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Rapaport Weekly Market Comment May 29, 2015

Sentiment improves as JCK Las Vegas show opens. Stable prices for select categories with shortages supporting the market. Poor makes are still in over-supply. U.S. demand good but not great as jewelers experience mixed 1Q: Signet Jewelers same-store sales +4%, sales +45% to $1.5B, profit +23% to $119M; Tiffany & Co. revenue -5% to $962M, profit -17% to $105M. Richemont FY revenue +4% to $11.5B, jewelry sales +4% to $6.2B, group profit -36% to $1.5B. Shrenuj & Co. FY revenue +18% to $858M, profit -20% to $11M. Dominion 1Q sales +7% to $188M, production +9% to 1.4M cts. Miners form Diamond Producers Association with $6M budget for industry research and marketing.

RapNet Data: May 28
Diamonds   1,391,399
Value $8,411,880,081
Carats   1,334,918
Average Discount -25.08%

RAPI Chart
The RapNet Diamond Index (RAPI) has been revised to reflect the average price of the 10 best priced diamonds in each category.

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  Our status as a sightholder of De Beers, demonstrates not only our market leadership and diamond credentials, but also our ability to meet De Beer’s stringent qualification criteria. This will increase public confidence in our product quality.

Wong Wai Sheung | Luk Fook Holdings

Miners Form Diamond Producers Assoc.

ALROSA, De Beers, Rio Tinto, Dominion Diamond Corporation, Lucara Diamond Corporation, Petra Diamonds and Gem Diamonds will form part of the Diamond Producers Association (DPA), a body that will fund campaigns to drive consumer demand since De Beers narrowed its marketing to just focus on its own branded products. The DPA will have an initial budget of $6 million, funded by the seven member companies, and is in the process of recruiting an executive director who will be responsible for operational activity.

The group intends to enhance consumer demand for and confidence in diamonds; provide a reliable source for industry information, including trade and consumer research; act as a unified voice for diamond producers; communicate the role and contribution of diamond producers and share best practices in health and safety, license to operate, supply chain integrity and environment management.

U.S. Jewelry CPI -3%

The U.S. consumer price index (CPI) for jewelry dropped 3.3% percent year on year to 163.96 points in April, which was the lowest reading since December. Comparatively, the CPI for watches rose 1.6% percent to 123 points, reflecting a new high for the month of April. Meanwhile, prices for diamonds and precious metals experienced broad declines in April.

The RapNet Diamond Index (RAPI), the global benchmark for polished prices, dropped 13.9% year on year for 1.00-carat certified diamonds, while RAPI for 0.30-carat plunged 21.2%, RAPI for 0.50-carat contracted 9.5% and RAPI for 3.00-carat diamonds declined 14.5%. Gold prices in April averaged about 9% lower from one year ago. Platinum, on the other hand, remained under tremendous pressure and fell 21%, while silver declined 14% compared with April 2014. The CPI for all consumable product categories in April was basically unchanged, down just 0.2% from one year ago, at 236.6 points.

Signet's Profit +23%

Signet Jewelers reported that sales rose 44.9% year on year to $1.531 billion in the first quarter that ended on May 2. The increase was driven by the addition of Zale, which added $437.1 million to overall revenue. Same-store sales rose 3.6% and ecommerce sales jumped 98.7% to $76.9 million. Gross margin fell to 37% compared with 38.6% one year earlier, primarily due to lower gross margins with Zale. Profit rose 23% to $118.8 million.

Across the company's Sterling Jewelers division, sales increases were driven by Kay and select diamond jewelry collections as well as watches. The average transaction price at Sterling increased by 4.7%, while the number of transactions fell 3% due to merchandise mix, including bridal and higher price-point fashion collections. Sterling's same-store sales rose 2.3%. Zale division sales were boosted by branded bridal and branded diamond fashion merchandise and comparable-store sales rose 5.6%. In the U.K., sales were driven by branded bridal as well as fashion diamond jewelry and fashion watches. The number of transactions and average transaction price in the U.K. increased by 2.6% and 3.6% respectively. Same-store sales in the U.K. jumped 6.2%.

Tiffany & Co.'s Profit -17%

Tiffany & Co.'s revenue fell 4.9% year on year to $962.4 million in the first quarter that ended on April 30. Same-store sales fell 7%. Cost of sales declined 6.9% to $393.4 million and gross margin as a percentage of sales increased to 59.1% compared with 58.2% one year earlier. Profit slipped 16.5% to $104.9 million. The company stated that net sales and earnings declines reflected the negative effects from a stronger U.S. dollar and difficult comparisons in Japan. Sales by region and on a constant-exchange-rate basis, fell 18% in Japan, but they increased 3% in the Americas, 4% in Asia Pacific and 21% in Europe. Inventory as of April 30, fell 2% to $2.4 billion and capital expenditures increased 5.7% to $37 million during the quarter.

Frederic Cumenal, Tiffany & Co.'s CEO, said, “Our plans this year include expanding existing jewelry collections with new designs and opening stores in a number of important markets, all intended to further enhance Tiffany’s position as a leading global luxury brand. Despite these plans and the better-than-expected first quarter results, our forecast for minimal earnings growth for the full year continues to reflect caution regarding our expectations for fiscal 2015 in light of the strong dollar and other global economic uncertainties. However, we believe we can return to a healthier rate of double-digit earnings per share growth over the long-term.”

