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Rapaport TradeWire August 1, 2014
Jul 31, 2014 6:00 PM
By Rapaport
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Rapaport Weekly Market Comment
Aug. 1, 2014
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TRADE NOTICE: The Rapaport Price List will be based on the new “Rapaport Specification A-” effective next week August 8, 2014. Full details of all new specifications are available at diamonds.net/rapspec. Comments from the trade should be emailed rapspec@diamonds.net by Wednesday, August 6 for immediate consideration. The Rapaport Price List will exclude price information for Marange and green-tinted diamonds. RapNet members will now be required to remove all non-fancy color, green-tinted diamonds from RapNet regardless of origin. Members that list green-tinted or Marange diamonds on RapNet will be subject to suspension and publication.
Trading: NY jewelry shows slow. Market sentiment improves with rising U.S. consumer confidence as 2Q GDP +4%. Steady U.S. and Far East demand for commercial-quality below 1ct., SI-I2, G-M diamonds. Rough markets stable with seasonal Indian demand for pre-Diwali manufacturing. De Beers 1H rough sales +15% to $3.5B, earnings +59% to $469M, prices +7%. Petra FY revenue +17% to $473M, production +17% to 3.1M cts. Letšeng 1H sales +14% to $54M, average price +58% to $2,747/ct. Birks FY revenue -4% to $281M, loss of $5.8M vs. profit of $1.5M. Kering 1H jewelry group sales +5% to $4B. Cash America 2Q revenue +11% to $455M, profit -17% to $21M.
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RapNet Data: July 31
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| Diamonds |
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1,184,287 |
| Value |
$7,509,141,572 |
| Carats |
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1,306,122 |
| Average Discount |
-26.91% |
www.rapnet.com
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Get Current Price List | Subscribe to Rapaport | Join RapNet |
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QUOTE OF THE WEEK
Jeweler Kendra Scott's compelling omnichannel business model, commitment to customer experience and a strong management team make for a powerful combination. Norwest Venture Partners is completely aligned with the company's long-term approach.
Robert Arditi | Norwest Venture Partners
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Careers@Rapaport
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The Rapaport Group is growing rapidly. If you wish to work with the best and brightest, join us. We have great opportunities for trading managers, gemologists, sales assistants and entry-level positions for our offices in New York, Antwerp and Mumbai. View jobs now.
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INDUSTRY
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De Beers Profit +59%
Anglo American's group underlying earnings rose 3% to $1.284 billion for the first half that ended on June 30 and De Beers contribution of $469 million reflected an increase of 59%. De Beers revenue rose 15% year on year to $3.823 billion in the first half, which was the highest segment total of Anglo's business units. Rough diamond sales jumped 15% to $3.5 billion.
De Beers recorded an underlying operating profit of $765 million, representing an increase of 34% from 2013 due to stronger diamond demand across key markets, resulting in revenue growth, coupled with favorable exchange rates. De Beers production rose 12% year on year to 16 million carats with strong performance by Debswana and the South African operations. Production targets for 2014 were increased just slightly to between 31 million and 32 million carats, up from a previous prediction of between 30 million carats and 32 million carats.
Diamond brand Forevermark continues to expand globally, particularly in the core markets of China, Japan, India and the U.S. In May, Forevermark was launched in Turkey and, in July, plans were announced to make the brand available in the U.K. and Ireland. The brand is now available in more than 1,400 authorized jewelry stores in 29 countries, an increase of more than 30% at the same point in 2013. De Beers Jewellers recorded "healthy" same-store sales growth during the first half, according to Anglo, but it declined to provide an exact figure.
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Slower Trade Marks JA NY Show
The JA New York Summer Show was better for jewelry designers than it was for loose stone dealers. Overall, exhibitors reported much weaker traffic than usual and retailers were primarily shopping for one-of-a-kind pieces and unique collections that will spark consumer interest.
Diamond wholesaler Krishna Vedawala of Diacenter Inc. attributed the lack of buyers to the overall change in how they shop, saying more buyers turn to online services, such as RapNet. Fifteen years ago, "people didn't have as many tools to compare prices as they do now. They are more hesitant to buy right away at these shows. It's easier to shop around online for the right product," Vedawala said.
