Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  
TRANSCRIPT SPONSOR
MF logo

Blue Nile, Inc. (NASDAQ:NILE)

Q2 2007 Earnings Call

August 6, 2007 5:00 pm ET

Executives

Mark Vadon - Chief Executive Officer

Diane Irvine – President, Chief Financial Officer

Nancy Shipp - IR

Analysts

Jack Murphy - William Blair

Mark Mahaney - Citigroup

Douglas Anmuth - Lehman Brothers

Jim Friedland - Cowen

Lorraine Maikis - Merrill Lynch

Dan Geiman - McAdams Wright Ragen

Marianne Wolk - Susquehanna Financial Group

Kristine Koerber - JMP Securities

Presentation

Operator

Good afternoon, ladies and gentlemen. (Operator Instructions) At this time I would like to introduce Nancy Shipp, Director of Investor Relations of Blue Nile. Ms. Shipp, you may begin your conference.

Nancy Shipp

Good afternoon. Thank you for joining us on our conference call today to review our second quarter 2007 financial results. With me today are Mark Vadon, Chief Executive Officer; and Diane Irvine, President and Chief Financial Officer.

Before we begin, I would like to remind you that some of the comments we will make on this call are forward-looking, including without limitation, statements regarding expectations of future financial performance, net sales, gross margins, expenses, net income, operating cash flow, capital expenditures, international growth, stock-based compensation and other financial statement or balance sheet items, as well as statements about our future plans and objectives, beliefs, expectations, targets, goals, outlooks or predictions for the future.

These statements are only predictions based on assumptions that are believed to be reasonable at the time they are made and are subject to significant risks and uncertainties. You should not rely on these forward-looking statements as representing our views in the future and we undertake no obligation to publicly update or revise these statements. Actual results may differ materially and adversely from any projections in forward-looking statements discussed on this call. Our quarterly report on Form 10-Q, our annual reports on Form 10-K and other forms on file with the SEC identify important risk factors and uncertainties that you should consider when making an investment decision regarding Blue Nile, and it may affect whether our forward-looking statements prove to be correct.

Also, please note that during the course of this conference call we may discuss certain non-GAAP financial measures as we review the company's performance. We will discuss non-GAAP free cash flow, which is defined as net cash provided by or used in operating activities or operating cash flow, less outflows for approved purchases of fixed assets including internal use software and website development. Please refer to the investor relations section of our website to obtain a copy of our earnings release which contain reconciliation of non-GAAP measures to the nearest comparable GAAP measures. At the conclusion of the call we will conduct a question-and-answer session.

Now, I would like to turn the call over to Diane Irvine.

TRANSCRIPT SPONSOR

MF logo

The Secret to "Insider" Profits

Conference calls are useful … to a point. But top stock investors PROFIT from what others DON’T hear. What’s their secret? Independent stock research.

That’s how Motley Fool Hidden Gems subscribers knew to buy Blue Nile in September 2005. They’re up 79%. Get the names of the Top 3 Picks Motley Fool co-founder Tom Gardner is advising his profit-minded clients to buy NOW in his stock research report, “3 Hidden Gems Ready to Run.”

Read the complete report courtesy of Seeking Alpha FREE.

* Returns as of 6/25/2007

To sponsor a Seeking Alpha transcript click here.

Diane Irvine

Thank you, Nancy and good afternoon, everyone. Welcome to today's conference call. Blue Nile had an excellent second quarter with tremendous growth in our business and exceptional profitability. Our second quarter guidance reflected the fact that Q2 of 2006 was an exceptionally strong period for the business, and we believed that Q2 of this year would therefore be our hardest comp quarter of the year. Despite that difficult comp, and the fact that Q2 generally has lower volume than Q1 on a seasonal basis, our results were extremely strong. We believe that our strategy and business initiatives over the past 18 months are having a sustainable positive effect on our business.

