Market share gains continue at an accelerated pace for Blue Nile NILE, with third-quarter sales coming in above our expectations. Profit margins were also better than expected, with lower sourcing costs resulting in the highest gross margin the company's seen in nearly four years. With sales and operating profits trending ahead of our full-year projections and the positive momentum likely to continue into the all-important holiday season, we plan to increase our fair value estimate. Total sales were up 2.4% to $66.9 million, with strong international growth offsetting a slight decline in domestic sales. We remain impressed by this online retailer's ability to gain share as the overall domestic jewelry market contracts at an estimated mid-single-digit pace. Blue Nile's value proposition is resonating with consumers, and we expect this trend to result in double-digit growth in fourth-quarter sales. Operating profit grew 17.6% in the third quarter, mainly because of lower sourcing costs. Diamond prices have been pressured by the falloff in demand, which benefits Blue Nile as it can pass those savings on to consumers sooner than traditional retailers holding their inventory. We expect this benefit to continue in the fourth quarter, resulting in year-over-year gross margin expansion that is better than we initially expected. However, we do expect prices to start to tick up at some point, which should keep gross margins in check in 2010. For 2009, we now expect operating profits to increase in the 20%-plus range.
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Analyst Notes
08-07-09 | 9:10AM Blue Nile Impresses in 2Q
05-08-09 | 12:50PM Blue Nile Reports 1Q
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