Charles & Colvard Reports Second Quarter Fiscal 2019 Financial Results
- Quarterly Net Sales Surpassed
- Significant Sales Growth of 19% Driven by Online Channels and Traditional Retail -
- Profitability Achieved in Consecutive Quarters in FY 2019 with 67% Annual EPS Growth -
- Compelling Gross Margin of 47% Powered by E-commerce and Forever One™ Sales -
- Conference Call with Accompanying Slide Presentation Scheduled Today at
“The revenue growth was driven by strength in both our Online Channels and Traditional segments, which indicates the growing acceptance of our lab-created gemstones. Our proprietary Signature Collection and expanded Forever One™ designs have been very well received in the market and are expanding finished jewelry sales, which had a positive impact on margins. For our brick and mortar presence, we benefited from a broader product selection, better in-store placement, including expanded bridal assortments, and new styles delivered in the quarter that performed well,” Ms. Miglucci continued.
“In terms of long-term strategic growth, we were pleased to see global engagement and increasing brand awareness, even as our international expansion is still in the early stages. International revenues increased 124% to represent 13% of sales, with strong demand from international distributors. Cross border trade, which results from customers outside the U.S. ordering products from our domestic e-commerce site, increased more than 250% as a result of our adoption of a new technology platform enabling streamlined distribution, expanded payment and currency options. We supported this initiative with targeted in-country advertising designed to build brand awareness and demand.”
“As this quarter demonstrates, we are successfully transforming Charles & Colvard into a growing e-commerce company with unique products and an established brand. We are proud of the Company’s track record of executing and delivering results. We are using data-driven strategies and actions that are leading to better margins and improved return on investment. With numerous opportunities for growth and an improving financial position, we believe we are well-positioned for the future,” Ms. Miglucci concluded.
Recent Corporate Highlights
- Executed on the new strategic retail partnership with Macy’s providing online customers with a curated collection of jewelry featuring Moissanite by Charles & Colvard®;
- Enhanced the Company’s ability to drive international sales on its U.S.-based e-commerce site, through the implementation of a cross-border trade technology platform that provides a personalized, on-site experience and seamless buying process for customers outside of the U.S.;
- Generated sales in new international markets using an agile, low-cost approach providing Charles & Colvard created moissanite jewelry on established marketplaces including
Amazon sites inSpain ,Italy ,France ,Germany , andAustralia , along with Australian siteseBay and Catch; - Introduced the availability of Charles & Colvard moissanite jewelry through Google Shopping Actions, which allows consumers to seamlessly search and purchase products across multiple devices; and
- Expanded Charles & Colvard’s presence with existing retail partners in brick-and-mortar stores with additional bridal, fine and fashion jewelry, and loose gemstones.
Financial Summary for Second Quarter Fiscal 2019
(Quarter Ended
- Net sales were
$10.1 million for the quarter, an increase of 19% compared with$8.5 million in the year-ago quarter. - Finished jewelry net sales were
$5.2 million for the quarter, an increase of 10% compared with$4.7 million in the year-ago quarter. - Loose jewel net sales were
$4.9 million for the quarter, an increase of 30% compared with$3.8 million in the year-ago quarter. - In the Online Channels segment, which consists of e-commerce outlets including charlesandcolvard.com, third-party online marketplaces, drop-ship and other pure-play, exclusively e-commerce outlets, net sales increased 18% to
$5.4 million , or 54% of total net sales for the quarter, compared with$4.6 million , or 54% of total net sales in the year-ago quarter. - In the Traditional segment, which consists of wholesale, retail, and historically, television customers, net sales increased 19% to
$4.7 million , or 46% of total net sales for the quarter, compared with$3.9 million , or 46% of total net sales in the year-ago quarter. - Operating expenses were
$3.6 million for the quarter, compared to$3.1 million in the year-ago quarter. - Net income for the quarter was
$1.2 million , or$0.05 per diluted share, compared with net income of$0.7 million , or$0.03 per diluted share, in the year-ago quarter.
