Good day and thank you for standing by. Welcome to the Brilliant Earth Fourth Quarter and Full Year 2023 Earnings Conference Call. At this time all participants are in a listen-only mode. After this presentation, there will be a question-and-answer session. [Operator Instructions]. And please be advised that today's conference is being recorded.

I would now like to turn the conference over to Stefanie Layton, Senior Vice President, Investor Relations. Please go ahead..

Thank you and good afternoon, everyone. Welcome to Brilliant Earth's fourth quarter and full year 2023 earnings conference call. Joining me today are Beth Gerstein, our Chief Executive Officer; and Jeff Kuo, our Chief Financial Officer.

During the call today, management will make certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially.

Please refer to our SEC filings for a description of the risks that could cause our actual performance and results to differ materially from those expressed or implied in these forward-looking statements.

These forward-looking statements reflect our opinion only as of the date of this call and we undertake no obligation to revise or publicly release the results of any revisions to these forward-looking statements in light of new information or future events unless required by law.

Also, during the call, management will refer to certain non-GAAP financial measures. A reconciliation of Brilliant Earth's non-GAAP measures to the comparable GAAP measures is available in the third quarter earnings release, which can be found on the Brilliant Earth's Investor Relations website. I will now turn the call over to Beth..

Good afternoon and thank you for joining us today. 2023 ended on a high note with our team's exceptional execution throughout the holiday season. Our record revenue in Q4 and the full year caps a strong 2023 performance.

I'm pleased that in a year that we anticipated to be transitional and dynamic, we delivered against our strategic priorities, drove another year of healthy profitable growth, and gained significant share in the $300 billion jewelry industry. Here are a few noteworthy highlights from 2023 and Q4.

Q4 net sales grew by 4% year-over-year to $124.3 million, which was within our revenue guidance and which represented 97% growth on a four-year stack. Full-year net sales grew 1.5% to $446.4 million, which represented a 122% growth on a four-year stack.

We estimate our full-year revenue growth outperformed the industry by 750 basis points, highlighting the strong resonance of our brand among jewelry purchasers. Our Q4 product bookings growth, excluding engagement rings, increased 28% year-over-year. We also drove record order volumes.

Total orders grew to approximately 53,000 for the quarter and 175,000 for the year, representing 18% and 17 year-over-year growth respectively. Q4 gross margin was 58.7% or a 400-basis point increase year-over-year. Full-year gross margin was 57.6%, reflecting a 430-basis point increase year-over-year.

Both were the highest gross margins in company history. Our Q4 adjusted EBITDA of $5.3 million or a 4.2% margin was ahead of our expectations, and we delivered $26.2 million in adjusted EBITDA for the full year or a 5.9% margin.

This was our fourth consecutive year and 10th consecutive quarter as a public company delivering positive adjusted EBITDA, reflecting our discipline in operating the business profitably and our ability to manage the business nimbly.

I am incredibly grateful for and impressed by our team and their ability to execute and deliver these results in a dynamic environment. Our focus on elevating the Brilliant Earth brand deepened our customer engagement throughout the year, ending with over 250 million organic video views.

In addition, online searches for Brilliant Earth reached an all-time high in Q4 and we experienced 30% growth in our email and SMS sign-ups in 2023.

The positive momentum we saw across these metrics reinforces our prominence as a leader in social engagement and our unaided brand awareness for both engagement and fine jewelry has more than doubled in less than two years.

Our 2023 campaigns supported by celebrity and influencer partnerships throughout the year and culminating with our soul collection and holiday campaigns earned us over 2 billion media impressions.

And our partnership with Emmy nominated actress Camilla Marrone during the Sol Collection launch earned us recognition as one of Us Weekly Magazine's best celebrity brand partnerships of 2023.

More recently, we were delighted to see actresses, Ayo Edebiri, Juno Temple, and Zooey Deschanel, each wearing a beautiful assortment of Brilliant Earth jewelry on the red carpet at the Emmy's and Oscars.

