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Blue Nile’s Blues

Posted on Monday, Mar 17th 2008

Blue Nile (NASDAQ:NILE) is the leading online retailer in diamonds and jewelry. A month ago, they announced their Q4 2007 results.

Their Q4 sales of $111.9 million were 23.3% higher than the previous year Q4 sales. Over the same period, their orders increased by 14.9% and average selling price per order went up to $1,411 from $1,314. Their revenues however, missed the analyst expectations of $113.1 million.

For the year, they reported net revenues of $319 million, 26.5% higher than the previous year.

Their Q4 EPS of $0.45 was 28.5% higher than the previous year EPS of $0.35, and just a cent higher than market expectations of $0.44. For the year, they reported an EPS of $1.04 was 36.8% higher than the previous year EPS.

During the quarter they repurchased 94,100 shares for $6.5 million. For the year they repurchased 438,755 shares for $20 million and have further authorized additional $100 million for stock repurchases over the next 24 months.

For Q1 outlook, Blue Nile sales are expected to be similar to Q1 2007 of $67.9 million, and EPS of $0.14. The analysts were expecting sales of $68.4 million with the same EPS.

Blue Nile is now focusing on international expansion in 2008. They have begun shipping to 12 countries in Europe and Asia. I tried to use their UK site, but merchandise offering is limited, and I wasn’t able to do what I wanted to do.

They claim that the economic downturn, might not hit their online sales as much as the brick and mortar sales. But as of now, their stock does not seem to be buying that logic. It recently touched a new 52 week low of $38.35. It has made marginal recovery in the past few sessions to be trading above $40.00. Wall Street also did not at all like the news of its CFO’s resignation. The Blue Nile management seems to have a lot of difficulty holding onto senior executives, something that raises question marks about its scalability.

Blue Nile chart

I have earlier talked about Blue Nile’s need to up-sell. They seem to be making very slow progress towards that. For the year, their non-engagement sales contribution increased marginally to 32% compared to 30% the year before. The bulk of their business continues to be engagement rings, which means, they are still lacking repeat buyers.

In my earlier analysis of Blue Nile along the Web 3.0 parameters, I had talked about the need for them to build up on Community and Personalization.

On community, they still seem to be missing the point I raised earlier: “While the Customer Segment for Blue Nile is Men, the influencer Community is Women.”

Similarly, on personalization, they haven’t fared any better. A repeat customer still does not enter a customized online store.

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I am no expert on Blue Nile’s business model, but I bought a great diamond necklace from them in December and liked the experience so much I bought the stock. I bought more when the price dipped below $40 and I plan to hold for a while. I bought an engagement ring from Tiffany 10 years ago, but turned to the internet for recent purchases. I will definitely be a repeat buyer, but agree that many people will not. I have not bet the farm on NILE, but I like them and hope they succeed. Time will tell.

DiamondBuyer Tuesday, March 18, 2008 at 8:26 AM PT

[…] they are now adding to their product base with newer styles and collections. They continue to drive international expansion and have already entered over 25 markets globally. During the quarter, international sales grew by […]

Consumer Internet Roundup: WebMD, Blue Nile - Sramana Mitra on Strategy Wednesday, August 20, 2008 at 8:56 AM PT
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