BLUE NILE (NASDAQ:NILE) - PDF document

1 April 21, 2014 BLUE NILE (NASDAQ:NILE) BUSINESS DESCRIPTION Blue Nile (“NILE” ) is a Seattle - based online retailer , specializing in customized diamond jewelry . The company possesses t he largest inventory of certified diamonds in the wor l d and dominates the online engagement ring category with over 50% market share. Unlike traditional brick and mortar jewelers, NILE’s exclusive supply relationships and efficient cost structure enables the Company to pass its savings onto customers, charging 20 - 40% less than its competition. With access to over 135,000 certified diamonds and dozens of setting s , engagement ring customers can create truly unique ring s without the egregious markup. NILE is a world class franchise whose current valuation disregard s three key developments: improving wedding band attachment rates, a burgeoning China business, and critical mass in network effects . INVESTMENT SET - UP Poor sentiment, short term anxiety, and high short interest provide an excellent setup for a bargain purchase of a franchise business. With a P/E of 41 x, ostensibly rich multiples repel “value” investors who often bypass opportunities that are no t headline cheap. Similarly, a recent slowdown in sa les growth dishearten s even the most optimistic “growth” investors. Meanwhile, short sellers, whose interest comprise roughly 10.5 % of current shares outstanding, assert that NILE’s share price is simply too high. While the shorts do not doubt the long term viability of NILE’s business model, their valuations are anchored on trailing results and near term expectations. Collectively, their apprehensions are reaffirmed in their minds by NILE’s recent fourth quarter earnings miss and reduced guidance , which sent shares tumbling 15% on February 6, 2014. Guided by our strongly held views of NILE’s long term intrinsic value and the sustainability of its superior business model, we feel comfortable purchasing a quality business at the only time quality g o es on sale — when there is pervasive fear and uncertain ty in the marketplace . WHAT WE LIKE ABOUT NILE NILE is the dominant online jewelry retailer , commanding over 50% of the online engagement ring market. The company possesses favorable and improving economics and maintains a clear competitive advantage by providing consumers with the best product offering at the lowest cost . Competitive Advantage: Low Cost Provider NILE’s competitive advantage is selling quality diamond jewelry at the most affordable price. It maintains this low - cost advantage by operating an efficient costs structure and by passing these cost - savings to its customers. While competitors invest in expensive store fronts, pay out commissions to sales associates, and purchase costly in ventory, NILE does none of these. T he business generates $450 million in revenues from sales in over 40 countries out of three offices and two fulfillment centers. NILE accomplishes this with less than 300 employees, including knowledgeable and friendly associates — available 24/7 in six languages — who take no commission. Lastly, NILE has developed exclusive relationships with over 100 suppliers, enabling it to manufacture jewelry on a just - in - time basis. This last point is unique to NILE and deserves furth er exploration. By ordering polished diamonds on a just - in - time basis, NILE forgoes tying up capital in purchasing and holding very expensive inventory. B ecause vendor payment terms range from 30 - 120 days, while customer payments are typically received u pon purchase, NILE also benefits from negative working capital. Most importantly, NILE’s virtual inventory of over 13 5 , 000 diamonds ensures that customers are getting a vast selection of diamonds at the best possible price. This virtual inventory is essentially an online diamond exchange, pitting one seller versus the other and allowing the laws of supply and demand to set t he most efficient price. Assuming all consumers are rational economic agents, vendors who sell comparable diamonds at a premium will have to reduce prices in order to sell their goods ( why would anyone spend x+1 if they could purchase the same exact diamo nd, as governed by the “four C’s,” for x? ). We can witness NILE’s low cost advantage in real - time below: 2 First, comparing NILE’s inventory to Zales’, NILE has a far greater selection. A search for a round 1 - carat, ideally cut (EX), colorless (D) diamond of internally flawless (IF) clarity returned one diamond on Zales’ website, which cost $22,966. NILE on t he other hand, returned 14 results with prices ranging from $16,085 to $23,513. Second, because the 14 diamonds listed on NILE’s “exchange” are essentially the same, consumers will naturally gravitate toward the most affordable option. After all, each an d every one of these diamonds has been certified by the GIA (Gemological Institute of America), and NILE does not sell any synthetics. As a result, suppliers will have to match prices if they want to turn their inventory, resulting in more competitively p riced diamonds for the consumer. SUPERIOR PROFITABILITY AND CASH FLOW Existence of a competitive advantage becomes more compelling when we look at the industry’s profitability. Source: S&P Capital IQ. Calculations based on calendar year - end dates. 3 In nearly every year for the past decade, NILE has generated higher levels of return on capital and return on equity than its publicly traded jewelry peers. NILE’s average return on capital and return on equity during this time period was 24.8% an d 28.6%, compared to an average of 8.4% and 6.5% for the peer group, respectively. NILE’s unique capital light business model also results in a highly cash generative business, producing cash flows that are many multiples of its net income. Source: S&P Capital IQ. Calculations based on calendar year - end dates. FCF defined as operating cash flows less capex. In the past decade, NILE has generated , on average, free cash flows of 2.2 x its earnings compared to 0. 5 x for its peers. Th ese level s of returns and cash flow s can only be realized with a business model like NILE’s, where only limited amounts of capital are tied up in stores and inventory, and where a smaller level of employees can support the business . W ith only 291 employees , NILE generated $1.55 million in sales per employee, compared to $0. 3 8 million, $0.16 mill ion, and $0.23 million for Tiffany & Co. , Zales, and Signet, respectively. Strongest Competitive Position in Favorable Industry NILE competes in an industry in which no substitutes exist . People will always get married, and proposals will always be sealed with an engagement ring . In other words, unlike other retail industries, which are extremely vulnerable to fashion risk, the engage ment ring market will never face obsolescence. Additionally, m ajor consolidation in the jewelry industry has improved the competitive landscape for existing players . According to industry data compiled by the Jewelers Board of Trade, 2 6 , 754 jewelry retailers operated in the US in 1999, the year NILE was founded . That number has declined by nearly 20% to 21,646 retailers in 2013. During this same period, the US population has grown by 13% according to US Census Bureau statistics . The large st retailers have experienced similar consolidation. I n the past decade, five of the top 10 largest national jewelry chains have either been acquired or gone out of business 1 . Signet ’s (February 2014) announced acquisition of Zales combines the two largest brick and mortar jewelry retailers in in the United States and reaffirms this trend. Furthermore, s tore closures, cost cutting, and consolidation on the part of the brick and mortar jewelers are defensive moves. Winners in retail play offense — not defense. As a result, many retailers are expanding their online capabilities — an offensive move — and mimicking the customization of NILE’s “Build Your Own” features. This is economics 101: the existence of above average profitability will attract competition . While some economists - types may argue that this will ultimately lead to declining economic profits for NILE, we see this as a validation of NILE’s competitive position. Moreover, borrowing from management theories, organizational le gitimacy leads to industry creation. In other words, the growing presence of online jewelry will lend greater credibility to the online jewelry market and remove the psychological barrier s associated with expensive online purchases , creating a larger pie for all participants. 