Charles & Colvard, Ltd.
Q4 2016 Earnings Call Transcript

Published: 10 Mar 2017

[Operator:]

Good afternoon and welcome to the Charles & Colvard Fourth Quarter and Full-Year Earnings Conference Call. [Operator Instructions] This webcast may contain forward-looking statements as defined in Section 27A of the Securities Act of 1933, as amended, including statements regarding among other things, the company's business strategy and growth strategy. Expressions which identify forward-looking statements speak only as of the date the statement is made. These forward-looking statements are based largely on our company's expectations, and are subject to a number of risks and uncertainties, some of which cannot be predicted or quantified, and are beyond our control. Future developments and actual results could differ materially from those set forth in, contemplated by or underlying 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. This webcast does not constitute an offer to purchase any securities, nor solicitation of a proxy, consents, authorization or agent designation with respect to a meeting of the company's stockholders. Please note this event is being recorded. I would now like to turn the conference over to Suzanne Miglucci, President and CEO. Please go ahead.

[Suzanne Miglucci:]

Good afternoon and thank you for joining us as we summarize Charles & Colvard’s 2016 fourth quarter and year-end results. For today's agenda, I’ll first highlight the overall execution of our 2016 strategic plan and then discuss specific Q4 and year-end metrics. I’ll turn the call over to Clint for a detailed financial review, and then I’ll wrap up our discussion with details of our 2017 initiatives. 2016 was a pivotal year for Charles & Colvard. We entered the year with a plan to transition out of certain legacy businesses and products and toured our strategic vision to be an innovative leader in the jewelry industry by offering a socially responsible creative gemstone that will last forever at a revolutionary value. Our journey began in Q1 when the company made the strategic decision to divest its direct-to-consumer home party business. Lulu Avenue was experiencing net losses averaging $4 million per year and required a significant portion of the company's marketing resources be dedicated to this business and away from our core moissanite business. After careful analysis of the company's core competencies, go-to-market strategies, and intent to advance toward profitability, the management team and Board of Directors determined a divestiture of this distribution channel to be in the best interest of the company and its shareholders. Lulu Avenue was sold to Yanbal USA in March of 2016 through an asset purchase agreement. During that same quarter, we secured a significant one-time sales order of legacy inventory from one of our wholesale customers furthering our effort to shift from our old business and products, so we can focus on the future. As a next step, the company embarked on a corporate rebranding initiative designed to directly engage the consumer, and position the company as a premier provider of gemstones and fine jewelry. This new brand presence is intended to position the company with a platform that can support our omni-channel global expansion strategy. Over the course of the year, we delivered key elements of our strategic plan in support of this new brand rollout and I’d like to share - take you through these outcomes as follows. The first tenant of our 2016 strategy was the expansion of Forever One. Since its limited launch in September 2015 Charles & Colvard’s Forever One, the world's first colorless moissanite jewel, which grades as DEF based on the Gemological Institute of Americas color grading scale has been met with great enthusiasm from channel partners and consumers. In response to this market acceptance, the company expanded its Forever One product line by offering the innovative Asscher cut, which we announced in May. Then in October, we announced the availability of Forever One in GHI or near colorless grade. And just last month, we brought to market new Forever One gemstones available in pear, radiant, emerald and hearts and arrows shapes. Innovation is at the heart of our go-to-market strategy and will be integral to keeping an engaged customer base going forward. Forever One now in two grades is our premier product and represents the future of moissanite for Charles & Colvard. Throughout 2016 it grew as a percentage of lose gemstone sales from 15% in Q1 to 60% in Q2, 70% in Q3 and 73% it was - would close the year in Q4. The demand is high and growing for this gemstone and we believe we are well positioned to deliver on this demand given our streamlined supply chain. In March 2016, we hired Don O'Connell, as Senior Vice President of Supply Chain and Distribution. Don came to Charles & Colvard with over 25 years of experience in the jewelry industry, including serving as Global Vice President of operations and procurement at Richline Group, a Berkshire Hathaway's Company and one of the country's leading jewelry manufactures and distributors. Throughout 2016, Don restructured and optimized our supply chains, including the selection and diversification of key suppliers, while increasing our production capacity and supporting the product innovations just mentioned. We believe the resulting infrastructure positions Charles & Colvard with the critical ability to scale our business, which I will speak to later in my remarks. The second tenant of our 2016 strategy was to move upmarket, creating an opportunity for Charles & Colvard to compete directly with diamond for share of wallet. According to a recent market report, the global diamond jewelry market is an excess of $80 billion and according to an article published in the Wall Street Journal in November 2016, 10% of this global diamond jewelry market is expected to shift to lab created gemstones. Never before have we seen such clean market indications that lab created gemstones represent a measurable and sought after market segments. We believe