CHARLES & COLVARD REPORTS SECOND QUARTER FISCAL YEAR 2024 FINANCIAL RESULTS
- Company remains committed to long-term growth and shareholder value
- Launched new multimedia network and partnerships
- Experienced a 24% decrease in net sales
- Operating expenses increased by 5%
- Net loss of $2.9 million for the quarter
- Cash position decreased to $11.1 million
- Total inventory decreased to $25.8 million
- Debt-free as of December 31, 2023
- 24% decrease in net sales compared to the previous year
- Operating expenses increased by 5%
- Net loss of $2.9 million for the quarter
Insights
The reported 24% decline in net sales for Charles & Colvard is a critical indicator of the company's performance, especially in the context of the jewelry industry which can be highly sensitive to economic fluctuations. The shift towards the Online Channels segment, now comprising 84% of total net sales, suggests a strategic pivot or market trend favoring e-commerce. However, the overall decrease in sales could reflect broader market challenges or a possible decline in consumer demand for the company's products.
Moreover, the introduction of new products and partnerships, such as the Caydia® lab grown diamond jewelry, indicates an attempt to diversify product offerings and distribution channels. This could be a response to the competitive pressure and a way to capture new market segments. The expansion into various online marketplaces and the launch of the MADE ShoppingTM network may provide additional revenue streams but also come with increased marketing and operational costs, as evidenced by the 5% increase in operating expenses.
From a financial perspective, the increase in net loss to $2.9 million, or $0.09 loss per diluted share, is a concerning development for stakeholders. It's essential to compare this performance to industry benchmarks and consider the impact on investor confidence. The decrease in gross margin from 41% to 36% suggests potential inefficiencies or increased costs of goods sold, which could be a red flag for cost management practices within the company.
The reduction in cash and cash equivalents by $4.5 million might indicate the use of cash reserves to fund operations amidst declining sales, which could raise questions about the company's liquidity and long-term financial health. Additionally, the decrease in total inventory could be seen as a positive sign of inventory management aligning with reduced demand, but it also warrants scrutiny to ensure it does not signal supply chain issues or an inability to meet potential demand increases.
When analyzing the economic implications, it's important to consider the broader economic environment, including consumer spending habits and disposable income levels, which can directly affect discretionary spending sectors like fine jewelry. The company's performance must be viewed against the backdrop of economic trends, such as inflation rates and consumer confidence indices, which could provide context for the reported sales decline.
Additionally, the company's strategic decisions to expand their online presence and enter into drop-ship partnerships could be a reflection of changing consumer purchasing behavior, with more transactions moving online. This strategy might mitigate risks associated with physical retail in uncertain economic times but also exposes the company to the highly competitive online marketplace.
Conference Call with Accompanying Slide Presentation Scheduled Today at 4:30 PM ET
Management Commentary
"We acknowledge the recent industry shift has presented us with numerous challenges and has significantly impacted our earnings. However, we do not believe this setback will deter our progress or hinder our long-term growth and strategic initiatives. We remain committed to delivering long-term shareholder value and look forward to the opportunities that lie ahead," said Don O'Connell, President and CEO of the Company.
Recent Corporate Highlights
- Launched MADE ShoppingTM, the Company's new owned multimedia network;
- Introduced madeshopping.com, the Company's new owned transactional website in support of MADE ShoppingTM programming;
- Launched two strategic drop-ship partnerships—with Fred Meyer Jewelers and the Army & Air Force Exchange Service, or The Exchange;
- Introduced Caydia® lab grown diamond finished jewelry products in select Helzberg Diamonds Stores;
- Expanded charlesandcolvard.com assortment to include 126 new Forever OneTM moissanite and Caydia® lab grown diamond fine jewelry styles;
- Debuted lab grown diamond finished jewelry products with drop-ship and marketplace partners, including Amazon, Belk.com, eBay, ShopHQ and Walmart.com;
- Partnered with National Breast Cancer Foundation, Inc. during the month of October to host a social media giveaway campaign;
- Sponsored Raleigh Magazine's Cocktail Classic event in November; and
- Appeared in numerous brand and product placements, including TODAY.com, theknot.com, Brides.com, JCKonline.com, Insider.com, and MarieClaire.com.