We delivered net sales of $72.1 million in the second quarter, representing an increase of 26.7% over the second quarter of 2006. Gross profit grew 32% compared to last year while operating income grew by 39.8%. Gross profit and operating income growth were the highest we have posted in our three years as a public company. We are continuing to gain customer confidence and appeal to a wider audience as evidenced by the growth in our business, while delivering strong profitability.

As this happens, we continue to extend our leadership position in online diamond and jewelry retailing. Net income for the quarter was $3.8 million. Net income per diluted share was $0.23, representing EPS growth of 28%. Our EPS of $0.23 for the quarter was $0.06 above the top end of our guidance range.

In Q2, total orders increased 27.2% as compared to a year ago. Our average selling price per order was $1,630 in the second quarter, essentially unchanged from a year ago. Sales growth was strong across all of our product categories during the quarter and we are continuing to see higher growth rates in non-engagement jewelry products compared to engagement products as we grow our brand and develop more repeat customers.

During the quarter, our marketing efforts were very effective in driving significantly more high quality traffic to our website. Traffic growth was the highest since mid-2004. We saw growth across all marketing vehicles and were pleased with the performance achieved by our marketing team in all areas in Q2. We've been very focused on efforts to improve conversion through website and operational enhancements over the past 18 months. These efforts, combined with our ability to drive high-quality traffic, have positioned us to capture online sales in our categories.

By obsessing on the delivery of the perfect order to every single customer, we continued to experience strong growth in repeat and referral revenues at rates in excess of our overall top line growth for the quarter. We believe that this is further evidence that the details we focus on in our customer experience are having an impact.

I would now like to turn to more of the details of our profitability in the second quarter. Gross profit for the quarter was $14.9 million, an increase of $3.6 million or 32% from Q2 of 2006. As a percentage of net sales, our gross margin for the quarter was 20.7% compared to 19.9% a year ago. The increase in gross margin is primarily the result of stability in margins across all of our product lines, combined with a higher gross margin product mix.

Our Q2 2007 product mix consisted of a higher percentage of non-engagement items which carry a higher overall gross margin versus engagement products, resulting in a positive impact to gross margin. Gross profit as a percentage of net sales for the second quarter was also impacted by a one-time refund of shipping charges which increased the percentage by 30 basis points. Absent this refund, growth of gross profit for the quarter would have been 30%; still the highest growth in gross profit we have achieved in our three years as a public company. Gross margin would have been 20.4%, an increase of 50 basis points from Q2 2006.

We performed well on costs during the second quarter. Our SG&A totaled $9.9 million for the second quarter and included $1.4 million in stock compensation expense. As a percentage of net sales, SG&A was 13.7% in Q2 compared to 13.6% in the second quarter a year ago. We maintained our SG&A as a percentage of net sales year over year despite the addition of an incremental $420,000 in stock compensation expense.

Operating income showed exceptional growth in the second quarter to $5 million, an increase of 39.8% compared to Q2 of 2006. This demonstrates our ability to continue to deliver leverage in the business as we mature and grow. Interest income was $803,000 for the quarter compared to $881,000 in last year's second quarter. Our effective tax rate for the quarter was 35.4% compared to 31.7% a year ago.

Now let's turn to free cash flow. As a reminder, we define free cash flow as cash flow from operations including cash cost for taxes, tax benefits from stock compensation, and changes in working capital less capital expenditures. We delivered excellent cash flow in the second quarter with free cash flow increasing 11% to $33 million on a trailing 12-month basis. Operating cash flow for the trailing 12 months increased 12.9% to $35.8 million.

I think it's important to note that we have posted excellent cash flow results while becoming a full cash taxpayer for federal income tax purposes. Our cash flow statement for Q2 2007 reflects an incremental $2.4 million in cash taxes paid compared to the second quarter of 2006. Our free cash flow results include higher capital expenditures for the first half of 2007 as compared to the first half of 2006 related to investments in our domestic fulfillment facility and the establishment of our international operation in Ireland.

