Charles & Colvard's (CTHR) CEO Suzanne Miglucci on Q2 2016 Results - Earnings Call Transcript

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Charles & Colvard Ltd (NASDAQ:CTHR)

Q2 2016 Earnings Conference Call

August 3, 2016 16:30 ET

Executives

Suzanne Miglucci - President & CEO

Kyle Macemore - SVP & CFO

Analysts

Mark Robins - Catalyst Research

Rodney Baber - Paulson Investment Company

Operator

Good afternoon, and welcome to the Charles & Colvard Second Quarter 2016 Earnings Conference Call. [Operator Instructions]

This webcast may contain forward-looking statements as defined in Section 27A of the Securities Act of 1933, as amended, including statements regarding among other things, the company's business strategy and growth strategy. Expressions which identify forward-looking statements speak only as of the date the statement is made.

These forward-looking statements are based largely on our company's expectations, and are subject to a number of risks and uncertainties, some of which cannot be predicted or quantified, and are beyond our control.

Future developments and actual results could differ materially from those set forth in, contemplated by or underlying the forward-looking statements. In light of these risks and uncertainties there can be no assurance that the forward-looking information will prove to be accurate. This webcast does not constitute an offer to purchase any securities, nor a solicitation of a proxy, consents, authorization or agent designation with respect to a meeting of the company's shareholders. Please note, this event is being recorded.

I would now like to turn the conference over to Suzanne Miglucci, President and CEO. Please go ahead.

Suzanne Miglucci

Thank you, Chad. Good afternoon, and thank you for joining us, as we summarize Charles & Colvard's 2016 second quarter results. For today's agenda, I'll cover financial highlights including margin improvement, product innovation, online sales, and our channel strategy. I'll turn the call over to Kyle for a detailed financial review and then I'll wrap up with our strategic outlook.

We closed the second quarter of 2016 with $6.5 million in net sales from continuing operations compared to $6.2 million in Q2 2015, an increase of 6%. Year-to-date, first half 2016 net sales totaled $17.9 million compared to $13.2 million for the first half of 2015, a 36% increase over last year representing positive momentum as we head into the second half of the year. In the first half of 2016 we generated positive operating cash flow of $5.6 million compared to $1.3 million in the same period last year.

Our cash position was $11.1 million at the end of the second quarter of 2016 providing flexibility and funding for our future investments in sales and marketing. We ended the second quarter of 2016 with inventory at $26.1 million compared to $32.3 million at the end of Q4 2015. Our inventory at the end of Q2 is up slightly from our Q1 2016 inventory level of $25 million, mainly due to the preparations we're making for the launch of our new website and the coming holiday season. Another notable achievement in Q2 was the improvement in our margins; our gross margin was 1% in Q2 2015 compared to this quarter's 40%. We're in this vastly improved position because of the many strategic changes we're making to improve the business.

Let's discuss our progress. We've diversified our growth, both domestically and internationally. In Q2 2016, international revenue grew 107% over Q2 2015. Domestically, the majority of wholesale revenue in Q2 2015 came from just one customer but today's revenue it's more balanced across multiple customers. During our last two conference calls, we discussed that a key initiative for the company is the launch and market penetration of our new game changing gemstone Forever One. Given its brilliant and colorless attributes, we believe to this gemstone would position us to contend more effectively for a greater share of high-end sales and our theory is proving true.

In the first half of this year our Forever One sales have grown from being 15% of our total gemstone sales in Q1 2016 to 60% in Q2. This high quality colorless stone has facilitated a shift in Charles & Colvard's position from being a clearance and sale oriented vendor to a provider of premium gemstones and jewelry. For everyone command an increase in price point above other products we've previously brought to market. And I'm pleased to note that the consumer is reacting positively to this new product, and most prominently in bridal purchases. On our transactional website, our fastest growing segment is bridal which has shown a 38% year-over-year growth and Forever One is leading the charge. This fits with our belief that customers, especially millennial, are looking for affordable environmentally conscious luxury brands that breakout of the traditional historic mold.

From a product innovation standpoint we released our new Asscher cut gemstone in Q2. Asscher cut stones peaked in popularity in the 1920 and for many years could only be found in an antique jewelry shops, the cut had come back in style and a modern Asscher looks very similar to a square cut emerald with a design that produces more brilliant than a traditional emerald cut. We're committed to continually developing new and compelling product, and Asscher is the latest addition to our family. The new gemstone was well received at our product display at the annual JCK Jewelry Show in Las Vegas in early June. This was our 16th year participating in this event, and it's fair to say we believe that this year was a turning point for us.

While the JCK event is typically a venue for wholesale and retail interactions, it came as a surprise to have so many independent jewelers stop by the both. Many expressed their interest in carrying moissanite in their stores for the very first time. They noted their interest is being driven by consumer demand. Consumers are specifically asking for Forever One moissanite as they show are shopping for jewelry and independent jewelers are ready to respond to this growing market demand, in fact a recent survey from TheKnot notes that 43% of bride purchased their engagement rings from independent jewelers compared to 32% who purchased from a national jewelry chain.

