Blue Niles Underperforms For Investors
Blue Nile, Inc., a leading online retailer of diamonds and fine jewelry, reported financial results for its fourth quarter and fiscal year ended January 4, 2015, periods that included 14 weeks and 53 weeks, respectively, as fiscal 2014 contained an extra week. The fourth-quarter earnings results covered the critical holiday shopping season.
The announcement didn’t provide much good news for investors looking for a rebound in the business. In fact, revenue and profit both came in below management’s, and Wall Street’s, expectations. Founded in 1999, Blue Nile has become the largest online retailer of fine diamonds. Blue Nile has led the way in the online retail jewelry world for more than a decade after getting a strong foothold among consumers who showed a willingness to buy online. Focusing on its core benefits of consumer empowerment, product education, and a strong value proposition during its first decade, Blue Nile has up to recent times marketed exclusively to the male jewelry buyer.
This approach resulted in a strong following among well-educated, affluent, male consumers purchasing diamond engagement rings, gifts of fine jewelry, and transformed Blue Nile into the largest online retailer of fine diamonds in the world. But after more than a decade of success, its revenue growth is regarded by analysts as starting to stall.
Providing diamonds and jewelry directly to buyers online, with an emphasis on diamond jewelry and loose stones, was a winning strategy that has brought quarter after quarter of record-setting revenues and profits, even as traditional jewelry retailers and other online retailers struggled to keep their margins up. The firm enjoyed impeccable timing – getting into the online business just as it was about to explode.
The announcement didn’t provide much good news for investors looking for a rebound in the business. In fact, revenue and profit both came in below management’s, and Wall Street’s, expectations. Founded in 1999, Blue Nile has become the largest online retailer of fine diamonds. Blue Nile has led the way in the online retail jewelry world for more than a decade after getting a strong foothold among consumers who showed a willingness to buy online. Focusing on its core benefits of consumer empowerment, product education, and a strong value proposition during its first decade, Blue Nile has up to recent times marketed exclusively to the male jewelry buyer.
This approach resulted in a strong following among well-educated, affluent, male consumers purchasing diamond engagement rings, gifts of fine jewelry, and transformed Blue Nile into the largest online retailer of fine diamonds in the world. But after more than a decade of success, its revenue growth is regarded by analysts as starting to stall.
Providing diamonds and jewelry directly to buyers online, with an emphasis on diamond jewelry and loose stones, was a winning strategy that has brought quarter after quarter of record-setting revenues and profits, even as traditional jewelry retailers and other online retailers struggled to keep their margins up. The firm enjoyed impeccable timing – getting into the online business just as it was about to explode.
The online retailer reported that net sales increased by 7.9% to $157.4 million for the fourth quarter ended January 4, 2015 compared to $146.0 million for the fourth quarter ended December 29, 2013. Operating income for the fourth quarter 2014 totaled $6.9 million, representing an operating margin of 4.4% of net sales compared to $7.2 million of operating income and 4.9% of operating margin for the fourth quarter of 2013.
Net income for the fourth quarter 2014 totaled $4.8 million, or $0.41 per diluted share. Non-GAAP adjusted EBITDA for the fourth quarter 2014 totaled $8.8 million. Blue Nile reported net sales of $473.5 million for the fiscal year ended January 4, 2015 compared to $450.0 million for the fiscal year ended December 29, 2013, an increase of 5.2%. Operating income for the fiscal year ended January 4, 2015 was $14.2 million compared to $14.3 million for the fiscal year ended December 29, 2013.
Net income for the fiscal year ended January 4, 2015 was $9.7 million and earnings per diluted share totaled $0.80. Non-GAAP adjusted EBITDA for the fiscal year ended January 4, 2015 was $22.1 million.
Net cash provided by operating activities totaled $17.2 million for the fiscal year ended January 4, 2015 compared to $23.4 million for the fiscal year ended December 29, 2013. Non-GAAP free cash flow for the fiscal year ended January 4, 2015 was $13.4 million compared to $17.9 million for the fiscal year ended December 29, 2013.
“Our fourth quarter growth continues the positive momentum from Q3 in spite of what was a challenging quarter for many jewelry retailers,” said Harvey Kanter, Blue Nile Chairman, CEO and President. “While these results are below our expectations, the above-industry growth demonstrates that we made progress and gained share. We remain confident in the underlying strategy; more people are realizing that buying online - and at Blue Nile specifically - provides a superior selection and industry- leading quality at an unmatched price. It’s one of the reasons why that, despite a tough quarter for the industry, Blue Nile continued to grow.”