4 Best - in - Class Customer Service & Leading Resource for Diamond Ring Education NILE has some of the best customer service of all retailers, with a Bizrate.com rating of 9.1 out of 10.0 and a Net Promotion Score of over 80. NILE’s frien dly and knowledgeable associates, who are available 24/7 in over six languages, are critical to NILE’s success; an online jeweler without this capability is certainly doomed to failure. Unlike other retailers, NILE’s associates are not commissioned and ha ve no incentive to upsell potential clients , who can make their purchases in a no - pressure environment. D uring my conversations with NILE’s jewelry consultants , I was advised on several cost saving tips, such as purchasing a 0.98 carat diamond ring versus a 1.0 carat diamond — a size difference undetected by the naked eye . Such incentives do not exist when commissions are at stake. NILE also has industry leading diamond education resourc es. When searching the words “diamond education” on Google, bluenile.com is the first result . Though I have no way of verifying this, I would argue that more people learn about the “four C’s” from bluenile.com than from any other resource. Anecdotally , we spoke with several newlyweds who were referred to bluenile.com by their independent jewelers for its high quality education resources. Coveted Consumer Demographic NILE holds retail’s most coveted consumer demographic: young, educated, and high income. Its primary consumer is typically between the ages 25 - 34, has a bachelor’s or post - graduate degree, and earns over a six - figure salary. Retailers explicitly target this demographic and devote their marketing dollars toward retaining these high lifetime v alue customers 2 . While Zales and Tiffany & Co. sell across the demographic spectrum, NILE focuses on this particular consumer and is better positioned to benefit from recurring sales. NILE’s 25 year old consumer, pleased with his initial engagement ring purchase, will likely turn to NILE for future jewelry purchases during his next half century of expected life. WHAT THE MARKET IS MISSING The market is missing three key developments that are not reflected in the current share price: improvement in wedding band attachment rates, hidden value in the China franchise , and critical mass in network effects. Wedding Band Attachment Rate The largest barrier for NILE’s engagement ring customer is making such an emotion and valuable purchase without seeing the merchandise in person. However, once this barrier is crossed, converting this customer to a complementary Blue Nile wedding band is significantly more likely. As a result, NILE is focused on capturing this wedding band opportunity , a $4 billion market that carries margins double that of engagement rings, in what is a low risk, high return strategy for the business. By targeting marketing investments and developing the “band matcher” concept, which suggests two to five bands for every engagement transaction , NILE will leverage its core engagement customer to drive wedding band sales. NILE’s current attachment rate s, the rates at which customers purchase wedding bands from the same engagement ring retailer, is roughly 35% — slightly more than half the industry average of 63 % 3 . Despite NILE’s focus o n this product , the market ascribes no value to improving wedding bands attachment rates . The table s below illustrate our estimate of NILE’s current EPS contribution from its weddin g band business at varying attachment rates . 5 Source: SEC Filings, NILE Management Comments, Medina Singh Analysis In 2013, we estimate we dding band earnings contributed $0. 25 per share . Looking beyond 2013, t he consensus forecasts no improvement in wedding band attachment rates . A ssum ing NILE’s engagement segment grows to $ 420 million by 2016 — which is consistent with the consensus top - line CAGR of ~ 10% — and attachment rates reac h industry average levels of 60% , EPS contribution from wedding bands alone would be $0. 7 1 per share . At $1.37, the consensus EPS disregards any possibility of improving attachment rates and neglects the traction this product segment has recently achieved . At an investor conference in March 2014 , CFO David Binder confirmed that growth in wedding bands sales were the fastest among all product categories. With increased product awareness, marketing investment , and by introducing features such as the “band matcher,” there is no reason NILE’s core customer — the young, educated, wealthy male ( who is already a happy customer ) — would not purchase a complementary wedding band at rates similar to the industry average . China Opportunity The value of NILE’s China business, which is currently producing ~$30 million in sales compared to nearly zero in sales three years ago, is underestimated by the Street and is not reflected in the current stock price. For illustrative purposes , the following table lists valuations for other high growth Chines e companies : Source: S&P Capital IQ Based on relative valuation metrics, growth rates , and the legitimacy of the company, NILE’s China segment should be worth at least the median multiple of 3.8 x revenue , or $ 1 14 million, which is more than a third of NILE’s current enterprise value. If NILE were to reach its stated goal of $100 million in sales by 2016 (~49 % CAGR 2013 - 2016 ) , NILE’s China segment would be worth $ 190 million using similar analyses , resulting in a valuation more than half of NILE’s entire current enterprise value . Additionally, one could argue that NILE’s China business should be valued at a 6 premium to its Chinese counterparts, which lack an American brand name and whose financial statements are perceived as less reliable. Viewed from a different lens , if NILE China was a standalone entity and was IPO’d today, there is no scenario in which its equity gets less than a $100 million valuation . IMAX recently sold a 20% stake in its China business, wh ich grew sales 26% year - over - year, for $80 million , or a 7.1x sales multiple . While this business is different from NILE’s, we can begin to understand what investors are willing to pay for opportunities in China. NILE, which only entered Mainland China i n 2011, grew its business to ~$30 million in 2013. If the company were to reach its goal of $100 million in sales by 2016 , which implies a ~49% CAGR, it would not be inconceivable for NILE to command similar valuations. Below is a more detailed analysis of the why China is the most attractive new market for NILE and why NILE is best positioned to capitalize : China’s Tremendous Engagement Market Over 13 million marriages occur in China each year. This i s nearly six times the annual number of marriages that occur in the US. Naturally, this makes China’s addressable engagement ring market much larger as well . A ccording to NILE , China’s engagement ring market is roughly $8 billion compared to $5 billion in the US. Chow Tai Fook , China’s largest jewelry retailer, says the nation’ s addressable market is $10 - $20 billion 4 . Even attaining a sliver of this colossal pie would be a major impact to NILE ’s earnings power . T his opportunity is not available to all of NILE’ s competitors — nor is it a priority for them — giving NILE an important first - mover advantage. NILE has been in China for over three years now, starting with joining the Shanghai Diamond Exchange in early 2011 . Since then, NILE has built both simplified and traditional Chinese language websites, acquired local distribution and fulfilment capabilities, and has hired local employees who truly understand China ’s numerous language s , varied customs, and jewelry culture. NILE’s most significant milestone was achi eved earlier this year when the Company acquired a license to sell jewelry direct - to - consumer as opposed to through a third - party. James Allen, NILE’s closest competitor, currently has no business in China. Similarly, Brilliant Earth, another online com petitor, offers shipping to China, but this i s as far as its reach goes. Neither of these players have Chinese websites, Chinese - speaking associates, nor local distribution and ful fillment capabilities, which cannot be built overnight. C ompared with traditional, brick and mortar jewelry retailers, NILE is able to leverage its current , global supply chain infrastructure and does not need to invest in physical store fronts to achieve sales growth . Moreover, NILE already possesses the largest, exclusiv e inventory of GIA certified diamonds in the world. Having recently acquired licenses to sell direct ly in China, NILE is now able to offer Chinese consumers access to the same exclusive global diamond supply and transparent pricing we have in the States. A quick search through NILE’s US and Chinese websites confirms this: Source: bluenile.com; bluenile.com/cn On 3/31/2013: USD 5,630 = RMB 35,003 7 According to a Bain & Company research on Chinese e - commerce, more than 70% of survey respondents say they price - compare before finalizing a purchase 5 . The same research also states the overwhelming concern of the Chinese consumer is being sold fake products. In other words, the Chinese — like everyone else — appreciate quality at fair price . E quipped w ith a direct - to - consumer sales license, NILE is now cap able of offering access to over 135,000 diamonds — all of which are certified ( NILE does not sell synthetics, either ) — in its virtual i nventory to these consumers and will benefit from continued