We want to ensure that moissanite is readily available to serve this customer. During the show and to support those growing in-store interest, we've launched the availability of moissanite gemstone kits designed specifically to meet the demands of independent jewelers. These packaged kits allow a jeweler to show moissanite alongside other colorless gemstones during the sales process, and to do so at a low cost entry point. These kits are accompanied with all of the materials a jeweler and their sales staff need to articulate the beauty and value of moissanite. The kits were sold from our booth at the show and are now available through our distribution partners. We anticipate these moissanite will bring visibility and awareness to moissanite and help us drive sales through the independent jeweler.

Now let's segway and talk about online sales. For the year-to-date, our direct-to-consumer website, moissanite.com has generated a 5% increase in net sales to $2.5 million compared with $2.4 million in the year ago period. In the second quarter of 2016, we experience an 8% decrease in net sales to $1.2 million compared with $1.3 million in Q2 2015. Historically, this site carries lots of clearance items and as we've successfully drawn down our age inventory, we're in a position with less to sell. We believe this is impacting our net sales. This will be the case as we sell-off older inventory and prepare for the launch of our new site and our new jewelry line.

And concurrently, as we're making these changes to our site, we have been making progress on our strategy to expand our omni-channel footprint. As we've discussed in past calls, we believe that being on many online transactional channels simultaneously is critical to our success. We need to be aware where the consumer is as they are making their purchasing decisions. With that in mind, we made an investment in technology that allows us to scale our presence across multiple global marketplaces from one central software platform. Along with the license that this tool, Charles & Colvard has been approved to sell on several online marketplaces. We have initial listings live on two new marketplaces in the U.S. and we're now expanding our breath of product on each.

We're also evaluating other marketplaces that may be suitable for our products. We anticipate marketplaces will be a logical way for us to expand our global direct-to-consumer footprint once we've tested and validated the model in the U.S. We're hopeful that this new revenue stream from marketplaces will help us offset the short-term decline in our moissanite channel as we're going through our website transition.

One last note to share before I hand things over to Kyle for a detailed review of our finances. On July 14, Cree our supplier of raw silicon carbide material, announced the sale of their world speed division to Infineon, a provider of semiconductor solutions. This proposed sale is currently undergoing regulatory approvals and Cree indicated this transaction is expected to close near the end of this calendar year. Upon the successful completion of this sale, the assets and personnel that support the production of our raw silicon carbide material will be transferred to Infineon.

We met with our partners at Cree to better understand the potential impacts of the sale, and here is what we've learned; for the moment, it's business as usual between Cree and Charles & Colvard. It's our understanding Cree's confirmation that our supply contract is fully transferable and will move across to Infineon at the close of the transaction. We are contracted through the first half of 2018 and Charles & Colvard has the right to extend the contract for one additional two-year period at our discretion. Pre-employees that we interface with, and all gemstone quality silicon carbide that is produced exclusively for Charles & Colvard will transfer with this transaction, and we expect will continue to be fully supported.

As our pre-partners have stated, the name is changing but everything else remains the same. Therefore, we do not anticipate the transaction to have a material effect on our ongoing supply of silicon carbide materials. We look forward to engaging with the Infineon team once the transaction is complete and look forward to working with them on our go-forward strategies.

With those Q2 and first half accomplishments highlighted, I'd like to turn the call over to Kyle Macemore, our CFO; who will provide you with the detailed review of our Q2 2016 financial results. Then I'll conclude the call with an update on our growth strategy and what we're targeting in the coming quarters. Kyle?

Kyle Macemore

Thank you Suzanne. Good afternoon, everyone and thank you for joining us today. As a reminder, due to the divesture of assets associated with Lulu Avenue in the first quarter of 2016, we are presenting Lulu Avenue in discontinued operations in our financial statements. We did not include the revenue, gross profit, or loss, from Lulu Avenue in our results from continuing operations for the second quarter or first six months of 2016. We also reported results from the second quarter and first six months of 2015 in a comparable manner as discontinued operations. Unless otherwise noted, the financial results discussed during this call will be from continuing operations for 2016 and 2015.

As announced in today's earnings press release, net sales for the second quarter of 2016 increased 6% to $6.5 million compared with $6.2 million in net sales during the same period of 2015. Net sales for the first six months of 2016 increased 36% to $17.9 million compared to net sales of $13.2 million in the first six months of 2015. In our last earnings, call we mentioned that during Q1 2016 we had a net sale of $6.8 million of loose jewels to one customer. We had no sales to that customer in the second quarter of 2016 compared to $3.2 million in net sales to that customer in the second quarter of 2015.

For the first six months of 2016, net sales for that customer were $6.8 million compared to $5.2 million during the first six months of 2015. Wholesale net sales were $5.4 million and comprised 82% of net sales in the second quarter of 2016. And the increase of 9% compared to the second quarter of 2015. For company's direct-to-consumer e-commerce business, moissanite.com and net sales of $1.2 million in the second quarter of 2016, a decrease of 8% compared to $1.3 million in the second quarter of 2015. The decline in net sales at moissanite.com was due to lower conversion rates which is Suzanne mentioned, we believe relates to the lack of clearance inventory on the website.

