Charles & Colvard Ltd (CTHR) 2007 Q1 法說會逐字稿

Welcome to the Charles & Colvard first-quarter 2007 earnings conference call. At this time all participants are in a listen-only mode. We will be facilitating a question and answer session towards the end of the conference. (OPERATOR INSTRUCTIONS). With that, I would like to turn the call over to your presenter and host for today's call, Bill Zima of Integrated Corporate Relations. Mr. Zima, please go ahead.

Good afternoon, everyone. Thank you for participating in the Charles & Colvard first-quarter 2007 conference call. Joining us from management are Bob Thomas, President and Chief Executive Officer; Jim Braun, Chief Financial Officer, and Dennis Reed, Executive Vice President and Chief Marketing Officer.

Before we begin, I would like to remind everyone that except for the historical information presented, the matters disclosed in this conference call include forward-looking statements. These statements misrepresent the Company's current judgment on the future and are subject to risk factors and uncertainties that could cause actual results to differ materially. To the extent that there are any statements that could be construed as forward-looking, they should be considered in the context of all of our previous releases and federal filings.

With that said, I would now like to turn the call over to Bob Thomas. Bob?

Thank you, Bill, and thank all of you for being with us this afternoon and for your interest in Charles & Colvard.

I would like to start off with some key financial highlights for the first quarter. Net sales decreased 28% to $5.8 million compared to $8 million in the prior year first quarter due primarily to no material new distribution and slower sell-through levels in our 2006 fourth quarter that increased inventory levels at our direct customers, the jewelry manufacturers, thereby reducing their need to place new orders. I will provide more clarity regarding this decrease during the call.

Gross profit margins increased 300 basis points to 76.7% compared to 73.7% in the comparable quarter of 2006, primarily as a result of improved production costs during the period being relieved from inventory. Net income for the first quarter was $339,000 or $0.02 per diluted share compared to $1.5 million or $0.08 per diluted share in the prior year period.

As we have said in previous calls, because of the timing delay of when we sell and ship loose jewels and when they are sold at retail, it is difficult to equate our sales in any given period to the actual retail demand during that period. Moissanite is a component or ingredient in the jewelry made and sold by our direct customers, the jewelry manufacturers. There are two levels of inventory between Charles & Colvard and the consumer. They are, the inventories held by our direct distributor customers, and two, the inventories held by the retailers.

When compared to the prior year period, our revenue for the first quarter was negatively impacted by the reduced hours of broadcast television selling of our category at ShopNBC and the closure of Shop At Home TV, as well as by the previously disclosed decision by Landau stores to reduce the number of outlets offering fine Moissanite jewelry.

These circumstances, we believe, had a significant impact on our Q1 revenue performance and caused our direct customers to hold higher levels of Moissanite inventory during that period. We believe for reasons I will provide that this is a temporary situation, and we should enjoy a return to a more normal flow of orders as the year progresses.

The other factor resulting in the shortfall or causing the shortfall in expected revenue during the first quarter was weaker than anticipated sell-through during the fourth quarter of '06, which led to higher levels of stock rebalancing by the retailers. While rebalancing activities among retail jewelry counters is a customer industry practice, particularly at the end of the fourth-quarter holiday selling season, the overall level of stock rebalancing by the retailers was much greater than anticipated, and it lead to a reduced level of orders from our distributors in the first quarter. This stock rebalancing consists of the return of unsold styles from the retailer to the manufacturer who must then either find other points of distribution for the jewelry or break the jewelry apart, melt the gold and reuse the jewel in the new style selected by the retailer resulting in a rebalanced inventory position.

This rebalanced inventory is one that the retailer and manufacturer jointly believe will generate more sales activity at the retail counter. This activity requires time, management skill and expense for the manufacturer and results in fewer orders for replacement jewels.

As we expressed in our last conference call, we believe that the sell-through in Q4 '06 was also negatively impacted by price increases initiated by a select group of retailers in all distribution channels at the beginning of the fourth quarter. This resulted in the testing of some key price points, and as a result, we believe our overall rate of sell-through in Q4 '06 was down compared to prior periods. Moissanite jewelry prices at most of those testing locations have moved to a more favorable direction, and as of the beginning of February, the most significant of those retail price increases have been adjusted to levels that we view as more appropriate for our consumer audience. These adjusted retail price points for our category we believe will allow for higher demand and better sell-through going forward.

