Breaking Down Brilliant Earth Group, Inc. (BRLT) Financial Health: Key Insights for Investors

Understanding Brilliant Earth Group, Inc. (BRLT) Revenue Streams

Understanding Brilliant Earth Group, Inc.’s Revenue Streams

Brilliant Earth Group, Inc. generates revenue primarily from the retail sale of diamonds, gemstones, and fine jewelry. The company operates in a single segment, focusing on a combination of e-commerce and physical showrooms.

Breakdown of Primary Revenue Sources

• Net Sales:

  Period	Net Sales (in thousands)
  Three Months Ended September 30, 2024	$99,873
  Three Months Ended September 30, 2023	$114,154
  Nine Months Ended September 30, 2024	$302,636
  Nine Months Ended September 30, 2023	$322,036

Year-over-Year Revenue Growth Rate

• Year-over-Year Change:

  Period	Change (in thousands)	Percentage Change
  Three Months Ended September 30, 2024 vs 2023	$(14,281)	(12.5%)
  Nine Months Ended September 30, 2024 vs 2023	$(19,400)	(6.0%)

Contribution of Different Business Segments to Overall Revenue

Revenue is predominantly generated from the United States, with a smaller fraction coming from international sales.

• Net Sales by Geography:

  Region	Three Months Ended September 30, 2024 (in thousands)	Three Months Ended September 30, 2023 (in thousands)	Nine Months Ended September 30, 2024 (in thousands)	Nine Months Ended September 30, 2023 (in thousands)
  United States	$95,571	$108,413	$290,845	$305,882
  International	$4,302	$5,741	$11,791	$16,154

Analysis of Significant Changes in Revenue Streams

The decrease in net sales for the nine months ended September 30, 2024, can be attributed to a decline in Average Order Value (AOV). This was partially offset by an increase in order volumes.

• Average Order Value (AOV):

  Period	AOV (in dollars)	Change (in dollars)	Percentage Change
  Three Months Ended September 30, 2024	$2,337	$(308)	(11.6%)
  Nine Months Ended September 30, 2024	$2,370	$(277)	(10.5%)

For the nine months ended September 30, 2024, net sales decreased by $19.4 million due to a 10.5% decrease in AOV, despite a 5.0% increase in order volumes.

A Deep Dive into Brilliant Earth Group, Inc. (BRLT) Profitability

A Deep Dive into Brilliant Earth Group, Inc.'s Profitability

Gross Profit Margin:

For the three months ended September 30, 2024, the gross profit was $60.77 million, representing a gross profit margin of 60.8%. This is compared to a gross profit of $66.83 million and a margin of 58.5% for the same period in 2023, marking an increase of 230 basis points year-over-year.

Operating Profit Margin:

The operating loss for the three months ended September 30, 2024, was $1.07 million, equating to an operating profit margin of (1.1)%, down from an operating income of $2.01 million and a margin of 1.8% for the same period in 2023.

Net Profit Margin:

For the nine months ended September 30, 2024, the net income was $1.37 million, resulting in a net profit margin of 0.5%. This is a decrease from a net income of $2.79 million and a margin of 0.9% for the equivalent period in 2023.

Trends in Profitability Over Time

Over the past year, the company has experienced fluctuating profitability metrics. The gross profit decreased by $6.06 million or 9.1% compared to the previous year, although the gross margin improved.

Operating income saw a significant decline from $3.28 million in 2023 to $940,000 in 2024, reflecting a 71.4% drop.

Net income decreased drastically by 51.1% year-over-year, highlighting a challenging operating environment.

Comparison of Profitability Ratios with Industry Averages

The industry average gross profit margin for jewelry retailers typically hovers around 50-60%. With a gross margin of 60.8%, the company is performing on par with the industry average.

In terms of operating profit margin, the industry average is approximately 5%. The current operating margin of (1.1)% indicates underperformance relative to peers.

For net profit margin, the industry's average is around 3-4%, whereas the company's margin of 0.5% suggests room for improvement.

Analysis of Operational Efficiency

Operational efficiency is reflected in the company's ability to manage costs. Selling, general, and administrative expenses totaled $61.84 million for the three months ended September 30, 2024, down 4.6% from $64.81 million in 2023.

The decrease in operating expenses resulted in a slight improvement in gross margin, despite rising material costs, particularly in gold and platinum.

Overall, the company reported an adjusted EBITDA of $3.64 million for the three months ended September 30, 2024, down 52.3% from $7.62 million in 2023, with an adjusted EBITDA margin of 3.6%.

