IDEX Online Research: Moissanite Continues Retail Roll-Out
August 27, 06
While sales were down during the second quarter ended June at Charles & Colvard, the sole source for moissanite, you don’t need to dig very far to find out that core demand was actually extremely strong.
- Domestic sales, which were driven by retail sell-through of moissanite jewelry rose by 25 percent. This measure is roughly the equivalent to a retailer’s same-store sales. Total domestic sales in the quarter were $7.2 million.
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| Charles & Colvard $8.5 (8.5%) $1.9 +39.6% |
The only other sales shortfall in the quarter occurred when ShopAtHome ceased operations in this year’s second quarter; this cost about $400,000 in sales. Despite the reported sales shortfall, profits were up for Charles & Colvard.
New Jewelry Category Created
When moissanite was introduced some years ago, diamantaires scoffed. It was destined to the dregs of the industry, along with cubic zirconium, they contended. Instead, Charles & Colvard has created a new, successful jewelry category, which is growing rapidly.
Diamantaires who are trying to understand the message that De Beers is sending out should study closely what Charles & Colvard has done: created a new jewelry category, a new brand, and a new distribution model.
Second Quarter Signs of Success
Highlights from Charles & Colvard’s second quarter – which point to its success – include the following:
- In the first half, Charles & Colvard’s distributors added 265 new doors selling moissanite jewelry. If a full roll-out of moissanite jewelry is achieved among these retailers, it would represent about 580 doors.
- As a result of its drive to add new customers, Charles & Colvard will provide an initial shipment of moissanite jewelry to 170 doors of a major, national (unnamed) retail chain that has over 700 locations. This roll-out will begin in the third quarter.
- A second test of 22 doors at jewelry counters of a major, national (unnamed) retail chain with over 900 locations will also begin in the second half of the year.
- Charles & Colvard’s gross margin rose to an astonishing 75 percent in the June quarter. Last year, the company reported a gross margin of about 65 percent in the second quarter. We look for the gross margin to remain in the 65-75 percent range. This is well above most suppliers’ margins.
- Charles & Colvard was able to implement a price increase in May. Many other suppliers have struggled to hold current prices, despite rising commodity costs.
- At the beginning of the third quarter, Charles & Colvard successfully debuted moissanite jewelry on HSN, one of the two largest television marketers in the world.
- Advertising expenditures will increase in the second half of the year. The company’s long-term ad-to-sales budget is about 35 percent. Charles & Colvard has three advertising focuses:
- Fashion magazines
- National & local newspapers
- Direct mail
Last weekend, for example, Helzberg took out a full one-quarter page ad in The
- One of the company’s major distributors, K&G Creations, has signed up Sarah Ferguson, the Duchess of York, as its spokesperson for moissanite jewelry. This may prove to be a major coup for moissanite, since no other jewelry supplier has signed such a high profile celebrity spokesperson.
- Company management hinted that internet sales of moissanite jewelry were set to increase notably due to potential new distribution. Household merchant names such as JCPenney.com, shopNBC.com, and RossSimon.com already sell moissanite jewelry over the Internet.
- Of the top 40 jewelers in
Financials Strong
Despite its solid growth pace, Charles & Colvard paid a cash dividend of $0.08 per share in the second quarter. In addition, it repurchased about 280,000 of its shares at an average price of $10.19 per share in the quarter. With well over $15 million in cash at the end of the quarter, Charles & Colvard is flush with liquidity.