Charles & Colvard, Ltd. (NASDAQ:CTHR) Q2 2023 Earnings Call Transcript

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But the thought is that the online business and our direct to consumer business will grow exponentially higher as these investments start to come in and take shape.

Matt Koranda: Great. If I could sneak in two more just one, since you mentioned the signature showroom, just any, any metrics for success you can share on that front. I’m just really curious how that’s going, and then what would be the sort of I guess the gating items for looking to open additional showrooms?

Don O’Connell: Yeah, so right now we’re still in for all I intents and purposes, the beta scenario related to the signature showroom, we’re testing out a lot of different things specific to the store, to the consumer that’s coming to the store. We’re doing things that are non-traditional, like we’re doing special events, we’re doing corporate alliance programs, we’re doing collaborative type engagements with local community. So it’s — there’s just a lot of moving parts there and we can’t — we’re not giving any, guidance or forward, numbers specific to that. But we can just tell you that it is performing better than anticipated and we believe that there’s definitely a future there. We believe that in some shape or form we can take this model and we can position this model in key strategic areas and demographics that are performing quite well for us within different regions domestically at this point.

So the timing for that still remains open for discussion. And we’re still, basically we just launched in October on the signature showroom. So we’ve got a few months under our belt right now. We do have some holiday traffic. Valentine’s Day has been pretty exciting. Matter of fact we have a, a big event scheduled for Saturday here too as well. And these events come between, 50 guests to 100 different guests come at a given moment. So, it’s been pretty exciting and we’re pretty pleased with, with kind of the performance there. So I believe, in the coming quarters, we’ll be able to make a, a more concrete statement as to what that looks like in the future.

Matt Koranda: Okay, fair enough. And just one last one on the margin the gross margins, if, if I could Clint, you referenced that a big portion of the year over year headwind, I think it sounded like 700 basis points of it was a difference in how you’re applying labor costs to capitalize inventory. Can you just explain that in a little bit more detail for us so we understand it and on a go forward basis is this, this, are you going to be applying the same methodology so that we should assume all things being equal? We should be assuming somewhere in that kind of by single digit a hundred basis point headwind on a year, year basis.

Don O’Connell: Yeah, so Matt, sorry about that. Let me just address that and try to simplify that just a little bit. I don’t mean to, take that from Clint, but as we start to transition our business into more of a direct to consumer as opposed to the wholesale distribution company that we were in the past or a loose gemstone, we’re reducing the amount of what we call whip or work in progress related to the cutting and fasting of our gemstones. So in the past, we literally had, x number of gemstones that were cutting on a quarterly basis, on a monthly basis, and therefore that was spread out over the course of, month over month within the quarter. And it would be spread out across the board over the inventory. Now that we’re being mindful of that inventory and we’re not actually producing as much raw material and we have finished goods and we have inventory in stock, we don’t have the advantage of that applied labor as much.

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