##### Table of Contents





UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
  FORM 10-K
  þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 30, 2007ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   Commission file number
    000-50763
  Blue Nile, Inc.
 (Exact name of registrant as
    specified in its charter)
  Delaware

91-1963165(State or other jurisdiction
    of
    incorporation or organization)

(I.R.S. Employer
    Identification No.)   705 Fifth
    Avenue South, Suite 900
    Seattle, Washington 98104(206) 336-6700 (Address
    and telephone number, including area code, of principal
    executive offices)
    Title of Each Class

Name of Each Exchange on Which RegisteredCommon Stock, $.001 Par Value

The NASDAQ Stock Market LLC   None
  þ o
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. þ
    Large accelerated
    filer þ

Accelerated
    filer oNon-accelerated
    filer o

Smaller reporting
    company o(do not check if a smaller reporting company)   Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE
  Form 10-K.




---



##### 





BLUE
    NILE, INC.
  ANNUAL
    REPORT ON
    FORM 10-K
    FOR THE FISCAL YEAR ENDED DECEMBER 30, 2007
   
 PagePART IItem 1.


Business


3Item 1A.


Risk Factors


7Item 1B.


Unresolved Staff Comments


19Item 2.


Properties


19Item 3.


Legal Proceedings


20Item 4.


Submission of Matters to a Vote of Security
    Holders


20PART IIItem 5.


Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities


20Item 6.


Selected Consolidated Financial Data


22Item 7.


Managements Discussion and Analysis of
    Financial Condition and Results of Operations


24Item 7A.


Quantitative and Qualitative Disclosures About
    Market Risk


31Item 8.


Financial Statements and Supplementary Data


32Item 9.


Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


56Item 9A.


Controls and Procedures


56Item 9B.


Other Information


58PART IIIItem 10.


Directors, Executive Officers and Corporate
    Governance


58Item 11.


Executive Compensation


58Item 12.


Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


58Item 13.


Certain Relationships and Related Transactions,
    and Director Independence


58Item 14.


Principal Accountant Fees and Services


58PART IVItem 15.


Exhibits and Financial Statement Schedules


59SIGNATURES


60EXHIBIT INDEX


62EXHIBIT 21.1EXHIBIT 23.1EXHIBIT 23.2EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2   2




---



##### Table of Contents



PART I  Item 1.
    Business  This Annual Report on
    Form 10-K
    contains forward-looking statements that involve many risks and
    uncertainties. These statements relate to future events and our
    future performance, which are based on current expectations,
    estimates, forecasts and projections about the industries in
    which we operate and the beliefs and assumptions of our
    management as of the date of this filing. In some cases, you can
    identify forward-looking statements by terms such as
    would, could, may,
    will, should, expect,
    intend, plan, anticipate,
    believe, estimate, predict,
    potential, targets, seek, or
    continue, the negative of these terms or other
    variations of such terms. In addition, any statements that refer
    to projections of our future financial performance, our
    anticipated growth and trends in our business and other
    characterizations of future events or circumstances, are
    forward-looking statements. These statements are only
    predictions based upon assumptions made that are believed to be
    reasonable at the time, and are subject to risk and
    uncertainties. Therefore, actual events or results may differ
    materially and adversely from those expressed in any
    forward-looking statement. In evaluating these statements, you
    should specifically consider the risks described under the
    caption Item 1A Risk Factors and elsewhere in
    this
    Form 10-K.
    These factors, and other factors, may cause our actual results
    to differ materially from any forward-looking statements. Except
    as required by law, we undertake no obligation to publicly
    update or revise any forward-looking statements, whether as a
    result of new information, future events or otherwise.
  Overview
      mark-ups
   3




---



##### Table of Contents



Growth
    Strategies
    Focus
    on the Customer Experience
    Increase
    Blue Nile Brand Awareness
    Expand
    into International Markets
    Increase
    Supply Chain Efficiencies
    Improve
    Operational Efficiencies
    Expand
    Product Offerings
    Blue
    Niles Product Offerings and Supplier
    Relationships
   4