Our Q2 results cap an excellent performance for the first half of 2007 and we are confident in our ability to deliver strong financial results for the year. As we look to the second half of 2007, we are raising our revenue and EPS guidance for the year. We now expect net sales for the year to be between $312 million and $318 million. This range is an increase from our previous guidance for 2007 net sales between $295 million and $305 million. We expect net income per diluted share to be between $0.94 and $0.99 for 2007, an increase from our previous EPS range of $0.86 to $0.91. This guidance includes the estimated impact of stock compensation expense of approximately $0.24 per diluted share. Actual stock-based compensation expense for the year will be based on the nature, timing and amount of stock options granted, the assumptions used in valuing these options and other factors.

We expect capital expenditures for the year of approximately $5 million which includes the investments I mentioned related to the expansion of our US fulfillment center and our European facility.

The effective tax rate for financial statement purposes for the remainder of 2007 is expected to be approximately 35.2%.

Looking to the third quarter, we expect net sales to be between $66 million and $67.5 million. Net income is expected to be $0.13 to $0.15 per diluted share. This guidance assumes the estimated impact of stock compensation expense of approximately $0.06 per diluted share.

Now I'd like to turn the call over to Mark for his comments.

Mark Vadon

Thank you, Diane. This was an excellent quarter. We are obviously pleased with the momentum that we experienced in the first half of 2007. My biggest goal for Blue Nile is to build a truly special high-end brand; a brand defined by accessibility and the highest quality luxury goods; a brand that consumers trust because they know the company is committed to treat them with respect and integrity; a brand that is integral to some of the most important events in its customer's lives. A brand such as this is not build overnight. It is built through an obsession with consistently delivering an amazing consumer experience day after day.

We have discussed before the strength that we have been seeing in high-value orders. We make a point of sharing various data points about higher end purchases because we believe it communicates the trust we have established with consumers and the progress we have made in developing a luxury brand on the Internet.

During the quarter, our sales and merchandise priced above $25,000 grew by 51%. One exceptional example was a single sale above $1.5 million from a repeat Blue Nile customer. We believe this was the largest jewelry purchase ever made through the Internet.

This quarter we also launched an exclusive collection of rare fancy colored diamonds. Colored diamonds is a relatively small category within the jewelry industry, so we do not expect this launch to have a large impact on our results. The launch was important, however, because it is one more step in expanding our assortment at the high end of the market. For the first time, this launch provides all consumers access to these extremely rare gems.

I'd now like to touch on our international business. As we've discussed over the past year, one of our key initiatives is the expansion of our business internationally; taking the customer experience we have created for our US customers and expanding to other parts of the world. While our international sales are still a relatively small amount of our total business, growth in this business was strong in the second quarter.

We generated approximately $3 million in net sales through our Canada and UK websites during the quarter. In May, we opened an operation center in Ireland in order to better serve our UK customers and to provide a base of operations for expansion into the EU over the next several years. In conjunction with our new international facility, we launched updated websites in the UK and Canada with expanded product offerings and the ability for customers to purchase in their local currencies.

With the launch of these initiatives, we saw acceleration and international growth, especially in the UK. Following the launch of these initiatives, growth in our UK business was 133%. International growth will remain a priority for us going forward.

As we enter Q3, we are already preparing ourselves for the upcoming holiday peak. As a retailer, the holiday seasons are obviously a very important time for our business and it is important to start far in advance to put into place all of the initiatives necessary to maximize the season. We are currently in the process of expanding our domestic fulfillment center. With this expansion, we will have fulfillment capacity to scale our domestic business to almost $1 billion in sales.

To prepare for the holidays, we are also working diligently with our diamond partners to help them plan their manufacturing in order to assemble a tremendous offering of diamonds for our customers in Q4. In marketing, we are putting plans in place to drive record traffic growth to our website. Finally, were working hard to scale our new European facility to meet the needs of its first holiday season. For those of us at Blue Nile who experienced our first holiday peak in 1999, it is exhilarating to be part of another first holiday season; this time in Europe.

