Blue Nile Profits Drop 44.4% Despite A Reduction in Wholesale Diamond Prices

(IDEX Online News) – A rise in sales, especially in the engagement category, was not enough for Blue Nile to avoid declining profitability. The leading online diamond retailer posted a 13 percent increase in net sales, rising to $91 million in the second quarter.

Net engagement sales in the U.S. are what pulled up Blue Nile's revenues, rising 19.3 percent year-over-year to $52.4 million. This while the rest of U.S. sales inched up just 1.7 percent to $24.2 million.

International net sales for the second quarter were $14.4 million, growing 12.6 percent. Excluding the impact from changes in foreign exchange rates, international net sales increased 16.3 percent.

Net profit dropped 44.4 percent to $1.6 million, although gross profit was flat at $17.2 million.

This is especially surprising considering that CFO David Binder stated that the recent decline in diamond prices gave the company "some opportunity to optimize profits.”

The company did not state what eroded profitability, only revealing that selling, general and administrative expenses for the quarter were $14.9 million, compared to $12.9 million in the second quarter of 2011.

About half a million dollars of these expenses is a stock-based compensation expense.