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DGSE's 3Q Revenue -18%, Loss Increases

Vierling Considers Buying Jewelry Stores

Nov 19, 2013 8:30 AM   By Jeff Miller
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RAPAPORT... DGSE Companies Inc. reported that its revenue fell 17.9 percent year on year to $23.8 million for the third quarter that ended on September 30. Sales were negatively impacted by volatile market demand for precious metals along with an unprecedented decline in gold prices. The company's gross margin fell to  19.1 percent from  21.4 percent.  DGSE reported a net loss of $1.4 million compared with a loss of nearly $500,000 one year ago.

James Vierling, the CEO of DGSE, said, “Our results for the third quarter continued to be affected by volatile macroeconomic conditions. The closing spot price of gold on September 30, 2013 was 25 percent lower than on the same day in 2012. Falling gold prices have created a disincentive for consumers to sell their unwanted scrap gold and silver, which caused a significantly lower volume of scrap buys in the third quarter.  Therefore, we have continued to refocus our team on areas of our business that present the highest profit potential, including our high-end jewelry, diamond and watch segments. We have been able to add some excellent merchandise at favorable price points throughout the year and we expect to see strong sell through of this inventory during the upcoming holiday season. Our customer financing initiative, which we tested in the second quarter, has now been rolled out to all of our stores and should make it easier for our customers to make purchases. These factors, coupled with improved volumes during September and the first part of October create increased optimism about the fourth quarter, which is traditionally our strongest quarter of the year.”

Going forward, Vierling explained that DGSE will be more selective with retail store openings as the fluctuations in precious metal pricing plays a strong role in the pace of this expansion. DGSE plans to capitalize on regions where it has an existing presence to better leverage  advertising spending. In addition, DGSE is analyzing the possibility of acquiring jewelry stores as robust retail sales are increasingly important to future growth, he added. ''We believe it is much easier to add a scrap buying component to a jewelry store than to convert a gold buying operation into a full-line jewelry, coin and bullion retailer. We will also continue to leverage our strategic relationship with Elemetal and will utilize the deferred tax asset related to net operating losses, currently fully reserved on our balance sheet at $9.4 million,” he said.

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