---



##### Table of Contents



Marketing
    Customer
    Service and Support
    Fulfillment
    Operations
    Technology
    and Systems
   5




---



##### Table of Contents



Seasonality
    Competition
    
    independent jewelry stores;
    retail jewelry store chains;
    other online retailers that sell jewelry;
    department stores, chain stores and mass retailers;
    online auction sites;
    catalog and television shopping retailers; and
    discount superstores and wholesale clubs.      Intellectual
    Property
   6




---



##### Table of Contents



Employees
    Available
    Information
  Form 10-K, Form 10-Q, Form 8-K 1-800-SEC-0330. Regulation S-K Form 8-K.
  Item 1A.
    Risk
    Factors    Our
    limited operating history makes it difficult for us to
    accurately forecast net sales and appropriately plan our
    expenses.
    We
    expect our quarterly financial results to fluctuate, which may
    lead to volatility in our stock price.
    
    demand for our products;
    the costs to acquire diamonds and precious metals;
    our ability to attract visitors to our websites and convert
    those visitors into customers; 7




---



##### Table of Contents




    general economic conditions, both domestically and
    internationally;
    our ability to retain existing customers or encourage repeat
    purchases;
    our ability to manage our product mix and inventory;
    wholesale diamond prices;
    consumer tastes and preferences for diamonds and fine jewelry;
    our ability to manage our operations;
    the extent to which we provide for and pay taxes;
    stock-based compensation expense as a result of the nature,
    timing and amount of stock options granted, the underlying
    assumptions used in valuing these options, the estimated rate of
    stock option forfeitures and other factors;
    advertising and other marketing costs;
    our, or our competitors, pricing and marketing strategies;
    the introduction of competitive websites, products, price
    decreases or improvements;
    conditions or trends in the diamond and fine jewelry industry;
    conditions or trends in the Internet and
    e-commerce
    industry;
    the success of our geographic, service and product line
    expansions;
    foreign exchange rates;
    interest rates; and
    costs of expanding or enhancing our technology or websites.    Our
    revenues are influenced by general economic
    cycles.
    As a
    result of seasonal fluctuations in our net sales, our quarterly
    results may fluctuate and could be below
    expectations.
   8




---



##### Table of Contents



Our
    failure to acquire quality diamonds and fine jewelry at
    commercially reasonable prices would result in higher costs and
    lower net sales and damage our competitive
    position.
      Our
    failure to meet customer expectations with respect to price
    would adversely affect our business and results of
    operations.
    We may
    not succeed in continuing to establish the Blue Nile brand,
    which would prevent us from acquiring customers and increasing
    our net sales.
     9




---



##### Table of Contents



In
    order to increase net sales and to sustain or increase
    profitability, we must attract customers in a cost-effective
    manner.
  e-commerce
  We
    face significant competition and may be unsuccessful in
    competing against current and future competitors.
    
    independent jewelry stores;
    retail jewelry store chains, such as Tiffany & Co. and
    Bailey Banks & Biddle;
    other online retailers that sell jewelry, such as Amazon.com;
    department stores, chain stores and mass retailers, such as
    Nordstrom and Neiman Marcus;
    online auction sites, such as eBay;
    catalog and television shopping retailers, such as Home Shopping
    Network and QVC; and
    discount superstores and wholesale clubs, such as Wal-Mart and
    Costco Wholesale.       10




---



##### Table of Contents



We may
    be unsuccessful in further expanding our operations
    internationally.
      
