Blue Nile Announces Third Quarter 2015 Financial Results

Third Quarter Net Sales Increased 4.0% to $109.9 million 

Third Quarter Earnings Per Diluted Share Total $0.17

Company Announces a Renewal of its Stock Repurchase Program for $100 million

SEATTLE, Nov. 05, 2015 (GLOBE NEWSWIRE) — Blue Nile, Inc. (Nasdaq:NILE), a leading online retailer of diamonds and fine jewelry, today reported financial results for its third quarter ended October 4, 2015.

Net sales increased 4.0% to $109.9 million for the third quarter ended October 4, 2015 compared to $105.8 million for the third quarter ended September 28, 2014. Operating income for the quarter totaled $3.0 million, representing an operating margin of 2.8% of net sales, compared to $2.6 million in operating income and 2.4% operating margin for the third quarter 2014. Net income totaled $2.0 million, or $0.17 per diluted share versus $1.7 million, or $0.14 per diluted share for the third quarter 2014.

Non-GAAP adjusted EBITDA for the quarter totaled $5.3 million compared to $4.5 million for the third quarter 2014. For the trailing twelve month period ended October 4, 2015, net cash provided by operating activities totaled $14.7 million compared to $14.8 million for the trailing twelve month period ended September 28, 2014. For the trailing twelve month period ended October 4, 2015, non-GAAP free cash flow totaled $10.8 million, as compared to $10.6 million for the trailing twelve month period ended September 28, 2014.

Blue Nile’s Board of Directors authorized the renewal of the Company’s share repurchase program.  The Company is authorized to repurchase up to $100.0 million of its common stock over the next 27 months.

“Today we announced another quarter of continued growth and heightened profitability, delivering double-digit increases in net income and earnings per share,” said Harvey Kanter, Blue Nile Chairman, CEO, and President. “Importantly, we expanded profitability while at the same time investing in initiatives to drive greater long-term growth. These initiatives, which include online and offline marketing and the Webroom concept, focus on building awareness and generating a greater level of trust for buying diamonds and fine jewelry online.”

Highlights

  • U.S. engagement net sales for the third quarter 2015 increased 6.9% to $65.0 million, compared to $60.8 million for the third quarter 2014.
  • U.S. non-engagement net sales for the third quarter 2015 increased 6.7% to $25.0 million, compared to $23.5 million for the third quarter 2014.
  • International net sales for the third quarter 2015 were $19.9 million, compared to $21.5 million for the third quarter 2014, a decrease of 7.2%. Excluding the impact from changes in foreign exchange rates, international net sales increased 3%.
  • Gross profit for the third quarter 2015 totaled $21.2 million. As a percent of net sales, gross profit was 19.3% compared to 17.8% for the third quarter 2014.
  • Selling, general and administrative expenses for the third quarter 2015 were $18.2 million, compared to $16.3 million in the third quarter 2014. Selling, general and administrative expenses included stock-based compensation expense of $1.3 million for the third quarter in 2015 and $1.0 million for the third quarter in 2014.
  • Earnings per diluted share for the third quarter 2015 was $0.17 compared to $0.14 for the third quarter 2014.  Earnings per diluted share included stock-based compensation expense of $0.07 for the third quarter 2015 and $0.05 for the third quarter 2014.
  • At the end of the third quarter 2015, cash and cash equivalents totaled $33.6 million.
  • During the third quarter 2015, Blue Nile repurchased 7,763 shares of its common stock for $0.2 million.

Financial Guidance

The following forward-looking statements reflect Blue Nile’s expectations as of November 5, 2015.  Actual results may be materially affected by many factors, such as consumer spending, economic conditions and the various factors detailed below.

Expectations for the fourth quarter of 2015 (Quarter ended January 3, 2016):

  • Net sales are expected to be between $158 million and $168 million.
  • Earnings per diluted share are projected at $0.41 to $0.47.

Expectations for the fiscal year 2015 (Year Ending January 3, 2016):

  • Net sales are expected to be between $488 million and $498 million.
  • Earnings per diluted share are projected at $0.87 to $0.93.

Blue Nile reports fiscal results on a 52/53-week format. The Company’s fiscal 2014 reporting period included 53 weeks, with an additional week falling into the fourth quarter.

