Blue Nile (NILE), an online retailer of diamonds and fine jewelry, reports its June quarter results tomorrow after close (Tuesday, August 5th). AmTech's estimates are now roughly in-line with the Street, which have been revised materially lower over the course of the quarter. However, the firm anticipates a weak guidance and therefore continues to recommend a SHORT position in NILE:

Checks during the quarter, cautious comments from other mid- to high-end jewelry retailers and lackluster traffic data (down 16% Y/Y) all suggest little reason to expect upside in the P&L this quarter.

Management's existing 2008 guidance is for top-line growth of at least 10% and EPS that is in-line with 2007 levels ($1.04). The problem here is that with only 4% top-line growth in 1Q08 and a projected 4% in 2Q08, as well as 1H08 EPS that is tracking to levels 20% below 1H07, this guidance implies expectations for a significant recovery in consumer demand during the back half of the year. We believe such an improvement - at least in higher price point luxury items - is highly unlikely. We continue to recommend a short position in NILE shares. We believe NILE shares remain grossly overvalued at a 2008 P/E of 38x and 0% EPS growth at best this year.

Consumers gobbling up diamonds does seem like a dubious proposition right now.

AmTech reiterates SELL on Blue Nile (NILE).