Analyst Oliver Chen of TD Cowen reiterated a Hold rating on Brilliant Earth Group (BRLT – Research Report), with a price target of $3.40.
Oliver Chen has given his Hold rating due to a combination of factors that affect the financial outlook and growth potential of Brilliant Earth Group (BRLT). While he acknowledges the company’s digital-first and asset-light strategy as well as its relevance to the Generation Z demographic, he expresses concerns regarding the sustainability of the company’s elevated gross margins. Additionally, the anticipated costs associated with store growth and marketing could potentially pressure the EBITDA margins. Chen points out that the current market expectations for approximately 7% EBITDA margins in FY24 might be too optimistic compared to the 5% in the current year, and he emphasizes the need for clearer catalysts that would demonstrate a path to achieving BRLT’s long-term EBITDA margin targets of 15-20%.
Furthermore, Chen cites the need for more substantial evidence to convince investors of the company’s ability to meet management’s long-term growth targets, which include high net sales growth and significant EBITDA margins. He suggests that incremental data points, such as insights into product mix trends, the penetration of lab-grown versus natural products, and the impact of physical showroom growth on marketing expenses, could provide the necessary assurance. Despite the reasonable valuation at 0.5x FY2 EV/S, Chen prefers to adopt a cautious stance, downgrading the price target to $3.40 and shifting to a Market Perform rating. He recognizes the potential for an industry-wide engagement cycle rebound but remains wary of the macroeconomic pressures on discretionary spending and the need for the company to focus on opening price points and value to gain market share in a fragmented industry.
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Brilliant Earth Group (BRLT) Company Description:
Brilliant Earth Group Inc is an innovative, digital-first jewelry company. It offers exclusive designs with superior craftsmanship and supply chain transparency, delivered to customers through a highly personalized omnichannel experience. It focuses on one operating and reporting segment which is retail sale of diamonds, gemstones and jewelry.
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