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spk12: Good day and thank you for standing by. Welcome to the Brilliant Earth fourth quarter and fiscal year 2022 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would like to hand the conference over to your speaker today, Alison Milken of ICR. Please go ahead.
spk01: Thank you. Good afternoon, everyone. Thank you for joining us for our fourth quarter and fiscal year 2022 earnings conference call. Joining me today are Beth Gerstein, Chief Executive Officer, and Jeff Klob, Chief Financial Officer. For the call today, Beth will begin with highlights of our fourth quarter and fiscal year financial and operational performance and the drivers of future growth. Jeff will follow with more details on the quarter and year and share our outlook. Following this, the operator will begin the Q&A session with our presenters, Beth and Jeff, available to answer the questions you have for us today. Before we start, I would like to remind you that management will make certain remarks today. that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These future forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to our SEC filing for a description of the risks that could cause our actual performance and the results to differ materially from those expressed or implied in these forward-looking statements. These forward-looking statements reflect our opinions only as of the date of this call, and we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events. Also, during this call, we will discuss both GAAP and non-GAAP financial measures. You will find additional information regarding these non-GAAP financial measures and a reconciliation of these non-GAAP to GAAP measures in today's earnings release, which is available at the investor relations section of our website at investors.brillionaires.com. A live broadcast of this call is also available at the investor relations section of our website. With that, I'll turn the call over to Beth.
spk04: Good afternoon, everyone, and thank you for joining us today. We're pleased to share our fourth quarter and full year results with you. When we began the 2022 fiscal year, I shared with you that our approach would be to prudently and strategically invest to grow the Brilliant Earth brand and business, to expand our showroom and omnichannel footprint, and to optimize our significant financial and operating advantage with our asset-light, agile, and highly efficient business model, all with an eye on delivering profitable and sustainable near and long-term growth and on extending our lead as a transformative, modern fine jeweler for today's consumer. While there were certainly unexpected turns in what we all know was a challenging 2022, I'm incredibly proud of our ability to adapt in a changing environment and to gain market share while also staying focused on our dual goals of building and protecting our brand and driving healthy, profitable growth. I'm pleased to report that today's results reflect the success of that approach. Full year revenue grew 16% to $440 million, which represents a 31% four-year CAGR and and 197% four-year stack. As a note, we're providing a four-year comparative due to the anomalies of the COVID years, and as we believe, the 2019 base provides a more normalized benchmark. As we expected, we delivered Q4 revenue of $120 million as the industry came off its biggest year ever in bridal, and we strategically expanded our focus to prioritize growth in fine jewelry. On a four-year CAGR basis, Q4 grew 28% and 170% on a four-year stack. For both the full year and the fourth quarter, we realized record order levels. Our orders grew to approximately 150,000 for the year and approximately 45,000 for the quarter, representing 27% and 14% year-over-year growth respectively. Full year gross margin was 53.3%, a 400 basis point expansion and the highest annual gross margin in our history. Q4 gross margin expanded 360 basis points to 54.7%. We delivered $39 million in adjusted EBITDA for the full year, an 8.9% margin. In Q4, we were very pleased to deliver adjusted EBITDA ahead of our expectations. at $11 million, a 9.2% margin. As you know, these results were delivered in a rapidly shifting consumer and macro environment, and I'm incredibly proud of and grateful for the hard work and dedication our team demonstrated in delivering them. As I said last quarter, we took a more conservative view of the consumer environment and chose not to participate in what we expected to be an aggressive promotional environment. By focusing on quality growth, operational excellence, and building and protecting our premium brand position, we continue to gain share and deliver strong profitability. This again demonstrates our ability to stay focused on executing against our priorities while managing within a dynamic environment. I want to talk about just a few of those priorities today, both the progress we've made over the past year and our focus forward. First, the Brilliant Earth brand. It was a great year for our brand. As a digital-first brand catering to Gen Z and millennial consumers, we know that we have to win in social. We saw our efforts to lead in social pay off in both our brand reach and growing brand awareness. In fact, online searches for Brilliant Earth reached an all-time high, and we saw positive momentum across many other metrics, including a 38% growth in our email capture. We know that self-purchase is an important and growing trend in the jewelry category. And for Brilliant Earth, our strong brand resonance across genders has been a major driver of new customer and order growth. The total number of customers we served grew approximately 25% for the year. And we're excited to see the estimated number of self-purchase orders by females grew by approximately 70% year over year. which tells us that they love our brand and product designs. Our investments in building the brand are driving relevance and resonance with our community. During 2022, we