that coupling of our Forever One gemstone, our new brand presence, and our elevated jewelry line positions us to secure our portion of its $8 billion total available market. In 2010 Charles & Colvard made the conscious decision to expand for being solely elusive gemstone supplier to also being a finished jewelry provider. This calculated measure has proven to be a positive one and it provided us the opportunity to make an emotional connection with the consumer. Throughout 2016 Charles & Colvard carefully curetted a collection of jewelry ranging from bridal to fashion and fine jewelry. While bridal continues to be a fast growing category, we believe the introduction of an expanded selection of everyday fashions and fine jewelry options positions Charles & Colvard as a brand that appeals to consumers celebrating a multitude of commemorative moments from birthdays to anniversaries and more. In January of this year, we hired Jose Ayala, to spearhead our merchandising function and to bring a balance of discipline and creativity to our jewelry line. Jose comes to us from such celebrated brands as Tiffany and Colombian Emeralds. We're looking forward to Jose taking the jewelry baseline we created in 2016 and introducing a variety of new styles and categories on a regular basis. Having something new to promote to our audience create brand engagement, a critical factor in our futures success. One final note on the topic of moving upmarket, in October, we announced the expansion of the limited lifetime warranty on our gemstones. We've always guaranteed that our gemstones would deliver a lifetime of fire and brilliance. But we felt it important to communicate to the consumer that our commitment to repairing or replacing the rare chips or scratches that may affect the quality of our gemstones. In short, we want customers to be completely satisfied with their purchase and to feel that Charles & Colvard is a partner to be trusted with their investments. We believe this expanded warranty affords our customers a guarantee unparalleled in the industry and speaks to how an elite brand serves its customers. The third tenant of our 2016 strategy was growth within our traditional channels. Charles & Colvard has enjoyed 20 years of partnership with industry leaders in the wholesale and retail spaces and we believe these transactional channels or these traditional channels will continue to represent further ground for our move upmarket. So let’s talk about brick and mortar first. As we stated in prior calls, it’s important for the consumer to seem moissanite in order to fully accept its fire and brilliance. That's why placing moissanite in accessible stores is important to our reach and market acceptance. During our Q3 earnings call, we announced a pilot program with Helzberg Diamond stores that began at the 26 store test in September and expanded to 51 of their doors by the hype of the holiday season. Based on the success of that program we announced on March 1 the expansion of our in-store program with Helzberg Diamonds. We are thrilled with our line with Helzberg. We share a common customer and are both focused on delivering high-end jewelry options to the consumer. It’s our plan to double our presence to 100 stores, which we expect will start rolling out in time for Mother's Day. From a wholesale perspective, we’re seeing continued year-over-year growth. In 2016, our wholesale consumer segment grew 21% from $20.3 million in 2015 to $24.5 million in 2016. We’re seeing continued and growing interest in moissanite from independent jewelers who turned to our wholesale partners to purchase moissanite to sell in their retail stores. A clear indicator that consumers are demanding our product. In fact, one of our largest wholesale partners increased their moissanite business with us by 25% in 2015 and 74% in 2016. We're looking forward to continued success from this sector in the coming year. From a television shopping standpoint, in 2016 we expanded our relationship with EVINE from a dotcom relationship where we've experienced a meaningful success and growth to an on-air presence. We’re very excited about this relationship as EVINE’s customer is very closely aligned with ours. Similar to Helzberg Diamonds EVINE addresses an upmarket customer who demands the highest quality of gemstones and fine jewelry options. Television will continue to be an important market for us as it affords us an opportunity to demonstrate the brilliance of a gemstone. It’s worth noting that along with our corporate transition, we are in transition with our traditional customer segments as well. As we segue towards Forever One as our primary and premium gemstone there are existing customers that are moving with us and others that are not. Partners such as EVINE and Helzberg Diamonds align with our growth strategy as we are addressing a mutual customer and market segment. Other historical customers who are aligned with our original products and price points will continue to consume our legacy inventory. As these inventories are exhausted, we will determine their fit for future product lines. Our goal is to continue to grow both existing and new channels that align with our upmarket strategy. The fourth tenant of our strategy was the expansion of our direct-to-consumer e-commerce business. One of the primary channels that benefited from our 2016 rebranding efforts is our direct-to-consumer e-commerce website, Charles & Colvard.com. In October 2016, we announced the launch of our refreshed web presence with a new look and feel and enhanced user experience, the introduction of our new jewelry line and a singular unified presence for our cooperation and brand. We re-platformed and our web presence on leading-edge technology that positions us to deliver the latest and consumer shopping experiences to our customers. This agile web platform enables us to iterate and refresh our website with new and innovative functionality as new e-commerce and direct-to-consumer strategies make their way to market. It’s important to note that we essentially closed down our original