Blue Nile Q3 Sales Leap While Profits Sag

Online jewelry retailer Blue Nile beat analysts’ expectations, reporting third quarter net sales increasing 23.4 percent to $33.9 million but profits were down to $1.7 million, compared with $2.2 million during the third quarter of 2003.

The drop in profitability can perhaps be explained by a 28.3 percent jump in expenses. Selling, general and administrative expenses increased from $3.9 million to $5 million, reflecting, the company says, an increase in net sales, additional administrative expenses required as a public company, marketing and stock compensation expenses.

“Our financial performance reflects the growing strength of the Blue Nile brand and the compelling value proposition we provide to our customers,” said Blue Nile CEO Mark Vadon.

“Our ability to deliver consistently strong profitability to our shareholders begins with our competitive advantage of a more efficient and more customer-focused business model that is unique within jewelry retail.”

Earnings per diluted share are $0.09 for the quarter, exceeding both the company's expectations and analysts' consensus estimate of $0.07.

Net sales during the first three fiscal quarters were $104.7 million, an increase of 32 percent from $79.3 million in the nine months ended September 30, 2003. Profit before income taxes was $8.5 million, compared to $6.1 million.

Net income during the nine-month period and net income per diluted share were $5.4 million and $0.31, respectively, compared to $6.1 million and $0.38 per diluted share in the comparable period of 2003.

“Our priorities remain focused on extending the recognition and appeal of our brand and driving profitable growth during the peak holiday quarter. The upcoming holiday season is expected to be our largest ever,” Vadon added.

Blue Nile expects net sales of $58 million - $62 million during the fourth quarter and $162.5 million-$166.5 million for the full year.

Net income is expected to be between $0.20 and $0.23 per diluted share for the fourth quarter and in a range of $0.51 to $0.54 per diluted share for the year.