Blue Nile Announces Fourth Quarter and Full Year 2012 Financial Results

Tue Feb 12, 2013 4:05pm EST

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

http://pdf.reuters.com/htmlnews/8knews.asp?i=43059c3bf0e37541&u=urn:newsml:reuters.com:20130212:nGNXUXDTFa

Fourth Quarter Sales Increased 21.2% to $136.1 Million 
Fourth Quarter Earnings Per Diluted Share Total $0.39 
Full Year Sales Increased 14.9% to $400.0 Million 
Full Year Earnings Per Diluted Share Total $0.63 

SEATTLE, Feb. 12, 2013 (GLOBE NEWSWIRE) -- Blue Nile, Inc. (Nasdaq:NILE), the leading online
retailer of diamonds
http://www.globenewswire.com/newsroom/ctr?d=226285&l=8&a=diamonds&u=http%3A%2F%2Fwww.bluenile.com%2Fdiamonds.jsp
 and fine jewelry
http://www.globenewswire.com/newsroom/ctr?d=226285&l=8&a=jewelry&u=http%3A%2F%2Fwww.bluenile.com%2Fjewelry
, today reported financial results for its fourth quarter ended December 30, 2012.

Net sales increased 21.2% to $136.1 million for the fourth quarter ended December 30, 2012.
Operating income for the quarter totaled $7.1 million, representing an operating margin of 5.2% of
net sales. Net income totaled $4.9 million, or $0.39 per diluted share. Non-GAAP adjusted EBITDA
for the quarter totaled $9.1 million.

For the full year, Blue Nile reported net sales of $400.0 million, compared to $348.0 million for
the full year of 2011, an increase of 14.9%. Operating income for the full year was $12.3 million
compared to $16.9 million in the prior year. Net income for the year was $8.4 million and earnings
per diluted share totaled $0.63. Non-GAAP adjusted EBITDA for 2012 was $20.6 million. 

Net cash provided by operating activities totaled $34.4 million for the year compared to $15.4
million for the year ended January 1, 2012. Non-GAAP free cash flow for the year was $31.9 million
compared to $10.1 million for the prior year.

"The fourth quarter caps off a great year of growth at Blue Nile, building upon our sequential
growth while posting greater profitability versus the prior year. Investments we made in 2012 paid
off with the highest annual levels of revenue growth and customer acquisition in five years,
exceptional strength in engagement sales in the U.S., and a return to strong growth
internationally. While we fell short of our expected sales of non-engagement jewelry during the
holiday season, in part due to a weaker environment for consumer discretionary spending, we gained
valuable insight that will guide the evolution of our product mix. We believe that our strategy to
accelerate this part of our business is on track," said Harvey Kanter, President and Chief
Executive Officer.  

The Company also announced it has entered into a Credit Agreement with U.S. Bank National
Association. The Credit Agreement provides for borrowings under a $35 million revolving credit
facility maturing in 2014. Availability of capital from this agreement augments the company's
positive cash flow from operations and provides further flexibility to pursue strategic
opportunities to enhance shareholder value.

Highlights

* U.S. engagement net sales for the fourth quarter 2012 increased 31.0% to $73.6 million, compared
to $56.2 million for the fourth quarter of 2011. U.S. engagement net sales for the full year 2012
increased 21.7% to $226.6 million, compared to $186.2 million for the full year 2011.
 
* U.S. non-engagement net sales for the fourth quarter 2012 increased 5.3% to $42.5 million,
compared to $40.4 million for the fourth quarter of 2011. U.S. non-engagement net sales for the
full year 2012 increased 4.9% to $111.0 million, compared to $105.9 million for the full year
2011.
 
* International net sales for the fourth quarter 2012 were $20.0 million, compared to $15.7
million for the fourth quarter 2011, an increase of 26.8%. International net sales for the full
year 2012 increased 11.7% to $62.4 million, compared to $55.9 million for the full year 2011.
Excluding the impact from changes in foreign exchange rates, international net sales increased
12.6% for the fiscal year.
 
