Q2 2024 Brilliant Earth Group Inc Earnings Call

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Operator: 2024 earnings call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star 11 on your telephone. If your question has been answered and you'd like to remove yourself from the queue, simply press star 11 again. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Colin Barlan. Please go ahead.

Speaker Change: Thank you for standing by, and welcome to the brilliant Earth's second quarter of 2024 earnings call. At this time, all participants aren't listening only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star 1-1 on your telephone. If your question has been answered, and you'd like to move yourself from the queue simply press star 1-1 again.

As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Colin Barlan. Please go ahead.

Colin Barlan: Thank you and good afternoon, everyone. Welcome to Brilliant Earth's second quarter 2024 Earnings and Profits Call. Joining me today are Beth Gerstein, our Chief Executive Officer, and Jeff Kuo, our Chief Financial Officer. During the call today, management will only make certain forward reference statements within the meaning of the private security litigation report that the 1990s got. These forward-looking statements are subject to risk and uncertainty that could cause actual results to differ materially. Please refer to our SVP filing 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.

Colin Barlan: Thank you and good afternoon, everyone. Welcome to Brilliant Earth's second quarter 2024 earnings conference call. Joining me today are Beth Gerstein, our Chief Executive Officer, and Jeff Kuo, our Chief Financial Officer.

Speaker Change: During the call today, management will make certain forward-looking statements within the meaning of the private security litigation report of 1990s. These forward-looking statements are subject to this in uncertainties that could cause actual results to differing.

Please refer to our FDP 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.

Colin Barlan: These forward-looking statements reflect our opinion 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 or write of new information for future events unless required by law. Also, during this call, management will refer to certain non-GAAP financial measures. A reconciliation of growing Earth's non-gap measures to comparable gap measures is available in today's arms, which we found on the phone, Earth, and that sort of relationship with us. I'll now turn it all over to Beth.

Speaker Change: These forward movement statements reflect our opinion only at the end of the date of this call, and we undertake no obligations for five or publicly released the results of any revision to these forward movement statements and write a new information for future events unless required by a law.

Speaker Change: Also, during the call, management will work for certain non-gap financial measures.

Speaker Change: A reconciliation of growing earth's non-gap measures keep the imperable gap measures is available in today's earnings early, which we found on the road earth's investor relations website. I'll now turn it all over to Beth.

Beth Gerstein: Good afternoon, and thank you for joining us today. I'm pleased to report that we continue to drive the progress of our strategic initiatives and deliver another quarter of profitability. This is our 12th consecutive quarter of profitability as a public company and something I'm very proud of. It's a testament to the talent and hard work of our incredible team, and I want to thank them for their dedication.

Beth: Good afternoon and thank you for joining us today.

Beth: I am pleased to report that we continue to drive the progress of our strategic initiatives and deliver another quarter of profitability.

Beth: This is our 12th consecutive quarter profitability as a public company, and something I'm very proud of. It's a testament to the talent and hard work of our incredible team, and I want to thank them for their dedication.

Beth Gerstein: As we are all seeing, we continue to observe challenges within the $300 billion jewelry industry, particularly highlighted by ongoing and increased promotional activity. Our ability to manage with both agility and discipline within this environment is reflected in our results that were within our net sales guidance and exceeded our profitability guidance for the quarter. I'll start with some highlights of our future performance and update you on the promise we're making on our key priority. Net sales declined 4% year for year to 105.4 million dollars, and were within our net sales guidance range for the court.

Speaker Change: As we are all seeing, we continue to observe challenges within the $300 billion jewelry industry, particularly highlighted by ongoing and increased promotional activity.

Speaker Change: Our ability to manage with both agility and discipline within this environment is reflected in our results that were within our net sales guidance and exceeded our profitability guidance for the quarter.

Speaker Change: I'll start with some highlights of our future performance and update you on the promise we're making on our key priorities.

Speaker Change: Net sales declined 4% year-over-year to $105.4 million and were within our net sales guidance range for the quarter.

Beth Gerstein: Total orders increased by 4% year-over-year, while we had another strong quarter in repeat orders, which increased by 17% year-over-year. Average selling price grew year-over-year across our product assortment, including engagement rings, wedding bands, and fine jewelry, in Q2, as it did in Q1. Gross margin was 60.8%, or a 320 basis point increase year over year, reflecting our continued position as a premium brand within the jewelry industry. Jeff will provide additional commentary on our gross margin expansion. Q2 adjusted EBITDA of $5.5 million, or a 5.2% margin, was ahead of expectations.

Speaker Change: Total orders increased by 4% year-over-year, while we had another strong quarter in repeat orders, which increased by 17% year-over-year.

Speaker Change: Average selling price grew year over year across our product assortment, including engagement rings, wedding bands, and fine jewelry, in Q2 as they did in Q1.

Speaker Change: Gross margin was 60.8%, or a 320 basis point increase year over year, reflecting our continued position as a premium brand within the jewelry industry. Jeff will provide additional commentary on our gross margin expansion.

Jeff: Q2 adjusted EBITDA of $5.5 million, or a 5.2% margin, was ahead of expectations.

Beth Gerstein: Our exceptional profitability continues to demonstrate our strategic approach in balancing profitability while setting the stage for long-term growth. While the overall industry remains challenged, particularly in bridal and in e-commerce, we still maintain our expectations around a multi-year path to normalization. I spoke last quarter about the highly promotional environment in the jewelry industry with elevated discounting activity among peers. This persisted in Q2 and continues into Q3.

Jeff: Our exceptional profitability continues to demonstrate our strategic approach in balancing profitability while setting the stage for long-term growth.

Jeff: While the overall industry remains challenged, particularly in bridal and in e-commerce, we still maintain our expectations around a multi-year path to normalization.

Jeff: I spoke last quarter about the highly promotional environment in the jewelry industry with elevated discounting activity among peers. This persisted in Q2 and continues into Q3.

