mother's day.
Thank you for your continued interest and support.
Jeff.
Thanks, Beth and good afternoon, everyone. Thank you for joining us today to discuss our first quarter fiscal 2023 results.
As Beth mentioned, we are pleased with our start to the new year with the delivery of first quarter revenue and profitability ahead of our expectations.
Again, demonstrating our ability to operate the business in an agile fashion.
We are particularly pleased to report these results macro and consumer environment that remains relatively uncertain.
Let's talk about our priorities for 2023, and our focus on continuing to expand the reach and resonance of our brand while also delivering healthy sustainable profitable growth.
Today's results reflect those efforts.
In the first quarter, we reported revenue of $97 7 million, a 2% decline year over year and growth of 27% on a four year CAGR basis.
This result was better than the expected range, we communicated on our Q4 earnings call and is consistent with our expectation of continued year over year order growth.
For the quarter was approximately 10%.
Offset by an anticipated decline in iOS.
Which for the quarter was approximately 11%.
I am pleased to report that we also continued to deliver robust gross margins.
Q1, gross margin expanded 480 basis points year over year to 54, 9%.
Consistent with prior quarters, the sustained strength of our gross margin illustrates how our agile asset light data driven business model allows us to nimbly adapt to dynamic market conditions to optimize both margin and revenue.
This better than expected expansion was driven by the continued growing resonance of our brand. The differentiation we provide in our product offerings that are increasingly well received by consumers and ongoing benefits from our price optimization engine procurement efficiencies in our supply chain and our enhanced extend.
Warranty program.
SG&A for the quarter continue to reflect our investments in growing the brilliant Earth brand.
Expanding our omnichannel reach including through our showroom rollouts and in scaling the business.
For the quarter SG&A was 55% of revenue compared to 44, 8% of revenue in Q1 2022.
With approximately 270 basis points of the change driven by expenses that are added back in our presentation of adjusted EBITDA.
<unk> based compensation.
Pre opening expenses, depreciation and amortization and nonrecurring expenses.
The remaining approximately 750 basis points of Q1 year over year change in SG&A expenses are as follows.
Marketing cost as a percentage of sales grew by approximately 330 basis points year over year.
Our ongoing investments in building the brilliant Earth brand continued to pay off in terms of growing awareness and demand for brilliant.
Particularly as we continue to reach new customers with the expansion of our Omnichannel strategy and growth of fine jewelry.
Keep in mind that we continue to manage our marketing spend dynamically to balanced marketing efficiency, while growing our brand.
We were pleased to realize strong brand growth, while managing a sequential decline in marketing as a percentage of sales for Q1 2023 versus Q4 2022.
During the quarter employee costs were higher by approximately 260 basis points year over year.
As we discussed previously we remain disciplined in our approach to investing in new employee growth to support our showroom expansion as well as key corporate talent.
Over each of the past three quarters, we have reduced the year over year deleverage in employee costs as a percentage of sales.
Other G&A as a percentage of sales increased by approximately 160 basis points during the quarter.
Driven by higher technology expenses to support our growth and rent associated with our increased number of showrooms over each of the past three quarters. We have also reduced year over year deleverage in other G&A as a percentage of sales as we have anniversaried, our public company operating costs and maintain a discipline for.
Because on management of G&A expenses.
Our strong gross margin performance together with prudent management of Opex in Q1 contributed to us exceeding our adjusted EBITDA expectations.
Deliver a Q1 adjusted EBITDA of $5 5 million or 6% adjusted EBITDA margin.
Our profitability and capital efficient operating model continue to differentiate us among direct to consumer companies.
We ended Q1 with $146 million in cash we continue to maintain a strong balance sheet with no net debt.
And we operate the business in an asset light fashion with efficient working capital.
And our inventory turns are among the highest in the industry.
As we've mentioned in the past as we successfully expand fine jewelry to be a larger part of our business and grow our showroom footprint, we do anticipate our inventory model will evolve to accommodate those needs.
That said.