website moissanite.com. With that closure we also shed the image we portrayed of a deep discount bargain brand. We simultaneously opened Charles & Colvard.com. Our intention is to have this storefront served as the primary representation of our new brand. So in keeping, this site only features Forever One goods and the highest quality jewelry from our latest collections. As with any web or domain migration, we’re working our way through search engine optimization that can take some time. I’ll speak further to top numbers and metrics in just a few minutes. In addition to our own web presence, we executed on elements of an omni-channel strategy and tended to broaden the various e-commerce channels we sell on. Acting on our intent to be everywhere where the consumer is when they are making their buying decisions. Some of you may recall in an initiative in 2014 when Charles & Colvard began listing goods on Amazon and eBay. It was a small pilot and abandoned in 2015. Last year, we resurrected this initiative and made it a priority. In Q2, we selected a multichannel software platform that allows us to connect to a multitude of global marketplaces. The platform was deployed in Q3 and we went live with the limited test in the US. In Q4, we executed a full-scale launch of over 1000 Charles & Colvard goods on Amazon, eBay, Jet, and Wal-Mart. Amazon is our leading channel where we are enjoying sales of Forever One goods, high average order values, growing demand, and a customer satisfaction rating of 4.6 out of 5, with Amazon providing an opportunity to reach over 300 million new global customers every day. This will be a primary channel for us going forward. eBay, Jet, and Wal-Mart.com on the other hand are proving to be excellent outlets for us to disposition legacy products, also an important aspect of our go forward strategy. And I’m pleased to note that we recently achieved the highest of honors, a top seller rating on eBay where our customer satisfaction rating is 5 out of 5. In addition to these well-known marketplaces, we’re also making headway with specialty and non-traditional online channels such as Gemvara, with whom we announced an online partnership in August 2016. Gemvara, a Richline Group company showcases Charles & Colvard Forever One on its unique world-class e-commerce platform where the consumer can choose moissanite as they are configuring a jewelry. We believe our partnership with Gemvara is an excellent example of the right fit of customer and product. Central to our 2016 strategy was a focus on engaging the millennial market. Millennials are the largest age group in US history and they are moving into their prime spending years Millennials proactively seek out goods and services that align with their core principles and become devoted in vocal advocates of brands that embody green practices. Our socially responsible and ethically sourced products align directly with the principal and purchasing preferences of the millennials. And we believe our quality and price point offer unprecedented value to the cost conscious millennial. In late 2016, Charles & Colvard began proactively engaging this target market through a multichannel traditional and digital marketing strategy that has meaningfully increased the awareness of our brand as evidenced to our increased social media following multiple public relationships postings and newfound interactions with this important customer segment. We’re pleased with the successful execution of our 2016 strategic plan and corporate transformation. And I want to take a moment to thank all of the staff that Charles & Colvard for their hard work and careful attention to detail that made this transformation a success. Now, let's roll into our Q4 and year-end outcome. And let me set the stage by noting that according to Internet retailer, attractive authority in the retail industry, total retail sales in 2016 were up only 3.9% over 2015. During this year of challenging market headwinds and significant corporate transformation, Charles & Colvard grew its 2016 net sales from continuing operations by 14% to $29.2 million compared to $25.7 million in 2015. Net sales for the fourth quarter of 2016 were $6 million, a decrease of 18%, compared with $7.4 million during the same period of 2015. This Q4 year-over-year decline was primarily due to a decrease in e-commerce sales related to the full-scale pivot of our brand and website. E-commerce net sales for Q4 2016 were $1.1 million, compared with $1.9 million in Q4 2015. As is expected with any website launch and especially with the domain change it can take several weeks to months for search engines such as Google, Bing and Yahoo to fully index our pages and feed searching consumers our content. At the same time, consumers familiar with our former brand where being reintroduced to a completely new shopping experience, product, and price point on Charles & Colvard.com. And simultaneously we began introducing our brand to a completely new audience the millennial. All of these factors contributed to this anticipated decline in Q4 revenue which was in line with our expectations. Critical to the successful transition and the development of a healthy e-commerce business going forward is awareness of the Charles & Colvard brand and website. In Q4, simultaneous with this transition we rolled out an aggressive digital marketing campaign keeping in mind that we have been very quiet for the balance of the year, this year-end launch was the beginning of our relationship with many of our future consumers, especially our new target the millennial. We successfully reached hundreds of thousands of consumers during this launch timeframe, primarily through social media efforts. We grew our Facebook following by a 65%, Instagram by 62%, and achieved a quarter of a million views on our videos on YouTube. We tested the waters with influential marketing programs and learned how to leverage other individual networks to grow our own. And we launched public relations effort that secured coverage and notable publications such as [indiscernible] [00

