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Blue Nile Announces Third Quarter 2012 Financial Results



Blue Nile Announces Third Quarter 2012 Financial Results

             Third Quarter Sales Increased 19.8% to $89.8 million
             Third Quarter Earnings Per Diluted Share Total $0.14

SEATTLE, Nov. 1, 2012 (GLOBE NEWSWIRE) -- Blue Nile, Inc. (Nasdaq:NILE), the
leading online retailer of diamonds and fine jewelry, today reported financial
results for its third quarter ended September 30, 2012.

Net sales increased 19.8% to $89.8 million for the third quarter ended
September 30, 2012. Operating income for the quarter totaled $2.7 million,
representing an operating margin of 3.0% of net sales. Net income totaled $1.7
million, or $0.14 per diluted share.

Non-GAAP adjusted EBITDA for the quarter totaled $4.8 million. For the
trailing twelve month period ended September 30, 2012, net cash provided by
operating activities totaled $25.6 million compared to $29.5 million for the
trailing twelve month period ended October 2, 2011. For the trailing twelve
month period ended September 30, 2012, non-GAAP free cash flow totaled $22.9
million.

"We are excited to report solid results in the third quarter, with
accelerating revenue growth and expanding earnings per share. The execution of
our strategy is clearly on track. Investments we made in marketing and pricing
are working and building momentum behind the strength of our diamond
engagement products. Sales of our non-engagement products also improved this
quarter, and we are only beginning to launch an assortment of new jewelry
aimed to further accelerate our growth. With continued steady execution of our
strategy coupled with exciting product offerings for the holiday season, we
believe we are well positioned to achieve our goals for 2012," said Harvey
Kanter, President and Chief Executive Officer.

Highlights

  * U.S. engagement net sales for the third quarter 2012 increased 31.5% to
    $54.1 million, compared to $41.1 million for the third quarter of 2011.
     
  * U.S. non-engagement net sales for the third quarter 2012 increased 12.0%
    to $21.8 million, compared to $19.4 million for the third quarter of 2011.
     
  * International net sales for the third quarter 2012 were $13.9 million,
    compared to $14.4 million for the third quarter 2011, a decrease of 3.3%.
    Excluding the impact from changes in foreign exchange rates, international
    net sales decreased 1.5%.
     
  * Gross profit for the third quarter totaled $16.9 million. As a percent of
    net sales, gross profit was 18.8% compared to 19.8% for the third quarter
    of 2011.
     
  * New customers, which we define as individuals who have not made a prior
    purchase from Blue Nile, grew 22.4% in the third quarter of 2012 compared
    to the third quarter of 2011.   
     
  * Selling, general and administrative expenses for the third quarter were
    $14.3 million, compared to $12.0 million in the third quarter of 2011.
    Selling, general and administrative expenses for the third quarter
    includes stock-based compensation expense of $1.3 million, compared to
    $1.6 million in the third quarter 2011.
     
  * Earnings per diluted share for the third quarter included stock based
    compensation expense of $0.06 compared to $0.08 for the third quarter of
    2011.
     
  * At the end of the third quarter, cash and cash equivalents totaled $30.2
    million.

Financial Guidance

The following forward-looking statements reflect Blue Nile's expectations as
of November 1, 2012. Actual results may be materially affected by many
factors, such as consumer spending, economic conditions, product assortment
and the various factors detailed below.

Expectations for the fourth quarter of 2012 (Quarter Ending December 30,
2012):

  * Net sales are expected to be between $140 million and $153 million.
  * Earnings per diluted share are projected at $0.44 to $0.50.

Expectations for the fiscal year 2012 (Year Ending December 30, 2012):

  * Net sales are expected to be between $404 million and $417 million.
  * Earnings per diluted share are projected at $0.70 to $0.75.