At the end of Q1, we reported our second consecutive quarter of sequential decline in inventory as we continue to tightly manage our inventory and the data driven fashion.
As we have said our plans for 2023 reflects the priorities outlined earlier, coupled with our clear and focused commitment to delivering profitable growth.
As stated in our earnings release.
Reiterated our annual guidance, which reflects our ability to gain share in uncertain macroeconomic environment.
Our guidance continues to include our expectation that full year 2023, net sales will be in the range of $460 million to $490 million.
Which represents 5% to 11% growth.
Fiscal year 2022.
Four year, CAGR of 23% to 25% and a four year stacked growth of 128% to 143%.
We do anticipate higher year over year revenue growth rates in the second half of the year as we lap lower comparative growth rates from the prior year and continue to see success in our showrooms and the performance of our fine jewelry assortment.
We expect the distribution of revenue in the remaining three quarters of 2023 to be generally consistent with the shape of these quarters in 2021, which was representative of our historical seasonality pattern with a slightly higher second half weighting compared to 2021, given our outsized growth.
In fine jewelry and expansion of our showroom footprint.
We also expect to continue driving strong gross margin performance, while there may be puts and takes in any given quarter. We expect to continue managing full year 2023 gross margin towards our long term gross margin targets in the mid 50% range.
As I said last quarter, we were planning to exit 2023, driving year over year leverage on a run rate basis in adjusted SG&A as we continue our focus on driving sustainable profitable growth.
Our full year adjusted EBITDA guidance in the range of 17% to $32 million.
Also remains unchanged as we expect to continue prudently managing investments to gain market share while managing the business for profitability.
In closing on behalf of Beth myself and our entire team. We thank you for your support and we'll be happy to answer your questions.
Thank you.
As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please limit yourself to one question and one follow up and then re queue for any additional questions.
Our first question comes from Oliver Chen with TD Cowen You May proceed.
Hi, Jeff.
Jeff nice quarter on the quarter itself.
Which factors led to a better revenue or what was underlying some of the better performance there and as we look at our our model the expected <unk> decline and what's assumed in terms of guidance.
How that will evolve as you continue to succeed in Ensign and <unk>.
Follow up Beth would love your thoughts on wedding and engagement trends overall in the market and how you are gaining share, but what you'll also see happening with those dynamics given the tough comparison some of the headwinds we're seeing too. Thank you.
Thanks, Oliver maybe I can start with the wedding and engagement trends as I mentioned in the earlier remarks, we are coming off of some really big outsize performance as it relates to bridal and weddings last year was $2 6 million weddings, so the biggest year in decades.
And so we know as we're heading through the rest of the year that bridal overall is going to normalize and we feel really confident that we've been outperforming the industry here and that the product offering that we have the brand rather than we have and the fact that we've been bridal leaders in this category really sets us up well.
As we see the trends start to improve.
Towards the end of the year.
As it relates to the better revenue that we saw in Q1, we were really pleased to see the outperformance that we had and I think it's really the success of all of the factors that I talked about the fact that we're growing brand awareness that we are resonating with our younger millennial and Gen Z audience as well.
As the performance of our showrooms and the fact that we're able to launch these new showrooms.
It's really successfully overall as well as fine jewelry I think seeing some early success. There. So all of those I think really led to the revenue I wouldn't isolate it to any one particular factor.
And Jeff maybe you can hit that it would be a decline.
Sure.
As we look to <unk>.
We do expect to see as we grow our fine jewelry assortment and grow there some.
There will be decline due to the lower price point of fine jewelry and the success that we're having in expanding there.
So that is something that we do expect to see for Q1.
We've mentioned before we have seen moderation at the 10-K plus price point and so those are the factors that are going into the.
The <unk> decline.
Best regards.
Thank you.
Okay.
Our next question comes from Dana Telsey with Telsey Advisory Group you May proceed.
Good afternoon, everyone and nice to see the progress as you think about the guidance that you laid out for the year and thinking about Q2 and the balance of the year you currently.