[Clint Pete:]

Thank you, Suzanne. Good afternoon everyone and thank you for joining us today. As a reminder, due to the divestiture of assets associated with Lulu Avenue in the first quarter 2016, we are presenting Lulu Avenue and discontinued ops in our financial statements. We did not include the revenue, gross profit, or loss, from Lulu Avenue in our results from continuing operations for the fourth quarter or the full-year 2016. We also reported Lulu Avenue's results from the fourth quarter and full-year 2015 in a comparable manner as discontinued operations. Unless otherwise noted, the financial results discussed during this portion of the call will be from continuing operations for 2016 and 2015. As announced in today's earnings press release, net sales for the full year 2016 were $29.2 million, an increase of 14%, compared with $25.7 million to the full year 2015. Net sales for the fourth quarter 2016 were $6 million, a decrease of 18% with $7.4 million during the same period of 2015. Let's break those numbers down into more detail. First, let's review our segment sales. Wholesale net sales were $24.5 million or 84% of net sales for the full year 2016, an increase of 21%, compared with $20.3 million or 79% of net sales in the full-year 2015. Wholesale net sales were $4.9 million or 81% of net sales in the fourth quarter 2016, an 11% decrease compared with $5.5 million or 75% of net sales in the same period of 2015. The company's direct-to-consumer e-commerce business Charles & Colvard.com had net sales of $4.6 million or 16% of net sales for the full year 2016, a decrease of 15% with $5.4 million or 21% of net sales in the full year 2015. Charles & Colvard.com had net sales of $1.1 million or 19% of net sales in the fourth quarter 2016, a decrease of 40% compared with $1.9 million or 25% of net sales during the same period of 2015. The decline in net sales of Charles & Colvard.com for these periods was primarily due to lower conversion rates, which we believe relates to the shift in our Charles & Colvard.com presents including the discontinuation of clearance inventory on the website and the change in our domain. We expect this trend of lower conversion rates may continue into 2017 as we promote our updated brand platform delivering the upmarket jewelry selection and position Charles & Colvard with our target audience. Now, let’s review our product line results. The company's net sales of lose jewels were $21.5 million for the full-year 2016, an increase of 42%, compared with $15.1 million during 2015. The company's net sales of loose jewels were $3.3 million in the fourth quarter 2016, a decrease of 30%, compared with $4.7 million in the same period of 2015. In previous earnings calls, we mentioned that lose jewels sales were impacted by net sale of $6.8 million of lose jewels to one customer in Q1 2016. For the full year 2016, net sales to that customer were $6.8 million, compared to $6.4 million in the full year 2015. We had no sales to that customer in the fourth quarter 2016, compared to $200,000 in net sales to that customer in the fourth quarter 2015. Finished jewelry net sales were $7.7 million for the full year 2016, a 27% decrease compared with $10.6 million during 2015. This decrease was primarily attributable to two factors

[Suzanne Miglucci:]

Thank you, Clint. Now that the table is set, we believe 2017 will be a year of optimization and growth as we live into the new Charles & Colvard brand. Our future success will be predicated on our ability to expand existing channels, while discovering new channel partners and new markets to focus sales and marketing efforts. Our five key strategies for 2017 built on our 2016 accomplishments and are as follows

[Operator:]

Sure. [Operator Instructions] And a first question comes from Robert Strougo with RIS Investments. Please go ahead.

