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C&

CHARLES & COLVARD LTD (CTHR)·Q2 2024 Earnings Summary

Executive Summary

  • Q2 FY2024 revenue was $7.91M, down 24% year over year, with gross margin at 36% (vs. 41% YoY) and diluted EPS of -$0.09; net loss widened to -$2.87M.
  • Mix continued shifting toward Online Channels (84% of sales), finished jewelry comprised 93% of sales, and domestic revenue was 98%, reflecting strategic focus on DTC and merchandising pivots.
  • Liquidity remains adequate: total cash (incl. restricted) $11.09M, inventory decreased to $25.8M, and the company ended the quarter debt-free.
  • Management emphasized strategic initiatives (NextGen e-commerce platform slated for Q4, MADE Shopping, charlesandcolvarddirect.com, and Helzberg Diamonds Caydia® placements) to drive future growth despite industry headwinds.
  • Wall Street consensus estimates via S&P Global were unavailable at the time of this analysis; the company did not issue formal quantitative guidance in the Q2 release or call.

What Went Well and What Went Wrong

What Went Well

  • Online Channels increased to 84% of sales as DTC initiatives gained traction; lab-grown diamond sales on charlesandcolvard.com grew 15% year over year for the quarter and MoissaniteOutlet.com was up 21% YTD. “We believe next gen will … create a better user experience and increase sales conversions.”
  • Finished jewelry accounted for 93% of total sales, aligning with the strategy to position as a fine jewelry company; December demand improved due to increased top-of-funnel awareness from MADE Shopping.
  • Balance sheet resilience: $11.09M total cash, $25.8M inventory, and no debt; access to a $5M cash-secured credit facility provides additional liquidity support.

What Went Wrong

  • Revenue declined 24% YoY and gross margin contracted to 36% (from 41%); operating expenses rose 5% as G&A increased on legal costs; net loss widened to -$2.87M.
  • Traditional segment sales fell 50% YoY and loose jewel sales fell 73% YoY, reflecting ongoing transition away from a distributor model and pricing pressure in moissanite/lab-grown.
  • Macro headwinds (weaker jewelry market, rising commodity prices) and downward pricing pressure on lab-grown diamonds impacted earnings and margins.

Financial Results

Quarterly Trend (oldest → newest)

MetricQ1 FY2024Q2 FY2024Q3 FY2024
Revenue ($USD)$4,953,023 $7,905,639 $5,261,966
Gross Profit ($USD)$1,944,516 $2,855,692 $1,185,885
Gross Margin %39% 36% 23%
Total Operating Expenses ($USD)$4,576,233 $5,793,385 $4,884,017
Net Loss ($USD)$(2,539,457) $(2,865,905) $(3,632,707)
Diluted EPS ($USD)$(0.08) $(0.09) $(0.12)

Q2 Year-over-Year Comparison

MetricQ2 FY2023Q2 FY2024
Revenue ($USD)$10,366,122 $7,905,639
Gross Profit ($USD)$4,294,347 $2,855,692
Gross Margin %41% 36%
Total Operating Expenses ($USD)$5,527,639 $5,793,385
Net Loss ($USD)$(1,041,781) $(2,865,905)
Diluted EPS ($USD)$(0.03) $(0.09)

Segment Breakdown (Q2)

Segment MetricQ2 FY2023Q2 FY2024
Online Channels Net Sales ($USD)$7,800,000 $6,700,000
Online Channels % of Total76% 84%
Traditional Net Sales ($USD)$2,500,000 $1,300,000
Traditional % of Total24% 16%
Finished Jewelry Net Sales ($USD)$8,400,000 $7,400,000
Loose Jewel Net Sales ($USD)$1,900,000 $500,000

KPIs (Q2 FY2024)

KPIQ2 FY2024
Domestic Sales %98%
International Sales %2%
Weighted Avg Diluted Shares30,344,955
Total Cash, Cash Equivalents & Restricted Cash ($USD)$11,087,187
Inventory ($USD)$25,800,000
Debt Outstanding ($USD)$0

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFY/QtrNo formal guidance provided No formal guidance provided Maintained (no guidance)
Gross Margin %FY/QtrNo formal guidance provided No formal guidance provided Maintained (no guidance)
Operating ExpensesFY/QtrNo formal guidance provided No formal guidance provided Maintained (no guidance)
Tax Rate, OI&E, DividendsFY/QtrNo formal guidance provided No formal guidance provided Maintained (no guidance)