Some of the expectations in Q1, what are you seeing in terms of current trends in the consumer and how you're framing the second through fourth quarters and just lastly can you talk about that.
Taking the gross margin pricing fine jewelry bridal what did you see by category and how you're thinking about pricing. Thank you.
Great. Thanks, Dana maybe.
Maybe we can start a little bit and just the overall guidance I think we continue to have full confidence in the overall year and I think a lot of the success that we've seen we continue to expect great things as it relates to launching our showrooms, we know fine jewelry, especially in Q4 tends to.
Outperform and we have a lot planned overall, so all of that I think it just gives us a lot of confidence overall it in the guidance that we have for the year as it relates to current trends.
As I mentioned in the earlier remarks, we really haven't seen a noticeable difference in consumer behavior from what we talked about in our last earnings call. So I think Jeff had mentioned a little bit on the shape of the year. So maybe Jeff you can go into that specifically.
Sure.
So for the shape of the year as I described in my remarks, we're expecting the shape of the revenue of the following nine months to be similar to the shape that we saw in 2021 generally which is representative of the historical seasonality pattern in our business with some slightly higher weighting towards the <unk>.
Have given that we're continuing to open showrooms and seeing success, there and driving outsized growth in fine jewelry and fine jewelry. As you know is a more Q4 Q4 is a big quarter for fine jewelry and so that's how we're thinking about the overall overall shape of the year.
Yeah.
And I think just as it relates to gross margin and how we think about pricing I think the fact that we've really invested in the brand and we are really focused on growing our premium brand with exclusive curated products and really a destination for our consumer base. We are thinking about how we can have.
Of that <unk>.
This optimization and really be able to take.
<unk> of the brand positioning that we have overall and keep in mind that our pricing is always very dynamic. So we're always thinking about.
Making sure that we can optimize overall margin dollars, while still recognize that we're a premium brand in the marketplace.
Thank you.
Thank you.
Our next question comes from Noah <unk> with Keybanc capital markets. You May proceed.
Hi, Thanks for taking my question.
On the gross margin line.
Some nice progress there and obviously approaching your kind of longer term target.
As you increase mix to fine jewelry. They do you see any incremental opportunity there or just how should we kind of think about that looking longer term.
And then additionally in terms of cadence moving through the year should do you expect gross margin to be kind of fairly consistent.
I think maybe I can start this off certainly I think we have a lot of opportunity with higher margin fine jewelry products, especially as we offer a differentiated product there and people are coming to us for our personalized unique designs and so that is I think a good opportunity for us and one that we are seeing.
Some positive.
<unk> there Jeff.
Jeff do you want to talk a little bit more about.
Just how we're thinking about it for the year, yes. So the way that we're thinking about the year is working towards or for the year gross margin towards that long term. Our long term mid fifty's percent gross margin and we were pleased that the performance that exceeded our expectations in <unk>.
Q1, it is going to be something that if you look on a quarter over quarter basis, there will be some fluctuations and puts and takes as we're continually optimizing to drive the right mix between.
Revenue net revenue and margin, but the overall shape is that we're working towards that mid fifties for the annual annual gross margin.
Got it very helpful and then not to beat the cadence questions to death, but just in terms of in terms of Opex anything to call out in terms of how we should be thinking about the opex line moving through the year. Thanks.
Yes, so I can I can take that I think theres a few things to point out I think one is that consistent with what we described last time, we're working to planning to exit 2023, driving year over year leverage on a run rate basis in adjusted SG&A and we continue to be disciplined.
How we think about.
Cost managing our costs while driving.
Driving sustainable growth and making the appropriate investments.
As I mentioned during the call we were glad to see that over the last.
Three quarters for employee costs and for other G&A, we've seen sequential reductions in deleverage on a year over year basis, and I think that reflects our discipline and focus and being thoughtful about.
Those cost lines, while we still make appropriate investments and then we do manage marketing dynamically as we can.
Can toggle back and use data to see.
The demand is and make the right balance between investing in the brand and drive.
