Think Equity Partners Growth Conference September 12, 2006

Transcription

1 Think Equity Partners Growth Conference September 12, 2006

2 Blue Nile, Inc. Safe Harbor Statement Our presentation includes, and our responses to various questions may include, forward-looking statements, including statements regarding expectations of net sales, gross margin, operating results, earnings, operating cash flow, capital investment and other financial statement or balance sheet items, and statements about our future plans and objectives. Generally speaking, statements regarding the Company s or management s beliefs, expectations, targets, goals, plans, outlooks or predictions for the future are forward-looking. Any such statements are subject to a number of risks and uncertainties that could cause the actual results and the implementation of the Company s plan and operations to vary materially from the anticipated results implied by the forward-looking statements. More information about factors that could potentially affect Blue Nile s financial results is included in Blue Nile s filings with the Securities and Exchange Commission, including its annual report on Form 10-K and its quarterly reports on Form 10-Q. 1

3 Our Company

4 Company Overview Founded in 1999 Blue Nile is the Leading Online Retailer of Diamonds and Fine Jewelry Premium Brand in a Growing Market Superior Customer Experience Significant Supply Chain Advantage Highly Scalable Business Model Excellent Profitability with Strong Cash Flow 3

5 Company Snapshot $203.2 million of Net Sales $13.2 million in Net Income 31.7% Y/Y Growth $30.2 million in Free Cash Flow* Repurchased $17.4 million of Common Stock (3.3% of outstanding shares) Cash and Marketable Securities totaled $114.8 million at year end Debt Free *GAAP Operating Cash Flow less Capital Expenditures, See Appendix 4

6 Key Participant in the U.S. Jewelry Market U.S. Jewelry (2004): $57.2 Bn Diamond Jewelry: $31.5 Bn Diamond Engagement: $4.5 Bn Source: U.S. Census Bureau, Diamond Information Center and J. Walter Thompson. 5

7 Key Participant in the U.S. Jewelry Market U.S. Jewelry (2004): $57.2 Bn Diamond Jewelry: $31.5 Bn Diamond Engagement: $4.5 Bn 72% revenue in 2005 Average price $5,600 ~3.2% U.S. market share Estimated > 50% U.S. online market share Source: U.S. Census Bureau, Diamond Information Center and J. Walter Thompson. 6

8 Key Participant in the U.S. Jewelry Market U.S. Jewelry (2004): $57.2 Bn Diamond Jewelry: $31.5 Bn Diamond Engagement: $4.5 Bn 18% revenue in 2005 High growth opportunity capitalizing on engagement position Source: U.S. Census Bureau, Diamond Information Center and J. Walter Thompson. 7

9 Key Participant in the U.S. Jewelry Market U.S. Jewelry (2004): $57.2 Bn Diamond Jewelry: $31.5 Bn Diamond Engagement: $4.5 Bn 10% revenue in 2005 >50% units Helps develop both repeat and trial purchase opportunities Source: U.S. Census Bureau, Diamond Information Center and J. Walter Thompson. 8

10 Customer Experience

11 Blue Nile Delivers a Superior Customer Experience Traditional Retail Jewelry Purchasing Experience Emotional significance Significant cost Price uncertainty Lack of objective comparison Limited selection High pressure sales Limited control of experience 10

12 Blue Nile Delivers a Superior Customer Experience Traditional Retail Jewelry Purchasing Experience Emotional significance Significant cost Price uncertainty Lack of objective comparison Limited selection High pressure sales Limited control of experience The Blue Nile Solution Trust and guidance Superior value Price transparency Detailed information and objective certifications Broad selection and ability to customize Non-commissioned sales Customer controls purchasing experience 11

13 Diamonds are Well Suited for Online Retailing Significant Product Information Broad Selection and Certifiable Dynamic Display Online Diamond Jewelry Retailing Small Size/ Ease of Shipping Speed, Broad Selection Convenience and Dynamic and Flexibility Display 12

14 The Blue Nile Purchase Experience 13

15 Blue Nile Customer Experience Education and Guidance In-depth Web Content Call Center Staffed with Product Experts 14

16 Blue Nile Customer Experience Broad Selection; > 50,000 Independently Certified Diamonds Interactive Tools to Select the Perfect Diamond for Each Customer 15

17 Blue Nile Customer Experience Industry Leading Customization Hundreds of Ring, Earring and Pendant Settings 16

18 Blue Nile Customer Experience Tools to Help Consumers Visualize Final Customized Product Customized Product Delivered to Consumers Four Business Days After Order is Placed 17

