Blue Nile Inc. Earnings: Strong Profits, Weak Sales

By Markets Fool.com

Online jewelry retailer Blue Nile today posted mixed first-quarter earnings results. Sales growth came in below expectations while profits were surprisingly high.

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Here's a big-picture look at how Blue Nile's headline results stacked up against Wall Street's, and management's, expectations.

Metric Expected* Actual
Revenue $109 million $106 million
Profit $0.08 per share $0.10 per share

*"Expected" is the midpoint of management's Q1 projection issued in February. It is also the average target of the nine analysts that cover the stock. Source: Yahoo! Finance and Blue Nile financial filing.

Challenging sales environment

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Engagement products are lower-margin sales for Blue Nile. Source: Blue Nile.

The business continued to grow in the first quarter, albeit at a snail's pace. Net sales inched higher by 2.6%, or about half the gain management forecast three months ago. And that was despite a hefty 9% jump in international sales.

Executives pointed to a weak overall selling environment as the primary cause of tepid revenue growth. "We drove solid performance in an industry that is experiencing overall challenges," said CEO Harvey Kanter in a press release.

All of the sales gains came from the engagement side of the business as non-engagement sales dipped slightly lower. Non-engagement products tend to carry higher profit margins, which is why management hopes to expand that division in the years ahead.

Profitability gains
Blue Nile managed higher profitability despite a sales mix that tilted toward those lower-margin jewelry items. Gross profit rose to 18.8% of sales from 18.4% a year ago. Operating margin ticked higher to 1.8% of sales from 1.6%.

Those gains translated into a healthy 10% bounce in net income. They also powered an increase in earnings to $0.10 per share, above expectations for flat profits this quarter.

Updated outlook
Blue Nile's management sees the next few quarters looking much like the one that just ended: Sales growth will be meager but profit growth should accelerate.

Executives forecast $112 million in revenue next quarter, compared to Wall Street's $114 million target. Meanwhile, profit should be stronger than expected at $0.20 per share (analysts' average target was $0.18 per share).

For the full year, Blue Nile sees $500 million in sales powering $0.88 in per-share profit. Those figures represent 5% and 10% growth over 2014's results, respectively.

The article Blue Nile Inc. Earnings: Strong Profits, Weak Sales originally appeared on Fool.com.

Demitrios Kalogeropoulos owns shares of Apple. The Motley Fool recommends Apple and Blue Nile. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.