Blue Nile sees $1 bln sales in 6-7 years

By Aarthi Sivaraman

NEW YORK (Reuters) - Online jewelry retailer Blue Nile (NILE.O: Quote, Profile, Research, Stock Buzz) expects to reach $1 billion in annual sales in the next six to seven years, Chief Executive Mark Vadon said on Monday at the Reuters Consumer and Retail Summit in New York.

Vadon expects 50 percent of sales to come from engagement rings and 50 percent from non-engagement jewelry in the same time frame. The U.S. company's sales currently consist of about 70 percent engagement rings, he said.

Blue Nile, which already sells jewelry through its Web sites in the United Kingdom and Canada, will take its business to Japan -- but not just yet, Vadon said.

"(Japan) is a market that loves diamonds," Vadon said. "(While) Japan is a good market, it is probably the hardest market to execute. We'd like to get a little more experience internationally before we get there."

Unlike other retailers chasing customers in hot emerging markets such as India and China, Blue Nile was not as excited about the two countries because it would be tough to match margins offered by the local competition, Vadon said.

STRONG LUXURY MARKET

The Seattle-based company, whose revenue comes mainly from selling engagement rings, is benefiting from a strong U.S. luxury market, joining retailers such as Saks Inc. (SKS.N: Quote, Profile, Research, Stock Buzz) and Nordstrom Inc. (JWN.N: Quote, Profile, Research, Stock Buzz), who reported strong same-store sales in May.

For Blue Nile, sales of jewelry priced over $25,000 rose 84 percent compared with a year ago. With seven transactions above the $100,000 mark each in the fiscal first quarter, "our high end is just exploding," Vadon said, brushing off concerns that the luxury market may be leveling off.

Sales were strongest in college towns and cities such as San Francisco, Boston, Denver and Seattle, where customers generally hold college degrees and use the Internet to buy products other than jewelry, Vadon said.

The company surprised Wall Street in the first quarter, earning $3.2 million, or 19 cents a share -- 4 cents above expectations. It also projected full-year earnings of 86 cents to 91 cents per share -- which Vadon said he was not revising currently.

Despite its growing success, the company will focus on building its brand online and not turn to brick-and-mortar stores.

"The economics are not compelling, and it's also not what we are good at," Vadon said.

He said while Amazon.com Inc. (AMZN.O: Quote, Profile, Research, Stock Buzz) was a good way of drawing attention to the concept of online jewelry sales, he would rather promote his brand independently than strike up a partnership with Amazon.

That would not bode well for the brand image, Vadon said.

"Tiffany would probably be very uncomfortable putting their products in Wal-Mart," he said, drawing a comparison.  Continued...