February 12, 2008

Blue Nile Announces Fourth Quarter and Fiscal Year 2007 Financial Results

Reports Record Fourth Quarter Net Sales of $111.9 Million, up 23.3%

Earnings per Diluted Share Increase 28.6% to $0.45

Expands Stock Repurchase Program

SEATTLE, Feb. 12 /PRNewswire-FirstCall/ -- Blue Nile, Inc. (Nasdaq: NILE) today reported financial results for its fourth quarter and fiscal year ended December 30, 2007.

Net sales grew 23.3% to $111.9 million, compared to $90.7 million in the fourth quarter of 2006. Operating income for the quarter rose 24.0% to $10.1 million from $8.1 million in the fourth quarter of 2006. Net income totaled $7.5 million, an increase of 31.1% over the fourth quarter last year. Earnings per diluted share increased 28.6% to $0.45, compared to $0.35 in the fourth quarter last year. Non-GAAP adjusted EBITDA increased 26.1% to $12.4 million for the quarter, compared to $9.8 million for the fourth quarter of 2006.

For the full year, Blue Nile reported net sales of $319.3 million, an increase of 26.9% from fiscal year 2006. Operating income rose 35.4% to $22.4 million from $16.6 million for the prior year. Net income for the year increased 33.6% to $17.5 million, and net income per diluted share increased 36.8% to $1.04. Non-GAAP adjusted EBITDA for 2007 increased 31.4% to $29.9 million.

"We are very pleased with our financial performance for the fourth quarter, which reflects excellent growth in sales and profitability. We believe our results are even more impressive given the overall weakness in the retail jewelry category during the holiday season," said Mark Vadon, Executive Chairman. "The year 2007 was exceptional for Blue Nile -- we delivered outstanding sales growth, even stronger earnings growth, and ended the year with a very healthy cash balance of $123 million. We expanded our market share domestically and made significant progress in our international business.

"As we enter 2008, we are well positioned to enhance our category leadership," continued Vadon. "Our competitive position is strong, and we have an incredible team that is among the best in all of e-commerce. Given the current economic environment, however, we believe it is prudent to be extremely cautious in our expectations for the year. There is tremendous uncertainty in the luxury retail sector, which is experiencing a widely reported consumer slowdown. Within this challenging environment, we will be disciplined in our execution of our unique business model. We will continue to focus obsessively on our customers, providing an exceptional Blue Nile experience. I firmly believe that challenging times can provide opportunities to create great value for our shareholders over the long term."

Blue Nile announced today that its Board of Directors authorized the repurchase of up to an additional $100 million of the Company's common stock over 24 months. The Company's current repurchase authorization now totals $150 million. The timing and amount of any shares repurchased will be determined by the Company's management based on its evaluation of market conditions and other factors. Repurchases may also be made under a Rule 10b5-1 plan, which would permit shares to be repurchased when the Company might otherwise be precluded from doing so under insider trading laws.

In a separate release today, the Company announced Mark Vadon has assumed the new role of Executive Chairman of Blue Nile. Diane Irvine has been named the new Chief Executive Officer.

Selected Financial Highlights

Gross profit for the quarter grew 25.9% to $23.7 million, from $18.8 million for the fourth quarter of 2006. Gross profit as a percentage of sales increased to 21.1% for the quarter, compared to 20.7% for the fourth quarter of 2006.
Selling, general and administrative expense for the quarter was $13.6 million, compared to $10.7 million in the fourth quarter of 2006. Selling, general and administrative expense for the quarter includes stock-based compensation expense of $1.7 million, compared to $1.2 million in the fourth quarter of the prior year.
Net income per diluted share for the quarter includes stock-based compensation expense of $0.06, compared to $0.04 for the fourth quarter of 2006.
International sales totaled $7.2 million in the quarter, an increase of 155% year over year. For the full year, international sales totaled $17.2 million, a 108% increase compared to sales of $8.3 million for fiscal 2006.
For the full year, net cash provided by operating activities was $41.5 million compared to $40.5 million for fiscal year 2006. Non-GAAP free cash flow for the year totaled $36.6 million, compared to $38.6 million in the prior year. Free cash flow for 2007 includes the change in deferred income taxes related to the full utilization of net operating losses for income tax purposes in 2006, as well as higher capital expenditures for 2007 related primarily to the expansion of the Company's domestic fulfillment center.
The Company's cash and cash equivalents totaled $122.8 million at December 30, 2007. The effective tax rate for the quarter was 33.3%, compared to 35.5% for the fourth quarter of 2006. The lower tax rate is primarily due to deferred tax asset adjustments. The Company's effective tax rate for fiscal year 2007 was 34.3%, compared to 34.6% for fiscal year 2006. Capital expenditures in the fourth quarter totaled $1.3 million, compared to $0.2 million in the fourth quarter of 2006. Full year 2007 capital expenditures totaled $4.9 million compared to $1.9 million in 2006. The higher capital expenditures for 2007 relate primarily to the expansion of the Company's domestic fulfillment center.
During the quarter, the Company repurchased 94,100 shares of its common stock for $6.5 million. For the full year, the Company repurchased 438,755 shares of its common stock for $20.0 million. Financial Guidance