Beth Gerstein: But we remain focused on investing in quality growth and protecting our premium brands to deliver sustainable profitability and position us to take share in this highly fragmented industry. Let's talk about the quarter, starting with the distinctive, high-quality products for which we are now known. As I mentioned, this quarter saw average selling price growth across our apartment, including engagement rings, wedding gowns, and fine jewelry. Even as the engagement market was challenged, including for us, we saw outsized growth within our unique designs only available at Brilliant Earth, with our signature engagement ring collections realizing bookings growth of 6% year-over-year in Q2.

Jeff: But we remain focused on investing in quality growth and protecting our premium brands to deliver sustainable profitability and position us to take share in this highly fragmented industry.

Jeff: Let's talk about the quarter, starting with the distinctive high-quality products for which we are known.

Jeff: As I mentioned, this quarter saw average selling price growth across our assortment, including engagement rings, wedding bands, and fine jewelry.

Jeff: Even as the engagement market was challenged, including for us, we saw outsized growth within our unique designs only available at Brilliant Earth, with our signature engagement ring collections realizing bookings growth of 6% year-over-year in Q2.

Beth Gerstein: This quarter, we also amplify our bridal offering with the launch of our signature collections campaign. The features an exquisite array of proprietary designs that celebrate exceptional craftsmanship and unique designs. Drawing inspiration from the natural world, each piece in the collection embodies the elegance and wonder of nature.

Jeff: This quarter, we also amplified our bridal offering with the launch of our Signature Collections Campaign that features an exquisite array of proprietary designs that celebrate exceptional craftsmanship and unique design.

Jeff: Drawing inspiration from the natural world, each piece in the collection embodies the elegance and wonder of nature.

Beth Gerstein: In celebration of the craftsmanship of the Signature Collection, we launched a campaign taking customers through each aspect of the in-house design process. We also launched our Fair Mines Bridal Collection, which promotes economic development and environmental protection in small-scale mining communities. Turning to wedding and anniversary bands, we achieved record sales this quarter within both women's and men's offerings, resulting in double-digit bookings growth year over year. I'm particularly excited about the performance of our men's band assortment, which achieved 32% bookings growth year over year in Q3.

Jeff: In celebration of the craftsmanship of the Signature Collection, we launched a campaign taking customers through each aspect of the in-house design process.

Jeff: We also launched our Fair Mines Bridal Collection, which promotes economic development and environmental protection of small-scale mining communities.

Jeff: Turning to wedding and anniversary bands, we achieved record sales this quarter within both women's and men's offerings, resulting in double-digit bookings growth year over year.

Jeff: I'm particularly excited about the performance of our men's band assortment, which achieves 32% working throughout year for year in Q2.

Beth Gerstein: Another high point for the quarter came from our continued growth in fine jewelry, where we saw another successful quarter of booking growth at 29% year-over-year. As you know, this quarter encompasses two important gifting holidays of the year, Mother's Day and Father's Day, and we were well-equipped for everyone's gifting needs.

Jeff: Another high point for the quarter came from our continued growth in fine jewelry where we saw another successful quarter of booking growth at 29% year over year.

Jeff: As you know, this quarter encompasses two important gifting holidays of the year, Mother's Day and Father's Day.

Beth Gerstein: In fact, excluding the holiday shopping period in Q4, we had our biggest-ever day of fine jewelry sales in our showrooms in the lead-up to Mother's Day. And for the two weeks leading up to Father's Day, we more than doubled bookings year-over-year in our men's fine jewelry collection. While fine jewelry is still a small part of our business, we remain excited by the continued trajectory of our office. As you have heard me say before, finding jewelry offered us an incredible opportunity to acquire lifelong customers outside of our core bridal business and to expand our reach among both first-time and repeat customers.

Jeff: And we were well-equipped for everyone's gifting needs. In fact, excluding the holiday shopping period in Q4, we had our biggest ever day of fine jewelry sales in our showrooms in the lead-up to Mother's Day.

Jeff: And for the two weeks leading up to Father's Day, we more than doubled bookings year over year in our Men's Fine Jewelry collection.

Jeff: While fine jewelry is still a small part of our business, we remain excited by the continued trajectory of our offering.

Jeff: As you have heard me say before, Fine Jewelry offers us an incredible opportunity to acquire lifelong customers outside of our core bridal business and to expand our reach among both first-time and repeat purchasers.

Beth Gerstein: We continue to be encouraged by the performance of our 37 showrooms that continue to deliver on our seamless on-the-panel strategy and provide our customers with an elevated, approachable childing experience. As an omni-channel brand, we know that a customer's journey can span multiple touch points and purchasing opportunities, from shopping online to seeing the product in store. For customers who have visited the showroom, we saw 9% booking stroke year over year in the engagement race.

Speaker Change: We continue to be encouraged by the performance of our 37 children that continue to deliver on our seamless, on-e-tannel strategy and provide a customers with an elevated approachable

Speaker Change: As an audio channel brand, we know that a customer's journey can span multiple touchpoints and purchasing opportunities from shopping online to seeing product in store.

Speaker Change: For customers who have visited the showroom, we saw 90% bookings growth year-over-year in engagement rings, while wedding band and fine jewelry bookings growth year-over-year for showroom customers outpaced the total business.

Speaker Change: Through a combination of our stellar showroom staff, continued enhancements to the customer experience, and our diligent management of expenses, we continue to see strong post-opening Metro uplift and compelling four-wall EBITDA from our showrooms.

Jeff: As you know we plan to open three more Sherwin locations this year, two in Boston and our first New York City ground location.