* Gross profit for the fourth quarter totaled $25.7 million. As a percent of net sales, gross
profit was 18.8% compared to 20.7% for the fourth quarter of 2011. Gross profit for the year
totaled $75.1 million.
 
* New customers, which we define as individuals who have not made a prior purchase from Blue Nile,
grew 7.8% in the fourth quarter of 2012 compared to the fourth quarter of 2011. For the full year,
new customers grew 17.6% compared to the full year of 2011.
 
* Selling, general and administrative expenses for the fourth quarter were $18.6 million, compared
to $16.9 million in the fourth quarter of 2011. Selling, general and administrative expenses for
the full year were $62.8 million, compared to $55.2 million for the full year 2011.
 
* Earnings per diluted share for the fourth quarter included stock-based compensation expense of
$0.06 for the fourth quarter of 2012 and 2011.
 
* Cash and cash equivalents at the end of the fiscal year totaled $87.0 million, compared to $89.4
million at the end of the fiscal year 2011.

Financial Guidance

The following forward-looking statements reflect Blue Nile's expectations as of February 12, 2013.
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 first quarter of 2013 (Quarter Ending March 31, 2013):

* Net sales are expected to be between $94 million and $100 million.
* Earnings per diluted share are projected at $0.05 to $0.08.

Expectations for the fiscal year 2013 (Year Ending December 29, 2013):

* Net sales are expected to be between $440 million and $470 million.
* Earnings per diluted share are projected at $0.75 to $0.85.

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 Annual Report
on Form 10-K for the year ended December 30, 2012, which we expect to file with the Securities and
Exchange Commission on or before March 15, 2013. 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 fourth 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
http://www.globenewswire.com/newsroom/ctr?d=10021550&l=16&u=http%3A%2F%2Finvestor.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
http://www.globenewswire.com/newsroom/ctr?d=10021550&l=16&u=http%3A%2F%2Finvestor.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     
                                December 30, 2012   January 1, 2012   
 Net Income                     $ 4,919             $ 4,221           
                                                                      
 Income tax expense             2,636               2,215             
                                                                      
 Other income, net              (477)               (149)             
                                                                      
 Depreciation and amortization  752                 877               
                                                                      
 Stock-based compensation       1,226               1,261             
                                                                      
 Adjusted EBITDA                $ 9,056             $ 8,425           
                                                                      
                                Year ended          Year ended        
                                December 30, 2012   January 1, 2012   
 Net Income                     $ 8,392             $ 11,350          
                                                                      
 Income tax expense             4,574               5,895             
                                                                      
 Other income, net              (679)               (326)             
                                                                      
 Depreciation and amortization  3,368               3,398             
                                                                      
 Stock-based compensation       4,967               6,414             
                                                                      
 Adjusted EBITDA                $ 20,622            $ 26,731          


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     
                                                                                     December 30, 2012   January 1, 2012   
 Net cash provided by operating activities                                           $ 55,425            $ 46,612          
                                                                                                                           
 Purchases of fixed assets, including internal-use software and website development  (430)               (660)             
                                                                                                                           
 Non-GAAP free cash flow                                                             $ 54,995            $ 45,952          
                                                                                                                           
                                                                                     Year ended          Year ended        
                                                                                     December 30, 2012   January 1, 2012   
 Net cash provided by operating activities                                           $ 34,444            $ 15,454          
                                                                                                                           
 Purchases of fixed assets, including internal-use software and website development  (2,525)             (5,391)           
                                                                                                                           
 Non-GAAP free cash flow                                                             $ 31,919            $ 10,063          


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:

 Quarter ended        Year over year   Effect of foreign    Year over year growth on       
 December 30, 2012    growth           exchange movements   constant exchange rate basis   
                                                                                           
 International Sales  26.8%            2.1%                 24.7%                          
                                                                                           
 Quarter ended        Year over year   Effect of foreign    Year over year growth on       
 January 1, 2012      growth           exchange movements   constant exchange rate basis   
                                                                                           
 International Sales  2.6%             0.0%                 2.6%                           
                                                                                           
 Year Ended           Year over year   Effect of foreign    Year over year growth on       
 December 30, 2012    growth           exchange movements   constant exchange rate basis   
                                                                                           
 International Sales  11.7%            (0.9)%               12.6%                          
                                                                                           
 Year Ended           Year over year   Effect of foreign    Year over year growth on       
 January 1, 2012      growth           exchange movements   constant exchange rate basis   
                                                                                           
 International Sales  29.1%            5.8%                 23.3%                          


About Blue Nile, Inc.

