Blue Nile, Inc.
Nov 7, 2016

Blue Nile Announces Third Quarter 2016 Financial Results

In a Separate Press Release Today, the Company Announced It Entered a Definitive Agreement to be Acquired by Bain Capital Private Equity and Bow Street LLC for $40.75 per Common Share
In Light of the Announcement, the Company Canceled Its Previously Scheduled Earnings Conference Call

Third Quarter Net Sales of $105.1 million
Third Quarter Earnings Per Diluted Share of $0.11

SEATTLE, Nov. 07, 2016 (GLOBE NEWSWIRE) -- Blue Nile, Inc. (Nasdaq:NILE), a leading online retailer of diamonds and fine jewelry, today reported financial results for its third quarter ended October 2, 2016.

Net sales decreased to $105.1 million for the third quarter ended October 2, 2016 compared to $109.9 million for the third quarter ended October 4, 2015. Operating income for the quarter totaled $1.8 million, representing an operating margin of 1.7% of net sales, compared to $3.0 million in operating income and 2.8% operating margin for the third quarter 2015. Net income totaled $1.3 million, or $0.11 per diluted share versus $2.0 million, or $0.17 per diluted share for the third quarter 2015.

Non-GAAP adjusted EBITDA for the quarter totaled $4.2 million compared to $5.3 million for the third quarter 2015. For the trailing twelve month period ended October 2, 2016, net cash provided by operating activities totaled $18.6 million compared to $14.7 million for the trailing twelve month period ended October 4, 2015. For the trailing twelve month period ended October 2, 2016, non-GAAP free cash flow totaled $13.3 million, as compared to $10.8 million for the trailing twelve month period ended October 4, 2015.


Forward-Looking Statements

This press release contains forward-looking statements that include risks and uncertainties, including, without limitation, all statements related to future financial and business performance, market opportunity and plans to grow our business. Words such as "expect," "anticipate," "believe," "project," "will" and similar expressions are intended to identify forward-looking statements. These forward-looking statements are based upon our current expectations. Forward-looking statements involve risks and uncertainties. Our actual results and the timing of events could differ materially from those anticipated in such forward-looking statements as a result of these risks and uncertainties, which include, without limitation, risks related to commodity prices, general economic conditions, consumer spending (particularly spending by high-end consumers), product assortment, our fluctuating operating results, currency fluctuations, seasonality in our business, our ability to acquire products on reasonable terms, our online business model, demand for our products, our ability to attract customers in a cost effective manner, the strength of our brand, competition, fraud, system interruptions, our ability to fulfill orders and other risks detailed in our filings with the Securities and Exchange Commission, including our quarterly reports on Form 10-Q and our Annual Report on Form 10-K for the year ended January 3, 2016.  Additional information will also be set forth in our Quarterly Report on Form 10-Q for the quarter ended October 2, 2016, which we expect to file with the Securities and Exchange Commission on or before November 14, 2016. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. All forward-looking statements are qualified in their entirety by this cautionary statement, and Blue Nile undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date hereof.

Non-GAAP Financial Measures

To supplement Blue Nile's consolidated financial statements presented in accordance with generally accepted accounting principles ("GAAP"), Blue Nile uses non-GAAP adjusted EBITDA and non-GAAP free cash flow as measures of certain components of financial performance. Blue Nile defines non-GAAP adjusted EBITDA as earnings before interest and other income, taxes, depreciation and amortization, adjusted to exclude the effects of stock-based compensation expense. Blue Nile defines non-GAAP free cash flow as net cash provided by (used in) operating activities less cash outflows for purchases of fixed assets, including internal-use software and website development. Blue Nile reports sales information in accordance with GAAP. Internally, management monitors its sales performance on a non-GAAP basis that eliminates the positive or negative effects that result from translating international sales into U.S. dollars (the "constant exchange rate basis"). Blue Nile's management does not itself, nor does it suggest that investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Investors should also note that the non-GAAP financial measures used by Blue Nile may not be the same non-GAAP financial measures, and may not be calculated in the same manner, as that of other companies. Whenever Blue Nile uses such non-GAAP financial measures, it provides a reconciliation of non-GAAP financial measures to the most closely applicable GAAP financial measures. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures.

