Charles Colvards CEO Discusses QResults

Charles Colvards CEO Discusses Q1 2014 Results<br /><br />Good afternoon, and welcome to the Charles Colvards First Quarter 2014 Earnings Conference Call. All participants will be in listen only mode. Operator Instructions Please note this event is being recorded.<br /><br />This webcast may contain forward looking statements as defined in Section 27A 1 1 of the Securities Act of 1933 as amended, including statements regarding among other things, the companys business strategy and growth strategy. Expressions which identify forward looking statements speak only as of the date the statement is made.<br /><br />These forward looking statements are based largely on our companys expectations, and are subject to a number of risks and uncertainties, some of which cannot be predicted or quantified and are beyond our control.<br /><br />Future developments and actual results could differ materially from those set forth in contemplated by or underlined in the forward looking statements. In light of these risks and uncertainties there can be no assurance that the forward looking information will prove to be accurate.<br /><br />Id now like to turn the conference over to Randy McCullough, President and Chief Executive Officer. Please go ahead.<br /><br />Thanks, operator. Thank you for joining us everybody. We do not believe the financial results for the first quarter represent our future growth opportunity. We continue to believe there is a large market for our gem. We are a growing company. That means investment, time, energy, systems integrations, marketing, operations are all necessities to drive the business. As such, we are continuously taking necessary steps to increase our wholesale, retail and online footprint in order to be well positioned over the long term to surpass any previous sales records.<br /><br />Let me give you some color for this quarter. has seen in a long time. This created bit of temporary wholesale sluggishness for us.<br /><br />To help our current work through this, we collaborated closely to assist them with selling through their on hand inventories. This required our sales teams to spend more time with our existing customers, which stretched our bandwidth a bit. This triggered a temporary consequence and that we were unable to spend as much as wed have liked reaching our new customers thus adversely affecting growth of new accounts.<br /><br />Going forward, however, as we focus on our long term growth, we are very excited to say that we have taken several very important steps to position us to capture greater sales opportunities, reduce inventory levels and increase our cash position. Our objectives remain focused on steady building a solid foundation. Now, as always for the long term health of our business to win with consumers by providing a superior gem packed with world class service and to deliver shareholder value that we believe will bring Charles Colvard among the best performing companies in our industry.<br /><br />We remain confident that were doing what is right and necessary to achieve these objectives. We have continued to hire and integrate experienced industry connected sales professionals. These new sales hires have been solely charged with opening new business accounts. Some of these hires took a bit longer to make that would have been ideal. But we chose to be very selective in order to maintain our corporate culture as we grow. As such, we are willing to wait for the right people; those that we feel represented the best talent, had the most established potential client relationships, and shared the personality aspects that would align most closely with our plans for Charles Colvards growth.<br /><br />Already we are seeing the proofs of our investments in these new hires. These folks are hitting the ground running. As they continue to get more comfortable in their new roles and with our merchandize offerings we expect this to impact us positively in the future quarters and throughout the year. And interestingly it also delivered a valuable learning experience and compatible software systems. Many of our retailers have unique tracking, stocking and sales technology requirements. As such, we have upgraded a variety of capabilities of our technology backbone to help you make this technology aspect of our relationships with our clients more fluid in the future.<br /><br />Although these technological investments require time, energy and expense, we do believe this expenditure was a very worthwhile investment in our future, because it will service well with existing and new customers. We can proudly say that our integration has been very good having received an A rating every month thus far from Kohls since the start up in November. And this experience has and will benefit us with every other relationship going forward.<br /><br />We concentrated on capitalizing on our enhance ability now to provide state of the art fulfillment as a result of our Kohls start up by hiring a sales person that is exclusively focused on growing major e commerce opportunities. It took some time to complete this strategic hire that we brought in specifically to manage the growth of our online sales. But he has hit the ground running, and the wait was well worth it. We are very excited about the work ethic we are seeing and new doors opening, resulting in potential new relationships that were almost non existent before.<br /><br />Additionally, to better position us for greater market share growth he hired Sarah Williams as our VP of Marketing. Sarah is a forward thinking strategist with lots of experience in developing and nurturing global brands, including over the past couple of decades, for example, the Body Shop, LOral, Chanel and Calvin Klein. She intimately understands what appeals to women, who continue to be our target consumers. Already she is working to help us establish consistent messaging and branding while aligning our business objectives and identifying strength to optimize productivity, creativity and top performance.<br /><br />All of these changes and sales initiatives that Ive discussed are pushing forward with positive results. In addition, we will be participating next month in the JCK jewelry show in Las Vegas, the biggest jewelry show in the country. It is a wholesaler to retailer format. And we have more employments pre scheduled major retailers this year than ever before. This is very exciting. Well be introducing our new team and products to many key buyers and we are better positioned to sell and deliver. We are focusing on increasing market share by expanding our portfolio of exciting branded products with existing and new customers. On the bottom line, our productivity opportunity should help finance future top line growth and ensure our consumer value positions, our superior sustainable and ultimately deliver better earnings growth.<br /><br />Id now like to turn the call over to Kyle Macemore, our Chief Financial Officer to go through the numbers for the quarter. Kyle?<br /><br />Thank you, Randy. Good afternoon everyone, and thank you for joining us today. As announced in todays press release, net sales from the first quarter of 2014 decreased 7% to $6.1 million compared with 6.5 million in net sales during the same period of 2013. net sales for the first quarter were $5.7 million, an increase of 12% over the same period in 2013. International net sales for the first quarter 2014 were $359,000, a decrease of 74% compared to the first quarter of 2013. The decrease was primarily due to one distributor that placed a large order during the first quarter of 2013, but did not place any orders during the first quarter of 2014. We do expect future orders from this distributor throughout 2014.<br /><br />Also, our net sales declined 14% this quarter compared to the first quarter of 2013 to $5.2 million and comprised 85% of net sales. The decrease in the first quarter of 2014 was primarily due to the decline in the international sales. The companys direct to consumer businesses increased 89% in the first quarter to $914,000 or 15% of our net sales.<br /><br />Net sales of loose jewels decreased approximately 15% to $3.7 million in the first quarter and comprised 61% of sales this quarter compared with $4.3 million or 67% of sales in last years first quarter.<br /><br />Net sales of Forever Brilliant loose jewels in the first quarter of 2014 were approximately $2.9 million or 79% of our loose jewel sales compared with approximately $1.3 million or 30% of our loose jewel sales in last years first quarter.<br /><br />Finished jewelry net sales during the first quarter of 2014 were $2.4 million, an increase of 11% as compared to the same quarter in 2013.<br /><br />Operating expenses totaled $3.6 million in the first quarter of 2014 compared with $3.1 million for the same period of 2013. Operating expenses were down sequentially from the fourth quarter of 2013.<br /><br />The company recorded a net loss of $1.1 million or loss of $0.05 per share during the first quarter of 2014 relative to net income of $306,000 or $0.02 per diluted share during the first quarter of 2013.<br /><br />The company ended the quarter with $2.5 million of cash and cash equivalents from the balance sheet compared to $2.6 million of cash and cash equivalents at the end of the fourth quarter of 2013.<br /><br />Company ended the first quarter of 2014 with $43.7 million of inventory. Loose jewel inventory was $34 million, and finished jewelry inventory was $9.6 million. Inventory increase from the fourth quarter of 2013 due primarily to an increase in the raw materials of loose jewel inventory. As we discussed last quarter we expect inventory decrease throughout 2014 and be a positive source of cash flow.