Richemont's Profit -36%

Richemont's revenue increased 3.9% year on year to $11.5 billion (EUR 10.41 billion) in the year that ended on March 31. Sales measured at constant-exchange-rates rose 1%. Revenue from the retail division rose 4.1% to $6 billion, while wholesale revenue increased 3.6% to $5.5 billion. Profit fell 35.5% to $1.5 billion, which the company attributed partly to ongoing foreign exchange hedging activities.

The company stated that jewelry maisons Cartier, Van Cleef & Arpels and Giampiero Bodino observed a "challenging environment," however, the division managed to still improve sales 4% to $6.2 billion and operating margin to 34.9% compared with 34.8% one year earlier. Revenue from the company's specialist watchmakers increased 4.6% to $3.5 billion but operating margin fell to 23.4% compared with 26.1%.

Movado's Profit -51%

The Movado Group reported that its sales were flat year on year at $120.4 million during the first quarter that ended on April 30. The company said that the lack of sales growth was due primarily to the impact of fluctuating exchange-rates between the dollar and the Swiss franc and euro. Sales during the quarter rose 5% on a constant-exchange-rate basis. Profit fell 51% to $3.6 million, due primarily to a $2.7 million pre-tax charge related to operating efficiency initiatives and other items implemented in early on.

Forevermark Relaunches 'A Diamond is Forever'

De Beers Forevermark diamond brand will relaunch its "A Diamond is Forever" campaign, timed with the Christmas 2015 season. First coined for De Beers in 1947 by copywriter Frances Gerety, A Diamond is Forever has influenced popular culture for decades and was named “the best advertising slogan of the century” by Advertising Age Magazine. To this day, the slogan is still associated with timeless love and commitment, the pillars upon which the Forevermark brand stands. 

Forevermark's CEO, Stephen Lussier, said, “We are thrilled to bring this incredible equity back to Forevermark where it truly belongs. After all, our name is built on the line. But it is not enough to simply bring it back. We need to recharge it with meaning and most importantly fuse it with the Forevermark brand promise.” Be sure to attended the Rapaport Breakfast on May 31 from 8 a.m. to 10 a.m. in the Banyan Ballroom of the Mandalay Bay Resort, where Lussier will be a guest speaker.

Luk Fook Signs De Beers Contract

Luk Fook Holdings signed its three-year sightholder rough diamond sales contract with the De Beers Group of Companies for the period that ends on March 31, 2018. Luk Fook was established in 1991 and operates 1,350 retail stores, with shops in Mainland China, Hong Kong, Macau, Singapore, Canada, Australia and the U.S. In addition, the company manufactures jewelry at its 350,000-square-foot facility in Nansha, Guangzhou, China. The firm attained ISO 9001 Quality Management Systems – Requirements and ISO 14001 Environmental Management System certifications for the facility and has entered a second phase of expansion, expecting to double jewelry manufacturing capacity when construction has completed.

IGI Certifies 10ct. Lab-Grown Diamond

The International Gemological Institute (IGI) Hong Kong certified a lab-grown, 10.02-carat, E, VS1, type IIa, square, emerald-cut stone produced by New Diamond Technology LLC of St. Petersburg, Russia. The lab stated that the stone was fashioned from a 32.26-carat piece of man-made rough and received "very good-excellent finish grade." Marc Brauner, the co-CEO of IGI Worldwide, stated that the 10-carat stone is "unique in all aspects" and that the science and technology behind the processes synthesizing this stone are significantly more advanced than other man-made diamonds currently on the market.

Excelsior Seeks to Fill a 'Capital Void'

Excelsior Capital Ventures said it would raise capital to provide loans securitized by diamond and precious metal inventories for the trade given the decline in lending across the sector. According to the company's chairman, David Barr, Excelsior will fill a "capital void" and be a catalyst for clients’ business growth. The company's CEO, Nehal Modi, added that the industry is at a critical juncture where companies must re-evaluate their capital structures, systems, and willingness to demonstrate transparency to lenders, for which Excelsior can greatly assist meeting those goals.

elumeo to Launch an IPO

Berlin-based electronic and broadcast jeweler elumeo Group plans an initial public offering (IPO) on the Frankfurt Stock Exchange, with Société Générale Corporate & Investment Banking and Baader Bank AG managing the IPO as joint global coordinators and bookrunners. At the present time, the company targets the value of the IPO in a range of $44 million to $66 million (EUR 40 million to EUR 60 million) and intends to use proceeds to broaden its product offerings and invest in digital and international expansion.

According to elumeo's filing, it plans to launch additional localized TV channels and web stores in various languages. The company was founded in 2008, but renamed elumeo in September 2014, and reported that since 2009, its average compound annual growth rate from sales has been about 30%. Revenue in 2014 totaled $78 million, while adjusted EBITDA was $4.5 million. For the first quarter of 2015, elumeo's sales rose 26.6% year on year to $21.5 million and adjusted EBITDA more than doubled to $771,000.