Financial Summary for the First Six Months of Fiscal 2019
(Six Months Ended
- Net sales were
$16.7 million for the six months endedDecember 31, 2018 , an increase of 13% compared with$14.7 million in the year-ago period. - Finished jewelry net sales were
$7.8 million for the six months endedDecember 31, 2018 , an increase of 13% compared with$6.8 million in the year-ago period. - Loose jewel net sales were
$9.0 million for the six months endedDecember 31, 2018 , an increase of 14% compared with$7.9 million in the year-ago period. - In the Online Channels segment, net sales increased 28% to
$8.5 million , or 51% of total net sales for the six months endedDecember 31, 2018 , compared with$6.7 million , or 45% of total net sales in the year-ago period. - In the Traditional segment, net sales increased 2% to
$8.2 million , or 49% of total net sales for the six months endedDecember 31, 2018 , compared with$8.1 million , or 55% of total net sales in the year-ago period. - Operating expenses were
$6.5 million for the six months endedDecember 31, 2018 , compared to$6.0 million in the year-ago period. - Net income for the six months ended
December 31, 2018 was$1.3 million , or$0.06 per diluted share, compared with net income of$0.5 million , or$0.02 per diluted share, in the year-ago period.
Financial Position
Cash, cash equivalents and restricted cash totaled
Investor Conference Call
Shareholders and other interested parties may participate in the upcoming investor conference call by dialing 844-875-6912 (U.S. toll-free) or 412-317-6708 (international) and asking to be connected to the “Charles & Colvard, Ltd. Conference Call” a few minutes before
A replay of this conference call will be available until
About
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,” “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, our dependence on consumer awareness, acceptance, and growth of sales of our products resulting from our strategic initiatives; the impact of the execution of our business plans on our liquidity; our ability to fulfill orders on a timely basis; our ability to maintain compliance with The Nasdaq Stock Market’s continued listing requirements; intense competition in the worldwide gemstone and jewelry industry; the financial condition of our major customers and their willingness and ability to market our products; dependence on a limited number of distributor and retail partners in our Traditional segment; dependence on our exclusive supply agreement with
Contacts:
Chief Financial Officer
919-468-0399
cpete@charlesandcolvard.com
Investor Relations
800-695-0650
Jenny.Kobin@IRAdvisory.com
-Financial Tables Follow-
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended December 31, | Six Months Ended December 31, | |||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||
Net sales | $ | 10,139,461 |
$ | 8,536,982 | $ | 16,734,167 |
$ | 14,745,790 | ||||
Costs and expenses: | ||||||||||||
Cost of goods sold | 5,346,207 | 4,926,314 | 8,959,956 | 8,409,917 | ||||||||
Sales and marketing | 2,346,893 | 2,028,159 | 3,988,017 | 3,785,166 | ||||||||
General and administrative | 1,250,181 | 1,077,205 | 2,474,956 | 2,214,941 | ||||||||
Research and development | 1,422 | 81 | 1,422 | 570 | ||||||||
Total costs and expenses | 8,944,703 | 8,031,759 | 15,424,351 | 14,410,594 | ||||||||
Income from operations | 1,194,758 | 505,223 | 1,309,816 | 335,196 | ||||||||
Other (expenses) income: | ||||||||||||
Interest expense | (352 | ) | (444 | ) | (698 | ) | (449 | ) | ||||
Loss on foreign currency | (74 | ) | - | (102 | ) | - | ||||||
Gain on insurance settlement | - | 183,217 | - | 183,217 | ||||||||
Other expense | - | - | (13 | ) | - | |||||||
Total other (expense) income | (426 | ) | 182,773 | (813 | ) | 182,768 | ||||||
Income before income taxes | 1,194,332 | 687,996 | 1,309,003 | 517,964 | ||||||||
Income tax expense | (4,767 | ) | (4,507 | ) | (9,534 | ) | (9,014 | ) | ||||
Net income | $ | 1,189,565 | $ | 683,489 | $ | 1,299,469 | $ | 508,950 | ||||
Net income per common share: | ||||||||||||
Basic | $ | 0.06 | $ | 0.03 | $ | 0.06 | $ | 0.02 | ||||
Diluted | $ | 0.05 | $ | 0.03 | $ | 0.06 | $ | 0.02 | ||||
Weighted average number of shares used in computing net income per common share: | ||||||||||||