To illustrate the combined impact of my preceding comments, Reeves Park, Samuel Aaron and K&G Creations were our top three manufacturers in the first quarter. These three manufacturers combined to represent approximately $3 million or 52% of first-quarter revenues compared to $5.9 million or 73% of total revenues in the same period last year. Reeves Park was the largest, representing $1.4 million or 24% of sales in the first quarter. This manufacturer supplies retail customers JCPenney, Von Maur, Helzberg, Ross-Simons and ShopNBC.

Reeves was followed by Samuel Aaron with $832,000 of sales. Their customers include Boscov's, Zale Canada, and JCPenney. K&G Creations was third with $777,000 of purchases from Charles & Colvard, and their customers include Finlay, Kings, Landau, AAFES, Zales Outlet, Harry Ritchie and Daniels.

When compared to previous period, the level of contributions from our top three manufacturing customers changed dramatically during the quarter as each experienced different levels of success and different challenges in managing their respective customer relationships. We believe that the Moissanite inventory positions of our three largest manufacturers at the end of Q1 continued to be higher than ideal, but each has reported an increased order flow from their existing and from new retail customers, and they expect that Charles & Colvard will enjoy a more robust demand going forward. They are optimism is based on orders in hand and other solid data.

With regards to our sell-in during the quarter, we had no significant orders for new distribution this year versus orders of approximately $300,000 for the initial stocking of new distribution in Q1 2006.

Our experience regarding sell-through in the most recent quarter is where the news turns positive. We do not yet enjoy access to specific data at all retail outlets, but we believe the data we do have is an accurate indication of renewed sales momentum at Moissanite retail counters. We have been successful in gaining better visibility to the sell-through at JCPenney, Helzberg, Finlay, Kohl's, Sears, Belk, Zales outlets and Zales Canada. An impressive list of national retailers who offer and support the Charles & Colvard creative Moissanite category.

Due to competitive concerns, we cannot disclose data about specific retailers, but we can report that during Q1 2007 total retail sales of fine Moissanite jewelry on a combined basis at the 1716 retail Moissanite outlets operated by this group of retailers generated over $7.3 million at the retail selling price of fine Moissanite jewelry sales.

Although we were not in all of those doors last year, this amounts to an approximately 9% combined revenue increase for these retailers over the same period in 2006. We're not yet in a position to provide conclusive same-store sales data. But as this information should clearly demonstrate, we are working to provide you more transparency to the retail activity of our category.

Additionally, orders from some of our other U.S. distributors, including Stuller and Rio Grande, on a combined basis increased by approximately 32% during the quarter compared to the same quarter last year. This suggests that we will enjoy additional orders as the inventory position held by the retailers and the manufacturers are reduced by this apparent increased consumer demand.

Later in the call, I will provide additional thoughts on our prospects for the remainder of 2007. But first Jim Braun, our CFO, will review the financials, and Dennis Reed, our President and Chief Marketing Officer, will review our marketing efforts and activities. Jim?

Good afternoon and thank you for joining us for today's conference call. As a reminder, share and per-share data for all periods presented have been adjusted to reflect the effect of the one share for four shares owned stock split effective in the form of a 25% stock dividend distributed on January 30, 2006.

For the three months ended March 31, 2007, net sales decreased 28% to $5.8 million as compared to $8 million in the first quarter of 2006. Gross profit decreased 25% to $4.4 million in the first quarter of 2007 from $5.9 million in the comparable quarter of 2006. Gross profit margin as a percentage of sales for the first quarter was 76.7%, an increase of 300 basis points when compared to the same quarter in 2006. This increase was primarily caused by the lower production costs in the period that the jewels were produced.

The average selling price per carat for the first quarter was slightly 2.2% below the first quarter of 2006. As we have discussed in past calls, we expect that the average selling price per carat will fluctuate based on stone size requirements of our customers.

Total operating expenses as a percentage of sales were 66% for the first quarter compared to 45% for the first quarter in 2006. Marketing and sales expense was up $155,000 in the first quarter over the prior year, primarily due to increased advertising expenses. As a percentage of sales, marketing and sales expense increased to 46.3% compared to 31.4% in the prior year period.

