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Blue Nile Announces Fourth Quarter and Fiscal Year 2006 Financial Results
- Reports Record Fourth Quarter Net Sales of $90.7 Million, up 23.9%
- Delivers Q4 Diluted EPS of $0.35, an Increase of 20.7%
- Achieves Record Revenue of $251.6 Million in Fiscal Year 2006
- 2006 Non-GAAP Free Cash Flow of $38.6 Million Increases 27.8% Year Over Year
- Board of Directors Promotes Diane Irvine to President
SEATTLE, February 12, 2007 - Blue Nile, Inc. (Nasdaq: NILE)
reported financial results for its fourth quarter and fiscal year ended December 31, 2006.
Fourth Quarter 2006 Financial Highlights:
Blue Nile reported fourth quarter net sales of $90.7 million, compared to
net sales of $73.2 million in the fourth quarter of 2005, an increase of
23.9%. Net income in the fourth quarter was $0.35 per diluted share, compared
to $0.29 per diluted share in the prior year. Effective with its fiscal year
2006, the Company adopted the accounting requirements of Statement of
Financial Accounting Standards No. 123R (Revised 2004) "Share-Based Payment"
(SFAS 123R), related to expensing stock-based compensation, which had the
effect of reducing net income by $0.04 per diluted share in the fourth quarter
of 2006.
Non-GAAP free cash flow for the quarter increased 28.0% to $47.1 million,
compared to $36.8 million in the prior year. Net cash provided by operating
activities for the quarter ended December 31, 2006 increased 27.5% to
$47.3 million, from $37.1 million in the prior year.
The Company repurchased approximately $3.2 million, or 92,000 shares, of
its common stock during the quarter.
Fiscal Year 2006 Financial Highlights:
Blue Nile reported net sales for the fiscal year ended December 31, 2006
of $251.6 million, compared to net sales of $203.2 million in the year ended
January 1, 2006, an increase of 23.8%. Net income for the year ended December
31, 2006 increased to $0.76 per diluted share from $0.71 per diluted share in
the year ended January 1, 2006. The adoption of SFAS 123R had the effect of
reducing net income by $0.14 per diluted share for the year ended December 31,
2006.
Non-GAAP free cash flow for the year ended December 31, 2006 increased
27.8% to $38.6 million, compared to $30.2 million in the prior year. Net cash
provided by operating activities for the year ended December 31, 2006 was
$40.5 million, compared to $31.3 million in the prior year, an increase of
29.6%.
The Company repurchased approximately $57.4 million, or 1.8 million
shares, of its common stock during the year. Since February 2005, the Company
has repurchased 2,351,518 shares of its common stock, or 13.2% of shares
outstanding. The Company may purchase up to an additional $93.2 million of
its common stock under its existing stock repurchase program.
Mark Vadon, Chief Executive Officer, said, "Blue Nile had an excellent
fourth quarter, posting results that balance strong growth and profitability.
By delivering an exceptional experience for our customers, we generated sales
growth of 23.9%. Due to our disciplined cost management, this increase in
sales yielded superb profit margins.
"In 2006, Blue Nile delivered impressive financial results while improving
its strategic positioning. We increased our share of the U.S. diamond
engagement ring market, expanded our business into other types of fine
jewelry, and continued to build our international business. We accomplished
all of this while generating strong profitability and cash flow. Entering
2007, we are well positioned to fulfill the long-term potential of our
business model."
Blue Nile announced today that its Board of Directors has promoted Diane
Irvine to President. Ms. Irvine will be responsible for the Company's day-to-
day operations and will continue to hold the position of Chief Financial
Officer until her successor is named. Mr. Vadon, in his role as Chairman and
Chief Executive Officer, will remain focused on the strategic direction and
growth initiatives of the business that will enhance shareholder value over
the long term.
