Online diamond and fine jewelry retailer Blue Nile (NASDAQ:NILE) today posted third-quarter earnings results that reversed the sales slide from the second quarter and met Wall Street's expectations. The stock is down 35% on the year but has recovered quite a bit from the recent low of $23 set in August. Will today's announcement give more fuel to that rebound? Let's take a closer look at the results. 

Third-quarter highlights
As expected, revenue rose by 7% to $106 million. But results were uneven across Blue Nile's product categories. Engagement sales in the U.S. improved by 5% to $61 million, while U.S. nonengagement sales, which carry a higher profit margin, fell by 2%. International sales growth was a standout, jumping higher by 26%. 

Meanwhile, profitability took a step back in the quarter. Gross profit clocked in at $19 million, or 17.8% of sales as compared to 18.9% in the year-ago period. The shift toward selling more engagement products likely drove that profitability pinch. Operating margin also shrunk to 2.4% of sales from 2.5% a year ago. 

Earnings dove by 40% to $0.14 a share from 2013's $0.23 figure. However, that drop isn't nearly as bad as it looks. Last year's third-quarter results were boosted by a one-time tax adjustment. Strip that out and you have an EPS performance that is roughly even with the prior year.

Meanwhile, the company continued spending on share repurchases, although at a slower pace this quarter. Management bought back 57,000 shares in the third quarter after repurchasing 675,000 in the prior three-month period. To date in 2014, share buybacks have been the biggest drain on cash, accounting for most of the decrease to $32 million on the books from the same time last year's $48 million.

Holiday outlook
Management affirmed its outlook for the current quarter and remains more upbeat on the period than most Wall Street analysts. The company sees revenue of $166 million at the midpoint of guidance, which is above Wall Street's $161 million target. Blue Nile also expects to have a shot at increasing per-share profit for the year despite the declining profitability. The company is targeting as much as $0.86 in earnings per share, above analysts' $0.82 forecast and a very slight improvement over the prior year's $0.85 profit haul. Of course, the declining share count should play a role in that EPS outperformance.

Overall, management seems happy with the company's position heading into the crucial holiday season. CEO Harvey Kanter said in a press release accompanying the results:

We are driving stronger brand communication, enhancing usability, and optimizing price which is helping to reaccelerate growth, achieve greater scale, and strengthen our leadership in loose diamond supply. Our results give us greater optimism for the holiday season.

Investors appear to share at least some of that optimism, as the stock rose 7% in early trading.