This visibility and elevation of our brand is incredably exciting and shows our continuing success in driving high-profile awareness of Brilliant Earth. Turning to our Fine Jewelry assortment.

Customers are increasingly seeking Brilliant Earth for their essential jewelry pieces, like tennis bracelets and necklaces, as well as popular styles such as bangles and cocktail rings. In 2023, we introduced curated assortments of distinctive trend-leading pieces with the launch of several new collections, including our Sol Collection.

We are very pleased with the results we are seeing from Sol with the collection's productivity far outpacing prior collection launches. And we ended 2023 with record performance across our Fine Jewelry assortment. In December, Fine Jewelry reached an all-time high at 21% of bookings, and we had our biggest Fine Jewelry quarter ever in Q4.

We are succeeding in driving both new and repeat Fine Jewelry purchases as well as self-purchase and gifting as we continue distinguishing ourselves as the fine jeweler of choice for today's consumer.

In fact, customers whose first Brilliant Earth purchase was from our Fine Jewelry assortment increased 46% in 2023, highlighting the increasing awareness of Brilliant Earth as a Fine Jewelry destination. Another area of strength was in wedding, anniversary and fashion rings, which produced strong double-digits growth in Q4.

We believe we made significant bridal share gains in 2023, which was a challenging year for the industry. In Q4, order volume for engagement rings above $10,000 increased year-over-year in a positive contrast to the trend from the past few quarters.

Additionally, the average sales price for engagement rings was up 4% year-over-year in Q4, demonstrating the strong resonance of our premium brand with consumers.

And we continue to lead in product innovation and design last year, by launching new products, like our capture collection, lab diamonds grown using carbon captured before it can be released into the atmosphere and our a 100% Renewable Collection, featuring lab diamonds manufactured with a 100% renewable energy, both of which have resonated strongly with our customers.

We also continue to elevate our customer experience last year across our showrooms and e-commerce platform. We opened 12 new showrooms, including smaller formats and our first indoor mall locations and we expanded our cluster showroom footprint with multiple locations in a metro area.

On the digital front, we have released hundreds of new features as we continue to provide an industry-leading digital shopping experience. We are very pleased with the ongoing evolution of our omnichannel model and the key role our showrooms play in attracting new customers and deepening customer relationships.

In 2023, we made great progress towards our goal to transform and modernize the jewelry industry, by leading in transparency, sustainability and compassion. We just released our third mission report, where we highlight progress towards our multiple long-range goals.

Among our contributions last year, we donated over 950 volunteer hours in our communities and sponsored a meal program for approximately a 1000 children in Northern Tanzania.

We also expanded our inclusive sizing ranges to our full assortment of rings, improved the energy efficiency in our new showrooms and reached our goal of auditing a 100% of our lab diamond manufacturers for safe working conditions.

You can read more about our impact in our Mission Report available on our investor website to better understand our commitment and industry leadership. Turning to our outlook for 2024. We plan to continue making investments towards driving sustainable long-term growth and as always to do so in a disciplined and responsible manner.

Be cognizant of the industry and macroeconomic environment. This includes continued brand amplification, product innovation, elevating our distinctive omnichannel customer experience and continuing to drive operational efficiencies across our business.

We are already making great progress towards our 2024 product innovation and brand amplification goals. We continue to lead in product design with our recently launched tube collection, a diamond Micro Pave focusd fine jewelry collection, and Curated limited-edition pieces, such as our recently released Lunar New Year pendant.

Turning to our showrooms. Over the past three years, we have executed against our expansion plan by adding 28 showrooms across the country with a range of formats. New showrooms open at least one year have paid back on average within 16 months and have demonstrated strong post-opening metro uplift.

We continue to have strong conviction in showrooms as a key driver of our growth. Our showroom focus for 2024 will be on continuing to amplify the consumer and brand experience in our showrooms, drawing learnings from openings of recent showrooms, across a range of formats and locations and planning for the next phase of our expansion.