Nonetheless, A. Jaffe reported "a good response" from the show, according to Kate Smith, who cited new brand schemes as the main attraction at their exhibit space. Puja Bordia of Tresor added, "People are buying big pieces for the holidays. Our Origami collection and long necklaces from the Lente collection did particularly well."
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RETAIL & WHOLESALE
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Kering Reports Profit +7%, Acquires Ulysse Nardin
Kering's revenue rose 1.5% year on year to $6.4 billion (EUR 4.75 billion) for the first half of the year that ended on June 30. Revenue increased 4% based on comparable-exchange-rates. The luxury group segment, which includes Gucci, Boucheron, Bottega Veneta, Saint Laurent and others, experienced a sales increase of 4.9% to $4.3 billion, but comparable-store sales increased 5.7%. Kering's net income rose 7% to $248 million or EUR 1.47 per share; however, recurring net income from continuing operations fell 4.7% to $743 million.
Along with reporting its fiscal results, Kering announced that it signed an agreement to acquire Ulysse Nardin. The brand will become part of Kering's luxury, watches and jewelry division, which is headed by Albert Bensoussan. The transaction is subject to the approval of the competition authorities and is expected to complete during the second half of 2014.
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Cash America's Profit -17%
Cash America International Inc. reported that company profit fell 16.6% year on year to $20.97 million for the second quarter that ended on June 30, in large part due to $15 million in charges related to an early extinguishment of debt. Revenue for the second quarter rose 10.9% to $455.1 million, while net revenue, which is less the cost of merchandise sold and loan loss provision expenses, increased 13% to $275.9 million.
Cash America stated that strong revenue growth was observed from its ecommerce channel, where sales jumped 27% to $134.6 million during the quarter. The company’s retail services sector experienced a 3% increase in sales at $141.1 million as revenue from pawn loans jumped 11%. Same-store pawn loan balances across U.S. lending locations rose 4.5%.
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Birks Records Loss, Plans Consolidation
The Birks Group reported that revenue fell 4% year on year to $281.2 million for the fiscal year that ended on March 29. However, same-store sales rose 4% and the cost of sales was flat at $166.5 million. Birks recorded a loss of $5.8 million or 35 cents per share compared with profit of $1.5 million or 11 cents per share one year earlier.
Stronger comparable-store sales were driven by an increase in the average sale transaction, while the overall revenue decline was primarily the result of closing 10 retail locations over the past two years. Approximately $7.6 million in revenue was lost in currency translation due to a stronger dollar. The jeweler recorded inventory of $144.6 million as of March 29, an increase of 5.6%. Birks Group will consolidate most of its corporate administrative workforce from its regional office in Tamarac, Florida to its Montreal corporate head office. Restructuring costs are expected to be between $2 million and $4 million; however, annual savings will exceed the costs in the first full year after implementation.
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Norwest Backs Kendra Scott
Norwest Venture Partners invested in jeweler Kendra Scott as a minority stakeholder, further enabling the retailer to expand and increase the brand's reach. Kendra Scott, the founder and CEO of the company bearing her name, explained that by leveraging Norwest's strategic resources and experience in fashion, retail and ecommerce, she will accelerate company growth effort across. Scott targets opening 17 retail locations before the end of 2014.
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Investors Bank on BaubleBar
J. Christopher Burch’s Burch Creative Capital, Aspect Ventures, Triplepoint Ventures and Comcast Ventures, as well as existing investors Accel Partners and Greycroft Partners agreed to a $10 million "series B" round of financing for BaubleBar, a fashion jewelry firm based in New York City. Burch said he was impressed by BaubleBar’s growth and marketing strategy, having moved from a popup shop into traditional retail doors. He intends to mentor the founders as part of the funding deal. The investors also believe that the current fashion trend is moving toward minimalism, placing BaubleBar in a perfect position to grow its direct-to-consumer and wholesale businesses. Price points for BaubleBar merchandise is generally under $40.