    the need to develop new supplier and jeweler relationships;
    international regulatory requirements and tariffs;
    difficulties in staffing and managing foreign operations;
    longer payment cycles from credit card companies;
    greater difficulty in accounts receivable collection;
    our reliance on third-party carriers for product shipments to
    our customers;
    risk of theft of our products during shipment;
    limited shipping and insurance options for us and our customers;
    potential adverse tax consequences;
    foreign currency exchange risk;
    lack of infrastructure to adequately conduct electronic commerce
    transactions or fulfillment operations;
    unclear foreign intellectual property protection laws;
    laws and regulations related to corporate governance and
    employee/employer relationships; price controls or other
    restrictions on foreign currency;
    difficulties in obtaining export, import or other business
    licensing requirements;
    increased payment risk and greater difficulty addressing credit
    card fraud;
    consumer and data protection laws;
    lower levels of adoption or use of the Internet; and
    geopolitical events, including war and terrorism. 11




---



##### Table of Contents



We
    rely on our suppliers, third-party carriers and third-party
    jewelers as part of our fulfillment process, and these third
    parties may fail to adequately serve our
    customers.
    If our
    fulfillment operations are interrupted for any significant
    period of time, our business and results of operations would be
    substantially harmed.
    We
    face the risk of theft of our products from inventory or during
    shipment.
    If the
    single facility where substantially all of our computer and
    communications hardware is located fails, our business, results
    of operations and financial condition would be
    harmed.
   12




---



##### Table of Contents



Our
    failure to protect confidential information of our customers and
    our network against security breaches could damage our
    reputation and brand and substantially harm our business and
    results of operations.
    We
    rely exclusively on the sale of diamonds and fine jewelry for
    our net sales, and demand for these products could
    decline.
           13




---



##### Table of Contents



Our
    failure to effectively manage the growth in our operations may
    prevent us from successfully expanding our
    business.
    
    transaction-processing and fulfillment;
    inventory management;
    customer support;
    management of multiple supplier relationships;
    operational, financial and managerial controls;
    reporting procedures;
    management of our facilities;
    recruitment, training, supervision, retention and management of
    our employees; and
    technology operations.    The
    success of our business may depend on our ability to
    successfully expand our product offerings.
    If we
    are unable to accurately manage our inventory of fine jewelry,
    our reputation and results of operations could
    suffer.
    Repurchases
    of our common stock may not prove to be the best use of our cash
    resources.
  24-month 24-month
 14




---



##### Table of Contents



We
    have foreign exchange risk.
    We
    rely on the services of our key personnel, any of whom would be
    difficult to replace.
    We
    have incurred significant operating losses in the past and may
    not be able to sustain profitability in the
    future.
    Failure
    to adequately protect or enforce our intellectual property
    rights could substantially harm our business and results of
    operations.
       15




---



##### Table of Contents



Assertions
    by third parties of infringement by us of their intellectual
    property rights could result in significant costs and
    substantially harm our business and results of
    operations.
    Increased
    product returns and the failure to accurately predict product
    returns could substantially harm our business and results of
    operations.
  30-day
  Interruptions
    to our systems that impair customer access to our websites would
    damage our reputation and brand and substantially harm our
    business and results of operations.
    Purchasers
    of diamonds and fine jewelry may not choose to shop online,
    which would prevent us from increasing net sales.
    
    concerns about buying luxury products such as diamonds and fine
    jewelry without a physical storefront, face-to-face interaction
    with sales personnel and the ability to physically handle and
    examine products;
    delivery time associated with Internet orders;
    product offerings that do not reflect consumer tastes and
    preferences;
    pricing that does not meet consumer expectations;
    concerns about the security of online transactions and the
    privacy of personal information;
    delayed shipments or shipments of incorrect or damaged products; 16




---



##### Table of Contents




    inconvenience associated with returning or exchanging Internet
    purchased items; and
    usability, functions and features of our websites.  If use
    of the Internet, particularly with respect to online commerce,
    does not continue to increase as rapidly as we anticipate, our
    business will be harmed.
      
