This is a summary of the third quarter fiscal 2007 earnings call conducted by Blue Nile, Inc. (NILE: chart) on November 6, 2007.
Management:
Chairman, CEO: Mark Vadon
CFO: Robin Easton
President: Diane Irvine
IR: Nancy Shipp
Key Investor Issues:
- Earnings were $3 million, or 18 cents per share, compared with $1.8 million, or 11 cents per share, a year ago.
- Revenue rose 21% year over year, to $67.4 million from $53.2 million.
- International sales, representing the company''s Canada and U.K. Web sites, climbed 104.5% to $4.5 million.
- Expenses jumped 18%, to $9.7 million from $8.2 million last year.
- For the fourth quarter, Blue Nile expects earnings of between 40 cents and 45 cents per share, on revenue of between $109 million and $115 million.
Third Quarter Highlights
Year-to-date revenue growth was 28.9% and year-to-date operating income growth was 46.3% compared to the first three quarters of 2006.
This year, the company has had two overriding priorities. First, the company has sought to drive innovation of the purchasing experience on its website in order to maximize customer satisfaction. This objective is grounded in the belief that building an Internet brand that resonates with consumers is not done primarily through marketing or technology.
Second, during 2007 the company has invested significant effort in expanding its business to new markets. Earlier this year, Blue Nile relaunched its Canadian and UK businesses and opened its Dublin office. These efforts have led to accelerating growth in the company’s non-US business.
During the quarter, the company delivered strong sales growth and profitability.
- Sales increased 26.5% to $67.4 million.
- Net income in the third quarter totaled $3 million or 18 cents per diluted share.
- The EPS of 18 cents increased 63.6% from the prior year, and was 3 cents above the top end of the company’s guidance range.
The company performed well across all areas of the business, and saw strong sales in virtually all product categories during the third quarter.
Growth continued to be strong at the high end, with more than 50% year-over-year growth in price points above $25,000.
During the quarter, the company’s marketing efforts were very effective in driving increased levels of high quality traffic to the website.
Traffic grew 20% year over year, the highest third quarter traffic growth since 2004. The company saw excellent growth across all marketing vehicles, and continues to be focused on efforts to improve conversion through website and operational enhancements. These efforts, combined with the ability to drive high-quality traffic, have been key contributors to the rapid growth.
Last month, Blue Nile introduced free priority shipping on all orders.
In addition, last Thursday the company launched a new and improved website in preparation for the holiday season. The company has increased the focus on one of the key tenets that Blue Nile stands for: education and guidance.
Another key initiative for Blue Nile is the expansion of the company’s international business, taking the customer experience created in the US and expanding to other parts of the world. While the international sales are still a relatively small part of the overall business, international growth was strong in the third quarter. The company generated approximately $4.5 million in net sales through the Canada and UK websites, representing year-over-year growth of 105%.
On the merchandising front, the company is well positioned for the upcoming holiday season.
The company has exciting new offerings geared toward the holiday that include sterling silver and pearl items to diamond jewelry pieces. In operations, the company has built the capacity to handle significant growth this holiday season.
In the third quarter, net sales were $67.4 million, representing an increase of 26.5% over the third quarter of 2006.
- In the quarter, total orders increased 16.3% as compared to a year ago.
- The average selling price per order was $2,093 compared to $1,884 a year ago.
- Gross profit was $13.4 million, up 28.4% year over year.
- As a percentage of net sales, our gross margin was 19.8% vs. 19.5% a year ago.
- The growth in gross profit was the highest third quarter growth rate Blue Nile has delivered as a public company.
