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Blue Nile Results Top Street, Shares Surge

Online diamond retailer Blue Nile reported higher third-quarter net profit on Tuesday, above Wall Street estimates, and the company raised its 2007 earnings and sales outlook, sending shares up 11 percent after hours.

Blue Nile said traffic to its Web site grew 20 percent in the quarter, and said the company was continuing to gain market share.

Net income in the third quarter, which ended Sept. 30, was $3.0 million or 18 cents a share, compared with $1.8 million or 11 cents per share, a year earlier.

Analysts, on average, had been expecting earnings of 16 cents per share, according to Reuters Estimates.

The Seattle-based company said quarterly revenue rose nearly 27 percent to $67.4 million from $53.2 million a year earlier. That was just shy of a Wall Street consensus estimate of revenue of $67.8 million.

Blue Nile posted 105 percent net sales growth in Canada and the United Kingdom to $4.5 million.

Gross margins as a percentage of net sales rose slightly to 19.8 percent from 19.5 a year earlier, but fell from the second quarter, due to more engagement ring sales in the third quarter.

Higher-ticket items like engagement rings, which average around $6,000 at Blue Nile, carry lower margins than jewelry that costs less. Because there are no major gift-giving holidays in Blue Nile's third quarter, most sales come from engagement rings.

But gross margins are expected to widen going forward as the company expands its non-engagement ring category, Chief Executive Mark Vadon said.

"Overall you would expect to continue to see gross margins edge up as the mix continues over the quarters and years to come," he told analysts during a conference call.

The company raised its full-year earnings forecast, saying it now expected earnings of $1.00 to $1.05 per share, up from an earlier view of 94 cents to 99 cents a share.

Revenue is expected to range from $316 million to $322 million, above an earlier range of $312 million to $318 million.

Analysts, on average, had expected full-year earnings of $1.02 on revenue of $321.6 million, according to Reuters Estimates.

More High-Ticket Sales

Asked how the Blue Nile consumer was weathering macro-economic challenges like higher gas prices and the fallout from the credit crunch, Vadon told Reuters it was difficult to gauge that impact, since the young company was still seeing major growth.

But, he said, sales of items over $25,000 had grown by 50 percent in the quarter, marking Blue Nile's strongest sales growth. "If anything, the high end of the market is showing it's being very resilient," Vadon said.

Shares of Blue Nile rose to $83.00 in after-hours trade after closing at $74.68 on Nasdaq, down 2.5 percent.