The company’s next retail store will open in White Plains, N.Y., this summer

Blue Nile experienced “disappointing” sales in its fourth quarter, with revenue falling due to declining diamond prices.

For the fourth quarter (ended Jan. 3), the Seattle-based e-tailer’s sales decreased 4.8 percent to $150 million. Yet, in a turnabout from its standard pattern, profits grew: Net income equaled $5 million, up 4.2 percent from the prior year.

U.S. engagement revenue also tumbled 7.7 percent to $78.4 million, compared to $85 million the prior year. Nonengagement sales were flat.

The revenue drop was mostly due to the decline in diamond prices, said CEO Harvey Kanter on a conference call following the release of its financial results.

“We had a record number of engagement unit sales…representing the best growth since 2012,” Kanter said. “But the average price-per-carat was so much lower, that even record engagement unit sales were not enough to drive increased revenue.”

This summer, the company will open its second webroom at the Westchester Mall in White Plains, N.Y. It plans to open three or four webrooms this year.

Without specifying where the other webrooms will be located, Kanter said that one of them will create a nexus—meaning that after it opens, Blue Nile will charge sales tax in that state. (The first two are located in New York, where, along with Washington, the company currently collects sales tax.)

Kanter said the company is going full-speed ahead with the webrooms, after tallying results from the first store, which opened last summer in the Roosevelt Field Mall in Garden City, N.Y.

“We feel really great about [the first webroom],” Kanter said. “It is building awareness for the brand [and] is lifting the New York market.… We are seeing a much broader mix of customers, and in Roosevelt Field, specifically, a lot of customers didn’t know who we were.”

Kanter said the company is still deciding how many webrooms it will open but feels the number could be between “25 and 50.”

He also praised the webroom experience, which he said is “really resonating with consumers” and “reinventing retail.”

“The interaction we have is very consultative and collaborative,” he said. “The interaction we have is one of education, counsel, and guidance, which is very much atypical of most traditional jewelry stores.… [In the new markets] we are trying to take that innovative experience and actually put it on steroids [to] make it even more demonstrative of the divide between a traditional jewelry store and what Blue Nile has brought to market.”

If the other stores follow the model of the first webroom, “we expect them to expand growth first of all and add to profitability months after,” said chief financial officer David Binder.

“We are very efficient in how we’ve designed these stores,” Binder said. “[It is a] small footprint, it is high technology, but it is not intense on capital and not intense on inventory.”

Other highlights of the company’s results:

– Fourth quarter marketing disappointed, Kanter admitted.

“We invested [in marketing] at the highest relative level in our history for any fourth quarter,” he said. “While we did not leverage as we had hoped, we know that these investments will build awareness and create heightened levels of familiarity and trust.”

– The company also coped with continued weakness in high-end sales.

“We don’t like to blame things on the macro…but it does feel like we are in a macro cycle where the really high-end purchasers are not actively buying in the category,” Binder said. “We see our [high-end] inventory and pricing is as strong as it’s ever been.”  

– International sales decreased 3.2 percent in the fourth quarter. “The strength of the U.S. dollar continues to be an international headwind,” said Kanter.  

– Its designer offerings showed a “meaningful” increase in sales, particularly in the engagement category, Kanter said.

– More than 40 percent of the company’s engagement ring buyers now buy wedding rings from the company, Binder estimated. “We continue to see a higher percentage of our engagement ring customers come back and buy wedding rings from us,” he added. “We would like to see it get closer to the 80 percent that some say is more typical in the category.”

– For the full year, sales totaled $480.1 million, compared to $473.5 million the prior year, a 1.4 percent increase. Net income for the year was $10.5 million. Gross profit for the fiscal year represented 19.2 percent of sales, compared to 18.3 percent for fiscal year 2014.

– The company will pay its first-ever dividend this year, equal to $0.70 per share.  

– For the next fiscal year, the company believes sales will fall somewhere between $465 million and $495 million.

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