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Blue Nile Announces Fourth Quarter and Full Year 2012 Financial Results



Blue Nile Announces Fourth Quarter and Full Year 2012 Financial Results

            Fourth Quarter Sales Increased 21.2% to $136.1 Million
            Fourth Quarter Earnings Per Diluted Share Total $0.39
              Full Year Sales Increased 14.9% to $400.0 Million
               Full Year Earnings Per Diluted Share Total $0.63

SEATTLE, Feb. 12, 2013 (GLOBE NEWSWIRE) -- Blue Nile, Inc. (Nasdaq:NILE), the
leading online retailer of diamonds and fine jewelry, today reported financial
results for its fourth quarter ended December 30, 2012.

Net sales increased 21.2% to $136.1 million for the fourth quarter ended
December 30, 2012. Operating income for the quarter totaled $7.1 million,
representing an operating margin of 5.2% of net sales. Net income totaled $4.9
million, or $0.39 per diluted share. Non-GAAP adjusted EBITDA for the quarter
totaled $9.1 million.

For the full year, Blue Nile reported net sales of $400.0 million, compared to
$348.0 million for the full year of 2011, an increase of 14.9%. Operating
income for the full year was $12.3 million compared to $16.9 million in the
prior year. Net income for the year was $8.4 million and earnings per diluted
share totaled $0.63. Non-GAAP adjusted EBITDA for 2012 was $20.6 million. 

Net cash provided by operating activities totaled $34.4 million for the year
compared to $15.4 million for the year ended January 1, 2012. Non-GAAP free
cash flow for the year was $31.9 million compared to $10.1 million for the
prior year.

"The fourth quarter caps off a great year of growth at Blue Nile, building
upon our sequential growth while posting greater profitability versus the
prior year. Investments we made in 2012 paid off with the highest annual
levels of revenue growth and customer acquisition in five years, exceptional
strength in engagement sales in the U.S., and a return to strong growth
internationally. While we fell short of our expected sales of non-engagement
jewelry during the holiday season, in part due to a weaker environment for
consumer discretionary spending, we gained valuable insight that will guide
the evolution of our product mix. We believe that our strategy to accelerate
this part of our business is on track," said Harvey Kanter, President and
Chief Executive Officer.  

The Company also announced it has entered into a Credit Agreement with U.S.
Bank National Association. The Credit Agreement provides for borrowings under
a $35 million revolving credit facility maturing in 2014. Availability of
capital from this agreement augments the company's positive cash flow from
operations and provides further flexibility to pursue strategic opportunities
to enhance shareholder value.

Highlights

  * U.S. engagement net sales for the fourth quarter 2012 increased 31.0% to
    $73.6 million, compared to $56.2 million for the fourth quarter of
    2011. U.S. engagement net sales for the full year 2012 increased 21.7% to
    $226.6 million, compared to $186.2 million for the full year 2011.
     
  * U.S. non-engagement net sales for the fourth quarter 2012 increased 5.3%
    to $42.5 million, compared to $40.4 million for the fourth quarter of
    2011. U.S. non-engagement net sales for the full year 2012 increased 4.9%
    to $111.0 million, compared to $105.9 million for the full year 2011.
     
  * International net sales for the fourth quarter 2012 were $20.0 million,
    compared to $15.7 million for the fourth quarter 2011, an increase of
    26.8%. International net sales for the full year 2012 increased 11.7% to
    $62.4 million, compared to $55.9 million for the full year 2011. Excluding
    the impact from changes in foreign exchange rates, international net sales
    increased 12.6% for the fiscal year.
     
  * Gross profit for the fourth quarter totaled $25.7 million. As a percent of
    net sales, gross profit was 18.8% compared to 20.7% for the fourth quarter
    of 2011. Gross profit for the year totaled $75.1 million.
     
  * New customers, which we define as individuals who have not made a prior
    purchase from Blue Nile, grew 7.8% in the fourth quarter of 2012 compared
    to the fourth quarter of 2011. For the full year, new customers grew 17.6%
    compared to the full year of 2011.
     
  * Selling, general and administrative expenses for the fourth quarter were
    $18.6 million, compared to $16.9 million in the fourth quarter of 2011.
    Selling, general and administrative expenses for the full year were $62.8
    million, compared to $55.2 million for the full year 2011.
     
