Blue Nile ( ) is scheduled to report their second quarter 2009 results after the market closes on Thursday, August 6. Based on our analysis, we at EarningsPreviews.com are expecting NILE to report disappointing results that fail to meet Wall Street’s consensus expectations.

Analyst Expectations

We are forecasting revenues of $68.2 million and EPS of $.18. This would represent an 8% decline in revenues from last year’s $73.7 million in the same period. The current analyst consensus estimates calls for revenues of $67.9 million and EPS of $.19.

Wall Street’s expectations for Blue Nile went up considerably after last quarter’s better than expected earnings results. However, our checks show that while traffic is up slightly from last quarter, it continues to show weak y/y comparisons. Furthermore, consumer spending is likely to remain anemic through the next few months.

Although the US economy is beginning to show signs of recovery, we feel that Blue Nile’s all-important fourth quarter results remain at risk. Wall Street is expecting fourth quarter earnings to grow 33% y/y which is likely a bullish scenario even given the favorable comps.

Share Performance

Since the beginning of the year, Blue Nile’s shares have gained an amazing 89%. In 2008, NILE’s shares fell 64%, and underperformed even the 34% decline in the Dow Jones industrial average.

Valuation

Shares are now trading at 47x consensus 2010 EPS estimates. This is a premium to the relative valuations of their peer group. While Blue Nile has historically traded at premium valuation level, it is hard to justify paying nearly 50 times next year’s earnings to own this stock.

Recommendation: Sell with a $32 price target.