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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 expense1,041 848
Other loss, net21 62
Depreciation and amortization940 923
Stock-based compensation1,283 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 expense2,969 2,499
Other income, net(76) (44)
Depreciation and amortization2,771 2,742
Stock-based compensation3,801 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, 2015Year 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, 2014Year 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, 2015Year 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, 2014Year 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 receivable4,006 2,137 3,032
Other accounts receivable, net930 1,571 468
Note receivable600
Inventories41,946 41,668 33,084
Deferred income taxes1,015 1,123 742
Prepaid income taxes 297
Prepaids and other current assets2,317 1,524 1,536
Total current assets84,423 139,209 71,483
Property and equipment, net10,795 10,422 10,378
Intangible assets, net87 103 108
Deferred income taxes3,829 3,064 3,927
Note receivable 2,000 2,000
Other investments2,280 2,280 2,280
Other assets218 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 liabilities8,816 11,992 6,522
Current portion of long-term financing obligation33 32 32
Current portion of deferred rent291 292 286
Total current liabilities85,468 140,991 79,152
Long-term financing obligation, less current portion464 489 497
Deferred rent, less current portion1,771 1,982 2,051
Unearned income2,141
Other long-term liabilities201 169 117
Commitments and contingencies
Stockholders’ equity:
Common stock22 22 22
Additional paid-in capital230,290 227,146 226,812
Accumulated other comprehensive loss(211) (236) (153)
Retained earnings108,984 103,489 98,658
Treasury stock(327,498) (316,718) (316,718)
Total stockholders’ equity11,587 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 sales88,712 86,910 266,790 257,915
Gross profit21,231 18,850 63,293 58,142
Selling, general and administrative expenses18,192 16,290 54,905 50,787
Operating income3,039�� 2,560 8,388 7,355
Other (loss) income, net:
Interest income, net12 19 76 91
Other loss, net(33) (81) (47)
Total other (loss) income, net(21) (62) 76 44
Income before income taxes3,018 2,498 8,464 7,399
Income tax expense1,041 848 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):
Basic11,523 11,844 11,706 12,248
Diluted11,612 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 amortization2,771 2,742
Stock-based compensation3,831 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 income2,141
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 receivable1,400
Net cash used in investing activities(1,540) (2,820)
Financing activities:
Repurchase of common stock(10,780) (40,308)
Proceeds from stock option exercises241 2,266
Taxes paid for net share settlement of share-based awards(424) (244)
Excess tax benefit from share-based awards29 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 period91,186 115,942
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: Blue Nile, Inc. Nancy Shipp, 206.388.3626 (Investors) nancys@bluenile.com or Josh Holland, 206.336.6773 (Media) joshh@bluenile.com

Source:Blue Nile, Inc.