made huge strides in deepening our engagements with customers across social channels, ending the year surpassing 100 million video views. This is just one example of where we've seen strong growth in our share of voice and overall brand awareness. In fact, in 2022, we saw close to a 70% increase in media impressions year over year. Key influencer-led campaigns have been one aspect of this success, and we intend to build on them. You can expect that we will continue to lead in social as we scale, emphasize our mission-driven storytelling, and amplify our unique product offerings. And speaking of product, 2022 was an incredible year for us. We made major progress in curating our design-led product offerings, particularly in fine jewelry. We successfully launched new collections and collaborations, including men's fine jewelry and cocktail rings. In Q4, fashion rings, including our new cocktail ring assortment, generated strong results, as did key on-trend items, such as tennis bracelets and necklaces. The success of these launches drove strong growth in our fine jewelry business. As I said up front, we enjoyed record orders for the year, and we know that our fine jewelry is also attracting new customers to our brand. In Q4, more than one-third of our new customers purchased fine jewelry, and fine jewelry was a record 16% of total company bookings in December. We intend to build on this momentum in 2023 and beyond, as we will make further investments to drive growth and become known as the fine jewelry destination for the next generation consumer. During the year, we saw continued strength in wedding bands, and as we look ahead, we will also continue to focus on and grow our core bridal business. As I said at the outset, 2021 was an unprecedented year of growth in bridal for our industry, and while we anticipate some normalization over the course of this year, we expect to continue to drive share gains as we introduce new collections, including in the coming weeks. Equally important, bridal is a resilient category. We continue to drive strong bridal growth relative to 2019 on a four-year stack basis and are excited about the year ahead. During the quarter, we launched three showrooms, Palo Alto, Santa Monica, and Baltimore, adding 10 new showrooms during the year and bringing our year-end total showroom count to 25. Our showrooms continue to generate strong results in increased Metro bookings, as well as overall uplift over time, further reinforcing our confidence in our omni-channel model. As we've grown our showroom footprint, we've continued to test and evolve various formats and the many attributes that enhance and elevate the overall experience for customers. As we begin 2023, we are expanding our showroom rollout and expect to open at least 10 new showrooms this year. In Q1, we've just opened in Charlotte, North Carolina, and in the near future, we'll be adding Brooklyn, Tampa, and Pasadena. This year, we will continue to test and evolve our showroom concepts and execution, including new formats, such as mall-based showrooms, and evolving the overall customer experience from brand and product storytelling to enhanced service levels, including personalization, customization, and other premium services. I think it's important to point out our ability to elevate our customer experience and to drive growth has been fueled by the investments we have made in technology this year, including a new CRM system and a workforce platform for managing our multi-channel customer facing teams. With 2022 in the books, we're looking ahead to this year with a keen focus on continuing to execute against our mission and our growth priorities. in order to deliver healthy, sustainable, profitable revenue growth. We recognize that we are operating in an ever-changing dynamic macro environment, and I believe 2022 demonstrated our ability to adapt as appropriate and to deliver. We intend to build on that experience in 2023. You can expect we will continue to advance our mission of transforming and modernizing the jewelry industry by leading in transparency, sustainability, and inclusivity. In fact, we've just released our second mission report in which we highlight our progress across a number of areas. Among the many results we highlight, you'll find that 98% of gold and 97% of silver in our jewelry is from recycled sources. Within our diamond supply chain, over 90% of our diamond manufacturers have been audited for safe and healthy working conditions. Last year, we donated over half a million dollars through the Brilliant Earth Foundation to causes that align with our mission and values. These are just a few of the results of our ongoing efforts. I encourage you to read our report on our website to better understand both our progress and our commitment to extending our industry leadership. Looking ahead for the year, our priorities remain consistent. To continue on our path to become the premier global jewelry brand for today's and tomorrow's consumer, driving awareness, resonance, and relevance. To expand and refine our product offerings to create distinctive, high-quality products. To expand and elevate a seamless omni-channel experience across our showrooms and e-commerce. And to invest in the technology and systems to enable our growth. We will execute against these priorities with a keen eye on the consumer and a sustained focus on managing with agility in any environment. We feel great about the strength of our brand and the resilience of this category, and we are balancing that with some degree of caution given the current environment and recognizing that we are coming off our biggest year in weddings. We are confident that we are well-positioned to continue to take share and to deliver another year of healthy, profitable growth. Jeff will take you through our outlook for the year. So I'll conclude by again, complimenting our great team for their dedication and commitment to delivering for our customers and shareholders. Thank you. And here's Jeff.
