Q3 2024 Brilliant Earth Group Inc Earnings Call
Good day, and thank you for standing by welcome to the third.
Third quarter 'twenty once full earnings conference call at this time, all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you will need to press star one on one on your telephone you will then have an automated message advising you of hundreds raised to withdraw your question.
Please press Star one again, please be advised that today's conference is being recorded I would now.
Speaker Change: I would like to turn the conference is it your first speaker today, Colin Taylor, Vice President of strategy business development and Investor Relations. Please go ahead.
Colin Borland: Thank you and good afternoon, everyone welcome to brilliant <unk> third quarter 2024 earnings Conference call. My name is Colin Borland, Vice President of strategy business development and Investor Relations Joe.
Colin Borland: Joining me today are Beth Gerstein, our Chief Executive Officer, and Jeff <unk>, Our Chief Financial Officer.
Colin Borland: During the call today management will make certain forward looking statements within the meaning of the private Securities Litigation Reform Act of 995.
Colin Borland: These forward looking statements are subject to risks and uncertainties that could cause actual results could differ materially. Please.
Colin Borland: 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 opinion only as of the date of this call and we undertake no obligation to revise.
Colin Borland: 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 also during this call management will refer to certain non-GAAP financial measures a reconciliation of brilliant Earth non-GAAP measures.
Colin Borland: The comparable GAAP measures is available in today's earnings release, which can be found on the brilliant Earth Investor Relations website.
Speaker Change: I will now turn the call over to Beth.
Beth Gerstein: Good afternoon, and thank you for joining us today I'm happy to report that we continue to drive the progress of our strategic initiatives and delivered another quarter of profitability.
Beth Gerstein: This is our 13th consecutive quarter of profitability as a public company and something I continue to be very proud of in.
Beth Gerstein: In Q3, we delivered net sales of $99 $9 million, which was within our guidance range at a 13% year over year decline, we continue to operate nimbly and efficiently expanding gross margin 230 basis points year over year to 68%.
Beth Gerstein: Driving marketing efficiency and effectiveness and exceeded our profitability expectations for the quarter delivering $3 6 million in adjusted EBITDA or three 6% adjusted EBITDA margin.
Beth Gerstein: As you all know the engagement market continues to normalize and our competitors are increasingly relying on promotions and discounts to encourage sales.
Beth Gerstein: Yet we've remained steadfast in driving sustainable profitable results and protecting and strengthening our premium brand in this environment.
Beth Gerstein: We believe this balanced approach positions us to seize what we believe is enormous untapped potential for our business.
While we have experienced expected softness in engagement ring sales, we've seen strong sales growth outside of engagement rings, including in both wedding and anniversary bands.
Beth Gerstein: Fine jewelry.
Beth Gerstein: We believe the strength and demand is a strong reflection of consumers' desire for our high quality beautiful products and their affinity for our brand.
It was a banner quarter for our brand even as we exceeded our profitability guidance. We continued to make long term strategic investments in our brand we launched our much anticipated fine jewelry collection with Dr. Jane Goodall, which has been our most successful launch ever for fine jewelry collection.
Beth Gerstein: Our partnership with Dr. Goodall is a reflection of the best of our company beautiful unique and exclusive product and authentic mission aligned partnership and a fully integrated culturally resident Omnichannel campaign.
Beth Gerstein: In conjunction with the release of our Jane Goodall collection, we launched rethink everything you know about diamonds to share and amplify our industry defining innovation and leadership in both natural and lab Diamonds. This campaign highlights our nearly 20 year legacy of Diamond leadership from our groundbreaking <unk>.
Beth Gerstein: Diamond collections to our transparent and responsible sourcing practices.
Beth Gerstein: Our mission to redefine ethical luxury and to inspire consumers to make impactful choices that reflect our values.
Beth Gerstein: Resonating strongly with our customers.
Beth Gerstein: For the past several years, you've heard me talk about our commitment to investing in and building our premium brands. We're very pleased to see the strong progress we're making over the last two years, we've been growing our aided and unaided brand awareness, including outsized growth and awareness in our local markets, where we have invested and expand.