  * Earnings per diluted share for the fourth quarter included stock-based
    compensation expense of $0.06 for the fourth quarter of 2012 and 2011.
     
  * Cash and cash equivalents at the end of the fiscal year totaled $87.0
    million, compared to $89.4 million at the end of the fiscal year 2011. 

Financial Guidance

The following forward-looking statements reflect Blue Nile's expectations as
of February 12, 2013. 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 first quarter of 2013 (Quarter Ending March 31, 2013):

  * Net sales are expected to be between $94 million and $100 million.
  * Earnings per diluted share are projected at $0.05 to $0.08.

Expectations for the fiscal year 2013 (Year Ending December 29, 2013):

  * Net sales are expected to be between $440 million and $470 million.
  * Earnings per diluted share are projected at $0.75 to $0.85.

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 Annual Report on Form 10-K for the year ended
December 30, 2012, which we expect to file with the Securities and Exchange
Commission on or before March 15, 2013. 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 fourth 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
                              December 30, 2012 January 1, 2012
Net Income                     $ 4,919           $ 4,221
                                                 
Income tax expense            2,636             2,215
                                                 
Other income, net             (477)             (149)
                                                 
Depreciation and amortization 752               877
                                                 
Stock-based compensation      1,226             1,261
                                                 
Adjusted EBITDA                $ 9,056           $ 8,425
                                                 
                              Year ended        Year ended
                              December 30, 2012 January 1, 2012
Net Income                     $ 8,392           $ 11,350
                                                 
Income tax expense            4,574             5,895
                                                 
Other income, net             (679)             (326)
                                                 
Depreciation and amortization 3,368             3,398
                                                 
Stock-based compensation      4,967             6,414
                                                 
Adjusted EBITDA                $ 20,622          $ 26,731

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
                                             December 30, 2012 January 1, 2012
Net cash provided by operating activities     $ 55,425          $ 46,612
                                                                
Purchases of fixed assets, including
internal-use software and website            (430)             (660)
development
                                                                
Non-GAAP free cash flow                       $ 54,995          $ 45,952
                                                                
                                             Year ended        Year ended
                                             December 30, 2012 January 1, 2012
Net cash provided by operating activities     $ 34,444          $ 15,454
                                                                
Purchases of fixed assets, including
internal-use software and website            (2,525)           (5,391)
development
                                                                
Non-GAAP free cash flow                       $ 31,919          $ 10,063

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:

Quarter ended       Year over year Effect of foreign  Year over year growth on
December 30, 2012   growth         exchange movements constant exchange rate
                                                      basis
                                                       
International Sales 26.8%          2.1%               24.7%
                                                       
                                                      Year over year growth
Quarter ended       Year over year Effect of foreign  on 
January 1, 2012     growth         exchange movements constant exchange rate
                                                      basis
                                                       
International Sales 2.6%           0.0%               2.6%
                                                       
Year Ended          Year over year Effect of foreign  Year over year growth on
December 30, 2012   growth         exchange movements constant exchange rate
                                                      basis
                                                       
International Sales 11.7%          (0.9)%             12.6%
                                                       
Year Ended          Year over year Effect of foreign  Year over year growth on
January 1, 2012     growth         exchange movements constant exchange rate
                                                      basis
                                                       
International Sales 29.1%          5.8%               23.3%

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)
                                                                   
                                                     December 30, January 1,
                                                     2012         2012
                                                     (unaudited)   
ASSETS                                                             
Current assets:                                                    
Cash and cash equivalents                             $ 87,017     $ 89,391
Trade accounts receivable                            2,578        2,317
Other accounts receivable                            907          2,550
Inventories                                          33,270       29,267
Deferred income taxes                                926          689
Prepaids and other current assets                    1,229        1,009
Total current assets                                 125,927      125,223
Property and equipment, net                          7,876        8,340
Intangible assets, net                               195          252
Deferred income taxes                                7,786        9,053
Note receivable                                      2,000        —
Other investments                                    2,000        —
Other assets                                         117          157
Total assets                                          $ 145,901    $ 143,025
LIABILITIES AND STOCKHOLDERS' EQUITY                               
Current liabilities:                                               
Accounts payable                                      $ 116,209    $ 95,590
Accrued liabilities                                  12,439       9,396
Current portion of long-term financing obligation    60           59
Current portion of deferred rent                     246          211
Total current liabilities                            128,954      105,256
Long-term financing obligation, less current portion 625          685
Deferred rent, less current portion                  2,188        2,060
Other long term liabilities                          25           —
Stockholders' equity:                                              
Common stock                                         21           21
Additional paid-in capital                           197,282      187,762
Accumulated other comprehensive loss                 (100)        (123)
Retained earnings                                    82,883       74,491
Treasury stock                                       (265,977)    (227,127)
Total stockholders' equity                           14,109       35,024
Total liabilities and stockholders' equity            $ 145,901    $ 143,025

