Blue Nile Rings True

High-end jewelry retailer Blue Nile (Nasdaq: NILE  ) has become the place to go for classy engagement rings and quarterly analyst thrashings. Yes, Wall Street can't seem to get a handle on the e-tailer. The company has blown past profit targets in all but one quarter since the company's 2004 IPO.

Last night's report was more of the same. Net sales rose 27% to $72.1 million. Earnings rose 28% higher to hit $0.23 per share. The pros were looking for flat earnings growth on a mere 18% uptick on the top line.

A lot of factors helped the company. Margins improved, helping Blue Nile overcome a higher tax bite. Share repurchases have helped trim the number of shares outstanding, though the company would have trounced Wall Street's per-share targets with ease even without the help.

Blue Nile is no longer just a place for engagement rings. Those are still the key driver, but many of its customers are coming back to the site to snap up the eventual wedding bands and holiday jewelry gifts like pendants, too.

The company is raising its full-year guidance. It is now looking to earn between $0.94 a share and $0.99 a share this year. Net sales should come in between $312 million to $318 million. This is a far cry from where the company was three months ago, talking down analysts' expectations.

That warning seems laughable now. Blue Nile was concerned that analysts were too ambitious in expecting earnings of $0.18 a share on $66.8 million in net sales. The company pointed to its historical performance, where it has posted a top line sequential dip between the first and second quarters. The one exception was last year.

Wall Street didn't buy it. It stuck to its ambitious forecasts, which as it turns out were once again too low.

The company is pleased with its traffic growth and conversion rates. It still is hard-pressed to name a legitimate competitor. Discounters like Wal-Mart (NYSE: WMT  ) , Amazon.com (Nasdaq: AMZN  ) , eBay (Nasdaq: EBAY  ) , and Overstock (Nasdaq: OSTK  ) move a fair amount of jewelry, but not the high-end stuff that Blue Nile specializes in. The ritzy offline chains like Tiffany (NYSE: TIF  ) and Birks & Mayors (AMEX: BMJ  ) have been slow to hit their cyberspace strides.

Am I concerned that Blue Nile's share price is now starting to appear as pricey as some of its diamond rings? Selling at more than 80 times the freshly enhanced bottom line guidance is certainly not cheap. However, until a true competitor steps up it's hard to see red when it comes to Blue Nile.

For more shiny Foolishness:

Blue Nile has been recommended to both Rule Breakers newsletter readers and subscribers of Motley Fool Hidden Gems. Why has this company caught the eyes of both our high-growth investing and small-cap investing newsletters? Try a free 30-day trial of either newsletter to read the original recommendations. You might just find other diamonds in the rough.

Amazon and eBay are active Stock Advisor picks, while Wal-Mart is an Inside Value staple.

Longtime Fool contributor Rick Munarriz proposed 17 years ago to the woman who became his wife. There was no commercial Internet around at the time. Then again, knowing him, if the situation were to arise today he would not have a problem turning to Blue Nile. Rick does not own shares in any of the companies mentioned in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


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