Understanding that, retail requires constant reinvention and evolution, we believe this is a perfect opportunity to double down on our existing fleet.

Customer experience enhancements will include amplified seasonal installations and visual merchandising and design enhancements to provide a richer experience of the Brilliant Earth brand for our showroom customers.

As we continue to amplify the customer and brand experience in our existing showrooms, we also plan to open two to four new showrooms in the second half of this year.

We believe that both continuing to enhance the consumer experience in our existing showroom fleet and selectively opening new locations will put us in an excellent position to drive both near and long-term growth. Turning to our financial guidance. In the first quarter, we have continued to experience a dynamic environment similar to recent quarters.

In this environment, we anticipate approximately flat net sales in the first quarter, compared to Q1 last year. This reflects continued share gain for Brilliant Earth in the still normalizing bridal and jewelry industry.

For the full year, we expect to continue making investments that will set the stage for long-term, sustainable growth, while also driving current and future share gains and profitability. We do expect 2024 to reflect a profitability turning point with adjusted EBITDA margin increasing each year from 2025 to 2027.

Jeff will take you through our outlook in more detail. In closing, we have a compelling opportunity to make outsized share gains in this evolving environment, by capitalizing on our brand strength, product differentiation, elevated consumer experience, agile data driven business model and strong balance sheet.

We believe that, our strategy combined with our ability to execute will position us well in both the near and long-term. With that, I'll now turn the call over to Jeff..

Thanks, Beth, and good afternoon, everyone. As Beth highlighted, we finished the year delivering record quarter and full year net sales, strong market share gains and Q4 profitability that exceeded our expectations despite the challenging external environment. Let me take you through some highlights from my end.

In the fourth quarter, net sales of $124.3 million, represented a 4% increase year-over-year and was within our guidance range. Full-year 2023 net sales grew 1.5% over the prior year to $446.4 million, which represented 122% growth on a four-year stack.

Q4 order volume increased 18% year-over-year and full year 2023 order volume increased 17%, compared to 2022. Total orders for 2023 reached approximately 175,000, another new record for us.

In addition, we have realized 22% year-over-year order growth from repeat customers in 2023, illustrating the success we are having in driving repeat customer engagement. For Q4, average order value or AOV was down 12% year-over-year and for the full year, AOV was down 13%.

For Q4, the year-over-year changes in AOV were principally driven by growth in Fine Jewelry, which we are thrilled to see. As Fine Jewelry becomes a larger and larger part of our product mix, we expect overall AOV will continue to moderate.

Looking at the collections independently, the average selling price or ASP for engagement rings increased 4% year-over-year in Q4 and ASP for Fine Jewelry increased 3% year-over-year in Q4. These ASP gains illustrate the strength of our premium brand and proprietary product assortment.

Q4 gross margin was 58.7%, which is a 400-basis point expansion over the prior year, and a slight sequential increase over Q3 2023. Full-year 2023 gross margin was 57.6%, a 430-basis point increase year-over-year.

The sustained strength of our gross margin demonstrates the competitive advantage of our premium brand proprietary products, price optimization engine, procurement efficiencies, and our enhanced extended warranty program.

Our strong gross margin together with disciplined cost management contributed to us exceeding our adjusted EBITDA expectations for the fourth quarter, delivering 5.3 million in adjusted EBITDA or a 4.2% adjusted EBITDA margin. This brought our full year 2023 adjusted EBITDA to $26.2 million or a 5.9% adjusted EBITDA margin.

SG&A for the quarter, and the year continued to reflect our investments in growing the Brilliant Earth brand, expanding our omnichannel reach and scaling the business. SG&A was 57.8% of net sales for the quarter, and 56.6% of net sales for the year.

