This summary is based on the second quarter fiscal 2007 earnings call conducted by Blue Nile Inc. (NILE: chart) on August 6, 2007.
Chief Executive Officer: Mark Vadon
President and Chief Financial Officer: Diane Irvine
Investor Relations: Nancy Shipp
Key Investors Issues
- The earnings per share grew to 23 cents as against 18 cents in the prior year.
- Quarterly revenue grew to $72.1 million, an increase of 26.7% from the previous year.
- For Q3, EPS is projected to be 13 to 15 cents, on sales of $66 million to $67.5 million.
Second Quarter Fiscal 2007 Financial Highlights
Net income for the quarter was $3.8 million.
Net income per diluted share was 23 cents, representing EPS growth of 28%. The EPS of 23 cents for the quarter was 6 cents above the top end of the firm’s guidance range.
The company delivered net sales of $72.1 million in the second quarter, representing an increase of 26.7% over the second quarter of 2006.
In second quarter, total orders increased 27.2% as compared to a year ago. The average selling price per order was $1,630 in the second quarter, essentially unchanged from a year ago. Sales growth was strong across all of product categories during the quarter. The firm is continuing to see higher growth rates in non-engagement jewelry products compared to engagement products, as it grows its brand and develops more repeat customers.
During the quarter, the sales and merchandise priced above $25,000 grew by 51%. One exceptional example was a single sale above $1.5 million from a repeat Blue Nile customer. The firm believes that this was the largest jewelry purchase ever made through the Internet.
This quarter the firm also launched an exclusive collection of rare fancy colored diamonds.
Colored diamonds is a relatively small category within the jewelry industry and the management does not expect this launch to have a large impact on the results. The launch was important, however, because it is one more step in expanding the assortment at the high end of the market. For the first time, this launch provides all consumers access to these extremely rare gems.
During the quarter, the company’s marketing efforts were very effective in driving significantly more high quality traffic to its website.
Traffic growth was the highest since mid-2004. The firm saw growth across all marketing vehicles and was pleased with the performance achieved by its marketing team in all areas in second quarter. The firm has been very focused on efforts to improve conversion through website and operational enhancements over the past 18 months. These efforts, combined with its ability to drive high-quality traffic, have positioned the firm to capture online sales in its categories.
Gross profit for the quarter was $14.9 million, an increase of $3.6 million or 32% from Q2 of 2006.
As a percentage of net sales, gross margin for the quarter was 20.7% compared to 19.9% a year ago. The increase in gross margin is primarily the result of stability in margins across all of its product lines, combined with a higher gross margin product mix.
The second quarter 2007 product mix consisted of a higher percentage of non-engagement items, which carry a higher overall gross margin versus engagement products, resulting in a positive impact to gross margin. Gross profit as a percentage of net sales for the second quarter was also impacted by a one-time refund of shipping charges, which increased the percentage by 30 basis points. Absent this refund, growth of gross profit for the quarter would have been 30%; still the highest growth in gross profit that the firm has achieved in its three years as a public company. Gross margin would have been 20.4%, an increase of 50 basis points from Q2 2006.
Blue Nile performed well on costs during the second quarter.
