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Brian Bolan
Company Description
Director of Research
Blue Nile is a leading online retailer of high quality diamonds and fine
Technology jewelry. Blue Nile specializes in the customization of diamond jewelry with
Jackson Securities, LLC a “Build Your Own” feature that offers customers the ability to customize
300 S. Wacker Dr., Suite 2450 diamond rings, pendants and earrings. While not providing the lowest
Chicago, IL 60606 cost diamonds, the company believes its formula of no pressure sales,
Ph: (312) 253-0578
high quality educational material and reasonable prices will result in higher
Fax: (312) 986-0560 profits.
bbolan@jacksonsecurities.com Valuation and Recommendation:
Blue Nile reported another good quarter, but tempered enthusiasm for
next quarter by suggesting analysts recalibrate their model. Our previous
notion of a stretched valuation has been helped out by a $0.04 beat of
estimates, we maintain our hold rating and our price target is under review.
Earnings Release
The average sales price (ASP) was $1,536, up 17% from a year
ago, and up 3.6% from the prior quarter. Orders were up 29%
from a year ago, well ahead of our expectations of approximately
41,000. We have modeled in assumptions for next quarter of an
ASP of $1685 and total orders just over of 40,000. Those
assumptions give us a topline number that is at the top end of
guidance.
For the fiscal year 2007, the company guided to $295M - $305M
on the topline and between $0.86 - $0.91 per share on the bottom
line. The expected tax rate for 2007 is 35.2%.
Our model is calling for $67.9M on the topline and $0.17 per share
in earnings for the second quarter of 2007. A very modest 18.7%
gross margin is also assumed by our model which might even be
too low. As we did last quarter, an update of our estimates will be
published prior to the earnings release date.
Recent Research
We noted only a few weeks ago that the valuation of Blue Nile is
getting somewhat lofty from a P/E perspective. This quarter did a
little to justify the lofty valuation on a trailing basis, but did help
solve the issue of rising costs. On a going forward basis, we
believe that our estimates are likely to change with regard to
interest income and the bottom line.
Disclosures:
Analyst Certification
I, Brian Bolan, hereby certify that the views expressed in this research report accurately reflect my personal views about the subject securities
and issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or
views expressed in this research report. I may be compensated in part based on the overall profitability of Jackson Securities, LLC, which
includes earnings from investment banking and all other aspects of the firm’s business.
Conflicts of interest:
Neither Jackson Securities nor any of its publishing analysts or their immediate family members has a position in the securities described
herein.
Compensation:
• The research analyst has not received compensation based upon investment banking revenues or from the subject company in the last
12 months.
• Jackson Securities has not in the last 12 months managed or co-managed a public offering of securities, received compensation for
investment banking services from the subject company or any compensation for products or services other than investment banking
• Jackson Securities will seek investment banking compensation from the subject company in the next 3 months.
Market Making:
Jackson Securities does not make a market in this stock
Explanation of Ratings:
Buy - Expected 12-month absolute performance of +10% or higher than the market price at which time the rating was issued.
Hold - Expected 12-month absolute performance of +5% to –5% from the price at the time the rating was issued.
Sell - Expected 12-month absolute performance of –10% or lower than the market price at which time the rating was issued.
Distribution of Ratings:
Jackson Securities, LLC has a distribution of ratings among its coverage universe as follows:
Buys – 51.4% (18 of 35 active recommendations)
Holds – 45.7% (16 of 35 active recommendations)
Sells – 2.9% (1 of 35 active recommendations)
Jackson Securities has provided investment banking services within the previous 12 months with the following percentage of the companies
they have rated:
The information contained herein has been obtained from sources that we believe to be reliable, but we do not guarantee its accuracy or completeness. Any opinions expressed herein are statements of our judgment
on the date appearing on this material only and are subject to change without notice. We endeavor to provide updates on a reasonable basis of the information discussed in research reports, but there may be reasons
which prevent us from doing so.
Additional Information: Any additional information, if applicable, supporting this recommendation may be furnished upon request. This report is not directed to, or intended for distribution to or use by, any person
or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would
subject Jackson Securities or its affiliates to any registration or licensing requirement within such jurisdiction. This report is prepared for the use of Jackson Securities clients and may not be redistributed,
retransmitted or disclosed, in whole or in part, or in any form or manner, without the express written consent of Jackson Securities.