Second Quarter Net Sales of $106.6 million
Second Quarter Earnings Per Diluted Share Total $0.18
Company Executes Plan to Re-accelerate Growth
SEATTLE, Aug. 5, 2014 (GLOBE NEWSWIRE) -- Blue Nile, Inc. (Nasdaq:NILE), a leading online retailer of diamonds and fine jewelry, today reported financial results for its second quarter ended June 29, 2014.
Net sales decreased 1.3% to $106.6 million for the second quarter ended June 29, 2014 compared to $108.0 million for the second quarter ended June 30, 2013. Operating income for the quarter totaled $3.2 million, representing an operating margin of 3.0% of net sales, compared to $3.4 million in operating income and 3.2% operating margin for the second quarter of 2013. Net income totaled $2.2 million, or $0.18 per diluted share.
Non-GAAP adjusted EBITDA for the quarter totaled $5.2 million compared to $5.5 million for the second quarter of 2013. For the trailing twelve month period ended June 29, 2014, net cash provided by operating activities totaled $18.8 million compared to $26.1 million for the trailing twelve month period ended June 30, 2013. For the trailing twelve month period ended June 29, 2014, non-GAAP free cash flow totaled $13.9 million, as compared to $22.9 million for the trailing twelve month period ended June 30, 2013.
"The diamond price environment in Q2 materially impacted our performance. As a result we executed strategic and targeted price changes to ensure that Blue Nile's superior value is absolutely clear to the consumer," said Harvey Kanter, Chairman, CEO and President. "With these changes we are seeing a return to growth, and when diamond prices normalize, we expect to see even greater benefits from ongoing investments we're making in the user experience. Without question, Blue Nile offers the highest quality products and selection, incredible service, and industry-leading value to our customers."
Highlights
-
U.S. engagement net sales for the second quarter 2014 decreased 4.6% to $60.9 million, compared to $63.9 million for the second quarter of 2013.
-
U.S. non-engagement net sales for the second quarter 2014 increased 2.6% to $27.7 million, compared to $27.0 million for the second quarter of 2013.
-
International net sales for the second quarter 2014 were $18.0 million, compared to $17.1 million for the second quarter 2013, an increase of 4.8%. Excluding the impact from changes in foreign exchange rates, international net sales increased 6.7%.
-
Gross profit for the second quarter 2014 totaled $20.2 million. As a percent of net sales, gross profit was 18.9% compared to 18.6% for the second quarter of 2013.
-
Selling, general and administrative expenses for the second quarter 2014 were $17.0 million, compared to $16.7 million in the second quarter of 2013. Selling, general and administrative expenses includes stock-based compensation expense of $1.1 million for the second quarter in 2014 and $1.3 million for the second quarter in 2013.
-
Earnings per diluted share included stock-based compensation expense of $0.05 for the second quarter 2014 and $0.07 for the second quarter 2013.
-
At the end of the second quarter 2014, cash and cash equivalents totaled $39.5 million.
- During the second quarter 2014, Blue Nile repurchased 674,571 shares of its common stock for $22.2 million.
Financial Guidance
The following forward-looking statements reflect Blue Nile's expectations as of August 5, 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 third quarter of 2014 (Quarter Ending September 28, 2014):
- Net sales are expected to be between $105 million and $108 million.
- Earnings per diluted share are projected at $0.13 to $0.16.
Expectations for the fiscal year 2014 (Year Ending January 4, 2015):
- Net sales are expected to be between $475 million and $490 million.
- Earnings per diluted share are projected at $0.81 to $0.86.