First-quarter net income was $339,000 or $0.02 per diluted share compared to $1.5 million or $0.08 per diluted share for the first quarter of 2006.

Charles & Colvard's domestic sales in the first quarter decreased 35% to $4.6 million compared to the first quarter of 2006. International sales for the first quarter increased 28% to $1.2 million with strong results from all key geographic regions.

Total shipments of 35,300 carats for the current period were 24% less than the 47,000 carats shipped in the same period of 2006. Shipments of carats in the U.S. decreased 32%, while international shipments of carats increased 33%.

I would like to point out that our effective tax rate of 55% for the three months ended March 31, 2007 was higher than the 40% rate in the same period of the previous year primarily due to non-U.S. operating losses being a larger percentage of income before taxes. During the quarter I also want to point out that the Company implemented FASB interpretation #48 Accounting for Uncertainties in Income Taxes. This implementation resulted in adjustment to reduce beginning retained earnings at January 1, 2007 by $402,000 and the recording of $29,000 of tax expense during the first quarter.

In the first quarter, the Company's cash position increased to $15.3 million from $13.8 million at December 31, 2006. This $1.5 million increase was primarily due to the $6.3 million decrease in Accounts Receivable and the $339,000 of net income generated during the quarter, partially offset by the $3.3 million increase in inventory which includes consigned inventories and a $2.5 million decrease in current liabilities.

Accounts Receivable decreased to $8 million compared to $14.3 million at December 31, 2006. Total inventory including consignment increased by $3.3 million from $34.5 million at December 31, 2006 to $37.9 million at March 31, 2007, primarily due to the required levels of raw material purchases. The Company's raw material inventories of silicon carbide crystals are purchased under exclusive supply agreements with a limited number of suppliers. Because the supply agreements restrict the sale of these crystals to only the Company, the supplier negotiates minimal purchase commitment to the Company that may result in periodic levels of raw and in process inventories that are higher than the Company might otherwise maintain.

I would now like to turn the call over to Dennis who will review our marketing initiatives.

Thanks, Jim. In the first quarter, we continued our marketing initiatives that provide direct support to our retailers through a variety of retailer programs such as the participation in the March JCPenney $1 billion sales event, USA Today advertising for HSN and local newspaper advertising for the 300 plus Moissanite jewelry shows that occurred with retailers such as Helzberg, Macy's, Finlay, Macy's Finaly's Group, Belk, JCPenney, Zales Canada and Zales Outlet. The funding for these activities came from the retailers and manufacturers involved, as well as direct funds from Charles & Colvard.

The total sales and marketing spend for Q1 was 46.3% of revenue. The real dollar spend was less than budgeted as we made decisions about spending levels as we gained preliminary indications on the revenue direction for the quarter.

As in Q1 2006, Charles & Colvard ran no institutional ad campaign in Q1 of '07. Instead we focused our energy on gathering of market data to evaluate consumer awareness levels and the effectiveness of the current campaign on impacting awareness.

We're reviewing the current institutional campaign of fashion and women's lifestyle magazines to gauge its relative effectiveness versus other marketing outreach vehicles. This review will impact advertising outreach for the remainder of '07.

From the market research data collected, we know that we raised consumer awareness within our target market in the U.S. by 35% to 10.5% in January of '07 compared with 7.8% in January of 2006. Additionally, we know the increase in awareness was primarily among the higher income households defined as households earning $75,000 or greater where awareness topped 20%, doubling the previous year's awareness level.

Women are becoming aware of Moissanite through several key vehicles. Mentioned in the order of importance are TV shopping, the Internet, fashion and women's lifestyle magazine advertising and jewelry and department store shopping. Women who are aware of Moissanite had a favorable image of the jewel at an improved rate over 2006.

The key benefits of uniqueness, the stone's visual properties of brilliance, fire and sparkle, high-quality and great value were reported as the most desirable attributes by the women surveyed. This reconfirms the correctness of our messaging as consumers report back our positioning and the reasons for interest.

