Q2 2023 Brilliant Earth Group Inc Earnings Call

Participants

Beth Tanara Gerstein; CEO & Director; Brilliant Earth Group, Inc.

Chuenhong Kuo; CFO; Brilliant Earth Group, Inc.

Amanda Kristen Douglas; Analyst; JPMorgan Chase & Co, Research Division

Dylan Douglas Carden; Analyst; William Blair & Company L.L.C., Research Division

Edward James Yruma; MD & Senior Research Analyst; Piper Sandler & Co., Research Division

Noah Seth Zatzkin; VP & Equity Research Analyst; KeyBanc Capital Markets Inc., Research Division

Oliver Chen; MD & Senior Equity Research Analyst; TD Cowen, Research Division

Unidentified Analyst

Allison C. Malkin; Senior MD; ICR, LLC

Presentation

Operator

Thank you for standing by, and welcome to the Brilliant Earth Second Quarter 2023 Earnings Conference Call. (Operator Instructions)

As a reminder, today's program is being recorded.

And now I'd like to introduce your host for today's program, Allison Malkin, of ICR.

Allison C. Malkin

Thank you. Good afternoon, everyone, and thank you for joining us for our second quarter Fiscal Year 2023 Earnings Conference Call. Joining me today are Beth Gerstein, our Chief Executive Officer; and Jeff Kuo, our Chief Financial Officer. For our call today, Beth will begin with highlights of our second quarter financial and operational performance and update the progress we have made on our strategic priorities. Jeff will follow with more details on the quarter and share our outlook. Following this, we will hold a Q&A session with our presenters, Beth and Jeff, available to answer the questions you have for us today.

Before we start, I would like to remind you that management will make certain remarks today that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to our SEC filings for a description of the risks that could cause our actual performance and the results to differ materially from those expressed or implied in these forward-looking statements. These forward-looking statements reflect our opinion only as of the date of this call, and we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events unless required by law.

Also, during this call we will discuss both GAAP and non-GAAP financial measures. You will find additional information regarding these GAAP financial measures and a reconciliation of these GAAP to non-GAAP measures in today's earnings release, which is available at the Investor Relations section of our website, at investors.brilliantearth.com.

A live broadcast of this call is also available at the Investor Relations section of our website.

And with that, I'll turn the call over to Beth.

Beth Tanara Gerstein

Good afternoon, and thank you for joining us today. We are pleased to share our second quarter results, which met and, in many instances, exceeded the expectations we set at the start of the fiscal year, including growth in revenue, further expansion in gross margin and ongoing profitability. Our performance continues to demonstrate the increasing resonance of our brand, the agility with which we execute and the advantages of our asset-light data-driven operating model.

The quarter saw us grow share in the highly fragmented $300 billion global fine jewelry market as we advance our mission to disrupt and transform the jewelry industry and to extend our lead as THE jeweler for today's consumer. We begin the second half of the year with positive momentum, and we believe we are in a great position to deliver on our goals for the full fiscal year. I would like to thank our incredible team for their dedication and hard work to drive another strong quarter.

I'll start with some highlights of our quarterly performance and update you on the progress we're making on our key priorities. For the second quarter, revenue was $110.2 million, increasing 1% from the prior year quarter, with a 23% growth on a 4-year CAGR basis.

Gross margin was 57.6%, an expansion of 450 basis points compared to Q2 2022, reflecting the strong resonance of our brand and proprietary products, enhancements to our price optimization engine and continued discipline in managing procurement efficiencies as well as benefits from our enhanced extended warranty program.

Adjusted EBITDA was $7.7 million, or a 7% adjusted EBITDA margin, reflecting our continued focus on balancing profitability and investing in support of our long-term growth.

During the quarter, we made strong progress on our key priorities, namely: to build our brand awareness; to expand and refine our distinctive high-quality product offerings; to expand and elevate a seamless omnichannel experience across our showrooms and e-commerce; and to invest in the technology and systems that enable our growth.

Starting with our brand. As a digitally native company, leading in social continues to be an important avenue for building and expanding our brand through both awareness and engagement. During Q2, our social-first campaigns on Earth Day and Mother's Day were good examples of how we are building even deeper and more impactful connections with our core millennial and Gen Z consumers.

