This summary is based on the fourth quarter fiscal 2007 earnings call conducted by Blue Nile Inc. (NILE: chart) on February 12, 2008.

Executive Chairman: Mark Vadon
President & Chief Executive Officer: Diane Irvine
Chief Financial Officer: Robin Easton
Manager of Investor Relations: Eileen B. Askew

Key Investors Issues

- The earnings per share increased to 45 cents from 35 cents in previous year.
- The revenue increased to $111.9 million, up 23.3% from last year.
- During the quarter, the firm repurchased 94,100 shares of stock for $6.5 million.
- In 2008, Blue Nile aims to increase its sales at least by 10%.

Fourth Quarter Fiscal 2007 Financial Highlights

In the fourth quarter, the company posted net sales of $111.9 million, representing an increase of 23.3% over the fourth quarter of 2006.

In Q4 total orders increased 14.9% as compared to a year ago. The average selling price per order was $1,411 in the fourth quarter compared to $1,314 in Q4 2006.

Gross profit for the quarter was $23.7 million, an increase of 25.9% year-over-year.

The gross margin for the quarter was 21.1%, an improvement of 40 basis points from a year ago.

Net income for the quarter was $7.5 million.

Earnings per diluted share were 45 cents, up 28.6% from the fourth quarter 2006.

The SG&A totaled $13.6 million for the fourth quarter and included $1.7 million in stock compensation expense.

As a percentage of net sales, SG&A was 12.1% in Q4 compared to 11.7% in the fourth quarter a year ago. Excluding stock-based compensation expense, SG&A as a percentage of sales was 10.7% compared to 10.4% in the fourth quarter of 2006. SG&A in the quarter was impacted by additional costs associated with the firm’s expanded fulfillment center, newly established international operations as well as slightly higher marketing costs than in the fourth quarter 2006.

Operating income improved 24% in the fourth quarter to $10.1 million, representing an operating margin of 9%.

Non-GAAP adjusted EBITDA, which the firm defines as earnings before interest and other income, income taxes, depreciation and amortization, adjusted to exclude the effects of stock-based compensation expense, increased 26.1% in the quarter to $12.4 million. This was an excellent performance for the quarter.

- Interest income totaled approximately $1 million for the quarter compared to $.8 million in last year’s fourth quarter.
- The effective tax rate for the quarter was 33.3% compared to 35.5% a year ago. The lower tax rate is primarily due to deferred tax asset adjustments. The effective tax rate for fiscal 2007 was 34.3% compared to 34.6% for 2006.

Blue Nile ended the year with a strong cash balance of $122.8 million even as it repurchased $20 million of its shares during the year.

Operating cash flow increased 17.4% during the quarter to $55.5 million. During the quarter, the firm repurchased 94,100 shares of stock for $6.5 million. The board of directors authorized an additional $100 million of stock repurchases over 24 months. This new authorization combined with the $50 million of authorization that is currently outstanding gives the firm the ability to opportunistically repurchase up to $150 million of Blue Nile shares over time. Since launching its stock repurchase program three years ago, Blue Nile has repurchased $2.8 million shares for approximately $95 million and retired 15.7% of its outstanding shares.


Fiscal 2007 Financial Highlights