Adjusted SG&A, which nets out items that are added back in our presentation of adjusted EBITDA, such as equity-based compensation expense, showroom, pre-opening, expense, depreciation and amortization and non-recurring charges was 54.5% of net sales for Q4, representing approximately 900 basis points of deleverage year-over-year from investments in marketing our team and other G&A.

Marketing costs as a percentage of net sales grew by approximately 570 basis points year-over-year for the quarter. Our ongoing investments in building the Brilliant Earth brand continue to pay off in terms of growing awareness and demand for Brilliant Earth, as we have seen in our strong order growth, market share gains, and higher brand awareness.

While we saw de-leverage on a year-over- year basis due to the headwinds in the bridal industry and the investments made in the largest brand campaign in our company's history, we believe that these investments will drive continuing growth of brand awareness and support long-term profitable growth.

During the quarter, adjusted employee costs were higher as a percentage of net sales by approximately 80 basis points year-over-year. As we discussed previously, we are focusing on investing in a disciplined fashion in both new showroom employees as well as key corporate talent to support our current and future growth.

Adjusted other G&A as a percentage of net sales increased by approximately 250 basis points year-over-year during the quarter, including higher showroom operating costs such as rent. Our balanced approach in 2023 allowed us to realize significant market share gains, while making investments for long-term growth and delivering in year profitability.

Our business model has also delivered working capital efficiency. Our inventory turns in 2023, significantly exceeded the industry average.

In addition, we ended 2023 with a $1.5 million decrease in inventory ending the year at $37.8 million compared to $39.3 million in 2022, even with our growth in Fine Jewelry and the opening of 12 new showrooms, highlighting the benefits of our asset-light model and our ability to use data to efficiently and dynamically manage working capital.

We finished the year once again with no net debt and a strong balance sheet. Our cash balance increased year-over-year ending at $156 million as of December 31st, 2023, even with the investments we made to expand our showroom footprint and after paying down over $3 million of debt.

Our ability to decrease inventory, increase cash, pay down debt and operate with negative working capital in 2023, while accounting for substantial expansion, speaks to the exceptional execution by our team, our agile business model and our discipline in cost management. All of this was accomplished during a year with a challenging consumer backdrop.

Our strong balance sheet puts us in a position to continue to make strategic investments in this environment.

I would also like to highlight that as we continue to manage the business in an agile fashion to maximize our ability to capture opportunities as they arise, we have recently amended our debt facility to suspend the testing of our consolidated fixed charge coverage ratio covenant through Q2 2024 and added a liquidity covenant over the same period.

This will provide additional flexibility in making appropriate investments in the first half of the year. We also announced a share repurchase program in which the Board authorized the repurchase of up to $20 million of our Class A common stock through December 8th, 2026.

As a growth company, we are keenly focused on seizing value creation opportunities, including when we see an opportunity to strategically buyback our common stock. Our strong balance sheet provides the ability to execute this share repurchase program and to realize the significant opportunity we see ahead.

While we did not make any repurchases in 2023, given that we adopted the share repurchase program late in the year, we intend to use this program strategically while balancing our overall investment decisions, including consideration of factors such as trading volumes and our public float. Turning to our outlook for 2024 and beyond.

We expect to continue making investments that will set the stage for long-term sustainable growth, while also driving in year growth, share gains and profitability in the context of a still normalizing industry.

Our outlook includes the assumption that, the path towards a more normalized bridal market continues over the next few years and that the broader economic environment remains relatively unchanged. For Q1, we expect net sales between $96.5 million and $98.5 million. This represents approximately negative 1% to positive 1% growth over Q1, 2023.

This also reflects continued share gain for Brilliant Earth through this transitional period for the bridal and jewelry industry. We expect Q1 adjusted EBITDA of $1 million to $2.5 million.

This includes an expectation of similar gross margins as we saw in the second half of last year, annualization of investments made during 2023 as well as the fact that seasonally, the first quarter is our lowest net sales quarter of the year. Our expenses such as rent and employee expenses do not have a significant degree of seasonality.