growth in the region. Source: SEC Filings, NILE Management Comment s , Medina Singh Analysis Growing Diamond Market in China China is the fastest growing diamond market in the wor l d , where diamond retail jewelry sales increased at a 27% CAGR from 2006 to 2012 . This compares with a 4% decline in the United States , a 5% decline in Europe, and a 9% decline in Japan during the same period 6 . Source: Bain & Company Global Diamond Report 2013 While gold remains the most important jewelry category in China, diamond jewelry is the fastest growing. This growth stems primarily from China’s burgeoning middle class, who purchase diamond jewelry to communicate their achievements and status. As the C hinese middle - class continues to expand, and as Chinese millennials increasingly adopt western wedding practices, diamond jewelry purchases will continue to grow. A ccording to Bain & Company’s 8 Global Diamond Report 2013, China is expected to account for approximated a third of the global diamond demand by 2023. Chinese E - Commerce China has the world’s largest online population, with nearly 600 million internet and 500 million mobi le internet users — nearly twice that of the entire US population 7 . As a resu lt , China also has the world’s largest e - commerce market, with over $300 billion in transaction s in 2013. To put the size of Chi na’s internet retail market in perspective, sales on China’s “Singles Day” reached $5.7 billion — that’s nearly 2.5 times the sales generated on US’s Cyber Monday 8 . By 2020, China’s e - commerce market is expected to be larger than that of the US, Japan, Britain, Germany, and France — combined 9 . Source: K MPG The confluence of China’s growing diamond market and China’s enormous e - tailing market provides an ideal dynamic for NILE’s international expansion. With a growing middle class and internet penetration at only 44 % , NILE will enjoy long - term favorable economics from China. This opportunity is not ascribed value at the current share price. Network Effects Engagement rings are driven by referrals. The consumer who is about to spend thousands of dollars on a ring is likely to consult his married friends and draw from their ring - buying experiences before finalizing his purchase . According to NILE, two - thirds of engagement ring customers make their purchases this way . With a Net Promoter Score * 1 of over 80 — and product returns at nearly 0% — NILE’s satisfied customer base is the ideal platform for referral business ( Net Promoter Scores for other respected retail names: Costco - 82, Apple Laptops - 72, Amazon - 64 ) 10 . At over 360,000 engagement rings sold, NILE’s has reached critical mass in its consumer base where an increasing level of referrals will lead to positive network effects. While there is no accurate way to measure this effect on NILE’s profitability, c onsider the following example: assume that for every 1 0,000 couples who purchase an engagement ring , a thousand couples successfully convert one friend , resulti ng in a new referral base of 11,0 00. W hile this incremental con sumption is small at low base levels, it becomes increasingly large as the referral base grows. * The Net Promoter Score is based on how likely a customer would recommend a product to a friend or colleague. The Score repre sents the percentage of Promoters, those who respond with scores of 9 & 10 and are most likely to refer the product, less the perce ntage of Detractors, those who respond with scores between 0 - 6 and are likely to spread negative word - of - mouth . 9 At the same 10% conversion rate, NILE’s current referral base can lead to over 36,000 additional customers. At an average engagement ring price of $6,000, that is $216 million in potential sales . This dynamic becomes even more powerful when considering the potential lifetime value of this growing customer base ( Valentine’s, annive rsaries , birthday gifts from the groom and fashion jewelry purchases from the bride ) . This network effect goes b eyond traditional word - of - mouth into social networking sites such as Pinterest, where NILE is the most followed, liked, and pinned jeweler. Source: Pinterest NILE’s ~62,000 followers not only increase the company’s brand recognition, they also create the ideal platform for additional business. One study suggest s that Pinterest accounts for 23% of social - mediated e - commerce 11 . This is second to only Facebook, which — at 1.23 billion accounts — has 18x the user base 1 2 . When combined with overseas