We expect this trend to continue into the fourth quarter as we remerchandise and upgrade the website. The company's net sales of lose jewels were $5 million in the second quarter and comprised 76% of net sales, an increase of 32% compared with $3.8 million or 61% of net sales in last year's second quarter. Finished jewelry net sales were $1.6 million in the second quarter of 2016, a decrease of 35% compared to the same quarter in 2015.

Gross margins for the second quarter of 2016 were 40% compared to gross margins for the second quarter of 2015 of 1%. Gross margins were higher in the second quarter of 2016 due to increasing sales for Forever One loose jewels and higher gross margins om moissanite.com due to less clearance inventory being sold. The gross margin percentage in the second quarter of 2015 was negatively impacted by large blue stone net sale of $2.2 million at approximately 5% below cost, increased inventory reserves and a liquidation for metal value of finished.

Operating expenses increased of $3.5 million in the second quarter of 2016 compared to $3 million in the second quarter of 2015. The increase in operating expenses was due to an increase in G&A expenses of approximately $500,000. Approximately $340,000 of the increase was due to G&A expense that was allocated to discontinued operations in 2015, and is now being absorbed into the remaining continuing operations of our wholesale and moissanite.com businesses.

Sales and marketing expenses in the second quarter of 2016 were $1.8 million which was flat to the second quarter of 2015. We expect to invest in sales and marketing as we target the launch of our new website later this year and focus on branding and awareness initiatives. Company reported a net loss of $988,000 in the second quarter of 2016. Included in this net loss was a loss of $116,000 related to an abandonment of property and equipment and $5000,000 from discontinued operations.

Company reported a net loss of $4 million in the second quarter of 2015 including a net-net loss was the loss of $1.1 million from discontinued operations. Company ended the second quarter of 2016 with $11.1 million of cash and cash equivalents on the balance sheet compared to $5.3 million of cash and cash equivalents at the end of the fourth quarter of 2015. The Company anticipates investing some of this cash in marketing, branding, and awareness efforts during upcoming quarters. Inventory at the end of the second quarter of 2016 was $26.1 million which was a decrease of $6.2 million from $32.3 million at December 31, 2015.

Loose jewel inventory at the end of the second quarter of 2016 was $22 million and finished jewelry inventory was $4.1 million. Company has no long-term debt and has not utilized the $10 million credit facility entered into -- with Wells Fargo at the end of June 2014. Overall, we are pleased with the quarter's performance and our solid financial position as we head into the last half of the year.

I'd now like to turn the call back over to Suzanne.

Suzanne Miglucci

Thank you, Kyle. We continue to make excellent progress in advancing our purpose to be a leader in environmentally responsible jewelry products for consumers. We're executing on the core elements of our strategy and are beginning to see the positive impact of that execution in our financial performance. As we did last quarter, I'd like to take some time to revisit our strategic plan and how we expect the plan to shape our activities throughout the remainder of 2016 and set the tone for our 2017 market presence.

The first critical element of our plan is to unleash our Forever One colorless gemstone. We've been in market with this product for ten months and it already represents 60% of our total gemstone sales. Strong sales of this product across direct-to-consumer and wholesale channels are improving our gross margin, as we move beyond discontinued sales for the purpose of moving AG inventory and towards an upmarket consumer and sale. This is translating into an improved bottom line even while we're making significant investments in sales and marketing initiatives.

The second key element of our strategy is to gain a direct connection with the consumer and move-up market. We know there are several factors to building a successful direct-to-consumer strategy and we're working on multiple fronts as follows; it is critical that we create a brand presence. You've heard me talk about our desire to build a relationship -- direct relationship with the consumer to educate them, to court them, and to deliver an outstanding buying experience. In March of this year we hired a branding agency to assist us with this important endeavor. Their work was completed in July and we're now executing on what we believe is a beautiful compelling and consumer centric brand platform.

Our initial launch will be through our transactional website. We believe that in the fourth quarter and in time for the holiday selling season, we'll have a new website and a new brand presence in the market. Along with our new brand platform, the launch of our new website will also mark the introduction of an elevated line of jewelry from Charles & Colvard. Consumers will shop an expanded line of bridal jewelry, as well as fashion and classic style. Although our primary focus will be on elevated styles, we also expect to introduce fashion-oriented pieces that will address entry price point. We've refined and curated a jewelry line that's fitting for our Forever One gemstone and look forward to bringing this elevated product to market.

Now in order to reach our new consumer and drive new eyeballs to our website, we're launching a widespread awareness campaign. This campaign launch will coincide with the release of our new website; it will include public relations, social media, and search engine management. We'll be working with consumer savvy agencies to ensure our rollout is broad and effective. Our agency partners are seasoned business to consumer professionals that understand today's buyer, their shopping habits, and the unique opportunity we have with our ethically sourced product. Our new social media agency will be producing content and working in tandem with our new PR agency, both of whom have built their businesses successfully speaking to the millennial customers we're targeting for our future.

You'll find us expanding our presence on Instagram, YouTube, Snapchat and Facebook. We plan to expand our paid search terms and invest in targeted social media advertising. We aim to be everywhere the consumer is, and ready to engage them with compelling and educational content.

The third and final element of our strategy is to expand our presence across more channels. As you can see from our financials, we're enjoying steady growth with our wholesale partners, and it's remained a healthy segment of our business that will continue to foster. Also important will be our expansion across new online transactional channels. As noted earlier, we've already begun this push with our new presence on two online marketplaces in the U.S. We have a number of other initiatives in the works which we'll talk about the future calls as we continue to make progress.