Driving efficiencies. So the overall shape is that we're working towards a run rate.
Driving leverage on adjusted SG&A towards the towards the exit of 2023.
And I would just add that we're in a really good cash position were profitable. So I think we have a lot of opportunity for investment as long as we're seeing some strong ROI.
But that puts us in that I think are really good space.
Thank you.
Thank you.
Our next question comes from Matthew Boss with Jpmorgan you May proceed.
Great.
Amanda Douglas on for Matt So to start Beth could you elaborate on any notable areas of strength within the product assortment or any new product launches that you believe are driving the market share gains as you've cited throughout your remarks, and how are you seeing repeat purchase rates trend as you continue to expand into fine jewelry.
Sure. Thanks Amanda.
I'd say, we were seeing pretty broad based strength overall with the product launches that we have I think that we have.
Been building on some of the success that we've seen with personalized jewelry. For example, we just released some really beautiful.
And then that you can add initial specifically to for example, we've added personalized nameplate. So what I think we're really good at is using the data.
Sources that we have and understanding where our collection is resonating and then building a really productive collection overall by looking at the data and.
And the trends that we see and then building on that success. So based on that we've seen great success with our cocktail rent collection that we launched last year, we've seen really great.
Great opportunity within some of the Zodiac pendants that we've launched but overall I think we're just thinking about building a really productive overall collection.
Bridal I think were really trend leaders. There. We just released a new mosaics collection as I mentioned earlier and.
And really I think we're at the forefront of introducing thoughtful designs to our customers. We are leading here in and really showcasing to customers. What I think is exciting in the marketplace. So overall I would just say that it's it's really us firing on all cylinders across our product portfolio.
As it relates to repeat where we're pleased to see the residents that we're having with our customer base and really being able to sell fine jewelry for both occasions as well as self purchase I think I've mentioned in just the success, we've seen with self purchase given that we are a brand that resonates with her as much as him.
So I think overall, there's a lot of opportunity there I think as we continue to evolve our CRM program.
And to evolve our overall marketing.
As well as our assortment but.
Seeing some early success, there and feel confident that that's a real opportunity for us going forward.
Thanks, that's great color and maybe a follow up for Jeff.
I know you cited managing full year 2023 gross margins within that mid fifties long term target I guess my question is multiyear is there any reason why you couldnt actually exceed mid fifties or is mid fifties ceiling and what gives you confidence in sustaining the significant gross margin expansion that you've seen over the past.
Two years.
Sure.
So in terms of our long term target.
We have communicated that mid fifties targeted something that reflects the maybe I'll answer that back part of your question first.
Why why do we have confidence and why we've been able to do that is that we have that strong premium brands and products that really resonate with customers. We have the price optimization engine that allows us to operationally optimized for revenue growth in gross gross margin procurement efficiencies, including.
As we continue to scale and our enhanced extended warranty program and so those are the same factors that have taken us to where we are and we think there continue to be opportunities to two.
To grow along those.
Along those lines.
As we think about the gross margin target, we are managing to balance both revenue growth and gross.
Gross margin.
And we are confident that we are driving towards that mid fifties. There will be there will be puts and takes as I mentioned as where there is an optimization and testing process as we work through each given quarter, but we think that the levers that we've pulled to date continue to continue to give us one combined.
That's helpful. Thank you. Thank you.
Thank you.
Our next question comes from Edward <unk> with Piper Sandler You May proceed.
Hey, good afternoon, guys. Thanks for taking the question I guess first I know you use third party credit providers, but kind of interested to see if there have been any changes we're hearing a lot about consumer credit pullback if you've seen any change in behavior in their underwriting for your products and then as a follow up Jeff I think you mentioned in your prepared remarks.
That overtime, you may need to build inventory at the showroom.
Ramps I guess when should we expect this potential inventory build and kind of if you could dimensionalize the impact of cash that would be great. Thank you.
Maybe I can start with the first one as it relates to third party financing.
Wouldn't say, we've seen any material change or impact to our revenues there.