Highlights
Among the highlights stressed by Blue Nile Net were that sales for the additional week was estimated at $5.9 million, which contributed 4.1% of growth for the fourth quarter 2014 and 1.3% for the fiscal year ended January 4, 2015.
U.S. engagement net sales for the fourth quarter 2014 increased 7.9% to $85.0 million, compared to $78.7 million for the fourth quarter of 2013. U.S. engagement net sales for the fiscal year ended January 4, 2015 increased 4.1% to $266.4 million, compared to $255.8 million for the fiscal year ended December 29, 2013.
U.S. engagement net sales for the additional week was estimated at $2.9 million, which contributed 3.7% of growth for the fourth quarter 2014 and 1.1% for the fiscal year ended January 4, 2015.
U.S. non-engagement net sales for the fourth quarter 2014 increased 6.3% to $48.8 million, compared to $45.9 million for the fourth quarter of 2013. U.S. non-engagement net sales for the fiscal year ended January 4, 2015 increased 4.2% to $126.0 million, compared to $121.0 million for the fiscal year ended December 29, 2013.
U.S. non-engagement net sales for the additional week was estimated at $1.8 million, which contributed 3.9% of growth for the fourth quarter 2014 and 1.5% for the fiscal year ended January 4, 2015.
International net sales for the fourth quarter 2014 were $23.6 million, compared to $21.4 million for the fourth quarter 2013, an increase of 10.9%. International net sales for the fiscal year ended January 4, 2015 increased 10.8% to $81.1 million, compared to $73.2 million for the fiscal year ended December 29, 2013.
Excluding the impact from changes in foreign exchange rates, international net sales increased 16.4% and 14.0% for the fourth quarter 2014 and fiscal year ended January 4, 2015, respectively. International net sales for the additional week was estimated at $1.2 million, which contributed 5.8% of growth for the fourth quarter 2014 and 1.7% for the fiscal year ended January 4, 2015.
Gross profit for the fourth quarter 2014 totaled $28.5 million. As a % of net sales, gross profit was 18.1% compared to 18.6% for the fourth quarter of 2013. Gross profit for the fiscal year ended January 4, 2015 totaled $86.6 million.
Selling, general and administrative expenses for the fourth quarter 2014 were $21.6 million, compared to $20.0 million in the fourth quarter of 2013. Selling, general and administrative expenses for the fiscal year ended January 4, 2015 were $72.4 million, compared to $69.3 million for the fiscal year ended December 29, 2013.
Earnings per diluted share included stock-based compensation expense of $0.04 for the fourth quarter of 2014 and $0.06 for the fourth quarter of 2013. Net income for the fiscal year ended December 29, 2013 included an income tax benefit of $1.1 million or $0.08 per diluted share resulting from certain discrete tax items for the third quarter of 2013.
Net income for the additional week was estimated at $0.2 million or $0.02 in earnings per diluted share. Cash and cash equivalents at the end of fiscal year 2014 totaled $91.2 million, compared to $115.9 million at the end of fiscal year 2013.
During the fiscal year ended January 4, 2015, Blue Nile repurchased a total of 1.2 million shares for $40.3 million.
Financial Guidance
Blue Nile’s expectations as of February 10, 2015 for the first quarter of 2015 (ending April 5) are:
• Net sales are expected to be between $107 million and $110 million.
• Earnings per diluted share are projected at $0.07 to $0.09.
• Expectations for the fiscal year 2015 (Year Ending January 3, 2016):
• Net sales are expected to be between $488 million and $505 million.
• Earnings per diluted share are projected at $0.83 to $0.93.◆
Net income for the fourth quarter 2014 totaled $4.8 million, or $0.41 per diluted share. Non-GAAP adjusted EBITDA for the fourth quarter 2014 totaled $8.8 million. Blue Nile reported net sales of $473.5 million for the fiscal year ended January 4, 2015 compared to $450.0 million for the fiscal year ended December 29, 2013, an increase of 5.2%. Operating income for the fiscal year ended January 4, 2015 was $14.2 million compared to $14.3 million for the fiscal year ended December 29, 2013.
Net income for the fiscal year ended January 4, 2015 was $9.7 million and earnings per diluted share totaled $0.80. Non-GAAP adjusted EBITDA for the fiscal year ended January 4, 2015 was $22.1 million.