For the remainder of 2007, we will continue to be focused on profitably growing our business. First and foremost, we will do this by delivering an unbeatable purchase experience to our customers. Our largest source of customers throughout the history of our business has been through referral from previous customers. We have built our business and our reputation over the past eight years by executing with excellence, one customer at a time. We believe that if we do this well, we will certainly continue to gain share in the domestic jewelry market.

In summary, we are pleased with our Q2 results and the excellent performance we've had in the first half of the year. As I sit here today, I am very optimistic about the remainder of 2007 and the prospects for future growth.

Thank you for participating in today's call and for your continued support. This is the end of our formal presentation and we will now be happy to take your questions.

Question-and-Answer Session

Operator

Your first question comes from Jack Murphy - William Blair.

Jack Murphy - William Blair

Mark, on the last conference call you said that when you looked at traffic versus conversion, I think you said that it was about 50-50 in terms of driving the impressive order growth results. Could you make a similar comment on this quarter as to what you think the split might have been in the quarter?

Mark Vadon

Traffic was even stronger this quarter than last, but we're seeing great trends in both traffic and conversion. As the traffic growth keeps climbing, it gets even harder to improve the conversion because each bit of traffic is a little bit less qualified. So I think overall though, the trends in both of them are great. I think one of the most exciting things is we're just seeing ability to drive traffic that a couple of years ago was pretty hard to do.

Jack Murphy - William Blair

In the script you used the term sustainable -- or Diane perhaps used the term sustainable. I wonder if you could just dig into that a little bit more in terms of how you get comfortable with the sustainability impact of some of these initiatives?

Diane, if you could just give us a sense on free cash flow now that you're raising the guidance on the earnings, what your thoughts are about free cash flow on a full year basis? Thanks.

Diane Irvine

In terms of the sustainability, I think the way we look at the business in our history over eight years we have continually increased our conversion and so I think we feel that, as I mentioned, all of the initiatives we've had for the past 18 months across the business are all working really well I think in every area of the business; in customer service, all of the marketing vehicles, our merchandising, our fulfillment and the product that we're delivering to our customers. I think everything is going really well. But our job is to continue every single day to make a better and better experience for our customers. So I think we feel that's happening. We see it in our results in things like repeat and referral and that's what we plan to continue to do.

In terms of free cash flow, Jack, we don't guide to that number but I think and what we have said is that we felt this year, even with the tax change, that we'd be able to be equal to or better than last year's numbers.

Operator

Your next question comes from Mark Mahaney - Citigroup.

Mark Mahaney - Citigroup

Mark, when you talked about Nile as a luxury brand, is there any change in your thinking about how many different luxury products or verticals Blue Nile could be appropriate for in the future?

Diane, could you give some specific examples of what non-engagement products in the non-engagement ring area are particularly selling well on Nile? Thank you very much.

Mark Vadon

Thanks, Mark. When I spoke of Blue Nile as a luxury brand, our intent is not to take the brand beyond the jewelry category. I think we feel the jewelry category is tremendously large; it's a $60 billion domestic market. If we execute really well within that market we'll be able to grow for a very long time.

When we look at the brand, we believe one of the mistakes a lot of retailers make is they expand too far. They expand their product lines too far and it dilutes the brand. I think we'd rather be really well known for being the best in the world at what we do, rather than trying to put other luxury categories up there and gain a little more sales in the short-term at the expense of the long-term value of that brand.

Diane Irvine

Mark, in terms of non-engagement products, happily all of our product categories did really well during the quarter and certainly in the bridal business when you look at engagements and then in the non-engagement category, wedding bands are one of our very top products so that continues to grow very nicely. We'd love for every customer who comes in for their engagement purpose and then come back to us to buy their wedding bands.

All forms of diamond jewelry outside of engagement rings if you look at diamond earrings, diamond pendants and necklaces are doing very well. That would include both customized diamond engagement product where a customer is coming to us starting with a loose diamond and then customizing their ultimate product or purchasing diamond earrings or pendants that are already preset, are doing very well. Pearls and gemstone categories in necklaces, bracelets, earrings, are doing phenomenally well for us. Sterling silver as well, which is a lower price point but provides a great opportunity for customers to come back and repeat. Also, it is a great trial purchase for someone coming into Blue Nile where we can acquire new customers.

