Happy Sunday Friends,
Amidst all of the de-spac Bankruptcies, liquidity issues, and frauds, it's been hard for investors to pinpoint strong, established businesses that deliver consistent returns. In fact, only a handful of companies in the three years since SPACs became a popular vehicle retained or saw their valuation increase. So it's good to see businesses like jewelry wholesaler Quality Gold to debut through a SPAC deal.
The company ticks all the boxes for a desirable business, including a family-run business with a strong track record, consistent financial growth over four decades, and a successful track record for generating profits no matter which phase of the economic cycle. The only question is, can Quality Gold beat the SPAC curse and deliver value to potential shareholders?
Quality Gold isn't your average De-SPAC. In fact, the jewelry wholesaler, founded in 1979, has deep roots when pitted against most companies that go public through a spac merger. Quality Gold is a family business, one that was founded by David Langhammer and is now being run by his sons, Michael and Jason. The company has continued to grow consistently in a challenging and highly fragmented jewelry industry, largely through a successful acquisition strategy that has improved access, distribution, and logistics for the fastest-growing markets.
To truly understand Quality Gold's growth over the years, it is important to look at the figures. In 2022, the company delivered 1.5 million orders to a large diversified customer base (the company says it has over 15,000 customers from independent jewelry stores to chains) across the US, Europe, and India, generating more than half a billion in revenues.
At any one time, Quality Gold has 165,000 SKUs through its subsidiaries, but it can ship out 90% of its products on the same day to customers. The secret to its success is its diversified network of global suppliers, which can lead to lower costs and reliable delivery. Quality Gold works with over 400+ vendors across 19 countries to source its raw materials while having in-house production in Ohio (United States), Mumbai (Asia), and Peru.
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Fragmentation Leads to Consolidation
Quality Gold has seen its revenues grow consistently over the last fifteen years, from $80 million in 2008 to $534 million in 2022. Part of the company's growth and success stems from its accretive acquisition strategy. The US jewelry industry is massive, valued at 69.3 billion, growing 10% from the previous year. Despite its sheer scale, the industry is largely fragmented, with no true clear winner either in retail or wholesale. The top 20 jewelry brands account for less than 9% of the broader market.
While there are over 19,875 jewelry stores in the United States, 65% of these stores are independent mom-and-pop locations with limited procurement and distribution capabilities. Quality Gold specifically works with these independent retailers and, in some cases, acquires them to improve its capabilities.
Since 2012, the company has acquired twelve companies, such as MTM, LogoArt, and Steckbeck Jewellery, which has helped complement its business by improving its diamond production, gold finishing, increasing shipping capacity, and expanding access to international markets.
Financials and Valuation
As mentioned before, Quality Gold has a successful track record of growing its business while displaying resilience through recessions (the great financial crisis in 2007-2009) and seeing periods of high growth (between 2016-2022). This is despite the fact that gold and silver prices have largely remained the same over the last decade (prices have only gone up by 10%).
This is thanks in part to the company's buy and scale strategy, which has outpaced revenues in recent years. In fact, revenues from acquisitions now account for 46% of all revenues ($246 million) and have been growing at a CAGR of 26%. Yet still, there are other areas where the acquisition has paid off, including bringing down production and distribution costs.
This has led to an improvement of 480 basis points in the EBITDA, resulting in the company reporting $81.6 million in operating profits, compared to $17.3 million in 2017.
Source: This Deal is The Gold Standard