Financial Summary for Second Quarter Fiscal 2024
(Quarter Ended December 31, 2023 Compared to Quarter Ended December 31, 2022)
- Net sales of
$7.9 million 24% from$10.4 million - In the Online Channels segment, which consists of e-commerce outlets including charlesandcolvard.com, moissaniteoutlet.com, charlesandcolvarddirect.com, madeshopping.com, third-party online marketplaces, drop-ship retail and other pure-play e-commerce outlets, net sales of
$6.7 million 84% of total net sales for the quarter, compared to$7.8 million 76% of total net sales in the year-ago quarter. - In the Traditional segment, which consists of wholesale and brick-and-mortar customers, net sales of
$1.3 million 16% of total net sales for the quarter, compared to$2.5 million 24% of total net sales, in the year-ago quarter. - Finished jewelry net sales of
$7.4 million - Loose jewel net sales of
$0.5 million - Gross profit was
$2.9 million 36% for the quarter, compared to gross profit of$4.3 million 41% in the year-ago quarter. - Operating expenses increased
5% to$5.8 million $5.5 million - Net loss was
$2.9 million $0.09 $1.0 million $0.03 - Weighted average diluted shares outstanding were 30.3 million for the quarter, consistent with the year-ago quarter.
Financial Position
Cash, cash equivalents and restricted cash totaled
Investor Conference Call
Charles & Colvard will host an investor conference call and webcast presentation to discuss its financial results for the quarter ended December 31, 2023 at 4:30 p.m. ET on Tuesday, February 13, 2024.
Live Call-In Information: Interested parties can access the conference call by dialing (844) 875-6912 (
Live Webcast Information: Interested parties can access the conference call and accompanying presentation slides via a live webcast, which is available in the Investor Relations section of the Company's website at https://ir.charlesandcolvard.com/events or https://www.webcaster4.com/Webcast/Page/346/49753.
A replay of this conference call will be available until February 20, 2024 at (877) 344-7529 (
About Charles & Colvard, Ltd.
Charles & Colvard, Ltd. (Nasdaq: CTHR) believes that fine jewelry should be as ethical as it is exquisite. Charles & Colvard is the original creator of lab grown moissanite (a rare gemstone formed from silicon carbide). The Company brings revolutionary gems and fine jewelry to market by using exclusively Made, not MinedTM above ground gemstones and a dedication to
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Statements expressing expectations regarding our future and projections relating to our products, sales, revenues, and earnings are typical of such statements and are made under the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements about our plans, objectives, representations, and contentions and are not historical facts and typically are identified by use of terms such as "may," "will," "should," "could," "expect," "intend," "plan," "anticipate," "believe," "estimate," "predict," "continue," and similar words, although some forward-looking statements are expressed differently.
All forward-looking statements are subject to the risks and uncertainties inherent in predicting the future. You should be aware that although the forward-looking statements included herein represent management's current judgment and expectations, our actual results may differ materially from those projected, stated, or implied in these forward-looking statements as a result of many factors including, but not limited to, (1) our business and our results of operations could be materially adversely affected as a result of general economic and market conditions; (2) our future financial performance depends upon increased consumer acceptance, growth of sales of our products, and operational execution of our strategic initiatives; (3) we face intense competition in the worldwide gemstone and jewelry industry; (4) we have historically been dependent on a single supplier for substantially all of our silicon carbide, or SiC, crystals, the raw materials we use to produce moissanite jewels; if our supply of high-quality SiC crystals is interrupted, our business may be materially harmed; (5) constantly evolving privacy regulatory regimes are creating new legal compliance challenges; (6) our information technology, or IT, infrastructure, and our network has been and may be impacted by a cyber-attack or other security incident as a result of the rise of cybersecurity events; (7) we are subject to certain risks due to our international operations, distribution channels and vendors; (8) our business and our results of operations could be materially adversely affected as a result of our inability to fulfill orders on a timely