    actual or perceived lack of security of information or privacy
    protection;
    possible disruptions, computer viruses, spyware, phishing,
    attacks or other damage to the Internet servers, service
    providers, network carriers and Internet companies or to
    users computers; and
    excessive governmental regulation.    Our
    failure to address risks associated with payment methods, credit
    card fraud and other consumer fraud could damage our reputation
    and brand and may cause our business and results of operations
    to suffer.
    We
    rely on our relationship with a third-party consumer credit
    company to offer financing for the purchase of our
    products.
    We may
    undertake acquisitions to expand our business, which may pose
    risks to our business and dilute the ownership of our existing
    stockholders.
   17




---



##### Table of Contents



Our
    failure to rapidly respond to technological change could result
    in our services or systems becoming obsolete and substantially
    harm our business and results of operations.
    Our
    net sales may be negatively affected if we are required to
    charge taxes on purchases.
      We may
    have exposure to greater than anticipated tax
    liabilities.
   18




---



##### Table of Contents



Government
    regulation of the Internet and
    e-commerce
    is evolving and unfavorable changes could substantially harm our
    business and results of operations.
      We may
    need to implement additional finance and accounting systems,
    procedures and controls as we grow our business and organization
    and to satisfy new reporting requirements.
    Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties   19




---



##### Table of Contents



Item 3.
    Legal
    Proceedings    Item 4.
    Submission
    of Matters to a Vote of Security Holders   PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities  Market
    Information and Dividend Policy
      High


LowFiscal year 2007:First Quarter

$
42.45


$
36.54Second Quarter

$
62.30


$
40.53Third Quarter

$
106.16


$
60.69Fourth Quarter

$
103.69


$
64.20Fiscal year 2006:First Quarter

$
41.62


$
29.21Second Quarter

$
37.65


$
28.06Third Quarter

$
37.86


$
24.10Fourth Quarter

$
39.99


$
33.05    20




---



##### Table of Contents



Performance
    Measurement Comparison(1)
    COMPARISON
    OF CUMULATIVE TOTAL RETURN(2)
  
     (1)
    
    This Section is not soliciting material, is not
    deemed filed with the SEC and is not to be
    incorporated by reference in any filing of the Company under the
    1933 Act or the 1934 Act whether made before or after
    the date hereof and irrespective of any general incorporation
    language in any such filing.(2)
    
    Assumes $100 was invested on May 20, 2004, at the closing
    price on the date of Blue Niles initial public offering,
    in Blue Niles common stock and each index, and all
    dividends have been reinvested. No cash dividends have been
    declared on Blue Niles common stock. Stockholder returns
    over the indicated period should not be considered indicative of
    future stockholder returns.  Issuer
    Purchases of Equity Securities
  24-month 24-month
 21




---



##### Table of Contents



Rule 10b5-1
  Total Number of


Approximate DollarShares Purchased as


Value of SharesTotal Number


Average


Part of Publicly


that May Yet Beof Shares


Price Paid


Announced Plans or


Purchased Under thePurchased


per Share


Programs


Plans or Programs(In thousands)October 1, 2007 through
    October 28, 2007





$







$
79,660October 29, 2007 through
    November 25, 2007





$







$
79,660November 26, 2007 through
    December 30, 2007


94,100


$
68.69



94,100


$
73,196   24-month
  Item 6.
    Selected
    Consolidated Financial Data    Form 10-K.
 22




---



##### Table of Contents



BLUE
    NILE, INC.
  SELECTED CONSOLIDATED FINANCIAL DATA
  Year Ended


Year Ended


Year Ended


Year Ended


Year EndedDecember 30,


December 31,


January 1,


January 2,


December 31,2007


2006


2006


2005


2003(In thousands, except per share data)Consolidated Statements of Operations Data:Net sales

$
319,264


$
251,587


$
203,169


$
169,242


$
128,894Gross profit


65,204



50,853



45,042



37,584



29,385Selling, general and administrative expenses


42,792



34,296



26,993



22,727



18,174Restructuring charges


















(87
)Operating income


22,412



16,557



18,049



14,857



11,298Income before income taxes


26,587



19,980



20,553



15,629



11,286Income tax expense (benefit)


