Blue Nile Announces Third Quarter 2012 Financial Results

Thu Nov 1, 2012 4:05pm EDT

* Reuters is not responsible for the content in this press release.

Third Quarter Sales Increased 19.8% to $89.8 million
Third Quarter Earnings Per Diluted Share Total $0.14

SEATTLE, Nov. 1, 2012 (GLOBE NEWSWIRE) -- Blue Nile, Inc. (Nasdaq:NILE), the leading online retailer of diamonds and fine jewelry, today reported financial results for its third quarter ended September 30, 2012.

Net sales increased 19.8% to $89.8 million for the third quarter ended September 30, 2012. Operating income for the quarter totaled $2.7 million, representing an operating margin of 3.0% of net sales. Net income totaled $1.7 million, or $0.14 per diluted share.

Non-GAAP adjusted EBITDA for the quarter totaled $4.8 million. For the trailing twelve month period ended September 30, 2012, net cash provided by operating activities totaled $25.6 million compared to $29.5 million for the trailing twelve month period ended October 2, 2011. For the trailing twelve month period ended September 30, 2012, non-GAAP free cash flow totaled $22.9 million.

"We are excited to report solid results in the third quarter, with accelerating revenue growth and expanding earnings per share. The execution of our strategy is clearly on track. Investments we made in marketing and pricing are working and building momentum behind the strength of our diamond engagement products. Sales of our non-engagement products also improved this quarter, and we are only beginning to launch an assortment of new jewelry aimed to further accelerate our growth. With continued steady execution of our strategy coupled with exciting product offerings for the holiday season, we believe we are well positioned to achieve our goals for 2012," said Harvey Kanter, President and Chief Executive Officer.

Highlights

  • U.S. engagement net sales for the third quarter 2012 increased 31.5% to $54.1 million, compared to $41.1 million for the third quarter of 2011.
     
  • U.S. non-engagement net sales for the third quarter 2012 increased 12.0% to $21.8 million, compared to $19.4 million for the third quarter of 2011.
     
  • International net sales for the third quarter 2012 were $13.9 million, compared to $14.4 million for the third quarter 2011, a decrease of 3.3%. Excluding the impact from changes in foreign exchange rates, international net sales decreased 1.5%.
     
  • Gross profit for the third quarter totaled $16.9 million. As a percent of net sales, gross profit was 18.8% compared to 19.8% for the third quarter of 2011.
     
  • New customers, which we define as individuals who have not made a prior purchase from Blue Nile, grew 22.4% in the third quarter of 2012 compared to the third quarter of 2011.   
     
  • Selling, general and administrative expenses for the third quarter were $14.3 million, compared to $12.0 million in the third quarter of 2011. Selling, general and administrative expenses for the third quarter includes stock-based compensation expense of $1.3 million, compared to $1.6 million in the third quarter 2011.
     
  • Earnings per diluted share for the third quarter included stock based compensation expense of $0.06 compared to $0.08 for the third quarter of 2011.
     
  • At the end of the third quarter, cash and cash equivalents totaled $30.2 million.

Financial Guidance

The following forward-looking statements reflect Blue Nile's expectations as of November 1, 2012. Actual results may be materially affected by many factors, such as consumer spending, economic conditions, product assortment and the various factors detailed below.

Expectations for the fourth quarter of 2012 (Quarter Ending December 30, 2012):

  • Net sales are expected to be between $140 million and $153 million.
  • Earnings per diluted share are projected at $0.44 to $0.50.

Expectations for the fiscal year 2012 (Year Ending December 30, 2012):

  • Net sales are expected to be between $404 million and $417 million.
  • Earnings per diluted share are projected at $0.70 to $0.75.

Forward-Looking Statements

This press release contains forward-looking statements that include risks and uncertainties, including, without limitation, all statements related to future financial and business performance, market opportunity and plans to grow our business. Words such as "expect," "anticipate," "believe," "project," "will" and similar expressions are intended to identify forward-looking statements. These forward-looking statements are based upon our current expectations. Forward-looking statements involve risks and uncertainties. Our actual results and the timing of events could differ materially from those anticipated in such forward-looking statements as a result of these risks and uncertainties, which include, without limitation, risks related to general economic conditions, consumer spending (particularly spending by high-end consumers), product assortment, our fluctuating operating results, currency fluctuations, seasonality in our business, our ability to acquire products on reasonable terms, our online business model, demand for our products, our ability to attract customers in a cost effective manner, the strength of our brand, competition, fraud, system interruptions, our ability to fulfill orders and other risks detailed in our filings with the Securities and Exchange Commission, including our quarterly reports on Form 10-Q and our Annual Report on Form 10-K for the year ended January 1, 2012. Additional information will also be set forth in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, which we expect to file with the Securities and Exchange Commission on or before November 9, 2012. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. All forward-looking statements are qualified in their entirety by this cautionary statement, and Blue Nile undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date hereof.