Blue Nile, Inc. is the leading online retailer of diamonds
http://www.globenewswire.com/newsroom/ctr?d=226285&l=8&a=diamonds&u=http%3A%2F%2Fwww.bluenile.com%2Fdiamonds.jsp
 and fine jewelry. The Company delivers the ultimate customer experience, providing consumers with
a superior way to buy engagement rings
http://www.globenewswire.com/newsroom/ctr?d=226285&l=8&a=engagement%20rings&u=http%3A%2F%2Fwww.bluenile.com%2Fengagement-rings
, wedding rings and fine jewelry
http://www.globenewswire.com/newsroom/ctr?d=226285&l=8&a=jewelry&u=http%3A%2F%2Fwww.bluenile.com%2Fjewelry
. 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
http://www.globenewswire.com/newsroom/ctr?d=10021550&l=24&a=www.bluenile.com&u=http%3A%2F%2Fwww.bluenile.com%2F
. 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
http://www.globenewswire.com/newsroom/ctr?d=10021550&l=25&u=http%3A%2F%2Fwww.globenewswire.com%2Fnewsroom%2Fprs%2F%3Fpkgid%3D9579

 BLUE NILE, INC.                                                                    
 Condensed Consolidated Balance Sheets                                              
 (in thousands)                                                                     
                                                                                  
                                                       December 30,  January 1,   
                                                       2012          2012         
                                                       (unaudited)                
 ASSETS                                                                           
 Current assets:                                                                  
 Cash and cash equivalents                             $ 87,017      $ 89,391     
 Trade accounts receivable                             2,578         2,317        
 Other accounts receivable                             907           2,550        
 Inventories                                           33,270        29,267       
 Deferred income taxes                                 926           689          
 Prepaids and other current assets                     1,229         1,009        
 Total current assets                                  125,927       125,223      
 Property and equipment, net                           7,876         8,340        
 Intangible assets, net                                195           252          
 Deferred income taxes                                 7,786         9,053        
 Note receivable                                       2,000         -            
 Other investments                                     2,000         -            
 Other assets                                          117           157          
 Total assets                                          $ 145,901     $ 143,025    
 LIABILITIES AND STOCKHOLDERS' EQUITY                                             
 Current liabilities:                                                             
 Accounts payable                                      $ 116,209     $ 95,590     
 Accrued liabilities                                   12,439        9,396        
 Current portion of long-term financing obligation     60            59           
 Current portion of deferred rent                      246           211          
 Total current liabilities                             128,954       105,256      
 Long-term financing obligation, less current portion  625           685          
 Deferred rent, less current portion                   2,188         2,060        
 Other long term liabilities                           25            -            
 Stockholders' equity:                                                            
 Common stock                                          21            21           
 Additional paid-in capital                            197,282       187,762      
 Accumulated other comprehensive loss                  (100)         (123)        
 Retained earnings                                     82,883        74,491       
 Treasury stock                                        (265,977)     (227,127)    
 Total stockholders' equity                            14,109        35,024       
 Total liabilities and stockholders' equity            $ 145,901     $ 143,025    


                                                                                                       
                                                                                                       
 BLUE NILE, INC.                                                                                       
 Condensed Consolidated Statements of Operations                                                       
 (unaudited)                                                                                           
 (in thousands, except per share data)                                                                 
                                                                                                   