By creating compelling and resonant brand and product stories, we saw order growth across fine jewelry and bridal, and we delivered our best Mother's Day gifting period in our history. Speaking of bridal, we continue to drive order growth in this business.

In addition to the always powerful word-of-mouth that Brilliant Earth inspires, we are growing our customer base by building a strong and compelling presence across social media. Recently, we benefited from influencers Dean and Caelynn of Bachelor fame as they shared content featuring their Brilliant Earth engagement ring as well as actor and TV personality Corey Brooks, who shared his experience shopping for wedding rings with Brilliant Earth.

These efforts generate meaningful engagement with our audience. In fact, Dean and Caelynn drove more than 1 million views on social. These are just a few of many social and influencer activations that helped to deliver another quarter of sequential increase in media impressions.

As we continue to invest in building ever-stronger brand equity, we are pleased to find both new and existing customers seeking out Brilliant Earth for our proprietary trend-leading Signature styles. These styles, which extend across both bridal and fine jewelry, are increasingly becoming must-have styles of the season. In Q2, we expanded our Signature collections, with new engagement rings and wedding rings and fine jewelry. These Signature proprietary collections are outperforming within the assortments in both bookings and productivity. This is a great example of how we are building proprietary, differentiated, highly curated products across the breadth of our assortment.

This quarter also marked the expansion of our quick-ship assortment, with ready-to-ship engagement rings, a convenient option for customers alongside our already strong Create Your Own product offering.

Over the past several quarters, we've talked a lot about the trends we're seeing in consumer demand across bridal. As I said last quarter, we entered the year anticipating a degree of normalization in weddings, and we've continued to see that play out. During Q2, we drove growth in the sub-$10,000 price range, and we continue to capture market share as our brand demonstrates ongoing resonance with our millennial and Gen Z audience.

During Q2, as we entered the ever-popular summer wedding season, we saw double-digit growth in wedding bands, even as we comped a very strong quarter last year. We saw particular strength in men's wedding rings, demonstrating that our brand resonates across genders.

Turning to fine jewelry, which, as you know, is an important and relatively new category for us, we're continuing to demonstrate strong growth. We're seizing the opportunity to attract new and repeat customers with our thoughtful balance of both classic and on-trend jewelry. Our distinctive and high-quality personalized jewelry, such as nameplate necklaces, have been some of our best sellers, alongside reversible hoop earrings, wrap rings and layering novelty and accented chains.

Finally, shifting to our omnichannel experiences. We opened 4 new showrooms in the second quarter: in Pasadena, Nashville, Fairfax and a second location in Chicago. Year-to-date, we have opened 8 locations and plan to finish the year with at least 35. We continue to test, learn and refine our showroom experiences, and we'll soon open our first indoor mall-based showroom in King of Prussia, Pennsylvania, the first of 3 indoor mall showrooms that will open soon. Several of our recent openings further extend our reach in major metro markets, like Los Angeles, Chicago and Washington, D.C., in which we now have multiple locations and are realizing strong results.

We're excited to test and learn from our showroom expansion as we work to continually refine and optimize our existing fleet. As we do that, you can expect that we will focus on elevating our brand experience to build upon what we believe is a best-in-class joyful and premium experience. We know that today's consumers expect a seamless experience across any brand's digital and physical platforms. Our ability to deliver an ever-evolving, integrated, omnichannel experience is core to what makes Brilliant Earth special.

Also core to our company is our track record of leadership and innovation. As a mission-driven company, we place sustainability, transparency and inclusivity at the center of everything we do. Last week, we again demonstrated our leadership by launching 2 new collections that highlight the heart of our mission: the Capture collection, an extensive collection of planet-first lab diamonds grown using carbon captured before it can be released into the atmosphere; and the Renewable collection, featuring lab diamonds manufactured with 100% renewable energy. It's a new era for our industry, and we're very proud to lead it.

Finally, before I turn the call over to Jeff, I want to introduce a new member of our team. Stefanie Layton has recently joined the company as our Senior Vice President of Investor Relations. She comes to Brilliant Earth with significant investor relations and ESG experience, most recently from Offerpad. We are thrilled to have her join Brilliant Earth as we aim to build a best-in-class investor relations program. Stefanie will be a valuable resource for the investment community, and we're looking forward to you getting to know her in the coming months.

Here's Jeff.

