Blue Nile (NILE) posted a strong Q1 , reporting $70.5 million and $0.16 in revenue and EPS, comfortably topping consensus of $68.5 million and $0.14. But Imran Khan at JP Morgan remains unimpressed. A significant chunk of NILE’s growth was driven by a Google checkout promotion, and excluding this, ASPs declined. Translation: Macro headwinds are forcing consumers to trade down to cheaper products. JP Morgan:
Excluding a Google checkout promotion in 1Q07, total orders grew 8% Y/Y and ASP declined 4% Y/Y. Diamond products priced below $5,000 showed the most strength, as customers appeared to trade down to lower priced items. Management noted that they were seeing improving trends as the quarter progressed. However, we believe macroeconomic pressures will persist and, as such, we are lowering our 2Q08 rev growth estimate to 5% Y/Y from 8% Y/Y
Another concern for Khan and JP Morgan were inflated operating expenses, which were only partly offset by a slight expansion in gross margin:
1Q operating margin decline was primarily due to a 140 bps Y/Y increase in SG&A as a % of rev, offset by a 30 bps expansion in gross margins. As expected, higher costs were driven by the expansion of the domestic fulfillment centre, growth in international operations and lower January sales.
JP Morgan’s F08 revenue and GAAP EPS estimates go to $352 million and $1.03 from $360 million and $1.05. Rating remains Neutral.
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