spk05: Thanks Beth. And good afternoon, everyone. Thank you for joining us today to discuss our fourth quarter and 2022 full year results. As Beth mentioned, we are very pleased with the results we reported today. We delivered strong revenue growth and adjusted EBITDA for the year in the face of a rapidly changing macro environment. These results are a testament to the strength and resonance of the Brilliant Earth brand, the agility of our team, and the adaptability of our unique asset light business model. We are particularly gratified to again demonstrate our ability to navigate in any environment and to prudently and strategically execute our growth priorities, to expand the reach and resonance of our brand while also delivering healthy, sustainable, profitable growth. Today's results reflect those efforts. In the fourth quarter, we delivered revenue of $119.6 million a 2% decline year-over-year, and growth of 28% on a four-year CAGR basis. This result was near the midpoint of the expected range we communicated on our Q3 earnings call. Full-year revenue grew 16% over the prior year to $440 million, which represents 31% growth on a four-year CAGR basis. Beth mentioned the record level of orders we realized in 2022, which contributed to this growth. Equally important is a strong barometer of the growing demand for and resonance of the Brilliant Earth brand. As we've mentioned before, with continued growth in fine jewelry and expansion of our assortment, we do expect AOVs will decline on a year-over-year basis, and in Q4, that decline was 14%. This was driven by increased aggregate demand for our offerings below the $10,000 price point, as well as strong performance in fine jewelry and the fact that Q4 is the largest fine jewelry quarter for us. I'm pleased to report that we also continue to deliver robust gross margins. Q4 gross margin expanded 360 basis points year over year to 54.7%. As you will recall, the combination of a significant shift in macro and consumer sentiment that we saw early in Q4 and an increasingly aggressive promotional environment in which we chose not to participate caused us to intentionally plan our business toward a focus on quality revenue, preserving our brand integrity. This discipline resulted in full-year gross margin expanding 400 basis points to a record annual gross margin of 53.3%. Consistent with prior quarters, the sustained strength of our gross margin illustrates how our asset-light, data-driven business model is a huge competitive and financial advantage and allows us to nimbly adapt to dynamic market conditions to optimize both margin and revenue. During Q4, we were again able to capture better than expected gross margin improvement through our strong brand resonance, differentiated product offerings, price optimization engine, driving procurement efficiencies in our supply chain, and benefits from our enhanced extended warranty program. SG&A for the quarter and the year continued to reflect our investments in growing the Brilliant Earth brand expanding our omnichannel reach, particularly through our showroom rollouts, and in scaling the business. Full year SG&A was 48% of revenue compared to 38.7% of revenue in 2021. For the fourth quarter, SG&A was 49.6% of revenue compared to 40.5% of revenue in Q4 2021, with 160 basis points of the deleverage driven by expenses that are added back in our presentation of adjusted EBITDA, such as showroom pre-opening expenses, equity-based compensation, and depreciation and amortization. The remaining approximately 750 basis points of Q4 SG&A deleverage are as follows. Marketing costs as a percentage of sales grew by approximately 310 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 and unaided brand awareness. During the quarter, employee costs were higher by approximately 270 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. As a data-driven company, we have the ability to dynamically manage our customer-facing workforce to meet the demand that we are seeing from consumers. Other G&A as a percentage of sales increased by approximately 170 basis points during the quarter driven by increased public company operating costs and other costs to support our growth. As we've previously noted, in Q4, we did anniversary our first full quarter of public company operating costs and were pleased with the reduction in year-over-year deleverage in other G&A as a percentage of sales compared to prior quarters. In each of these SG&A areas, we have driven sequential improvement in the year-over-year deleverage as a percentage of sales from Q2 to Q4 2022. And this shows the results of our ongoing focus on operating cost management in a dynamic environment. Our strong gross margin performance together with discipline management OPEX and Q4 contributed to us exceeding our adjusted EBITDA expectations for the fourth quarter to deliver Q4 adjusted EBITDA of $11 million or a 9.2% adjusted EBITDA margin and bringing our full-year adjusted EBITDA to $39 million or an 8.9% adjusted EBITDA margin. Our profitability and capital efficient operating model continue to differentiate us among direct-to-consumer companies. We ended 2022 with $155 million in cash. We have a strong balance sheet with no net debt. We have historically diversified and expect to continue maintaining our cash holdings across multiple financial institutions. We continue to operate the business in an asset-light fashion with higher than average inventory turns and negative working capital. Over time, as we successfully expand fine jewelry to be a larger percentage of our business and grow our showroom