Chuenhong Kuo

Thanks, Beth, and good afternoon, everyone. Thank you for joining us today to discuss our second quarter Fiscal 2023 results.

As Beth mentioned, we're pleased to report a quarter that was in line with our top line expectations and that exceeded our expectations for profitability. We also continue to generate benefits from our asset-light operating model, maintaining our strong inventory turns and cash flow. Let me take you through the results.

Revenue of $110.2 million represented a 1% increase year-over-year and growth of 23% on a 4-year CAGR basis. This result is consistent with our expectation of continued strong year-over-year order growth, which for the quarter rose approximately 21%, offset by a decline in AOV, which was down approximately 16%.

Q2 gross margin was 57.6%, exceeding our expectations. This 450-basis point expansion year-over-year reflects the strength of our brand, our differentiated product offerings and enhancements to our pricing algorithm that have shown promising initial results and which we plan to continue refining in upcoming quarters. Our gross margin expansion also reflects our ongoing rigor and discipline in managing procurement efficiencies and benefits from our enhanced extended warranty program.

SG&A was 56.4% of revenue, compared to 47.9% of revenue in Q2 2022, with approximately 220 basis points of the change driven by expenses that are added back in our presentation of adjusted EBITDA, such as equity-based compensation, showroom preopening expenses, depreciation and amortization, a charitable contribution and other nonrecurring expenses. The remaining approximately 630 basis points of growth reflected our continued investment in the Brilliant Earth brand while expanding our omnichannel reach and scaling the business.

Q2 marketing costs as a percentage of revenue grew by approximately 470 basis points year-over-year. We have been gaining market share, and as a growth company, we intend to be opportunistic in making marketing investments to continue building awareness of our brand and capturing share gains, while keeping a keen eye on profitability.

As we have seen higher-than-expected gross margin, we have invested some of this margin to amplify our share gains and drive long-term growth, while still achieving an adjusted EBITDA that exceeded our expectations. Our ongoing investments in building our brand continue to pay off in terms of growing awareness and demand for Brilliant Earth.

We are pleased to see results from our ongoing disciplined efforts in OpEx management, as we have progressively reduced our year-over-year deleverage in both employee costs and other G&A in each of the past 4 quarters. For the second quarter, employee costs were higher by approximately 110 basis points year-over-year, reflecting additional showroom employee costs and selective investments in key corporate hires. Other G&A, as a percentage of sales, increased by approximately 50 basis points year-over-year during the second quarter, as we continue to maintain a disciplined focus on management of G&A expenses.

We delivered a Q2 adjusted EBITDA of $7.7 million, or a 7% adjusted EBITDA margin, which exceeded our expectations, driven by our strong gross margin performance, balanced by our diligent management of OpEx. Our profitability and capital-efficient operating model continue to differentiate us among direct-to-consumer companies.

We ended Q2 with approximately $150 million in cash, an increase of more than $3 million compared to Q1 2023. We continue to maintain a strong balance sheet with no net debt. In addition, we operate the business in an asset-light fashion with efficient working capital, and our inventory turns are among the highest in the industry.

As I mentioned last quarter, our inventory model continues to evolve as we expand fine jewelry to be a larger part of our business and grow our showroom footprint. However, we expect to continue tightly managing our inventory turns through our data-driven approach and leveraging our strategic relationships with vendors, which allows us to have a vast assortment of products to meet customer needs while limiting the expansion of our balance sheet inventory. We are also able to dynamically rebalance inventory across our showrooms to maintain efficient inventory levels.

These efforts continue to pay off, as we have reduced inventory levels since Q3 of last year even as we have significantly expanded our showroom count and driven strong growth in fine jewelry.

Our plans for 2023 reflect the priorities as outlined earlier, coupled with our clear and focused commitment to delivering profitable growth. We've reiterated our annual top line guidance, which reflects our ability to continue to gain share in a dynamic macro environment. Our guidance continues to be for full year 2023 net sales in the range of $460 million to $490 million, which represents 5% to 11% growth versus Fiscal Year 2022, a 4-year CAGR of 23% to 25% and a 4-year stacked growth of 128% to 143%.

As we've mentioned, we anticipate higher year-over-year revenue growth rates in the second half of the year as we lap lower comparative growth rates from the prior year and continue to see success in our showrooms and the performance of our fine jewelry assortment.