Net cash provided by operating activities totaled $17.2 million for the fiscal year ended January 4, 2015 compared to $23.4 million for the fiscal year ended December 29, 2013. Non-GAAP free cash flow for the fiscal year ended January 4, 2015 was $13.4 million compared to $17.9 million for the fiscal year ended December 29, 2013.
“Our fourth quarter growth continues the positive momentum from Q3 in spite of what was a challenging quarter for many jewelry retailers,” said Harvey Kanter, Blue Nile Chairman, CEO and President. “While these results are below our expectations, the above-industry growth demonstrates that we made progress and gained share. We remain confident in the underlying strategy; more people are realizing that buying online - and at Blue Nile specifically - provides a superior selection and industry- leading quality at an unmatched price. It’s one of the reasons why that, despite a tough quarter for the industry, Blue Nile continued to grow.”
Highlights
Among the highlights stressed by Blue Nile Net were that sales for the additional week was estimated at $5.9 million, which contributed 4.1% of growth for the fourth quarter 2014 and 1.3% for the fiscal year ended January 4, 2015.
U.S. engagement net sales for the fourth quarter 2014 increased 7.9% to $85.0 million, compared to $78.7 million for the fourth quarter of 2013. U.S. engagement net sales for the fiscal year ended January 4, 2015 increased 4.1% to $266.4 million, compared to $255.8 million for the fiscal year ended December 29, 2013.
U.S. engagement net sales for the additional week was estimated at $2.9 million, which contributed 3.7% of growth for the fourth quarter 2014 and 1.1% for the fiscal year ended January 4, 2015.
U.S. non-engagement net sales for the fourth quarter 2014 increased 6.3% to $48.8 million, compared to $45.9 million for the fourth quarter of 2013. U.S. non-engagement net sales for the fiscal year ended January 4, 2015 increased 4.2% to $126.0 million, compared to $121.0 million for the fiscal year ended December 29, 2013.
U.S. non-engagement net sales for the additional week was estimated at $1.8 million, which contributed 3.9% of growth for the fourth quarter 2014 and 1.5% for the fiscal year ended January 4, 2015.
International net sales for the fourth quarter 2014 were $23.6 million, compared to $21.4 million for the fourth quarter 2013, an increase of 10.9%. International net sales for the fiscal year ended January 4, 2015 increased 10.8% to $81.1 million, compared to $73.2 million for the fiscal year ended December 29, 2013.
Excluding the impact from changes in foreign exchange rates, international net sales increased 16.4% and 14.0% for the fourth quarter 2014 and fiscal year ended January 4, 2015, respectively. International net sales for the additional week was estimated at $1.2 million, which contributed 5.8% of growth for the fourth quarter 2014 and 1.7% for the fiscal year ended January 4, 2015.
Gross profit for the fourth quarter 2014 totaled $28.5 million. As a % of net sales, gross profit was 18.1% compared to 18.6% for the fourth quarter of 2013. Gross profit for the fiscal year ended January 4, 2015 totaled $86.6 million.
Selling, general and administrative expenses for the fourth quarter 2014 were $21.6 million, compared to $20.0 million in the fourth quarter of 2013. Selling, general and administrative expenses for the fiscal year ended January 4, 2015 were $72.4 million, compared to $69.3 million for the fiscal year ended December 29, 2013.
Earnings per diluted share included stock-based compensation expense of $0.04 for the fourth quarter of 2014 and $0.06 for the fourth quarter of 2013. Net income for the fiscal year ended December 29, 2013 included an income tax benefit of $1.1 million or $0.08 per diluted share resulting from certain discrete tax items for the third quarter of 2013.
Net income for the additional week was estimated at $0.2 million or $0.02 in earnings per diluted share. Cash and cash equivalents at the end of fiscal year 2014 totaled $91.2 million, compared to $115.9 million at the end of fiscal year 2013.
During the fiscal year ended January 4, 2015, Blue Nile repurchased a total of 1.2 million shares for $40.3 million.
Financial Guidance
Blue Nile’s expectations as of February 10, 2015 for the first quarter of 2015 (ending April 5) are:
• Net sales are expected to be between $107 million and $110 million.
• Earnings per diluted share are projected at $0.07 to $0.09.
• Expectations for the fiscal year 2015 (Year Ending January 3, 2016):
• Net sales are expected to be between $488 million and $505 million.
• Earnings per diluted share are projected at $0.83 to $0.93.◆