basis; (9) we are currently dependent on a limited number of distributor and retail partners in our Traditional segment for the sale of our products; (10) we may experience quality control challenges from time to time that can result in lost revenue and harm to our brands and reputation; (11) the effects of COVID-19 and other potential future public health crises, epidemics, pandemics or similar events on our business, operating results, and cash flows are uncertain; (12) seasonality of our business may adversely affect our net sales and operating income; (13) our operations could be disrupted by natural disasters; (14) sales of moissanite and lab grown diamond jewelry could be dependent upon the pricing of precious metals, which is beyond our control; (15) our current customers may potentially perceive us as a competitor in the finished jewelry business; (16) if the e-commerce opportunity changes dramatically or if e-commerce technology or providers change their models, our results of operations may be adversely affected; (17) governmental regulation and oversight might adversely impact our operations; (18) the execution of our business plans could significantly impact our liquidity; (19) we are subject to arbitration, litigation and demands, which could result in significant liability and costs, and impact our resources and reputation; (20) the financial difficulties or insolvency of one or more of our major customers or their lack of willingness and ability to market our products could adversely affect results; (21) negative or inaccurate information on social media could adversely impact our brand and reputation; (22) we rely on assumptions, estimates, and data to calculate certain of our key metrics and real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our business; (23) we may not be able to adequately protect our intellectual property, which could harm the value of our products and brands and adversely affect our business; (24) environmental, social, and governance matters may impact our business, reputation, financial condition, and results of operations; (25) if we fail to evaluate, implement, and integrate strategic acquisition or disposition opportunities successfully, our business may suffer; (26) our failure to maintain compliance with The Nasdaq Stock Market's continued listing requirements could result in the delisting of our common stock; (27) some anti-takeover provisions of our charter documents may delay or prevent a takeover of our Company; and (28) we cannot guarantee that our share repurchase program will be utilized to the full value approved, or that it will enhance long-term stockholder value and repurchases we consummate could increase the volatility of the price of our common stock and could have a negative impact on our available cash balance, in addition to the other risks and uncertainties described in more detail in our filings with the
- Financial Tables Follow –
CHARLES & COLVARD, LTD. | |||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||||||||
(unaudited) | |||||||||||||||
Three Months Ended December 31, | Six Months Ended December 31, | ||||||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||||||
Net sales | $ | 7,905,639 | $ | 10,366,122 | $ | 12,858,662 | $ | 17,740,204 | |||||||
Cost of goods sold | 5,049,947 | 6,071,775 | 8,058,454 | 10,157,785 | |||||||||||
Gross profit | 2,855,692 | 4,294,347 | 4,800,208 | 7,582,419 | |||||||||||
Operating expenses: | |||||||||||||||
Sales and marketing | 4,296,324 | 4,339,684 | 7,018,289 | 7,447,630 | |||||||||||
General and administrative | 1,497,061 | 1,187,955 | 3,351,329 | 2,601,431 | |||||||||||
Total operating expenses | 5,793,385 | 5,527,639 | 10,369,618 | 10,049,061 | |||||||||||
Loss from operations | (2,937,693) | (1,233,292) | (5,569,410) | (2,466,642) | |||||||||||
Other income (expense): | |||||||||||||||
Interest income | 77,359 | 59,574 | 169,619 | 99,776 | |||||||||||
Interest expense | (5,571) | - | (5,571) | - | |||||||||||
Total other income (expense), net | 71,788 | 59,574 | 164,048 | 99,776 | |||||||||||
Loss before income taxes | (2,865,905) | (1,173,718) | (5,405,362) | (2,366,866) | |||||||||||
Income tax benefit | - | 131,937 | - | 434,893 | |||||||||||
Net loss | $ | (2,865,905) | $ | (1,041,781) | $ | (5,405,362) | $ | (1,931,973) | |||||||
Net loss per common share: | |||||||||||||||
Basic | $ | (0.09) | $ | (0.03) | $ | (0.18) | $ | (0.06) | |||||||
Diluted | $ | (0.09) | $ | (0.03) | $ | (0.18) | $ | (0.06) | |||||||
Weighted average number of shares used in computing net loss per common share: | |||||||||||||||
Basic | 30,344,955 | 30,344,954 | 30,344,955 | 30,408,018 | |||||||||||
Diluted | 30,344,955 | 30,344,954 | 30,344,955 | 30,408,018 | |||||||||||