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 December 29, 2013. Additional information will also be set forth in our Quarterly Report on Form 10-Q for the quarter ended June 29, 2014, which we expect to file with the Securities and Exchange Commission on or before August 8, 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 second 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 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 | |
| June 29, 2014 | June 30, 2013 | |
| Net income | $ 2,171 | $ 2,206 |
| Income tax expense | 1,076 | 1,266 |
| Other income, net | (60) | (60) |
| Depreciation and amortization | 897 | 791 |
| Stock-based compensation | 1,102 | 1,287 |
| Non-GAAP adjusted EBITDA | $ 5,186 | $ 5,490 |
| Year to date ended | Year to date ended | |
| June 29, 2014 | June 30, 2013 | |
| Net income | $ 3,250 | $ 3,038 |
| Income tax expense | 1,651 | 1,736 |
| Other income, net | (106) | (204) |
| Depreciation and amortization | 1,819 | 1,568 |
| Stock-based compensation | 2,183 | 2,451 |
| Non-GAAP adjusted EBITDA | $ 8,797 | $ 8,589 |
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 | |
| June 29, 2014 | June 30, 2013 | |
| Net cash provided by operating activities | $ 5,048 | $ 10,327 |
| Purchases of fixed assets, including internal-use software and website development | (937) | (1,290) |
| Non-GAAP free cash flow | $ 4,111 | $ 9,037 |
| Twelve months ended | Twelve months ended | |
| June 29, 2014 | June 30, 2013 | |
| Net cash provided by operating activities | $ 18,756 | $ 26,122 |
| Purchases of fixed assets, including internal-use software and website development | (4,892) | (3,231) |
| Non-GAAP free cash flow | $ 13,864 | $ 22,891 |
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:
| Quarter ended June 29, 2014 | Year over year growth |
Effect of foreign exchange movements |
Year over year growth on constant exchange rate basis |
| International net sales | 4.8% | (1.9)% | 6.7% |
| Quarter ended June 30, 2013 | Year over year growth |
Effect of foreign exchange movements |
Year over year growth on constant exchange rate basis |
| International net sales | 19.1% | (1.5)% | 20.6% |
| Year to date ended June 29, 2014 | Year over year growth |
Effect of foreign exchange movements |
Year over year growth on constant exchange rate basis |
| International net sales | 3.5% | (3.1)% | 6.6% |
| Year to date ended June 30, 2013 | Year over year growth |
Effect of foreign exchange movements |
Year over year growth on constant exchange rate basis |
| International net sales | 22.0% | (1.3)% | 23.3% |
About Blue Nile, Inc.
Blue Nile, Inc. is a 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) | |||
|
June 29, 2014 |
December 29, 2013 |
June 30, 2013 |
|
| ASSETS | |||
| Current assets: | |||
| Cash and cash equivalents | $ 39,519 | $ 115,942 | $ 47,314 |
| Trade accounts receivable | 1,380 | 3,005 | 2,544 |
| Other accounts receivable | 481 | 521 | 830 |
| Inventories | 32,149 | 34,530 | 31,561 |
| Deferred income taxes | 588 | 1,038 | 722 |
| Prepaid income taxes | — | 247 | — |
| Prepaids and other current assets | 1,673 | 1,318 | 1,294 |
| Total current assets | 75,790 | 156,601 | 84,265 |
| Property and equipment, net | 10,026 | 10,188 | 8,361 |
| Intangible assets, net | 119 | 140 | 166 |
| Deferred income taxes | 4,001 | 5,470 | 8,308 |
| Note receivable | 2,000 | 2,000 | 2,000 |
| Other investments | 2,280 | 2,280 | 2,000 |
| Other assets | 240 | 246 | 197 |
| Total assets | $ 94,456 | $ 176,925 | $ 105,297 |
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||
| Current liabilities: | |||
| Accounts payable | $ 77,125 | $ 122,322 | $ 77,664 |
| Accrued liabilities | 6,452 | 10,751 | 8,032 |
| Current portion of long-term financing obligation | 32 | 51 | 60 |
| Current portion of deferred rent | 273 | 279 | 282 |
| Total current liabilities | 83,882 | 133,403 | 86,038 |