Keep in mind. This is a smaller part of our revenue base and so actually I think it represents a nice opportunity for us.
But it is not something that is really material in terms of our impact.
Jeff do you want to talk a little about inventory with the showroom sure. So I.
I did mention as you pointed out the evolution of our inventory model to support the growth of showrooms and fine jewelry and I think the answer is that we are already seeing some of that effect as we've gone from.
Lesser number of showrooms a few years ago to 31, and we're seeing growth in fine jewelry. So we are seeing that reflected in our inventory mix.
Now and we will expect some continued continued changes there I would like to point out, though that we do manage for both of those types of inventory in a very data driven fashion with working capital efficiency and being asset light in mind and I think that you can see some of that in the fact that over the last.
Two quarters, we've seen sequential declines in inventory, even as we've had success in fine jewelry and growth in the number of showrooms. So it's something that our discipline and our mindset will be to be asset light to be working capital efficient.
We want to serve those showroom in fine jewelry parts of the business as we see growth there, but I think the fact that we've been able to manage and even have inventory declines in the last two quarters speaks to how we think about being tight and disciplined about management.
Maybe one other follow up if I may some other your peers have gotten more promotional I know.
Green Concierge is doing a 'twenty off right now I guess have you seen any change in promotional environment and I know there were a couple of questions around gross margin, but does that change kind of the knee.
Third term outlook in terms of you continuing to take price through algo optimization. Thanks.
Yeah, I wouldn't say, we've noticed anything really significant as it relates to the promotional environment I mean keep in mind, they're gonna be brands that depend on discounting.
At the brand do not discount, we really think about adding value to our customers and really being a premium brand. There. So I think overall, that's just not a tactic that we're going to engage in and one that we do see broadly in the industry, especially in times, where for example, mother's day is coming up as as we all know.
But so I don't I don't see that being a particular impact to us other than we just want to make sure we're protecting and growing the brand overall.
Thank you.
Thank you.
Our next question comes from Randy <unk> with Jefferies. You May proceed.
Hey, Thanks, a lot really.
Appreciate it a couple of things just first and foremost can we just get some perspective on maybe differences youre seeing in traffic and conversion.
And volatility of those metrics or lack thereof between.
The showrooms in the website can we get some kind of.
Give us some perspective, there and what you're seeing thanks.
Sure. Thanks Randy.
I would say that.
It's really hard to disintermediation the website from the showrooms given the Omnichannel nature, we know that the vast majority of our customers start their journey online or on social media then they'll visit the showroom that oftentimes is all purchase on the site. So theres such an interplay there that I wouldn't say that there's what we've noticed anything.
Very stark in one versus the other and really want to think about the overall omnichannel journey I would say that we're still seeing strong traffic strong conversion.
Overall and in both the e-commerce as well as in the showrooms, but just having a harder harder time kind of pulling it apart, especially as we start as we're investing in metros that are I think really strong for us for from our customer data perspective.
Great and maybe lastly, maybe can you remind us maybe especially for those that might be near to the story just kind of how the showroom economics look what are you looking at from a payback period perspective, and then just give us some updated thoughts on over the next let's say 12 to 24 months, where would you mostly kind of think of.
About store Strat showroom strategy in terms of <unk>.
Fill versus new market approach, just give us that perspective as well thanks guys.
Sure I can talk a little bit about showrooms overall, and then Jeff if you want to get more specific in terms of the economics, we really think about the overall metro uplift because of that interplay I was just talking about between e-commerce and showrooms and have been really pleased to see that consistency that we're grow.
Wing over 100%.
In Metro revenue for showrooms that are open over 12 months.
As it relates to how we think about kind of expanding showrooms I think because we're able to use our customer data we have really good insight into whats showroom openings, we're going to be successful there.
And I still think we're learning a lot we seem to SaaS with ground floor, we're gonna be opening malls in the near future and so I think all of that's going to inform the strategy on a go forward basis, but early on I think we're pretty excited and how different formats are working as well.
As you know as we open stores in the same geography seeing success there as well.
