Blue Nile Company - Essay Example

?Blue Nile Company is one of the most prestigious company that excels in creating, selling and customizing jewelry. The company takes pride in selling loose diamonds, engagement rings, diamonds, silver set pearls, emerald, rubies, and sapphires and all sorts of custom jewelry. The company also specializes in customizing jewelry design services. Blue Nile is the leader as it dominates the market scheme and operates in Canada, Chinese and 40 other nations. Blue Nile continues to be a market leader and is surprisingly debt-free as it continues to expand its horizons internationally as well as domestically. The Mission statement of the firm “is to build the premier specialty retailer of jewelry by offering consumers high quality products at compelling values through an empowering shopping experience.” Values The Company emphasizes in great customer satisfaction and delivering that satisfaction through high-quality products. The key element for the company is to make the customer feel special and give them a shopping experience that will leave them in awe. From a business perspective, the company has developed “Code of Ethics” which list out some key values that the company strongly believes in. For instance, each individual should be treated with fairness, compassion and respect. The company also believes in strong foundation of complete, efficient, and accurate recording methods to the government. Strategy The marketing strategy for the company is effective and is consisted of penetrating the online market and attracting its customer. The company is expected to earn around 75 cents(earnings per share), which is 34% from the previous annual year. The organization’s strategy is to penetrate the market segment by selling their products at a lower price than the traditional jewelry stores. The company possesses two key competitive advantages. One competitive advantage is to cut the cost of buying diamonds only if there is a guarantee that the customer will purchase them. In essence, the customer cannot breach the contract, which enables it to be cost-effective and makes them unique compared to traditional jewelry stores. Blue Nile Company utilizes pull marketing strategy as it uses clever pricing strategy to accomplish its goals. The company believes in being just 10% better, a no nominal feat in these harsh economic times. Moreover, the company emphasizes in brand recognition and enhancing consumer traffic through their online website. The focal point remains through the search engines such as Google, YAHOO and Bing.com. The company offers incentives through internet by persuading customers to subscribe to their newsletter, which gives them special insights about promotions, sales, and coupons. The company invests little in brick-and-mortar advertisements and billboards. Without a doubt, the management team is vital towards the success of the organization. Diane Irvine, the CEO and the President has created a culture that thrives on “thinking outside the box.” It is astonishing to see how a company is flourishing in this business without owning diamond mines, a feat that may seem impossible. Ms. Irvine along with Susan Bell and Marianne Marck acknowledged that certain months are extremely busy for the stores. Thus, the decided to have a strategy in which they launched new, creative desings for the jwererly around that time period. In essence, the management team was ready to face the challenges of the customers head-on. Moreover, Irvine and her team excelled in customer service by returning customers demands and shipping their packages in timely manner. Furthermore, the management administration staff placed high priority in consultation and pursued the engagement rign business to the fullest, which made them highly profitable. FINANCIAL STATEMENTS BALANCE SHEET Period Ending Jan 2, 2011 Jan 3, 2010 Jan 4, 2009 Assets Current Assets Cash And Cash Equivalents 113,261   78,149   54,451   Short Term Investments -   15,000   -   Net Receivables 2,328   2,284   2,379   Inventory 20,166   19,434   18,834   Other Current Assets 1,083   977   1,069   Total Current Assets 136,838   115,844   76,733   Long Term Investments -   -   -   Property Plant and Equipment 6,157   7,332   7,558   Goodwill -   -   -   Intangible Assets 274   325   271   Accumulated Amortization -   -   -   Other Assets 118   145   89   Deferred Long Term Asset Charges 8,424   6,769   5,014   Total Assets 151,811   130,415   89,665   Liabilities Current Liabilities Accounts Payable 101,786   85,933   68,898   Short/Current Long Term Debt 48   44   41   Other Current Liabilities 86   205   205   Total Current Liabilities 101,920   86,182   69,144   Long Term Debt 748   796   839   Other Liabilities -   -   -   Deferred Long Term Liability Charges 82   168   374   Minority Interest -   -   -   Negative Goodwill -   -   -   Total Liabilities 102,750   87,146   70,357   Stockholders' Equity Misc Stocks Options Warrants -   -   -   Redeemable Preferred Stock -   -   -   Preferred Stock -   -   -   Common Stock 20   20   20   Retained Earnings 63,141   48,999   36,199   Treasury Stock (187,177) (161,841) (161,841) Capital Surplus 173,143   156,030   144,913   Other Stockholder Equity (66) 61   17   Total Stockholder Equity 49,061   43,269   19,308   Net Tangible Assets 48,787   42,944   19,037   INCOME STATEMENT iew: Annual Data | Quarterly Data All numbers in thousands Period Ending Jan 2, 2011 Jan 3, 2010 Jan 4, 2009 Total Revenue 332,889   302,134   295,329   Cost of Revenue 260,949   236,790   235,333   Gross Profit 71,940   65,344   59,996   Operating Expenses Research Development -   -   -   Selling General and Administrative 50,654   45,997   44,005   Non Recurring -   -   -   Others -   -   -   Total Operating Expenses -   -   -   Operating Income or Loss 21,286   19,347   15,991   Income from Continuing Operations Total Other Income/Expenses Net 217   209   445   Earnings Before Interest And Taxes 21,538   19,678   17,856   Interest Expense -   -   -   Income Before Tax 21,538   19,678   17,856   Income Tax Expense 7,396   6,878   6,226   Minority Interest -   -   -   Net Income From Continuing Ops 14,142   12,800   11,630   Non-recurring Events Discontinued Operations -   -   -   Extraordinary Items -   -   -   Effect Of Accounting Changes -   -   -   Other Items -   -   -   Net Income 14,142   12,800   11,630   Preferred Stock And Other Adjustments -   -   -   Net Income Applicable To Common Shares 14,142   12,800   11,630   OTHER IMPORTANT INFO latest Full Context Quarter Ending Date 2010/12 Gross Profit Margin 22.6% EBIT Margin 6.5% EBITDA Margin 7.3% Pre-Tax Profit Margin 6.5% Current Ratio 1.3 Quick Ratio 1.1 Leverage Ratio 3.1 Receivables Turnover 184.6 Inventory Turnover 13.0 Asset Turnover 2.4 Revenue to Assets 2.2 ROE from Total Operations 28.8% Return on Invested Capital 28.4% Return on Assets 9.3% 5-Year Averages Return on Equity 31.1% Return on Assets 10.6% Return on Invested Capital 30.6% Gross Profit Margin 21.6% Pre-Tax Profit Margin 7.0% Post-Tax Profit Margin 4.6% Net Profit Margin (Total Operations) 4.6% R&D as a % of Sales 0.0% SG&A as a % of Sales 14.5% Debt/Equity Ratio 0.01 Total Debt/Equity Ratio 0.02 Blue Nile, Inc.  (NasdaqGS: NILE ) After Hours: 55.49 0.00 (0.00%) 5:09PM EDT Last Trade: 55.49 Trade Time: Mar 29 Change:  1.43 (2.65%) Prev Close: 54.06 Open: 53.92 Bid: N/A Ask: 55.90 x 100 1y Target Est: 49.50 Day's Range: 53.30 - 55.78 52wk Range: 40.70 - 64.45 Volume: 119,905 Avg Vol (3m): 288,330 Market Cap: 808.66M P/E (ttm): 59.03 EPS (ttm): 0.94 Div & Yield: N/A (N/A) People viewing NILE also viewed: NILE vs. Industry Leaders Statistic Industry Leader NILE NILE Rank Market Capitalization AMZN 78.75B 808.66M 7 / 28 P/E Ratio (ttm) DANG N/A 59.03 3 / 28 PEG Ratio (ttm, 5 yr expected) DANG 3.52 2.76 3 / 28 Revenue Growth (Qtrly YoY) VSST.OB 81.90% 11.50% 8 / 28 EPS Growth (Qtrly YoY) DANG N/A 18.70% 6 / 28 Long-Term Growth Rate (5 yr) DANG 