This summary is based on the first quarter fiscal 2008 earnings call conducted by Blue Nile, Inc. (NILE: chart) on May 6, 2008.

Management:

Manager, Investor Relations: Eileen Askew
President, Chief Executive Officer, Director: Diane Irvine
Principal Financial and Accounting Officer, Vice President - Finance, Controller, Secretary: Terri Maupin
Executive Chairman of the Board: Mark C. Vadon

Key Investors Issues

- EPS were 16 cents per share compared to 19 cents per share a year ago.
- Net profit was $2.6 million compared to $3.2 million a year earlier.
- Sales rose nearly 4% to $70.5 million.

First Quarter Highlights

The company posted net sales of $70.5 million, representing an increase of 3.8% over the first quarter of 2007.

- Gross profit was $13.9 million, an increase of 5.1% year over year. As a percentage of net sales, gross margin was 19.8%, an improvement of 30 basis points from a year ago.
- Total orders were down 3% as compared to a year ago and average selling price per order increased 6.5% to $1,637. Order total a year ago included a Google checkout promotion that drove a number of low ticket orders. Excluding this special promotion from last year’s totals, orders in the first quarter of 2008 increased approximately 8% over last year and average ticketed declined approximately 4%.

Net income was $2.6 million.

- Earnings per share were 16 cents per share, exceeding the high-end of guidance range by 2 cents per share. Net income per share includes stock-based compensation of 7 cents per share, compared to 5 cents per share for the first quarter of 2007.
- In the first quarter of 2007, EPS of 19 cents per share included 1 cent per share of earnings related to income from legal settlements.

- SG&A totaled $10.9 million. SG&A included $1.7 million in stock compensation expense in compared to $1.2 million in the first quarter a year ago. Excluding stock-based compensation expense, SG&A as percentage of sales was 13% compared to 12.2% in the first quarter of 2007.
- First quarter results include higher costs year-on-year related to recently expanded domestic fulfillment center and international operations. The company continues to make the investments in business that will allow capitalizing on the opportunities that the company sees to build its brand, capture additional market share, and further enhance category leadership position.

Operating income totaled $3 million, representing an operating margin of 4.3%.

- Non-GAAP adjusted EBITDA, defined as earnings before interest and other income, income taxes, depreciation and amortization, adjusted to exclude the effects of stock-based compensation expense, was $5.2 million compared to $5.4 million in the first quarter of 2007.
- Interest income totaled approximately $800,000 compared to approximately $1 million in last year’s first quarter. The decrease in interest income is primarily due to lower interest rates than in the first quarter of 2007.
- Effective tax rate was 34.9%, equivalent to the rate a year ago. Cash balance was $42.7 million after having repurchased $41.7 million of stock in buy-back program.

Cash from operations is typically negative in the first quarter of fiscal year due to the reduction in accounts payable following the fourth quarter holiday season.

- In the first quarter, cash used in operating activities was $38.3 million. For the remaining three quarters of the year, the company typically expects to generate positive cash flow from operations.
- At the end of the first quarter, trailing 12 months non-GAAP free cash flow was $24.2 million.

Within diamonds, prices below $5,000 showed the most strength while the high end experienced weakness.

- While sales improved marginally as the quarter progressed, the environment remains difficult in the U.S. jewelry market. Consumers appeared to have pulled back on the purchase of high ticket items and many individuals who might have financed this type of purchase in years past are facing difficult accessing credit for their purchase.
- In addition to the economic uncertainties that are influencing consumers in the U.S., commodities prices have risen over the last year, with gold up approximately 30% and platinum up approximately 50% from the same time a year ago.
- As 2008 has progressed, diamond prices have also begun to rise. With prices for the raw materials of fine jewelry rising, consumers are even less able to afford purchases in the category.

Despite the economic environment in the U.S., international business is experiencing robust growth and is performing well.

- Non-U.S. sales grew by more than 120% to $5.7 million and represented over 8% of total sales.
- International sales were less than 4% of business a year ago and were approximately 6.5% of sales in the fourth quarter. While international business is still young, the growth has been tremendous. Sales to Canada and the U.K. rose by approximately 100%. In addition, during February the company launched the ability to purchase select items from Blue Nile for shipment to other countries. This launch started with 12 countries and has since expanded to a total of 25 countries in Europe and Asia-Pacific.

- While the company is early in the build-out of this part of business, with a limited offering for customers and little marketing support, the response from consumers has been right out of the gates.
- In March, this offering to new countries represented almost 2% of total demand. These results are promising and demonstrate the strength of the Blue Nile customer experience and the appeal of brand beyond the U.S. market.