19 Elegant Product Presentation 18

20 Becoming the Jeweler for Life 19

21 ... Increasing Consumer Trust and Confidence and Reinforcing Our Premium Brand Net Sales $250 Forbes Favorite Online Jeweler ( ) $200 $169 $203 Bizrate.com's Circle of Excellence Platinum Award ( ) American Business Awards Best Overall Company Category Finalist $MM $150 $100 $50 $14 $44 $49 $72 $129 $

22 Our Business

23 Significant Supply Chain Advantage Exclusive, long-term supply relationships Supplier competition creates favorable pricing dynamic Enhanced value to suppliers Real-time market intelligence Sophisticated inventory management system Efficiency of high volume through a single account Increased inventory turns 22

24 Blue Nile s s Working Capital Advantage Fast Inventory Turnover Receive diamond from supplier Ship item to customer Customer receives product DAY 1 DAY 2 DAY 3-4 DAY 4-5 DAY Customer purchase Payment received Pay supplier ~40-55 Day Positive Cash Float 23

25 Business Model Highlights Unique Supply Chain Solution Eliminates layers Exclusive relationships Working Capital Advantage Broadest selection with minimal inventory Suppliers finance growth The Online Advantage Asset efficiency increased ROA, ROIC, sales/employee Capital efficiency low capex, low customer acquisition costs Superior Cash Flow Generation 24

26 Financial Review

27 Demonstrated Financial Performance Rapid sales and earnings growth Significant operating leverage Strong cash flows from operations Self-funding business model with minimal capex requirements Debt-free balance sheet 26

28 Revenue and Profit Trend $250 TTM Net Revenue Net Sales $25 TTM EBITDA EBITDA $200 $20 $15 $150 $10 $100 $5 $50 $0 $0 ($5)

29 Superior Net Sales and Gross Profit Growth ($ in Millions) Net Sales $250 $ CAGR: +35.8% CAGR: +45.1% $169 $203 Gross Profit $70 $60 $50 $45 $150 $129 $38 $40 $100 $29 $30 $50 $44 $7 $49 $11 $72 $18 $20 $10 $ Net Sales Gross Profit $0 28

30 Significant Operating Leverage ($ in Millions) Net Sales/ Operating Income SG&A % $ % $ % $169 $ % $150 $129 $100 $ % 20.0% $50 $ % 13.5% 13.3% $0 ($4) $4 $11 $15 $ % ($50) (a) Excludes restructuring charges. Net Sales Operating Income (a) SG&A % 0.0% 29

31 Superior Free Cash Flow Generation $40.0 Free Cash Flow * FY 2005 ($mm) $35.0 $10.5 $0.7 $30.0 $12.4 ($1.9) $1.7 ($1.1) $2.5 ($1.9) $30.2 $25.0 $20.0 $18.0 $0.3 $15.0 $10.0 $5.0 $ GAAP Operating Income Stock-based Compensation Change in Accounts Payable Change in Inventories Depreciation & Amortization CapEx Interest Income & Other Change in Other Assets & Liabilities 2005 FCF *GAAP Operating Cash Flow less Capital Expenditures, See Appendix 30

32 Strong Balance Sheet ($ in thousands) Cash, Cash Equivalents and Marketable Securities Inventory Fixed Assets Deferred Tax Assets Other Assets Total Assets $ $ July 2, ,370 11,211 3,876 3,056 1,687 76,200 Accounts Payable Other Current Liabilities Deferred Rent, Less Current Portion Convertible Preferred Stock Total Liabilities $ 27,682 3, ,978 Total Stockholders' Equity 44,222 Total Liabilities and Stockholders' Equity $ 76,200 31

33 Q2 Financial Highlights Q2 Net Sales of $56.9 Million, up 29.9% from Prior Year Achieved Q2 Earnings Per Diluted Share of $0.18 Trailing Twelve Months Non-GAAP Free Cash Flow of $29.2 Million Increased 47.0% Year Over Year Q2 Share Repurchases of $40.3 Million, or 7.3% of Outstanding Shares 32

34 Key Take-Aways Criterion PROVEN SCALABLE DEFENSIBLE Scorecard $203 mm in 2005 net sales Profitable with significant operating leverage Blue Nile model inherently scalable Minimal capital investment required for growth Premium brand difficult to replicate Exclusive arrangement with suppliers EXTENDIBLE Geographically (U.S. and international) Products (complementary and new categories) The Winning Business Model 33

35 Appendix A reconciliation of differences of non-gaap free cash flow from the comparable GAAP measure of net cash provided by operating activities is as follows (in thousands): Year ended January 1, 2006 Net cash provided by operating activities Purchases of fixed assets, including internal-use software and website development Non-GAAP free cash flow $ 31,272 (1,072) $ 30,200 34

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