9,128



6,916



7,400



5,642



(15,700
)Net income

$
17,459


$
13,064


$
13,153


$
9,987


$
26,986Basic net income per share(2)

$
1.10


$
0.79


$
0.75


$
0.80


$
6.98Diluted net income per share(2)

$
1.04


$
0.76


$
0.71


$
0.56


$
1.65Shares used in computing basic net income per share


15,919



16,563



17,550



12,450



3,868Shares used in computing diluted net income per share


16,814



17,278



18,597



17,885



16,363Additional Operating Data:Net cash provided by operating activities

$
41,455


$
40,518


$
31,272


$
29,751


$
19,816Gross profit margin


20.4
%


20.2
%


22.2
%


22.2
%


22.8
%Selling, general and administrative expenses as a percentage of
    net sales


13.4
%


13.6
%


13.3
%


13.5
%


14.1
%   As of


As of


As of


As of


As ofDecember 30,


December 31,


January 1,


January 2,


December 31,2007


2006


2006


2005


2003(In thousands)Consolidated Balance Sheet Data:Cash and cash equivalents

$
122,793


$
78,540


$
71,921


$
59,499


$
30,383Marketable securities






19,767



42,748



41,868



Accounts receivable


3,576



1,640



1,877



1,028



916Inventories


20,906



14,616



11,764



9,914



10,204Accounts payable


85,866



66,625



50,157



37,775



26,288Working capital(1)


53,455



41,881



76,869



77,838



16,663Total assets


160,586



122,106



138,005



128,382



62,305Total long-term obligations


1,418



666



863



1,071



1,126Mandatorily redeemable convertible preferred stock


















57,485Total stockholders equity (deficit)


63,477



47,303



81,515



83,620



(27,238
)  23




---



##### Table of Contents



(1)
    
    Working capital consists of total current assets, including cash
    and cash equivalents, less total current liabilities.(2)
    
    On April 30, 2004, the Company effected a 1 for 2.5 reverse
    split of its common stock and mandatorily redeemable convertible
    preferred stock. All shares and per share amounts and any other
    references to shares included in the consolidated financial
    statements have been adjusted to reflect this split on a
    retroactive basis.  Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  The following discussion should be read in conjunction with
    the consolidated financial statements and related notes which
    appear elsewhere in this report. This discussion contains
    forward-looking statements that involve risks and uncertainties.
    Our actual results could differ materially from those
    anticipated in these forward-looking statements as a result of
    various factors, including those discussed below and elsewhere
    in this report, particularly under the heading
    Item 1A. Risk Factors.
  Management
    Overview
  About
    Blue Nile
    1
  Differentiating
    Factors and Value Proposition
      60-90 day
  step-by-step
    1
 24




---



##### Table of Contents



Seasonality
    Future
    Growth Opportunities
      Critical
    Accounting Policies
    Revenue
    Recognition
    Stock-based
    Compensation
   25




---



##### Table of Contents



Increase


DecreaseExpected Term(1)


5.7
%


(6.1
)%Expected Volatility(1)


9.2
%


(9.3
%)     (1)
    
    Sensitivity to change in assumptions was determined using the
    Black-Scholes-Merton valuation model compared to the following
    original assumptions: stock price and exercise price equal to
    the closing market price of Blue Nile, Inc. common stock on
    December 28, 2007, expected term of 4.5 years,
    expected volatility of 37.1%, expected dividend yield of 0.0%
    and a risk free investment rate of 4.3%.  Results
    of Operations
    Year Ended


