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Analyst says Blue Nile may face some challenges

NEW YORK (AP) -- A Janney Capital Markets analyst sees potential challenges ahead for online jewelry company Blue Nile, with shoppers possibly holding off on purchases they might make in a better economy, except for essentials like engagements.

The company topped Wall Street expectations for the first quarter with revenue of $97.1 million and earnings of 7 cents per share were in line.

Janney's Shawn Milne pointed out that revenue from engagement purchases rose in the first quarter, but that Blue Nile fell short of his expectations for non-engagement type jewelry.

Milne believes tough economic conditions and an overly aggressive push of fashion merchandise are to blame.

Blue Nile also provided a full-year earnings forecast of 75 to 85 cents per share on revenue of $440 million to $470 million.

Analysts polled by FactSet predict earnings of 82 cents per share on revenue of $454.8 million.

Milne said that in 2012, Blue Nile Inc. cut prices and increased its marketing spending to drive nonengagement sales and market shares gains in the engagement category. He anticipates that the company will continue to spend on marketing this year and could see double-digit growth in engagement and non-engagement sales.

Blue Nile remains confident in its business.

"Our engagement business continues to be strong, and while we're still evolving our non-engagement business, it's performing at our expectations," the company said in a statement, pointing out that its solid growth in the first quarter was driven by wedding bands and diamond jewelry.

Blue Nile said that it was pleased with its quarterly performance, which included the fourth consecutive quarter of double-digit growth.

Janney maintained the company's "Neutral" rating, but trimmed its price target slightly to $32 from $33.

Shares gained 34 cents to $33.07 in afternoon trading on Friday.