In summary, we're executing on our strategic plan and seeing early return on our investments across our diversified sales channels, in our Forever One sales growth, and in our improved profit margins. We have many near term catalysts for the company including the launch of our new brand platform, the rollout of our new transactional website, that debut of our elevated jewelry line, and the promotional campaign that we expect will drive awareness to these new deliverables. Rest assured that we're carefully managing this strategy and balancing our growth with the intention to continually march towards profitability.

This concludes our formal remarks for this afternoon, and we would now like to open a call to answer a few questions that participants on the call may have. Chad, would you please open the lines for the Q&A session.

Question-and-Answer Session

Operator

Certainly. We will now begin the question-and-answer session. [Operator Instructions] First question comes from Timothy [ph], a private investor. Please go ahead.

Unidentified Analyst

Hi, everyone. I'm a shareholder and excited about all the initiatives and your vision, it's nice to have a leader who truly feels like we're going somewhere and I'm excited about the changes to start-off, I want to say that. My question is -- are you there? I hear nothing.

Suzanne Miglucci

We're here Timothy, thanks for being a continued shareholder, we sure appreciate it. So what questions do you have for us today?

Unidentified Analyst

Yes, sure. So just help us out with this the sales again, if we exclude the $3.2 million at low margin sales in the year ago quarter, is it after to say that the company still to have doubled I'm trying to compare apples-to-apples about how the company did in the quarter, so hard to do because of that. Can you -- maybe the CFO can help us or you can help us with that specific question?

Suzanne Miglucci

I'm going to turn it over to Kyle who will maybe talk a little bit how you can model this going forward.

Kyle Macemore

I think the challenging part for us when you look at last year and this year is we had some pretty big transactions with one particular customer. So I think the way --the best way to look at it is through the first six months of the year. So with that customer in the first six months of 2015, we sold them $5.2 million worth of product, a lot of it being jewelry, some of it being loose gemstones. In 2016, we sold them $6.8 million through the first six months. All of that $6.8 million was in Q1. So when you look at our wholesale business, it's gets up year-over-year from 10.8 million last year through six months to 15.4 this year, and only $1.6 million was growth from that one customer. The rest of our domestic wholesale business is up $2.4 million year-to-date, and our international wholesale business is up $700,000 year-to-date. So I think that's probably the best way to look at it on a six month basis because we did some large transactions that make it difficult to compare.

Unidentified Analyst

That's very helpful, I'll ask one follow up and I'll get back in the queue. And the follow-up is, Suzanne, how do you view the initiatives in the company specific to showing a turnaround? Do we view Christmas as a real chance for you and the team to put a stamp on the -- put a stamp the success of all these initiatives that that we should show some measurable improvement by -- that should be a marker of the work that's been done.

Suzanne Miglucci

I think that's the fair statement Timothy. The holiday season is the most critical time for Charles & Colvard, it's really -- in our history then one of our largest quarters each year. So we are absolutely going to be standing things up so that we are launched and stable and ready to go for that holiday, we don't want any hiccups and we want to be as robust as we possibly can. So I would say look for that in the coming months.

Unidentified Analyst

Okay, I'll get back into it. I've got one or two more if you come back to me. Thank you.

Suzanne Miglucci

You got it.

Operator

The next question is from Preston Fuchs [ph] with Lincoln Financial Advisors. Please go ahead.

Unidentified Analyst

Hi, everybody, thanks for taking my call. I have a call Suzanne, this is first time I have and be able to get on the call, the last conference call I either was busy or also had meetings. Since you've taken over December, I want to find out -- I haven't heard too much about some old initiatives from prior year or if they were to continue with you -- I know -- I've heard all the things you're trying to do with the younger crowd and techs, Facebook, and Twitter but we had talked about before -- the end of last year, BoxCo [ph] stores; I was wondering if that is still in the works or how is that going? In the past they said Amazon -- they had Amazon two-three years ago, I don't know if that was dropped or how that went? And then to finish up, I'm not an online shopper but just explain to me -- the many people I've talked to shop online like I have a person that she bought something at Costco online, and on the website it looked like that's what they wanted; when it got home, it was a piece of junk, sometimes you get things closed. In the fashion business I talked to, they said they rather shop in the store because when you buy stuff online sometimes you think it looks like a certain color and you get in is not what you want. How are those things affecting the online shopping experience and I'll listen to see what you have to say with some of those things.

Suzanne Miglucci

Poor, Preston, thanks for joining us today. We appreciate it. Let's speak first to your question about BoxCo; I think we announced several conference calls ago that we had a struck a relationship with them and we were in-store with our merchandise. We continue to work with that and we're working on an ongoing basis to define and redefine the products that are selling, and what's moving within their organization. It's a very important relationship with us, it's a great place for us to spend consumers, at to your point if they want to go and see a product and put their hands on it. It's a great place for them to go and they will continue to be a partner of ours going forward.

