Blue Nile: A Story I Never Understood

| About: Blue Nile, (NILE)

The valuation on Blue Nile (NASDAQ:NILE), an online jewelry store, has reminded me of the late 90s era and euphoria. While it has shown tremendous growth, the stock was trading north of $100 last fall, on forward earnings of about $1. I'm not a math major but even I can figure that's a 100 P/E ratio.

I point this out simply because I see it was down massively yesterday (and still sports a 40+ PE ratio!) on its earnings, and because of future guidance. While the market goes gaga over yet another useless government report out ... so let me get this straight.... last week we had store after store tell us how things are degrading, but because a government report says sales are up 0.3% we celebrate? When most of it is gas and autos? Autos?? Have you been reading the auto sales lately in the US? And we are to believe this report? Also keep in mind a nasty word called inflation - sales will be "up" simply due to inflation even if unit sales are flat. If inflation is 5% if you sell the same amount of goods, by definition sales will be up 5%. So anything less is degradation. Anyhow... I digress.

Blue Nile is interesting because of the type of merchandise it sells and the fact it sells up and down the food chain of consumer. And it clearly shows weakness is moving up the food chain to "upper middle class" and "lower upper class". But don't worry about it, because the government tells us retail sales are booming.. (eyeroll)

And we have yet another retailer who is telling us January degraded significantly from December. Hello Wall Street, may I interrupt the party to inject reality?
  • Blue Nile Inc's (NILE) shares plummeted more than 20 percent on Tuesday after the online jewelry retailer's outlook for the first quarter fell way short of Wall Street expectations.
  • Sales of its high-end jewelry priced above $25,000 took a hit in the latter part of December and January, Executive Chairman Mark Vadon said, as the hitherto-strong online jeweler also fell prey to a cutback in consumer spending.
  • Vadon said he does not expect its high-end sales to sustain a 50-percent quarterly growth "right now" given tighter consumer spending and an overall retail environment.
  • "Right now, we are seeing a very, very weak environment and frankly, we don't know what to expect," Vadon said in an interview with Reuters. "In that environment ... our mindset is to be very conservative."
Last, I want to point out (again) all these retailers surging on 2008 guidance last week... frankly have no clue what 2008 guidance will be. I don't know. They don't know. The only ones being honest are seeing their stocks slapped back to 2004. The ones telling fairy tales about rebounds in 2nd half 2008 or year over year growth, have no idea. How do you model the consumer in this environment? You don't. You guess. And Wall Street, in its quest to find any shred of good news to build a "2 quarters and rebound" thesis, is lapping it up like the obedient Kool Aid drinking dog it is. Blue Nile was honest. They don't know. Period.

But let's celebrate gas and cars (cars? really? have we no shame to report that car sales are going up, even when Toyota is beginning to struggle in the US market? Boggling) I continue to be perplexed by a market which takes government reports as gospel over what company after company is reporting on the ground. Even the best companies are saying the US stinks, thank god for overseas sales.

The one thing we have year over year sales growth in the USA >50% is Kool Aid.

Disclosure: No position

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Tagged: , Catalog & Mail Order Houses, Earnings
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