- Brilliant Earth Group, Inc. IPO to begin trading Thursday (NASDAQ: BRLT)
- Socially responsible and digitally-savvy jeweler grew sales 56% in year to June
- Expects long-term revenue growth of 25%-30% led by customer, category expansion
- Company already very profitable with 14% Ebitda margin, aims for 15%-20% long term
- Core strength in engagement and wedding rings but large potential beyond
- Bracelet, earring and pendant categories grew over 100% in first half of 2021
- Offers blockchain-enabled diamonds at scale to show full journey of each stone
- Rare company with female CEO, majority female board and workforce
- Capital light model with only selective brick-and-mortar footprint gives edge over rivals
- At just 2.3 times 2022 estimated sales, priced well below Poshmark, Inc., Kering SA, Lululemon Athletica Inc.
Once investors get acquainted with Brilliant Earth Group, Inc., they may want to put a ring on it.
The socially responsible and digitally-savvy jeweler priced its shares Wednesday night at $12 per share, giving it a market capitalization of $1.1 billion. That price was slightly below the indicative range – likely the result of choppy overall market conditions this week.
But for smart investors, a lower price could spell a golden opportunity to own Brilliant Earth. The company is profitable, growing quickly, and positioned to disrupt an industry that’s barely changed in generations even as demands of younger customers shifted dramatically.
To understand Brilliant Earth’s potential, it’s important to understand its business model. While most jewelers have made online sales an afterthought, the company went digital first when it was founded in 2005 as an e-commerce company with just a single showroom in San Francisco.
In coming years, the company refined the online shopping experience to encourage customers to make even large, once-in-a-lifetime purchases online. Brilliant Earth provides extremely detailed images with extra features such as matching skin tones and even allowing demonstrations of rings on a customer’s own hands. Today, the average order is $3,152 – a serious sum that is likely to grow over time.
Of course, showrooms are important for many customers to get more excited about an engagement or wedding ring. And the company has seen a tremendous benefit to showing off its jewelry in person at one of its 14 showrooms. Sales within metro areas see an 80% revenue boost in the year after opening a new store (another innovative retailer, Rowing Blazers, has described a similar phenomenon from opening pop-up shops that boost online sales).
But Brilliant Earth knows it doesn’t need to be in every town in the country to succeed. While some other jewelers are hobbled with rent at thousands of stores in places with declining foot traffic like shopping malls, Brilliant Earth has a target of fewer than 100 locations across the country to get the job done.
Brilliant Earth offers another feature that appeals to Millennial and Gen Z customers: careful sourcing. The company, mindful of the “blood diamond” issues that still pervade parts of Africa, offers Beyond Conflict Free Diamonds and is a certified member of the Responsible Jewelry Council, a nonprofit.
That’s critical given that a whopping 73% of Millennials are willing to spend more on a product that stands for sustainability, according to Nielsen. And Brilliant Earth is way ahead of the pack, given that many other companies have only begun to focus on responsible sourcing in recent years (see chart below from Sentieo, an AI-enabled research platform, showing mentions of “responsible sourcing policy” in corporate documents).
Rarer still is Brilliant Earth’s use of technology to track the source of its gems. Brilliant Earth employs blockchain tech to monitor diamonds from the mining operator, through cutting and polishing, and finally to the customer. It was one of the first to embrace blockchain diamonds and now offers 10,000 such stones.
That’s just one piece of the company’s comprehensive approach to ESG. It regularly makes noble gestures such as funding a primary school in the Democratic Republic of Congo and backing a program to help gold miners in Peru avoid poisonous mercury.
Another unusual characteristic is the role of women at Brilliant Earth – from showroom to boardroom. CEO Beth Gerstein is female, as is most of the board, along with the overwhelming majority of the company’s total staff.
All of this has contributed to impressive growth and profits. In the year through June, revenue soared 56% from a year earlier, when it also posted a 14% adjusted Ebitda margin. Both metrics are expected to remain strong in 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 sky-high Net Promoter Score (NPS) of 75, indicating shoppers will likely return again and again.
What’s more, the company has expanded beyond its core bridal offering into categories such as bracelets, earrings and pendants. Sales of all three jumped over 100% in the first half of 2021.
And with customers getting ever-more comfortable shopping online (or visiting a growing number of showrooms), there is plenty of potential to move into pricier fine jewelry items. That should underpin continued expansion in profit margins.
International sales, which account for 80% of the total jewelry market, are yet another opportunity. The company has made localized websites in multiple countries and already reported positive results from the efforts. That is a far less-risky approach than attempting to open dozens of storefronts and lock into leases in unfamiliar territory, a mistake many retailers have made.
Competition naturally exists, but it may wane over time. Small mom-and-pop operators are burdened with much higher inventory, lease or related real estate commitments, and don’t have the ability to take advantage of scale or data from CRM in the way Brilliant Earth can.
Even luxury juggernauts like LVMH’s Tiffany or Compagnie Financière Richemont SA’s Cartier fall short of Brilliant Earth. For instance, such companies lack the ability to personalize items, they are generally stuck with expensive real estate obligations, and can’t compare when it comes to ESG credentials.
And for now, Brilliant Earth is priced right. Based on the IPO price, the company trades at an enterprise value of 2.3 times IPO Edge’s estimated 2022 sales. That compares with 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 fashion anytime soon. But with the business model ripe to change, investors looking for beautiful returns would be wise to say “yes” to Brilliant Earth.
John Jannarone, Editor-in-Chief