[Robert Strougo:]

Our market cap is only about 27 million, and we have 23 million, I think in inventory, something in that area. Our stock is also languishing and fortunately you have a brilliant gem, but the stock has not been a brilliant gem in the recent past, do we have any plans of taking some of the 7 million, which is one third of our market cap and using some of that to buy some of the stock, which seems to be trading at almost record lows, although it is up a little bit today at a $1.11, but it has traded under a dollar for quite a while. What is your feeling about that, have stockholders have not done well, even though you’ve got a great product out there, but a lot of competition in the way of gold is just dropping quite a bit and people not having money?

[Clint Pete:]

Thanks Robert for the question. Presently right now we do not plan to do any stock buyback or have any plans such as that from a capital standpoint. In fact, we are prohibited under the Wells Fargo credit facility to have any stock buybacks personally.

[Robert Strougo:]

So we have debt at this time, I thought we had, the inventory, is that pledged against some debt in the company?

[Clint Pete:]

The inventory - currently our credit facility is an asset backed credit facility. We do not have any - we have not borrowed anything under that credit facility presently.

[Robert Strougo:]

So why do we owe Wells Fargo, why do we have these restrictions to Wells Fargo, I don't understand that.

[Clint Pete:]

It is part of it is part of our credit facility at this point in time that we cannot have any stock repurchases.

[Robert Strougo:]

Alright any individuals buying it, and the insiders buying the stock or plan to buy the stock in the future as far as we know?

[Clint Pete:]

Presently we do see - we do have insider trading. As you can see that from a standpoint, presently there hasn’t been any recent insider trading because of the restrictions on the blackout periods to this call that we just had today.

[Suzanne Miglucci:]

So what we will say here Robert is that the management team here board and management have 12% ownership of this company. We do and I personally bought 45,000 shares last year. We’re very bullish on what it is we are doing here at Charles & Colvard. I won’t speak to what you will expect of people going forward in their purchases, but we have been a proactive group of directors and officers in our purchases in the past.

[Clint Pete:]

Okay. I will appreciate your extended presentation and I hope that the stock will reflect itself to what your outlook hopefully is. It seems to me that the overseas markets would welcome this moissanite, I mean people down in Florida who have had some tough times will - where moissanite I understand once in a while, but it is not a great market right now in America. I think of India and I think of the other countries, maybe they would welcome that product.

[Suzanne Miglucci:]

Yes Robert, we second your thoughts on that. There is still plenty of green field here in the U.S. we will continue to sort of test ourselves and burn things and if you will to gain this presence here in the U.S. and button it up and then absolutely our intention is to go international and we do think that there are certainly some markets there and we appreciate your continued support here.

[Robert Strougo:]

Thank you.

[Suzanne Miglucci:]

You’re welcome. Can we take another call?

[Operator:]

[Operator Instructions] Our next question is from Denis Doves, a Private Investor. Please go ahead.

[Unidentified Analyst:]

Good evening. To cut to the chase, my main question in is in terms of nice progress with Helzberg and hope that continues in all their stores, what is being done right now to make sure we get into some other large jewelry retailers that are brick and mortar, recovering all the malls and all the mall stores and just have their presence there so that folks see - can see our jewel there?

[Suzanne Miglucci:]

Thanks for the call. The question there Denis, we are constantly out there beating the bushes and look at every opportunity in retail as I said in my prepared remarks we know that it is very helpful to see the gem stone in person. However, we are being very judicious about exactly what retain outlets we are choosing. As is common in the jewelry industry when you place goods in a retail outlet it is generally on consignment. So what this means is that we are creating jewelry and we are placing it in these jewelry stores and it is inventory on our shelves for all intents and purposes. They are not buying it directly from us. They are actually being loaned at these goods until such time as they are purchased. So it ties us up. As opposed to having goods on our shelves that we can distribute via ecommerce channels anywhere in the world at the time that they were purchased. So we have to be very careful about how much commitment we put on to shelves in retail. Does it mean that we are not looking for more of those opportunities, but as I said we're choosing those customers who are very closely aligned with the consumer that we're looking for and that’s why partnerships with organizations like Helzberg and EVINE are such terrific fit and we will search for more of those.