So really across the board going very well. We think much of that is really attributable to the building of the brand and great referrals from our customers. So we're very pleased with that.

Operator

Your next question comes from Douglas Anmuth - Lehman Brothers.

Douglas Anmuth - Lehman Brothers

First, in terms of gross margins, I'm just trying to get a sense of how we should think about it going forward. It looks like your guidance for the rest of the year is not necessarily factoring in the same levels of year-over-year gross margin expansion as you generated in Q2. I'm just curious if you're potentially looking at seeing anything different there in terms of the mix in the back half?

Secondly, I was also hoping you could comment on the price points that you're seeing in the UK and Canada relative to the overall business. Finally, I just wanted to get a sense of your view on share buybacks at these levels.

Diane Irvine

In terms of gross margins, what we had generously anticipated is that once we anniversaried that period of price reduction that we'd be equal to or greater than last year's gross margin. Again, one of the things we pointed out was this quarter's gross margin, except without the one-time refund related to shipping charges, the adjusted gross margin level would have been 20.4%, so an increase of 50 basis points.

When you look at Q3 and you'll see that if you looked at our results last year for Q3, that's the period of the year when the most engagements happen, if you will, more of the mix is driven towards engagement because we don't have a holiday season there. So you would generally expect those products with higher ticket to have a lower gross margin percentage, for example, than in Q2.

But I think as we look out, generally speaking we have felt that our mix will be adjusting more and more towards non-engagement products which do carry higher gross margins. So we'd expect to be able to over time see continued movement up in our gross margins.

Let me touch on the share repurchase for a moment. Doug, I think you had something else in there. What we'd like for everyone to understand about the share repurchase program is we'll always be very thoughtful in how we execute that program. Certainly looking at our balance sheet opportunities for investment, we need to be very prudent from a capital allocation standpoint and make the right decisions in the buyback program. We want to always do what's right for our shareholders.

I think we've done that. In the past two-and-a-half years we have retired 15% of our outstanding shares. Today we have more cash on our balance sheet than we did even after becoming a public company, so over time that will continue to be a very strategic program for us.

Mark Vadon

Doug also asked about price points in the UK and Canada. The mix in those markets is a little different because they're younger brands so they're more focused on the engagement product line. That's also a function of us not having fully built out the product lines there yet and I think that will change over time. But if you look within individual product lines, so if you look within engagement, for example, both of those markets have slightly lower price points than the US market. I think that's true across the industry. The average engagement ring that's sold in the UK is going to be slightly smaller than in the US. So when you look over all those businesses today are driving a slightly higher ticket because of the mix. But if you adjust for the mix, eventually those will probably be slightly lower price point markets.

Douglas Anmuth - Lehman Brothers

Did you mention the split between engagement and non-engagement during the quarter?

Diane Irvine

We did not give a percentage but this year the mix was more of a change in terms of a greater percentage of non-engagement products this year versus a year ago.

Operator

Your next question comes from Jim Friedland - Cowen & Co.

Jim Friedland - Cowen & Co

First, on the non-engagement products, over the long-term, or maybe if you just forget about the core diamond engagement business, what types of gross margin does the non-engagement business have? So, looking out a few years, where could gross margins go?

As the sort of second part of that question, you guys lowered prices in the year and it resulted in a huge jump in order growth. If gross margins are going up a lot, would you offset that with potential price decreases in the core diamond engagement ring to grow it or are you happy with where you are there?

Diane Irvine

In terms of non-engagement, there we have product, for example, if you look at diamond non-engagement products, things like diamond stud earrings, diamond pendants, any of those diamond priced with a high ticket will carry a lower gross margin because our gross margin percentage is kind of inversely correlated to the price point. So we might be in the '20s going up to gross margins in the '60s for a lower price point item on non-diamond products. So, there's a broad range of gross margins throughout the business but it's certainly safe to say non-engagement carries a higher gross margin.

