Blue Nile Inc. Earnings Fall on Engagement Jewelry Pullback

By Markets Fool.com

Online jeweler Blue Nile posted first-quarter earnings results on Thursday that didn't do much to change the narrative of a retailer struggling to find growth in a weak selling environment. Revenue, earnings, and profitability each took a step backward over the past few months.

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Here's how the headline results stacked up against the prior-year period:

Metric

Q1 2016 Actuals

Q1 2015 Actuals

Growth (YOY)

Revenue

$103 million

$107 million

-3%

Net income

$1.1 million

$1.2 million

-9%

EPS

$0.09

$0.10

-10%

Data source: Blue Nile's financial filings.

What happened this quarter?
Sales came in within management's February guidance -- but just barely. The retailer's $103 million result constituted the low end of the range it projected after a surprisingly rough Q4 (between $103 million and $106 million).

Other key highlights of the quarter include:

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  • U.S. engagement jewelry sales fell for the second straight quarter, down 7% after declining by 8% in Q4.
  • U.S. non-engagement sales rose 4%, which was an improvement over the holiday quarter's flat result.
  • International sales didn't budge, but rose 4% after accounting for currency swings.
  • Gross profit ticked up to 20% of sales from 19% in the prior-year period. However, rising expenses pushed bottom-line profitability down slightly to 1% of sales from 2%.
  • Cash outflow worsened slightly to $57 million from the prior year's $52 cash use, mainly thanks to an $8 million special dividend payment.
  • Blue Nile finished the quarter with $30 million of cash on the books, down from $40 million last year.

What management had to say
While the top- and bottom-line results weren't exciting, they met management's targets. "As expected, it was a challenging environment for us in the first quarter," CEO Harvey Kanter said in a press release.

Executives are "encouraged" by what they're seeing so far in Q2, though, according to Kanter. Improving sales trends plus success in strategies like testing out new marketing channels and expanding the "Webroom" concept that gives customers a chance to try on jewelry in select cities before buying the products. Blue Nile is "making good progress on key initiatives, which we expect to fundamentally improve performance long term," Kanter said.

Looking forward
That improvement isn't likely to show in this year's results, though. Blue Nile affirmed a 2016 outlook that calls for sales of about $480 million and earnings of roughly $0.91 per share, both representing no growth over 2015's results.

Beyond those headline numbers, investors will want to watch profitability, which is likely to keep expanding thanks to a disciplined pricing strategy that's balancing sales growth against earnings gains even as diamond prices remain volatile.

Its Webroom concept is still in the early stages, meanwhile, with just a handful of locations open so far. Yet management is happy with what they're seeing early on and have accelerated plans for adding more spots around the country. The retailing footprint could eventually reach as many as 50 locations -- if the stores continue to help boost branding and sales, particularly of high-dollar jewelry products.

The article Blue Nile Inc. Earnings Fall on Engagement Jewelry Pullback originally appeared on Fool.com.

Demitrios Kalogeropoulos has no position in any stocks mentioned. The Motley Fool recommends Blue Nile. 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.