Blue Nile: Mixed, Confusing Reaction to Q4 Results; Stock on the Rise

| About: Blue Nile, (NILE)

Blue Nile’s (NASDAQ:NILE) fourth quarter earnings announcement last night has been met with a decidedly mixed response from the Street - although the stock today has moved decisively higher.

The online diamond retailer reported fourth quarter revenue of $90.7 million and GAAP profits of 35 cents a share, which topped the Street consensus of $91.8 million and 31 cents.

But the outlook the company provided looked soft. For the first quarter, the company sees revenue of $61 million to $63 million, with GAAP EPS of 14-15 cents a share; the Street has been at $62 million and 17 cents. For the full year, Blue Nile sees revenue of $290 million to $300 million and GAAP EPS of 80-85 cents a share, which compares with Street estimates of $302.4 million and 92 cents.

Despite the apparently disappointing guidance, the stock is higher today. The Street research today is contradictory: some analysts saw the numbers as a reason to get more cautious, but others turned increasingly bullish. That’s what makes markets, I suppose, although the split here is a little hard to fathom. Here, let me show you what I mean.

  • Tim Boyd, Caris & Co.: Topping our list of takeaways from the quarter is NILE’s initial full-year 2007 guidance, which we view as disappointing. Based on its revenue guidance, management seems to be indicating that the competitive environment has become more challenging and [that] the outlook for the diamond engagement market in 2007 is less sanguine than we believed… downgrading NILE shares to Average from Above Average and reducing our price target to $40 from $42… our call is not to sell NILE shares, but to wait for a more attractive entry point.
  • Jordan Rohan, RBC: Revenues were in line but due to better-than-expected gross margin and tight expense control, EBITDA and EPS beat both our and consensus estimates by a healthy margin… Increasing our price target from $40 to $44.
  • Imran Khan, J.P. Morgan: We maintain our Neutral rating based on conservative 2007 profitability guidance.
  • Scott Devitt, Stifel Nicolaus: Blue Nile put together another clean three months of business, modestly exceeding revenue expectations and generating about 5% upside to economic profit expectations… We are fans and we would be buyers of the shares in the mid $30s.
  • Jim Friedland, Cowen: Results were slightly below consensus revenue and EPS estimates. The company guided [2007] below consensus revenue and EPS consensus expectations… maintaining our Neutral rating.
  • Well, that’s kind of confusing. They beat, they didn’t beat; downgrade the stock, raise the target. It hurts my brain.

    This morning, Blue Nile is up 57 cents at $39.17.


    NILE 1-yr chart:

    nile chart

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