Update: Blue Nile Earnings

Aug. 8.14 | About: Blue Nile, (NILE)

Summary

The company missed consensus estimates on both the top and bottom lines.

The latest miss only confirms our suspicion that the company has no competitive advantage.

We felt that the company was on the road to earnings misses.

Blue Nile (NASDAQ:NILE) managed to miss 2Q earnings expectations by over 5%. Shares are down 9% over the last month. The company posted 2Q EPS of $0.18 (compared to $0.19 consensus) and revenues of $106.6 million (below consensus of $111.3 million).

The company guided 2014 EPS to between $0.81 and $0.86, versus the previous consensus for $0.88 a share. Blue Nile noted that the diamond price environment was the biggest factor for the weak quarter. We believe the competitive pressures are forcing Blue Nile to sell its goods cheaper. Shares are down 32% since we first covered Blue Nile back in September. The stock trades right at our $25 price target.

The company is also heavily tied to engagement rings. Its largest segment, U.S. engagement rings, saw sales down 4.6% y/y for 2Q. Back in September we noted how competition was too robust for the company and stated,

A major headwind for NILE is in fact its own customers, or potential customers. In this day and age, there are so many competitors in the diamond space that the power has effectively gone to the customer. They are able to price check at several locations to get the best possible price. What this has led to is NILE continuing to markdown its prices and thus lowering its margins. In essence, the industry has matured and the days of easy profits are over.

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