Similar to our comments during the last earnings call, we expect the distribution of revenue in the remaining 2 quarters of 2023 to be generally consistent with the shape of these quarters in 2021, with a slightly higher weighting towards Q4 driven by the opening and maturation of new showrooms and the fact that Q4 is seasonally the biggest quarter for fine jewelry.

We also expect to continue driving strong gross margin performance. We expect our second half gross margin percentage to be in a similar range as our first half gross margin percentage as we continue building our brand, refining the recent enhancements to our price optimization engine and continue our focus on disciplined cost management.

We expect to reinvest a portion of the gross margin gains in both Q3 and Q4 in SG&A, including marketing to further build brand awareness and position us for success during the holiday season.

We expect to continue driving profitability this year as we focus on driving sustainable, profitable growth. We have increased our full year adjusted EBITDA guidance to $22 million to $35 million, or an adjusted EBITDA margin of 5% to 7%, and we plan to exit the year driving leverage on a run-rate basis in adjusted EBITDA. This reflects a balanced approach of continued prudent investments to gain market share while managing the business for profitability.

In closing, on behalf of Beth, myself and our entire team, we thank you for your support, and we'll be happy to answer your questions.

Question and Answer Session

Operator

(Operator Instructions) And our first question comes from the line of Edward Yruma, from Piper Sandler.

Edward James Yruma

I guess, first, on the indoor mall showrooms, I know you historically have tried to kind of get lower-rent, lower-traffic locations. I guess, kind of how do the economics potentially differ here?

And then I know you guys had the call-out on the kind of maybe softness or implied softness of over-$10,000 engagement. Is this just the customer trading down? Or are there some other dynamics happening at the more premium price point?

Beth Tanara Gerstein

Ed, thanks so much for the question. I can start off with the indoor mall showroom. As we think about the overall ROI that we looked at for the indoor mall showroom, we thought the financials were also very attractive. And while it is somewhat of a departure from our original offering, which is upper floor, appointment-driven, even as we've gone on to see other ground formats we've seen really compelling economics. And we think that this is going to give us a chance really to launch in some of the best malls in the country and help to see some of the other benefits in terms of driving awareness, while still seeing very compelling economics and still offering a really premium customer experience.

So I think, overall, we're still in a test-and-learn approach. But in these markets, this is really where the customers are shopping. So we feel good that the customer data supports us going into the mall. Our adjacencies support it. Our demographic data supports it. So we have, I think, good expectations for what's going to materialize there.

As it relates to the $10,000-plus customer, I think we haven't seen a real change there in terms of continued moderation in that $10,000-plus. I think, though, one of the things that we're really pleased with is as we look at the aggregate demand under $10,000, we've seen some nice improved growth there. And I think this just goes to the strength of our product offering. We have compelling product offering across a variety of price points. So we're really able to meet demand where we see it. And that's one of the things that distinguishes us.

Operator

Our next question comes from the line of Noah Zatzkin, from KeyBanc Capital Markets.

Noah Seth Zatzkin

Obviously, gross margin came in quite a bit stronger than expectations this quarter. And when we think about the long-term mid-50%'s target as it relates to the performance this quarter, like, has anything structurally changed there? Or do you think that mid-50%'s kind of level is still the right way to think about gross margins, going forward?

Chuenhong Kuo

Thanks, Noah. So we're pleased with our gross margin performance from Q2. And I think this reflects a number of different things, including the strength of our brand and our differentiated products, some technology enhancements to our price optimization engine, continued procurement efficiencies as well as our enhanced extended warranty program. So we continue to drive strong performance there.

And we are still in the process of refining some of these enhancements to the price optimization engine. And so we'll be reviewing longer-term targets as we prepare our 2024 guidance. And as we mentioned during our remarks, we expect that H2 gross margins will be in a similar range as H1 gross margins.

Noah Seth Zatzkin

Very helpful. And you talked a little bit about the phasing of revenue between 3Q and 4Q. Just wondering if you could share any color on the OpEx line as well.

Chuenhong Kuo

Okay. Sure. So first, I can talk through the phasing of revenue and then as well OpEx. So as mentioned during my remarks and similar to what we've discussed in the past, we do expect the distribution of revenue in the remaining 2 quarters of 2023 to be generally consistent with the shape of those quarters in 2021, with a slightly higher weighting towards Q4.