Beth Gerstein: <unk>, our physical footprint during the same period.
Beth Gerstein: In addition over the same time period, we've grown earned media impressions by 38% and counting and grown impressions from our social media strategy by 375% and counting we have also continued to expand upon our successful showroom strategy. Our showrooms continues to deliver compel.
Beth Gerstein: <unk> Metro uplift and we are thrilled to launch three new showrooms in time for the holiday season.
Beth Gerstein: During the quarter, we expanded our retail footprint with the opening of our second location in Boston. This new location at Chestnut Hill features a fine jewelry try on bar with a destination oriented elevated design with an interactive experience.
Beth Gerstein: We opened our first New York City ground floor location in no later and in the coming weeks, we will open our third Boston location at Seaport village.
Beth Gerstein: Our total showroom footprint to 40 by year end I encourage you to stop by when you are in the area.
Beth Gerstein: We are excited for the holiday season ahead of US, we'll be bringing the brand to life in a beautiful way across our digital channels and our showrooms.
Beth Gerstein: Of which had joyful holiday elements celebrating the season as part of our upcoming B together be brilliant campaign.
Beth Gerstein: We continue to offer compelling items for both gifting and self purchase with a curated unique and trend forward Assortments look out for our gift guides, which will feature some of my favorite pieces, including our silk collection Diamond Essentials Zodiac and of course, the Jane Goodall collection. So.
Beth Gerstein: So far this quarter, we are pleased to see sequential improvement in our bookings growth rate, including an engagement rings. We continue to have strong performance in our fine jewelry sales, including encouraging repeat purchase trends, which we see as a positive indicator going into the most important seasonal quarter for fine jewelry.
Beth Gerstein: The bulk of the holiday season still lies ahead of us and our asset light data driven model positions us well to capture demand as it emerges.
Speaker Change: Before turning the call over to Jeff I want to thank him and our entire team for their unrelenting commitment.
Jeff: Passion and persistence that our team demonstrates every day not only inspires me it reinforces my confidence in our path ahead, which will continue to be focused on investing for profitable and sustainable growth in our business and our brand.
Jeff: I look forward to sharing our progress with you in the new year and wish everyone a happy holiday season, Here's Jeff.
Jeff: Thanks, Beth and good afternoon, everyone.
Jeff: As Beth mentioned, we're pleased to report a quarter, where we continued to successfully drive our strategic initiatives.
Jeff: <unk>.
Jeff: Meet our topline expectations and far exceed our profitability expectations, even in the face of industry headwinds let.
Jeff: Let me take you through the details for Q3.
Jeff: Q3, net sales were $99 9 million.
Jeff: Within our guidance range for a decline of 13% year over year.
Jeff: Total orders were about flat year over year, while we had another strong quarter in repeat orders, which increased by 11% year over year, demonstrating the effectiveness of our customer acquisition and retention efforts and the residents of our brand and products with consumers.
Jeff: Q3 average order value or <unk>.
Jeff: <unk> declined 12% 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: Q3 average selling price or ASP growth was about flat year over year in engagement rings, while wedding and anniversary bands and fine jewelry Asp's, both saw growth year over year, demonstrating our effective strategy of leaning into a compelling brand and not participating in the dish.
Jeff: Counting that is widespread in the industry.
Jeff: Q3, gross margin was 68%, which is a 230 basis point expansion over Q3 last year, principally driven by our premium brand and proprietary products or price optimization engine procurement efficiencies and our enhanced extended warranty.
Jeff: Program.
Jeff: This gross margin strength is particularly rewarding as we maintain our focus on our premium brand positioning.
Jeff: Firemen, where others continue to lean into discounting and gold prices are at all time highs.
Jeff: We delivered a Q3 adjusted EBITDA of $3 $6 million or a three 6% adjusted EBITDA margin exceeding our guidance range.