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 FY2024 and Q3 FY2024)Current Period (Q2 FY2024)Trend
DTC Technology & E-commerceStreaming initiative to broaden reach; expanding product portfolio; optimism about tech-driven revenue Phase I of NextGen e-commerce platform targeted for Q4 to improve UX, speed, data, and conversion; headless front-end with proprietary code Building DTC capabilities; tech upgrades accelerating
MADE Shopping (media + transactional)Highlighted as shoppable streaming initiative Pilot programming launched; lift in DTC traffic; Phase II to blend education, entertainment, interactive shopping Scaling content-commerce flywheel
Product Mix & MerchandisingExpanded assortments across brands; new collections Finished jewelry 93% of sales; lab-grown diamond sales +15% YoY on charlesandcolvard.com; Caydia® introduced in Helzberg stores Mix shifting toward finished jewelry and lab-grown
Traditional Channel StrategyAnnounced charlesandcolvarddirect.com for independent jewelers Transition away from distributors to direct relationships; expected near-term softness in loose gems Distributor-to-direct pivot underway
Macro & PricingJewelry market softness; downward pricing pressure context (carryover from FY2023) Management cites challenging market, rising commodity prices, and lab-grown pricing pressure impacting margins Persistent headwinds; margin pressure
Legal/Regulatory CostsNot highlightedG&A +26% YoY driven by legal fees in Q2 Elevated legal expenses in quarter
Regional MixNot highlightedDomestic 98%, international 2% US-centric demand concentration

Management Commentary

  • “We acknowledge the recent industry shift has presented us with numerous challenges and has significantly impacted our earnings… We remain committed to delivering long-term shareholder value.” — Don O’Connell, CEO
  • “We believe NextGen will… create a better user experience and increase sales conversions… dramatically increase our site speed… bolster SEO rankings and add a variety of new shopping experiences.” — Don O’Connell, CEO (prepared remarks)
  • “Our liquidity and capital position remained strong… $11.1 million of total cash… working capital remained strong at $15.3 million… debt free as of December 31, 2023.” — Clint Pete, CFO
  • “We anticipated the decline in our traditional segment… as we continue to transition away from our distributor model and prepare to engage directly with thousands of independent jewelers.” — Don O’Connell, CEO

Q&A Highlights

  • Cash burn and liquidity: Analyst questioned sustainability; CFO noted quarter cash burn reduction (Q1: ~$2.7M vs. Q2: ~$1.3M used in ops), emphasized liquidity from finished jewelry gold content and $5M secured credit line.
  • Inventory monetization: Management highlighted ability to liquidate gold content within finished jewelry (~60% of $17M finished jewelry inventory) if needed, plus $11.1M in cash and no debt.
  • Profitability trajectory: Management expects improved profitability as DTC initiatives (NextGen, MADE Shopping, direct jeweler platform) scale; near-term spending focused on growth-driving investments and targeted resource additions.

Estimates Context

  • S&P Global consensus EPS and revenue estimates for Q2 FY2024 were unavailable at the time of analysis due to access constraints; no formal company guidance was provided in the Q2 release or call. We will update estimate comparisons when S&P Global data is accessible.

Key Takeaways for Investors

  • Revenue and margin pressure persisted in Q2; gross margin compression (-500 bps YoY) and net loss widening underscore near-term earnings risk.
  • Strategic pivot is clear: higher mix of finished jewelry (93%), DTC expansion, and technology upgrades aimed at conversion and customer experience.
  • Liquidity adequate with $11.09M in total cash, $25.8M inventory, no debt, and a $5M cash-secured facility; inventory’s gold content offers additional flexibility.
  • Channel mix is shifting: Online Channels at 84% of sales; Traditional segment softness expected near term as the distributor-to-direct transition progresses.
  • Lab-grown diamond momentum (charlesandcolvard.com +15% YoY) and partnerships (Helzberg, Fred Meyer, The Exchange) are potential catalysts as merchandising and reach expand.
  • Watch Q4 NextGen e-commerce launch and MADE Shopping Phase II for conversion and traffic impacts—near-term narrative driver absent formal guidance.
  • Without consensus estimates, trading setups hinge on evidence of conversion gains, margin stabilization, and operating expense discipline (especially legal/G&A) in upcoming quarters.