Blue Nile's management believes that non-GAAP adjusted EBITDA and non-GAAP free cash flow, as defined, as well as international sales on a constant exchange rate basis provide meaningful supplemental information to the company and to investors. Blue Nile believes that both management and investors benefit from referring to these non-GAAP measures in assessing the performance of Blue Nile and when planning and forecasting future periods. Further, management believes that the inclusion of the non-GAAP adjusted EBITDA and non-GAAP free cash flow calculations provide consistency in Blue Nile's financial reporting and comparability with similar companies in Blue Nile's industry. Management believes the constant exchange rate measurement provides a more representative assessment of the sales performance and provides better comparability between reporting periods.

A reconciliation of non-GAAP adjusted EBITDA to net income is as follows (in thousands):

   Quarter ended Quarter ended
   October 2, 2016 October 4, 2015
Net income  $1,293  $1,977 
Income tax expense  604  1,041 
Other (income) loss, net  (100 ) 21 
Depreciation and amortization  1,354  940 
Stock-based compensation   1,032  1,283 
Non-GAAP adjusted EBITDA  $4,183  $5,262 

   Year to date ended Year to date ended
   October 2, 2016 October 4, 2015
Net income  $4,500  $5,495 
Income tax expense  2,420  2,969 
Other income, net  (606) (76)
Depreciation and amortization  3,732  2,771 
Stock-based compensation  3,329  3,801 
Non-GAAP adjusted EBITDA  $13,375  $14,960 

A reconciliation of differences of non-GAAP free cash flow from the comparable GAAP measure of net cash (used in) provided by operating activities is as follows (in thousands):

  Quarter ended Quarter ended
  October 2, 2016 October 4, 2015
Net cash provided by (used in) operating activities $3,957  $(5,268)
Purchases of fixed assets, including internal-use     
software and website development (1,605) (988)
Non-GAAP free cash flow $2,352  $(6,256)
   Twelve months ended  Twelve months ended
  October 2, 2016 October 4, 2015
Net cash provided by operating activities $18,554  $14,727 
Purchases of fixed assets, including internal-use    
software and website development (5,291) (3,891)
Non-GAAP free cash flow $13,263  $10,836 

The non-GAAP free cash flow for the twelve months ended October 4, 2015 presented above includes financial information from the Company's fiscal 2014 reporting period which included 53 weeks, with an additional week falling into the fourth quarter.

The following table reconciles year-over-year international net sales percentage (decreases) increases from the GAAP sales measures to the non-GAAP constant exchange rate basis:

Quarter ended October 2, 2016  Year over year growth
  Effect of foreign
exchange movements

  Year over year growth on
constant exchange rate basis
International net sales   1.8%    (2.4)%   4.2%
Quarter ended October 4, 2015  Year over year growth
  Effect of foreign
exchange movements

  Year over year growth on
constant exchange rate basis
International net sales   (7.2)%    (10.2)%   3.0%

Year to date ended October 2, 2016   Year over year growth
  Effect of foreign
exchange movements

  Year over year growth on
constant exchange rate basis
International net sales   2.4%   (3.5)%    5.9%
Year to date ended October 4, 2015  Year over year growth
  Effect of foreign
exchange movements

  Year over year growth on
constant exchange rate basis
International net sales   2.7%   (8.8)%   11.5%

About Blue Nile, Inc.

Blue Nile, Inc. is the original online jeweler. The company offers a smarter way to buy engagement rings, wedding rings, and fine jewelry by providing in-depth educational materials and unique online tools that place consumers in control of the jewelry shopping process. Blue Nile has some of the highest quality standards in the industry and offers thousands of independently certified diamonds and fine jewelry at prices significantly below traditional retail. Blue Nile can be found online at Blue Nile's shares are traded on the Nasdaq Stock Market LLC under the symbol NILE.