footprint, we do anticipate our inventory model will evolve to accommodate those needs. That said, we expect to continue to drive high inventory turns with strong working capital efficiency. And finally, our focused capital expenditures increased slightly due to investments in showrooms and technology. CapEx for 2022 was approximately 2.1% of net sales. Underpinning all of these results is our unrelenting focus on realizing the unique opportunity we see for Brilliant Earth to become the premier global jeweler for today's consumers. As a growth company, we will continue to invest in the critical drivers, our brand, our product offerings, and our omnichannel experience that will enable us to expand our reach and grow market share. Beth talked about the success we are experiencing with our brand investments, which we will continue to build upon. You can also expect that we will extend our omnichannel presence with a specific focus on our showroom expansions. As we have expanded our showroom footprint to 25 total locations at year end, the results our showrooms deliver further reinforce our confidence in our approach. For Brilliant Earth showrooms that have been open 12 months or more, we have seen an approximately 100% Metro bookings uplift within the first year post-opening. This reflects the growing strength of our brand and continues to validate our compelling showroom economics as we increase our showroom coverage across the country. As our omnichannel footprint grows, so too will refinement of our product assortment. In addition to growing our core bridal business, we see significant opportunity to grow in fine jewelry. In the past year, we have brought many new fine jewelry customers to our brand in addition to growing our repeat purchases. In the fourth quarter, we saw a year over year increase of over 20% in repeat orders. As Beth said, as pleased as we are about our fourth quarter and full year results, we're looking ahead to fiscal 2023 and beyond, focused on continued sustainable, profitable growth of our brand and our business. As I've shared with you before, we have established long-term growth goals toward which we aim and they remain unchanged. As you know, we set these goals over a multi-year period and use them to guide our planning. You can see our long-term targets in our presentation on our investor relations website. As we have developed our plans for 2023, we are staying intently focused on executing our growth plans in a way that balances pursuing the highest return opportunities while also keeping a cautious and measured eye on the uncertainties in the macro and consumer environment. We view 2023 as a year in which we are planning for continued profitable growth after record years for the industry. As you know, 2021 and 2022 represented record years for the bridal and jewelry industries above historical trend lines, and we will be looking to four-year takers as we plan for 2023. As a result, for the full year 2023, we project net sales will be in the range of $460 to $490 million, which represents 5% to 11% growth versus fiscal year 2022, a four-year CAGR of 23% to 25%, and a four-year stacked growth of 128% to 143%. While our 2023 growth range is below our long-term target, it reflects our unwavering approach to focus on quality, sustainable revenue growth in a somewhat uncertain market environment, and it reflects our confidence that building and protecting our brand will fuel our growth. As we've mentioned before, we believe that we are strongly positioned to continue to gain market share, and the four-year CAGR reflects these share gains and reinforces our confidence in our growth path. We are pleased with the strong gross margins of the business and expect to continue managing 2023 towards our long-term gross margin targets in the mid-50% range. We are projecting full-year adjusted EBITDA in the range of $17 to $32 million, which represents an adjusted EBITDA margin of approximately 4% to 7%. While this is a more conservative EBITDA margin than our long-term targets, it reflects our confidence in our proven ability to adapt quickly and opportunistically to changing conditions while making appropriate, disciplined investments in our brand and operations. We are planning to exit 2023 driving year-over-year leverage on a run rate basis in adjusted SG&A as we continue our focus on driving sustainable, profitable growth. We do anticipate Q1 will be the lowest year-over-year growth rate for the year as we are comping record revenue from Q1 2022 where we grew 41.5% year-over-year. As a result, we anticipate that Q1 2023 net sales will be between $94 and $96 million, which is a one-year growth of negative 6 to negative 4%, or a four-year CAGR of approximately 26%, and a four-year stacked growth of 150 to 155%. We anticipate our adjusted EBITDA in the first quarter will be in the range of $2.5 to $3.5 million, representing an adjusted EBITDA margin of 3% to 4%. This includes the annualization and prudent continuation of investments made in 2022, as well as the fact that seasonally, the first quarter is our lowest revenue quarter of the year. In closing, on behalf of Beth myself, and our entire team, we thank you for your support and look forward to the year ahead. With that, we'll be happy to take your questions.
spk12: As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please limit yourself to one question and one follow-up and re-queue for any additional questions. Please stand by while we compile the Q&A roster. Our first question comes from the line of Donna Telsey from Telsey Advisory Group. Your line is open.