Online, as I mentioned in our prepared remarks we are evaluating many different marketplaces for our direct presence, and we'll address those in future conference calls that we see as we start to see some traction. However I'll say if you go when you look on Amazon and you search for moissanite, you'll see plenty of it as many of our partners actually do sell through these marketplaces, and they do a very healthy business doing so. So what we're doing here is we are also going on the marketplace but with a more refined presence for creating store-front that brings sort of Charles & Colvard forward as a brand. So that's what you can look for when you search for us across these marketplaces.

To address your question of the online consumer, you're right, there are some people that simply need to see a product; and so we continue to work on -- sort of brick and mortar places where we can bring our customers. It's an important thing for us to do. More seasoned consumer absolutely likes to go and touch things and feel things. So you'll find that we will continue over these quarters and will talk about each call, we continue to work on more brick and mortar presence. However, on the final point I'll make about this is that as we launch this new website, we're being very cognizant of the fact that the consumer doesn't maybe necessarily understand moissanite; so we're making it very easy for them to purchase, we're making it very easy for them to return so that they can trust to this brand we're offering. I got a robust warranty so that people can be assured that if they don't love the product they can return it with us. And we want to make sure that that online consumer has that seamless and easy process, so that's absolutely forefront in our mind and once we get that person through we know we'll have them repeat their purchases with us because we find that our repeat customer percentage is very high. So we just need to get them in the door.

Unidentified Analyst

One follow-up question to that, when the BoxCo stores were announced on that call, you weren't part of it. It mentioned they were close to another retailer consignment; that's said still in the works or is that go by the wayside or is there another Box Store similar to that that you're working with?

Suzanne Miglucci

Sure, happy to address that. So we did announce in past calls that we had struck a deal with a retailer to go in 50 doors for a test. And we did that test and we've worked back and forth with that retailer and we've decided not to continue our presence there. What we're finding is that it was -- we were restricted from doing any promotions, there was very little draw to get consumers into the store, and there was very little education of what moissanite is, and we believe that that negatively affected our ability to get traction there. So as we're going out and soliciting that new brick and mortar opportunities, we're making absolutely sure that Charles & Colvard has the opportunity to be expressive about that relationship and then to assist and help with the promotion for those brick and mortar stores. So I would say stay tuned on that.

Unidentified Analyst

Okay. One last thing is, way back you were in J.C. Penney and Cold [ph] are they retailers, I know one of them you might be on a dotcom but are they ones that you might be also working to get back and there or is that…

Suzanne Miglucci

I'll you Preston, it's fair to say we have a very robust list of brick and mortar stores that we're always talking with. So that's about as much as I can say at the moment.

Unidentified Analyst

Okay, thanks for taking my call.

Operator

The next question is from Mark Robins with Catalyst Research. Please go ahead.

Mark Robins

Thank you for taking my call. Suzanne and Kyle, it appears to me as a long-time observer that things have kind of turned the corner and are looking up, congratulations to the team and please continue your good work. I know its hard struggle right now. Before I start with the question, I do have a comment to make and I have a young family, that's quite a bit younger than I am personally, and the 30-year came in, owns a Charles & Colvard, I might add; and said, Dad, this is exactly the -- you're actually right on, the marketing is -- as you tell us is, couldn't be better attuned where they're trying to reach. His wife -- some of his wife's friend, one in particular, got engaged and they're going to Charles & Colvard. Now I don't know what millennial is, but kids which I do know what they are -- if they're going to get moissanite from Charles & Colvard it tells me that you're marketing to the right spot. So keep it up.

I was called away from the phone, so help me when you say marketplaces and that's when I was called away; there was a mentioning of that. What you're really saying is that there are different websites that you're going to be -- that you are currently marketed through other shores, other regions websites but what you're trying to do is bring in your own your own marketplace as well as upstage or improve the presence of Charles & Colvard and moissanite get other folk's website. Is that what I'm hearing with when you mentioned marketplaces?

Suzanne Miglucci

We do, that's exactly right, Mark. There is a place that you will find us online. Let's kind of talk through all of them so everyone understands the big picture. We continue through these calls to talk about an omni-channel strategy and how important it is to be at many places because the consumers starts in a lots of different places when they think about buying. So we have a drop-ship program that actually delivers our goods through dotcom sites like Overstock and Target, you'll find us there. We have our own transactional website where you can see us transact.

And then there are other places, marketplaces like eBay and others, Amazon being a marketplace where you can load up your content and sell, but you find yourself sort of in the fray with lots of other people that are also selling other things but we're working on as a store presence on some of these marketplaces so that we can better packages Charles & Colvard in our brand. So we don't line up sort of muddled in the mix of everything else, we still need to be in the mix. So when that consumer is searching in a certain way and they're looking at search results that we're within those results. But if they're searching for Charles & Colvard that they'd be able to find us on a branded sort of micro-site of our own if you will. So all of those are efforts that we have going on to ensure that we're in all of those places. In addition to all of those social media places where people start their searches, all of those search engines where they start their searches; no matter how that consumer goes about curating the type of jewelry they want to go in and search for; we'll be there with the presence so that they think about.

Mark Robins

Okay, thank you, that really helps explain it. And then lastly, when we're talking about the shifting of moissanite production from your long-time supplier to this new entity; how much of a jumble could that potentially become? I mean they'll be wanting to sell that excess material to us anyway, it shouldn't -- I mean is there something you have to work through and agree with them and come to terms on, it's not something where they might pull the rug out from underneath your company?