Mr. Vadon said, "I am thrilled to announce that Diane will be our
President. Diane has been my partner at Blue Nile for the past seven years as
we have built Blue Nile into the leading online retailer of fine jewelry. She
shares my passion for and dedication to building Blue Nile into an iconic
consumer business. Together we will lead the Company into its next phase of
growth."
Diane Irvine, President and Chief Financial Officer, added, "When I joined
Blue Nile, I was optimistic about the Company's ability to capture a
significant opportunity. Today, I believe Blue Nile's prospects are brighter
than ever, and I share the dedication of our outstanding team to fulfill the
long-term potential of our business."
Other Financial Highlights
-
Cash and marketable securities totaled $98.4 million at December 31,2006.
-
Gross profit for the fourth quarter of 2006 was $18.7 million,
compared to $16.1 million in the fourth quarter of 2005, an increase
of 16.0%. Gross profit as a percentage of net sales was 20.6% in the
fourth quarter of 2006 compared to 22.0% in the fourth quarter of 2005.
-
Stock-based compensation expense totaled $1.2 million in the fourth
quarter of 2006, of which $1.1 million was incremental expense
related to the adoption of SFAS 123R. Of the $1.2 million stock-
based compensation expense recognized in the fourth quarter, $27,000
was included in cost of sales.
-
Selling, general and administrative expense for the fourth quarter
of 2006 was $10.6 million, compared to $8.6 million in the fourth
quarter of 2005. This increase reflects additional stock-based
compensation expense due to the implementation of SFAS 123R, the
increase in net sales for the quarter, increased marketing expenses
and increased payroll and related costs.
-
As a percentage of net sales, selling, general and administrative
expenses were 11.7% in the fourth quarter, compared to 11.8% in the
fourth quarter of 2005. Non-GAAP selling, general and administrative
expenses as a percentage of net sales were 10.4% in the fourth
quarter, compared to 11.8% in the fourth quarter of 2005. (See
calculation of Non-GAAP selling, general and administrative expenses
in the Section titled "Non-GAAP Financial Measures" of this press
release.)
-
The Company's effective tax rate for the quarter was 35.5%, compared
to 36.0% for the fourth quarter of 2005. The Company's effective
tax rate for fiscal year 2006 was 34.6%, compared to 36.0% for
fiscal year 2005.
-
Capital expenditures in the fourth quarter of 2006 totaled $218,000,
compared to $327,000 in the fourth quarter of 2005.
Financial Guidance
The Company provides for the first time financial guidance for the first
quarter and fiscal year 2007. The following forward-looking statements
reflect Blue Nile's expectations as of February 12, 2007. Actual results may
be materially affected by many factors, such as consumer spending, economic
conditions and the various factors detailed below.
Expectations for the first quarter 2007 (Quarter Ending April 1, 2007):
-
Net sales are expected to be between $61.0 million and $63.0
million.
-
Net income is expected to be in a range of $0.14 to $0.15 per
diluted share. The estimated net income per diluted share includes
the estimated impact of stock compensation expense of approximately
$0.05 per diluted share.
-
The effective tax rate for the quarter is expected to be
approximately 35.4%.
Expectations for fiscal year 2007 (Year Ending December 30, 2007):
-
Net sales are expected to be between $290.0 million and $300.0
million.
-
Net income is expected to be in a range of $0.80 to $0.85 per
diluted share. The estimated net income per diluted share includes
the estimated impact of stock compensation expense of approximately
$0.24 per diluted share.
-
The effective tax rate for the year is expected to be approximately
35.4%.
-
Capital expenditures are expected to be approximately $4.0 million.
Capital expenditures for the year include an estimated $1.8 million
related to the expansion of the Company's fulfillment center.