And we're really excited about our preparation and positioning for a successful Q4. We have a number of compelling new upcoming product launches. We continue to open new showrooms, including our first 3 indoor mall locations, and continue to see strong showroom performance. So that will be a nice benefit going into Q4.

Our outperformance in fine jewelry is very heartening, coupled with the fact that Q4 is seasonally the most important quarter for fine jewelry.

We're also planning on launching some of our biggest brand-building campaigns in our history in Q4 as we continue investing in the long-term growth of our business.

And I think one other thing that we keep in mind is that we do have lower comps in Q4 of 2022, and we do expect normalization of bridal growth rates towards the end of the year.

So in terms of how that shakes out in terms of the revenue shape for Q3 and Q4, we think about that as starting from H2 2021 and what's the percentage distribution between Q3 and Q4 among the second half, and then would expect an additional about $5 million move from Q3 to Q4, reflecting this slight shift towards Q4.

And then in terms of some of the OpEx, we do see compelling opportunities to make investments in SG&A to drive growth, drive long-term brand awareness, set ourselves up for a successful Q4. So we do expect to be investing some of the incremental gross margin in SG&A in both Q3 and Q4, while still managing the business to overall profitability and the increased EBITDA guidance -- adjusted EBITDA guidance that we provided.

Operator

And our next question comes from the line of Rick Patel, from Raymond James.

Unidentified Analyst

This is Josh filling in for Rick. I was wondering if you could update us on what you see going on with the precious metals and diamond prices in the market and how is this really impacting average selling prices?

Beth Tanara Gerstein

Sure, Josh. Nice to have you on the call. So seeing some of the input price changes is just something that we've navigated really from the beginning of our history. And I think we've developed a lot of internal capabilities in terms of being able to adjust our pricing dynamically based on the input costs that we see really to optimize on margin.

The other, I think, benefit that we have is the fact that we're inventory-light. And so we don't really carry a lot of the inventory on our balance sheet. We have a virtual inventory model as well as make-to-order. And so as you see fluctuations relating to both metal and diamond prices, we can adapt dynamically and we don't have a lot of capital invested in those inputs.

So overall, we're going to see fluctuations over time. I think we are at a competitive advantage overall. And the main drivers in terms of ASP are really some of that moderation above $10,000, like what we said before, the fact that we're seeing more aggregate demand under $10,000 as well as some of the acceleration that we've seen with fine jewelry.

Keep in mind that the Mother's Day gifting period is the second most important holiday for fine jewelry, after Christmas. And I think we did a really great job capitalizing on the holiday. We had some really strong Mother's Day campaigns. We had a really compelling product assortment with Signature offerings.

And all of that, I think, resulted in the overall ASP that we resulted in, and I think that's just a consequence of the strategic efforts that we've really been focused on.

Operator

And our next question comes from the line of Dylan Carden, from William Blair.

Dylan Douglas Carden

Just curious, I'm kind of looking at the cadence just for the first half and what's implied in the guidance, do you feel either philosophically or just where the model is at this point that you're in a position to actually flow through more of the gross margin upside all the way down at this point?

Beth Tanara Gerstein

I think that -- I can start that, Jeff, and maybe that's something that you can follow with. I think that as we've seen outperformance in gross margin, we've had a really strong opportunity to reinvest in brand-building efforts, and those brand-building efforts have seen some great success. We actually just had a launch yesterday with a designer, Logan Hollowell, that saw really great response. It was a fine jewelry collection that's nature-inspired, just very beautiful. We actually just got from People magazine that we are the #1 brand to shop right now for fashion launches.

So that's just a great example of how we think about brand-building campaigns that drive relevance and resonance with our millennial and Gen Z audience and overall, like, think about how do we position the brand for the long term.

So the marketing efforts that we are reinvesting in, we're driving engagement. We're driving, I think, awareness overall. And we've also seen, I think, some good results from that, that have given us reason to reinvest.

While we're investing in brand building, we're also maintaining strong marketing efficiency overall. And as Jeff pointed out, we are raising our overall EBITDA guidance for the year. So we are still able to capture some of those profits.

