Brilliant Earth Group, Inc. Q4 FY2024 earnings call

• Financial Highlights: Strong Q4 finish with 14th consecutive quarter of profitability; Q4 net sales at high-end of guidance, full-year net sales $422.2M; total and repeat orders growth; gross margin expansion; marketing expenses leverage. - Segment Details: Engagement rings saw best Y/Y units comp, bridal business improvement, Flawless Collection performance; wedding and anniversary bands had YOY growth; fine jewelry had strong bookings growth, December contribution record. - Campaigns and Initiatives: 'Rethink Everything You Know About Diamonds' campaign with over 1B earned media impressions; Jane Goodall Collection success; expansion of under $1K gifting assortment; showroom expansions in NYC and Boston with new Try-On Bar feature.

Net Sales: Q4 net sales were $119.5 million, a 4% year-over-year decline but at the high-end of guidance; full-year 2024 net sales were $422.2 million, a 5% year-over-year decline. Total orders grew 10% year-over-year in Q4 and 7% for the full year. Repeat orders grew 18% year-over-year in Q4 and 17% for the full year. Gross Margin: Q4 gross margin was 59.6%, a 90 basis point expansion year-over-year; full-year 2024 gross margin was 60.3%, a 270 basis point expansion year-over-year. Adjusted EBITDA: Q4 adjusted EBITDA was $6.9 million (5.8% margin); full-year 2024 adjusted EBITDA was $21.1 million (5% margin). Segment-Specific: Engagement rings had best year-over-year units comp in Q4, bridal business trajectory improvement; wedding and anniversary bands had year-over-year bookings growth; fine jewelry had strong double-digit bookings growth in Q4, with December fine jewelry contributing 27% of total bookings (600 basis point expansion).

• Q1 Outlook: Anticipates slightly down year-over-year net sales, slight sequential improvement from Q4; improvement in engagement ring unit trends; robust growth in wedding/anniversary bands and fine jewelry. - Full-Year 2025: Expect net sales slightly up year-over-year; profitability slightly lower than 2024 due to strategic investments; mid-to-high single-digit growth in second half; adjusted EBITDA margin 3%-4%; long-term target of low-teens net sales growth and double-digit adjusted EBITDA margin by 2027.

• Macroeconomic Factors: Pricing shifts in lab and natural diamonds; normalizing engagement trends; changing consumer sentiment. - Operational Risks: Discipline in managing expenses, especially employee costs and G&A; balancing marketing spend with profitability.

Q: Hey, good afternoon, and thanks for taking our questions. Maybe just to start, if we could touch on gross margin guidance for the year, what you’re embedding for that in 2025, and if there’s anything to comment regarding contributions from fine jewelry with the normalization of engagement if that’s shifting the mix at all and deleveraging the gross margin line closer to that high-50s? Just any color there you could provide.

A: We’re continuing to for the medium-term model and that includes this year a guide to a high-50s gross margin, as you pointed out. And, that’s going to be driven by same factors that have been driving our strong gross margin that we’ve had, including the strength of our brand, our proprietary and differentiated product, continuing to optimize our price optimization engine, procurement efficiencies and factors like we’ve been able to leverage before. So, I think that we continue to believe that we have a lot of strengths that will allow us to capture that strong gross margin and that extends across engagement, wedding and fine jewelry.

Q: Thanks so much. Hi, Beth and Jeff. Regarding the guidance of plus one to three, your longer-term guidance calls for low-teens. Just would love your thoughts on what might get you there over time. And related to that is what are you seeing with engagement trends and what’s embedded in that guidance? And as we model the year ahead, would love the color on average order value relative to order count would be great too. Thank you.

A: Sure. So, maybe I can start a little bit with engagement ring trends. While we still believe it’s going to be a multi-year normalization, we’re happy to have our best year-over-year unit comp in Q4 compared to prior quarters in the year. We also had good year-over-year unit growth in showroom engagement rings in Q4 from units. So, I think we’re starting to see that normalization. We continue to see improvement in sequential engagement ring unit trends in Q1 to-date, with similar performance by price point as we saw in Q4. So, I think very promising trends overall. I think as it relates to what’s going to drive our growth, we have a lot of conviction in the overall strategy where we are investing in our showroom growth for the future, investing in our fine jewelry growth and the compelling products that we’re known for, and continuing to invest in being the premium brand and the most loved jeweler for our consumer base. So, all of those are going to drive our growth, and we’ve seen very strong growth as it relates to non-engagement. And we’re going to continue to lean in there and continue to invest in bridal, which is really the entry point for our consumer base. Jeff, do you want to talk about AOV? I think that was the last question that Oliver had.

A: Sure. Thanks, Beth. Hi, Oliver. So with respect to AOV, I think this is something that we do expect to see moderate over time with the success that we’re having in fine jewelry in particular. I think that’s just a factor that we expect will continue to be a strategic driver success factor for us. We’re having the growth in orders in fine jewelry. And as you know, fine jewelry orders tend to have a lower average order value. And so this is something that is expected and it is concurrent with the success that we’re having in fine jewelry. So, we do expect that AOVs will continue to moderate over time as we’re driving that success in fine jewelry.

Q: Thank you. Really impressive marketing leverage here. And I’m kind of just curious, it sounds like you kind of came in or did come in even ahead of some of your own expectations there. Can you just kind of unpack that, if there’s been a shift in strategy or cost? And I’m curious if it plays a part in some of the better retention metrics that you’re citing and have been citing. Has there been sort of a shift to more for retention versus acquisition? I’ll leave it there. Thanks.

A: I wouldn’t say it’s necessarily a shift. I think that we’re constantly optimizing as it relates to the marketing efficiency. I think the fact that we have a very data driven approach, the fact that we have diversified channels within our marketing mix, and the fact that we have invested in our social media platforms, all of that has I think, provided us with nice efficiencies. In addition to that, the showrooms themselves are nice drivers to, improve the marketing efficiency. So, I think it’s everything combined, the strong repeat rate, the brand resonance is creating nice leverage, and it’s something we watch very closely. We’re very nimble, but we’re really proud of the fact that we’ve been able to achieve that, continuing to invest in quality revenue, not chasing unprofitable growth. That’s been kind of the behind the scenes as terms of what’s driving that.

Q: Hi, good afternoon, everyone. As you think about for the year and for the fourth quarter, your repeat orders in the fourth quarter up 18%, your total orders up 10% compared to 17% repeat orders for the year and 7% for total orders for the year. What are you seeing with the attachment rate of fine jewelry going to engagement or engagement going to fine jewelry with the repeat orders? And is there any shifts in demographics going on given the shift to fine jewelry in terms of whether it’s income level or guys versus women, men versus women, anything on that demographic profile and how that informs you for planning for AOV and total orders for the upcoming quarter and the year? Thank you.

A: Great. Well, maybe I can start with the shift in terms of fine jewelry. I think that we haven’t necessarily seen a shift. We remain relatively small in a very big category here, and I think a lot of the efforts that we’re making resonate well with the customer base that we have as it relates to both gifting and self-purchase. And I think we’ve been leaning into that assortment under a $1000, having a really compelling trend forward assortment. Certainly, I think diamonds are highly coveted for everyday as well as those special occasions. And I think that we’re continuing to see nice AOVs within our fine jewelry category as we’ve been investing in the assortment. I’m not sure we have anything specific as it relates to attach with fine jewelry and engagement or vice versa. One of the things that we’re really pleased to see is strong repeat from fine jewelry to just buying additional fine jewelry and seeing people come back there, which I think will be a big driver in terms of the overall repeat.