Therefore, seasonally lower Q1 revenue contributes to lower Q1 adjusted EBITDA. For 2024, our current expectation is for net sales between $455 million and $469 million, which is approximately 2% to 5% year-over-year growth with acceleration as we progress through the year.

This represents positive momentum in the context of the still normalizing bridal and jewelry industry. As Beth mentioned, we believe there are compelling opportunities to invest in this environment to drive long-term growth.

These include investments to amplify brand awareness, enhance the showroom, consumer experience and technology investments, including in AI and machine learning to drive operational efficiencies. We are also annualizing certain costs such as showroom staff and rent expenses from investments made last year.

As a result of these investments, we expect adjusted EBITDA for the year between $14 million and $22 million. We expect some modest sequential increase in adjusted EBITDA from Q1 to Q2 with a significant majority of adjusted EBITDA in the second half of the year. Similar to our previously mentioned comments on Q1.

We expect gross margin for the year to be at a similar level as H2 of last year. We expect quarterly marketing expense as a percentage of net sales to be similar to the 2023 average and to drive leverage in marketing expense as a percentage of sales in Q4.

This reflects disciplines continued investment in the business as we believe that there are compelling investment opportunities in this environment that will deliver long-term profitable growth and shareholder value while still delivering in year profitability.

As we look beyond 2024, we would also like to introduce a medium-term growth outlook, which will provide visibility into how we plan to manage the business as the bridal and jewelry industry gradually normalize over the next few years.

For net sales, we expect net sales growth accelerating from low to mid-single digit growth this year to a low teens growth rate in 2027. We expect this to be driven by the gradual normalization of engagements over the next few years.

Growth from existing showrooms, a measured acceleration of new showroom openings compared to 2024, continued outperformance in fine jewelry and other non-engagement assortments, as well as growth of our brand awareness.

We expect our gross margin to remain in the high 50% through 2027, while we do not expect the same pace of annual expansion that we achieved in recent years, as we strike a balance between driving top line growth and margin expansion.

We do see further opportunities to increase gross margin through our premium brand, proprietary product collections, price optimization engine, procurement efficiencies, and our warranty program. On the expense side from 2025 to 2027, we expect to increasingly drive leverage in marketing costs compared to 2024.

We expect that growing brand awareness increased conversion from our showrooms and continued success in fine jewelry will all contribute to driving increasing leverage in marketing costs from 2025 to 2027.

We anticipate that 2024 will represent the peak of our investment growth as a percentage of net sales and expect profitability to increase sequentially beginning in 2025 through 2027, with adjusted EBITDA margin reaching double-digits in 2027.

In closing, our performance for the quarter the year reinforces the ability of our brand, seamless omnichannel experience, unique asset-light business model and exceptional team to deliver profitable growth and share gains in a capital efficient manner.

We believe our continued discipline and balanced approach this year and over the next few years positions us well to deliver strong shareholder value. With that, I'll turn the call back over to the operator for questions..

Thank you. [Operator Instructions]. And our first question will be coming from Randy Konik of Jefferies. Your line is open..

Thanks guys. I guess question for Beth and then question for Jeff. I guess, Beth, I just want to get some perspective from you to unpack the idea of a normalizing environment.

Kind of give us your perspective on where we are in that pathway and what does normal look like to you from an industry perspective, as we think about the next couple of years? Because I'm trying to get an understanding of the baseline you're looking at from an industry growth perspective and appreciating all those share gains that you are undergoing in the industry? And then, Jeff, I guess what I'd like to understand from you is, can we unpack commentary around double-digits margins by 2027? I just really have always been focused on the SG&A portion of the business.

Is it your view that most of the incremental degradation in EBITDA margin has been just marketing expense and you we are going to keep that now like going flat after 2024? I just want to understand the different areas of SG&A where you're going to pull back or keep flat or whatever it is, as we get towards that double-digits EBITDA margin, again in 2027? Thanks, guys..