Suzanne Miglucci

As we understand it Mark, it is business as usual, there is a physical presence that will remain exactly where it is. For the immediate future, we don't anticipate any disruption of personnel or the processes themselves as we understand it. We also know that this company, Infineon has made a decision of investments in North Carolina so they tend intend to have a physical presence here. So they're absolutely making investments in the local community in order to foster and continue that business. That that tells us a very strong message about their commitment and it makes us feel very confident that we're in good shape going forward.

Kyle Macemore

Mark, I'll -- for contract that transfers has specific pricing etcetera. So it will not be -- you know that's a contractual agreement that we have on pricing through the relationship through 2018.

Mark Robins

Okay, very good. Thanks, folks.

Operator

The next question is from Craig Pearinger [ph] Wells & Capital Management. Please go ahead.

Unidentified Analyst

Good afternoon. Suzanne, when is the new website launch?

Suzanne Miglucci

It will Craig in the second half of the year. As we were just saying, it will be stood up in time for the holiday season. I can't give you an exact date.

Unidentified Analyst

Okay. And are you at Liberty to mention who the digital media agency you're employing is?

Suzanne Miglucci

We're not mentioning vendors, I typically don't do endorsements on phone calls, So I hope you'll excuse me for that. and I can tell you that we've been very selective in choosing agencies. I have a deep track record of not only helping direct to consumer organizations but also helping jewelry providers. So we've been very narrow in our selection and we're super excited about it.

Unidentified Analyst

Okay. And then secondly, along the IR -- investor relations front, have you put those efforts on hold until the company is on a more firm footing or are you still active in that room?

Suzanne Miglucci

Craig, we're active. So Kyle and I have been doing some non-deal roadshows, we've been traveling around the country, going to various cities and meeting with existing and potential investors. We believe that we've got a really strong story, we've had a great quarter here to talk about, so we'll back on the road again. And it's time for people to hear the story and then to experience us transition with us throughout the second half of the year. So we're absolutely ringing the bell here and getting out there and creating some interest.

Unidentified Analyst

And more specifically, it will be good to get some Wall Street coverage again?

Suzanne Miglucci

Yes, understood.

Unidentified Analyst

All right, thank you.

Operator

The next question is from Rodney Baber with Paulson Investment Company. Please go ahead.

Rodney Baber

Hi Suzanna, thanks for that update and congratulations on making continued success. This is move in the right direction. You know it's always hard to figure out on these calls what the best questions would be because you got so many moving parts and all that but tell me the question when I asked has to do with what your attitude about the company is in the direction that that you like to go versus where it was when he took over last December. So you had about eight months now, and you're on the Board before that. And I'm thinking up on something about the independents -- you've mentioned 43% independents, 32% changed that you're featuring more, maybe going after that market little bit. You mentioned practice kits. So does that mean independents now can get practice kits instead of having a bunch on different SKUs to sell the product that way?

And you also talked about growing up twice in up market which is interesting to me because your prices have been what they've been and apparently there is something going on that wants to drive you up there. So anyway, there is a question in there somewhere, can you kind of give me an answer to help me understand that where you are now, where your were and how that's manifesting itself in a new improved business model going forward?

Suzanne Miglucci

You've got it Rodney, thanks for calling in, we appreciate it. So as I'm alluded, we're really kind of focusing on an omni-channel strategy which means we need to be at a lot of different places. You heard correctly, we are absolutely aligning with the independent jeweler, we believe that consumers are absolutely going to those folks but they don't -- they won't go directly with us to foster that relationship, we're driving independent jewelers to our distribution partners in order to acquire these kits, we're super excited about the kits.

We showed them at the JCK Show, and we had a lot of independent doors that were excited that they could buy one little sort of well packaged kit as a collection of stones and they can sort of pick and choose how they want to build that kit. And then it's beautiful, it slides right into your display case and you consider right next to all of those diamond engagement rings. And then it empowers the jeweler to have that conversation; Ma'am, if you loved the setting, it's appears the cost of your setting; and if you want a two carat diamond in that setting it will cost you X; and here is my moissanite collection and this is like a two carat moissanite; here is the alternate price for that. So it creates a dialogue that these independent jewelers never had before that will be reflected in our wholesale dollars because that's where independent jewelers will actually be picking up that product. It's a focus for us because we believe that there is absolutely room for us to grow in that independent space.

So that said, I think there were some questions too about the dotcom, and going up market a little bit, on the prices; we believe there is headroom there. Let me talk a little bit about average order value. So average order value from our dotcom site; moissanite.com increased to $671 in Q2 of 2016 from $652 in Q2 of 2015. So we're seeing an uptake from consumers, a lot of it is bridal again, we're seeing a great uptick in bridal; and I think that there is very little hesitation on this increased price. So we think there still headroom there, the Forever One gemstone absolutely commands a higher price point being a completely colorless product. But let's keep in mind that it still is sold at a fraction of what a diamond would be, so the value to a consumer, especially a millennial that's looking for a lower price point but higher value will find this incredibly attractive.

