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The company said it expects a "very challenging" holiday season that falls in the fiscal fourth quarter, historically its largest for generating revenue.
"The extensive weakening of the U.S. economy and tight credit conditions faced by consumers hampered our growth," said Chief Executive Diane Irvine, speaking on an analyst conference call. "The credit freeze has impacted purchases of high-ticket items, as traditional avenues of financing have now closed."
Blue Nile also faced a 20 percent jump in the cost of diamonds during the third quarter, the highest year-over-year increase in its history.
Seattle-based Blue Nile said net profit fell to $2.3 million, or 15 cents per share, in the third quarter ended Sept. 28, from $3.0 million, or 18 cents per share, a year ago.
On that basis, the results were a penny below the 16 cents per share expected by analysts, on average, according to Reuters Estimates.
Total sales dropped 3 percent to $65.4 million, although international sales rose 53 percent. Wall Street expected revenues of $68.5 million, on average.
Sales in October fell 20 percent, and international sales also began to slow.
"Looking ahead, the economic climate remains extremely difficult," Irvine said. "We are approaching the upcoming holiday season very cautiously. We will be sharp on price, on value, and will use this as an opportunity to enhance our competitive position."
OUTLOOK WITHDRAWN
Blue Nile said in August it would be prudent to temper its full-year expectations, given tight consumer spending and rising prices for diamonds and metals used in jewelry.
At that time, the company stood by its net earnings outlook for the full year, which it said would be similar to 2007, when it posted profit of $1.04 per share.
But it lowered its 2008 sales outlook, saying it expects sales to rise in the mid-single digits in percentage terms, down from its earlier expectation for 10 percent growth.
On Tuesday, the company said it would not provide an outlook for the fourth quarter and fiscal year.
"The deterioration in the economic climate and the uncertainty surrounding consumer spending patterns combine to create a lack of visibility into expectations for the upcoming holiday season," it said in a statement.
On the positive side, Blue Nile executives saw signs that diamond prices were declining due to weak demand.
"If we see diamond prices fall, that will be hugely beneficial to our business because we're passing that on to our consumers on a real-time basis," said Irvine.
Besides selling jewelry online in the United States and Canada, Blue Nile also ships its products to nearly 30 countries, including Hungary, Spain and New Zealand.
The company's shares fell 8 percent in extended trading to $25.97 after closing at $28.25, down 1.7 percent, on Nasdaq.
(Additional reporting by Aarthi Sivaraman; editing by Jeffrey Benkoe) Keywords: BLUENILE/ (alexandria.sage@thomsonreuters.com, +1-415-677-3923; Reuters Messaging: alexandria.sage.reuters.com@reuters.net)
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