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Lazare Kaplan 3Q Sales -49%, Loss Tops $3M

15 april 2009

Net sales at Lazare Kaplan International during its fiscal third quarter, which ended February 28, 2009, fell 49 percent to $42.2 million. Polished diamond revenue fell 53 percent to $18 million. The drop reflected lower sales of both branded diamonds and fine cut commercial diamonds, the company stated. "Polished diamond sales have been significantly impacted by the worsening economic conditions [and] the reluctance of customers to take inventory positions in response to liquidity concerns," according to Lazare Kaplan. Rough sales were down 45 percent to $24.2 million, a decrease that primarily reflected reduced sourcing activities, as the company sought to preserve liquidity and declined to purchase rough diamonds that it considered overpriced. Lazare Kaplan reported a net loss of $3.5 million for the quarter, down from profits of $3.3 million one year ago.
Gross margin on net polished sales in the quarter stood at 5.8 percent compared with 14.7 percent one year ago. "The decline in gross margin reflects the liquidation of slower moving diamonds and diamond jewelry items at reduced prices, the expensing of unabsorbed manufacturing overhead." Gross margin on rough diamonds was 3 percent, down from 6.1 percent one year ago. This decrease in rough gross margin reflected trading losses that were incurred as falling demand resulted in lower prices for rough, and the expensing of unabsorbed sourcing costs from the company's informal sector rough buying operation.
Lazare Kaplan reported a loss of about $700,000 from its equity in joint ventures, which was down from income of $2.3 million one year ago. The reduced joint venture earnings primarily reflected "lower levels of operating activity attributable to the effects of the global economic downturn in the diamond industry."
Leon Tempelsman, president of Lazare Kaplan, said, "Diamond and diamond jewelry purchases are heavily dependent on the availability of consumer discretionary spending. It is difficult to predict when these conditions on the demand side will improve. While rough diamond producers are heavily cutting back on mining production, which reduces available supply, the company considers it wiser to continue to manage for cash flow by cutting expenses and reducing manufacturing intake until the market establishes a new rough to polished pricing equilibrium. At the same time, management is examining and pursuing several new opportunities stemming from this environment."
The company provided $11.3 million of cash flow from operations for the nine months that ended February 28, 2009, as compared with $31.1 million generated in the previous year.