Basic | 21,468,569 | 21,222,228 | 21,461,773 | 21,193,793 | ||||||||
Diluted | 21,681,484 | 21,731,440 | 21,623,967 | 21,536,020 | ||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 2018 (unaudited) |
June 30, 2018 | |||||
ASSETS | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | 2,803,621 | $ | 3,393,186 | ||
Restricted cash | 201,081 | - | ||||
Accounts receivable, net | 2,972,322 | 1,765,722 | ||||
Inventory, net | 11,318,267 | 10,979,891 | ||||
Prepaid expenses and other assets | 1,305,119 | 916,162 | ||||
Total current assets | 18,600,410 | 17,054,961 | ||||
Long-term assets: | ||||||
Inventory, net | 21,474,480 | 20,848,647 | ||||
Property and equipment, net | 1,200,342 | 1,144,198 | ||||
Intangible assets, net | 89,729 | 34,833 | ||||
Other assets | 387,165 | 389,868 | ||||
Total long-term assets | 23,151,716 | 22,417,546 | ||||
TOTAL ASSETS | $ | 41,752,126 | $ | 39,472,507 | ||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||
Current liabilities: | ||||||
Accounts payable | $ | 4,467,137 | $ | 4,170,952 | ||
Accrued expenses and other liabilities | 1,125,481 | 618,945 | ||||
Total current liabilities | 5,592,618 | 4,789,897 | ||||
Long-term liabilities: | ||||||
Deferred rent | 315,613 | 393,051 | ||||
Accrued income taxes | 480,660 | 471,126 | ||||
Total long-term liabilities | 796,273 | 864,177 | ||||
Total liabilities | 6,388,891 | 5,654,074 | ||||
Shareholders’ equity: | ||||||
Common stock, no par value; 50,000,000 shares authorized; 21,568,069 and 21,705,173 shares issued and outstanding at December 31, 2018 and June 30, 2018, respectively | 54,247,296 | 54,243,816 | ||||
Additional paid-in capital | 15,203,924 | 14,962,071 | ||||
Accumulated deficit | (34,087,985 | ) | (35,387,454 | ) | ||
Total shareholders’ equity | 35,363,235 | 33,818,433 | ||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 41,752,126 | $ | 39,472,507 | ||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended December 31, | |||||||
2018 | 2017 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||
Net income | $ | 1,299,469 | $ | 508,950 | |||
Adjustments to reconcile net income to net cash used in operating activities: | |||||||
Depreciation and amortization | 230,013 | 207,854 | |||||
Stock-based compensation | 243,082 | 237,396 | |||||
Provision for (recovery of) collectible accounts | 8,056 | (1,000 | ) | ||||
Provision for sales returns | 635,000 | 67,000 | |||||
Provision for inventory reserves | 52,000 | 551,000 | |||||
Provision for accounts receivable discounts | 38,788 | - | |||||
Gain on insurance claim settlement | - | (183,217 | ) | ||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable | (1,888,444 | ) | (1,451,017 | ) | |||
Inventory | (1,016,209 | ) | (2,353,372 | ) | |||
Prepaid expenses and other assets, net | (386,254 | ) | (78,294 | ) | |||
Accounts payable | 296,185 | 601,185 | |||||
Deferred rent | (77,438 | ) | (69,079 | ) | |||
Accrued income taxes | 9,534 | 9,014 | |||||
Accrued expenses and other liabilities | 506,536 | 303,741 | |||||
Net cash used in operating activities | (49,682 | ) | (1,649,839 | ) | |||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||
Purchases of property and equipment | (285,377 | ) | (44,757 | ) | |||
Intangible assets | (55,676 | ) | (508 | ) | |||
Net cash used in investing activities | (341,053 | ) | (45,265 | ) | |||
CASH FLOWS FROM FINANCIANG ACTIVITIES: | |||||||
Stock option exercises | 2,251 | - | |||||
Net cash provided by financing activities | 2,251 | - | |||||
NET DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | (388,484 | ) | (1,695,104 | ) | |||
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD | 3,393,186 | 6,289,111 | |||||
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD | $ | 3,004,702 | $ | 4,594,007 | |||
Supplemental disclosure of cash flow information: | |||||||
Cash paid during the period for interest | $ | - | $ | - | |||
Cash paid during the period for taxes | $ | - | $ | - |
Reconciliation to Condensed Consolidated Balance Sheets: | December 31, 2018 |
December 31, 2017 |
|||||
Cash and cash equivalents | $ | 2,803,621 | $ | 4,594,007 | |||
Restricted cash | 201,081 | - | |||||
CASH, CASH EQUIVALENTS AND RESTRICTED CASH | $ | 3,004,702 | $ | 4,594,007 |