gr owth and consolidation in the jewelry industry, these dynamics create powerful effects simultaneously working in NILE’s favor. VALUATION Sum of the Parts Our sum of the part s analysis reflects the purchase price we would pay today to acquire the business in three distinct parts: 1) Blue Nile ex China 2) Wedding Bands at Industry Average Attachment Rates 3) Blue Nile China 10 Part 1 W e apply EBITDA multiples based off competitors listed in NILE’s 10 - K to its non - Chinese business . Based on our analysis and management ’s comment s , NILE’s China sales in 2013 were ~ $30 million, or 7% of total sales. Assuming NILE China contributed 15% of total EBITDA — more than double its proportion of sales — the remaining 85% attributed to NILE ex Chin a amounts to $14.8 million Applying peer multiples , ranging from 12 - 18x, to depressed TTM EBITDA of $14.8 million results in a valuation range of ~$2 3 .5 0 - 30.5 0 per share. While we believe NILE, which maintains a sustainable competitive advantage and is growing faster than its peers, deserves a premium valuation , we are comfortable using this 12 - 18x range for the sake of conservatism. Moreover, t hese multiple s a ppear more conservative when compared to a list of precedent transactions, where targets were acquired for a median multiple of 2 2.7 x: *Net a Porter transaction in pounds Part 2 For the wedding band business , we believe NILE can achieve the industry standard of 60% attachment rates by 2016 — up from the current rate of ~35%. In quantifying this, we make the following assumptions: 1) Engagement Sales Grow to $420 Million in 2016 This figure is in line with th e consensus top line CAGR of ~10%, which we believe is conservative given the dynamics dis cussed in the sections above. 2) Wedding Bands Costs 35% of Engagement Ring 11 NILE does not explicitly break out wedding band revenues, but we assume the typical set of wedding bands costs on average 35% of an engagement ring, which is consistent with management’s comments and corroborates our independent analysis based on tracking purchases on bluenile.com. This results in potential wedding band sales of $147 millio n. 3) Wedding Band Gross Margins of 28% NILE does not explicitly break out wedding band revenues, but management has repeatedly cited that the segment generates twice the gross margins of the engagement business, which has historically been over 15%. For wedding bands, we assume slightly less than double this amount at 28% gross margin. 4) Wedding Band Attachment Rates at 60% & Incremental SG&A of 10% At a 60% attachment rate and incremental SG&A of 10%, this implies $88.2 million in total wedding band sales , $13.8 million in total operating income , and $6.6 million in incremental operating income . Giving no D&A benefit, we assume incremental EBITDA of $ 6.6 million also. Applying 2016 EBITDA multiples similar to the analysis in part one , we believe the incremental wedding band business is worth ~ $ 4.2 0 - 6.3 0 per share. While we could have used EBIT multiples, we use smaller EBITDA multiples for a more conservative valuation. Part 3 For Blue Nile China, we applied a range of sales multiples based on high growth Chinese companies. Given the size of the China opportunity — which we detailed above — we are confident that NILE will reach its targeted goal of $100 million in China sales. To recap, our China thesis boils down to these four points: 1) China is the world’s fastest growing diamond market 2)China is the world’s largest e - tailing market 3)NILE has a Chinese website, Chinese employees, and Chinese fu lfillment and distribution capabilities 4 )NILE recently acquired a direct - to - consumer sales license in China earlier this year. If NILE can earn ~$ 30 million in China without this license, it will likely earn much more with this license. Applying 2016 sales multiples to $100 million results in a range of ~$ 1 2.6 0 - 18.9 0 per share. 