Jeff: 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: Q3, SG&A was 61, 9% of net sales compared to 56, 8% of net sales in Q3 2023, as we continue to balance making investments to drive long term growth with discipline and expense management.
Jeff: Q3, adjusted SG&A was 57, 3% of net sales compared to 51, 9% in Q3 2023.
Jeff: Adjusted SG&A does not include items, such as equity based compensation depreciation and amortization showroom preopening expenses and other nonrecurring expenses.
Jeff: For Q3 marketing expenses, we maintained our disciplined approach and drove leverage of approximately 10 basis points as a percentage of net sales compared to Q3 last year.
Jeff: We continue to make strategic investments to drive brand awareness and support key initiatives such as growth in fine jewelry.
Jeff: Balanced with capturing marketing efficiencies, while maintaining overall profitability.
Jeff: As I pointed out during our last several 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 in Q3, we were approximately in line with that expectation, while still delivering net sales within our guidance and making investments in.
Jeff: Our brand.
Jeff: Employee cost as a percentage of net sales were higher for the third quarter by approximately 360 basis points as adjusted year over year.
Jeff: This was principally driven by new showroom employees, which includes the amortization of employees in showrooms opened last year.
Jeff: We continue to manage these expenses in a disciplined and responsible manner.
Jeff: Other G&A as a percentage of net sales increased year over year by approximately 200 basis points as adjusted as we continue to prudently invest in our business. This includes investments in technology, plus rent and showroom expenses.
Jeff: Our data driven capital efficient and inventory light operating model continues to provide competitive advantages and our inventory turns continue to be significantly higher than the industry average.
Jeff: We were able to leverage this model to limit the increase in our year over year inventory to only three 4%.
Jeff: Even with our significant growth in fine jewelry, and a larger showroom footprint.
Jeff: Our lower risk agile inventory model and strong balance sheet continue to differentiate us from the rest of the industry.
Jeff: We ended the third quarter with approximately $153 million in cash, which reflects a year over year increase of approximately $5 5 million.
Jeff: Even after reductions in debt principal balance and expansion of our showroom footprint.
Jeff: 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: In addition, we continue to maintain a strong balance sheet with no net debt.
Jeff: Our financial strength allows us to continue to make prudent investments in the business to drive long term growth.
Jeff: In Q3, we spent approximately $179000 repurchasing our common stock. This takes our total spend on stock repurchases to approximately $438000 in total to date as of the end of Q3.
Jeff: Our strong balance sheet provides the opportunity to strategically seize value creation opportunities, including when we see an opportunity to buy back our common stock.
Jeff: 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 float.
Jeff: As we look ahead to the remainder of the year our perspective on the overall environment is consistent with what we've previously discussed.
Jeff: For the year, we continue to expect that our net sales will be in the range of $410 million to $425 million.
Jeff: We are raising our adjusted EBITDA guidance to be in the range of $14 million to $16 million as we dynamically manage operating expenses, including marketing spend to deliver profitability, while making strategic investments in the business for the long term.
Jeff: The midpoint of this guidance implies sequential improvement in year over year net sales growth in Q4 compared to Q3.
Speaker Change: As Beth mentioned, we continue to have strong performance in our fine jewelry sales, including encouraging repeat purchase trends, which we see as a positive indicator going into the most important seasonal quarter for fine jewelry.
Speaker Change: As we have discussed previously we expect that engagements will continue their gradual path to normalization.
Speaker Change: We also expect other key drivers of Q4 performance will include realizing uplift from our showrooms and our ongoing brand building efforts.
Speaker Change: In closing, our premium brand and differentiated business model, including our data driven decision making.
Speaker Change: <unk> 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 third quarter reinforces our ability to execute and capitalize on the opportunities that drive long term.
Speaker Change: <unk> sustainable and profitable growth.
Speaker Change: With that I will turn the call back over to the operator for questions.
Speaker Change: Thank you to ask a question you will need to press star one on your telephone and wait for your name to be announced through store. Your question. Please press star one on one again.
Speaker Change: We'll now take the first question.