[Unidentified Analyst:]

That raises another question. You’re talking about putting our jewelry there, can we get into the manufacturers again so that they are buying our jewels and they are the ones putting the jewelry into these retailers and we're focusing on high margin jewel sales as opposed to creating jewelry that sits in our coffers until we get it sold or?

[Suzanne Miglucci:]

Sure. And that is actually exactly what we do. As we are reporting out our wholesale numbers, a good chunk of the wholesale numbers are in fact lose jewel sales into wholesalers who turnaround then and sell those lose stones into independent jewelers. There is 44,000 independent jewelers in the United States alone. And we can't quite scale to work directly with all 44,000 of them and that’s why we have partnerships with some of the largest wholesale providers in the jewelry industry and so they purchase our stones, the do so directly ahead of the sale that they would make. It is just on their shelves and they in turn sell it down to the independent jeweler, it is a very profitable business for us. But I will say this, we sell goods to them at wholesale prices, where the goods that we sell on our own.com site, generally turn far greater margin for us than even the gemstones that go directly through our wholesalers. So, I’m not opposed to more goods on the shelf ready for.com ready to ship, to meet the expectations of that Amazon style consumer because the ROI that we return from those goods is very high. So, it’s rarely about striking a balance between all of these channels. That's what - when I describe an omni-channel approach that's what I mean, let’s be in retail stores, let’s me on television, let's be on e-commerce channels, let's make more times at batch, so we have more chances to sell to the consumer wherever it is they are buying.

[Unidentified Analyst:]

Yes. The problem with the non-traditional ways in sales of goods or sales to these distributors and through the independent jewelers is good, but we’ve been doing that for two decades now and that doesn't lead to the kind of awareness and the kind of big push that we will get by getting into Helzberg to start, so that when somebody is walking through the mall going in every shop, our jewel is there in jewelry in those stores where they see it, that would help drive more sales at the independent jewelers and these non-traditional online leases so do you not agree that you need to get these big people to drive the thing as opposed to the maybe the other way around?

[Suzanne Miglucci:]

You know what Denis I think I'm going to argue with you on this one. So, let’s talk it through. We have shopping malls that are closing every year and the reason they are closing is because consumers less and less consumers go to the more. Millennials in particular spend very little time in shopping models today. I would encourage you to go out look at some of Westfield's numbers and what they report on their growth in shopping mall footprint or go to NRS and see what some of their numbers are, it is a shrinking space. At the same time, Amazon - let me just finish the thought and then I'm happy to answer your third question. Amazon.com on any given day I have the opportunity to present my goods to 300 million viewers. So, I would argue that being online in the right channels and advertising to those channels. So it can't just be there. You have to have an advertising presence as well. So that right SEO and SEM in advertising around at Amazon presence, I think, it's going to give us far more reach than that the one shopping mall in Oklahoma that might carry our jewelry that the geo-fence around a jewelry store is far smaller than the fence that you would put around it at dotcom presence. But again, it's about balancing the two together and being in all of those places, where the consumer is that -please go ahead.

[Unidentified Analyst:]

Yes, I definitely agree by being everywhere, but everywhere does include the mall stores. They may be having their sales slowdown, traffics down and I'm also talking about off-mall stores, which isn't quite as bad, but the thing is, we got zero sales there now. So even if their sales are coming down, there's still a huge numbers, and if we can get a portion of that, it's huge for our sales at this company. And so it seems like we need to be there despite that. And what about the prospect of convincing some of these retailers that are away to get more traffic, which is their problem is to have something new that people would want to come and see?

[Suzanne Miglucci:]

I'm there with you, and I'm going to hire you and put you on my sales team and go ahead to vandalize this for me.

[Unidentified Analyst:]

I’d be sending you my resume if I thought I could get it done, because that's the person we need here and, yes.

[Suzanne Miglucci:]

Okay. Thanks for being on the call today. We appreciate it.

[Unidentified Analyst:]

Good luck.

[Operator:]

Our next question is a follow-up from Robert Strougo with RIS Investments. Please go ahead.