Beth Gerstein: And we've been busy this quarter continuously enhancing our existing fleet with refreshes in three of our showrooms, Washington, D.C., Denver, and Philadelphia, as well as overall strategic brand elevation focused on design, quality, and elegance. We continue to bring our brand to life both inside and outside our showrooms with branded cultural moments across Earth Day, Mother's Day, Father's Day, and Pride this quarter. Starting off the quarter with Earth Day, a holiday that directly aligns with our mission.

Jeff: And we've been busy this quarter, continuously enhancing our existing fleet with refreshes in three of our showrooms, Washington D.C., Denver, and Philadelphia, as well as overall strategic brand elevation focused on design, quality, and elegance.

Beth Gerstein: We continue to bring our brand to life both inside and outside our showrooms with brand and cultural moments across Earth Day, Mother's Day, Father's Day, and Pride this quarter.

Jeff: Starting off the quarter with Earth Day, a holiday that directly aligns with our mission.

Beth Gerstein: We launched our The Future is Brilliant campaign, where, in celebration of James Goodall's 90th birthday, we invited the next generation of thought leaders and sustainability advocates to advance Brilliant Earth's leadership in sustainability and responsible sourcing.

On that note, I'm excited to share that we have officially submitted our near-term and net-zero company-wide emission reductions targets.

Speaker Change: With the science-based targets initiative, an essential part of driving transformation in our supply chain and innovation in low-carbon technologies and production practices.

Beth Gerstein: We look forward to our targets being validated and shared with the public. As a quarter-per-graph, we reached the top-gifting holiday of the quarter, Mother's Day, where our beauty and gesture campaign in partnership with influencer Tessa Barton, captured in an exclusive feature in people magazine, contributed to the strong performance I mentioned earlier. We also saw fast continue to fast in other brand moments this year. We had our most successful VIP Bride campaign with fast moms along for Highland, generating over 18 million impressions.

Beth Gerstein: We look forward to our targets being validated and shared with the public.

Beth Gerstein: As the quarter progressed, we reached the top-gifting holiday of the quarter, Mother's Day, where our Beauty and the Gesture campaign, in partnership with influencer Tessa Barton, captured in an exclusive feature in People magazine, contributed to the strong performance I mentioned earlier.

Speaker Change: We also saw continued success in other brand moments this year. We had our most successful VIP bride campaign with Dance Moms alum, Brooke Hyland, generating over 18 million impressions.

Beth Gerstein: Disclosure in light of ongoing industry and overall consumer headwinds, I'm proud of our results this quarter, across our product innovation, on the channel experience, continued brand momentum, and resulting profitability. Since June, we have encountered a weaker-than-expected consumer environment, specifically for highly-considered participants. And we remain cautious for the rest of this year, given recent headlines and economic concerns. We recognize that this is a challenging period, and we are not immune to its impact.

Beth Gerstein: In closing, in light of ongoing industry and overall consumer headwinds, I am proud of our results this quarter, across our product innovation, omnichannel experience, continued brand momentum, and resulting profitability.

Beth Gerstein: Since June , we have encountered a weaker-than-expected consumer environment, specifically for highly-considered purchases.

Beth Gerstein: And we remain cautious for the rest of this year given recent headwinds and economic uncertainty.

Beth Gerstein: But, as we have said before, we will focus on quality growth that protects and grows our brand, and we'll continue to take a balanced, agile, and intentional approach to managing the business. We have conviction in our long-term strategy to drive growth and maximize our gains through brand awareness and relevance, an industry-leading, on-e-channel experience, and through our differentiated and high quality products. With that, I will hand the call over to Jeff, who will walk you through how this impacts our financial outlook for the year.

Beth Gerstein: We recognize that this is a challenging period, and we are not immune to its impact. But, as we have said before, we will focus on quality growth that protects and grows our brands, and will continue to take a balanced agile and intentional approach to managing the business.

Jeff: We've conviction in our long-term strategy to drive growth and market share gains through brand awareness and relevance, an industry-leading omnichannel experience, and through our differentiated and high-quality products.

Beth Gerstein: With that, I will hand the call over to Jeff, who will walk you through how this impacts our financial outlook for the year.

Jeff Kuo: Thanks, Beth, and good afternoon, everyone. As Beth mentioned, we're pleased to report a quarter where we continue to successfully drive our strategic initiatives, innovate, meet our top-line expectations, and far exceed our profitability expectations, even in the face of industry headwinds. Let me take you through the details.

Jeff Kuo: Thanks, Beth, and good afternoon, everyone.

Jeff Kuo: As Beth mentioned, we're pleased to report a quarter where we continue to successfully drive our strategic initiatives, innovate, meet our top-line expectations, and far exceed our profitability expectations, even in the face of industry headwinds.

Jeff Kuo: Q2 net sales were 105.4 million dollars, a decline of 4% year over year, which was within our guidance rate. We drove a 4% increase in total orders for the year-of-reviewed. We also had another quarter of strong repeat order growth, driving 17% growth in repeat orders year over year. This performance demonstrates the effectiveness of our customer acquisition and retention efforts, including the residents of our brands with consumers, as well as strong performance across our products.

Jeff Kuo: Let me take you through the details.

Jeff Kuo: Q2 net sales were $105.4 million, a decline of 4% year-over-year, which was within our guidance range.

Jeff Kuo: We drove a 4% increase in total orders year over year.

Jeff Kuo: We also had another quarter of strong repeat order growth, driving 17% growth in repeat orders year-over-year.

Jeff Kuo: This performance demonstrates the effectiveness of our customer acquisition and retention efforts, including the resonance of our brands with consumers, as well as strong performance across our products.

Jeff Kuo: Average Order Value, or AOB, declined 8% year over year as we continue to broaden and diversify our overall assortment, including in our financial recollection, which, as you know, has lower price points than engagement. We saw strength in average selling price, or ASP, across our products collections. The ASP for our in-asher grades, wedding rings, and lingerie increased their career in Q2 as they did in Q1.