Dylan Douglas Carden

Would the idea then, though, be that, I mean, at some point will you sort of keep investing with that in mind, sort of on a 1-for-1, or more or less 1-for-1, basis, gross margin profit sort of flows into brand building? At some point, you would think that you would want to reap some of the benefits of those efforts, right?

Beth Tanara Gerstein

Well, I think we are reaping some of the benefits by increasing the overall guidance for adjusted EBITDA. That's showing you that we are actually taking some of those profits. But as we see opportunity to invest in the brand and we're seeing strong ROI, we're going to continue to take that balanced approach.

Dylan Douglas Carden

Got you. And the other bit, just on the new store in Chicago, how you're thinking about kind of urban area density and sort of your longer-term store targets. Do you think is there sort of -- those stores are relatively close to one another. Are you seeing much by way of cannibalization? Or do you think you maybe have more opportunities to kind of infill some locations in some of your older markets?

Beth Tanara Gerstein

We're still pretty early in the journey in terms of having a multiple-showroom cluster for a metro market. I think we've been really excited about the performance we've seen so far, but just recognizing it's pretty early. Fulton Market launched just a few months ago. So I think we're still getting data in. But some of the early results that we've seen are promising. And I think it is a real opportunity for us to think about having multiple showrooms within a metro, and we already have several in the D.C. area, we have several in Southern California, and we're seeing strong results there. So we're still in a test-and-learn phase overall. But so far, I think we've been pleased.

Dylan Douglas Carden

And then last one, just on sort of the dynamic between AOV and orders, really impressive, strong, nice-to-see order growth. AOV has been something that as you switch into fine is naturally going to decline. Is part of the AOV decline, though, that sort of weakness in the higher, $10,000-and-above price point? Or is there anything else kind of going on there? Is AOV, in part, driving some of the order growth? I guess, just trying to understand those 2 metrics.

Beth Tanara Gerstein

Sure. I would say that what we've seen in that $10,000-plus price point is pretty consistent actually with what we've seen in the past. I think it's more, frankly, the fact that underneath, in that lower price point under $10,000, that we're seeing growth that's been accelerating. So I think that's actually a positive for the company overall. But I wouldn't say that this is a new trend in the $10,000-plus. I think there's just still continued pressure in that customer, and I think that's been reported more widely.

Dylan Douglas Carden

Got you. So more of a mix shift as per sort of what's been happening with the model as fine grows. Is that fair?

Beth Tanara Gerstein

Yes.

Operator

And our next question comes from the line of Oliver Chen, from TD Cowen.

Oliver Chen

Beth and Jeff, in the past what you've seen is a more considered consumer. I'm just curious about what's happening now with traffic relative to conversion and if there's volatility or more stabilization? And then, Jeff, you commented earlier on the engagement and wedding trends. Would just love your thoughts on what your guidance assumed for the overall industry as we think about this year as well as next and if there'll be a fair bit of volatility better than what you're seeing with the market.

Beth Tanara Gerstein

Thanks, Oliver. I can start in terms of just what we're seeing with some of the digital performance. And I would say we're seeing strong digital performance in terms of traffic and conversion. I wouldn't say there's anything in terms of a degradation that we've seen. We still see strong traffic to the site. I think it's converting quite well. And I think the omnichannel overall strategy is working with showrooms really, I think, being very synergistic with the digital channel.

Jeff, I don't know if you want to speak to kind of assumptions on bridal?

Chuenhong Kuo

Sure. So with respect to bridal trends, we are anticipating a return to a more normalization of industry growth rates towards the end of the year, and that's embedded in our guidance for 2023.

And how we think about this is also that we are consistently gaining share in the industry, and this is reflected in the strong brand awareness that we have, the strong order growth rates that we have. And so that normalization, the continued strength of the brand and traction with millennial and Gen Z customers are embedded in our guidance. We haven't yet provided a perspective on beyond 2023, but I think we are very well positioned for long-term growth, long-term share gains, as we're still early in the journey of a very large $300 billion industry.

Oliver Chen

Okay. And you've made a lot of great progress with fine and some really nice proof points. What will happen over time in terms of net working capital efficiency and your thoughts on what you may need to do to continue the momentum in that business? And also a key catalyst in categories -- indoor price points you're focused on with fine that make the most sense for you in these earlier innings?

Beth Tanara Gerstein

Jeff, do you want me to start on the -- I can start on the price points that we're focused on, and then maybe you can follow up on the...

