Blue Nile executives said rising diamond prices are giving its customers sticker shock, and they complained that ongoing price volatility is hurting their business.

“The rough miners are demanding more and more for their product, and the polishers are then passing those prices on to retailers and listing higher prices on the site, and the customers are just saying no,” explained chief financial officer David Binder on a May 1 conference call following the release of its financial results. “It will be interesting to see how [that] plays out.” 

He added that “as prices become more volatile, that can impact our ability to grow.”

“In certain elements of our product sets, smaller-price stones are up in the significant double-digit ranges over last year,” he said.

Rising diamond prices have been blamed for sales decreases at the Seattle-based e-tailer in the past.

Also on the call, CEO Harvey Kanter sounded mixed on the formerly online-only retailer’s ongoing clicks-and-bricks experiment, which involved setting up showcases in Nordstrom Wedding Suites in Seattle and Garden City, N.Y.

“It’s a test,” he said. “We are trying to learn more than anything.… We are encouraged by the results. We definitely seem to be getting more traction. We are looking at an extended test before we move forward.”

He added that the test “is a low-price investment…and we don’t have great expectations we will roll it out in a comprehensive way until we understand the metrics.” 

In a presentation in March at the Executives in Fashion series in Seattle, Kanter said that the test aims to determine if letting consumers see and touch jewelry up close can increase conversion rates. 

“The penetration for online jewelry is less than 10 percent,” he said, according to Geekwire. “And the reason is that somewhere around 70 percent of consumers say, ‘I can’t see it, touch it, feel it.’ ”

The executives’ comments came as the company announced generally favorable financial results, with both sales and profits notching strong gains. The e-tailer’s core engagement ring business increased 8 percent in the United States. Its non-engagement category, a growing focus for the company, increased 7.6 percent, with wedding bands and diamond jewelry singled out as best sellers. Pearls, gems, and rose gold were also “important categories,” Kanter said.

It also recently launched a curated designer collective and is “pleased with the initial results,” Kanter says. “The customer is definitely responding to certain elements.” 

He added that its first Monique Lhuillier non-bridal line has performed “better than expected.”

On the downside, CFO David Binder admitted that Valentine’s Day was “okay” and “not as strong as we had hoped.” 

Blue Nile also unveiled a new goal: “To be the worldwide leading retailer of bridal and fine jewelry,” which will involve seeking an increased international footprint, particularly in China, which Kanter said has a potential to be an even bigger market for it than the United States. 

However, overall international sales for the quarter rose only 1.1 percent, a disappointing number that was affected by weakening currencies in Canada and Australia, Binder said.   

Kanter also announced the company had tapped John Sainsbury, former vice president and head of strategy, to head the company’s international division, replacing Vijay Talwar.

Among the highlights of the company’s financial results for the first quarter (ended March 30):

• Net sales: Up 6.8 percent, to $103.7 million 
• Net income: Up 29.6 percent, to $1.1 million
• U.S. engagement net sales: Up 8 percent, to $59.7 million
• U.S. non-engagement net sales: Up 7.6 percent, to $26.1 million 
• International net sales: Up 1.9 percent, to $17.9 million
• Gross profit: Up 18.4 percent, to $19.1 million

The company expects to do between $485 million and $510 million in sales for fiscal year 2014. Still, if the company wants to be the worldwide jewelry leader it has a ways to go—competitors Signet and Chow Tai Fook regularly rack up annual sales in the billions. 

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