We don't really have a long-term target for gross margin. The way we really think about is we want to optimize the gross profit, the dollars per unit and the dollars to the bottom line. We think that's the way we'll always think about pricing and our consumer value proposition. If we see opportunities to either raise or lower prices in certain categories, if we feel like it's the right thing for the bottom line, that's what we'll do. But over the long-term we also want to represent a great value to consumers. I think as we grow, we'll continue to see more and more opportunities to be able to cede back in the form of lower price to consumers and still have tremendous profitability.

Jim Friedland - Cowen & Co

A quick one on marketing. A couple of years ago you were negative on search and could you give us some more color on which channels are really driving some of the growth here? Has Google Checkout had any meaningful impact on your results?

Mark Vadon

We're not going to disclose a lot behind individual channels. I'd just say every single marketing channel that we play in did really, really well this quarter from search to portals to partners, email; every one of them was really strong. I think more and more just competitively there's not a really strong number two player in our space. I think we've set ourselves at the high end of the market and there hasn't been anybody else who's been able to establish a sizable brand in that part of the market. So I think our ability to do the right marketing and invest in the marketing and have it pay back for us versus other people is getting stronger and stronger over time.

Operator

Your next question comes from Lorraine Maikis - Merrill Lynch.

Lorraine Maikis - Merrill Lynch

Considering the large cash balance and with the stock where it is, a share repurchase is not a high priority. What are your plans for that cash? How do you expect to deploy it over the next few years?

Diane Irvine

I think when we look at our cash, as I said, we'll always look at our balance sheet, where does it make sense to invest, do we want to do share repurchases over the long term? But I think this is a great cash flow generation business. We will always look at what's the right thing to do with our cash but most importantly, to deliver value to our shareholders. So we'll look at opportunities at each point in time.

Lorraine Maikis - Merrill Lynch

Could you just talk about the different marketing channels you're using in the UK and what you've found to be the most effective?

Diane Irvine

We're just beginning, of course, in the UK. But really using search there, online marketing vehicles are what we're doing there; really the same kind of things that we're doing in the US; obviously building the brand there, starting to take hold. So there's a lot of opportunity for us there but we've started out just trying to build that program.

Mark Vadon

We're at the very, very early stages of that business so there's not a tremendous amount of marketing that we're doing there yet. I think that is all things we will start doing as we build into the fourth quarter we'll be implementing more marketing. But up until now it's been mostly a little bit of search both on the paid and unpaid side and then referral. That business there looks a lot like the US business looked; obviously a smaller version of it, but a lot like the US business looked like in 1999 when we really weren't doing much marketing on the Blue Nile business.

Operator

Your next question comes from Dan Geiman - McAdams Wright and Ragen.

Dan Geiman - McAdams Wright and Ragen

Regarding your sales growth, did you see any noticeable variance in your growth rates from region to region across the country or from market to market? Were some geographic markets notably healthier than others? Also, what was your sales growth in your top tier markets this quarter?

Mark Vadon

We're seeing strong growth nationally. As you look at it, our smallest markets are the ones that are growing the fastest, where we're the least penetrated. Then as you go to our largest markets, markets like San Francisco, those would be growing slightly slower. But even in those largest markets our growth was still only several points lower than the overall business.

So what we're seeing is that we're not reaching any sort of level of saturation in even our strongest markets. So the markets are growing roughly 20% a year. As you get to the smaller markets, they're growing faster.

Dan Geiman - McAdams Wright and Ragen

The $1.5 million sale that you booked during the quarter, what was the impact of that on margins?

Mark Vadon

It was at a lower gross margin than the overall business because as transactions get larger and larger, we work on a smaller margin. I don't think it had a meaningful impact on the overall business. But if you go in there you'll see that probably brought up our average ticket a little bit. It probably brought down our gross margin by a little bit of what it would have been otherwise. But it's not tremendously meaningful when you look at the full $70 million or so in sales for the quarter.