Conference Call

Blue Nile will host a conference call to discuss its third quarter financial results today at 2:00 p.m. PT/5:00 p.m. ET. A live webcast of the conference call may be accessed at http://investor.bluenile.com. Following the completion of the call, a recorded replay of the webcast will be available for 30 days at the same Internet address. This call will contain forward-looking statements and other material information regarding Blue Nile's financial and operating results. In the event that any non-GAAP financial measure is discussed on the conference call that is not described in this release, related complementary information will be made available at http://investor.bluenile.com as soon as practicable after the conclusion of the conference call.

Non-GAAP Financial Measures

To supplement Blue Nile's consolidated financial statements presented in accordance with generally accepted accounting principles ("GAAP"), Blue Nile uses non-GAAP adjusted EBITDA and non-GAAP free cash flow as measures of certain components of financial performance. Blue Nile defines non-GAAP adjusted EBITDA as earnings before interest and other income, taxes, depreciation and amortization, adjusted to exclude the effects of stock-based compensation expense. Blue Nile defines non-GAAP free cash flow as net cash provided by (used in) operating activities less cash outflows for purchases of fixed assets, including internal use software and website development. Blue Nile reports sales information in accordance with GAAP. Internally, management monitors its sales performance on a non-GAAP basis that eliminates the positive or negative effects that result from translating international sales into U.S. dollars (the "constant exchange rate basis"). Blue Nile's management does not itself, nor does it suggest that investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Investors should also note that the non-GAAP financial measures used by Blue Nile may not be the same non-GAAP financial measures, and may not be calculated in the same manner, as that of other companies. Whenever Blue Nile uses such non-GAAP financial measures, it provides a reconciliation of non-GAAP financial measures to the most closely applicable GAAP financial measures. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures.

Blue Nile's management believes that non-GAAP adjusted EBITDA and non-GAAP free cash flow, as defined, as well as international sales on a constant exchange rate basis provide meaningful supplemental information to the company and to investors. Blue Nile believes that both management and investors benefit from referring to these non-GAAP measures in assessing the performance of Blue Nile and when planning and forecasting future periods. Further, management believes that the inclusion of the non-GAAP adjusted EBITDA and non-GAAP free cash flow calculations provide consistency in Blue Nile's financial reporting and comparability with similar companies in Blue Nile's industry. Management believes the constant exchange rate measurement provides a more representative assessment of the sales performance and provides better comparability between reporting periods.

A reconciliation of non-GAAP adjusted EBITDA to net income is as follows (in thousands):
     
  Quarter ended Quarter ended
  September 30, 2012 October 2, 2011
Net income  $ 1,741  $ 1,869
Income tax expense 961 1,004
Other income, net  (36)  (13)
Depreciation and amortization 852 849
Stock-based compensation 1,287 1,671
Adjusted EBITDA  $ 4,805  $ 5,380
     
     
  Year to date ended Year to date ended
  September 30, 2012 October 2, 2011
Net income  $ 3,473  $ 7,129
Income tax expense 1,937 3,680
Other income, net  (201)  (177)
Depreciation and amortization 2,615 2,521
Stock-based compensation 3,741 5,153
Adjusted EBITDA  $ 11,565  $ 18,306
     
 
A reconciliation of differences of non-GAAP free cash flow from the comparable GAAP measure of net cash provided by (used in) operating activities is as follows (in thousands):
     
     
  Quarter ended Quarter ended
  September 30, 2012 October 2, 2011
Net cash provided by (used in) operating activities  $ 4,776  $ (2,164)
Purchases of fixed assets, including internal-use    
software and website development  (600)  (973)
Non-GAAP free cash flow $4,176  $(3,137)
     
     
  Twelve months ended Twelve months ended
  September 30, 2012 October 2, 2011
Net cash provided by operating activities  $ 25,631  $ 29,468
Purchases of fixed assets, including internal-use    
software and website development  (2,755)  (4,971)
Non-GAAP free cash flow $22,876 $24,497
     
The following table reconciles year-over-year total company sales as well as international net sales percentage increases (decreases) from the GAAP sales measures to the non-GAAP constant exchange rate basis:
       
    Effect of foreign Year over year growth on
Quarter ended September 30, 2012  Year over year growth exchange movements constant exchange rate basis
International net sales (3.3)% (1.8)% (1.5)%
       
    Effect of foreign Year over year growth on
Quarter ended October 2, 2011  Year over year growth exchange movements constant exchange rate basis
International net sales 54.8% 8.6% 46.2%
       
       
    Effect of foreign Year over year growth on
Year to date ended September 30, 2012  Year over year growth exchange movements constant exchange rate basis
International net sales 5.7% (1.8)% 7.5%
    Effect of foreign Year over year growth on
Year to date ended October 2, 2011  Year over year growth exchange movements constant exchange rate basis
International net sales 43.2% 8.6% 34.6%

About Blue Nile, Inc.

Blue Nile, Inc. is the leading online retailer of diamonds and fine jewelry. The Company delivers the ultimate customer experience, providing consumers with a superior way to buy engagement rings, wedding rings and fine jewelry. Blue Nile offers in-depth educational materials and unique online tools that place consumers in control of the jewelry shopping process. The Company has some of the highest quality standards in the industry and offers thousands of independently certified diamonds and fine jewelry at prices significantly below traditional retail. Blue Nile can be found online at www.bluenile.com. Blue Nile's shares are traded on the NASDAQ Stock Market LLC under the symbol NILE.