Forward-Looking Statements

This press release contains forward-looking statements that include risks and uncertainties, including, without limitation, all statements related to future financial and business performance, market opportunity and plans to grow our business. Words such as “expect,” “anticipate,” “believe,” “project,” “will” and similar expressions are intended to identify forward-looking statements. These forward-looking statements are based upon our current expectations. Forward-looking statements involve risks and uncertainties. Our actual results and the timing of events could differ materially from those anticipated in such forward-looking statements as a result of these risks and uncertainties, which include, without limitation, risks related to commodity prices, general economic conditions, consumer spending (particularly spending by high-end consumers), product assortment, our fluctuating operating results, currency fluctuations, seasonality in our business, our ability to acquire products on reasonable terms, our online business model, demand for our products, our ability to attract customers in a cost effective manner, the strength of our brand, competition, fraud, system interruptions, our ability to fulfill orders and other risks detailed in our filings with the Securities and Exchange Commission, including our quarterly reports on Form 10-Q and our Annual Report on Form 10-K for the year ended January 4, 2015.  Additional information will also be set forth in our Quarterly Report on Form 10-Q for the quarter ended October 4, 2015, which we expect to file with the Securities and Exchange Commission on or before November 13, 2015. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. All forward-looking statements are qualified in their entirety by this cautionary statement, and Blue Nile undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date hereof.

Conference Call

Blue Nile will host a conference call to discuss its third quarter financial results today at 5:30 a.m. PT/8:30 a.m. ET. A live webcast of the conference call may be accessed at http://investor.bluenile.com. Following the completion of the call, a recorded replay of the webcast will be available for 30 days at the same Internet address. This call will contain forward-looking statements and other material information regarding Blue Nile’s financial and operating results. In the event that any non-GAAP financial measure is discussed on the conference call that is not described in this release, related complementary information will be made available at http://investor.bluenile.com as soon as practicable after the conclusion of the conference call.

Non-GAAP Financial Measures

To supplement Blue Nile’s consolidated financial statements presented in accordance with generally accepted accounting principles (“GAAP”), Blue Nile uses non-GAAP adjusted EBITDA and non-GAAP free cash flow as measures of certain components of financial performance. Blue Nile defines non-GAAP adjusted EBITDA as earnings before interest and other income, taxes, depreciation and amortization, adjusted to exclude the effects of stock-based compensation expense. Blue Nile defines non-GAAP free cash flow as net cash provided by (used in) operating activities less cash outflows for purchases of fixed assets, including internal-use software and website development. Blue Nile reports sales information in accordance with GAAP. Internally, management monitors its sales performance on a non-GAAP basis that eliminates the positive or negative effects that result from translating international sales into U.S. dollars (the “constant exchange rate basis”). Blue Nile’s management does not itself, nor does it suggest that investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Investors should also note that the non-GAAP financial measures used by Blue Nile may not be the same non-GAAP financial measures, and may not be calculated in the same manner, as that of other companies. Whenever Blue Nile uses such non-GAAP financial measures, it provides a reconciliation of non-GAAP financial measures to the most closely applicable GAAP financial measures. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures.

Blue Nile’s management believes that non-GAAP adjusted EBITDA and non-GAAP free cash flow, as defined, as well as international sales on a constant exchange rate basis provide meaningful supplemental information to the company and to investors. Blue Nile believes that both management and investors benefit from referring to these non-GAAP measures in assessing the performance of Blue Nile and when planning and forecasting future periods. Further, management believes that the inclusion of the non-GAAP adjusted EBITDA and non-GAAP free cash flow calculations provide consistency in Blue Nile’s financial reporting and comparability with similar companies in Blue Nile’s industry. Management believes the constant exchange rate measurement provides a more representative assessment of the sales performance and provides better comparability between reporting periods.

