Jackson Securities, LLC Equity News

Research for the Prudent Investor April 26, 2007

Brian Bolan
Director of Research;
312-253-0578; BBolan@JacksonSecurities.com

Current Price: $46.43 Rating: Hold Target Price: $40.00

Updating Estimates for Blue Nile

Quick Discussion

Blue Nile guided to $61-$63M in revenue for the first quarter, and our estimate of $58M was based on an
ASP of $1500 and under 40,000 orders. We have subsequently increased our number of orders to over
41,000 and held our ASP constant. This has brought us more in line with consensus and guidance as we
are now at $62M on the top line.

We also bumped up our estimate for SG&A to roughly 14% of sales. This offsets some of the increased
revenue to keep the bottom line roughly in line with guidance. We also adjusted the number of shares
outstanding for the quarter to 16.6M. The net effect is an EPS number of $0.15. We believe that the extra
revenue, along with a slightly higher SG&A number ends up being washed out by the higher number of
shares.

Its somewhat unlikely that the driving force behind the most recent rally in the stock has been the
company itself… meaning the stock buy back program probably hasn’t taken that much of a hit. That
said, the valuation is reaching some lofty heights in the face of rising costs. This might signal a time to
take some profits off the table, as we reminder investors that the stock dropped some 6.5% the day of the
4Q06 earnings release. We may see a similar move when the company releases results on May 7, 2007.

The rising costs we spoke of are generally passed on to consumers, but we fear they may not be able to
pass along all the costs. Included on the next page are the price graphs of select precious metals. As is
clearly evident, the costs were rising throughout the quarter. This could present a roadblock to a “street
beating number.”

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page 3.
 Blue Nile Income Statement
Source: Company reports and Jackson Securities estimates

Gold spot price Source: Bloomberg Plat spot price Source: Bloomberg
 HOLD initiated 2/7/07: $39.18
Target: $40.00

Source: BigCharts.com
Disclosures:

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