Chuenhong Kuo

That sounds great.

Beth Tanara Gerstein

Okay. Great. So I would say we have a pretty fulsome offering across different price points, and this kind of goes to the overall philosophy of our company, which is we want to meet our customers where they are and be able to cater to their budget, since this is a category where people are shopping with budgets.

So as we see performance strength in certain price points, we're able to quickly increase our offerings and drive productivity in those price ranges. And that's just part of the data-driven model that we have, where we're constantly understanding our customer sales and we're able to introduce products very quickly and cater to that customer.

So I think it's actually -- you'll see strong offerings really from, I would say, $250 up to $10,000-plus. And as we see customers that are [in self-purchase], that tends to be a little bit under $1,000, and we have a really nice offering there. Gifting, we have, I think, a really compelling offering across the Diamond Basics as well as our more differentiated styles, which I think I mentioned in the call we're really excited that some of our Signature offerings are doing really well as it relates to both productivity and bookings.

So Jeff, why don't you talk a little on the net working capital efficiency?

Chuenhong Kuo

Sure. As I mentioned during my remarks, I think we do recognize that our inventory model will evolve as we expand in fine jewelry and that becomes a bigger part of our business. I think we do, however, really keep a really tight visibility and management of working capital with our data-driven approach toward how do we manage working capital efficiencies.

And I think a really compelling proof point is our inventory level between, for example, end of Q3 last year and end of Q2 this year, where we saw inventory actually go down between Q3 of last year and Q2 of this year. And this is despite the fact that we've been seeing outsize growth in fine jewelry and opening (inaudible) 10 new showrooms during that time.

And so I think that's very illustrative of how we're able to efficiently manage working capital even though the dynamics are changing, and we expect to continue that tight discipline, going forward.

Operator

(Operator Instructions) And our next question comes from the line of Matthew Boss, from JPMorgan.

Amanda Kristen Douglas

It's Amanda Douglas on for Matt. So Beth, could you elaborate on the positive momentum entering the second half of the year, as you cited in the release? And what do you believe is driving your recent market share gains as you look across product categories?

Beth Tanara Gerstein

Sure. So in terms of what's driving the recent market share, I think a lot of the initiatives, frankly, that we've been working on are showing strong results. So driving brand awareness, growing our showrooms, really leaning into fine jewelry. I think the fact that we have this differentiated product offering with highly curated styles. I think all of those are really what's driving our performance. The fact that we're leaning into some of these brand campaigns and seeing some really nice early results. All of that, I think, is what's creating some positive momentum for us.

I think, overall, I'm not sure that there's much more that I have to offer, other than the fact that we saw positive momentum exiting the quarter. And then throughout the quarter, we also saw that the momentum was building. So all of that, I think, showcases that a lot of the efforts that we've put in are really starting to work.

Amanda Kristen Douglas

That's helpful. And then to follow up on your long-term targets, it seems like marketing is the largest opportunity for leverage multiyear. I guess, is there a point in time or an inflection point where you believe marketing expenses could start to leverage? Or just how best to think about that timeline?

Beth Tanara Gerstein

Jeff, do you want to take that? Great.

Chuenhong Kuo

Be glad to take that. So I think we think about our investments in marketing in the lens of driving towards overall long-term sustainable profitable growth, balanced by looking at efficiencies in the marketing spend, as Beth has mentioned. And we do see compelling opportunities to invest to gain share, because we are still early in the journey. We're a growth company. It's a very large and fragmented industry, where we do see a lot of compelling long-term opportunities.

So that's one lens that we use in terms of thinking about those investments, balanced by our management of the business to profitability and managing to, for example, being able to increase our guidance for the year for adjusted EBITDA. So it's really a balanced approach of how we think about that.

In terms of sources of leverage, we do see as we open showrooms and we continue to come up the maturation curve, we see a compelling uplift in ability to drive accretive customer acquisition economics there. The growth of the brand is another area where we see opportunities to drive leverage.

So I think there are areas of the business where we see strong results, and we're balancing driving growth in the long term with profitability.

Operator

Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Beth Gerstein for any further remarks.

Beth Tanara Gerstein

Thank you, everyone, for joining our second quarter Fiscal 2023 earnings call. We look forward to talking to you next quarter.

Operator

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.