Speaker Change: One moment please.
Speaker Change: And your first question comes from the line of Oliver Chen from TD Cowen. Please go ahead.
Speaker Change: Okay.
Oliver Chen: Thanks, very much hi, Beth and Jeff as you think about the engagement market and normalization.
Speaker Change: When might it normalize.
Speaker Change: Turn positive in terms of the trends that youre seeing.
Speaker Change: And also about that.
Speaker Change: About your comments on second quarter in terms of bridal trends now versus prior.
Speaker Change: We are the biggest changes.
Speaker Change: And Jeff on your side the margins continue to impress you have had the optimization engine in place for a while which has been very helpful. Like what inning are you in with the optimization engine and the promotional environment may continue to be pretty intense for a while.
Speaker Change: Some plans of promotions get worse from competitors. Thank you.
Speaker Change: Thanks Oliver.
Speaker Change: So I can start with just the overall trends that we're seeing in the engagement market. As we mentioned earlier were encouraged that we are seeing improvement sequential improvement in engagement ring bookings trends.
Speaker Change: So we are seeing an improvement in the overall market and in addition to that we have a lot of confidence that our strategic priorities are working and as we're continuing to invest in our brand we are seeing improvement within bridal as well as outside bridal overall.
So while we don't have a crystal ball, we know that we're seeing some nice improvement we expect.
Speaker Change: Q4 to come in stronger and we also feel like we're very well positioned as we see increasing demand to be able to react very quickly.
Speaker Change: Nimbly as you know our model is very asset light where make to order. So we're very adaptive as a company to be able to drive additional sales as we see that demand materialize. We continue the strategy also of of not chasing unprofitable growth and continuing to protect our brands I think we've done at <unk>.
Speaker Change: Great job as the a lot of the team has done a great job I think that goes to your question on the promotional environment.
Speaker Change: It has been intense we expect it to continue to be intense.
Speaker Change: But because we are really attracting customers for the differentiated beautiful product that we offer our signature collections and the premium brand and that premium omnichannel experience and we're not leaning into discounts as we really havent in our history and Thats got to protect and grow the brand for the <unk>.
Speaker Change: Future and we continue to believe that that is the winning strategy in this market and in markets to come.
Speaker Change: Jeff maybe you can talk a little bit about margins.
Speaker Change: Yeah. Thanks, Thanks, Beth Oliver regarding the margins and price optimization engine as you know that's something that we have been continually continuing to use for for some time and it's dynamic it's dynamic in that we refine it as we get new data from market from consumers and we're continuing.
Speaker Change: Lee testing and optimizing that to find the right balance of driving topline growth as well as capturing gross margin percentage and so it's something that we continue to deploy on an ongoing basis and in times like this it couples very well with our <unk>.
Speaker Change: Asset light model and our overall data driven approach to allow us to compete effectively to capture demand as it emerges and we are excited to continue to refine that.
With each quarter.
Okay, and just a couple of follow ups, the environment's pretty dynamic with.
Speaker Change: Prospect is.
Speaker Change: Different tariff scenarios, just as you think about those what are some of your ideas or framework in terms of those uncertainties.
Speaker Change: And then the holiday period.
Speaker Change: Five fewer days, but any thoughts that you have to help us frame holiday strategy. This year.
Speaker Change: Which may be different versus last year. Thank you.
Speaker Change: Sure thing so as it relates to tariffs scenarios, because we have a very diversified supply chain I feel very comfortably comfortable that we're able to adapt quickly depending on what we see as it relates to tariffs and.
Speaker Change: This is something that we saw during COVID-19 is different geographies experienced different shutdowns, we were exceptionally well positioned relative to our competitors.
Speaker Change: So that I think is going to give us an advantage as well as just the very data driven nature of our company overall.
Speaker Change: We also given the price optimization engine I think can react very dynamically in terms of optimizing margin and adapting our pricing relative to our cost and we've been very dynamic cost environments, even with gold prices are at.