 
 
BLUE NILE, INC.
Condensed Consolidated Statements of Operations
(unaudited)
(in thousands, except per share data)
                                                                     
                               Quarter ended           Year ended
                               December 30, January 1, December 30, January 1,
                               2012         2012       2012         2012
Net sales                       $ 136,121    $ 112,324  $ 400,035    $ 348,013
Cost of sales                  110,462      89,123     324,977      275,881
Gross profit                   25,659       23,201     75,058       72,132
Selling, general and           18,581       16,914     62,771       55,213
administrative expenses
Operating income               7,078        6,287      12,287       16,919
Other income, net                                                    
Interest income, net           28           26         133          142
Other income, net              449          123        546          184
Total other income, net        477          149        679          326
Income before income taxes     7,555        6,436      12,966       17,245
Income tax expense             2,636        2,215      4,574        5,895
Net income                      $ 4,919      $ 4,221    $ 8,392      $ 11,350
Basic net income per share      $ 0.39       $ 0.31     $ 0.64       $ 0.80
Diluted net income per share    $ 0.39       $ 0.30     $ 0.63       $ 0.77
                                                                     
Shares used for computation                                          
(in thousands):
Basic                          12,500       13,602     13,204       14,182
Diluted                        12,757       13,957     13,427       14,675

 
 
BLUE NILE, INC.
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
                                                                     
                                                       Year ended
                                                       December 30, January 1,
                                                       2012         2012
Operating activities:                                                
Net income                                              $ 8,392      $ 11,350
Adjustments to reconcile net income to net cash                      
provided by operating activities:
Depreciation and amortization                          3,368        3,398
Loss on disposal of property and equipment             45           35
Stock-based compensation                               5,087        6,534
Deferred income taxes                                  1,030        (761)
Tax (deficiency) benefit from exercise of stock        (2,567)      771
options
Excess tax benefit from exercise of stock options      (37)         (646)
Changes in assets and liabilities:                                   
Receivables                                            (323)        (1,391)
Inventories                                            (4,003)      (9,101)
Prepaid expenses and other assets                      (180)        35
Accounts payable                                       20,392       5,207
Accrued liabilities                                    3,052        (2,080)
Other long term liabilities                            25           —
Deferred rent and other                                163          2,103
Net cash provided by operating activities              34,444       15,454
Investing activities:                                                
Purchases of property and equipment                    (2,525)      (5,391)
Purchases of other investments                         (2,000)      —
Payments for note receivable                           (2,000)      —
Net cash used in investing activities                  (6,525)      (5,391)
Financing activities:                                                
Repurchase of common stock                             (38,850)     (39,950)
Proceeds from stock option exercises                   8,572        5,466
Excess tax benefit from exercise of stock options      37           646
Principal payments under long-term financing           (59)         (52)
obligation
Net cash used in financing activities                  (30,300)     (33,890)
Effect of exchange rate changes on cash and cash       7            (43)
equivalents
                                                                     
Net decrease in cash and cash equivalents              (2,374)      (23,870)
                                                                     
Cash and cash equivalents, beginning of period         89,391       113,261
Cash and cash equivalents, end of period                $ 87,017     $ 89,391
                                                                     
Supplemental disclosure of cash flow information:                    
Cash paid for income taxes                              $ 4,121      $ 7,363
Cash paid for interest relating to long-term financing 3            8
obligation
Non-cash investing and financing activities:                         
Receivable from stock option exercises                 —            1,705
Payable for purchases of property and equipment        325          98

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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