House of Taylor Sales Double in 2nd Quarter

House of Taylor Jewelry, Inc. on Monday reported that net sales for the second quarter ended June 30 nearly doubled to $4.8 million from $2.5 million in the prior-year period, reflecting increased sales of the company’s Elizabeth and Kathy Ireland Jewelry branded products, and loose diamonds sales of $3.5 million.

Gross profit as a percentage of net sales more than doubled for the period to 15.9 percent from 7 percent a year earlier, as gross profit increased to $764,000 in the current quarter from $174,000 in the 2006 second quarter. The company said gross profit gains reflected increased penetration of its higher-margin Elizabeth and Kathy Ireland branded jewelry products. Gross profit margin for the comparable period in 2006 was impacted by sales of closeout merchandise and the introduction of branded products at lower margins.

Even with sales nearly doubling, selling, shipping, and general and administrative expenses in the 2007 second quarter were slightly lower at $2.2 million, compared with $2.3 million in the corresponding period a year ago. The increased sales, higher gross profit margin, and lower SG&A expenses resulted in reducing the company’s operating loss to $1.5 million for the 2007 second quarter from $2.1 million in the prior-year period.

The company incurred interest expense for the quarter of $1.2 million, which included $898,000 of non-cash expense related to the amortization of costs associated with convertible notes. This compares with $782,000 of interest expense last year, which included $573,000 of non-cash expense related to the amortization of costs associated with convertible notes.

For the quarter, House of Taylor Jewelry posted net income of $25,000, which included a non-cash gain of $2.6 million due to the change in the fair value of the company’s warrant liability. In the year-ago period, the company incurred a net loss of $290,000, which included a non-cash gain of $2.6 million due to the change in the fair value of the warrant liability.

“The favorable results reflect the company’s improved operating performance, as well as continued execution of our business strategies,” said Jack Abramov, president and chief executive officer. “The strong consumer awareness levels of both Dame Elizabeth Taylor and Kathy Ireland, combined with an experienced, passionate, and dedicated management team, have enabled House of Taylor Jewelry to rapidly emerge in an extremely competitive industry as a leading international jewelry company with a powerful collection of brands.

“We continue to selectively expand our product assortment and channels of distribution to meet the growing demand from consumers for our branded jewelry products,” Abramov added. “We are particularly pleased with the demand, independent door penetration and sell thru for our Kathy Ireland Jewelry line, which targets the broader spectrum of consumers with price points from $200 to $3,500. Going forward, we expect to ramp-up sales, further increase market awareness and expand our Kathy Ireland bridal, diamond and fashion assortments in the most frequently purchased categories.”

For the first half of 2007, net sales more than doubled to $9.3 million from $3.8 million for the first half of 2006. Gross profit as a percentage of sales improved significantly to 13.6 percent from 4.8 percent for the 2006 first half. Gross profit increased to $1.3 million in the current six-month period from $184,000 a year earlier.

Selling, shipping and general and administrative expenses in the 2007 second quarter declined to $4.1 million from $4.3 million in the year-ago six-month period. The increased sales, higher gross profit margin, and lower SG&A expenses resulted in a significant reduction of the company’s operating loss to $2.8 million for the second half of 2007 from $4.1 million in the prior-year period. Included in the $2.8 million loss for the second half of 2007 is $905,000 of non-cash expenses relating to depreciation, amortization, allowances, and share based compensation.

The company incurred interest expense for the year-to-date period of $2.9 million, which included $2.2 million of non-cash expense related to the amortization of costs associated with convertible notes. This compares with $906,000 of interest expense last year, which included $573,000 of non-cash expense related to the amortization of costs associated with convertible notes.

For the year-to-date period, House of Taylor Jewelry incurred a net loss of $3 million, which included a non-cash gain of $2.7 million due to the change in the fair value of the warrant liability. In the 2006 six-month period, the company sustained a net loss of $2.4 million, which included a non-cash gain of $2.6 million due to the change in the fair value of the warrant liability.

“We continue to establish and strengthen industry relationships that help position House of Taylor Jewelry in the market as a key branded supplier of consistent, well-priced polished diamonds, and diamond jewelry. With the success of this initiative to date and an enviable portfolio of jewelry brands, we are maintaining our focus on expanding growth with an objective achieving and sustaining profitability,” Abramov said.

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. It serves fine jewelry retailers worldwide with diverse jewelry collections marketed under the brands Elizabeth, House of Taylor Jewelry, and Kathy Ireland Jewelry.