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E-Commerce Jeweler Blue Nile Struggling to Grow

Posted on Thursday, Sep 4th 2014

A report by Euromonitor International estimated the US jewelry market to have recovered to $59.1 billion last year. The market is finally back to pre-recessionary conditions and is projected to grow another 14% by the year 2018. The market remains highly fragmented with no single retailer commanding more than a 6% market share, suggesting a big opportunity for growth and consolidation. Recently, Signet Jewelers acquired Zale Corporation, sparking interest in other jewelry companies.

Blue Nile’s Financials
Seattle-based online jeweler Blue Nile’s (Nasdaq: NILE) second quarter revenues fell 1% over the year to $106.6 million, falling short of the Street’s projections of $111 million. EPS of $0.18 was also short of the market’s estimated earnings of $0.19 per share, but recorded an increase over the previous year’s $0.17 for the quarter.

Unlike traditional jewelers, Blue Nile does not hold on to diamond inventory and in conditions of rising prices when traditional jewelers can afford to sell jewelry at slightly lower prices, Blue Nile does not have that luxury. The higher prices have hurt their revenues for the quarter.

During the quarter, sales of US engagement products fell 5% over the year to $60.9 million while the non-engagement product sales improved 3% to $27.7 million. International expansion is showing reasonable traction with revenues growing 5% over the year to $18 million. But currency fluctuations hurt their quarterly financials. Excluding currency movement, revenues would have improved 7% over the year. 

For the current quarter, Blue Nile expects revenues of $105 million-$108 million with an EPS of $0.13-$0.16. They expect to end the year with revenues of $475 million-$490 million and EPS of $0.81-$0.86. The Street was projecting revenues of $105 million for the quarter with EPS of $0.14 and revenues of $477 million for the year with EPS of $0.82.

Blue Nile’s International Expansion
Blue Nile continued their international expansion for the quarter and recently launched their site in the Arabic language. The new website will allow customers based in the United Arab Emirates to conduct transactions in Arabic language for the first time since the site opened for business in the region in 2011. Blue Nile’s website is now available in seven languages including English, French, Spanish, Japanese, Traditional and Simplified Chinese, and Arabic. People in 45 countries can conduct business over the Blue Nile website.

They are also exploring expansion in China and recently opened an office there and are rumored to be looking for native Chinese-speaking sales representatives.

Blue Nile’s Brick and Mortar Expansion
In a surprising move, Blue Nile recently announced plans to expand their business into brick and mortar stores. Blue Nile recently announced their physical presence in New York after successfully testing the model at Nordstrom’s flagship Seattle store in 2013. Visitors to these stores will be able to see and try out Blue Nile diamond rings on display, but will need to visit Blue Nile’s website to make the final purchase.

Analysts believe that the move will help Blue Nile build more brand recognition as they are facing tough competition from physical stores. People recognize the brand names of their local jewelry store better than Blue Nile’s. This recent move will help them address this issue while remaining true to their e-commerce identity.

Their stock is trading at $28.40 with a market capitalization of $336.2 million. It touched a 52-week high of $49.14 in December 2013. The stock has recovered from the year low of $23.10 it had touched early last month.

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