Charles & Colvard Sales Fall, Posts Net loss of $6.2 million

Charles & Colvard, Ltd. reported fourth quarter net sales of $3.5 million, down 55 percent from $7.9 million in the fourth quarter of 2007. Net loss for the quarter was $1.3 million widening compared with a net loss of $1.1 million in 2007.

The company, the sole manufacturer and distributor of moissanite, pinned the decline on the significant slowdown in the retail environment and reduced inventory commitments from major retailers that sell moissanite jewelry.

Quarterly U.S. sales declined 59 percent to $2.7 million and international sales decreased 38 percent to $0.8 million. Total shipments of 18,200 carats for the period dropped 58 percent from the 43,800 carats shipped in the fourth quarter of 2007.

The year-end results reflected fourth quarter woes. Annual net sales totaled $14.7 million, a 47 percent year-over-year decrease, “mostly as a result of a decline in shipments that was somewhat offset by an 8 percent increase in the average selling price per carat,” the company said.

Net loss for 2008 was $6.2 million compared with break-even results in 2007.

The termination of manufacturing agreements with two of the company's largest wholesale customers also negatively impacted revenue during the year.

Gross profit margin for the year was 62 percent, down from 73 percent in 2007. Lower margin was primarily caused by higher production costs, the write-off of damaged returned consignment inventory and an increase in the reserve on jewelry inventory.

Charles & Colvard suffered from a $1.5 million increase in bad debt expense, $0.9 million of additional legal fees and $0.3 million in severance costs.

In August 2008, Charles & Colvard was notified by the Listing Qualifications Division of The NASDAQ Stock Market that the company's common stock is subject to potential delisting because, for the preceding 30 consecutive business days, the price of the company's common stock had closed below the minimum $1.00 closing bid price requirement.

NASDAQ has since suspended enforcement of the minimum $1.00 closing bid requirement until July 19. As a result, Charles & Colvard has until November 18 to regain compliance with the minimum $1.00 closing bid price requirement for continued inclusion on the NASDAQ Global Select Market.

According to CEO Richard A. Bird, Charles & Colvard is adjusting its marketing plans to “better match customer revenue expectations and by broadening our marketing beyond self-purchasing women to encompass a wider range of market segments.”