Brilliant Earth Group, Inc. Q3 FY2024 earnings call

Key Points - Beth Gerstein:

• 13 consecutive quarters of profitability as a public company. Q3 net sales $99.9M within guidance, 13% YOY decline. Gross margin 60.8%, up 230bps YOY. Adjusted EBITDA $3.6M, 3.6% margin.
• Strong sales growth outside engagement rings in wedding, anniversary bands, fine jewellery. Launched successful fine jewellery collection with Dr. Jane Goodall. Grown brand awareness, earned media impressions +38%, social media impressions +375% in past 2 years. Opened 3 new showrooms.

Key Points - Jeffrey Kuo:

• Q3 net sales $99.9M within guidance, 13% YOY decline. Total orders flat YOY, repeat orders up 11%. Gross margin 60.8% driven by premium brand, proprietary products, price optimization engine, etc. Adjusted EBITDA $3.6M, exceeding guidance. SG&A and marketing expenses managed prudently. Ended Q3 with $153M cash, no net debt. Raised adjusted EBITDA guidance to $14M - $16M for the year.

In Q3, Brilliant Earth delivered net sales of $99.9 million, a 13% year-over-year decline, within the guidance range. Gross margin expanded 230 basis points year-over-year to 60.8%. Adjusted EBITDA was $3.6 million, or a 3.6% adjusted EBITDA margin. Outside of engagement rings, sales of wedding and anniversary bands and fine jewellery saw strong growth. Net sales contribution: Engagement rings saw softness, while wedding, anniversary bands, and fine jewellery contributed to growth.

• For the year, net sales expected to be in the range of $410 million to $425 million. - Adjusted EBITDA guidance raised to $14 million to $16 million. - Midpoint of adjusted EBITDA guidance implies sequential improvement in year-over-year net sales growth in Q4 compared to Q3. - Expect engagements to continue gradual normalization, and Q4 performance to be boosted by showrooms and brand-building efforts.

• Industry competitors relying on promotions and discounts, which could impact the market. - Uncertainty regarding tariff scenarios. - Intense promotional environment that could worsen for competitors.

Q: Beth and Jeff, as you think about the engagement market and normalization, what's ahead? When might it normalize and turn positive in terms of the trends that you're seeing? And also, Beth, as we think about your comments on second quarter in terms of bridal trends now versus prior, what were the biggest changes? And Jeff, on your side, the margins continue to impress. You've had the optimization engine in place for a while, which has been very helpful. Like what inning are you in with the optimization engine? And the promotional environment may continue to be pretty intense for a while. What are some plans if promotions get worse from competitors?

A: Beth Gerstein: Encouraged by sequential improvement in engagement ring bookings trends, expect Q4 to come in stronger and well positioned as investing in brand. Jeffery Kuo: Price optimization engine is dynamic, refined with new data, and will continue to be deployed ongoingly to couple with asset-light model and data-driven approach.

Q: The environment is pretty dynamic with the prospect of different tariff scenarios. Just as you think about those, what are some of your ideas or frameworks in terms of those uncertainties? And then the holiday period, there's five fewer days, but any thoughts that you have to help us frame holiday strategies this year, which may be different versus last year?

A: Beth Gerstein: Diversified supply chain allows quick adaptation to tariff scenarios. For holiday, 3 new showrooms opening and 40 showrooms by year-end make well positioned for last-minute shoppers, agile in monitoring environment and driving marketing efficiency.

Q: So first, I just wanted to touch on some of the buyer metrics here. Total orders were about flat in the quarter, but repeat orders were up 11%. I wanted to unpack the differences in trends you're seeing between potential customers coming into showrooms versus those who have already made a purchase with you. Are you seeing a slowdown in new customer acquisition at all?

A: Beth Gerstein: Difference driven by softer bridal demand. Showrooms have held up nicely, digital environment competitive, but think about omnichannel purchase totality. Jeffrey Kuo: Seeing sequential improvement in bookings growth rate including in engagement rings, well positioned for holidays.

Q: Switching to marketing really quick, leverage in the quarter while making some of those brand-building investments. Could you just parse through where you saw opportunity to pull back this quarter? And then any pockets of focus you're leaning into or examining for investments in 2025 to help fuel a return to growth? I know, media and social media showrooms have been strong callouts for you.

A: Beth Gerstein: Continue to be dynamic in marketing, driving efficiency and effectiveness. Social media remains important with strong engagement. Continue to lean into brand investments, drive fine jewellery growth from successful Jane Goodall collection launch, and see growth through new showrooms opening.