Bling Up Your Wallet With Brilliant Earth

  • Brilliant Earth Group, Inc. IPO kicks off Thursday (NASDAQ: BRLT)

  • Socially Responsible, Digital-savvy Jeweler Increased Sales 56% in June

  • Expects 25-30% customer driven long-term revenue growth, category expansion

  • Already very profitable company with 14% Ebitda margin, aims for 15% -20% in the long term

  • Basic strength in alliances and alliances, but great potential beyond

  • Bracelets, earrings and pendants categories increased by more than 100% in the first half of 2021

  • Offers blockchain activated diamonds at scale to show the full journey of each stone

  • Rare company with a female CEO, a board and a predominantly female workforce

  • Capital Light model with only a selective brick and mortar footprint gives an edge over rivals

  • At only 2.3 times estimated sales in 2022, at a much lower price than Poshmark, Inc., Kering SA, Lululemon Athletica Inc.

Through John jannarone

Once investors have familiarized themselves with Brilliant Earth Group, Inc., they may want to give it a call.

The socially responsible and digitally savvy jeweler valued its shares Wednesday night at $ 12 per share, giving it a market cap of $ 1.1 billion. This price was slightly below the indicative range – likely the result of choppy general market conditions this week.

But for savvy investors, a lower price could be a golden opportunity to own Brilliant Earth. The company is profitable, growing rapidly and is positioned to disrupt an industry that has barely changed for generations, even as the demands of young customers have changed dramatically.

To understand the potential of Brilliant Earth, it is important to understand its business model. While most jewelers have made selling online an afterthought, the company first went digital when it was founded in 2005 as an e-commerce company with a single showroom in San Francisco. .

Over the next few years, the company refined the online shopping experience to encourage customers to make once-in-a-lifetime online purchases, even the most significant. Brilliant Earth provides extremely detailed images with additional features such as matching skin tones and even ring demonstrations on a client’s own hands. Today, the average order is $ 3,152 – a significant amount that is likely to increase over time.

Of course, showrooms are important for many customers to be more excited about an alliance or alliance. And the company saw a huge benefit in showing its jewelry in person in one of its 14 showrooms. Sales in metropolitan areas see 80% increase in revenue in the year after opening a new store (another innovative retailer, Rowing Blazers, described a similar phenomenon by opening pop-up stores that drive online sales).

But Brilliant Earth knows it doesn’t have to be in every city across the country to be successful. While some other jewelers are hampered by renting thousands of stores in places where foot traffic decreases like malls, Brilliant Earth is aiming for fewer than 100 locations across the country to get the job done.

Brilliant Earth offers another feature that appeals to Millennials and Gen Z customers: Thorough Procurement. The company, aware of the “blood diamond” issues that still permeate parts of Africa, offers Beyond Conflict Free Diamonds and is a certified member of the Responsible Jewelry Council, a non-profit organization.

This is essential given that 73% of Millennials are willing to spend more on a product that represents sustainability, according to Nielsen. And Brilliant Earth is ahead of the game, as many other companies have only started focusing on responsible sourcing in recent years. (see table below for Sentieo, an AI-based research platform, showing mentions of “responsible sourcing policy” in corporate documents).

Rarer still is the use of technology by Brilliant Earth to track the source of its gems. Brilliant Earth uses blockchain technology to monitor diamonds from the mining operator, through cutting and polishing, and finally to the customer. He was one of the first to adopt blockchain diamonds and now offers 10,000 of these stones.

This is just one part of the company’s overall approach to ESG. She regularly takes noble actions such as funding a primary school in the Democratic Republic of the Congo and supporting a program to help artisanal miners in Peru to avoid toxic mercury.

Another unusual feature is the role of women at Brilliant Earth – from the showroom to the boardroom. CEO Beth Gerstein is female, as are most of the board members, as well as the overwhelming majority of all company staff.

All of this has contributed to impressive growth and profits. In the year through June, revenue rose 56% from the previous year, while also posting an adjusted EBITDA margin of 14%. Both indicators are expected to remain strong in the coming years, with a long-term revenue growth target of at least 25% to 30% and EBITDA margins of at least 15% to 20%.

What will keep the momentum going? The company’s brand awareness is incredibly strong and it boasts a very high Net Promoter Score (NPS) of 75, indicating that buyers will likely come back again and again.

Additionally, the company has expanded beyond its basic bridal offering into categories such as bracelets, earrings, and pendants. Sales of all three jumped more than 100% in the first half of 2021.

And with customers increasingly comfortable shopping online (or visiting an increasing number of showrooms), there is a lot of potential to switch to more expensive fine jewelry. This should support the continued expansion of profit margins.

International sales, which represent 80% of the total jewelry market, are yet another opportunity. The company has created localized websites in several countries and has already reported positive results from its efforts. It’s a much less risky approach than trying to open dozens of storefronts and close leases in uncharted territory, a mistake many retailers have made.

Competition exists naturally, but it can fade over time. Small family operators are burdened with much larger inventory, leases or related real estate commitments, and lack the ability to leverage scale or CRM data like Brilliant Earth can.

Even luxury behemoths like Tiffany from LVMH or Cartier from Compagnie Financière Richemont SA are far from Brilliant Earth. For example, these companies do not have the ability to customize items, they usually face expensive real estate obligations, and cannot compare against each other when it comes to ESG credentials.

And for now, Brilliant Earth is at the right price. Based on the IPO price, the company is trading at an enterprise value of 2.3 times the estimated sales of IPO Edge in 2022. This compares to 4 times for Poshmark, 4.5 times for Kering and 7.8 times for Lululemon, according to Sentieo.

Jewelry dates back thousands of years and is unlikely to go out of style any time soon. But with the business model poised to change, investors looking for good returns would be wise to say “yes” to Brilliant Earth.

Contact:

John Jannarone, Editor-in-Chief

[email protected]

IPO Edge

[email protected]

Twitter: @IPOEdge


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