| Long-term financing obligation, less current portion | 505 | 574 | 595 |
| Deferred rent, less current portion | 2,119 | 2,229 | 2,344 |
| Other long-term liabilities | 115 | 114 | 26 |
| Stockholders' equity: | |||
| Common stock | 22 | 22 | 21 |
| Additional paid-in capital | 225,964 | 223,261 | 200,321 |
| Accumulated other comprehensive loss | (45) | (26) | (111) |
| Retained earnings | 97,008 | 93,758 | 85,921 |
| Treasury stock | (315,114) | (276,410) | (269,858) |
| Total stockholders' equity | 7,835 | 40,605 | 16,294 |
| Total liabilities and stockholders' equity | $ 94,456 | $ 176,925 | $ 105,297 |
| BLUE NILE, INC. | ||||
| Condensed Consolidated Statements of Operations | ||||
| (unaudited) | ||||
| (in thousands, except per share data) | ||||
| Quarter ended | Year to date ended | |||
|
June 29, 2014 |
June 30, 2013 |
June 29, 2014 |
June 30, 2013 |
|
| Net sales | $ 106,571 | $ 108,014 | $ 210,297 | $ 205,125 |
| Cost of sales | 86,404 | 87,917 | 171,005 | 167,382 |
| Gross profit | 20,167 | 20,097 | 39,292 | 37,743 |
| Selling, general and administrative expenses | 16,980 | 16,685 | 34,497 | 33,173 |
| Operating income | 3,187 | 3,412 | 4,795 | 4,570 |
| Other income, net | ||||
| Interest income, net | 24 | 22 | 72 | 64 |
| Other income, net | 36 | 38 | 34 | 140 |
| Total other income, net | 60 | 60 | 106 | 204 |
| Income before income taxes | 3,247 | 3,472 | 4,901 | 4,774 |
| Income tax expense | 1,076 | 1,266 | 1,651 | 1,736 |
| Net income | $ 2,171 | $ 2,206 | $ 3,250 | $ 3,038 |
| Basic net income per share | $ 0.18 | $ 0.18 | $ 0.26 | $ 0.24 |
| Diluted net income per share | $ 0.18 | $ 0.17 | $ 0.26 | $ 0.24 |
| Shares used for computation (in thousands): | ||||
| Basic | 12,099 | 12,411 | 12,450 | 12,447 |
| Diluted | 12,139 | 12,628 | 12,532 | 12,660 |
| BLUE NILE, INC. | ||
| Condensed Consolidated Statements of Cash Flows | ||
| (unaudited) | ||
| (in thousands) | ||
| Year to date ended | ||
|
June 29, 2014 |
June 30, 2013 |
|
| Operating activities: | ||
| Net income | $ 3,250 | $ 3,038 |
| Adjustments to reconcile net income to net cash used in operating activities: | ||
| Depreciation and amortization | 1,819 | 1,568 |
| Stock-based compensation | 2,223 | 2,491 |
| Deferred income taxes | 1,919 | (318) |
| Tax deficiency from exercise of stock options | (1,609) | (12) |
| Excess tax benefit from exercise of stock options | (173) | (39) |
| Changes in assets and liabilities: | ||
| Receivables | 1,665 | 111 |
| Inventories | 2,381 | 1,709 |
| Prepaid federal income taxes | 247 | — |
| Prepaid expenses and other assets | (349) | (145) |
| Accounts payable | (45,720) | (38,268) |
| Accrued liabilities | (4,299) | (4,407) |
| Other long term liabilities | 1 | 1 |
| Deferred rent and other | (116) | 192 |
| Net cash used in operating activities | (38,761) | (34,079) |
| Investing activities: | ||
| Purchases of property and equipment | (1,565) | (2,201) |
| Net cash used in investing activities | (1,565) | (2,201) |
| Financing activities: | ||
| Repurchase of common stock | (38,212) | (3,881) |
| Proceeds from stock option exercises | 2,255 | 477 |
| Taxes paid for net share settlement of equity awards | (214) | — |
| Excess tax benefit from exercise of stock options | 173 | 39 |
| Principal payments under long-term financing obligation | (88) | (30) |
| Net cash used in financing activities | (36,086) | (3,395) |
| Effect of exchange rate changes on cash and cash equivalents | (11) | (28) |
| Net decrease in cash and cash equivalents | (76,423) | (39,703) |
| Cash and cash equivalents, beginning of period | 115,942 | 87,017 |
| Cash and cash equivalents, end of period | $ 39,519 | $ 47,314 |
| Supplemental disclosure of cash flow information: | ||
| Cash paid for income taxes | $ 992 | $ 3,970 |
| Non-cash investing and financing activities: | ||
| Unsettled repurchases of common stock | $ 492 | $ — |