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Equity Firm Acquires John Hardy
Private equity firm Catterton acquired designer jewelry brand John Hardy for an undisclosed sum. In addition, Robert Hanson was appointed as John Hardy's CEO. Hanson is a 25-year veteran of brand development in the retail space where he served as CEO of American Eagle Outfitters Inc. and global president of Levi's.
Damien Dernoncourt, who has served as John Hardy's CEO since 2007, will retain an equity stake in the brand and was named a non-executive chairman. Guy Bedarida will continue to serve as John Hardy's creative director and head designer and Miles Graham will continue to serve as president and chief operating officer.
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Stuller, Toscow Receive Trademarks
The U.S. Patent & Trademark Office (USPTO) granted the trademark "DayDream" for diamond jewelry to H.E. Murdock Co. Inc. of Maine on July 15 with registration number 4567790. Stuller Inc. was granted the trademark "Mystara Diamonds" on July 22 with registration number 4573707. Retailer Robbins Bros. Jewelry Inc. of California received the trademark "Yesterday. Today. Forever." on July 15 with registration number 4569189 for three-stone diamond rings and jewelry.
The USPTO issued the trademark "Ring of Fire" for diamond jewelry to Ambar Betzalel of California on July 15 with registration number 4566575. Genovese Jewelers Ltd. of Creve Coeur, Missouri received the trademark "Novia by Genovese Jewelers" on July 22 with registration number 4571570 for jewelry. Simon Golub & Sons Inc. of Washington received the trademark "Simon Golub" on July 22, with registration number 4571780.
Australia's government accepted the trademark "Imperial Australia" on May 5 on behalf of Toscow Pty. Ltd. Australia with the registration number 1549443 for the period April 3, 2013 through April 3, 2023.
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De Beers Debuts New Signature
De Beers introduced a new signature design for sightholders that aims reflect the central role they play in group activity. The new signature includes an "S" in a circle with a diamond icon in the middle and a De Beers Group of Companies signifier below, which was not present in the old logo.
"The signature stands for excellence, leadership and integrity in the diamond industry and signifies our joint commitment to excellence," explained David Johnson, the head of midstream communications for De Beers. Last week, De Beers updated the model for the allocation of rough diamonds by global sightholder sales for the March 2015 to March 2018 contractual period. Registrations of interest for the new contract period are set to open on August 25 through 28.
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Omnichannel Drives In Store Sales
L2 Think Tank found that 44% of luxury goods, including jewelry and watch purchases in the past year, were made in stores after shoppers were first influenced by what they found online. Only 4% of luxury goods were purchased through ecommerce. Jewelers that have not developed their omnichannel strategy and, thus, haven't placed their store inventory across the digital channel are missing a great sales opportunity, according to the group.
Digital influence for all product purchases is growing exponentially and L2 predicted that by this September in the U.S., more than half of all offline retail sales will have been influenced by the digital experience. Which retailers are "role models" for the omnichannel experience? L2 said, Saks, Guess, Walgreens and Walmart meet the challenge, with Coach, Gap, Neiman Marcus and Sephora narrowly missing out. These retail models balance online and offline investment, focus on consistency across all channels, offer strong mobile apps, consumer loyalty programs and facilitate dynamic data capture for example.
However, L2 noted that the luxury brands have a lot of catching up to do, as the jewelry and watch category scored lowest overall for integrating the digital and in store experience. L2 stated that to create (or improve) a strong omnichannel strategy, at least include all of the following capabilities: online purchase and in store pickup, real-time in store inventory, enable product filtering and store locator, personalized store promotions and booking appointments, shopper wishlists, allow preorders, offer exclusives as well as free shipping and expedited delivery.
Reasons why the omnichannel strategy may fail certain retailers include a poorly managed business model; difficulty integrating backend systems with new technology designs and the inability to share customer data across all platforms. Human problems included team conflicts, limited associate training and departments that can't break out of the silo mentality.
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Blommaert Joins Panama Exchange
The Panama Diamond Exchange appointed Dirk Blommaert as its business development director, a newly created role to advance the position of the Panama Gem & Jewelry Center worldwide. Blommaert will also promote the bourse across Latin America as the region's principal trading center for diamonds, colored gemstones and jewelry.