And then it got it.
Oh go ahead, Jeff and then I think I can add just in terms of the you'd asked about the economics. So just echoing best in terms of the.
Omnichannel nature, we really do look at that.
Metro bookings uplift for the first year post opening.
Over 100, approximately 100% for showrooms that have been opened at least one year and I think from perspective things like payback period, even though we believe that our payback periods are.
Good and compare favorably with with industry leaders.
Great. Thanks, guys.
Thanks Randy.
Thank you.
Our next question comes from Rick Patel with Raymond James You May proceed.
Thank you and good afternoon, everyone.
Would you be able to rank the drivers of gross margin improvement I believe that once the factors that you called out were pretty consistent with what you've said in the past. So we're curious how the tailwind stack up and which of the gross margin drivers do you have the most confidence in in terms of being sustainable tailwind versus those that you have.
A lot of progress and maybe further along.
Jeff you want to take that one sure.
Thanks, Rick would say that of the drivers that we've talked about which have been able to support our strong gross margin say that all.
Many of them are all important and continue to have.
Room to run so let me just go through those just as a brief recap.
The underlying it is the strength of our brand the differentiation in proprietary products that we offer.
Then we also operationally enhanced that with our price optimization engine procurement efficiencies and we think that those all have been meaningful contributors and we continue to have room to run with those into the future and then we also have had benefits from our enhanced extended war.
NT program, which has also been accretive to gross margin. So I would say that overall the factors that have gotten us here still have room for us to continue to optimize.
Growth from so we're heartened by the fact that the levers that we've been pulling continue to have.
Continue to be able to drive future improvements.
Thanks, Jeff.
And can you also talk about the trend line for demand I. Appreciate the macro was pretty consistent in the quarter, but were curious if demand was also consistent or if it was front or backend loaded.
Came out ahead of <unk>.
First quarter expectations, but guidance for the year is the same so I'm curious if there's anything that we should read into.
Yeah, I don't think there's anything to read into it I think that we did see relatively consistent trends through the first part of this year. So nothing really of note there as it relates to a specific timeline.
Thanks very much.
Yes.
Thank you.
Our next question comes from Oliver Chen with TD Cowen You May proceed.
Hi, Thanks, a lot one trend, we've been monitoring and active customer growth across visit.
Digital do you have any thoughts on how that's proceeding for you it's been frankly, a little lighter now across the industry given.
Current opportunities, but I know you've done a really creative things in terms of digital marketing.
Weighted to that question is maybe you can brief us on what's on your mind for.
Performance marketing and how you're approaching it kicked off application in live streaming since you've been on.
Early to that.
And then we had an incoming question related to store productivity.
There a way you could give us some thoughts on how last year stores are performing and you're too that'd be great. Thank you.
Great. So as it relates to active customer growth I'm, not sure where where specific customers. So Jeff correct me, if I'm wrong, but I think a good proxy is thinking about 10% order growth. Overall. So we are seeing good performance. There in terms of how we're growing new customers and I think fine jewelry is a great category for us to attract.
New customers as well into our brand.
And we've seen really good success overall at being able to drive new customers in that category in that segment.
As it relates to our digital marketing efforts I like the term check Toxication that you used Oliver certainly I think that we are leaders here in terms of being able to engage our community on social and we've seen really nice success I think we have an outsized performance relative to our to our <unk>.
Overall scale at a tech talk as well as other social platforms. So continue to lean in there and understanding that millennial and Gen Z audience. This is where oftentimes they begin their search process and they begin their discovery. So I think this is a real advantage to us overall.
Jeff do you want to talk a little bit about store, how do we think about store productivity.
Yes, so how we think about store productivity is really about the.
Metro Metro uplift that we see in in metrics post opening and because it is a true true omnichannel purchase.
We see that we're able to drive uplift across an entire metro both both in terms of showroom sales as well as E com.
In that Metro and we're early on we're early on in that journey and we feel that there continues to continues to be upside upside in terms of how we're able to use our showroom expansion to drive additional revenue.
