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Blue Nile Announces First Quarter 2014 Financial Results

Blue Nile Announces First Quarter 2014 Financial Results               First Quarter Sales Increased 6.8% to $103.7 million            First Quarter Net Income Increased 29.7% to $1.1 million              First Quarter Earnings Per Diluted Share Total $0.08  SEATTLE, May 1, 2014 (GLOBE NEWSWIRE) -- Blue Nile, Inc. (Nasdaq:NILE), the leading online retailer of diamonds and fine jewelry, today reported financial results for its first quarter ended March 30, 2014.  Net sales increased 6.8% to $103.7 million for the first quarter ended March30, 2014 compared to $97.1 million for the first quarter ended March31, 2013. Operating income for the quarter totaled $1.6 million, representing an operating margin of 1.6% of net sales, compared to $1.2 million in operating income and 1.2% operating margin for the first quarter of 2013. Net income totaled $1.1 million, or $0.08 per diluted share.  Non-GAAP adjusted EBITDA for the quarter totaled $3.6 million compared to $3.1 million for the first quarter of 2013. For the trailing twelve month period ended March30, 2014, net cash provided by operating activities totaled $24.0 million compared to $21.3 million for the trailing twelve month period ended March31, 2013. For the trailing twelve month period ended March30, 2014, non-GAAP free cash flow totaled $18.8 million, as compared to $18.6 million for the trailing twelve month period ended March31, 2013.  "As we announce our financial performance, we remain steadfast in our execution of three key initiatives in 2014," said Harvey Kanter, President and Chief Executive Officer."These include enhancing the user experience; developing our product lines in bridal and diamond jewelry, as well as fashion pieces through The Designer Collective; and expanding internationally by building our presence in China and growing our established markets. Through these initiatives, we continue on our quest to be nothing less than the worldwide leading retailer of bridal and fine jewelry."  Highlights    *U.S. engagement net sales for the first quarter 2014 increased 8.0% to     $59.7 million, compared to $55.3 million for the first quarter of 2013.        *U.S. non-engagement net sales for the first quarter 2014 increased 7.6% to     $26.1 million, compared to $24.2 million for the first quarter of 2013.        *International net sales for the first quarter 2014 were $17.9 million,     compared to $17.6 million for the first quarter 2013, an increase of 1.9%.     Excluding the impact from changes in foreign exchange rates, international     net sales increased 6.4%.        *Gross profit for the first quarter 2014 totaled $19.1 million.As a     percent of net sales, gross profit was 18.4% compared to 18.2% for the     first quarter of 2013.        *Selling, general and administrative expenses for the first quarter 2014     were $17.5 million, compared to $16.5 million in the first quarter of     2013. Selling, general and administrative expenses includes stock-based     compensation expense of $1.1 million for the first quarter in 2014 and     2013.        *Earnings per diluted share included stock-based compensation expense of     $0.06 for the first quarter 2014 and $0.05 for the first quarter 2013.        *At the end of the first quarter 2014, cash and cash equivalents totaled     $56.7 million.        *During the first quarter 2014, Blue Nile repurchased 476,144 shares of its     common stock for $16.5 million.  Financial Guidance  The following forward-looking statements reflect Blue Nile's expectations as of May1, 2014.Actual results may be materially affected by many factors, such as consumer spending, economic conditions and the various factors detailed below.  Expectations for the second quarter of 2014 (Quarter Ending June29, 2014):    *Net sales are expected to be between $108 million and $113 million.   *Earnings per diluted share are projected at $0.18 to $0.21.  Expectations for the fiscal year 2014 (Year Ending January4, 2015):    *Net sales are expected to be between $485 million and $510 million.   *Earnings per diluted share are projected at $0.85 to $0.90.  Blue Nile reports fiscal results on a 52/53-week format. The Company's fiscal 2014 reporting period includes 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 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 December29, 2013.Additional information will also be set forth in our Quarterly Report on Form 10-Q for the quarter ended March30, 2014, which we expect to file with the Securities and Exchange Commission on or before May9, 2014. 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 first 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 athttp://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                              March 30, 2014 March 31, 2013 Net income                    $1,079         $832 Income tax expense            575            470 Other income, net             (46)           (144) Depreciation and amortization 922            777 Stock-based compensation      1,081          1,164 Non-GAAP adjusted EBITDA      $3,611         $3,099  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                                     March 30, 2014       March 31, 2013 Net cash used in operating           $(43,809)            $(44,406) activities Purchases of fixed assets, including internal-use software and website    (628)                (911) development Non-GAAP free cash flow              $(44,437)            $(45,317)                                                                                                                                                       Twelve months ended Twelve months ended                                     March 30, 2014       March 31, 2013 Net cash provided by operating       $24,035              $21,312 activities Purchases of fixed assets, including internal-use software and website    (5,245)              (2,666) development Non-GAAP free cash flow              $18,790              $18,646  The following table reconciles year-over-year international net sales percentage increases (decreases) from the GAAP sales measures to the non-GAAP constant exchange rate basis:                                                               Year over year Quarter ended March                       Effectofforeign  growth on 30, 2014            Yearoveryeargrowth exchangemovements constant                                                              exchange rate                                                              basis International net   1.9%                  (4.5)%             6.4% sales                                                              Year over year Quarter ended March                       Effect of foreign  growth on 31, 2013            Year over year growth exchange movements constant                                                              exchange rate                                                              basis International net   24.8%                 (1.1)%             25.9% 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.  