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Earnings Calls: 
Blue Nile First Quarter Earnings Call
Author: Rozalina Destanova
123jump.com
Last Update: 3:42 AM EDT May 13 2008


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Sales rose nearly 4% to $70.5 million. Gross profit was $13.9 million, an increase of 5.1% year over year. Operating income totaled $3 million, representing an operating margin of 4.3%. 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. Q2 earnings are expected to range between 15 cents and 18 cents per share.


Investors Question and Answers

 
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Source: Company filings    Q1:March  Q2:June  Q3:September  Q4:December
 
Diane Irvine: You should not assume that. That is something that we continue to manage. We are focused on gross margin. Every product category is different in terms of when we have inventory receipts but our goal is we do take our time to increase prices and we manage that carefully.

Marianne Wolk (Susquehanna Financial Group): Your guidance does seem to forecast acceleration in growth to 15% in the second half. Can you give a better feel for some of the variables that would drive that improved growth rate?

Diane Irvine: Our goal is to grow by 10%. We do not have a better view of what the economy will be like in the U.S. in the second half. We have no better view of what the holiday season will be like, which will drive the number overall. International is growing well so our hope and expectation there is to continue to see great results. And beyond that, it is focus on the customer and conversion and so as long as we are doing all the right things internally, regardless of the economic environment externally, I feel that we will do a good job. We want to put out our goals so that everyone can see that we have set a higher bar for ourselves and we will hope to achieve it.

Mark C. Vadon: We are fighting our way through comps in the first and second quarter of 2007. Those were successful quarters. For instance in the second quarter, we had a single order from one customer that was $1.52 million. We had a promotion with a partner that drove a significant amount of revenue around Mother’s Day of last year. Even with those things, those types of things happen in the first and second quarter. We had those higher growth rates and then the comps get easier as you get into the back half of the year. As you look at the fourth quarter of 2007, that is when the market started to slow down, so as we start to anniversary that, I think we are going to have easier comps to build on. The other part of it is we have international building nicely underneath us, which gives us an increasing amount of growth leverage. If you look even a year ago I would as saying it would take a couple of years before international was at a scale where it could meaningfully contribute to growth. We are getting there sooner than we had thought we would.

Marianne Wolk (Susquehanna Financial Group): On the international front, this was the first seasonal or sequential decline you have seen in a while. Is it seasonality or are you seeing softness say in the U.K., where they are also reporting some economic pressure?

Mark C. Vadon: The fourth quarter has Christmas and we do not have one in the first quarter, so it is hard to comp those numbers. You would need a growth rate much, much faster than 120% to flow through the seasonality of Christmas.

Dan Geiman (McAdams Wright Ragen): Are there any specific factors that drove that growth that you saw from month to month during the quarter?

Diane Irvine: Our sense is when we got into January that there was kind of a post-Christmas pull-back on the part of consumers. January was our weakest month but we had a marginal improvement as we went through the quarters but I do not think it was enough to point to anything specific. We just keep doing the right things in terms of moving the business and converting customers.

Stephen Ju (RBC Capital Markets): Are international gross margins similar to that of the U.S. across all segments?

Diane Irvine: In terms of the way we are pricing, we have similar gross margin structures and depending on the website you are purchasing from, there is a different currency there. We have marketing investment there, not looking at gross margin but in costs overall because those are small businesses, there is a relatively higher spend in marketing, just because those businesses are small. But if you look at the U.K. business, I think we are happy in terms of what we are seeing on a contribution margin basis. The other businesses are operating for those countries where we are shipping out of the U.S., it is operating off of the same margin structure.
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