Collectively, this data will help us to shape and refine our marketing creative, messaging, vehicle selection and media buys going forward. We will test other outreach vehicles in Q2. These vehicles we believe each provide unique forms of delivery of our message to our perspective consumer. We plan to test broadcast, online, targeted direct mail and local market out-of-home campaign. We will evaluate the effectiveness of each and integrate into our going forward campaign if appropriate.

Bob now has some additional comments, and then we will respond to your questions.

Thank you, Dennis. Based on our research and experience as Dennis has discussed, we will continue to refine and sharpen our marketing message and adjust the method and media by which that message is delivered to consumers as we seek to regain sales momentum during the coming quarters. We will continue to be aggressive as we attempt to increase awareness for our jewel and demands for fine Moissanite jewelry.

New distribution helps to accomplish those goals by introducing Moissanite to shoppers who might otherwise not experience Moissanite.

To that end, we expect to see the expansion of distribution at several high-profile existing customers. Specifically, Kohl's is scheduled to add the Moissanite category at 455 new outlets in July with plans in place to offer the category at all Kohl's stores by year-end. That translates into an expected expansion to 734 retail locations from the current Kohl's distribution at 279 doors as of the end of the first quarter. That distribution will be supported by our customer, Samuel Aaron international.

Additionally, in the current quarter, K&G Creations as reported that they plan to support a broader test distribution at Sears with the category being offered in 143 Sears outlets by Mother's Day. That represents a net addition of 121 locations. Our efforts to bring new retailers to the category will continue as well.

We're currently working with a new to the category new to the Moissanite category manufacturing jeweler. This manufacturer has enjoyed highly successful experience at the very high end of the jewelry market, and they are working to develop and offer an exceptional range of fine Moissanite jewelry to the better independent jewelers and department stores in North America. This effort is a direct response to the findings of our consumer awareness research and is targeted to that portion of the jewelry buying public with higher household income levels that are likely to purchase Moissanite jewelry.

Internationally, we continue to be encouraged by the progress we're making in the United Kingdom. Our distributor and manufacturing customer there has done an outstanding job of servicing Ideal World, a television retailer, as well as the leading catalog retailers in that market. The success in those channels of distribution is leading to new traditional retailer opportunities and a growing demand for fine Moissanite jewelry in that market.

Our investment in Asia in both time and money we believe will be rewarded as more of the jewelry sold in this country as well as in Europe is being produced there. Additionally, we continue to solicit additional retail distribution in southern Asia. Our presence in Hong Kong provides us with the ability to provide same-day contact and service to customers from Australia to South Korea and includes all of the important feature markets in India and China.

Our ongoing conversations with perspective new customers from this region have been initiated by those prospects and are especially encouraging.

I am confident that you have seen the press releases detailing the extension of our share buyback authorization and the announcement of our intent to pay a cash dividend for the third consecutive year.

The share repurchase program authorizes the purchase of up to 1 million CTHR shares at market prices or in negotiated transactions during the coming year. You should be aware that the Company, like individuals, is limited as to when and by circumstance regarding the timing of those transactions, and depending on those circumstances, the Company's ability to purchase shares may be limited or restricted at any particular point in time.

For shareholders of record, on May 31, 2007 we will pay an $0.08 per share cash dividend on June 15, 2007. These two announcements and actions should provide you with very clear insight into the confidence that the Board of Directors and company management have for the future of Charles & Colvard.

I would like to conclude my remarks with an update on our physical 2007 revenue guidance. The Company currently expects physical 2007 net sales to be in the range of $45 million to $48 million with stronger revenue growth in this fiscal second half as sales are expected to ramp up at Kohl's and Sears and as other retailers accelerate their roll-out to prepare for the holiday selling season.

The Company believes that full-year gross profit margins will remain in the range of 65 to 75% and that full-year marketing and sales expense will be in the range of approximately 36 to 41% of total net sales. We remain confident in our ultimate success in building this Company into a more prominent position in the fine jewelry industry, and I look forward to speaking to you again as that success becomes more apparent.

Thank you for your continuing interest in Charles & Colvard. We will now respond to your questions and comments.

(OPERATOR INSTRUCTIONS). Eric Wold, Merriman Curhan Ford.

