Taking a Shine to Blue Nile: Fool by Numbers

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On Oct. 30, online jewelry retailer Blue Nile (Nasdaq: NILE) released Q3 2006 earnings for the period ended Oct. 1, 2006.

• CEO Mark Vadon bragged a bit about Blue Nile's efficient cost structure, and a glance at the cash conversion metrics shows that he can walk the walk, too. The company took an outstanding CCC and made it better. The low receivables figure comes from settling the typical credit card transaction within three business days.
• Impressive year-on sales growth and a generous share buyback plan couldn't overcome compressed margins from top to bottom, and net earnings per share were significantly down.
• The company is funding some of the share buybacks out of cash on hand, but with a debt-free balance sheet and positive cash flows, that should be a perfectly acceptable practice.

(Figures in thousands, except per-share data)

Income Statement Highlights

	Avg. Est.	Q3 2006	Q3 2005	Change
Sales	$51,100	$53,248	$41,996	26.8%
Net Profit	--	$1,824	$2,469	(26.1%)
EPS	$0.10	$0.11	$0.13	(15.4%)
Diluted Shares	--	16,670	18,540	(10.1%)

Get back to basics with a look at the income statement.

Margin Checkup

	Q3 2006	Q3 2005	Change*
Gross Margin	19.59%	22.01%	(2.42)
Operating Margin	4.06%	7.61%	(3.55)
Net Margin	3.43%	5.88%	(2.45)

*Expressed in percentage points.

Margins are the earnings engine. See how they work.

Balance Sheet Highlights

Assets	Q3 2006	Q3 2005	Change
Cash + ST Invest.	$53,917	$81,105	(33.5%)
Accounts Rec.	$977	$1,393	(29.9%)
Inventory	$12,675	$9,116	39.0%

Liabilities	Q3 2006	Q3 2005	Change
Accounts Payable	$29,845.0	$20,538.0	45.3%
Long-Term Debt	$0.0	$0.0	N/A

Learn the ways of the balance sheet.

Cash Flow Highlights

	Q3 2006	Q3 2005	Change
Cash From Ops.	$5,217.0	$6,568.0	(20.6%)
Capital Expenditures	$508.0	$399.0	27.3%
Free Cash Flow	$4,709.0	$6,169.0	(23.7%)

Find out why Fools always follow the money.

Retail Checkup

	Q3 2006	Q3 2005	Change
Days in Inventory	25.1	24.7	0.4
Days in Receivables	1.5	2.2	(0.7)
Days Payables Outstanding	60.5	53.2	7.3
Cash Conversion Cycle	(33.8)	(26.3)	(7.6)

Read up on cash conversion metrics.

Related Companies:

• Tiffany (NYSE: TIF)
• Zale (NYSE: ZLC)
• Amazon.com (Nasdaq: AMZN)

Related Foolishness:

• The Dark Side of Stock Buybacks
• Jewelers Take On Blue Nile
• Foolish Fundamentals: The
• Foolish Fundamentals: Inventory

Blue Nile is a recommendation of both Hidden Gems and Rule Breakers , while Amazon is an active Stock Advisor pick. There's gold in them hills, boys! Take a free 30-day trial of any of our newsletter services to find out what they recommend -- besides jewelers.

Fool by Numbers is designed to give you the raw earnings information in a timely fashion, putting all the numbers you need in one easy-to-read place. But at The Motley Fool, we believe numbers tell only part of the story, so check Fool.com for more of our in-depth discussion of what the numbers mean.

At the time of publication, Anders Bylund had no position in any company mentioned, and he doesn't look good in excessive bling-bling. Fool rules are here.