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Charles and Colvard reports decrease in 1Q sales

April 25, 2007

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Morrisville, N.C.—Charles and Colvard's net sales decreased 28 percent to $5.8 million for the three months ended March 31, compared to $8 million in the first quarter of 2006, the company announced today.

Gross profit decreased 25 percent to $4.4 million in the first quarter, compared to $5.9 million in the same period last year. Gross profit margins increased 300 basis points to 76.7 percent, from 73.7 percent in the comparable quarter of 2006, primarily as a result of improved production costs.

Operating income decreased 75 percent to $587,000 in the first quarter, compared to $2.3 million for the same period last year. Net income decreased 78 percent to $339,000, or $0.02 per diluted share, compared to net income of $1.5 million, or $0.08 per diluted share, in the comparable quarter of 2006.

"The shortfall in expected revenue during the first quarter was caused by the lack of new distribution shipments, a reduction of television broadcast hours in the United States dedicated to moissanite product sales, and the previously disclosed decision by Landau Stores to reduce the number of outlets offering moissanite jewelry," Charles and Colvard president and chief executive officer Bob Thomas said in a statement. "In addition, as previously reported, weakness of our overall sell-through rate in the 2006 fourth quarter that resulted in higher beginning first-quarter inventory levels at both our major manufacturing customers and their retail customers slowed our pipeline of new product orders during the first quarter."

As a result of these events, Thomas said the company is adjusting its annual revenue expectations downward to reflect these lower-than-expected first-quarter revenue results, and expects to see a return to a more normalized flow of orders as it progresses throughout the remainder of the current fiscal year.

The company will also continue to refine its marketing efforts and the methods by which its message is delivered to consumers, as it seeks to regain sales momentum within its existing customer base and add new points of distribution.

"In the second quarter, we have a strong opportunity to increase our presence at several prominent, national store chains. Kohl's is scheduled to add the moissanite category at 455 new outlets. Additionally, Sears is expected to broaden its test distribution with the introduction of moissanite into 121 additional locations," Thomas said. "We also continue to be encouraged by our progress abroad and see the opportunity to grow demand for moissanite in the United Kingdom, via one of the leading home-shopping television retailers, and expand our retail distribution in several leading countries in southern Asia."

The company currently expects fiscal 2007 net sales to be in the range of $45 to $48 million, with stronger revenue growth in the fiscal second half as sales are expected to ramp up at Kohl's and Sears and as other retailers accelerate their rollout to prepare for the holiday selling season. The company believes that gross profit margins will remain in the range of 65 percent to 75 percent, and that full-year marketing and sales expense will be in the range of approximately 36 percent to 41 percent of total net sales.
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TOPICS
Business | Company Activities and Information | Corporate Reporting | Earnings and Loss Announcements | Earnings and Losses

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