Frederick Goldman Names COO

Frederick Goldman Inc. promoted John Orrico, the executive vice president of operations, to a newly created role of chief operating officer (COO). Orrico's key areas of oversight include manufacturing, product development, supply chain management, procurement, inventory planning and quality control for the company's global operations. Before joining Frederick Goldman in 2012, Orrico served as senior vice president at Birks & Mayor’s and group vice president of supply chain at Tiffany & Co.

GJF Adds Seven Committee Members

The All India Gems & Jewellery Trade Foundation (GJF) added seven new members to its committee of administration (COA), joining 15 existing members. The larger committee is expected to now address specific challenges or roadblocks facing a particular region or sector. In addition to the COA, the GJF formed new sub-committees to address various initiatives and issues that may come up from time to time. New members include Shankar Sen (the zonal chairman for the Eastern region), Anil Talwar, D. D. Karel, Manoj Soni, Rajkumar Jain, Raman Solanki and Sumeet Anand. In addition, existing members Nitin Khandelwal was appointed the zonal chairman for the Western region, Vijay Khanna was appointed zonal chairman for the Northern region and Anantha Padmanaban was selected as zonal chairman for the Southern region.

Dominion's Sales +7%

Dominion Diamond Corp.'s rough diamond sales rose 7% year on year to $187.7 million in the first quarter that ended on April 30. Revenue from the company's Ekati diamond mine jumped 37.3% to $127.4 million for 710,000 carats sold, while the company's 40% share of sales from the Diavik mine fell 27.1% to $60.3 million for 544,000 carats sold. The company excluded from the Ekati total approximately 100,000 carats of material from the Misery satellite and northeast pipes that were produced during the pre-commercial period and garnered $6.9 million.

Production from Ekati jumped 43.3% year on year to 804,000 carats during the first quarter. Dominion's share of production at the Diavik mine fell 17.7% to 604,000 carats. Rough diamond inventory that was available for sale at the close of the quarter was approximately 700,000 carats with a market value of $140 million, according to the company's calculations. In addition, Dominion held approximately 800,000 carats in inventory that it defined as "work in progress."

ALROSA Recovers 78ct. Stone

ALROSA recovered a 78.02-carat diamond from its Mir kimberlite pipe. The company stated that the diamond's dimensions are 28.5 by 28.4 by 24.2 mm. This crystal has a regular shape with minor technogenic damages on two tops and some small inclusions. The stone is transparent with yellowish and greenish hues. According to analysts at ALROSA’s Diamond Sorting Center, this diamond may be valued at more than $600,000 if it were put up for auction.

Stellar's Rough Sale Achieves $505K

Stellar Diamonds achieved $505,000 from its recent sale of rough diamonds from the Baoulé project in Guinea. Six of the lots, representing 48.12 carats of rough stones greater than 5 carats, achieved $3,510 per carat. So far this year, Stellar's diamond sales totaled $922,000, of which $700,644 worth of goods was derived from the trial mine evaluation of Baoulé.

Peregrine Joins Diamond Bourse of Canada

Peregrine Diamonds Ltd. joined the Diamond Bourse of Canada and is being represented by Jennifer Pell, the mining company's chief geoscientist. Peregrine is the first junior mining company to become a bourse member. Diamond major De Beers Canada is also a member. Bourse president David Gavin said that many of the Canadian mines that are moving into the production stage in the next few years are located in the Northwest Territories and Peregrine is very well-positioned to contribute to the world's diamond supply in the years to come.

Diamond Industry Stock Report

Most U.S., Europe and Far East stocks were little changed this week, except Movado (-7%), Tiffany & Co. (+9%) and Swatch (-6%). Indian shares all lower except Gitanjali (+4%), Goldiam (+29%) and Titan (+1%). Mining shares were mixed with Peregrine (-12%) leading declines and Stellar (+11%) ahead of gains. View the detailed industry stock report.

  May 28 May 21 Chng.  
$1 = Euro 0.914 0.899 0.015  
$1 = Rupee 63.78 63.57 0.2  
$1 = Israel Shekel 3.87 3.87 0.00  
$1 = Rand 12.14 11.84 0.30  
$1 = Canadian Dollar 1.24 1.22 0.02  
Precious Metals        
Gold $1,188.20 $1,206.10 -$17.90  
Platinum $1,115.00 $1,153.00 -$38.00  
Stock Indexes       Chng.
BSE 27,506.71 27,809.35 -302.64 -1.1%
Dow Jones 18,126.12 18,286.54 -160.42 -0.9%
FTSE 7,040.92 7,013.47 27.45 0.4%
Hang Seng 27,454.31 27,523.72 -69.41 -0.3%
S&P 500 2,120.79 2,130.84 -10.05 -0.5%
Yahoo! Jewelry 1,316.99 1,316.94 0.05 0.0%

Polished Trading Activity

Trading activity has weakened as JCK preparations are over and positive sentiment rules as the U.S. has shown some momentum in the past few months. Manufacturing units remain closed for the next two weeks on account of summer vacation and liquidity remains tight. Read the polished diamond trading report.


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