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Charles and Colvard 3Q sales drop 46 percent

October 24, 2007

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Morrisville, N.C.—Charles and Colvard, the sole source of lab-created moissanite worldwide, has reported its third-quarter 2007 operating results, with net sales for the manufacturer down 46 percent compared with the same period last year.

Net sales for the three months ended Sept. 30 fell to $6.6 million compared with $12.1 million in the third quarter of 2006. Gross profit decreased 42 percent to $4.9 million compared with $8.3 million for the comparable period the previous year. Gross margin, however, increased 520 basis points to 74.1 percent as a result of lower production costs.

Operating income for the period decreased 84 percent to $560,000 from $3.5 million for the same period in 2006. Net income also decreased, to $246,000, or $0.01 per diluted share, compared with $2.2 million, or $0.12 per diluted share, in the comparable period of 2006.

"Our results for the third quarter have not met our expectations," Bob Thomas, chairman and chief executive officer of Charles and Colvard, said in a statement. "The factors that negatively affected the third quarter are a continuation of what has transpired in our business during the first half of the fiscal year."

Among these factors, Thomas said, are the slowing of moissanite customer orders, primarily due to ingoing higher-than-average inventory levels among the company's direct manufacturing customers and at the retail level; an increasingly challenging economic environment, with greater foreign competition and consolidation within the domestic industry; and a lack of significant sell-in revenue during the third quarter of 2007 as compared with the same period in 2006.

"To increase orders and overall demand, we have developed specific marketing action plans to allow both the distributors and retailers to regain sales momentum and enjoy success with the moissanite category," Thomas said. "Our ongoing initiatives show signs of increasing consumer awareness and interest for moissanite jewelry."

The company primarily markets its product to the self-purchasing woman. Among its current marketing initiatives for the fourth quarter is the "Moissanite Milestone Moments" campaign," which launched in October in Oprah magazine and online.

The company is updating its 2007 financial guidelines as follows: revenue to be in the range of $30 million to $33 million; gross profit margins to be in the range of 70 percent to 75 percent; and marketing and sales expenses to be in the range of approximately 49 percent to 53 percent of total net sales.

To reduce the company's overall inventory position, Charles and Colvard has already decreased its quarterly purchase commitment for the fourth quarter from its leading supplier by nearly one half.

"Despite our slower sales, we are optimistic regarding the growth opportunities associated with our business moving forward over the long term," Thomas said. "We believe that we offer a strong value proposition for retailers and consumers alike, enjoy a highly scalable operating structure and require very little capital to grow."
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TOPICS
Business | Company Activities and Information | Corporate Reporting | Earnings and Loss Announcements | Earnings and Losses

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