Not So Blue, Nile

It was a good holiday quarter for online jeweler Blue Nile (Nasdaq: NILE  ) . The upscale e-merchant posted a 24% spike in net sales as it --

Wait a minute! We're just two weeks into January. Isn't Blue Nile's fourth-quarter report due out in another month? That's right, but Blue Nile decided to throw a curve and release favorable top-line news early.

"Over the past week, a number of large jewelry retailers have reported negative same-store sales results for the holiday season," CEO Mark Vadon noted in this morning's release. "We felt it was important to share this information given the industry data that has been released recently."

Good call. On Friday, Tiffany (NYSE: TIF  ) posted a 2% dip in domestic comp store sales over the holidays. That came a day after Zale (NYSE: ZLC  ) posted a whopping 9% slide at the store level.

Finding value in dirty gemstones
Blue Nile is right to be proactive. Its shares have fallen by 44% since peaking three months ago, even though the fundamentals are essentially the same. Analyst estimates haven't changed in that time. The e-jeweler has done little to disappoint investors. It has blown past Wall Street's profit targets in all but one quarter since the company's 2004 IPO.

OK, maybe Blue Nile was overpriced in retrospect. Despite its consistent growth spurts, paying 100 times trailing earnings for the company might have been pricier than some of its high-end bling. Some will argue that Blue Nile still might not be cheap enough for them, fetching 46 times the market's forward earnings projection.

I disagree. When you have a proven concept that is the undisputed champ in its niche of serving up diamond engagement rings via cyberspace, you deserve a market premium. Blue Nile might not be immune to an economic downturn, but there's little reason to believe that it wouldn't be the last one standing if things ever got that dire. If weakness elsewhere is enough to shake off some of the industry's small players, today's dirge may be a merrier tune tomorrow for survivors like Blue Nile. 

With this ring, I see red
There will be concerns when an economy is teetering on recession, and you're selling luxurious vanity items. Even Tiffany & Co. was baffled last week to see that the number of its transactions were down, but those that came in did so at higher price points.

In short, the state of the jewelry market isn't as bleak as you'd think after taking in last week's warnings from brick-and-mortar chains. In Blue Nile's defense, many of those lost transactions are just migrating to the Internet.

We still don't have a full snapshot of the e-tailers. Companies that sell jewelry at lower costs, such as Overstock.com (Nasdaq: OSTK  ) , Amazon.com (Nasdaq: AMZN  ) , and auctioneer Bidz.com (Nasdaq: BIDZ  ) , haven't broken down jewelry-specific sales data. A good deal of new and second-hand jewelry naturally changes hands on eBay (Nasdaq: EBAY  ) , too.

This doesn't mean that Blue Nile's 24% net sales spurt is a fuzzy photograph. Given its pole position within its niche, it's safe to say that folks were spending heavily per transaction at the site over the holidays. Pro-marriage proponents can also bask in the matrimonial glow, knowing that Blue Nile provided the sparkling bait necessary for prospective grooms to take to one knee over the holidays.

Can it get worse? Of course it can. Even Tiffany's inspiring trend data of higher-ticket purchases can come undone, with cash-strapped buyers going for more economical items. It's just not happening at the moment. After watching Blue Nile's stock price nearly cut in half, that's as good an "I do" as investors can get for now.

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