spk02: Thank you. Good afternoon, Beth and Jeff, and nice to see the progress. As you think over the long term about the opportunity on product, on channel, how big do you think fine jewelry can get? What does it mean to the AOV? And it sounds like the showroom ability to uplift revenues continues to be substantial. Any other thoughts? I think you had long-term targeted 80 to 100. Any other thoughts on how you're thinking about that rollout? And lastly, I remember you'd always talked about the resilience of the category. In today's times, is there anything the same or different in the 17 years of history that that you've seen that would make this particular timeframe different in any ways in how you're operating the business? Thank you.
spk04: Hi, Dana. It's nice to hear your voice. I think there are a number of questions there. So maybe I can just start off with just talking about our conviction in the overall category. And the way that we've been looking at the category overall is we're really coming off of some very strong growth over the past few years. And this year is more in terms of normalizing. But over this multi-year period, it's still quite strong. And we see a lot of ability for Brilliant Earth specifically to be able to gain share as we have really from the beginning. I think a lot of the initiatives that we've been investing in have really nice momentum right now in terms of the products and the assortment that we're offering. In terms of the showroom strategy, we still have a lot of conviction about an efficient showroom strategy, which is really, I think, synergistic with the digital experience that we continue to invest in. So I wouldn't say that our long-term goals as it relates to showrooms has changed at all. We still have a lot of conviction there. In terms of fine jewelry, I think we've seen a lot of the success in Q4 based on the investments that we've made in our assortment. as well as in the marketing efforts that we have. So seeing strong repeat, seeing strong self-purchase, all of those I think are really great results from the initiatives that we have. And overall, if you look at this $300 billion category, I think that we've only really scratched the surface and really being the premium brand for the millennial and Gen Z audience.
spk02: Thank you. Thank Just to follow up on the AOV decline that you had mentioned, Jeff, is that due to fine jewelry? What are you seeing in terms of the customer? I think you had mentioned a while ago they were elongating their purchases. What are you seeing today? Thank you.
spk05: So, I think in terms of the AOV, we're seeing there's a number of factors there. I think I mentioned that we have seen increased aggregate demand for offerings below the $10,000 price point, some moderation above the $10,000 price point. The strong performance that we've seen in fine jewelry has continued to grow faster than the rest of the business. And also the fact that we have Q4 as the largest fine jewelry quarter for us. And so I think we're very excited about the growth and success that we're having in fine jewelry. It will, we do expect it'll lead to declines on a year-over-year basis in AOV, but we see that as reflective of the success of the strategic priority that we're putting in growing and expanding in FJ. Fine, Julie.
spk02: Thank you. Thank you.
spk12: One moment for our next question. Our next question comes from the line of Edward Yoruma from Piper Sandler.
spk06: Your line is open. Hey guys, thanks for taking the question. So two quick ones for me. I guess first, we've been hearing more chatter about, you know, weddings being softer in 23. I guess just kind of what is your estimate from a top-down perspective on weddings that kind of informs maybe this softer sales guide? And then I guess just stepping back, you know, it sounds like some early successes in fine jewelry. You know, we know historically this carries a stronger gross margin. than engagement. But I guess as you look at kind of the offsetting increase in marketing, is the push in the fine jewelry been kind of margin accretive? How should we think about the implications to the model going forward? Thank you.
spk04: Great. So as it relates to weddings, as I said earlier, we do think that 2023 is going to be more normalized. Keep in mind 2022, there were were 2.6 million weddings so it was a peak year in decades and you know while i think 2023 is going to be more normalized i do think that this is a pretty consistent and resilient category overall so as we look to the future i think we still have a lot of confidence in the overall category a few things as it relates to fine jewelry and i'll certainly let jeff touch on a few of these points as well But I think that there's a lot of benefit for us to continue to drive increased penetration. We're able to take that bridal customer and continue to market to them, continue to offer a really nice, compelling offering and really help to drive LTV as well as overall repeat. I think we've seen a lot of success as it relates to repeat. And so I think that there's a lot of synergies in terms of investing in in the customer overall, and really being able to broaden and make this creative for us as a company.
spk05: And then with respect to gross margin, we do see gross margin opportunity in high margin fine jewelry, as well as Beth talked about the opportunity to drive additional repeat purchases and drive additional customer lifetime value. With respect to Martin Johnson- Marketing for fine jewelry I think more broadly, how we think about our marketing spend is that we're continually managing that dynamically with a strong roi focus that includes. Martin Johnson- Our overall marketing efforts, and I think you see that in our ability to manage and, for example, grow our. have a strong Q4 EBITDA, and that's something that we continue to expect to have that discipline in terms of dynamically managing marketing with a strong ROI focus.
