The online retail sector has managed to hold its own relative to brick and mortar peers during the current recession. However, online jewelry retailer Blue Nile (NILE) is one of the names in this space that has not fared so well.
In February, the company announced fourth-quarter results that suggested that consumers were not enamored with buying jewelry online or otherwise. The company stated that profit in the period fell by 53 percent with sales dropping 23%.
More worrisome, NILE did not provide guidance looking forward.
On the day of the news, shares of NILE fell below $20 per share. Before the market swooned in the fall, shares of NILE were trading above $40 per share. No big news there as many companies have lost more than 50% of their value during this bear market.
The big news is that the company was not performing in a space were growth was indeed possible with Amazon (AMZN) finding much of that growth.
Certainly NILE being very narrowly focused plays a part in the weak performance, but so too does the fact that its products tend to be highly discretionary. The consumer is incredibly strained at the moment and spending on jewelry is not a priority.
That is obviously the case for the brick and mortar retailer. Bankruptcies are dotting the landscape, with possibly more to come. Some of the name brands lost include Friedman’s and Shane Company.
No doubt fewer competitors will benefit Blue Nile.
Yesterday, Tiffany (TIF) reported results that encouraged the market. Profits at the luxury retailer fell less than expected. That said, Tiffany expects the remainder of 2009 to be challenging.
What if anything does this portend for NILE?
Some analysts are increasing price targets for the company given that competition is falling by the way side. In addition strength on-line may insulate the company from further difficulties in 2009.
Eventually the economy will recovery and NILE should be one of the retailers left standing. Shares have gained nearly 50% from its bottoms during this recent rally off market lows.
This article was written by Jamie Dlugosch, contributor to InvestorPlace Media. For more actionable insights likes this, visit www.InvestorPlace.com.
