CNBC Morning Call - 10/28/2005

LIZ CLAMAN, CNBC ANCHOR: Time to go under the radar with a look at a true rock star. Shares of jewel maker Charles & Colvard are up about 200 percent in the past year. WhatÂ’s making the stock sparkle? Could it be moissanite? And what is moissanite? Joining us now is the companyÂ’s chairman and CEO, Robert Thomas.

Good to see you, Mr. Thomas.

ROBERT THOMAS, CHAIRMAN & CEO, CHARLES & COLVARD: Thank you, itÂ’s a great pleasure.

CLAMAN: Welcome to the program.

THOMAS: Thank you.

CLAMAN: OK, explain to our viewers first off, what moissanite is. It's a jewel?

THOMAS: Moissanite is a jewel, but it's a synthetic version of silicon carbide named for Henri Moissan, the scientist who discovered it in nature over 110 years ago. So it's a manmade crystal that's grown in a lab and, through an accident, we discovered this application so women could now have beautiful affordable big jewelry.

CLAMAN: You grow this in a lab. And let's show people what it looks like. And we'll continue to talk, but my throat is catching because the stuff is absolutely gorgeous. It's colorless.

THOMAS: It's near-colorless. It's a crystal that is very hard, has great optical properties, a refractive index, the dispersion to luster. It's hard, it'll last multi-generations. Your granddaughter's granddaughter could wear that pendant you're wearing today.

CLAMAN: What's the price point of -- does it go by carats?

THOMAS: It is sold by carats, but typically, the jewelry has a wide range of price points, somewhere between $500 to $2,000 for the half carat to the two carat stone.

CLAMAN: So clearly, this is less expensive than diamonds.

THOMAS: It's fine jewelry, 18 carat, 14 carat, or platinum sidings. But it offers a value proposition that women are finding hard to resist.

CLAMAN: Just last week you announced third quarter sales results, which were the best in the company's history.

THOMAS: That's right.

CLAMAN: And your sales were up year over year what, 113?

THOMAS: 118 percent.

CLAMAN: 118 percent.

THOMAS: Exactly. And a new earnings number as well. So things are going well for us. Women all around the country are discovering moissanite jewelry at an ever-increasing rate.

CLAMAN: Where do you find it? Who are your biggest retailers?

THOMAS: Well, Marshall Fields, Lord & Taylor here in the city. We have tests going at Halberd Diamonds currently. Also J.C. Penny and many, many other fine retailers that can be found at our website.

CLAMAN: I want Mac (ph) to look up this pendant. This is how many carats?

THOMAS: That's about 14 carats.

CLAMAN: Fourteen, and then here are the studs.

THOMAS: And those are about three carats each, here.

CLAMAN: Three carats a piece. How much would the studs retail for?

THOMAS: Those are going to be about $9,000, just a touch under $9,000 retail.

CLAMAN: OK, here's what I have a little bit of trouble with. If I am a higher end viewer that's watching this right now and I say, "Yes, but it's not a diamond.”

THOMAS: It's not a diamond, it is...

CLAMAN: How do you get over that? How do you get customers to get over that?

THOMAS: We are not competing with diamond. We are offering this jewel to self-purchasing ladies. A friend of mine in the jewelry business says there's three things that sell fine jewelry: lust, guilt, and Christmas. We've taken that off the table.

CLAMAN: [LAUGHS] That's true.

THOMAS: A woman no longer has to wait for a man to experience the first two or the calendar to turn to the third. So a woman who can go find truly fine jewelry, important jewelry, that's going to make her feel good about herself and make that purchase. And our retail customers are telling us that women are buying for themselves in ever-increasing numbers without cannibalizing any other jewelry category.

CLAMAN: Whom do you see as your competitors if it's not the diamond market?

THOMAS: It's Gucci, Prada, LVMH. It's the other luxury fashion brands. This is an affordable luxury that women are discovering and loving.

CLAMAN: So discretionary income that they would, say, instead of buying a $1,200 purse, because that's the price point on some of the hat bags now.

THOMAS: That's right. Exactly. The purses will be out of style or worn out in 18 months. The moissanite stud earrings that they might spend $1,000 for will last forever.

CLAMAN: I'm wearing a pendant. How many carats is this pendant?

THOMAS: That's a little less than two carat, total weight, and that's going to retail for about $1,800.

CLAMAN: And I'm just telling viewers because if you can't tell, I have looked at this and it looks exactly like a diamond. It seems almost in a way to sparkle better than even sort of a F or G diamond.

THOMAS: It's the science of it -- we won't go into that, but the science makes moissanite more brilliant and have more fire than any diamond, no matter what the grade

CLAMAN: Why do I want to own your stock? Where's the next frontier for new getting new customers?

THOMAS: The awareness level of moissanite in this country, not around the world, but just in this country is 4 percent. We have tremendous opportunity to grow this business by making more and more ladies aware of this jewelry.

CLAMAN: Well, the stock is up three and a third percent right now or 75 percent. Mr. Thomas, thank you for joining us.

THOMAS: Liz, a great pleasure, thank you.

CLAMAN: Robert Thomas is chairman and CEO of Charles & Colvard.