Good afternoon, guys. A couple of questions. First of all, obviously you know positive endorsement from both Kohl's and Sears to be rolling out to the initial doors in Q2 and throughout the rest of the year. Do you have any sense from your conversation with them or from what you know about sales trends at the doors so far where you would put the education experience and kind of is (inaudible) if you will of their sales force selling Moissanite versus where you kind of have a JCPenney now, kind of how far along the curve are they?

I will give you a 10,000 foot view, and let Dennis talk more specifically about it. We know that the jewelry departments at both Kohl's and Sears is not as highly developed as the Penney's jewelry counters as far as expertise, but that experience with Moissanite has been very positive today, and we are encouraged by the resistivity of our methods and our training and our positioning at both those key retailers. So, obviously as you suggest, they have had more than a little success in the trial stages, and we are looking forward to working with them to help train additional staff going forward. Dennis, do you have any comments there?

Additionally it has been our position with both of those retailers and the manufactures involved with those retailers that without access to those stores to do training that we would not have an interest in moving forward with the program there. We feel that strongly about being able to tell the story appropriately and have the staff of those stores be armed with the appropriate information so that the Moissanite story comes across with the way we would like it to happen and the consumer has the experience we want them to have when they're coming to the stores.

Okay. On Kohl's, on the additional 455 coming in July, just to confirm so with those coming online in July, so would those shipments of those 45 be recognized as revenue for you guys in Q2?

Yes.

Okay. Still in that $7 to $10,000 per store kind of sell-in range?

Dennis can speak to that. Our revenue per door?

That is probably a good range, but one of the things just to be mindful of, as Bob said in his comments, there are two inventory levels here -- one at the manufacturer and one with the retailer. So to the degree that it is a one-off transparency that we're getting the order directly from the retailer without using the manufacturer's inventory, you could probably take that as an assumption, but it does not always work that way.

Then lastly, inventory creeped up a little bit in Q1, but you have got obviously a lot of doors coming in hopefully later this year. Is there going to be a need to renegotiate the purchase agreement with Cree to lower what you are required to purchase this year?

That process has been started at least a six weeks ago. We are not totally at the end of that discussion, but that process has been started again over a month ago.

And on that, if you do end up renegotiating that lower, is there any potential penalty or something that guys have to do for that, or just kind of a gentlemen's agreement to get it lowered?

Historically we've been able to work these out very amicably without any real displacement. Cree obviously has labor, raw materials and other things in place. So the amount of time between when we give them notice of a decrease and the time that they can actually start to slow down that thing, slow down those deliveries is part of the negotiation. Obviously lower volumes sometimes mean higher prices. We are working hard to make sure that is not the case this time, but that it's all part of the conversation.

Perfect. Thank you, guys.

Jiwon Lee, Sidoti & Co.

Good afternoon. Hi. Bob, you mentioned that retail rebalancing was greater than you have anticipated. I do apologize. I missed the comment. Was that mostly at the national retail level or more of the regional level that you saw?

It is certainly across the board, but the big numbers come from the bigger retailers. Without giving a specific date by retailer, you can assume that it was in the multiple millions of dollars at the manufacturer's selling price. And all the manufacturers, the three majors, all participated in that activity. So it was a very significant and much more burdensome to the retailer -- excuse me, to the manufacturer, than we were led to believe in early January than it was going to be in early January. But as the quarter rolled on, it became more apparent that it was a much bigger issue than we had anticipated.

And what is your current percentage of revenue generated from TBs?

It is a much, much smaller percentage today. It would be in the single digits, perhaps in the higher single digits, but it is certainly nowhere near as important to us as it once was.

With that said, Ideal World in the UK has had tremendous success and growing success over the last two quarters, and we are mindful that you can be oversaturated on television. We've encouraged them to take a more measured approach to the number of hours that they are offering in Moissanite jewelry.

You might find that unusual for me to say that given our sales decline here in the first quarter, but we are trying to build this company in this category for long-term sustainability and long-term prospering growth. And so we like to work with the television guys so that we're not oversaturated. That has happened in the past at unnamed television sellers, but the category just got overexposed and people -- these sales activity slows down when it is overexposed. So television selling is an art as well as a science, and we are trying to help them manage through that.

Okay. And sort of going back to Kohl's and Sears, you are anticipating a rollout to happen throughout the second quarter. However, the sales impact will be more skewed toward the second half. Did I hear that correctly, Bob?