Great. Well, thanks, Randy, for the question. In terms of how we think about engagement rings, we do expect to see more gradual normalization over the next several years. Keep in mind that our customer demographic, the Gen z millennial audience, they're still facing continuing pressures, inflation, rent hikes.

They're still adjusting to a lot of the changes that they've been experiencing over the last couple of years. We do expect to see this category come back. It's a very resilient category, where people end up shopping with a budget. Overall jewelry industry is $300 billion.

We are expecting that mid-single-digits growth in the long term, but we just recognize that, we are experiencing a little bit of headwinds right now and we do expect that to normalize. I think the great aspect of what we shared in the call earlier is just a significant share gains that we've experienced.

It's been a challenging environment, but we are executing exceptionally well. I also think in a time when you start to see more challenges in the bridal segment. Recognize that two thirds of our industry are independence. And so, in more challenging times you do see an acceleration of closures within these independents.

As we're gaining more share as a strong omnichannel brand, we just see an enormous opportunity, as we look to further out years. .

And then Randy, with regard to your question about SG&A and the past to adjusted EBITDA, wanted to talk to a few different things. We have seen deleverage this past year in marketing expenses as we've been making investments including the largest brand campaign in our company's history in Q4 in a still normalizing environment.

I think, we've been seeing a lot of very strong results, as a result of these efforts, including the share gains that we've been making, strong order growth, brand awareness, and we believe that these are really setting the stage for both current and long-term growth.

Our approach has always been to be very dynamic in terms of how we're thinking about allocating our marketing spend and focused on driving efficiencies and we're very confident in our approach and the big reason why it's been successful as a digital first company.

In terms of the outlook as we keep going forward, for this year, we're expecting the marketing spend at a similar level as a percentage of sales as this past year and actually getting to leverage year-over-year as we get to Q4, and then looking further ahead from 2025 to 2027, we expect to progressively drive additional leverage in each year as we have success with growing our brand awareness, getting uplift from our showroom portfolio, driving success in areas like fine jewelry, and that'll be a meaningful contributor towards our path to increasing our adjusted EBITDA in 2027 to the levels that I spoke of.

.

So just as a follow up there, because it sounds like you would assume that through 2027 we keep the gross margins in the high 50s, is that correct? And then B, out to ‘27, but would then assume that you would keep marketing dollars kind of flat-ish out to that ‘27 year to get that leverage?.

Yes, so first, with respect to gross margins, yes, we do expect gross margins to be in the high 50s through that time horizon through 2027. We do see opportunities to continue to drive some incremental gross margin improvements through areas like leveraging the strength of our brand and our products, the price optimization engine and other areas.

We do see opportunities there, although not at the same level of magnitude that we've seen in recent years with a few hundred bps per year of improvement as we're striking the balance between top line and gross margin expansion.

So, we do see opportunities there, and then with regards to marketing, how I think about it is we've as always be balanced in the approach and look for opportunities to drive efficiency as we're still growing brand awareness and growing the overall business to manage within there to get to that overall increase in adjusted EBITDA.

We do expect that as a percentage of sales it will go down over each year from ‘25, ‘26 and ‘27. And then we'll contribute towards that EBITDA overall going up to that double-digit level as we get top-line growth getting to the low teens by 2027..

One moment for the next question. Our next question will be coming from Oliver Chen of TD Cowen. Your line is open..

Hi. It's Tom on for Oliver.

Beth and Jeff, if you could just talk about the strength you are seeing across price points and really the main drivers of the ASP increase in Q4? And then it'd be great to hear your view on the competitive environment in the Fine Jewelry category, both the pricing and the innovation standpoint?.

Sure. Absolutely. As it relates to our ASP increase, we were really pleased to see that, ASPs were up for the engagement ring selection 4% and we saw particular strength in that $10,000 plus customer. I think it speaks to a lot of the investments that we've been making in terms of creating that premium brand and customer experience.