Jeff Kuo: Average Order Value, or AOV, declined 8% year-over-year as we continue to broaden and diversify our overall assortment, including in our fine jewelry collection, which as you know, has lower price points than engagement rings.

Jeff Kuo: We saw strength in Average Selling Price, or AST, across our product collections.

Jeff Kuo: The ASP for our engagement rings, wedding rings, and fine jewelry increased year-over-year in Q2, as they did in Q1, highlighting our success in maintaining our premium brands positioning.

Jeff Kuo: Q2 gross margin was 60.8%, which is a 320 basis point expansion over Q2 last year.

Jeff Kuo: Principally driven by our premium brand and proprietary products.

Jeff Kuo: our price optimization engine.

Jeff Kuo: This gross margin strength is particularly rewarding as we maintain our focus on our premium brand positioning in an environment where others continue to lean into discounting. We delivered a Q2 adjusted EBITDA of $5.5 million, or a 5.2% adjusted EBITDA margin, exceeding our guidance rate. Our strong gross margin performance, together with prudent management of our marketing spend and other operating expenses, contributed to our strong profitability results this quarter. Q2 SG&A was 59.7% of net sales compared to 56.4% of net sales in Q2 2023, as we continue to balance making investments to drive long-term growth with discipline in expense management to deliver profitability. Q2 adjusted SG&A was 55.7% of net sales compared to 50.6% of net sales in Q2 2023. Adjusted SG&A does not include items such as equity-based compensation, depreciation and amortization, showroom pre-opening expenses, and other non-recurring expenses.

Jeff Kuo: Procurement efficiencies and our enhanced extended warranty program.

Jeff Kuo: This close margin strength is particularly rewarding as we maintain our focus on our premium brand positioning in an environment where others continue to lean into discounting.

Jeff Kuo: We delivered a Q2 adjusted EVA of $5.5 million or a 5.2% adjusted EVA margin, exceeding our guidance range.

Jeff Kuo: Our strong gross margin performance, together with prudent management of our marketing spend and other operating expenses, contributed to our strong profitability results this quarter.

Jeff Kuo: Q2 SG&A was 59.7% of net sales compared to 56.4% of net sales in Q2 2023, as we continue to balance making investments to drive long-term growth with discipline in expense management to deliver profitability.

Jeff Kuo: Q2 adjusted SG&A was 55.7% of net sales compared to 50.6% of net sales in Q2 2023.

Jeff Kuo: Adjusted SG&A does not include items such as equity-based compensation, depreciation and amortization, showroom pre-opening expenses, and other non-recurring expenses.

Jeff Kuo: Principal driver of the year for your increase in adjusted SG&A in Q2 was growth in showroom expenses, including the annualization of expenses related to showrooms open glass. Force YouTube marketing expenses. We continue our approach from last quarter, maintaining a disciplined approach to our second quarter marketing spend, resulting in a slight leverage of approximately 20 basis points as the percentage of net sales compares to YouTube glass. We continue to make strategic investments to drive brand awareness and support key initiatives such as growth in fine jewelry balanced with capturing marketing efficiencies while maintaining overall profitability.

Jeff Kuo: The principal driver of the year for your increase in adjusted SGNA in Q2 was from growth in showroom expenses, including the annualization of expenses related to showrooms open last year.

Jeff Kuo: For future marketing expenses, we continue our approach from last quarter, maintaining a disciplined approach to our second quarter marketing spend.

Jeff Kuo: Resulting in a slight leverage of approximate 20 basis points as the percentage of neck stales compares to Q2 last year.

Jeff Kuo: We continue to make strategic investments to drive brand awareness and support key initiatives such as growth in fine jewelry, balanced with capturing marketing efficiency while maintaining overall profitability.

Jeff Kuo: As I pointed out during our last two earnings calls, we are aiming to keep quarterly marketing spend for the year at a similar percentage of net sales compared to the 2023 average, and Q2 aligns with that expectation while still delivering net sales within our guidance. For the second quarter, influence cost as a percentage of net sales was higher by approximately 310 basis points as adjusted year for year, principally driven by you showing employees, including the annualization of employees in our new show.

Jeff Kuo: As I pointed out during our last two earnings calls, we are aiming to keep quarterly marketing spend for the year at a similar percentage of net sales compared to the 2023 average, and Q2 aligns with that expectation while still delivering net sales within our guidance.

Jeff Kuo: For the second quarter, employee costs as a percentage of net sales were higher by approximately 310 basis points as adjusted.

Jeff Kuo: Year over year, principally driven by new showroom employees, including the annualization of employees in our new showrooms. We continue to manage these expenses in a disciplined and responsible manner.

Jeff Kuo: We continue to manage these expenses in a disciplined and responsible manner. Other G&A as a percentage of net sales increased by approximately 220 basis points, as adjusted year over year, as we continue to prudently invest in our business. This includes increased rent and showroom expenses, other costs to support our growth, and investments in technology. Our data-driven, capital-efficient, and inventory-like operating model continues to provide a competitive advantage. We were able to leverage this model to decrease our year-over-year inventory by three percent despite the expansion of our showroom footprint and our significant growth in fine jewelry.

Jeff Kuo: Other G&A, as a percentage of net sales, increased by approximately 220 basis points as adjusted year-over-year as we continue to prudently invest in our business.

Jeff Kuo: This includes increased rent and showroom expenses, other costs to support our growth, and investments in technology.

Jeff Kuo: Our data-driven, capital-efficient, and inventory-life operating model continues to provide

Jeff Kuo: We were able to leverage this model to decrease our year-over-year inventory by 3% despite the expansion of our showroom footprint and our significant growth in fine jewelry.

Jeff Kuo: Our lower-risk, agile inventory model and strong balance sheet continue to differentiate us from the rest of the industry. We ended the second quarter with approximately $152 million in cash, which reflects a year-over-year increase of approximately $2.6 million, even after expanding our showroom footprint by 15 percent and paying down over $3 million in principal balance on our term loans. Our ability to generate cash further differentiates us from many others in the industry and highlights the benefits of our asset life, data-driven business.