That is correct. The reorders will be as important as the initial rollout. The rollout -- whatever revenue was generated for the Kohl's rollout will happen in the second quarter. We believe that the Sears rollout will be supported by existing inventories.

The rollout in the second quarter is not for all of the Kohl's stores. There will be some additional rollout.

There should be some additional rollout in the third quarter as well to whatever the remaining doors is. I think they're targeted at 950 doors by year end is the number that they have on the street I believe, and at the end of this quarter, at the beginning of the third quarter, some time in the third quarter, I believe we said --

734.

We will be in 734 of those. So approximately another 200 doors possible at Kohl's between now and year-end.

On a per store basis, JCPenney versus Kohl's department of the jewelry counter sales alone, just a rough estimate how much percentage-wise Kohl does per store versus JCPenney?

I do not have that information. As I said earlier in the answer to Eric's question, you can walk through those stores and see that the fine jewelry counter at JCPenney is more developed and more mature than it is at Kohl's. So you can make an assumption I believe that the sales per square foot of inventory at Penney's would be higher than it would be at Kohl's or Sears.

A couple of questions for Jim. How should we look at the tax rates going forward?

The tax rate going forward, part of this was the function of our level of pre-tax income this quarter and caused the losses that we had over in our subsidiary to be a higher percentage. As we get back to higher sales, those losses will be a smaller percentage that will bring the tax rate down to a number that should be relatively close to the historical rate that we've had.

With saying that, we would expect that our rates because of the implementation of new accounting pronouncement FIN 48 will go up a couple points on an annualized basis as we move forward.

Was there any information on ASP per carat or the type of carats that were sold during the quarter?

Yes, I did say that the average selling price per carat was down slightly by 2.2% for this quarter as compared to the first quarter of '06. So a slightly smaller mix.

So finally, maybe this is more a question for Dennis, but did I hear you you are moving a little bit away from institutional advertising and moving more into a direct approach? And if so, is there some sort of a strategic shift going on within the Company?

In first quarter this year, we had no institutional advertising. But that is the same as in Q1 of '06. That is purposeful on our part. We have our institutional. We go dark during Q1, but our institutional campaigns in the past have typically been a Q2 and a Q4 media spend in fashion and lifestyle books. We are evaluating that right now, and we want to just make sure that that is the most effective way of reaching our target consumer versus other modalities that we're testing in Q2.

So if I looked at the $2.7 million or so of marketing and selling expenses for the first quarter, what was the (inaudible) of expenses (inaudible)?

Those expenses, that spend was on retailer directed activity. So, for example, trunk show newspaper print media for some of our key retailers, as well as there were a few pieces of media that were actually completed by the retailer that we helped co-op the activity.

For example, there is marketing books put out by the Finlay folks for some of their stores in which we participate financially in helping to support that.

The seller does a catalogue we help support. Helzberg does mailings that we help support. So it is all retailer directed as Dennis would suggest.

Fair enough for me. Thank you.

Thank you very much.

(OPERATOR INSTRUCTIONS). [Tom Zules].

Dennis, you were talking about looking at other types of advertising and you said broadcast. Are you talking about TV or radio?

TV, Tom.

TV. Okay. Excellent. I'm glad to hear that. Dennis, could you also also gave us a perspective, I mean being on Wall Street and stockholder side, we get the perspective from our side, which is not as pleasant with the stock performance. What do the people in the industry think of Moissanite, and what is their view about it being a category and its acceptance and its future?

Good question. It is an evolution. I would say we have made great strides with respect to making Moissanite -- the category of Moissanite accepted amongst the trade when -- in early stages with the Company, the category I think would be considered a pariah. It would have been seen as something that would have negatively impacted current categories, including the diamond business by most of the retailers that we're currently working with. But by demonstrating through the marketing activity that we have done and the trade development activity we have done that we can create a unique category and reach a distinct customer that is different from the gift of love customer that is out there. We have actually been able to teach the trade and educate the trade about an opportunity that was not there for them before. As a result, we are seen as a very serious player.

We may not be right for everyone, but they are certainly listening to us in a more professional and serious manner and giving us the opportunity to sit down with them and talk to them about the concept of Moissanite. So it is an evolution as I said, but it has very much changed over the past several years.