Rodney Baber

Anything else on the bridal millennial situation that implies that that is going to be the way to the promised land in that sector because -- I had two millennial myself, I joined here in March. I truly believe that they're going to be different; they're not going to do what we did, they're going to do what they do; and part of it is not buying diamonds. So if you've all that it's just a matter of timing. But any other metrics on the uptake with them up there. I think you said the sales for Forever One were double over the last time; $3 million versus $1.5 million. So is that all the bridal sector or the other data on that piece if can share it with us?

Suzanne Miglucci

I can speak in generality Rodney, much of it is bridal. Bridal is absolutely -- again, a growing sector for us but you've made a really good point here. Millennials break with tradition, and some of them are not interested in having a traditional bridal set. So it's incumbent on us to bring a variety of jewelry to market that might meet that consumer demand, to bring a very millennial oriented jewelry forward which doesn't really look like they're traditional jewelry product. So as we sort of relaunch and we bring our new jewelry lines to market, you'll see I think a shift in what fashion looks like and fashion may very well become the new bridal as it relates to that millennial; we're talking to a lot of consumers, we're getting a lot of feedback and we're reflecting that in our new product. So it will be interesting to see how that fares once we launched the new site and we have new pieces to measure against.

Rodney Baber

Do you know what the average price in the jeweler is on what they're selling with the bridal stuff here doing versus the dotcom which you said was $671?

Suzanne Miglucci

Unfortunately Rodney, I don't have any numbers to compare.

Rodney Baber

Thank you very much. Good luck to everyone.

Suzanne Miglucci

You've got it, thanks for calling in.

Operator

Our next question comes from Ken [ph], a private investor. Please go ahead.

Unidentified Analyst

I think the previous caller hit on the question I wanted to ask which was; if there has been any market research that proves that the millennial's actually want this product -- I don't know what the average age is of the person that's buying moissanite now. But are we alienating any of our existing customers who have gone after the moissanite sites for the new millennials? And do we know in fact that the millennial's want this product?

Suzanne Miglucci

Great question, Ken. So I'll answer it in two different parts. Number one; absolutely, we've done market research to understand the millennial. There is a lot of secondary research out there that we read, that's published by others but we did our own primary research as well to bring our specific brand forward and to measure it against the millennial community. A couple of interesting things we found; number one, a lot of millennial did not know about many of the practices related to mining as it relates to jewelry. So once we exposed that and made that part of the dialogue, we found a great shift in interest towards moissanite because I will tell you this audience, absolutely, is all about the social and ethically sourced product, and that's sort of pervasive across all of the market research. So I absolutely believe that we're a product aligned with that particular consumer. And as we launch our new site, there will be far more education and dialogue with that consumer about the ethical sourcing of our products which I really think will align.

Now to your question, part two; about whether or not we're alienating any other of our segments and in the market. We're going to market to everyone and we'll have a product that touches just about every consumer. We have sort of a collection that could meet all price points and a collection that would meet all different case. I think the consumer is one we have to educate more on the millennial side, so I think there will be -- the primary target for our language, however, we will have plenty of selections for the self-purchasing woman; plenty of selection for the executive woman, who wants to dress for success; the trick here is to be very broad and it's also to be in all the places those consumers are. So you will continue to see for example on television shopping channels. We talked about eVi [ph], last time we were here, we had struck some new relationship with them, then we had some shows in Q1, we've got a couple coming in just a few weeks in August.

Television shopping is a great place to meet the middle-aged consumer because they watch television. The millennial doesn't watch television, we call them cord cutters; they don't even have cable television anymore. So it's more imperative that we went beyond some of the social media channels where they can stream video, will bring video to those people that are on the online channels and we'll bring television shopping to the other consumer. So the trick here again is omni-channel, being in all of those places with the right messages that meet the right audience with the products selection that would really speak to everyone. But I do think the key to it can is knowing that we have a new consumer that's simply not educated and we want to go after them because they are the largest spending group in global history. So we think that there is something to be had there.

Unidentified Analyst

If I can, just a quick follow-up; in the past I think there was an emphasis on keeping moissanite through certain quality levels. So it was set in white gold, not sterling silver. As you sell wholesale and other people have an impact on the finished goods, is there a way that you're going to try and keep moissanite to a certain level of quality and can you or is that out of your control?

Suzanne Miglucci

That's a great question. It's a bit out of our control once it goes through our wholesale channel, think of that independent jeweler that wants to set moissanite; a setting that they've chosen. So there is really very little we can do to control that. But I will say this, I'm not opposed to silver settings, if you think about that millennia consumer who has very little cash to spend, and they're looking for a fashion piece of jewelry, not a piece of fine jewelry, and they're dipping their toe in moissanite; I'd like to create a low enough bar for them to come in and make a purchase and fall in love with our products. So we're evaluating whether or not we too should reintroduce silver, we've done in the past, to introduce silver here so that we can get those very low entry points in, and then upsell that consumer into a higher end product.

Unidentified Analyst

Great, thank you. Best of luck with your new strategy, I'm glad you're there.

Suzanne Miglucci

Thanks so much, Ken. I appreciate it.

Operator

The next question is from Mark Wright [ph], also a private investor. Please go ahead.