Blommaert is a 20-year veteran of the gemstone and jewelry business and led promotional efforts for the trade in Antwerp, Baselworld and the International Gem Tower in New York. More recently, he has focused on developing business-to-business events for Antwerp diamond companies under the umbrella of ACTYF, in developing diamond markets such as Brazil, Russia, China, Indonesia, Malaysia and Turkey.
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Saurashtra Workforce Grows
Diamond polishing work is beginning to shift to units outside of Surat that are located in the Saurashtra region of India -- in cities such as Rajkot, Amreli, Bhavnagar and Junagadh. Dinesh Navadia, the president of the Surat Diamond Association (SDA), noted that the trend is a positive development since the Uniform Wage Structure enables workers to earn the same anywhere. The shift does not diminish the importance of Surat, since it will maintain the core center of sorting rough, cleaning, polishing and grading. The diamond industry in Saurashtra contributes significantly to the annual turnover of polished diamonds, especially small and near gem-quality stones.
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Suit Alleges Silver Price Fixing
HSBC Holdings PLC, Deutsche Bank and the Bank of Nova Scotia face silver price-fixing allegations, according to a lawsuit filed in Washington state. The suit seeks class-action status and claimed that the banks established "positions in both physical silver and silver derivatives prior to the public release of silver fixing results, allowing them to reap large illegitimate profits." Silver was about 4.5% higher than one year ago at $20.45 per ounce at noon in New York on July 31. The metal's price extremes during this past year have been $24.52 and $18.76.
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MINING
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Petra's Revenue +17%
Petra Diamonds reported that revenue rose 17% year on year to $472.6 million during the fiscal year that ended on June 30 as production rose and rough prices firmed. The company sold 3,134,706 carats during the year, 23% more than one year ago. Two exceptional stones sold, a 126.40-carat white diamond from the Cullinan mine, which fetched $8.5 million, and a 29.60-carat blue diamond that sold for $25.6 million.
Group production rose 17% to 3.11 million carats, above the company's guidance of 3 million carats, due to an increased contribution from the company's Finsch, Williamson, Koffiefontein and Kimberley underground mines.
In other news, Petra's second-largest shareholder, Awal Bank BSC, placed 43 million shares with financial institutions for about $139 million, representing a 12% discount from the July 28 closing price. Awal Bank, which is owned by Saad Investments, still holds 17.8 million shares, 13.2 million of which are subject to a 90 day lock-up.
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Letseng's Revenue +14%
Gem Diamonds reported that rough diamond sales from the Letšeng mine in Lesotho rose 14% year on year to $53.8 million in the first half of 2014. The average price of the goods rose 58% mainly due to strong prices achieved from five tenders that were held for exceptional-quality diamonds.
The company sold 53,799 carats for an average price of $2,747 per carat during the period, compared with 47,065 carats selling for $1,741 per carat one year earlier. During the first half, 37 diamonds sold for over $1 million each, 77 stones achieved a value in excess of $20,000 per carat, while five stones sold for over $60,000 per carat. Additionally, a 162.02-carat diamond sold for $11.1 million or $68,687 per carat, a 161.31-carat stone fetched $2.4 million or $14,636 per carat and a 132.55-carat diamond sold for $7.5 million or $56,492 per carat.
Letšeng's production grew 29% year on year to 54,678 carats.
Gem Diamonds revised its full year guidance for Letšeng production to between 95,000 to 100,000 carats, compared with its previous guidance one year ago of up to 95,000 carats.
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Lace Tenders Achieve $910K
DiamondCorp sold 14,853 carats from its Lace mine for $909,611, during the first half of 2014. The company noted that demand for good-quality rough diamonds remains relatively strong, with prices rising between 5% and 10% since December.
During the second quarter, DiamondCorp recovered 6,102 carats from tailings, including a 15.20-carat, white, octahedral diamond.