Forward-Looking Statements
This press release contains forward-looking statements that include risks
and uncertainties, including, without limitation, all statements related to
future financial performance, estimated stock-based compensation expense,
anticipated effective tax rate, anticipated capital expenditures and plans to
grow our business. Words such as "expect," "anticipate," "believe," "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 our fluctuating operating
results, 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, our limited operating
history, 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 Report on Form 10-
Q for the quarters ended April 2, 2006, July 2, 2006 and October 1, 2006 and
our Annual Report on Form 10-K for the year ended January 1, 2006. Additional
information will also be set forth in our Annual Report on Form 10-K for the
year ended December 31, 2006, which we expect to file with the Securities and
Exchange Commission on or before March 16, 2007. 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
The Company will host a conference call to discuss its fourth quarter and
full year 2006 financial results on February 12, 2007 at 5:00 p.m. ET/2:00
p.m. PT. 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 the Company'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 free cash flow, non-GAAP net income and non-GAAP selling,
general and administrative expenses as a percentage of net sales as measures
of certain components of financial performance. Blue Nile defines non-GAAP
free cash flow as net cash provided by operating activities less cash outflows
for purchases of fixed assets, including internal use software and website
development. Blue Nile defines non-GAAP net income as GAAP net income
excluding SFAS 123R stock-based compensation expense and the related income
tax effect. Blue Nile defines non-GAAP selling, general and administrative
expenses as a percentage of net sales as GAAP selling, general and
administrative expenses excluding SFAS 123R stock-based compensation expense
divided by GAAP net sales. 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 free cash flow provides
meaningful supplemental information regarding liquidity. Blue Nile believes
that both management and investors benefit from referring to this non-GAAP
measure in assessing the performance of Blue Nile and when planning and
forecasting future periods. Further, management believes that the inclusion of
the non-GAAP free cash flow calculation provides consistency in Blue Nile's
financial reporting and comparability with similar companies in Blue Nile's
industry.
A reconciliation of differences of non-GAAP free cash flow from the
comparable GAAP measure of net cash provided by operating activities is as
follows (in thousands):
Quarter ended Quarter ended
December 31, 2006 January 1, 2006
Net cash provided by operating
activities $47,280 $37,091
Purchases of fixed assets, including
internal-
use software and
website development (218) (327)
Non-GAAP free cash flow $47,062 $36,764
Year ended Year ended
December 31, 2006 January 1, 2006
Net cash provided by operating
activities $40,518 $31,272
Purchases of fixed assets, including
internal-
use software and
website development (1,908) (1,072)
Non-GAAP free cash flow $38,610 $30,200
Effective January 2, 2006, the Company adopted the provisions of SFAS 123R
using the modified prospective transition method for all stock options issued
after becoming a public company. SFAS 123R requires measurement of
compensation cost for all options granted at fair value on the date of grant
and recognition of compensation expense over the service period for those
options expected to vest. Options granted prior to March 11, 2004 (the date on
which the Company was considered to be a public company for accounting
purposes) have been accounted for using the prospective transition method,
which requires that those options continue to be accounted for under APB 25.
Prior period financial statements are not required to be revised to reflect
these changes.
Prior to January 2, 2006, the Company accounted for its employee
compensation plans under the recognition and measurement provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", or APB 25, and related interpretations including Financial
Accounting Standards Board Interpretation No. 44, "Accounting for Certain
Transactions involving Stock Compensation, an interpretation of APB Opinion
No. 25." Under APB 25, compensation expense was recognized for the difference
between the fair value of our stock on the date of grant and the exercise
price.
Blue Nile's management believes that non-GAAP net income, defined as GAAP
net income excluding the impact of recording stock-based compensation expense
in accordance with SFAS 123R and the related tax effect, provides meaningful
supplemental information regarding the Company's operating performance and
facilitates comparisons to prior periods. Management is providing the tables
below because management believes they provide useful information to investors
regarding the Company's results of operations by separately identifying the
impact of recording stock-based compensation expense in accordance with SFAS
123R.