[Robert Strougo:]

I saw you’re advertising pretty heavily on the shopping channel, not too long ago. And I was impressed with the - I was wondering what kind of volume, or reception, or experience you had with those shopping channels on television? They were pretty good presentations and I would think that that would be a good vehicle to increase your volume when people actually could see the product demonstrated in the way it was done, it was done very nicely?

[Suzanne Miglucci:]

Thank you for the encouraging words and we absolutely agree. I talked a little bit in my prepared remarks about the work we've done with eBay in which, we think it’s probably the shopping network for us. We both serve a very similar upscale customer and they absolutely like to feature fine jewelry. And so it's a really terrific fit for us and I agree with you. What we like about television is that, it’s very demonstrable. You can put a moissanite engagement style ring on a rotating stand, and you can see how the lighting in the studio reflects off of the fact that in that jewelry. And unlike some of your online approaches, which can be very sort of stagnant and flat, a lot of the Amazon work, a lot of the eBay work is very two dimensional, it’s just simply photography. What you get in online shopping experience is that live video feed. In fact, that’s also why on our own product pages, we're serving up video as well. So that is why we're sort of turning up the heat here with EVINE. We’re having extensive conversations at the executive level about some of our ability to expand our footprint with their customers. And I think we're all mutually very interested in doing some additional work together in that ground. So, I would stay tuned, because I think that in fact that is very much the right kind of channel for us to go to.

[Robert Strougo:]

Have you gotten any volume from that exposure?

[Suzanne Miglucci:]

We absolutely have and - but we rolled that upon and we reported up under our wholesale number. So we don't breakout television shopping as a separate one. We don't provide additional detail on that. But it is absolutely showing us some volume in both dotcom, it’s interesting, both dotcom and television. So what will happen is, we've been on their dotcom channel for some time. We just recently went live on air with them a few months back. And what we find is, we'll get sales from the online kind that we are live on air, and then they come back over to the dotcom side of the house and they do purchases there. So by being live on air, we're actually finding both sides of their channels to be lifted because of the presence and I would assume the beauty of our gemstone on television.

[Robert Strougo:]

Okay, great. Okay, keep up the good work.

[Suzanne Miglucci:]

Thank you so much.

[Operator:]

Our next question comes from Rodney Baber with Paulson Investments. Please go ahead.

[Rodney Baber:]

Hi, Suzanne. Interesting quarter. I really want to kind of say philosophical with you for a second and get you to reflect down this last year, which you've been in since December of 2015. And I'd say this, you tell me if you disagree about, I’d be surprised if you would have expected early last year $6 million quarter for the fourth quarter. The two previous fourth quarters like 7.3 each, and you had sales down 18%, and then lose jewel sales down 30%, you're flat on finished jewelry sales, and then moissanite.com being down 40% relates to surprised [indiscernible]. Anyway, the point of my question is, this thing is just taking longer obviously than I thought it was going to take for you to turn this thing around. And I would love your reflection on what you thought it was going to have on a year ago when you took it over and what kind of success and how quickly you see and versus what we've had now? And then why have been the surprise areas that have affected that made that happen good or bad?

[Suzanne Miglucci:]

Okay. Well, thanks for calling in, Rodney, we appreciate it. So these things take time. I'm actually - the thing that surprises me is that, this team was able to completely pivot a company in less than 12 months. So that's where I'm surprised. We pivoted a brand platform, which is a whole new look, feel approach message to the market. We pivoted a jewelry line. So we purged out all the things that we felt were lower market and we replace them with goods that are up-market. We pivoted a customer base, so we're certainly still talking to our traditional and existing customer base. So we added in an entire millennial audience. And most significantly, we shutdown a website and we started a new one, all within a 12-month period. So these things do take time if I had to do over. I sure wish I could have launched my website earlier, so that we could see these returns faster, but we went live in time for the holiday. We were able to lock down our platform, so it was stable for the holiday. And actually being able to deliver over a $1 million in revenue on a brand new channel is, I think, actually a good feat. Now, would we have liked to have that number higher? Of course. But we're seeing good traction towards the end of Q4 and we're certainly seeing net new transactions in net new interest from this millennial audience that we've been reaching out to, which is indicators for me that we're on the right track. So that's sort of my summary to your question. What else can I answer for you?