spk12: Thanks so much.
spk05: Thanks, Ed.
spk12: One moment for our next question. Our next question comes from the line of Oliver Chen from Callen. Your line is open.
spk11: Hi, thanks. Hi, Beth and Jeff. You called out promotions and the prepared remarks. We'd love your thoughts on what you're seeing with the customer in terms of the customer previously being very considered in their purchase and your guidance. How are you thinking about that relative to the deceleration and weddings? And a follow-up, you've been very agile in your customer acquisition strategies. What are you seeing with customer acquisition costs and how you're thinking about targeting, as you have a pretty dynamic bricks and clicks model too, where you acquire plenty of customers physically as well. Thank you very much.
spk04: Hi, Oliver. Thanks for your questions. So as it relates to promotions, I think we did see a promotional environment in Q4. I would say that our customer is not that discount-driven price is the only thing that they're looking for. And they're really looking to connect with a brand that really has value and meaning to them. And I think that's where we really shine overall. The fact that this is a very big purchase in their life, that it has a lot of symbolism and value, I think just makes us much more differentiated here. And we're not really trying to differentiate on offering the biggest discounts. So I think that actually plays to our advantage. And we're going to continue to invest in quality revenue and and protect our prices and protect the brand. I think that's the right strategy for the company. As it relates to the guidance and what we're seeing on weddings, I think that we continue to see a big opportunity to take share. We see a lot of momentum in the initiatives that we have underway with our brand, the highest searches that we've seen, such strong media impressions, as well as the strong results that we've seen across showrooms and fine jewelry. So I think we're really looking at this across a broader time period. How do we take share and continuing to grow the brand for the long term? And then as it relates to how we're thinking about marketing, I think Jeff put it really well that we really are driving marketing efficiencies and operating in a very nimble way. And we're continuing to also invest in the brand. And I think we punch above our weight as it relates to social and and a lot of the campaigns that we're doing. And I think as we see success there, we're going to continue to invest.
spk12: Thank you. Best regards. Thank you. One moment for our next question. And our next question comes from Matthew Boss from J.P. Morgan. Your line is open.
spk03: Great. Thanks. It's Amanda Douglas on for Matt. To start, Beth, could you speak to how you've seen the consumer purchase decision cycle trend to start the year in one queue to date, maybe relative to four queue? And then are there any notable shifts by category or price point you've observed? And then just multi-year, what do you see as the bridge from this year's 8% revenue growth guidance at the midpoint to your high 20s to low 30s longer term target?
spk04: Great. So I would say we're continuing to see a volatile environment overall. And I wouldn't say that we're seeing anything that's markedly different in Q1 relative to Q4. We're just really coming off of a very strong comp overall. I think Jeff mentioned in terms of price points, seeing increased demand in aggregate under that $10,000 price point. So that's one observation that we have overall with the consumer today. And Jeff, maybe you can comment on the multi-year. and the bridge.
spk05: Yeah, in terms of the multi-year, one thing that we had mentioned and we're using in our planning is really thinking about four-year CAGRs as the appropriate way to look at the longer-term trend line, given some of the volatility in recent years. And our guidance for the quarter and the year incorporates a strong multi-year CAGR And so that's how we're thinking about modeling. It's reflective of how we believe that we are poised to gain share in a variety of different environments. And that's how we've thought about planning out the long-term and how that ties to our long-term growth algorithm that we've talked about previously.
spk03: That's helpful. Thanks. And then just to follow up on gross margin, With 2022's gross margin finishing at 53.3%, could you just rank what you see as the remaining gross margin drivers from here to achieving your longer-term mid-50s target?
spk05: Sure. I'm glad to talk through that. So, I think the opportunities that we see to expand gross margin are similar to those that have allowed us to get here. I think underlying it is the strong premium brand that we have and the resonance that we have with our customer base that allows us to have a strong gross margin, our differentiated proprietary products. And then operationally, what we do is we work through our price optimization engine and that allows us to dynamically manage to optimize both for revenue and gross margins, procurement efficiencies, and then also we talked about potential opportunity in high margin fine jewelry. And so I think the combination of these things really is similar to how we've gotten here to where we are now, and we see room to continue to progress towards our long-term target of the mid-50s percent gross margin.
spk03: That's helpful. Thank you.
spk05: Thanks, Amanda.
spk12: One moment for our next question. Our next question is off the line of Rick Patel from Raymond James. Your line is open.
