Blue Nile (Nasdaq: NILE) lives for engagement parties. Now it has to deal with shareholders looking for an annulment. Shares of the online jeweler fell this morning, after Blue Nile provided an uninspiring near-term outlook.

The quarter that fell during the holiday season held up well. Earnings per share climbed 29% higher to $0.45, as net sales rose by 23% to hit $111.9 million. Investors weren't expecting surprises there, since Blue Nile had updated its outlook for the period last month.

The place where Blue Nile's diamond engagement rings start looking like cubic zirconium is in assessing its guidance for the year ahead. The company is looking for net sales to climb "at least" 10% higher in 2008. Earnings growth on a per-share basis should clock in flat at $1.04. (Don't miss our third-quarter earnings Take.)

Top- and bottom-line growth of 10% and nil, respectively, fall well short of Wall Street's targets. Analysts were pegging Blue Nile's 2008 prospects to produce a 21% net sales gain and a heartier 23% advance in earnings per share.

That's not going to happen. Blue Nile has historically provided conservative guidance, but it's never been this far off the mark.

The company points to its success relative to conventional jewelers during the recently concluded period. Tiffany (NYSE: TIF), Birks & Mayors (NYSE: BMJ), Zale (NYSE: ZLC), and Signet (NYSE: SIG) all turned in negative comps over the telltale holiday season.

However, it wasn't just Blue Nile hitting paydirt in cyberspace. (Nasdaq: AMZN) announced yesterday that diamond jewelry sales during the fourth quarter more than doubled. Jewelry auctioneer (Nasdaq: BIDZ) revised its quarterly outlook for the holiday season higher last month.

With other virtual jewelers faring well and Blue Nile hosing down its 2008 projections, getting overly excited about the company right now is no easy task. The stock may have shed more than half of its value since peaking four months ago, but it's not looking as cheap as the debacle suggests.

If Blue Nile lives up to its call for flat profit growth, it would have closed yesterday at a lofty 52 times trailing and forward earnings. That's a pretty steep price for a company that is looking to grow its top line by "at least" 10%.

Is it the economy? Is it the virtual competition? Is it the inevitability that struggling physical chains will beef up their online initiatives in following the money?

As much as I want to believe in Blue Nile's prospects once it gets past its near-term turbulence, I can't say I blame the shareholders angling for annulment.

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