The application of SFAS 123R had the following effect on reported amounts
for the fourth quarter of 2006 relative to the amounts that would have been
recorded under the recognition and measurement provisions of APB 25 (in
thousands, except per share amounts):
Quarter ended December 31, 2006
Using previous
accounting
(APB 25) SFAS 123R As
(non-GAAP) adjustments reported
Net sales $90,729 $- $90,729
Cost of sales 71,999 25 72,024
Gross profit 18,730 (25) 18,705
Selling, general and administrative
expenses 9,422 1,153 10,575
Operating income 9,308 (1,178) 8,130
Other income (expense), net:
Interest income 787 - 787
Other income (1) - (1)
Total other income (expense), net 786 - 786
Income before income taxes 10,094 (1,178) 8,916
Income tax expense 3,581 (418) 3,163
Net income $6,513 $(760) $5,753
Basic net income per share $0.41 $(0.05) $0.36
Diluted net income per share $0.39 $(0.04) $0.35
Shares used for computation:
Basic 16,011 - 16,011
Diluted 16,761 (88) 16,673
The application of SFAS 123R had the following effect on reported amounts
for the year ended December 31, 2006 relative to the amounts that would have
been recorded under the recognition and measurement provisions of APB 25 (in
thousands, except per share amounts):
Year ended December 31, 2006
Using previous
accounting
(APB 25) SFAS 123R As
(non-GAAP) adjustments reported
Net sales $251,587 $- $251,587
Cost of sales 200,659 75 200,734
Gross profit 50,928 (75) 50,853
Selling, general and administrative
expenses 30,297 3,999 34,296
Operating income 20,631 (4,074) 16,557
Other income (expense), net:
Interest income 3,323 - 3,323
Other income 100 - 100
Total other income (expense), net 3,423 - 3,423
Income before income taxes 24,054 (4,074) 19,980
Income tax expense 8,362 (1,446) 6,916
Net income $15,692 $(2,628) $13,064
Basic net income per share $0.95 $(0.16) $0.79
Diluted net income per share $0.90 $(0.14) $0.76
Shares used for computation:
Basic 16,563 - 16,563
Diluted 17,342 (64) 17,278
Blue Nile's management believes that non-GAAP selling, general and
administrative expenses as a percentage of net sales, defined as GAAP selling,
general and administrative expenses excluding SFAS 123R stock-based
compensation expense divided by GAAP net sales provides meaningful
supplemental information regarding the Company's operating performance and
facilitates comparisons to prior periods.
The schedule below reflects the calculation of non-GAAP selling, general
and administrative expenses as a percentage of net sales and provides a
reconciliation of selling, general and administrative expenses, excluding SFAS
123R stock-based compensation expense used for the calculation to the
comparable GAAP measure of selling, general and administrative expenses as
reported in our consolidated statement of operations (in thousands):
Quarter ended Year ended
December 31, January 1, December 31, January 1,
2006 2006 2006 2006
Net sales $90,729 $73,231 $251,587 $203,169
Selling, general and
administrative expenses 10,575 8,637 34,296 26,993
Less: SFAS 123R stock-
based compensation (1,153) - (3,999) -
Non-GAAP selling, general
and administrative expenses $9,422 $8,637 $30,297 $26,993
Selling, general and
administrative expenses as
a percentage of net sales 11.7% 11.8% 13.6% 13.3%
Non-GAAP selling, general
and administrative expenses as
a percentage of net sales 10.4% 11.8% 12.0% 13.3%
About Blue Nile, Inc.
Founded in 1999, Blue Nile is the leading online retailer of
diamonds and fine jewelry. It has built a well respected brand
by providing consumers with a better way to buy diamonds and
fine jewelry. Blue Nile has established some of the highest quality
standards in the industry and provides consumers with in-depth
educational materials and unique online tools that place consumers
in control of the jewelry shopping process. The Blue Nile Web site
showcases thousands of independently certified diamonds and fine
jewelry at prices significantly below traditional retail. Blue Nile
can be found online at
www.bluenile.com,
www.bluenile.ca
and www.bluenile.co.uk.
Blue Nile's shares are traded on the Nasdaq National Market under the symbol NILE.