Overall, because of the experience we're providing as well as a differentiated product, we're really able to drive higher price points. We continue to look across a variety of price points to make sure that we are introducing a curated selection that's highly productive.

I think we are also just seeing that, that customer is responding really well to some of these investments that we are making.

As it relates to the Fine Jewelry category, another really bright spot for the company, the fact that we hit the strongest Fine Jewelry quarter ever with 20% of our bookings in December just speaks to the strength in all of the efforts that we're making.

In terms of Fine Jewelry, I think what we're really focused on is providing a really curated assortment.

The strategy that we are introducing, which is to introduce innovation, really fresh, trend-forward product and then amplifying that product differentiating across the marketing, across our channels is really, I think, some of the, what's been sparking strong engagement and really strong results there.

We've been doing this across a variety of price points. I think the fact that we're able to drive repeat and drive new as well as self-purchasing gifting kind of speaks to the efforts that we have. One of the statistics that I was also proud of is the fact that, we have a 46% increase in customers whose first purchase is Fine Jewelry.

We are increasingly being known as a destination, for higher price point Fine Jewelry and really across a wide range of assortments, so we're able to meet customers where they are..

Great. And a follow-up on the opening of the new mall format. Would be great to hear any color you have on productivity and performance there.

And then any considerations we should model in preopening costs and inventory build as you continue to open more mall formats in the future?.

Yes. What I would say about those the mall locations, we recognize it's early. Definitely pleased with the locations that we've selected. What we're encouraged by is that, we've seen good foot traffic both inside and outside the showrooms and in particular for walk-ins.

We've been able to accommodate that appointment experience that we are so well known for, and we're also encouraged that for our mall locations, the walk-in business is double the share of the business versus the rest of the fleet. It really showcases how important that walk-in experience is.

And we really like this combination of walk-ins plus appointments. So overall, I would say still early in terms of our -- we've only had three of these locations, but seeing promising results. .

And then in terms of the inventory costs and build we do have some inventory needs for our showrooms as we open them, but we do run in a very inventory efficient fashion, leveraging things like our virtual inventory so that we don't have to scale up the inventory at the same level that the rest of the industry does, as we build out the fleet.

And I think one point that we're proud of is that over this past year, we're actually able to decrease inventory as we opened 12 new showrooms and saw success in areas like fine jewelry. And I think that's an a very helpful data point to show you how we can be nimble and agile to keep working capital efficient, even as we open new showrooms.

So, we will add as we open new showrooms, but as we've seen with our recent results, we'll do so in an efficient fashion. .

Our next question will be coming from Edward Yruma of PSC. Your line is open..

Good afternoon, guys. Thanks for taking my questions. I guess first, some interesting commentary on some of the repositioning of the store fleet and adding new -- kind of new functions new features.

Is that a capital-intensive process? Or are you expecting rather to expense line, and I guess kind of what gives you the confidence that now is really the time to embrace kind of multichannel retailing? And then as a follow-up, good to hear the commentary on $10,000 and higher price points.

Do you think that it's because you're seeing just better engagement trends there or have you done something proactively on the assortment side that's allowing you to penetrate this premium side of the market more effectively? Thank you. .

Great. Well thanks for the question, Ed.

In terms of how we're thinking about the overall store fleet, maybe Jeff, do you want to just talk about how that's flowing through?.

Yes, so for the investments for the investments in the store fleet, we're going to approach how we make the amplification of the experiences in the existing store fleet, similar to how we've opened new showrooms.

And that is to say that we do it in a capital-efficient way, being causing a really trying to drive strong ROI as we invest in the showrooms. And so, I think the overall approach will be to do so capital efficiently and in a targeted way where we're really seeing results.

And that's been our approach to opening and managing the showrooms and just overall managing our capital. So, we're going to do it in a targeted way. .