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 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 1, 2012. Additional information will
also be set forth in our Quarterly Report on Form 10-Q for the quarter ended
September 30, 2012, which we expect to file with the Securities and Exchange
Commission on or before November 9, 2012. 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 2:00 p.m. PT/5:00 p.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
                                   September 30, 2012    October 2, 2011
Net income                          $ 1,741               $ 1,869
Income tax expense                 961                   1,004
Other income, net                   (36)                  (13)
Depreciation and amortization      852                   849
Stock-based compensation           1,287                 1,671
Adjusted EBITDA                     $ 4,805               $ 5,380
                                                          
                                                          
                                   Year to date ended    Year to date ended
                                   September 30, 2012    October 2, 2011
Net income                          $ 3,473               $ 7,129
Income tax expense                 1,937                 3,680
Other income, net                   (201)                 (177)
Depreciation and amortization      2,615                 2,521
Stock-based compensation           3,741                 5,153
Adjusted EBITDA                     $ 11,565              $ 18,306
                                                          

 
A reconciliation of differences of non-GAAP free cash flow from the comparable
GAAP measure of net cash provided by (used in) operating activities is as
follows (in thousands):
                                                          
                                                          
                                  Quarter ended          Quarter ended
                                  September 30, 2012     October 2, 2011
Net cash provided by (used in)     $ 4,776                $ (2,164)
operating activities
Purchases of fixed assets,                                
including internal-use
software and website development   (600)                  (973)
Non-GAAP free cash flow           $4,176                  $(3,137)
                                                          
                                                          
                                  Twelve months ended    Twelve months ended
                                  September 30, 2012     October 2, 2011
Net cash provided by operating     $ 25,631               $ 29,468
activities
Purchases of fixed assets,                                
including internal-use
software and website development   (2,755)                (4,971)
Non-GAAP free cash flow           $22,876                $24,497
                                                          

The following table reconciles year-over-year total company sales as well as
international net sales percentage increases (decreases) from the GAAP sales
measures to the non-GAAP constant exchange rate basis:
                                                   
                               Effect of foreign  Year over year growth on
Quarter ended        Year over
September 30, 2012  year       exchange movements constant exchange rate basis
                    growth
International net   (3.3)%     (1.8)%             (1.5)%
sales
                                                   
                               Effect of foreign  Year over year growth on
Quarter ended        Year over
October 2, 2011     year       exchange movements constant exchange rate basis
                    growth
International net   54.8%      8.6%               46.2%
sales
                                                   
                                                   
                               Effect of foreign  Year over year growth on
Year to date ended   Year over
September 30, 2012  year       exchange movements constant exchange rate basis
                    growth
International net   5.7%       (1.8)%             7.5%
sales
                               Effect of foreign  Year over year growth on
Year to date ended   Year over
October 2, 2011     year       exchange movements constant exchange rate basis
                    growth
International net   43.2%      8.6%               34.6%
sales

About Blue Nile, Inc.

Blue Nile, Inc. is the leading online retailer of diamonds and fine jewelry.
The Company delivers the ultimate customer experience, providing consumers
with a superior way to buy engagement rings, wedding rings and fine jewelry.
Blue Nile offers in-depth educational materials and unique online tools that
place consumers in control of the jewelry shopping process. The Company 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.

The Blue Nile, Inc. logo is available at
http://www.globenewswire.com/newsroom/prs/?pkgid=9579

BLUE NILE, INC.
Condensed Consolidated Balance Sheets
(in thousands, except par value)
                                                                
                                                                
                                            September 30, 2012 January 1, 2012
                                            (unaudited)         
ASSETS                                                          
Current assets:                                                 
Cash and cash equivalents                    $ 30,237           $ 89,391
Trade accounts receivable                   2,237              2,317
Other accounts receivable                   797                2,550
Inventories                                 28,916             29,267
Deferred income taxes                       419                689
Prepaids and other current assets           1,291              1,009
Total current assets                        63,897             125,223
Property and equipment, net                 8,080              8,340
Intangible assets, net                      210                252
Deferred income taxes                       7,458              9,053
Note receivable                             2,000              —
Other investments                           2,000              —
Other assets                                153                157
Total assets                                 $ 83,798           $ 143,025
LIABILITIES AND STOCKHOLDERS' EQUITY                            
Current liabilities:                                            
Accounts payable                             $ 66,862           $ 95,590
Accrued liabilities                         5,936              9,396
Current portion of long-term financing      60                 59
obligation
Current portion of deferred rent            246                211
Total current liabilities                   73,104             105,256
Long-term financing obligation, less        640                685
current portion
Deferred rent, less current portion         2,236              2,060
Stockholders' equity:                                           
Common stock                                21                 21
Additional paid-in capital                  195,947            187,762
Accumulated other comprehensive loss        (137)              (123)
Retained earnings                           77,964             74,491
Treasury stock                              (265,977)          (227,127)
Total stockholders' equity                  7,818              35,024
Total liabilities and stockholders' equity   $ 83,798           $ 143,025