A reconciliation of non-GAAP adjusted EBITDA to net income is as follows (in thousands):

  Quarter ended   Quarter ended
  October 4, 2015   September 28, 2014
Net income $ 1,977     $ 1,650  
Income tax expense 1,041     848  
Other loss, net 21     62  
Depreciation and amortization 940     923  
Stock-based compensation 1,283     1,002  
Non-GAAP adjusted EBITDA $ 5,262     $ 4,485  

 

  Year to date ended   Year to date ended
  October 4, 2015   September 28, 2014
Net income $ 5,495     $ 4,900  
Income tax expense 2,969     2,499  
Other income, net (76 )   (44 )
Depreciation and amortization 2,771     2,742  
Stock-based compensation 3,801     3,185  
Non-GAAP adjusted EBITDA $ 14,960     $ 13,282  
               

A reconciliation of differences of non-GAAP free cash flow from the comparable GAAP measure of net cash (used in) provided by operating activities is as follows (in thousands):

  Quarter ended   Quarter ended
  October 4, 2015   September 28, 2014
Net cash used in operating activities $ (5,268 )   $ (3,764 )
Purchases of fixed assets, including internal-use      
software and website development (988 )   (1,255 )
Non-GAAP free cash flow $ (6,256 )   $ (5,019 )
       
       
   Twelve months ended    Twelve months ended
  October 4, 2015   September 28, 2014
Net cash provided by operating activities $ 14,727     $ 14,793  
Purchases of fixed assets, including internal-use      
software and website development (3,891 )   (4,239 )
Non-GAAP free cash flow $ 10,836     $ 10,554  
               

The following table reconciles year-over-year international net sales percentage (decreases) increases from the GAAP sales measures to the non-GAAP constant exchange rate basis:

Quarter ended October 4, 2015 Year over year 
growth
Effect of foreign
exchange movements
Year over year growth on
constant exchange rate basis
International net sales   (7.2 )%   (10.2 )%   3.0 %
Quarter ended September 28, 2014 Year over year
growth
Effect of foreign
exchange movements
Year over year growth on
constant exchange rate basis
International net sales   25.6 %   (0.3 )%   25.9 %

 

Year to date ended October 4, 2015 Year over year 
growth
Effect of foreign
exchange movements
Year over year growth on
constant exchange rate basis
International net sales   2.7 %   (8.8 )%   11.5 %
Year to date ended September 28, 2014 Year over year
growth
Effect of foreign
exchange movements
Year over year growth on
constant exchange rate basis
International net sales   10.8 %   (2.2 )%   13.0 %
                   

About Blue Nile, Inc.

Blue Nile, Inc. is the original online jeweler. The company offers a smarter way to buy engagement rings, wedding rings, and fine jewelry by providing in-depth educational materials and unique online tools that place consumers in control of the jewelry shopping process. Blue Nile has some of the highest quality standards in the industry and offers thousands of independently certified diamonds and fine jewelry at prices significantly below traditional retail. Blue Nile can be found online at www.bluenile.com. Blue Nile’s shares are traded on the Nasdaq Stock Market LLC under the symbol NILE.

BLUE NILE, INC.
Condensed Consolidated Balance Sheets
(unaudited)
(in thousands)
 
  October 4,
2015
  January 4,
2015
  September 28,
2014
           
ASSETS          
Current assets:          
Cash and cash equivalents $ 33,609     $ 91,186     $ 32,324  
Trade accounts receivable 4,006     2,137     3,032  
Other accounts receivable, net 930     1,571     468  
Note receivable 600          
Inventories 41,946     41,668     33,084  
Deferred income taxes 1,015     1,123     742  
Prepaid income taxes         297  
Prepaids and other current assets 2,317     1,524     1,536  
Total current assets 84,423     139,209     71,483  
Property and equipment, net 10,795     10,422     10,378  
Intangible assets, net 87     103     108  
Deferred income taxes 3,829     3,064     3,927  
Note receivable     2,000     2,000  
Other investments 2,280     2,280     2,280  
Other assets 218     256     262  
Total assets $ 101,632     $ 157,334     $ 90,438  
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities:          
Accounts payable $ 76,328     $ 128,675     $ 72,312  
Accrued liabilities 8,816     11,992     6,522  
Current portion of long-term financing obligation 33     32     32  
Current portion of deferred rent 291     292     286  
Total current liabilities 85,468     140,991     79,152  
Long-term financing obligation, less current portion 464     489     497  
Deferred rent, less current portion 1,771     1,982     2,051  
Unearned income 2,141          
Other long-term liabilities 201     169     117  
Commitments and contingencies          
Stockholders’ equity:          
Common stock 22     22     22  
Additional paid-in capital 230,290     227,146     226,812  
Accumulated other comprehensive loss (211 )   (236 )   (153 )
Retained earnings 108,984     103,489     98,658  
Treasury stock (327,498 )   (316,718 )   (316,718 )
Total stockholders’ equity 11,587     13,703     8,621  
Total liabilities and stockholders’ equity $ 101,632     $ 157,334     $ 90,438  