The Company announced its initial financial guidance for the first quarter and fiscal year 2008. The following forward-looking statements reflect Blue Nile's expectations as of February 12, 2008. Actual results may be materially affected by many factors, such as consumer spending, economic conditions and the various factors detailed below.

Expectations for the first quarter 2008 (Quarter Ending March 30, 2008):

Net sales are expected to be relatively flat with Q1 2007.
Net income is expected to be in a range of $0.11 to $0.14 per diluted share. The estimated net income per diluted share includes the estimated impact of stock compensation expense of approximately $0.07 per diluted share, compared to $0.05 per diluted share in the first quarter of 2007.
The effective tax rate for the quarter is expected to be approximately 35%. Expectations for fiscal year 2008 (Year Ending January 4, 2009):

Our goal is to grow net sales by at least 10% for the year and to grow non-GAAP adjusted EBITDA by at least 10%.
Our net income per diluted share goal for 2008 is to achieve a GAAP EPS level that approximates 2007.
Stock compensation expense for the year is estimated at approximately $0.29 per diluted share, an incremental impact of $0.07 per diluted share compared to 2007.
The effective tax rate for the year is expected to be approximately 35%. -- Capital expenditures are expected to be approximately $2.5 million.
Blue Nile reports fiscal results on a 52/53-week format. The Company's fiscal 2008 reporting period includes 53 weeks, with the additional week falling into the fourth quarter.

Forward-Looking Statements

This press release contains forward-looking statements that include risks and uncertainties, including, without limitation, all statements related to future financial performance, estimated stock-based compensation expense, anticipated effective tax rate, anticipated capital expenditures and plans to grow our business. Words such as "expect," "anticipate," "believe," "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 our fluctuating operating results, 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, our limited operating history, 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 for the quarters ended April 1, 2007, July 1, 2007, and September 30, 2007, and our Annual Report on Form 10-K for the year ended December 31, 2006. Additional information will also be set forth in our Annual Report on Form 10-K for the year ended December 30, 2007, which we expect to file with the Securities and Exchange Commission on or before February 28, 2008. 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.

Conference Call

The Company will host a conference call to discuss its fourth quarter and full year 2007 financial results today at 2:00 p.m. PT/5:00 p.m. ET. A live webcast of the conference call may be accessed at http://investor.bluenile.com. Following the completion of the call, a recorded replay of the webcast will be available for 30 days at the same Internet address. This call will contain forward-looking statements and other material information regarding the Company's financial and operating results. In the event that any non-GAAP financial measure is discussed on the conference call that is not described in this release, related complementary information will be made available at http://investor.bluenile.com as soon as practicable after the conclusion of the conference call.

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 operating activities less cash outflows for purchases of fixed assets, including internal use software and website development. 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, 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.

About Blue Nile, Inc.
Blue Nile, Inc. is the leading online retailer of diamonds and fine jewelry. The Company delivers the ultimate customer experience, providing consumers with a superior way to buy engagement rings, wedding rings and fine jewelry. Blue Nile offers in-depth educational materials and unique online tools that place consumers in control of the jewelry shopping process. The Company 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 http://www.bluenile.com, http://www.bluenile.ca and http://www.bluenile.co.uk. Blue Nile's shares are traded on the Nasdaq Stock Market LLC under the symbol NILE.

SOURCE Blue Nile, Inc.

CONTACT: investors, Eileen Askew, +1-206-336-6745, eileena@bluenile.com, or media, Liz Powell, +1-206-336-6755, lizpo@bluenile.com, both of Blue Nile, Inc.

Web site: http://www.bluenile.com


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