BLUE NILE, INC.
Condensed Consolidated Balance Sheets
(in thousands)
December 31, January 1,
2006 2006
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $78,540 $71,921
Restricted cash 117 119
Marketable securities 19,767 42,748
Total cash and marketable securities 98,424 114,788
Trade accounts receivable 1,484 1,567
Other accounts receivable 156 310
Inventories 14,616 11,764
Deferred income taxes 598 3,223
Prepaids and other current assets 740 844
Total current assets 116,018 132,496
Property and equipment, net 3,391 3,261
Intangible assets, net 319 352
Deferred income taxes 2,016 1,819
Other assets 93 77
Total assets $121,837 $138,005
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $66,625 $50,157
Accrued liabilities 7,454 5,262
Current portion of deferred rent 197 208
Total current liabilities 74,276 55,627
Deferred rent, less current portion 666 863
Commitments and contingencies
Stockholders' equity:
Common stock 19 19
Additional paid-in capital 115,751 106,341
Deferred compensation (180) (480)
Accumulated other comprehensive (loss) income (2) 5
Retained earnings (accumulated deficit) 6,702 (6,362)
Treasury stock (75,395) (18,008)
Total stockholders' equity 46,895 81,515
Total liabilities and stockholders'
equity $121,837 $138,005
Note: The balance sheet at January 1, 2006 has been derived from the
audited financial statements at that date.
BLUE NILE, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
(in thousands, except per share data)
Quarter ended Year ended
December January December January
31, 1, 31, 1,
2006 2006 2006 2006
Net sales $90,729 $73,231 $251,587 $203,169
Cost of sales 72,024 57,111 200,734 158,127
Gross profit 18,705 16,120 50,853 45,042
Selling, general and
administrative expenses 10,575 8,637 34,296 26,993
Operating income 8,130 7,483 16,557 18,049
Other income (expense), net:
Interest income 787 776 3,323 2,499
Other income (expense) (1) 5 100 5
Total other income
(expense), net 786 781 3,423 2,504
Income before income taxes 8,916 8,264 19,980 20,553
Income tax expense 3,163 2,975 6,916 7,400
Net income $5,753 $5,289 $13,064 $13,153
Basic net income per share $0.36 $0.31 $0.79 $0.75
Diluted net income per share $0.35 $0.29 $0.76 $0.71
Shares used for computation
(in thousands):
Basic 16,011 17,324 16,563 17,550
Diluted 16,673 18,433 17,278 18,597
BLUE NILE, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
Year ended
December 31, January 1,
2006 2006
Operating activities:
Net income $13,064 $13,153
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,868 1,717
Loss on disposal of fixed assets 5 11
Stock-based compensation 4,434 342
Deferred income taxes 2,654 5,872
Tax benefit from exercise of stock options 2,739 1,190
Excess tax benefit from exercise of
stock options (172) -
Changes in assets and liabilities:
Receivables, net 236 (849)
Inventories (2,852) (1,850)
Prepaid expenses and other assets 88 (41)
Accounts payable 16,468 12,382
Accrued liabilities 2,194 (452)
Deferred rent (208) (203)
Net cash provided by operating activities 40,518 31,272
Investing activities:
Purchases of property and equipment (1,908) (1,072)
Proceeds from the sale of property
and equipment 1 8
Purchases of marketable securities (75,030) (156,870)
Proceeds from the maturity of
marketable securities 98,000 156,000
Transfers of restricted cash 2 (119)
Net cash provided by (used in)
investing activities 21,065 (2,053)
Financing activities:
Repurchase of common stock (57,387) (17,372)
Proceeds from stock option exercises 2,251 575
Excess tax benefit from exercise of
stock options 172 -
Net cash used in financing activities (54,964) (16,797)
Net increase in cash and cash equivalents 6,619 12,422
Cash and cash equivalents, beginning of period 71,921 59,499
Cash and cash equivalents, end of period $78,540 $71,921
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