Jeff Kuo: Our lower-risk, agile inventory model and strong balance sheet continue to differentiate us from the rest of the industry.

Jeff Kuo: We ended the second quarter with approximately $152 million in cash, which reflects a year over your increase of approximately $2.6 million. Even after expanding our showroom footprint by 15% and paying down over $3 million in our showroom footprint by 15% of our showroom footprint by 15%.

Jeff Kuo: Our ability to generate cash further differentiates us from many others in the industry and highlights the benefits of our asset-light, data-driven business model.

Jeff Kuo: In addition, we continue to maintain a strong balance sheet with no net debt. Our financial strength allows us to continue to make prudent investments in the business to drive long-term growth. In Q2, we repurchased approximately $160,000 of our common stock. This takes our total amount of common stock we have purchased to approximately $260,000 in total to date.

Jeff Kuo: In addition, we continue to maintain a strong balance sheet with no net debt.

Jeff Kuo: Our financial strength allows us to continue to make prudent investments in the business to drive long-term growth.

Jeff Kuo: In Q2, we repurchased approximately $160,000 of our common stock. This takes our total common stock repurchased to approximately $260,000 in total to date.

Jeff Kuo: Our strong balance sheet provides the ability to strategically seize value creation opportunities, including when we see an opportunity to buy back our common stock. We intend to continue using this program strategically while balancing our overall investment decisions, including consideration of factors such as trading volumes and our public flow. As we look ahead to the second half of the year, we are seeing a weaker-than-expected consumer environment and headwinds in bridal and e-commerce that are somewhat greater than what we observed earlier in the year.

Jeff Kuo: Our strong balance sheet provides the ability to strategically seize value creation opportunities, including when we see an opportunity to buy back our common stock.

Jeff Kuo: We intend to continue using this program strategically while balancing our overall investment decisions, including consideration of factors such as trading volumes and our public flow.

Jeff Kuo: As we look ahead to the second half, we are seeing a weaker than expected consumer environments and headwinds in bridal and e-commerce that are somewhat greater than what we observed earlier in the year.

Jeff Kuo: For Q3, we had a soccer store in engagement rings while continuing to have solid growth in fine jewelry and wedding anniversary. We also continue to see strong repeat purchase behavior. For Q3, we expect net sales to be down 11% to 14% year-over-year in light of current market conditions. We expect hugely adjusted EBITDA margin to be from Rakesh Even to low single digits as the percentage of Nass stales, as we dynamically manage operating expenses, including marketing, to deliver profitability while making strategic investments in the business for the long term.

Jeff Kuo: For Q3, we have had a softer start in engagement rings while continuing to have solid growth in fine jewelry and wedding and anniversary bands.

Jeff Kuo: We also continue to see strong, windy, purchased behaviors.

Jeff Kuo: For Q3, we expect net sales to be down 11-14% year-over-year in light of current market conditions.

Jeff Kuo: We expect Q3 adjusted EBITDA margin to be from break-even to low single digits as a percentage of net sales as we dynamically manage operating expenses, including marketing spend.

Jeff Kuo: to deliver profitability while making strategic investments in the business for the long term.

Jeff Kuo: We do expect that Q4 will be a stronger quarter than Q3 from a top-line perspective, even though we do anticipate some headwinds in bridal and e-commerce in the fourth quarter. Additionally, as we have discussed previously, we expect that engagements will continue on their gradual path to normalization.

Jeff Kuo: We do expect that Q4 will be a stronger quarter than Q3 from a top-line perspective.

Jeff Kuo: even though we do anticipate some headwinds in bridal and e-commerce in the fourth quarter.

Jeff Kuo: As we have discussed previously, we expect that engagements will continue on their gradual path to normalization.

Jeff Kuo: We also expect other key drivers of Q4 performance to include realizing uplifts from first showrooms, the continued strong performance of Fine Jewelry, the fact that, seasonally, Q4 is the biggest quarter for Fine Jewelry sales, and our ongoing brain-building efforts, including during the holidays. For the year, we now expect that our net sales will be in the range of $410 to $425 million, and our adjusted EBITDA will be in the range of $12 to $16 million as we continue to manage the business to profitability, even in the face of industry headwinds.

Speaker Change: We also expect other key drivers of two poor performance will include realizing uplift from her showrooms.

Jeff Kuo: The continued strong performance of Fine Jewelry, the fact that seasonally Q4 is the biggest quarter for Fine Jewelry sales, and our ongoing brand building efforts, including during the holidays.

Jeff Kuo: For the year, we now expect that our net sales will be in the range of 410 to 425 million dollars.

Jeff Kuo: Our adjusted EBITDA will be in the range of $12-16 million as we continue to manage the business for profitability, even in the face of industry headwinds.

Jeff Kuo: In closing, our premium brand and differentiated business model, including data-driven decision-making, seamless omnichannel platform, and asset-light structure, demonstrate our ability to deliver profitability and achieve our strategic and financial objectives in a variety of different environments. Our performance in the second quarter reinforces our ability to execute and capitalize on the opportunities that drive long-term, sustainable, and profitable growth. With that, I'll turn the call back over to the operator for questions.

Jeff Kuo: In closing...

Jeff Kuo: Our premium brand and differentiated business model, including our data driven decision-making, seamless, omnichannel platform, and asset-like structure, demonstrate our ability to deliver profitability and achieve our strategic and financial objectives in a variety of different environments.

Jeff Kuo: Our performance in the second quarter reinforces our ability to execute and capitalize on the opportunities that drive long-term, sustainable, and profitable growth.

