Brand Loyalty And New Collaborations Will Strengthen Future Prospects

Key Takeaways

• Strong gross margin expansion and profitability are driven by disciplined execution, allowing future earnings growth with a focus on sustainability and efficiency.
  
• Strategic growth in fine jewelry assortment and showroom investments suggest increased market share and long-term revenue growth through enhanced customer experiences.
  
• Declining sales and average order value, coupled with costly showroom expansions, might pressure profitability amid uncertain economic conditions and shifting consumer behaviors.

Catalysts

Designs, procures, and sells diamonds, gemstones, and jewelry in the United States and internationally.

• Brilliant Earth's disciplined execution and commitment to delivering a premium brand experience have led to strong gross margin expansion and profitability, which bodes well for future earnings growth as they continue to focus on sustainability and efficiency. (Earnings, Net Margins)
  
• Noteworthy growth in repeat orders, driven by brand resonance and compelling product offerings, suggests ongoing customer loyalty and the potential for increased revenue through continued repeat business and customer retention strategies. (Revenue)
  
• The successful expansion of their fine jewelry assortment, including collaborations such as the Jane Goodall collection, indicates a strategy to capture more market share in gifting and self-purchase segments, potentially boosting total order values and revenue. (Revenue)
  
• Strategic investments in their showroom footprint and enhanced customer experiences, like the new try-on bar and premium brand positioning, suggest favorable conditions for driving long-term revenue growth through both digital and physical channels. (Revenue)
  
• Continued investment in marketing efficiencies and leveraging data-driven insights for targeted spending are expected to maintain or reduce marketing expenses as a percentage of sales while driving top-line performance, leading to improved net margins. (Net Margins)

Brilliant Earth Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Brilliant Earth Group's revenue will grow by 3.2% annually over the next 3 years.
• Analysts are not forecasting that Brilliant Earth Group will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Brilliant Earth Group's profit margin will increase from 0.1% to the average US Specialty Retail industry of 4.4% in 3 years.
• If Brilliant Earth Group's profit margin were to converge on the industry average, you could expect earnings to reach $20.4 million (and earnings per share of $0.17) by about May 2028, up from $541.0 thousand today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 16.3x on those 2028 earnings, down from 40.8x today. This future PE is greater than the current PE for the US Specialty Retail industry at 15.2x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.01%, as per the Simply Wall St company report.

Brilliant Earth Group Future Earnings Per Share Growth

Risks

• Brilliant Earth's net sales declined by 4% in Q4 2024 and 5% for the full year, indicating potential challenges in maintaining or growing revenue in future periods.
  
• The company's average order value (AOV) decreased by 13% in Q4 and 11% for the full year, suggesting pressures on maintaining or increasing revenue despite higher order volumes.
  
• With the guidance for 2025 indicating slightly lower profitability than 2024, strategic investments might not immediately translate into increased earnings.
  
• Marketing expense as a percentage of net sales has seen improvements, but shifts towards more expensive physical showroom expansions could impact net margins.
  
• The macroeconomic environment and changing consumer sentiment pose risks to future earnings, especially as the company anticipates continued dynamic conditions impacting consumer spending behavior.

Valuation

• The analysts have a consensus price target of $2.125 for Brilliant Earth Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $3.0, and the most bearish reporting a price target of just $1.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $464.6 million, earnings will come to $20.4 million, and it would be trading on a PE ratio of 16.3x, assuming you use a discount rate of 9.0%.
• Given the current share price of $1.56, the analyst price target of $2.12 is 26.6% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.