Blue Nile, Red Slaughterhouse (NILE)

Blue Nile Inc. (NASDAQ: NILE) is seeing a total smack-down in after-hours trading.  The Seattle-based online jewelry retailer said Q4 net income rose considerably to $7.54 million which translates to $0.45 EPS.  This is up from $5.75 million, or $0.35 in Q4-2006, and analysts at First Call had consensus at $0.44 EPS.  NILE’s sales increased 23% to $111.9 million from $90.7 million, and First Call has estimates at $113.15 million.

While earnings were acceptable, the guidance is horrible.  For the first quarter of 2008, Blue Nile expects $0.11 to $0.14 EPS on relatively flat net sales compared to the Q1-2007 sales of $67.91 million.  Those won’t cut it, and even though we have been critical about traders not pricing in any slowdown this is just painful.  First Call has estimates at $0.23 EPS on $82.2 million.  Ouch!

Blue Nile also made a key change that analysts and traders don’t like, particularly as the economy is softening.  It named President Diane Irvine to the additional role of CEO to replace Mark Vadon, who was named executive chairman.

• One value manager recently noted the chances for much higher prices at THE VALUE INVESTING CONGRESS, although that is looking farther and farther from reality as of today.

This one is uglier than a leathery neck in after-hours trading. Shares closed down 2.5% today at $53.85 in regular trading and shares are down 21% to $42.43 in after-hours trading.  The 52-week trading range is $37.85 to $106.16.

Blue Nile authorized an additional $100 million to repurchase shares of its common stock over the next 24 months and that takes the total approved buyback plan up to $150 million.  That may help stabilize the stock ahead when it chooses to buy stock on weakness, but it’s doing nothing today as investors don’t really think of web retailers as being big buyers of their own shares. 

Jon C. Ogg
February 12, 2008