60.91% 18.44% 9 / 28 Return on Equity (ttm) OSTK 67.00% 30.63% 2 / 28 Long-Term Debt/Equity (mrq) 1.622 N/A Dividend Yield (annual) GAIA 2.40% N/A N/A When looking at this chart, it is clear that NILE company dominates the market. For instance, its price to earning ratio is highest amongst its competitors. The company is ranked as the top 18th company overall amongst Forbes for various reasons. Its market cap of a hefty $808.66million is no doubt huge. Although it lacks in revenue growth against VSST.OB, it is still making around 12% of quarterly growth. Nile company in addition has almost little to long-term debt, something that will enable them to gain competitive edge. WACC 12% Calculation to Find the Industry Average Estimates for the WACC Calculation (Millions USD) Beta Debt Debt Beta WACC Inputs Stock Research Price levered Debt Shares Equity Capital Equity Capital Tax % unlever Risk Free Rate 4.2% Cost of Debt 6.7% Blue Nile (NILE) $52 1.62 1  14 750  751  0.1% 0.1% 39.3% 1.62 Include Equity Risk Prem 5.0% Finlay Enterprises (FNLY) n/a Alpha 0.0% Zale (ZLC) n/a Country Risk Premium 0.0% Tiffany (TIF) $57 1.76 754  126 7,240  7,994  10.4% 9.4% 30.2% 1.64 Include Signet Jewelers (SIG) n/a Industry WACC Calculation USN (USNR) n/a Beta (unlevered)  1.62  BIDZ.com (BIDZ) $1 1.71 3  22 31  34  9.3% 8.5% 40.7% 1.62 Include Industry D/E 4.5% Amazon.com (AMZN) $162 1.27 109  446 72,119  72,228  0.2% 0.2% 29.3% 1.27 Include Tax Rate (5 yrs) 34.7% Birks & Mayors (BMJ) n/a Beta (relevered)  1.67  Finlay Fine Jewelry (0) n/a Whitehall Jewelers (WHJHQ) n/a Cost of Debt (after-tax) 4.4% Debt / Capital 4.3% Median (middle #) n/m 1.67 56  74 3,995  4,373  4.7% 4.3% 34.7% 1.62 WAC (debt) 0.2% Cost of Equity (capm) 12.6% Equity / Capital 95.7% WAC (equity) 12.0% WACC Conclusion 12.0% WHAT DOES THE WACC MEAN? WACC, in essence is critical for several reasons. The WACC calculates an organizations cost of capital such as common stock, preferred stock, bonds and debt. This calculation is necessary since it enhances beta and the rate of return on investment. In essence, the Weighted Average Cost of Capital is an overall return that every firm must accumulate on its current assets and operations. A company must do so in order to retain a solid stock price because no corporation wants their stock price to fall down. For a company such as Blue Nile, it is vital that the stock price is high since an earnings per share is high. More key ratios Price & Volume Recent Price $ 53.78 52 Week High $ 64.45 52 Week Low $ 40.70 Average Vol (Mil) (RTMA) 0.30 Beta 1.47 Share Related Items Market Cap. (Mil) $ 783.74 Shares Out (Mil) 14.57 Float (Mil) 6.94 Dividend Information Yield % 0.00 Annual Dividend 0.00 Payout Ratio (TTM) % 0.00 Financial Strength Quick Ratio (MRQ) 1.10 Current Ratio (MRQ) 1.30 LT Debt/Equity (MRQ) 2.00 Total Debt/Equity (MRQ) 2.00 Valuation Ratios Price/Earnings (TTM) 57.20 Price/Sales (TTM) 2.35 Price/Book (MRQ) 18.00 Price/Cash Flow (TTM) 45.40 Per Share Data Earnings (TTM) $ 0.94 Sales (TTM) $ 22.84 Book Value (MRQ) $ 3.37 Cash Flow (TTM) $ 1.19 Cash (MRQ) $ 7.79 Mgmt Effectiveness Return on Equity (TTM) 28.80 Return on Assets (TTM) 9.30 Return on Investment (TTM) 28.40 Profitability Gross Margin (TTM) % 22.60 EBIT Margin (TTM) % 6.50 Profit Margin (TTM) % 4.20 Powered and implemented by Interactive Data Managed Solutions. Historical financial information is provided by MorningStar, Inc. The company makes no representations or warranties with respect to the information contained herein and takes no responsibility for supplementing, updating, or correcting any such information. Mil = Millions  RTMA = Rolling Three Month Average TTM = Trailing Twelve Months  MRQ = Most Recent Quarter Asterisk (*) indicates numbers are derived from Earnings Announcements Pricing and volume data as of Apr 05, 2011 Financial Strength: NILE Quick Ratio (MRQ) 1.13 Current Ratio (MRQ) 1.34 LT Debt to Equity (MRQ) 1.52 Total Debt to Equity (MRQ) 1.62 Return on Equity (ROE) Per Share 54.22 Return on Assets (ROA) 9.62 Return on Invested Capital (ROIC) 30.10 ANKING 5-YR AVG ROE 32 SALES 128 PROFITS 163 MARKET VALUE 113 12-MOS SALES GROWTH 112 12-MOS EPS GROWTH 121 5-YR SALES GROWTH 15 5-YR EPS GROWTH 37   BOARD OF DIRECTORS RATING 1 54    GROWTH EPS 5-YR AVG 58% LAST 12 MOS 27% SALES 5-YR 33% LAST 12 MOS 20%    PROFITABILITY RETURN ON EQUITY 5-YR AVG 26% LAST 12 MOS 16% DEBT/EQUITY 5 0    2007 ESTIMATES EPS $0.90 PE 40    MARKET DATA RECENT PRICE $36.35 MARKET VALUE 2 $589 mil ENTERPRISE VALUE 3 $532 mil ENTERPRISE MULTIPLE 4 24   INCOME STATEMENT LATEST 12 MOS SALES $223 mil LATEST 12 MOS NET INC $13 mil OPERATING INCOME 6 $22.2 mil POINT THE DIRECTION ANALYSIS: The company without a doubt is moving into a right direction for several reasons. One reason is because the ROE looks solid as it stands as 32. A good ROE ranges between 13% and 15%. The ROE can be used to make comparisons between companies from one and the same industry. The DuPont is a method of performance, in which assets are benchmarked by their gross value rather net book value. In this case, one must look at three elements, which consist of: profit margin, total asset turnover, equity multiplier. The profit margin is 4.20%, which means the company has control over its cost. A 4.20% means that that the company is earning $0.04 for each dollar of sales. Total asset turnover, in this case is used to determine the amount of sales that are made from each dollar of assets. In this case, the asset turnover is 2.4, which is marginally low, and good for Blue Nile. Lastly, equity multiplier is a measure of financial leverage. The equity multiplier is a key element, as it used to determine how the company uses its debt to finance its assets. The 3.1 to ratio is a key reminder of how decent the company is doing. ANALYSIS: From looking at the financial statements, it seems clear that the company is heading in the right direction. Even though operating income expenses have been steadily increasing, the company continues to generate revenue at a very impressive rate. In addition, the return on invested capital is 28.4$, which is pretty decent. The Return on Equity is solid with 31.1% return. Assets continue to be a trademark of the company with a 9.3%. Gross Profit Margin is at an impressive 21.1%. The company has very minimal short-term debt, and does have some long-term debt, around 748. The revenue for this firm was a whopping $332,000, 70% of which that came from engagement rings. The company has a strong beta value, and a firm share price of $55.49. To continue to boost the company’s performance, Irvine and her board of directors sold the stock at a very high price, which resulted in solid stock perferomance. Overall, the company continues to retain its assets in a very positively manner. FUTURE The company’s future continues to shine bright after a conductive research. The organization continues to generate revenue at a very healthy pace and is targeting the market will full force. With its excellent customer service, which impressed its competitors, the organization continues to penetrate the market. In addition, its putting heavy emphasis in customization of jewelry. Furthermore, it beats its competition such as Tiffanys, Zales, Kay by ensuring a reduced volume price on its diamonds. If Blue Nile wants to prosper as a market leader, it must do so by producing high-quality engagement rings. Investors and critics estimate that the company is projected to grown by 30% in next year. What that means for the organization is to keep the liabilities and long-term debt down while generating revenue. Without a doubt, Blue Niles has a bright future ahead, granted it continues to implement its strategy. Works Cited "BLUE NILE INC (NASDAQ:NILE )." FORBES.COM. N.p., n.d. Web. 30 Mar. 2011. . "Blue Nile: All Sparkle, No Substance?." Kiplinger - Personal Finance, Business, Investing, Retirement, and Financial Advice. N.p., n.d. Web. 30 Mar. 2011. Read More