Speaker Change: All time high so something that our company is very adept at managing.
Speaker Change: As it relates to the holiday season, we we've been doing this now for almost 20 years and I think we've seen every version of the holiday season.
Speaker Change: Have a great assortment I think the fact that we have three new showrooms opening and ending the year with 40 showrooms makes us very well positioned for that last minute shopper, even even better than we have been positioned in the past.
Speaker Change: And we're just incredibly as I said agile, we're continuing to monitor the overall environment drive marketing efficiency and so as we see demand wherever it ends up being we're going to be able to capture it and be very dynamic in how we think about.
Speaker Change: Promoting our products, both online and in our stores.
Speaker Change: Thank you best regards.
Speaker Change: Thank you.
Speaker Change: As a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: We will now take the next question.
Speaker Change: And your next question comes from the line of Aussie Owens from Keybanc capital markets. Please go ahead.
Speaker Change: Hi, good afternoon, and thanks for taking our questions. So first I just wanted to touch on some of the biometric.
Speaker Change: Total orders were about flat in the quarter.
Speaker Change: <unk> orders were up 11% I wanted to unpack the differences in trends youre seeing between potential customers coming into showrooms versus those who have already made a purchase with you are you seeing a slowdown in new customer acquisition at all and then I have a follow up.
Speaker Change: So I would say that it's the difference in terms of new versus repeat orders is really driven by that softer bridal demand and we see it.
Speaker Change: Great performance as it relates to outside of bright all within our wedding and anniversary bands within our fine jewelry assortment as well but.
Speaker Change: But it's really about that that bridal customer overall, which as we know as experience some headwinds as it relates to higher inflationary costs. It's a more considered purchases as a younger consumer.
Speaker Change: <unk>.
Speaker Change: And so that's that's really the main difference in terms of the showrooms and we feel really great about the performance overall I think chevron's have have held up nicely the digital environment remains very competitive and promotional in.
Speaker Change: That's why we've taken the strategy that we have.
Speaker Change: But overall, we really think about the omnichannel purchase in totality. Given this is a multi step process for many of our customers.
Speaker Change: So that's probably the.
The difference there.
Speaker Change: And I would just add.
Speaker Change: As Beth mentioned, we've been seeing sequential improvement in the bookings growth rate, including an engagement rings and we're glad to see that progression is we're starting off starting off Q4, and we think we're well positioned for the holidays.
Speaker Change: Got it.
Speaker Change: Switching to marketing really quick leverage in the quarter, while making some of those brand building investments could you just parse through where you saw opportunity to pull back this quarter and then any pockets of focus youre reading into examining for investments in 2025 to help fuel our return to growth I know media and social media shareholders have been shrunk.
Speaker Change: All out for you.
Speaker Change: Yeah, I would say that we continue to be very dynamic in how we operate and marketing, we're driving marketing efficiency and effectiveness and social media remains very important to the company and we're really leaders here, we've driven very strong engagement the numbers that I said in my earlier.
Speaker Change: Your remarks was that overall impressions have grown over 375% relative to two years ago. So I think the investments that we're making there continue to pay off.
Speaker Change: The strategic priorities that we've said all along we continue to have conviction in so if you think about brand awareness, we're continuing to lean into brand investments we.
Speaker Change: Continue to drive fine jewelry growth and a lot of that is driven through a very successful marketing initiatives, we're coming off our most successful launch ever in fine jewelry with our Jane Goodall collections. So that's something we're really pleased to see and see a lot of opportunity going forward and then continue to see growth through showroom.
Speaker Change: <unk>. The fact that we're opening three new ground floor showrooms, including today opening in Atlanta, and New York were very excited about and I think all of these are going to position us very well for the long term.
Speaker Change: I appreciate the color. Thanks, so much guys.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: I will now hand, the call back to Beth <unk> for closing remarks. Thank.
Beth Gerstein: Thank you everybody for joining us today I hope you all have a very happy holiday season, and look forward to sharing our holiday results next quarter.
Speaker Change: Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.
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