Operator: Certainly, and as a reminder, ladies and gentlemen, if you do have a question at this time, please press star 11 on your telephone. We ask that you please limit yourselves to one question and one follow-up. You may get back in the queue as time allows. And our first question comes from the line, Oliver Chen from TV Cow, and your question, please.

Speaker Change: with that I'll turn the call back over to the operator for a question.

Operator: Certainly. And as a reminder, ladies and gentlemen, if you do have a question at this time, please press star 11 on your telephone. We ask that you please limit yourselves to one question and one follow-up. You may get back in the queue as time allows. And our first question comes from the line.

Tom (Oliver Chen): Hi Beth and Jeff, this is Tom, Oliver. It would be great if you could talk about the nature of bridal comparisons ahead and any opportunities for share growth. Just give us an idea of what gives you confidence in this multi-year recovery path.

Tom (Oliver Chen): from TD Cowan. Your question please.

Tom (Oliver Chen): Hi Beth and Jeff, this is Tom on for Oliver. It'd be great if you could talk about the nature of Bridal Compares ahead and any opportunities for share growth. I'm just curious as to what gives you confidence in this multi-year recovery path.

Beth Gerstein: Great. Hi Tom.

Beth Gerstein: Great. Hi Tom, thanks for the question. So just to provide a little bit more context in Bridal, in Q2 what we saw was that Bridal was down in the low double digits and we have seen that slightly worsen.

Beth Gerstein: Thanks for the question. So just to provide a little bit more context on Bridal, in Q2, what we saw was that Bridal was down in the low double digits, and we have seen that slightly worsen since then. And we do have some really nice positive indicators. One of the metrics that I mentioned was around our signature collection. We just did a really great campaign promoting the distinctive design that has really been a pillar of our brand for the majority of our existence, and that has seen really nice growth.

Beth Gerstein: since then. Now, we do have some really nice positive indicators. You know, one of the metrics that I mentioned was around our signature collection. We just did a really great campaign.

Beth Gerstein: promoting the distinctive design that has really been a pillar of our brand for the majority of our existence.

Beth Gerstein: We saw 6% year-on-year growth in signature. We've also seen nice growth within our showrooms, so that plus 9% for engagement rings for customers who have visited a showroom just gives us a lot of conviction in the omnichannel model that we have.

Beth Gerstein: And that has had really nice growth. We saw 6% year-over-year growth in signature. We've also seen nice growth within our showrooms, so that plus 9% for engagement rings.

Beth Gerstein: for customers who have visited a showroom, just gives us a lot of conviction in the omni-channel model that we have. You know, what we've seen recently is as the demand has become more soft,

Beth Gerstein: We've seen one of the most promotional environments.

Speaker Change: Um, that we've experienced and our approach is to not chase unprofitable growth. We want to make sure we're growing in a healthy and sustainable way.

Beth Gerstein: So we're really thinking about how do we drive marketing leverage and how do we invest outside of bridal, where we've been incredibly strong with our fine jewelry, our anniversary band collection as well.

Beth Gerstein: So it's really taking a more diversified approach as we've been doing, you know, really since we've started these calls and seeing a lot of success there in attracting new and repeat customers.

Beth Gerstein: Great thanks, and then a follow-up on the strength you're seeing across income cohorts and how that informs your approach to price in the future. And then additionally, curiosity about how Brilliant is leveraging its customer data platform to create new styles and proprietary designs that resonate well in this environment.

Beth Gerstein: [inaudible]

Beth Gerstein: Great, thanks. And then a follow-up on the strength you're seeing across income cohorts and how that informs your approach to price.

Speaker Change: And then additionally, curious as to how Brilliant is leveraging its customer data platform to

Beth Gerstein: Yeah, absolutely. So maybe I can start a little bit with how we think about price. And I think you've heard us mention in the past that we have a pretty sophisticated pricing engine, which is quite dynamic across different parts of the assortment. We're constantly optimizing for margin, and that allows us to capture demand as we see it across different price points. So I would just say that that's an ongoing activity and something we're continuing to invest in, and as we see parts of the assortment perform even better, we're able to introduce new designs very quickly.

Beth Gerstein: Thank you. Yeah, absolutely. So maybe I can start a little bit.

Beth Gerstein: to create new styles and proprietary designs that resonate well in this environment. Thanks.

Beth Gerstein: Yeah, absolutely. So maybe I can start a little bit with how we think about price.

Beth Gerstein: And I think you've heard us mention in the past that we have a pretty sophisticated

Beth Gerstein: Pricing Engine.

Beth Gerstein: which is quite dynamic across different parts of the assortment. We're constantly optimizing for margin.

Beth Gerstein: and you know that allows us to capture demand as we see it across different price points. So that I would just say that that's ongoing activity and something we're continuing to invest in.

Beth Gerstein: And as we see parts of the assortment perform even better, then we're able to introduce new designs very quickly. So part of our competitive advantage is that

Beth Gerstein: Product Design and Differentation and the ability to launch products really quickly, leverage the customer data that we have and make sure that across different price points that we have a very productive collection. We're not aiming to have...

Beth Gerstein: An endless collection, we really want to make sure it's curated, it's trend forward, and I think that's part of how we've been able to be so successful in fine jewelry, is marrying that with our brand initiatives to appeal to our customer base.

Operator: Thank you. And as a reminder, ladies and gentlemen, if you do have a question at this time, please press star 11. And our next question comes from the line of Ashley Owens from KeyBank Capital Markets.

Speaker Change: Thank you very much.

Ashley Owens: Hi, good afternoon. So just from a start, you mentioned how purchases of some of the rationales contributing to ongoing softness in the jewelry industry, bridles obviously still in a period of normalization. I guess with that, just curious if you're seeing people elongating their decision time for making these purchases, or also anything that you can maybe update or share on engagement trends that you're seeing. Yeah, absolutely.

Speaker Change: Hi, good afternoon.