To demonstrate, we have had face-to-face conversations through Dennis's good work and his staff with the major jewelers not only here but in countries around the world and audiences in very open and very pleasant conversations with large retailers who not only have the category, are testing the category but are watching very closely to see where we go from here. We have come light years from the early days as far as the industry is concerned, and as I have said about some of the Asian customers, very serious players are reaching out to us. People who we would not have suspected would have an interest are reaching out to us to initiate conversations of how they might involved in this category in their respective markets. So it is a very encouraging sign.

We are actually in a much better place today than we were a year ago or two years ago at this point in time. The numbers do not make it apparent, but we really are probably more confident than we were back when sales were growing at 100%.

[Chett Poulson], [Poulson Investment Company].

Hi, Bob. How are you doing?

Really good. I hope you're doing pretty well as well.

I was doing better before this call.

Well, we are trying to help you out there. Go ahead.

I know, and you know the last year or so I have been very critical of your marketing for the stock as opposed to just marketing for the business, and now seeing the numbers today, I think I can understand why you have had not had your heart really in it.

However, if you're going to hit the numbers you are forecasting for the year and what not, there are going to be better times. I'm curious if it is possible for you to take more of an interest in your shareholder than in the market value for securities?

Well, as the largest shareholder, I'm certainly interested in the market value of the security. There's no question about that. But as you know and others have heard me say, I tend to take a little longer view than the typical owner of securities, and my goal has always been to build a great company, build a franchise for Charles & Colvard and for Moissanite, and I think that we are making good progress along that path.

Where we have made progress is with the stock. The value of the security, as you well know, was much, much higher than it is today, and of course, it has fallen back dramatically. We want to develop a broader audience, not only for the jewel but for the security, and we're working to that end.

As I have said to Jim and others, I am willing to take a more direct role in developing that audience in the coming period. So we're going to be telling the story, shouting the story and trying to develop an audience so that when the short-term indicators turn more positive, there will be people there to take notice.

Again, I interpret that to mean that you personally will take more interest in it going out to the next period of time?

That is correct.

Good. That would be helpful.

(OPERATOR INSTRUCTIONS). [Rodney Batter], Morgan Keegan.

Hi, Bob. How are you doing?

Good. Good afternoon, sir. Glad to hear your voice.

Well, let me get you to clear something up for me and hopefully some other people that might be helpful to all of us. There are several different things going on here that I think we could use some help on.

Landau's I would love to get your perspective on what happened with them. I think they had 50 or 60 stores. They now have backed off to where they are not really selling the product anymore. So we have got that on one hand.

On the other hand, you have Sears and Kohl's rolling the product out. They have apparently had a great success with it since they started working on it. You have got a number you put out today I would like to get some clarity on. You mentioned JCPenney, Kohl's, Belk, Zales Outlet, Zales Canada and a number of other ones I could not get them all written down, but that you think they were up 9% year-over-year, but then it was not the same amount of doors.

It wasn't the same amount of doors. I want to be really clear about that. Whatever the total doors operated by those people were '06 versus '07, and I cannot give you that -- I don't have that number, to be very frank about it, but the revenue generated for those particular companies was up approximately 9% in the first quarter this year over last year.

We do have some very specific same-store sales data that I cannot release because it is too narrow a database. It would be apparent to the world, and so I cannot release that data just because it is proprietary and to do so would be inappropriate. But what we were trying to do is to give you and others a very -- as much information and be as clear and candid about it as we can be to indicate that we are well and we are listening to what you are saying, we understand it and we're working to try to give you more clarity on that.

Well, listen, you've made a lot of strides on that. I guess the thing on my mind, though, is the consistencies here in my understanding of what is going on. Because you have got some really good news on the one hand, and then on the other, you have got Landau's closing. I would love to hear more about that.

But this 9% increase -- let's say, they had 15% less stores and you have got a minus 6% same-store sales number -- I am not saying that is the number, but if we are now seeing negative same-store sales on an annual basis, then that begs the question of why and what is going on with the product out there in the market that would have that happen?