BLUE NILE, INC. Condensed Consolidated Balance Sheets (unaudited) (in thousands)                                               March 30, December 29, March 31,                                               2014     2013        2013                                                                    ASSETS                                                              Current assets:                                                     Cash and cash equivalents                     $56,713   $115,942     $40,518 Trade accounts receivable                     2,856     3,005        1,853 Other accounts receivable                     255       521          745 Inventories                                   35,181    34,530       34,013 Deferred income taxes                         711       1,038        749 Prepaid income taxes                          627       247          — Prepaids and other current assets             1,488     1,318        930 Total current assets                          97,831    156,601      78,808 Property and equipment, net                   9,945     10,188       7,800 Intangible assets, net                        130       140          181 Deferred income taxes                         5,526     5,470        8,044 Note receivable                               2,000     2,000        2,000 Other investments                             2,280     2,280        2,000 Other assets                                  241       246          119 Total assets                                  $117,953  $176,925     $98,952 LIABILITIES AND STOCKHOLDERS' EQUITY                                Current liabilities:                                                Accounts payable                              $81,876   $122,322     $74,547 Accrued liabilities                           5,614     10,751       6,396 Current portion of long-term financing        36        51           60 obligation Current portion of deferred rent              281       279          246 Total current liabilities                     87,807    133,403      81,249 Long-term financing obligation, less current  574       574          610 portion Deferred rent, less current portion           2,170     2,229        2,141 Other long-term liabilities                   114       114          25 Stockholders' equity:                                               Common stock                                  22        22           21 Additional paid-in capital                    225,399   223,261      198,691 Accumulated other comprehensive loss          (32)      (26)         (144) Retained earnings                             94,837    93,758       83,715 Treasury stock                                (292,938) (276,410)    (267,356) Total stockholders' equity                    27,288    40,605       14,927 Total liabilities and stockholders' equity    $117,953  $176,925     $98,952   BLUE NILE, INC. Condensed Consolidated Statements of Operations (unaudited) (in thousands, except per share data)                                              Quarter ended                                             March 30, March 31,                                              2014     2013 Net sales                                    $103,726  $97,111 Cost of sales                                84,601    79,465 Gross profit                                 19,125    17,646 Selling, general and administrative expenses 17,517    16,488 Operating income                             1,608     1,158 Other income, net                                      Interest income, net                         48        42 Other (loss) income, net                     (2)       102 Total other income, net                      46        144 Income before income taxes                   1,654     1,302 Income tax expense                           575       470 Net income                                   $1,079    $832 Basic net income per share                   $0.08     $0.07 Diluted net income per share                 $0.08     $0.07                                                       Shares used for computation (in thousands):            Basic                                        12,800    12,482 Diluted                                      12,913    12,693   BLUE NILE, INC. Condensed Consolidated Statements of Cash Flows (unaudited) (in thousands)                                                            Quarter ended                                                           March 30, March 31,                                                            2014     2013 Operating activities:                                                Net income                                                 $1,079    $832 Adjustments to reconcile net income to net cash used in              operating activities: Depreciation and amortization                              922       777 Stock-based compensation                                   1,101     1,184 Deferred income taxes                                      271       (81) Tax benefit (deficiency) from exercise of stock options    103       (33) Excess tax benefit from exercise of stock options          (155)     (14) Changes in assets and liabilities:                                   Receivables                                                415       887 Inventories                                                (651)     (743) Prepaid federal income taxes                               (380)     — Prepaid expenses and other assets                          (165)     297 Accounts payable                                           (41,155)  (41,422) Accrued liabilities                                        (5,137)   (6,043) Deferred rent and other                                    (57)      (47) Net cash used in operating activities                      (43,809)  (44,406) Investing activities:                                                Purchases of property and equipment                        (628)     (911) Net cash used in investing activities                      (628)     (911) Financing activities:                                                Repurchase of common stock                                 (15,836)  (1,379) Proceeds from stock option exercises                       1,084     219 Taxes paid for net share settlement of equity awards       (176)     — Excess tax benefit from exercise of stock options          155       14 Principal payments under long-term financing obligation    (15)      (15) Net cash used in financing activities                      (14,788)  (1,161)                                                                     Effect of exchange rate changes on cash and cash           (4)       (21) equivalents                                                                     Net decrease in cash and cash equivalents                  (59,229)  (46,499)                                                                     Cash and cash equivalents, beginning of period             115,942   87,017 Cash and cash equivalents, end of period                   $56,713   $40,518                                                                     Supplemental disclosure of cash flow information:                    Cash paid for income taxes                                 $582      $2,895 Non-cash investing and financing activities:                         Unsettled repurchases of common stock                      $692      $—  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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