Ashley Owens: So I just want to start, you know, you mentioned the highly considered purchases as some of the rationale contributing to ongoing softness in the jewelry industry, bridal is obviously still in a period of normalization. I guess with that, just curious if you're seeing people elongating their decision time for making these purchases or also anything that you can maybe update or share on engagement trends that you're seeing. Sure.

Beth Gerstein: So, what I would say is we're still seeing really nice traffic across all of our channels. I think we are seeing, though, overall, that customers are just being a little bit more hesitant and that decision time is being elongated. So I think that is something that we're seeing. The tumor environment has slowed down a little bit, there has been more uncertainty, and the way that that's materializing is across our understanding of that more considered person.

Beth Gerstein: Yeah, absolutely. So what I would say is we're still seeing really nice traffic across all of our channels. I think we are seeing though overall that customers are just...

Beth Gerstein: Being a little bit more hesitant and that decision time is being elongated, so I think that is something that we're seeing.

Beth Gerstein: The tumor environment has slowed down a little bit as there's been more uncertainty and the way that that's materializing is across across that more considered purchase.

Beth Gerstein: Okay, gotcha, and then just quickly, rate of gross margin, obviously another solid quarter of progress here, starting to hover around that 60% range now, you know, TQ did come above that, which is above the range you highlighted for, you know, the meeting term long term, just carry to pure thoughts of change there at all, or should we still be thinking of kind of that high, high, 50's kind of level going forward?

Beth Gerstein: okay gotcha and then just quickly

Speaker Change: Rates of Gross Margin, obviously another solid quarter progress here, starting to hover around that 60% range now, you know, in 2Q it did come above that, which is above the range you highlighted for, you know, the medium term, long term.

Beth Gerstein: Just curious if your thoughts have changed there at all, or should we still be thinking of kind of that high high 50s kind of level going forward.

Jeff Kuo: Sure, I can speak to that. As you point out, in our midterm, medium-term outlook, we have highlighted that high 50s percent as our gross margin target. And I think, as you know, there's always a dynamic balancing of how we're thinking about things with the price optimization engine to drive that bright combination of top line growth and capturing gross margin percentage with the ultimate goal to drive as many gross profit dollars as we can.

Jeff Kuo: Sure, I can speak to that. So as you point out in our

Jeff Kuo: Mid-term, medium-term outlook, we have

Jeff Kuo: percent is our gross margin gross margin target.

Jeff Kuo: And I think, as you know, that's...

Jeff Kuo: There's an always dynamic balancing of how we're thinking about things with the price optimization engine to drive that bright combination of top line growth.

Jeff Kuo: and capturing gross margin percentage with the ultimate goal to drive as many gross profit.

Jeff Kuo: Dollars, as we can, we will please to see an outperformance in.

Jeff Kuo: In the 60s, this past quarter, I think our medium-term outlook still does point to a gross margin expectation in that high 50s as a percentage of sales and we're always going to be

Jeff Kuo: dynamically balancing and looking at the data that we're seeing from consumer preferences.

Jeff Kuo: input costs, market conditions, and things like that to drive that right combination. So the medium term hasn't changed. We're glad to see the performance that we did in Q2 and will continue as we always have been to be agile and dynamic.

Ashley Owens: Great, I'll pass it over. Thanks. Thank you.

Operator: Thank you, and for our next question. Come to the line. Dylan Carden, from William Blair, your question, please.

Speaker Change: Great, I'll talk to it over here. Thank you, and our next question.

Speaker Change: Come through the line.

Operator: Dylan Carden from William Blair, your question please. Thank you.

Dylan Carden: I wonder if you have a read on kind of the engagement for origination, I guess people get engaged broadly, how that's currently now, and I was up there to look at your business, and then One question we get a lot increasingly, and something you just see constant headlines about, are just diamond prices, both lab and natural. You know, is that that kind of code for what you mean by promotional or, you know, how does that show up in your business?

Dylan Carden: I'm just wondering if you have a read on kind of the engagement origination, I guess people getting engaged broadly, how that's trending now and as your business and then

Dylan Carden: One question we get a lot increasingly in some of these is he constant headlines about or just diamond prices, both lab and natural.

Speaker Change: Is that kind of code for what you mean by promotional, or how does that show up in your business? I guess prices may be more in line with historical rates, but they certainly have come in dramatically over the last two years. I know you have dynamic...

Dylan Carden: I guess prices may be more in line with historical rates, but they certainly have come in dramatically over the last two years. And I'm just I know you have a dynamic. Just in time inventory model, but you know how that might play into your business if you're holding prices in the industry's class and around you. Anything, any color there would be very helpful. Thank you.

Dylan Carden: just-in-time inventory model, but how that might play into your business if you're holding price and the industry's collapsing around you, anything, any color there would be very helpful. Thank you.

Beth Gerstein: Sure. I can start with just a read on engagement. And, you know, we've talked about this multi-year path to normalization coming off of these elevated peaks over, you know, 2021-22. So I still think we're in a normalizing situation. I think that's exacerbated by just some of the consumer headwinds in terms of the overall environment for highly considered purchases. And I think that is just causing more consumers to hold off and be a little bit more cautious overall as they're thinking about the engagement occasion. So that's probably the most that I can say about that.

Beth Gerstein: Sure, so I can start with just a read on engagement.

Beth Gerstein: And, you know, we've talked about this multi-year path to normalization coming off of

Beth Gerstein: These elevated peaks over, you know...

Beth Gerstein: 2020.

Beth Gerstein: 21, 22. So I still think we're in a normalizing situation. I think that's exacerbated by just some of the consumer headwinds in terms of the overall environment for highly considered purchases. And I think that is...

Beth Gerstein: Just causing more consumers to hold off and be a little bit more cautious overall as they're thinking about the engagement occasion.

