Blue Nile Q4 Sales Down 2.1%

Online diamond and jewelry retailer, Blue Nile, Inc., said Wednesday that net sales for the fourth quarter decreased 2.1 percent, year-over-year, to $112.3 million due to a decline in high-end diamond sales and a rise in commodity prices.

Operating income for the quarter, ended January 1, was $6.3 million, compared to $9.2 million in the fourth quarter of 2010. Net income for the fourth quarter totaled $4.2 million. Non-GAAP adjusted EBITDA for the fourth quarter was $8.4 million, compared to $11.6 million for the fourth quarter last year.
For the full year, Blue Nile reported net sales increase of 4.5 percent to $348 million. Operating income for the full year was $16.9 million compared to $21.3 million in the prior year.

Net cash provided by operating activities totaled $15.4 million for the year. Non-GAAP free cash flow for the year was $10.1 million.

"The fourth quarter was challenging for Blue Nile, with weakness in demand from our high end diamond customers and some of our international markets, as well as the continued impact of inflationary pressure on commodity costs,” said Vijay Talwar, Blue Nile CEO.

Talwar added that the Seattle-based company began implementing parts of a new strategy to attract customers outside of its engagement core business.

“This strategy drove positive momentum, resulting in our strongest period of customer acquisition since 2007, with new customer growth of 15 percent, Talwar said. “Additionally, in the fourth quarter we achieved order growth of 22 percent and unit growth of 30 percent compared to the fourth quarter of 2010. Growth in all three of these metrics accelerated in December and we believe these trends are important indicators of the long term growth potential of our business.”

The company also announced it plans to repurchase up to $100 million of its common stock over 24 months.

In its outlook the company said it expects first quarter net sales to be between $81 million and $84 million and earnings per diluted share to be $0.04 to $0.07.

Net sales for the year are expected to be between $384 million and $417 million or $0.70 to $0.85 per diluted share.

Financial Highlights include:

* U.S. engagement net sales for the fourth quarter and full year 2011 were $56.2 million and $186.2 million, respectively, down from the fourth quarter and full year 2010, which were $59.8 million and $189.5 million, respectively.
    
* U.S. jewelry net sales for the fourth quarter and full year 2011 were $40.4 million and $105.9 million, respectively. U.S. jewelry net sales for the fourth quarter and full year 2010 were $39.7 million and $100.1 million, respectively.
     
* International net sales for the fourth quarter and full year 2011 were $15.7 million and $55.9 million respectively. International net sales for the fourth quarter and full year 2010 were $15.3 million and $43.3 million, respectively. Excluding the impact from changes in foreign exchange rates, international sales increased 23.3% for the fiscal year.
    
* In the fourth quarter, orders, which are defined as customer orders that have been shipped, grew 22 percent from the fourth quarter of 2010.
    
* New customers, which are defined as individuals who have not made a prior purchase from Blue Nile, grew 15 percent in the fourth quarter of 2011 compared to the fourth quarter of 2010.
    
* Gross profit for the quarter totaled $23.2 million. As a percent of net sales, gross profit was 20.7 percent compared to 22 percent for the fourth quarter of 2010. Gross profit for the year totaled $72.1 million.
    
* Selling, general and administrative expenses for the quarter were $16.9 million, compared to $16.1 million in the fourth quarter of 2010. The increase is primarily related to marketing to drive new customer acquisition and new personnel to support expansion of our product assortment and order growth. Selling, general and administrative expense for the quarter includes stock-based compensation expense of $1.2 million, compared to $1.6 million in the fourth quarter of the prior year.
    
* Net income per diluted share for the quarter includes stock-based compensation expense of $0.06, compared to $0.07 for the fourth quarter of 2010.
    
* Cash and cash equivalents at the end of the fiscal year totaled $89.4 million compared to $113.3 million at the end of fiscal year 2010. 
    
* Full year 2011 capital expenditures totaled $5.4 million compared to $1.8 million for the full year 2010.