This is a summary of the fourth quarter fiscal 2008 earnings call conducted by Blue Nile, Inc. (NILE) on February 18, 2009.
Management:
President & CEO: Diane Irvine
CFO: Marc Stolzman
Manager, IR: Eileen Askew
Key Investor Issues:
- Net income fell to $3.5 million, or 24 cents per share, from $7.5 million, or 45 cents per share, in the year-ago quarter.
- Sales declined 23% to $85.8 million from $111.9 million as business suffered from a drop in consumer spending and a sluggish holiday season.
- For the year, net income fell 33% to $11.6 million, or 75 cents per share, from $17.5 million, or $1.04 per share. Sales fell 7.5% to $295.3 million.
Fourth Quarter Highlights:
- For 2008, a 53-week year, net sales totaled $295.3 million a decrease of 7.5% compared to the 52-week year of 2007.
- The international sales in 2008 grew 62.9% to $27.7 million and now account for approximately 9% of sales, compared to 5% of sales in 2007.
- Today, Blue Nile ships to over 40 markets world wide in the Americas, Europe and Asia Pacific, which is quite an increase from the four markets served at the end of 2007.
Excluding sales from the additional week in 2008, net sales decreased 8.7%.
Blue Nile reported operating income for the year of $16.0 million and operating margin of 5.4%. Blue Nile generated non-GAAP adjusted EBITDA of $25.1 million or 8.5% of net sales, a particularly noteworthy achievement in the current environment.
Though Blue Nile experienced deleveraging of expenses as demand slowed, it tightly managed costs and reported net income for 2008 of $11.6 million or $0.75 per diluted share. In the fourth quarter, Blue Nile posted net sales of $85.5 million, a decrease of 23.3% from the fourth quarter of 2007.
Total orders declined approximately 20% and the average order value decreased 3%.
The selling price per order was $1,370 in the fourth quarter. The fourth quarter of 2008 was a 14-week quarter, compared to the 13 weeks in 2007. The additional week of the fourth quarter added just under $4 million in sales. Excluding this additional week, fourth quarter sales decreased 26.8%. The year-over-year comparisons discussed from here will compare the 14-week period in 2008 to the 13-week period in 2007.
On a geographic breakdown, US sales declined 24.6%.
For the first time since launching into the UK and Canadian markets, Blue Nile saw a decline in the international sales of 4.2% in the quarter. This is the result of the strengthening US dollar coupled with global economic weakness.
Its important to note that diamonds are denominated in US dollars on a global basis. Therefore foreign currency movements relative to the US dollar have a significant impact on the purchasing power of the consumer paying in foreign in currency. For example, in Q4, the British pound declined in value by more than 23% relative to the US dollar year over year, a significant reduction in buying power for a UK customer.
This dynamic existed for most foreign currencies in Blue Nile international markets during the fourth quarter, and thus had a notable impact on the international sales results. Removing the currency impact, Blue Nile international results would have reflected a year-over-year increases compared to the fourth quarter of 2007.
Gross profit for the quarter was $17.7 million.
As a percent of sales, gross margin for the quarter was 20.6% compared to 21.1% in Q4 2007. The 50 basis point decline in gross margin is the result of product mix shifts.
Sales in the engagement jewelry category, which carries a lower margin were a much grater part of the sales mix in the fourth quarter as compared to Q4 of 2007. For the full year, sales of engagement jewelry accounted for 69% of net sales, compared to 68% of sales in 2007. The average price of an engagement ring purchased from Blue Nile in 2008 was approximately $6000, a slight decline from the $6200 in 2007. This is well above the US average of $3200.
Net income for the quarter was $3.5 million.
Earnings per diluted share were $0.24. Net income per diluted share for the quarter includes stock based compensation expense of $0.08 compared to $0.06 for the fourth quarter of 2007.