CHARLES & COLVARD, LTD. | |||||||
CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||
December 31, 2023 (unaudited) |
June 30, 2023 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 5,772,124 | $ | 10,446,532 | |||
Restricted cash | 5,315,063 | 5,122,379 | |||||
Accounts receivable, net | 1,528,476 | 380,085 | |||||
Inventory, net | 9,879,556 | 7,476,046 | |||||
Note receivable | 250,000 | 250,000 | |||||
Prepaid expenses and other assets | 937,767 | 901,354 | |||||
Total current assets | 23,682,986 | 24,576,396 | |||||
Long-term assets: | |||||||
Inventory, net | 15,882,879 | 19,277,530 | |||||
Property and equipment, net | 2,638,983 | 2,491,569 | |||||
Intangible assets, net | 338,222 | 305,703 | |||||
Operating lease right-of-use assets | 1,872,832 | 2,183,232 | |||||
Other assets | 49,658 | 49,658 | |||||
Total long-term assets | 20,782,574 | 24,307,692 | |||||
TOTAL ASSETS | $ | 44,465,560 | $ | 48,884,088 | |||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 6,049,022 | $ | 4,786,155 | |||
Operating lease liabilities, current portion | 892,147 | 880,126 | |||||
Accrued expenses and other liabilities | 1,404,825 | 1,395,479 | |||||
Total current liabilities | 8,345,994 | 7,061,760 | |||||
Long-term liabilities: | |||||||
Noncurrent operating lease liabilities | 1,631,724 | 2,047,742 | |||||
Total long-term liabilities | 1,631,724 | 2,047,742 | |||||
Total liabilities | 9,977,718 | 9,109,502 | |||||
Commitments and contingencies | |||||||
Shareholders' equity: | |||||||
Common stock, no par value; 50,000,000 shares authorized; 30,733,358 shares issued and 30,344,955 shares outstanding at December 31, 2023 and 30,912,108 shares issued and 30,523,705 shares outstanding at June 30, 2023 | 57,242,211 | 57,242,211 | |||||
Additional paid-in capital | 26,324,537 | 26,205,919 | |||||
Treasury stock, at cost, 388,403 shares at | |||||||
both December 31, 2023 and June 30, 2023 | (489,979) | (489,979) | |||||
Accumulated deficit | (48,588,927) | (43,183,565) | |||||
Total shareholders' equity | 34,487,842 | 39,774,586 | |||||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 44,465,560 | $ | 48,884,088 | |||
CHARLES & COLVARD, LTD. | |||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||
(unaudited) | |||||||
Six Months Ended December 31, | |||||||
2023 | 2022 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||
Net loss | $ | (5,405,362) | $ | (1,931,973) | |||
Adjustments to reconcile net loss to net cash used in operating activities: | |||||||
Depreciation and amortization | 357,019 | 308,900 | |||||
Stock-based compensation | 118,618 | 174,725 | |||||
Provision for uncollectible accounts | 117,000 | - | |||||
Provision for sales returns | 154,000 | 422,000 | |||||
Inventory write-downs | - | 119,000 | |||||
Provision for accounts receivable discounts | 5,793 | 4,899 | |||||
Deferred income taxes | - | (434,893) | |||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable | (1,425,184) | (292,951) | |||||
Inventory | 991,141 | (1,601,247) | |||||
Prepaid expenses and other assets, net | 273,987 | (247,025) | |||||
Accounts payable | 1,262,867 | 459,640 | |||||
Accrued expenses and other liabilities | (394,651) | (529,418) | |||||
Net cash used in operating activities | (3,944,772) | (3,054,293) | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||
Purchases of property and equipment | (495,302) | (617,283) | |||||
Payments for intangible assets | (41,650) | (30,658) | |||||
Net cash used in investing activities | (536,952) | (647,941) | |||||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||
Proceeds from line of credit | 500,000 | - | |||||
Payments on line of credit | (500,000) | - | |||||
Repurchases of common stock | - | (451,815) | |||||
Net cash used in financing activities | - | (451,815) | |||||
NET DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | (4,481,724) | (4,154,049) | |||||
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD | 15,568,911 | 21,179,340 | |||||
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD | $ | 11,087,187 | $ | 17,025,291 | |||
Supplemental disclosure of cash flow information: | |||||||
Cash paid during the period for income taxes |
$ | - |
$ |
5,900 | |||
Cash paid during the period for interest expense | 2,875 | - | |||||
Reconciliation to Condensed Consolidated Balance Sheets: | December 31, 2023 | June 30, 2023 | |||||
Cash and cash equivalents | $ | 5,772,124 | $ | 10,446,532 | |||
Restricted cash | 5,315,063 | 5,122,379 | |||||
CASH, CASH EQUIVALENTS AND RESTRICTED CASH | $ | 11,087,187 | $ | 15,568,911 | |||
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SOURCE Charles & Colvard, Ltd.
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