The company invested $41.7 million to repurchase nearly 1 million shares of stock at an average price per share of $42.05.

- The company began repurchasing stock for the first time in February 2005, more than eight months after initial public offering. Since that time, the company has invested over $136 million to retire almost 3.8 million shares of stock at an average price per share of just over $36.
- At the end of the first quarter, the company had approximately $108 million remaining in buy-back program.

Second Quarter 2008 Outlook

- The company operates on a 52-53 week fiscal calendar. Fiscal year 2008, which will end on January 4, 2009, will include 53 weeks rather than the normal 52 weeks. The additional week will occur in the fourth quarter ending January 4, 2009.
- The company expects net sales growth to range from 0% to 5% compared to the second quarter of 2007. Net income is expected to be 15 cents per share to 18 cents per share per share.

- In the second quarter of 2007, the company had one individual sale that totaled $1.5 million. The company ran promotion with Google Checkout that drove a similar amount of revenue. Excluding these non-comp revenue amounts, the high-end of guidance for Q2 of this year reflects an adjusted growth rate assumption of approximately 10%.
- Gross margin in the second quarter of 2007 increased by 30 basis points due to the benefit of a one-time refund of shipping charges. Additionally, the quarter is expected to have higher stock compensation expense that equates to an incremental 3 cents per share of EPS compared to the prior year.
- The company is reiterating its goal for the year to grow net sales and non-GAAP adjusted EBITDA for 2008 by at least 10%. Goal with respect to earnings per share is to achieve GAAP EPS that is approximately equal to 2007 level.

- There are a few important items to note with respect to EPS for 2008 compared to last year:
- The estimated impact of stock compensation expense for 2008 is approximately 30 cents per share, which is 8 cents per share higher than the impact of stock compensation expense on EPS for 2007.
- The company has assumed lower interest income for the year as a result of the decline in interest rates compared to a year ago and lower cash balances resulting from Q1 share repurchase.
- 2008 includes higher costs year-on-year related to recently expanded domestic fulfillment center and international operations. The company expects capital expenditures for the year to approximate $2.5 million.

Key questions from the first quarter earnings call conducted by Blue Nile, Inc. on May 6, 2008.

Doug Anmuth (Lehman Brothers): Looking at the revenue growth rate, particularly in the back half of the year, even when you normalize for some of the things you just mentioned in the second quarter, it still looks like you are expecting growth to accelerate nicely in the back half. Can you talk about anything else in particular that you are thinking about there in the back half of the year?

Diane Irvine: We have no better information on the economy and how the second half will look in the U.S. compared to anyone else. Our goal, as we have stated in our earnings release, is to grow revenue and EBITDA by at least 10% this year. We will do everything we can internally in terms of managing the business and then we will see what the external environment holds. International growth is doing well and our focus on conversion and the customer is what we are all about so I feel good about the way we are operating internally.

Doug Anmuth (Lehman Brothers): Where you think you are positioned now in terms of inventory levels?

Diane Irvine: We made progress during the quarter. We ended the quarter still modestly higher than where we would like to be and so that is something that we will work through and we will continue to improve that position in the second quarter.

Doug Anmuth (Lehman Brothers): Can you comment on conversion rate trends during the quarter and also the traffic growth that you saw?

Diane Irvine: In terms of traffic, we saw healthy growth there and we will not provide any other color in terms of exactly what was happening with either traffic numbers or further detail.

Mark Mahaney (Citigroup): Of the international markets outside of Canada and the U.K., could you talk about one or two of the ones so far that have gained relatively material traction?

Mark C. Vadon: We are seeing some great progress. It is still early but some great progress from those new markets we have added. We do not want to give any detail on what we think the best markets are purely for competitive reasons right now. We have got a lot of work left to do there and we would rather do that work and push those markets before we give more detail on what we are seeing.

Mark Mahaney (Citigroup): Consistently in the past there has always been this gap between your U.S. sales and offline traditional retailers. It seems like that gap was much narrower this quarter. Could you comment on that?

Mark C. Vadon: It is still early to know what happened in the first quarter for the retailers that are out there. Our sense is that the environment got worse for the market as the quarter went on and that is purely coming from talking to people on the supply side. There has not been a tremendous amount of data. We will be getting some more data in the next week or some from people starting to release their first quarter numbers. The other part of that is our sense that people who are moving goods are discounting heavily. I think one of the large public players out there had announced they are going to be running on gross margins about five points lower than they have been traditionally and some of the smaller players out there are just discounting to move inventory to keep cash coming in the door. We do not have a full picture of everybody’s first quarter yet and from a top line standpoint, and even when we have that, when people will release their first quarter comp store sales coming up, until the earnings come out and mostly people are on a January 31st year-end, so it is going to be a while before we see the full financials for people, but our sense is the people who are moving stuff are moving at discounts that are going to be unhealthy when it comes to what their bottom line looks like.

Jack Murphy (William Blair): How sales trended through the quarter?

Diane Irvine: The sales trend did improve as we went through the quarter. I think on our last call, which was just before Valentine’s day, we were saying that we had seen things improve. I think in this economy, it is hard to predict but we did see sales improve as we got to the end of the first quarter and so we are doing all we can and we have such a great value proposition that we will continue to gain share and we are just focused on that every day.

Jack Murphy (William Blair): In the past you have talked about the high-end business, over $25,000. Could you talk about that on a comparable basis to the way you have in the past in terms of was that business growing in the quarter in total?