[Rodney Baber:]

Well, I have too many questions, so I have to go out of loop. But I was reading about blue [ph] now, who got balled out recently and head started with the idea of opening up a store or retail location. So that people could go see the jewelry and that kind of thing. And it just - you reminded me of their old discussion about whether or not, we should put a store out there, or two and you see what happens if we do that. And I’m wondering what you think about that idea and why we maybe would try to test like that, just so to begin to try to deal with that aspect of our business?

[Suzanne Miglucci:]

Yes. So we certainly toy with the idea stores all the time. We get knocks back down a bit, because by the time we add up the legal costs of taking on real estate, the overhead of the store itself, the outfitting of the store, the securing of staff, the securing of security, which is a really big issue for us with our goods. We're very much a target for fast. It all gets pretty expensive, pretty fast. And we get back to the same issue that I talked to, I think, it was Robert that asked the question about retail stores, and, sorry, [indiscernible]. But we run the same challenge, where then it is the one singular physical location that has a limited amount of reach, but having said that, we're interested in maybe the idea of a pop-up store. I mean, these are things that we kind of kick around all the times understand getting it from the customer better what would that look like. There are ways you can do pop-up stores that have less overhead than the very detailed sort of buy-in that you have when you're investing full on in real estate. Those are things that we would consider over time. But again, judiciously thinking it through a decision to open a physical retail store that precludes us from making other investments that may be more agile and fluid, where we can move our inventory more aggressively around the market. Once you’re in a physical location you’re kind of locked and loaded. So that’s where we balance ourselves out Rodney and I’m not sure at this time that a physical location would be my bet over the ability say to go into an international market where we have a net new customer that would just now we introduced to moissanite.

[Rodney Baber:]

Well, the final thing I’d say if you let me just finish a thought is just when I’ve got people that I will talk to about the stock and I’ll say how the call and all of that, right now I just not get to read that anything really exciting is going on in the numbers, because they basically and then flat all year, and maybe that’s what they should have been, maybe that’s actually a very good number, but the metrics that we can take away that you’re most excited about. If you just share with those - those with us a second, I mean Helzberg’s the number of other thing that you mentioned, I mean what is the real progress that you want to share with everybody on this call for going forward?

[Suzanne Miglucci:]

Okay. So, in summary on the first-half of our prepared remarks let’s kind of walk back through those. We’re very happy about the launch of our site. So I realized you’re asking for numbers, but I’m giving you milestones that we committed to that we delivered. So we delivered on a website, we delivered on a new jewelry line, we delivered on a new brand platform. we delivered on a new audience, we delivered on a retail outlet in Helzberg that started with 51 stores and is now expanded to 100, and we have delivered on a quarter of a million news followers on our social media platforms that we never had before all of them really in the millennial audience that we feel are the folks that need out to be engaged, so that we can convert them to customers and revenue. So, I’m pleased with all of those milestones having been met and I believe it sets the stage for 2017. The things that you can look for in this coming year as we talked about in the second-half of our prepared remarks. I would watch for us to begin converting those 250,000 followers into customers. The majority of those will come to us through social media and onto our dotcom site. So, I would say watching how we progress in e-commerce is a logical thing. I would watch for net new e-commerce channels. As I said, we’re launching our Newegg and Bluefly in just the coming weeks, so I would watch for those and others. I would watch for us in the second-half of the year to go to international markets, I talked about that. I would watch for us to double the amount of jewelry we have on our dotcom site, I had made that claim as well. All of these are things that are then the milestones that we have laid out for 2017. I realize that everyone on this call would love for us to give you guidance and that’s about as much guidance as I would give today. We are in a turnaround with this company. So, I can’t commit to you giving you any revenue numbers, but I’ll commit to you as I did last year. We have these milestones and we’re going to march towards them.

[Rodney Baber:]

Right for good answer and good luck for everything. Thank you.

[Suzanne Miglucci:]

All right Rodney. Thanks so much.

[Operator:]

This concludes our question-and-answer session. I would like to turn the conference back over to Suzanne Miglucci for any closing remarks.

[Suzanne Miglucci:]

All right. Well once again I’d like to thank everyone for taking the time to participate in our call today. We’re excited about our 2016 transformation. And we’re looking forward to our growth in 2017. We have an amazing team at Charles & Colvard, who made this transformation possible and I’m still appreciative of everyone’s contributions to the new brand and the possibilities it opens for us. And my most sincere thanks to our shareholders for your continued belief in the opportunity we have at Charles & Colvard. Thank you and have a good evening.

[Operator:]

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