Okay about the follow up.
Diamond has continued to be pretty exciting.
Some.
Major points, you're focused on for the continued innovation, there and what customers want and how youre thinking about continuing that healthily grow that market and opportunity.
Yeah, absolutely, we've really been innovators here and have been offering lab diamonds for over a decade. So really are I think leading the way, we see a lot of opportunity, especially as it relates to fine jewelry and introducing new lab fine jewelry I think it's it's a way to really broaden the market appeal.
All we see that it really resonates with our customer base and I do think that it's it's going to be a really nice opportunity that we're able to capitalize on and then we continue to offer a really differentiated product there were leaning into sustainability.
We have a large collection of sustainably rated lab diamonds as well as new efforts on the way there, which I think is also really exciting and just shows our I think mission based values and the way that we're able to differentiate within the marketplace.
Okay.
Thank you best regards.
Thanks Oliver.
Okay.
Thank you.
Our next question comes from Dylan Carden with William Blair You May proceed.
Thank you.
With store growth and.
Higher penetration presumably of fine jewelry.
Higher repeat category.
How do you contextualize, the sort of de lever, you've seen pretty consistently and pretty heavily.
On marketing and sort of anticipation of you, saying that you manage it dynamically I guess, what does that mean and when would you. Let me just because you think you're getting a customer and that does have higher rates of spending.
And when would you start seeing that flow through the model is that part of sort of yesterday right.
Alright, deleverage, you're kind of anticipating or saying exiting this year. Thanks.
Yeah, I think just overall.
Keep in mind that we're still majority by at all that we're early in our fine jewelry trajectory and in terms of being able to capitalize on the opportunities. So I think that it's important that we continue to invest in marketing as well as continue to grow our overall awareness. This is a 300 billion dollar market.
Highly fragmented and we're still quite a small player relative to the overall opportunity and so as we see our why strong ROI from our marketing efforts, we're going to continue to lean in and take a more balanced approach with making sure that we're maintaining marketing efficiency, while continuing to grow.
ROE our brand overall, so we think about managing dynamically and in the way that as we.
We are very data driven as we're looking at customer demand then we lean in.
Towards those marketing efforts, we're also able to deliver that based on our asset light model and capture the demand and so it's a very dynamic optimization that we're doing based on the customer demand that we see as well as the R Y from those efforts.
And I would just add maybe two things still into your to your point about the exit run rate of driving leverage on a year over year basis for adjusted SG&A that is inclusive of marketing as part of that adjusted SG&A as we think about driving to that exit run rate of driving less.
<unk> and I think one one sequential proof point from recently that I believe I mentioned during my remarks is that for Q1 of this year versus Q4 of 2022, we did see a reduction in marketing expense as a percentage of revenue. So that's a.
More recent proof point of some of the.
A result of the efforts that we've seen but it is something that we.
Conscious of and disciplined about.
And as a model.
It's hard to know not knowing sort of where you are with fine, but sort of the comments about how fine.
Ken will.
Inventory management.
Dynamic to some extent.
Youre able to pass through in real time and put pricing on the.
The curated side of the business do you expose yourself to more input commodity pricing risk further along the path refiners or is the pricing tool.
How you to kind of circumnavigate, most if not all of them.
I would say that yes.
The way, we see it yes, we're able to optimize prices and really command a premium as it relates to more differentiated design, but also the <unk>.
Halo of the brand.
Think also extends to more of the classic products that we offer and so I think we see that you know.
People come to us for a curated experience overall, both on in terms of digital in the showrooms.
Our very high touch approach that we have.
And as a result, we're able to command a premium there.
Ross the whole product portfolio.
Okay. Thank.
Thank you guys for the time.
Sure. Thanks.
Yeah.
Thank you and this concludes the Q&A session I would now like to turn the call back over to Beth Gardens Gerstein for any closing remarks.
Thank you everyone for joining us on our Q1 2023 conference call and I wanted to wish all the mothers out there a happy mother's day.
Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.
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