Sales Up, Profit Down as House of Taylor Builds for the Future

House of Taylor Jewelry, Inc. on Monday reported that 2006 fourth quarter, net sales increased more than six-fold to $15.9 million from $2.5 million in the same period a year ago and were up from $12 million in the immediately preceding third quarter. For the full year, net sales grew to $31.8 million from $5.6 million in the prior-year.

“2006 was a year in which we further enhanced and broadened our infrastructure and achieved a number of important milestones in the launch of House of Taylor Jewelry as a preeminent global branded jewelry company,” said Jack Abramov, House of Taylor Inc. president and chief executive officer. “Our solid progress in achieving strong sales momentum throughout the year has positioned the company as a competitive and reliable source of branded jewelry products and loose diamonds.”

During the fourth quarter, the company had income from operations of $168,000, compared with a loss from operations of $928,000 in the immediately preceding third quarter and a loss from operations of $1.6 million in the comparable year-ago period. For the full year, the company posted a loss from operations of $4.8 million in 2006, compared with a loss from operations of $4.3 million a year ago.

House of Taylor Jewelry recorded a 2006 fourth-quarter net loss of $2.8 million, equal to, which includes $1.1 million in non-cash interest expense for amortization of debt issuance costs and $1.7 million in non-cash loss on the change in warrant liability, compared with a net loss of $1.7 million for the comparable period in 2005.

The net loss for the 2006 full year amounted to $8.4 million, which includes $2.7 million in non-cash interest expense for amortization of debt issuance costs. For 2005, the company reported a net loss of $3.5 million, which included a $1 million gain on settlement of a payable to a vendor.

Abramov said the loss, as expected, principally reflected expenses in connection with product roll-out and marketing and includes approximately $4.5 million in non-cash expenses related to amortization of debt issuance costs and intangible assets, as well as stock-based compensation for services. The company’s diamond program, a major driver for the sales increase, produced $11.6 million in loose diamond sales in the 2006 fourth quarter and $22.4 million for the year. Abramov said sales to the wholesale trade were purposely at a nominal markup throughout the year in order to accelerate market penetration and bolster brand awareness and ultimately stimulate jewelry sales carrying higher margins. Abramov also noted that in the 2006 fourth quarter, the company achieved an operating profit for the first time.

Abramov said company has spent the past year establishing a sales force backed by an internal service and call center. In addition it launched several key sales initiatives to independents, including Kathy Ireland Diamond Essentials and its own loose diamond program that have already impacted the bottom line. In addition, the company launched advertising program for television, radio and print, along with point-of-purchase marketing materials.

“Proceeding into 2007, we are further strengthening relationships with our existing independent retailers, as well as building strong new inroads with a significant number of independents in a disciplined approach that we believe will add tangible value as our company expands,” Abramov said. “We believe this strategy provides the company with a solid, diverse revenue stream, without dependency on any one large retail organization. At the same time, we are providing independent jewelry retailers with the highly respected House of Taylor Jewelry brands in a wider range of price categories, along with related marketing tools to enhance their businesses and give them distinct competitive advantages.”

House of Taylor Jewelry is a Los Angeles-based international jewelry company whose principal shareholders include entities owned by Dame Elizabeth Taylor and Kathy Ireland, along with members of the Abramov family.