12 Sum of the Parts Summing these three components results in a price range of ~ $ 4 0.3 0 - 55.7 0 per share . At $ 40.3 0 , the low end of our valuation range implies a ~ 15 % upside from current prices (NILE 4/17/2013 close: 35.06) . As a reminder, our analysis makes no additional growth assumptions for NILE ex China and is valued solely by applying current peer multiples to a depressed trailing EBITDA figure . F urthermore, the Nile ex China business valued in part one assumes no increase in attachment rates. To this we add a separate valuation for incremental increases in attachment rates , which encompasses part two. Lastly, part three values NILE’s China oppor tunity , which currently comprises less than 10% of sales. Based on the conservative assumptions used in our valuation, a 15% upside from the low end of our valuation estimate provides an adequate margin of safety to warrant an investment in NILE. NILE has several other initiatives that could create significant value such as their fashion jewelry business, designer series (Monique Lhuillier), and Nordstrom partnership. Furthermore, NILE has been a significant buyer of its own stock, reducing its share count by nearly a third since its 2004 IPO with an additional $40m earmarked for 2014. RISKS Disappointing Near Term Results NILE’s growth initiatives may take longer than expected before contributing to the firm’s earnings. As a result, near term resul ts may continue to disappoint. However, we are guided by NILE’s long term fundamental outlook and feel that short term volatility in business results — and share prices — provide greater opportunities for the patient investor. Mobile Conversion NILE was the first online jeweler to launch a mobile app in early 2010. Since then, NILE has introduced many enhanced features on its mobile platform, including “Build Your Own” as well as a shared shopping cart, which delivers a seamless user experience between mobile, tablet, and PC. While mobile traffic has grown to 50%, conversion rates remain below PC levels , resulting in less than 20% of revenue s from mobile. Engagement rings customers will likely continue to finalize purchases through PCs, given t he high ticket prices. However, the mobile customer, who is browsing through fashion jewelry and more prone to spur - of - the - moment purchases, will be a key driver of higher margin Non - Engagement revenues. Rapidly Rising Diamond Prices Since NILE purchase s diamonds on a real time basis, a rising price environment harms NILE’s value proposition. When diamond prices rise, traditional retailers, whose inventories maintain lower cost bases, will be able to generate profits without having to further increase prices. NILE on the other hand, will have no choice but to apply its margins off an inflated raw - material cost basis. While an abrupt 20 - 40% rise — the average cost - savings NILE offers — in diamond prices is unlikely , such an event will likely transfer market share to the brick and mortar competitors. 13 CONTAC T US: Kristofer Medina John Choi Portfolio Manager Analyst kris@medinasingh.com j choi@medinasingh.com Proprietary Rights Notice: By accepting a copy of this letter, you acknowledge and agree as follows: This report is provided to affi liates of Medina Singh Partners only for your personal, noncommercial use. Except as expressly authorized by Medina Singh Partners you may not copy, reproduce, transmit, sell, display, distribute, publish, broadcast, circulate, modify, disseminate or comme rcially exploit the information contained in this report, in printed, electronic or any other form, in any manner, without the prior express written consent of Medina Singh Partners . You also agree not to use the information provided in this r eport for any unlawful purpose. 14 Summary of Your Fund Terms Subscriptions Monthly Minimum Investment $250,000 (may be waived by GP) Lock - up Period 1 year Management Fee 2% Incentive Fee 20% of net profit , subject to a high water mark Investment Manager Medina Singh Investment Partners LLC General Partners Kristofer L. Medina Jaiveer Singh Fund Auditor Spicer Jefferies LLP Prime Broker JP Morgan Introducing Broker Wells Fargo Prime Services Fund Administrator Perennial Fund Services, LLC Law Firm Paul, Hastings, Janofsky & Walker LLP Contact Information Telephone: (310) 979 - 6900 Email: i nvestor@medinasingh.com 15 REFERENCES 1 Bates, Rob. "The Extent of the Industry's Shrinkage Is Demonstrated by This Chart." JCK Magazine . Jewelers' Circular Keystone, 20 Feb. 2014. http://www.jckonline.com/blogs/cutting - remarks/2014/02/20/extent - industrys - shrinkage - demonstrated - this - chart� 2 Kumar, V. "Customer Lifetime Value." N.p.: University of Connecticut. http://www.terry.uga.edu/~rgrover/chapter_29.pdf� 3 Cave, Laura. “ Bridal Jewelry: More Customer, More Sales. ” Retail Jewelers Organization Show 2013. Phoenix Convention Center, Phoenix, AR. 29 January 2013. Presentation. http://theknotb2b.files.wordpres s.com/2013/01/rjo - 2013 - more - customers - more - sales.pdf � 4 Wong , Kent. 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