And I think what I would add to that is, we feel really great about the customer experience that we've created, but we continue to realize that we need to evolve the overall experience and have a big focus internally just in terms of doubling down on such a strong fleet that we have already.

In terms of how we think about multi-channel retailing, I mean, I would say that we have been thinking about an omni-channel approach from the beginning and really thinking about looking at multiple formats where the location and the metro market really dictate what type of format we have.

I wouldn't say that; the approach has necessarily changed there. I would just say that, we recognize that we've been opening a large number of showrooms.

At this point, we wanna just make sure that we are maximizing the productivity, that we're enhancing the activity as we lay the foundation for additional acceleration of showroom expansion into 2025 and beyond.

And then, I guess your second question, as it relates to the $10,000 plus, I would say that, it's really a result of the engagement we're seeing from our customers and some of the more brand-enhancing activities that we're doing. We know that we are resonating with a higher price point, higher income customer.

We also know that; the showrooms do end up driving a higher ASP. As we see success with the showrooms, I think that, that's naturally one of the consequences..

One moment for our next question. Our next question will be coming from Ashley Owens of KeyBanc Capital Markets. Your line is open..

Great. Thanks. Just wanted to circle back really quickly on Fine. Just curious on your thoughts as to how large this portion of the business can become to seeing that 20% in December.

Do you think there's a scenario down the road where this grows rapidly and surpasses engagement? Or how are you thinking about your product mix and growth opportunities seeing the reception you have in Fine?.

I think that this is very much a massive opportunity for the company. If you look at most independents and other jewelers, you really see the mix of fine and bridal about 50-50. We have a ways to go before we get there.

It's definitely growing incredibly fast, and I think we are investing a lot in order to become that Fine Jewelry destination, but I see a huge potential for the company..

Thank you. One moment for the next question. And our next question is coming from Dana Telsey of Telsey Advisory Group. Your line is open..

Hi, everyone. As you think about 2024 compared to 2023, given the consumer and how your mix shift is adjusting? What should we be looking at, as we compare against anything to note on the cadence? And then Beth and sorry about my voice, I've lost my voice.

And then Beth as you think about Fine Jewelry and engagement and overall average selling price points, what's happening with raw materials and newness in the product offering and how you envision pricing in 2024 compared to 2023? Thank you..

Yes. Maybe I'll start with kind of the last question that you asked, Dana, and thanks for the question. Really, as we think about pricing, this is a very dynamic aspect that we manage the business very nimbly. The way what we think about it is, we provide a variety of different assortments within different price buckets.

As we see enhanced productivity, we're constantly introducing new products and shaping the assortment, based on how the customers are responding. We are also really thinking about how do we maximize margin while also considering that we are driving growth. I don't know if I have a crystal ball for 2024 in pricing.

Other than that, we continue to believe we have a real pricing advantage based on the brand and the differentiation that we have. And we'll continue to just continue to test and learn there. As it relates to some of the raw materials.

I think one of the great things about our model is even in the face of increased metal costs, for example, we've still been able to maintain those high margins. And I think the fact that we're inventory-light just allows us not to invest capital at higher costs. We're able to be really nimble.

So, I think we have a real advantage in the marketplace overall. As it relates from 2024 versus 2023, I think that a lot of the strategy remains the same in terms of investing in brands, investing in fine jewelry.

We see a big opportunity with showrooms, but we really wanna make sure that we're driving optimization, productivity, and just the best customer experience that we can in the current fleet, as we're still being more selective in how we're opening.

And then overall, we do expect that more gradual normalization with engagement rings, while we continue to experience really strong growth across our non-engagement ring selection. .

Thank you. This does conclude the Q&A session for today. I would like to turn the call back over to Beth Gerstein for closing remarks. Please go ahead..

Well, thank you everyone for joining us for our Q4 2023 earnings call. I look forward to talking to you next quarter..

This concludes today's conference call. You may all disconnect..