Online jewelry retailer Blue Nile (NASDAQ:NILE) posted fourth quarter earnings results on Feb. 11 that were marked by a surprise sales drop over the holiday season. Yet profitability improved, which powered the company's best earnings per share performance in eight years.

Here's how the headline results stacked up against the prior-year period:

 

Q4 2015 Actuals

Q4 2014 Actuals

YoY Growth

Revenue

$150.0 million

$157.5 million

(5%)

Net Income

$5.0 million

$4.8 million

4%

Earnings Per Share

$0.43

$0.41

5%

Source: Blue Nile financial filings

What happened this quarter?
Sales growth came in below management's guidance provided in November -- $493 million of full-year revenue. Instead, Blue Nile ended 2015 at just $480 million in sales.

Nile

Source: Blue Nile

Other key highlights of the quarter include:

  • U.S. engagement jewelry sales fell 8%, compared to a 7% gain in the third quarter.
  • U.S. non-engagement sales were flat, compared to a 7% rise last quarter.
  • International sales, which account for roughly 20% of the business, rose 5% for an acceleration from last quarter's 3% uptick.
  • Profitability continued to improve thanks to healthy pricing and expense discipline. Gross margin rose to 19.4% of sales from 18.1%, and operating margin jumped to 5.1% from 4.4%.
  • Blue Nile ended the year with $87 million of cash.

What management had to say
Calling the fourth quarter sales result "disappointing", CEO Harvey Kanter said that the business was hurt by foreign currency swings, declining demand for high-ticket items (those costing over $25,000), and lower selling prices on engagement products.

At least Blue Nile has good company in this struggle. As it lowered its full-year sales outlook last month, rival Tiffany said that its jewelry sales fell 3% over the holiday season worldwide and 7% in the key U.S. market.

Blue Nile also managed some important wins despite that weak selling environment, executives noted. "In spite of these challenges, we sold a record number of engagement rings [and] expanded gross margin rate," Kanter said.

Looking forward
Blue Nile plans to double down on the sales initiatives that have been working well, including its Webroom concept, which allows customers in select cities to try jewelry on in person before making their purchases. The company also expects to continue expanding its profit margin this year.

But sales growth will be hard to come by. The retailer's 2016 forecast calls for revenue of $480 million at the midpoint of guidance, representing zero improvement over 2015. Earnings per share should also clock in near the same $0.90 per share that it generated last year.

Perhaps reflecting that reduced growth forecast, Blue Nile announced its first-ever dividend of $0.70 per share, or about 80% of last year's profit. This is a special annual dividend, and so shareholders can't expect regular quarterly payouts. But the company said it plans to review its earnings performance at the end of each fiscal year to decide on additional special dividends.

However, investors were unimpressed with the results and weak guidance as Blue Nile shares traded down nearly 25% following the release.

Demitrios Kalogeropoulos has no position in any stocks mentioned. The Motley Fool recommends Blue Nile. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.