Let me try to respond to that. As far as Landau, I would have to direct you to their supplier, K&G. I cannot speak to that relationship. We have had no direct contact with the principles at Landau. We have not been allowed to have any contact with the principles at Landau, and we have no direct knowledge of whatever those reasons were. And you would have to go to the manufacturer involved and attempt to get that definition. We cannot provide it because we do not know it.

On a broader basis, we have spoken on these calls in more than one case about the danger of growing distribution faster than awareness. We've been acutely aware of that. The issue has become, it is hard to say no to a national retailer who is willing to step up to the plate on an asset basis. So everything you have hard this afternoon rolls into a very neat package. We know we have to spend more resources supporting those retailers in turn, which may damage our long-term prospects of brand building or institutional. But it is a balancing act we have to play. So the same-store sales are now down 6% guaranteed in the story there.

But I can say, particularly in the early part of the quarter, some of the stores were down a little bit. But that is an indication of consumers adding more choices and making more purchases at different locations. So that is not necessarily a bad indicator when those retailers have a 9% increase in the category over the same period last year.

As we get a broader base of information, hopefully we can provide you that magic number that you're looking for in same-store sales. But today I cannot do it.

Well, I am just trying to get an understanding of how healthy the product is out there because we have obviously had a lot of success and then we are having a little bit of a retrenchment in here, and I just want to know -- I am trying to get to get a read on how we come out the other side. And when you have Sears and Kohl's rolling this thing out, they are not doing that just for the fun of it. They are obviously seeing some really good results. And if you had any color on that that would help us understand that and that is one segment of the market and where does that fit in versus JCPenney? Are we going to have so much distribution now in maybe this middle market that we are going to lose somebody like we lost Landau's? Anything you can do to help us on that?

Retailers make their decisions about product categories. All we can do is them the story, try to build the market as fast as we can. Dennis revealed something very interesting in his comments that no one picked up on. We grew awareness in affluent households 100% in '06. Part of that success was generated by this institutional campaign. Part of it was generated by TV shopping and the Internet. But the third component, as Dennis listed them in order of importance as reported by the consumers, was the fashion books. And so we have to be very careful as we continue to try to grow this awareness and demand that we allocate resources appropriately so that we do continue to build demand, particularly interest and awareness among the group most able to make the purchase. And so it is a tightrope we have to walk from time to time.

I would also point out, the Moissanite average purchase price at retail is very, very, very attractive to retailers. It is higher typically than their average ticket on the other jewelry category. So, we have a very wonderful business proposition for the retailer as long as we can keep their staff trained properly, keep them within the right message and support it with the appropriate level of advertising. So obviously we are highly confident, but we're not naive. We know that there is a huge challenge out there to manage this awareness and demand build as we grow this distribution. And I'm not going to get into any speculation about specific retailers, what they may or may not do going forward.

Bob, on the buyback or maybe this is a Jim question, you guys I think had bought about 4 or 500,000 shares back, but that was a couple of quarters ago. Did you buy anything back this quarter, or are you just adding to the remaining, what, 600,000 when you took it up to 1 million?

The authorization as a calendar has an end date to it, and that end date was approaching and what the board has decided to do is extend that. But the total amount authorized is not accretive. It is a 1 million share total. It is not accretive to what wasn't purchased.

In my prepared statement, which by the way you can view on our website at the conclusion of the call to get anything that you might have missed as we were speaking quite rapidly, the institution of Charles & Colvard has to act like an inside individual here. And so we are precluded from buying in any closed window period unless we instigate a 16b plan I believe it is called or some particular plan, and we don't have that in place at this point in time, nor can we put it in place without an open window. So the Company itself has to abide by the same rules as an insider when it comes to buying and selling this stock either on the open market and in negotiated transactions.

How much did you buy back in the last quarter?

Zero. But there are times when we are just not able to be in the market.

Thank you.

Thank you very much. Nice to hear your voice.

With that, there are no further questions. I would like to turn the conference back to management for closing comments.

Thank you very much. In conclusion, I am sincere about this. I invite each of you to attend our annual shareholders meeting, which will be held at 10:00 AM on Monday, May 22nd at the -- 21st, I am sorry -- Monday, May 21st at 10:00 AM at the Sheraton Imperial Hotel in Durham, North Carolina. We would love to see each and everyone of you there, and bring a couple of friends and I will buy you a cup of coffee.

Thank you very much and have a great evening.