                                               Quarter ended              Year ended                 
                                               December 30,  January 1,  December 30,  January 1,  
                                               2012          2012        2012          2012        
 Net sales                                     $ 136,121     $ 112,324   $ 400,035     $ 348,013   
 Cost of sales                                 110,462       89,123      324,977       275,881     
 Gross profit                                  25,659        23,201      75,058        72,132      
 Selling, general and administrative expenses  18,581        16,914      62,771        55,213      
 Operating income                              7,078         6,287       12,287        16,919      
 Other income, net                                                                                 
 Interest income, net                          28            26          133           142         
 Other income, net                             449           123         546           184         
 Total other income, net                       477           149         679           326         
 Income before income taxes                    7,555         6,436       12,966        17,245      
 Income tax expense                            2,636         2,215       4,574         5,895       
 Net income                                    $ 4,919       $ 4,221     $ 8,392       $ 11,350    
 Basic net income per share                    $ 0.39        $ 0.31      $ 0.64        $ 0.80      
 Diluted net income per share                  $ 0.39        $ 0.30      $ 0.63        $ 0.77      
                                                                                                   
 Shares used for computation (in thousands):                                                       
 Basic                                         12,500        13,602      13,204        14,182      
 Diluted                                       12,757        13,957      13,427        14,675      


                                                                                                                
                                                                                                                
 BLUE NILE, INC.                                                                                                
 Condensed Consolidated Statements of Cash Flows                                                                
 (unaudited)                                                                                                    
 (in thousands)                                                                                                 
                                                                                                              
                                                                                    Year ended                 
                                                                                    December 30,  January 1,  
                                                                                    2012          2012        
 Operating activities:                                                                                        
 Net income                                                                         $ 8,392       $ 11,350    
 Adjustments to reconcile net income to net cash provided by operating activities:                            
 Depreciation and amortization                                                      3,368         3,398       
 Loss on disposal of property and equipment                                         45            35          
 Stock-based compensation                                                           5,087         6,534       
 Deferred income taxes                                                              1,030         (761)       
 Tax (deficiency) benefit from exercise of stock options                            (2,567)       771         
 Excess tax benefit from exercise of stock options                                  (37)          (646)       
 Changes in assets and liabilities:                                                                           
 Receivables                                                                        (323)         (1,391)     
 Inventories                                                                        (4,003)       (9,101)     
 Prepaid expenses and other assets                                                  (180)         35          
 Accounts payable                                                                   20,392        5,207       
 Accrued liabilities                                                                3,052         (2,080)     
 Other long term liabilities                                                        25            -           
 Deferred rent and other                                                            163           2,103       
 Net cash provided by operating activities                                          34,444        15,454      
 Investing activities:                                                                                        
 Purchases of property and equipment                                                (2,525)       (5,391)     
 Purchases of other investments                                                     (2,000)       -           
 Payments for note receivable                                                       (2,000)       -           
 Net cash used in investing activities                                              (6,525)       (5,391)     
 Financing activities:                                                                                        
 Repurchase of common stock                                                         (38,850)      (39,950)    
 Proceeds from stock option exercises                                               8,572         5,466       
 Excess tax benefit from exercise of stock options                                  37            646         
 Principal payments under long-term financing obligation                            (59)          (52)        
 Net cash used in financing activities                                              (30,300)      (33,890)    
 Effect of exchange rate changes on cash and cash equivalents                       7             (43)        
                                                                                                              
 Net decrease in cash and cash equivalents                                          (2,374)       (23,870)    
                                                                                                              
 Cash and cash equivalents, beginning of period                                     89,391        113,261     
 Cash and cash equivalents, end of period                                           $ 87,017      $ 89,391    
                                                                                                              
 Supplemental disclosure of cash flow information:                                                            
 Cash paid for income taxes                                                         $ 4,121       $ 7,363     
 Cash paid for interest relating to long-term financing obligation                  3             8           
 Non-cash investing and financing activities:                                                                 
 Receivable from stock option exercises                                             -             1,705       
 Payable for purchases of property and equipment                                    325           98          


CONTACT: Blue Nile, Inc.
         Nancy Shipp, 206.388.3626 (Investors)
         nancys@bluenile.com
         or
         Josh Holland, 206.336.6773 (Media)
         joshh@bluenile.com

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