 

BLUE NILE, INC.
Condensed Consolidated Statements of Operations
(unaudited)
(in thousands, except per share data)
 
  Quarter ended   Year to date ended
  October 4,
2015
  September 28,
2014
  October 4,
2015
  September 28,
2014
Net sales $ 109,943     $ 105,760     $ 330,083     $ 316,057  
Cost of sales 88,712     86,910     266,790     257,915  
Gross profit 21,231     18,850     63,293     58,142  
Selling, general and administrative expenses 18,192     16,290     54,905     50,787  
Operating income 3,039     2,560     8,388     7,355  
Other (loss) income, net:              
Interest income, net 12     19     76     91  
Other loss, net (33 )   (81 )       (47 )
Total other (loss) income, net (21 )   (62 )   76     44  
Income before income taxes 3,018     2,498     8,464     7,399  
Income tax expense 1,041     848     2,969     2,499  
Net income $ 1,977     $ 1,650     $ 5,495     $ 4,900  
Basic net income per share $ 0.17     $ 0.14     $ 0.47     $ 0.40  
Diluted net income per share $ 0.17     $ 0.14     $ 0.47     $ 0.40  
               
Shares used for computation (in thousands):              
Basic 11,523     11,844     11,706     12,248  
Diluted 11,612     11,865     11,779     12,312  

BLUE NILE, INC.
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
 
  Year to date ended
  October 4,
 2015
  September 28,
 2014
Operating activities:      
Net income $ 5,495     $ 4,900  
Adjustments to reconcile net income to net cash used in operating activities:      
Depreciation and amortization 2,771     2,742  
Stock-based compensation 3,831     3,245  
Deferred income taxes (657 )   1,839  
Tax deficiency from share-based awards (597 )   (1,798 )
Excess tax benefit from share-based awards (29 )   (173 )
Changes in assets and liabilities:      
Receivables (1,228 )   26  
Inventories (278 )   1,446  
Prepaid income taxes     (50 )
Prepaid expenses and other assets (755 )   (234 )
Accounts payable (52,344 )   (50,071 )
Accrued liabilities (3,176 )   (4,229 )
Unearned income 2,141      
Deferred rent and other (180 )   (168 )
Net cash used in operating activities (45,006 )   (42,525 )
Investing activities:      
Purchases of property and equipment (2,940 )   (2,820 )
Payments received on note receivable 1,400      
Net cash used in investing activities (1,540 )   (2,820 )
Financing activities:      
Repurchase of common stock (10,780 )   (40,308 )
Proceeds from stock option exercises 241     2,266  
Taxes paid for net share settlement of share-based awards (424 )   (244 )
Excess tax benefit from share-based awards 29     173  
Principal payments under long-term financing obligation (24 )   (96 )
Net cash used in financing activities (10,958 )   (38,209 )
       
Effect of exchange rate changes on cash and cash equivalents (73 )   (64 )
       
Net decrease in cash and cash equivalents (57,577 )   (83,618 )
       
Cash and cash equivalents, beginning of period 91,186     115,942  
Cash and cash equivalents, end of period $ 33,609     $ 32,324  
   
   
  Year to date ended
  October 4,
 2015
  September 28,
 2014
Supplemental disclosure of cash flow information:      
Cash paid for income taxes $ 4,825     $ 2,506  

 

CONTACT: Contact:
Blue Nile, Inc.
Nancy Shipp, 206.388.3626 (Investors)
nancys@bluenile.com
or
Josh Holland, 206.336.6773 (Media)
joshh@bluenile.com

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