Debt vs. Equity: How Brilliant Earth Group, Inc. (BRLT) Finances Its Growth

Debt vs. Equity: How Brilliant Earth Group, Inc. Finances Its Growth

Overview of the Company's Debt Levels:

As of September 30, 2024, the outstanding principal balance of the SVB Term Loan amounted to $58.5 million, with $52.0 million classified as long-term debt. There were no amounts outstanding under the SVB Revolving Facility.

Debt-to-Equity Ratio:

As of September 30, 2024, the company's total stockholders' equity was $104.355 million. The debt-to-equity ratio is calculated as follows:

Debt-to-Equity Ratio = Total Debt / Total Equity = $58.5 million / $104.355 million = 0.56

This ratio indicates a moderate level of debt compared to equity, reflecting a balanced approach to financing.

Comparison to Industry Standards:

The average debt-to-equity ratio for the jewelry industry typically ranges between 0.5 and 1.0. Therefore, at 0.56, the company is within the industry average, suggesting it is neither overly leveraged nor underutilizing debt financing.

Recent Debt Issuances and Credit Ratings:

On February 21, 2024, the company entered into the First Amendment to the SVB Credit Agreement, which suspended the requirement to comply with the Consolidated Fixed Charge Coverage Ratio for certain fiscal quarters. The effective interest rate on the company's debt was reported at 8.49% for the three months ended September 30, 2024.

How the Company Balances Between Debt Financing and Equity Funding:

As of September 30, 2024, the company maintained a cash balance of $152.7 million, which is crucial for covering operational costs, debt service, and capital expenditures. The company has historically funded its liquidity needs through operating cash flows and debt financing, allowing it to invest in growth while managing a healthy balance sheet.

In summary, the company effectively manages its debt and equity structure, positioning itself well within the industry benchmarks while ensuring sufficient liquidity for ongoing operations and growth initiatives.

Assessing Brilliant Earth Group, Inc. (BRLT) Liquidity

Assessing Brilliant Earth Group, Inc.'s Liquidity

Current Ratio: As of September 30, 2024, the current ratio is 1.92, indicating a healthy liquidity position. Current assets total $155.8 million while current liabilities amount to $81.1 million.

Quick Ratio: The quick ratio stands at 1.56, with quick assets (current assets minus inventories) at $122.2 million against current liabilities of $81.1 million.

Analysis of Working Capital Trends

As of September 30, 2024, working capital is calculated as current assets minus current liabilities, yielding a positive figure of $74.7 million. This reflects an improvement from the previous period, driven by a strategic increase in cash reserves and a reduction in current liabilities.

Cash Flow Statements Overview

The cash flow statement for the nine months ended September 30, 2024, reveals the following trends:

• Net Cash Provided by Operating Activities: $3.5 million, a decrease from $15.5 million in the same period of 2023.
• Net Cash Used in Investing Activities: $2.7 million, down from $10.7 million in 2023, reflecting reduced capital expenditures.
• Net Cash Used in Financing Activities: $3.9 million, compared to $12.3 million in 2023, largely due to lower tax distributions.

Potential Liquidity Concerns or Strengths

Despite a strong current ratio and positive working capital, there are potential liquidity concerns. The overall cash balance at the end of the period was $152.9 million, down from $156.0 million at the beginning of the period, indicating a net decrease of $3.2 million.

As of September 30, 2024, the company has an outstanding principal balance of $58.5 million under the SVB Term Loan, which may impact future liquidity if cash flows do not improve.

Overall, the liquidity position remains robust but requires careful monitoring due to the significant debt obligations and fluctuating cash flows.

Is Brilliant Earth Group, Inc. (BRLT) Overvalued or Undervalued?

Valuation Analysis

As of 2024, a comprehensive valuation analysis of the company reveals several critical metrics to assess whether the stock is overvalued or undervalued.

Price-to-Earnings (P/E) Ratio

The trailing twelve months (TTM) P/E ratio stands at 31.5. This indicates that investors are willing to pay $31.50 for every dollar of earnings, which is on the higher end compared to the industry average of 22.0.

Price-to-Book (P/B) Ratio

The P/B ratio is calculated at 4.2, suggesting that the stock is trading at 4.2 times its book value. The industry average P/B ratio is approximately 3.0.

Enterprise Value-to-EBITDA (EV/EBITDA) Ratio

The EV/EBITDA ratio is positioned at 25.0, significantly higher than the industry average of 15.0. This suggests that the company may be overvalued relative to its earnings before interest, taxes, depreciation, and amortization.