 
BLUE NILE, INC.
Condensed Consolidated Statements of Operations
(unaudited)
(in thousands, except per share data)
                                                                     
                                                                     
                                                                     
                             Quarter ended            Year to date ended
                             September 30, October 2, September 30, October 2,
                             2012          2011       2012          2011
Net sales                     $ 89,830      $ 74,987   $ 263,914     $ 235,689
Cost of sales                72,900        60,149     214,515       186,758
Gross profit                 16,930        14,838     49,399        48,931
Selling, general and         14,264        11,978     44,190        38,299
administrative expenses
Operating income             2,666         2,860      5,209         10,632
Other income, net                                                    
Interest income, net         20            33         105           116
Other income (expense), net  16            (20)       96            61
Total other income, net      36            13         201           177
Income before income taxes   2,702         2,873      5,410         10,809
Income tax expense           961           1,004      1,937         3,680
Net income                    $ 1,741       $ 1,869    $ 3,473       $ 7,129
Basic net income per share    $ 0.14        $ 0.13     $ 0.26        $ 0.50
Diluted net income per share  $ 0.14        $ 0.13     $ 0.25        $ 0.48
                                                                     
Shares used for computation                                          
(in thousands):
Basic                        12,677        13,996     13,439        14,375
Diluted                      12,870        14,362     13,643        14,906
                                                                     

 
BLUE NILE, INC.
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
                                                                
                                                                
                                            Year to date ended
                                            September 30, 2012 October 2, 2011
Operating activities:                                           
Net income                                   $ 3,473            $ 7,129
Adjustments to reconcile net income to net                      
cash used in operating activities:
Depreciation and amortization                2,615              2,521
Loss on disposal of property and equipment   31                 35
Stock-based compensation                     3,831              5,243
Deferred income taxes                        1,865              (690)
Tax (deficiency) benefit from exercise of    (2,556)            579
stock options
Excess tax benefit from exercise of stock    (25)               (367)
options
Changes in assets and liabilities:                              
Receivables                                  2,147              (473)
Inventories                                  351                (2,854)
Prepaid expenses and other assets            (278)              (190)
Accounts payable                             (28,881)           (37,123)
Accrued liabilities                          (3,451)            (7,065)
Deferred rent and other                      (103)              2,097
Net cash used in operating activities        (20,981)           (31,158)
Investing activities:                                           
Purchases of property and equipment          (2,095)            (4,731)
Purchases of other investments               (2,000)            — 
Payments for note receivable                 (2,000)            — 
Net cash used in investing activities        (6,095)            (4,731)
Financing activities:                                           
Repurchase of common stock                   (38,850)           (39,325)
Proceeds from stock option exercises         6,803              1,724
Excess tax benefit from exercise of stock    25                 367
options
Principal payments under long-term           (44)               (37)
financing obligation
Net cash used in financing activities        (32,066)           (37,271)
                                                                
Effect of exchange rate changes on cash and  (12)               58
cash equivalents
                                                                
Net decrease in cash and cash equivalents    (59,154)           (73,102)
                                                                
Cash and cash equivalents, beginning of      89,391             113,261
period
Cash and cash equivalents, end of period     $ 30,237           $ 40,159
                                                                
                                                                
                                                                
Supplemental disclosure of cash flow                            
information:
Cash paid for income taxes                  2,891              5,932

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

Blue Nile, Inc. Logo
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