Condensed Consolidated Balance Sheets
(in thousands)
 October 2, 2016 January 3, 2016 October 4, 2015
Current assets:     
Cash and cash equivalents$40,558  $86,542  $33,609 
Trade accounts receivable2,094  3,339  4,006 
Other accounts receivable, net1,577  706  930 
Note receivable300  600  600 
Inventories44,126  46,376  41,946 
Prepaids and other current assets2,497  1,585  2,317 
Total current assets91,152  139,148  83,408 
Property and equipment, net11,669  10,530  10,795 
Deferred income taxes(1)4,259  5,089  4,844 
Other investments2,280  2,280  2,280 
Other assets, net268  367  305 
Total assets$109,628  $157,414  $101,632 
Current liabilities:     
Accounts payable$77,882   $121,917  $76,328 
Accrued liabilities8,750  12,336  8,816 
Current portion of long-term financing obligation34  33  33 
Current portion of deferred rent352  290  291 
Total current liabilities87,018   134,576  85,468 
Long-term financing obligation, less current portion430  455  464 
Deferred rent, less current portion1,702  1,697  1,771 
Unearned income1,530   1,988  2,141 
Other long-term liabilities318  242  201 
Commitments and contingencies     
Stockholders' equity:     
Common stock22   22  22 
Additional paid-in capital236,285  232,148  230,290 
Accumulated other comprehensive loss(227) (239) (211)
Retained earnings110,366  114,023  108,984 
Treasury stock(327,816) (327,498) (327,498)
Total stockholders' equity18,630  18,456  11,587 
Total liabilities and stockholders' equity$109,628  $157,414  $ 101,632 
(1) In November 2015, the FASB issued Accounting Standards Update No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, which simplifies the presentation of deferred income taxes by requiring deferred tax assets and liabilities to be classified as noncurrent on the balance sheet. We early adopted this standard effective January 3, 2016 retrospectively and reclassified the current deferred income tax assets previously presented in the consolidated balance sheet as of October 4, 2015, to noncurrent deferred income tax assets.

Condensed Consolidated Statements of Operations
(in thousands, except per share data)
  Quarter ended Year to date ended
  October 2,
 October 4,
 October 2,
 October 4,
Net sales $105,110  $109,943  $321,937  $330,083 
Cost of sales 84,470  88,712  258,673  266,790 
Gross profit 20,640  21,231  63,264  63,293 
Selling, general and administrative expenses 18,843  18,192  56,950  54,905 
Operating income 1,797  3,039  6,314   8,388 
Other income (loss), net:        
Interest income, net 10  12  35  76 
Other income (loss), net 90  (33) 571   
Total other income (loss), net 100  (21) 606  76 
Income before income taxes 1,897  3,018  6,920  8,464 
Income tax expense 604  1,041  2,420  2,969 
Net income $1,293  $1,977  $4,500  $5,495 
Basic net income per share $0.11  $0.17  $0.39  $0.47 
Diluted net income per share $0.11  $0.17  $0.38  $0.47 
Shares used for computation (in thousands):        
Basic 11,654  11,523  11,622  11,706 
Diluted 11,760  11,612  11,711  11,779 

Condensed Consolidated Statements of Cash Flows
(in thousands)
  Year to date ended
  October 2,
 October 4,
Operating activities:    
Net income $4,500  $5,495 
Adjustments to reconcile net income to net cash used in operating activities:    
Depreciation and amortization 3,732  2,771 
Stock-based compensation 3,359  3,831 
Deferred income taxes 830  (657)
Tax deficiency from share-based awards (437) (597)
Excess tax benefit from share-based awards (25) (29)
Changes in assets and liabilities:    
Receivables 374  (1,228)
Inventories 2,250  (278)
Prepaid expenses and other assets (834) (755)
Accounts payable (44,336) (52,344 )
Accrued liabilities (3,586) (3,176)
Unearned income (458) 2,141 
Deferred rent and other 143  (180)
Net cash used in operating activities  (34,488) (45,006)
Investing activities:    
Purchases of property and equipment (4,476 ) (2,940)
Payments received on note receivable 300  1,400 
Net cash used in investing activities (4,176 ) (1,540)
Financing activities:    
Repurchase of common stock (318) (10,780)
Proceeds from stock option exercises 1,738  241 
Taxes paid for net share settlement of share-based awards (630) (424)
Excess tax benefit from share-based awards 25  29 
Principal payments under long-term financing obligation (24) (24)
Cash dividends paid (8,123)  
Net cash used in financing activities (7,332) (10,958)
Effect of exchange rate changes on cash and cash equivalents  12  (73)
Net decrease in cash and cash equivalents (45,984) (57,577)
Cash and cash equivalents, beginning of period 86,542  91,186 
Cash and cash equivalents, end of period $40,558  $33,609 
  Year to date ended
   October 2,
   October 4,
Supplemental disclosure of cash flow information:        
Cash paid for income taxes $ 4,033  $4,825 



Blue Nile, Inc.

Nancy Shipp, 206.388.3626 (Investors)


Josh Holland, 206.336.6773 (Media)

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Source: Blue Nile, Inc.

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