Unidentified Analyst

Hi, good afternoon. I'd like to get some detail on the kit as being sold to the independent jewelry via distribution partners. Can you tell me what's in the kit? I assume it's Forever One type jewelry, but is it Forever One or Forever Brilliant, earing, pendant; give me an idea what's in this kit? And I hope -- I wanted it to be a two questions here Suzanne. I hope that the people who buy it will be put on the moissanite.com where to buy section that would be great because you do a Google search on moissanite, you guys got the hit there, then I go to moissanite.com, I go to were to buy so I can look at it. There are some jewelers out there but not nearly as many as I'd like. So if you can put those jewelers in there who buy this kit that would be great? And my third question here on the same topic, will this kit be offered to the chain retailers so they can also make use of it? That's all.

Suzanne Miglucci

Got it. Thanks, Mark. So let me tell you a little bit about the kits; they come in a few forms; it is all Forever One. So we really want to make sure that we're out there introducing our highest quality product. And the kit itself is configurable; we have today six different cuts of moissanite. And so there is a kit where you can have one carat stones but it all six configurations. We've got another one where they are all two carats, so you can see what 2 carat looks like, and they were in three different cuts. So basically the jeweler can pick and choose the configuration of what they want their kit to look like. It's just the stone, they are set in a box that's about five inches by five inches; we set them in there and then we sort of -- we lock them into this Lucite box so that you can see through the box to see the stones, they're on deep blue setting, so they really pop-off of the fabric. And then it's branded Charles & Colvard moissanite.

So they can lift that kit and put it right into the display case. The beauty of it is, the kit actually closes with a magnet; and that jeweler can open the cover, take out the gemstone, pop it into a piece of jewelry that that consumer has fallen in love with but she can't necessarily afford the two carat stone that she wants that can pop in that moissanite stone and walk away with it. And then what happens is that independent jeweler goes back to our wholesale partner and says I need to replace my two carat round cut; and then they order it, and they bring it in, and they put it back in their kit. So the kit is really meant to be a way to switch out gemstones as folks need to.

As to putting folks on our where to buy page; I take that under advisement, it's a little hard to know who is actively -- somebody might order the kit and then they might not actively be pushing out the stones or really doing a great job of promoting. And so we control just a little bit who it is we promote on that site. Do we make that available to you to change; that's a good question too. We're again actively talking about who we're going to go and do brick and mortar with, so we're always open to whether or not there is an opportunity to sell into them. They too can actually pick this up from our wholesale partners.

Unidentified Analyst

Thank you.

Operator

The next question is a follow-up Timothy [ph], a private investor.

Unidentified Analyst

Okay, a lot of great information there. I'm going to talk about something mundane and mercenary; and that's the common stock. I appreciate the Investor Relations effort you talked about, we are at a price that we haven't seen for like seven years I think since likely late 2009. So we feel glad seeing exciting things going on, obviously really reworking the business model and everything you've talked about today. My question is just really if you could least talk a little bit as I think shareholders are interested, maybe the CFO here or you Suzanne. The turnover in the shareholder base has been a lot of volume the last six weeks or so, and I think people are wondering, they're kind of like to know -- if we know one, what's going on and we're just flirting here with a dollar and change and seeing a lot of turnover in the shareholder base. And two with the building of the balance sheet, and the company saw growth, discount the book value; is there any consideration to show the confidence in the future and the faith in your strategy by initiating some type of buyback program?

Kyle Macemore

I'll take a stab with that, good question. So a couple things, as you noticed, I'd say over the last three months we've had an increase an in trading volume. We're averaging about 52,000 shares over the last three months and that's been driven over a lot of activity. We've been actively -- as Suzanne mentioned, on the road pitching the story to various people that may be contributing to some level; we don't have any specific insight on the activity from any individual that has notified us they were buying or selling. I will say that we've had insider buying over a period of time, in fact since May 2015, we've had 224,000 shares approximately of stock purchase by insiders with no sells anywhere from $1.04 to $1.40; as an insiders -- the company insiders are purchasing the stock.

And as far as your last question goes, it's something we talked about and we'll continue to talk about it evaluate with the Board. It's a little more complicated because we do have a credit facility in place that currently doesn't allow for buybacks, and right now we are focusing on investing some of that cash into our sales and marketing efforts. So it's something we would constantly -- are we constantly considered with the Board and continue to evaluate but right now we've decided we want to be able to utilize that cash to invest in sales and marketing efforts to grow awareness and grow the top line of the business.

Unidentified Analyst

Thank you for your commentary, it's helpful. Good luck.

Kyle Macemore

You're welcome.

Operator

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

Suzanne Miglucci

Thank you, Chad. Once again, I'd like to thank everyone for taking the time to participate in our call today. It means a great deal to us. I want to thank our associates for all of their hard work and their continued dedication, and to our shareholders for their continued belief in the opportunity we have at Charles & Colvard. So thank you everyone, and have a good evening.

Operator

Thank you. Today's call will be archived for review on the company's website at www.charlesandcolvard.com/investor-relations/events. To access the digital replay of this conference you may dial 1-877-344-7529 or 412-317-0088 beginning approximately one hour from now. You will be prompted to enter a conference number which will be 10090267. Please record your name in company when joining.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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