Stock Price Trends

Over the past 12 months, the stock price has experienced fluctuations:

• 12-month high: $25.50
• 12-month low: $10.75
• Current stock price: $22.00

Dividend Yield and Payout Ratios

The company does not currently offer a dividend, resulting in a dividend yield of 0%. The payout ratio remains at 0% as no dividends have been declared.

Analyst Consensus on Stock Valuation

According to market analysts, the consensus rating is as follows:

• Buy: 5 analysts
• Hold: 8 analysts
• Sell: 2 analysts

Key Risks Facing Brilliant Earth Group, Inc. (BRLT)

Key Risks Facing Brilliant Earth Group, Inc.

The financial health of Brilliant Earth Group, Inc. is influenced by several internal and external risks that may impact its operations and profitability. Below are the key risk factors identified:

Industry Competition

The jewelry industry is highly competitive, with numerous players ranging from traditional jewelers to online retailers. This competition can lead to pricing pressures and affect market share.

Regulatory Changes

Changes in regulations regarding ethical sourcing and environmental standards can impact operational costs and practices. The company must stay compliant with evolving regulations to avoid fines and reputational damage.

Market Conditions

Fluctuations in consumer spending, particularly in the luxury segment, can significantly affect sales. Recent economic trends indicate a shift, with net sales for the three months ended September 30, 2024, decreasing by $14.3 million, or 12.5%, compared to the same period in 2023 .

Operational Risks

Operational challenges, including supply chain disruptions, can affect inventory levels and product availability. The company reported a net income of $1.1 million loss for the three months ended September 30, 2024, a decline of 153.8% from a net income of $2.0 million in the prior year .

Financial Risks

Financial risks include the company's debt obligations and interest expenses. As of September 30, 2024, the outstanding principal balance under the SVB Term Loan was $58.5 million, with $52.0 million classified as long-term.

Strategic Risks

Strategic missteps, such as ineffective marketing strategies or poor product offerings, could hinder growth. The company has seen a 10.5% decrease in average order value (AOV) for the nine months ended September 30, 2024 .

Mitigation Strategies

The company has implemented several strategies to mitigate risks:

• Investment in technology to enhance supply chain visibility and efficiency.
• Focus on expanding brand awareness through targeted marketing campaigns.
• Adoption of sustainable practices to align with consumer preferences and regulatory expectations.

Future Growth Prospects for Brilliant Earth Group, Inc. (BRLT)

Future Growth Prospects for Brilliant Earth Group, Inc.

Analysis of Key Growth Drivers

The company is focusing on several key growth drivers that are expected to enhance its market position:

• Product Innovations: Introduction of new fine jewelry lines targeting a broader customer base.
• Market Expansions: Plans to open additional showrooms, boosting physical presence and customer accessibility.
• Acquisitions: Strategic acquisitions in the jewelry sector to enhance product offerings and market share.

Future Revenue Growth Projections and Earnings Estimates

For the nine months ended September 30, 2024, the company reported net sales of $302.6 million, down 6.0% compared to $322.0 million for the same period in 2023. The decrease was attributed to a 10.5% decline in average order value (AOV), partially offset by a 5.0% increase in order volumes. Revenue estimates project a gradual recovery as new product lines and marketing initiatives take effect.

Strategic Initiatives or Partnerships

The company is pursuing partnerships with key influencers and brands to enhance visibility and market reach. Additionally, it has invested in enhancing its digital marketing strategies, which are expected to drive customer engagement and acquisition.

Competitive Advantages

Brilliant Earth Group, Inc. has established several competitive advantages that position it well for future growth:

• Strong Brand Equity: The company is recognized for its commitment to sustainability and ethical sourcing.
• Innovative Product Offerings: Unique designs and customizable options cater to a diverse customer base.
• Robust E-commerce Platform: A user-friendly online shopping experience enhances customer satisfaction and retention.

Financial Overview

As of September 30, 2024, the company reported:

• Net loss of $1.1 million, compared to a net income of $2.0 million in Q3 2023.
• Adjusted EBITDA of $3.6 million, down 52.3% from $7.6 million in Q3 2023.
• Cash balance of $152.7 million, with negative working capital of ($22.3 million).

Updated on 16 Nov 2024

Resources:

1. Brilliant Earth Group, Inc. (BRLT) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Brilliant Earth Group, Inc. (BRLT)' financial performance, including balance sheets, income statements, and cash flow statements.
2. SEC Filings – View Brilliant Earth Group, Inc. (BRLT)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.