spk07: Thank you. Good afternoon, everyone. Can you talk about what's embedded for OpEx as we think about your EBITDA margin guidance for 2023? I'm curious how we should think about the potential to leverage either marketing or other SG&A. Jeff, you talked about the progress made with OpEx. I'm just curious if the demand – If the demand environment does soften further, where do you see room to have better control of OPEX?
spk04: Maybe I can just start that and just framing it in terms of our overall longer-term growth outlook. I think it's really important that we're investing behind initiatives with proven ROI, and I think we've seen a lot of momentum here. Part of, I think, what's driving the guidance for the year is really leaning into some of these growth initiatives, which I think positions us really well to grow market share as well as experience that multi-year strong CAGR. Jeff, maybe you can go into the specifics in terms of what's embedded and what kind of leverage we have.
spk05: Sure. So embedded in how we're thinking about OpEx for the year is a continuation of investments that we've been making in 2022 to set the stage for our ongoing long-term growth with appropriate discipline, discipline improvements in terms of being cognizant of the environment and working towards driving, exiting 2023, driving leverage on a year-over-year basis in adjusted SG&A. So as we exit 2023, working towards that. And in terms of how we would manage, I think there's a couple of different examples I can give. For example, one, marketing is something that on an ongoing basis, we manage dynamically to adapt to conditions and demand that we're seeing. Employee costs are another area where we can dynamically manage the a customer facing workforce to meet the demand that we're seeing across, you know, across showrooms, across e-commerce and different areas. So I think what you can probably tell, like there's theme of nimbleness and agility in terms of how we manage those costs. And I think it shows in some of the Q4 results how we were able to deliver adjusted EBITDA that was ahead of our expectations. And I think that's a reflection of the capabilities and the success of our team in managing even in a very dynamic and uncertain Q4 that we face.
spk07: And can you also talk about what revenue guidance assumes in terms of AOV versus orders? I know you don't give guidance by line item, but I'm just curious if AOV, the decline in AOV accelerated on a year-over-year basis in the back half, and just given you're leaning into fine jewelry, should we expect a continuation of double-digit declines in AOV as we think about 2023? Just some context on the puts and takes for the KPIs would be helpful.
spk05: Sure. So, as you mentioned, we don't provide specific guidance on those line items. However, how I might think about some of those areas would be, one, for AOV with respect to fine jewelry. With our continued growth there, I do expect that since fine jewelry has a lower average price point, that there will be declines year over year on an aggregate basis. One thing for Q4 specifically, Q4 is seasonally our biggest fine jewelry quarter. And so that you do see that effects as you think about Q4 relative to non Q4 quarters. So you do see more of that seasonal fine jewelry effect and As we talked about for the call, we saw for Q4, we do continue to see strong order growth. And I think we're very excited by that. The growth in orders, the growth in number of customers served, I think just really reflects the resonance and the success of the Brilliant Earth brand.
spk07: Thanks very much.
spk05: Thanks, Rick.
spk12: One moment for our next question. And our next question comes from the line of Michael Benetti from Credit Suisse. Your line is open.
spk09: Hey, guys. Thanks for all the details today. I'm not sure if I heard it, but you said this year gross margin is still in the mid-50s. Does the gross margin expand this year? That line has been very solid at 55% in the last two quarters. I'm curious if that expands this year as we look at the whole year and then even in the first quarter. if it expands given there's less mix headwind from the fine jewelry that you pointed to a few times?
spk05: Sure. So a gross margin for the year as a whole was 53, a little north of 53%. And we're working towards, you know, towards the gross margins of that mid-50s, 50s range in our long-term algorithms. There are, you know, if you're looking on an individual quarter basis, you expect there are some puts and takes and fluctuations, you know, as we're continually managing dynamically to optimize revenue and gross margins. So, you know, there'll be some fluctuations on a quarter-over-quarter basis, but working towards, for the year, driving towards that mid-50s goal for the overall gross margin for the year.
spk09: Okay. And then I guess just a couple more. Are you doing – I mean, when you comment that the demand under $10,000 price point has been high, are you doing anything deliberate strategy-wise into that dynamic to satisfy a customer that may be shifting to maybe a bit more of a value mindset? And then I guess – Separately, as you scale here and your mind share in fine jewelries, could there ever be an opportunity to extend fine jewelry into a wholesale strategy?
spk04: So what I would say is that I think we have a compelling product offering across a variety of price points, and we really always have. And it's important to us to work with the customer wherever their budget is. And so I think we're naturally very well positioned kind of, you know, as budgets are going to fluctuate to be able to offer something compelling to that customer. You know, as it relates to wholesale, you know, I think obviously we have a very strong brand. At this point, I think we have a lot, see a lot of opportunity in direct to consumer. But so it's not something that we have any immediate plans to really amp up. Okay.