DiamondCorp also revised its underground development plan and budget for Lace during the second quarter. The new plan will see the mine ramp up commercial production from underground mining at Lace's Upper K4 Block (UK4) by the first half of 2015, six months ahead of schedule, with an aim to achieve steady production of 30,000 tonnes per month by the second half of 2015.
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ZELA Calls for ZMDC Audit, Guidelines
The Zimbabwe Mining Development Corporation (ZMDC), which is under U.S. sanctions and controls all diamond mining in Zimbabwe, must value Marange diamond reserves to ensure full value, according to the Zimbabwe Environment Law Association (ZELA).
Analysis of ZMDC's financial results found that is solely relies on diamond revenue. Valuing diamond reserves would bring transparency and ZELA recommended that ZMDC conduct a full audit of its mining partners.
Other recommendations included, adopting transparency and accountability initiatives, setting guidelines on the distribution and sharing of diamond revenue and creating a monitoring program as required by the International Monetary Fund (IMF).
ZELA stated that Marange diamond revenue to ZMDC was $252,063,707 in 2011 and $272,259,401 in 2012, with Mbada Diamonds contributing the nearly half each year.
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Mountain Province Names Lenders
Mountain Province Diamonds Inc. selected three banking institutions to arrange and underwrite a senior secured term loan facility of up to $370 million to fund the company's share of construction costs at the Gahcho Kué diamond mine located in Canada's Northwest Territories. Mountain Province holds a 49% stake in Gahcho Kué, while De Beers Canada Inc.'s share is 51%. Mountain Province mandated Deutsche Bank A.G., acting through its London Branch, Natixis S.A. and Nedbank Limited as the lead arrangers to underwrite, arrange and manage the primary syndication of the credit facility, subject to the satisfaction of certain conditions.
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Brazil Minerals Builds Mgmt. Team
Brazil Minerals Inc. added three professionals to its management team. Carlos Henrique de Oliveira Garcia joined the diamond and gold mining company as manager and Armando Franz Netto Soares joined as an associate. Both men will be based in Belo Horizonte, the capital of the state of Minas Gerais in Brazil. Eder Patrick Soares de Araujo joined Brazil Minerals as a manager and will be based at the company's satellite office in Montes Claros, in the northern part of Minas Gerais.
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ECONWATCH
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Diamond Industry Stock Report
A tough week on stocks, all industry shares in the U.S. were lower except for JCP (+4%), Kohl's (+3%) and Movado (+4%). European shares all lower, led by LVMH (-9%) and Indian shares mainly lower led by Classic Diamond (-13%). Mining shares were mainly higher with Firestone and Gemfields leading the way, up 6%. View the extended stock report.
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July 30 |
July 24 |
Chng. |
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| $1 = Euro |
0.746 |
0.743 |
0.003 |
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| $1 = Rupee |
60.52 |
60.07 |
0.5 |
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| $1 = Israel Shekel |
3.43 |
3.42 |
0.01 |
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| $1 = Rand |
10.72 |
10.53 |
0.19 |
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| $1 = Canadian Dollar |
1.09 |
1.07 |
0.02 |
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| Precious Metals |
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| Gold |
$1,281.80 |
$1,292.60 |
-$10.80 |
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| Platinum |
$1,456.00 |
$1,462.00 |
-$6.00 |
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| Stock Indexes |
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Chng. |
| BSE |
25,894.97 |
26,271.85 |
-376.88 |
-1.4% |
| Dow Jones |
16,563.30 |
17,083.80 |
-520.50 |
-3.0% |
| FTSE |
6,730.11 |
6,821.46 |
-91.35 |
-1.3% |
| Hang Seng |
24,756.86 |
24,141.50 |
615.36 |
2.5% |
| S&P 500 |
1,930.67 |
1,987.98 |
-57.31 |
-2.9% |
| Yahoo! Jewelry |
952.34 |
981.33 |
-28.99 |
-3.0% |
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INDIA MARKET REPORT
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Polished and Rough Trading Activity
Buyers remain cautious, sentiment is low and rumors are circulating of financial troubles at a couple of big firms as the liquidity crunch continues. Read the full report.
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