NEW YORK (AP) — Blue Nile Inc. shares leaped Friday after the online diamond and jewelry retailer forecast 2012 earnings that exceeded analysts' projections.
THE SPARK: Blue Nile reported Thursday a drop of nearly 43 percent in second-quarter net income from a year earlier. But revenue rose 13 percent to $91 million, as Blue Nile's sales of engagement rings continued to grow.
And for the full year, the company reaffirmed its forecast, first issued in February, for earnings of 70 cents to 85 cents a share and revenue of $384 million to $417 million.
Analysts, on average, were expecting annual earnings per share of 67 cents, and had an estimate range from 46 cents to 80 cents. Wall Street was projecting revenue of $391.4 million, on average, with estimates ranging from $369.4 million to $402 million.
THE BIG PICTURE: A global decline in diamond prices has helped drive consumer demand for engagement rings. Blue Nile benefitted from that trend in the second quarter with reduced prices for its engagement products, analysts at several firms noted Friday.
For sales of jewelry other than for engagements, Blue Nile "needs to generate stronger sustainable growth," Janney Capital Markets analyst Shawn Milne said in a research note.
THE ANALYSIS: Blue Nile also said it expects to earn 10 cents to 14 cents per share in the third quarter on revenue between $87 million and $91 million. Analysts, on average, were expecting earnings of 17 cents per share and revenue of $85.1 million.
Milne said the company's third-quarter forecasts reflect both stronger growth in sales and continued pressure on profit margins.
For the full year, he raised slightly their estimates for earnings to 72 cents per share and for revenue to $400 million, and said he has more confidence in their targets, based on growth in sales of engagement products. Milne kept a "Neutral" rating on the shares.
Analyst Herman Leung at Susquehanna Financial Group also maintained a "Neutral" rating on Blue Nile shares, and kept a 52-week target price of $29, based on Leung's projected 2013 earnings of $1.18 per share. The shares have traded between $22.94 and $50 in the past 52 weeks.
Swings in global diamond prices have made the company's futures sales growth and profit margins more difficult to predict, Leung wrote.
Benchmark analyst Daniel Kurnos raised his estimate for 2012 revenue to $408 million from $397 million. He said he's giving Blue Nile's management "the benefit of the doubt for now that continued accelerating sales growth is achievable" as the company expands sales of jewelry other than for engagements and further increases engagement sales. Benchmark's target price is $33, and he has a "Hold" rating on the stock.
SHARE ACTION: Blue Nile shares jumped $8.25, or 34.7 percent, to end Friday trading at $32. They traded as high as $35.74 during the session.