The Blue Nile, Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=9579

BLUE NILE, INC.
Condensed Consolidated Balance Sheets
(in thousands, except par value)
     
     
  September 30, 2012 January 1, 2012
  (unaudited)  
ASSETS    
Current assets:    
Cash and cash equivalents  $ 30,237  $ 89,391
Trade accounts receivable 2,237 2,317
Other accounts receivable 797 2,550
Inventories 28,916 29,267
Deferred income taxes 419 689
Prepaids and other current assets 1,291 1,009
Total current assets 63,897 125,223
Property and equipment, net 8,080 8,340
Intangible assets, net 210 252
Deferred income taxes 7,458 9,053
Note receivable 2,000
Other investments 2,000
Other assets 153 157
Total assets  $ 83,798  $ 143,025
LIABILITIES AND STOCKHOLDERS' EQUITY    
Current liabilities:    
Accounts payable  $ 66,862  $ 95,590
Accrued liabilities 5,936 9,396
Current portion of long-term financing obligation 60 59
Current portion of deferred rent 246 211
Total current liabilities 73,104 105,256
Long-term financing obligation, less current portion 640 685
Deferred rent, less current portion 2,236 2,060
Stockholders' equity:    
Common stock 21 21
Additional paid-in capital 195,947 187,762
Accumulated other comprehensive loss (137) (123)
Retained earnings 77,964 74,491
Treasury stock (265,977) (227,127)
Total stockholders' equity 7,818 35,024
Total liabilities and stockholders' equity  $ 83,798  $ 143,025
 
BLUE NILE, INC.
Condensed Consolidated Statements of Operations
(unaudited)
(in thousands, except per share data)
         
         
         
  Quarter ended Year to date ended
  September 30, 2012 October 2, 2011 September 30, 2012 October 2, 2011
Net sales  $ 89,830  $ 74,987  $ 263,914  $ 235,689
Cost of sales 72,900 60,149 214,515 186,758
Gross profit 16,930 14,838 49,399 48,931
Selling, general and administrative expenses 14,264 11,978 44,190 38,299
Operating income 2,666 2,860 5,209 10,632
Other income, net        
Interest income, net 20 33 105 116
Other income (expense), net 16 (20) 96 61
Total other income, net 36 13 201 177
Income before income taxes 2,702 2,873 5,410 10,809
Income tax expense 961 1,004 1,937 3,680
Net income  $ 1,741  $ 1,869  $ 3,473  $ 7,129
Basic net income per share  $ 0.14  $ 0.13  $ 0.26  $ 0.50
Diluted net income per share  $ 0.14  $ 0.13  $ 0.25  $ 0.48
         
Shares used for computation (in thousands):        
Basic 12,677 13,996 13,439 14,375
Diluted 12,870 14,362 13,643 14,906
         
 
BLUE NILE, INC.
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
     
     
  Year to date ended
  September 30, 2012 October 2, 2011
Operating activities:    
Net income  $ 3,473  $ 7,129
Adjustments to reconcile net income to net cash used in operating activities:    
Depreciation and amortization  2,615  2,521
Loss on disposal of property and equipment  31  35
Stock-based compensation  3,831  5,243
Deferred income taxes  1,865  (690)
Tax (deficiency) benefit from exercise of stock options  (2,556)  579
Excess tax benefit from exercise of stock options  (25)  (367)
Changes in assets and liabilities:    
Receivables  2,147  (473)
Inventories  351  (2,854)
Prepaid expenses and other assets  (278)  (190)
Accounts payable  (28,881)  (37,123)
Accrued liabilities  (3,451)  (7,065)
Deferred rent and other  (103)  2,097
Net cash used in operating activities  (20,981)  (31,158)
Investing activities:    
Purchases of property and equipment  (2,095)  (4,731)
Purchases of other investments  (2,000)  — 
Payments for note receivable  (2,000)  — 
Net cash used in investing activities  (6,095)  (4,731)
Financing activities:    
Repurchase of common stock  (38,850)  (39,325)
Proceeds from stock option exercises  6,803  1,724
Excess tax benefit from exercise of stock options  25  367
Principal payments under long-term financing obligation  (44)  (37)
Net cash used in financing activities  (32,066)  (37,271)
     
Effect of exchange rate changes on cash and cash equivalents  (12)  58
     
Net decrease in cash and cash equivalents  (59,154)  (73,102)
     
Cash and cash equivalents, beginning of period  89,391  113,261
Cash and cash equivalents, end of period  $ 30,237  $ 40,159
     
     
     
Supplemental disclosure of cash flow information:    
Cash paid for income taxes 2,891 5,932
CONTACT: Blue Nile, Inc.
         Nancy Shipp, 206.388.3626 (Investors)
         nancys@bluenile.com
         or
         Josh Holland, 206.336.6773 (Media)
         joshh@bluenile.com