Despite Record Results, Blue Nile Shares Drop 16.4%

Despite the announcement of record fourth quarter and year end sales for online jewelry retailer Blue Nile yesterday, shares in the company dropped $6.13 or 16.4 percent to $31.16 in after-hours trading. The company reported fourth quarter share income of $0.29, from $0.24 in the prior year. Analysts, however, expected to see higher share prices of $0.33 per share. 

The company's projected earnings for the first quarter and full year 2006 have also disappointed analysts. Blue Nile projects first quarter earnings of between $47 million and $49 million and full year earnings of between $220 million and $245 million. Wall Street, however, expected $54.1 million and $210.2 million for the first quarter and full year 2006 respectively, reports the Associated Press.           

Blue Nile announced that gross profit for the year totaled $45.1 million, compared to $37.7 million for full year 2004.

Fourth quarter net sales totaled $73.2 million, compared to net sales of $64.5 million in the same prior year period, an increase of 13.5 percent.

Gross profit for the fourth quarter was $16.2 million, compared to $14.1 million in 2004, an increase of 14.7 percent. Gross profit as a percentage of net sales was 22.2 percent versus 21.9 percent in the prior year period.

Wall Street's expectations did not seem to worry Mark Vadon, Chief Executive Officer. "We generated sales growth of 13.5 percent during the fourth quarter, and we demonstrated our ability to deliver strong profitability despite a challenging sales environment in jewelry retail. Although online marketing costs increased significantly during the quarter, we remained disciplined on the cost side in support of our primary goal of generating strong profitability and cash flow. The cash flow generation capabilities of our business model were evidenced in our fourth quarter non-GAAP free cash flow of $36.8 million, an increase of 24.1 percent from the prior year.

"2005 was also a great year for Blue Nile - strategically, operationally and financially. We strengthened our competitive position as the leader in online diamond and jewelry retailing and enhanced our exclusive supply chain relationships. We believe our obsessive focus on providing exceptional customer service and delivering strong profitability to our shareholders will continue to fuel our future growth."