Diane Irvine

It wouldn't change the way you look at the quarter, Dan.

Operator

Your next question comes from Marianne Wolk - Susquehanna.

Marianne Wolk - Susquehanna

You mentioned expanding throughout the EU. Can you talk about your timeframe? Is that something we should expect perhaps in 2008 as the Irish center scales? As a follow-up to that, should we expect that over time your tax rate will go down as you leverage that Irish center? Thank you.

Mark Vadon

I think we're not disclosing any timeline for those markets other than to say that you should expect to see us continue to enter other markets internationally for the foreseeable future.

Diane Irvine

In terms of tax rate, I think while there's potential for that, the biggest impacts on the tax rates these days can tend to be related to things like stock options. So I think there can be variability. But especially being a new taxpayer, I think we don't want to be giving out expectations for future tax rates. Certainly as we go through we'll let everyone know. But there is that opportunity clearly if you look at Ireland's tax rate scales.

Operator

Your final question comes from Kristine Koerber - JMP Securities.

Kristine Koerber - JMP Securities

Congratulations on a good quarter. Can you talk about the competition and are you seeing any changes offline and online? Second, can you talk about what you're seeing in terms of commodity pricing? Thank you.

Diane Irvine

In terms of competition, there is a lot of competition on the US alone, 29,000 independent retailers. But I think the way we feel about the business is we continue to enhance our leadership position. I think we feel like we need to continue to do a great job for our customers and those customers are telling others about us and the brand continues to grow. So I think we feel we're in a very strong position from that standpoint.

Sorry, I lost the second question?

Kristine Koerber - JMP Securities

Commodity pricing.

Diane Irvine

If you consider metal pricing, platinum, gold and silver, movement upward there; nothing significant to note in terms of where we are in our gross margin and the pricing today but if you look at the past couple of years, those prices have all moved up. In diamonds, it's a little bit of a mix at the high end. There continues to be more demand than there is supply there so you see that price rise. For some smaller size diamonds, prices are relatively stable or perhaps even a bit declining; but nothing real dramatic on any of those fronts. I think if you look at the commodities we're in a pretty good place. You'd just see, if anything, a little bit of an upwards push there on the prices.

Mark Vadon

If I can just add on the competition part, one way to think about that, we've obviously been competing against a very large number of people the entire time we've been in business. But if you look at the high end of our guidance for this year, the dollar growth of our business this year will be just under $70 million if we hit that high end of the guidance. If you look at that number versus other online jewelry players, our one-year growth in sales is probably larger than anybody else who sells a similar set of products on the Internet. Obviously, there's people like eBay out there doing a tremendous volume of jewelry in very different product lines. But if you look at products that are relevant to us in a 12-month period, we put up more growth than people have been able to develop as a business in the last ten years of the Internet being in existence.

So, from that perspective it just feels like every 12 month period that goes by, our ability to compete against other people, or people's ability to come into the market and launch and compete against us, we just get stronger and stronger on that front.

So, I think that was the last question we'll be taking. I just want to thank everybody for participating on the call. We appreciate your time and we look forward to updating you again next quarter. Thank you.

TRANSCRIPT SPONSOR

MF logo

The Secret to "Insider" Profits

Conference calls are useful … to a point. But top stock investors PROFIT from what others DON’T hear. What’s their secret? Independent stock research.

That’s how Motley Fool Hidden Gems subscribers knew to buy Blue Nile in September 2005. They’re up 79%. Get the names of the Top 3 Picks Motley Fool co-founder Tom Gardner is advising his profit-minded clients to buy NOW in his stock research report, “3 Hidden Gems Ready to Run.”

Read the complete report courtesy of Seeking Alpha FREE.

* Returns as of 6/25/2007

To sponsor a Seeking Alpha transcript click here.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Blue Nile Q2 2007 Earnings Call Transcript
This Transcript
All Transcripts