Beth Gerstein: You know, as it relates to how we think about pricing, you know, what's important to notice in Q2, we're coming off of our second consecutive quarter of ASP increases, so we're continuing to see prices go up for consumers. We have increased the bridal selection that we have. And in addition to that, we're making sure that we are reinforcing the premium brand positioning. We think that we are leaders in the space as it relates to sustainability and innovation, just generally.

Beth Gerstein: So that's probably the most that I can say about that. You know, as it relates to how we think about pricing, you know, what's important to note is in Q2, we're coming off of our second consecutive quarter, so our second quarter of...

Beth Gerstein: ASP increases. So we're continuing to see prices for consumers

Beth Gerstein: increase in the bridal selection that we have. And in addition to that, you know, we're

Beth Gerstein: We're making sure that we are reinforcing the premium brand positioning. We think that we are leaders in the space as it relates to sustainability and innovation just generally.

Beth Gerstein: And we are, I think, as a result, making sure that we're optimizing in terms of margin. So, you know, we do have a dynamic pricing algorithm. We're constantly making sure that we are adjusting to market conditions, but we're also considering our overall brand position.

Beth Gerstein: and that's across both lab and natural and it's important to us as customers are shopping for a budget that they shop for brand first and that's really what we're leading with.

Dylan Carden: So I guess that's kind of the underlying question. I'm just trying to unpack the term promotion. I mean, as you're seeing prices come in and you maintain margin and ASP, do you think that that's hurting you in the consideration? And maybe we'll deal with that in the short term, but is that part of this right now?

Dylan Carden: So I guess that's kind of the underlying question. I'm just trying to unpack the term promotional. I mean, as you're seeing prices come in and you maintain margin and ASP, do you think that that's hurting you in the consideration?

Beth Gerstein: When we talk about promotion, we're also talking about just heavy discounting, so you're seeing 10, 20, 30% off; that's the type of discounting that we're seeing, which is much heavier than what we typically observed in the past. So, you know, for us, it's really about how do we... use pricing as a lever to make sure we're maintaining margin, but also considering that we are.

Beth Gerstein: And maybe we'll deal with that in the short term, but is that part of this right now? I mean, when we talk about promotion, we're also talking about just heavy discounting. So you're seeing 10, 20, 30 percent off. That's the type of discounting that we're seeing, which is...

Beth Gerstein: Much heavier than what we've typically observed in the past. So, you know, for us it's really about how do we, you know, use pricing as a lever to make sure we're maintaining margin but also considering that we're a premium brand.

Speaker Change: Okay, thank you.

Operator: And this does conclude the question and answer session of today's program. I'd like to hand the program back to Beth Gerstein, CEO, for any further remarks.

Beth Gerstein: Thank you.

Operator: And this does conclude the question and answer session of today's program. I'd like to hand the program back to Beth Gerstein CEO for any further remarks.

Beth Gerstein: Great. Well, thank you all for joining us for our Q2 call, our earnings call. I look forward to talking to you all in the next quarter.

Beth Gerstein: Great, well thank you all for joining us for our Q2 call, our earnings call. Look forward to talking to you all in the next quarter.

Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

Beth Gerstein: We launched our, The future is brilliant campaign, where, in celebration of things get all 90th birthday, we invited the next generation of thought leaders and sustainability advocates to advance brilliant Earth's leadership in sustainability and responsible sources. On that note, I'm excited to share that we have officially submitted our near-term and net-zero company-wide emission reduction targets to the Science-Based Targets Initiative, an essential part of driving transformation in our supply chain and innovation in low-carbon technologies and production practices.

Beth Gerstein: While wedding band and fine jewelry bookings surged year over year, for showroom customers, they outpaced the total bid. Through a combination of our stellar showroom staff, continued enhancements to the customer experience, and our diligent management of expenses, we continue to see strong post-opening Metro uplift and compelling four-wall eBitDoS from our showrooms. As you know, we plan to open three more showroom locations this year, two in Boston and our first New York City ground location.

Jeff Kuo: Highlighting our success in maintaining our premium brands' position. Q2 gross margin was 60.8%, which is a 320 basis point expansion over a few two last year, principally driven by our premium brand and proprietary product. Our Christ's organization is... procurement Efficiencies, and our Enhanced Extended Warranty Program.

Beth Gerstein: So part of our competitive advantage is that of product design and differentiation and the ability to launch products really quickly, leverage the customer data that we have, and make sure that across different price points we have a very productive collection. We're not aiming to have an endless collection; we really want to make sure it's curated, it's trend-forward, and I think that's part of how we've been able to be so successful in fine jewelry is marrying that with our brand initiatives to appeal to our customers.

Beth Gerstein: You know what we've seen recently as demand has become more soft? We've seen one of the most promotional environments that we've experienced. And our approach is to not chase unprofitable growth. We wanna make sure we're growing in a healthy and sustainable way, so we're really thinking about how we drive marketing leverage and how we invest outside of Bridal, where we've been incredibly strong with our fine jewelry, our wedding, and our anniversary band collection as well. So it's really taking a more diversified approach as we've been doing since we started these calls and seeing a lot of success there in attracting new and repeat customers.

Beth Gerstein: And we are, I think, as a result, making sure that we're optimizing in terms of margin. So, you know, we do have a dynamic pricing algorithm. We're constantly making sure that we are adjusting to market conditions, but we're also considering our overall brand position, and that's across both lab and natural. And it's important to us that, as customers shop for a budget, that they shop for brands first, and that's really what we're leading with.

Jeff Kuo: We would be pleased to see an outperformance in the 60s this past quarter. I think our medium-term outlook still points to a gross margin expectation in the high 50s as a percentage of sales. And we're always going to be dynamically balancing and looking at the data that we're seeing from consumer preferences, input costs, market conditions, and things like that to drive that, to drive that right combination. So the medium-term hasn't changed, we're glad to see the performance that we did in Q2, and we'll continue as we always have been to be agile and do it.