spk12: Thanks, Latha.
spk04: Sure.
spk12: one moment for our next question. And our next question comes from the line of Dylan Carden from William Blair. Your line is open.
spk08: Thanks. Just trying to understand the commentary on the SG&A. This year you're still going to see deleverage. It sounds like exiting the year as in 2024 you might start to leverage operating costs, but I guess the sort of quote unquote growth investments, can you, I mean, it sounds labor, obviously store costs are in there, but, and then sort of the counter on sort of being nimble yet and, you know, spending marketing dollars. I'm kind of curious where you're actually seeing marketing efficiencies show up, just kind of looking at some of the numbers. What's the biggest overhang and why is that run over the next year and How quickly do you think you can start leveraging some of that investment, kind of looking at where your margins were two, three years ago?
spk04: Jeff, do you want to take that one?
spk05: Sure. So I think I'd like to walk through just how we're thinking about the opportunity and our long-term perspective. I think we believe that there's a lot of trajectory for us to continue to really move grow and gain share over the long term and making investments in things like growing awareness of the brand, expanding the showroom footprint, investments in fine jewelry. And we think that there's the opportunity to do so in this environment. the financial strength and balance sheet to be able to make those investments while still keeping an eye towards being disciplined and focused in terms of how we're making those. We've always operated the company in an efficient fashion with ROI in mind. And as you point out, we are working towards driving to leverage on a year-over-year basis, exiting the year And we continue to be agile in terms of how we think. So as we see variations in demand, we're able to meet that opportunity. I think with respect to showrooms, for example, many of our showrooms are still a bit earlier in terms of their maturation. So I think there's more younger showrooms in our cohorts. And I think we do see a lot of opportunities for leverage in SG&A going forward and setting the stage for multiple years of sustainable profitable growth.
spk08: And does that mean that by 24, you think the maturity curve on retail will be better, that it will allow you to pull back more on marketing, that you'll have sort of the HQ workforce in place that you need? Anything sort of why 24 would be the inflection point?
spk05: Yeah, I would say that we think that there are opportunities, you know, for for growing leverage in these areas. I would perhaps point also to over the last quarters from Q2 to Q3 to Q4, we have been reducing the leverage in each of those areas. And I think that's come from our disciplined focus on an ongoing basis, recognizing that we're in a somewhat uncertain macro environment. and being focused on ROI, focused on efficiency. And I do think that we see opportunities in each of those areas, and that's how we've embedded in terms of planning for the year, driving towards exiting driving year-over-year leverage.
spk08: Which the body language there would be that you would expect more or less sort of continued linear progression and leverage or deleverage.
spk05: Yeah, I think there may be quarterly fluctuations, but that's the overall direction that we're managing the SG&A trend line.
spk08: Okay. I'll save the rest. Thank you very much.
spk05: Thank you, Dylan.
spk12: One moment for our next question. Our next question comes from Noah Zatzkin from KeyBank Capital. Your line is open.
spk10: Thanks for taking my question. Just a quick one for me. I believe you mentioned a mall-based showroom. So just in general, has anything evolved or shifted in terms of how you think about your approach to showrooms, whether it be location, inventory on hand? I think in your commentary around that showroom, you mentioned a commitment to maintaining an asset-light model, but would you consider more inventory in the showrooms? Any color would be helpful.
spk04: Sure. So as it relates to us launching a mall-based showroom, I think this is really building on the success that we've seen with ground floor locations. We have a number of ground floor locations right now that also builds on the success that we've seen with appointment-driven, but also enables a browser, a customer that's browsing as well. So given the uplift that we've seen there, we thought that certainly in some locations, some geographical locations, the mall-based showroom makes a lot of sense. That's really how customers are shopping. And so I think we're able to take that appointment-driven model where the journey starts online. They come to us in this very personalized, curated experience. And behind the scenes, we're also able to operate in a very inventory-light way. We have a lot of dynamic inventory management that is able to curate based on what the customer preferences are. So I don't anticipate that's going to materially change. We're still going to be able to be very capital efficient, but want to make sure that we have the right product assortment for that browsing customer.
spk12: Very helpful. Thank you. Thank you. I'm not showing any further questions in the queue. I will now turn the conference back to Beth Gerstein for any closing remarks.
spk04: Thank you, everyone, for joining us today. We look forward to speaking to you when we report our first quarter results in May and look forward to seeing some of you at Shop Talk later this month.
spk12: This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.
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