Rising diamond prices slow Blue Nile’s Q2 sales

Blue Nile began dropping its prices in June and July following a second quarter in which sales of engagement rings in the U.S. fell 5 percent year-over-year due to higher diamond prices.

Michelle Graff michelle.graff@nationaljeweler.com

Seattle--Blue Nile began dropping its prices in June and July following a second quarter in which sales of engagement rings in the U.S. fell 5 percent year-over-year due to higher diamond prices.

The Seattle-based online diamond seller said Tuesday that net sales for the second quarter ended June 29 totaled $106.6 million, compared with $108.0 million in the prior-year period, a 1 percent decline.

Gross profit for the quarter totaled $20.2 million and was 18.9 percent of sales, compared with 18.6 percent of sales in the second quarter 2013.

Net income was essentially flat at $2.2 million.

In the United States, the company’s largest market, sales of engagement rings fell from $63.9 to $60.9 million, a 5 percent slide. Sales of non-engagement jewelry increased 3 percent year-over-year, from $27 million to $27.7 million.

International sales rose 7 percent at constant exchange rates.

In its earnings call held Tuesday morning, CEO Harvey Kanter said its second quarter results were impacted by volatile diamond prices and tough year-over-year comparisons.

He said polished diamond prices increased this year, particularly in March, which impacted its sales. As a result, Blue Nile began dropping its prices in June and July, with the understanding that it will impact margins.

He added that the company will be further driving its communication regarding pricing to “make sure, no matter what” that “Blue Nile’s superior value is absolutely clear to the consumer.”

The company also is continuing to invest in adaptive technology, meaning technology that makes its site function the same across all platforms, desktop, tablet and smartphones.

Last week, Reuters published an article examining Blue Nile’s foray into the brick-and-mortar world with the installation of showcases at two Nordstrom stores, one in Seattle (where both retailers are based) and the other in Garden City, N.Y. Blue Nile does not sell rings in the store but displays its merchandise in an attempt to increase brand awareness among consumers.

In the article, Reuters noted that some of Blue Nile’s allure has been eroded by the fact that all retailers, including key competitors such as Kay, Jared and Zale now sell online, with one analyst noting of Blue Nile that today, “what they do is less unique.”

Opening the displays was a way for Blue Nile to establish a brick-and-mortar presence in an increasingly competitive retail environment, though when asked about the displays during Tuesday’s call Kanter

Banner will be right here …

did not mention expanding them to more stores.

“It is a test. It continues to be a test. We are learning a lot of things,” he said in response to a question from an analyst about the company’s brick-and-mortar displays.

He added that the customers are definitely responding to the displays, “But we are in a learning mode and we don’t really have a view of what will happen as we move forward.

“It is a test and continues to be just that.”

Also during Tuesday’s call, Blue Nile management hinted at an addition to its recently launched Designer Collective, which currently has jewelry from Anne Sportun, Bree Richey and Robert Leser.

Kanter would not reveal the name of the designer but said he or she will be a “material and meaningful” introduction to the collective that has the same type of name recognition as another designer who creates jewelry for Blue Nile, fashion designer Monique Lhuillier.

Blue Nile will reveal the name of the new collective collaborator in the fourth quarter, and the designer will create both bridal and fashion jewelry for the e-tailer.

Michelle Graffis the editor-in-chief at National Jeweler, directing the publication’s coverage both online and in print.