Year Ended


Year EndedDecember 30,


December 31,


January 1,2007


2006


2006Net sales


100.0
%


100.0
%


100.0
%Gross profit


20.4



20.2



22.2Selling, general and administrative expenses


13.4



13.6



13.3Operating income


7.0



6.6



8.9Other income (expense), net


1.3



1.3



1.2Income before income taxes


8.3



7.9



10.1Income tax expense


2.8



2.7



3.6Net income


5.5
%


5.2
%


6.5
%     Net Sales.
  Gross Profit.
  Selling, General and Administrative
    Expenses.
  Fiscal Year.
 26




---



##### Table of Contents



Comparison of


Comparison ofYear Ended


Year EndedDecember 30, 2007 to


December 31, 2006 toYear Ended


Year Ended


Year Ended


Year Ended


Year EndedDecember 30,


December 31,


January 1,


December 31, 2006


January 1, 20062007


2006


2006


$ Change


% Change


$ Change


% ChangeNet sales

$
319,264


$
251,587


$
203,169


$
67,677



26.9
%

$
48,418



23.8
%Cost of sales


254,060



200,734



158,127



53,326



26.6
%


42,607



26.9
%Gross profit


65,204



50,853



45,042



14,351



28.2
%


5,811



12.9
%Selling, general and administrative expenses


42,792



34,296



26,993



8,496



24.8
%


7,303



27.1
%Operating income


22,412



16,557



18,049



5,855



35.4
%


(1,492
)


−8.3
%Other income (expense), net:Interest income, net


3,760



3,323



2,499



437



13.2
%


824



33.0
%Other income


415



100



5



315



315.0
%


95



nm4,175



3,423



2,504



752



22.0
%


919



36.7
%Income before income taxes


26,587



19,980



20,553



6,607



33.1
%


(573
)


−2.8
%Income tax expense


9,128



6,916



7,400



2,212



32.0
%


(484
)


−6.5
%Net income

$
17,459


$
13,064


$
13,153


$
4,395



33.6
%

$
(89
)


−0.7
%Basic net income per share

$
1.10


$
0.79


$
0.75


$
0.31



39.2
%

$
0.04



5.3
%Diluted net income per share

$
1.04


$
0.76


$
0.71


$
0.28



36.8
%

$
0.05



7.0
%   Comparison
    of Year Ended December 30, 2007 to Year Ended
    December 31, 2006
  Net
    Sales
    Gross
    Profit
    Selling,
    General and Administrative Expenses
   27




---



##### Table of Contents



Other
    Income (Expense), Net
    Income
    Taxes
    Comparison
    of Year Ended December 31, 2006 to Year Ended
    January 1, 2006
  Net
    Sales
    Gross
    Profit
    Selling,
    General and Administrative Expenses
   28




---



##### Table of Contents



Other
    Income (Expense), Net
    Income
    Taxes
    Liquidity
    and Capital Resources
         29




---



##### Table of Contents



24-month 24-month 24-month Rule 10b5-1
  No. 00-15, (EITF 00-15).
    Less Than








Over 5Contractual Obligations

Total


1 Year


1-3 Years


4-5 Years


YearsOperating leases

$
2,307


$
509


$
1,020


$
486


$
292Financing obligation


428



59



118



129



122Purchase obligations(1)


738



738











Purchase obligations(2)


150



150











$
3,623


$
1,456


$
1,138


$
615


$
414     (1)
    
    Includes open merchandise purchase orders at December 30,
    2007.(2)
    
    Includes commitments for advertising and marketing services at
    December 30, 2007.   30




---



##### Table of Contents



Off-Balance
    Sheet Arrangements
    Impact of
    Inflation
    Item 7A.  Quantitative
    and Qualitative Disclosures About Market Risk
  Interest
    Rate Risk
    Foreign
    Currency Exchange Risk
     31




---



##### 



Item 8.
    Financial
    Statements and Supplementary Data  Index to
    Consolidated Financial Statements
   
 PageFinancial StatementsReports of Independent Registered
    Public Accounting Firms


33Consolidated Balance Sheets, as of
    December 30, 2007 and December 31, 2006


35Consolidated Statements of Operations, for the
    fiscal years ended December 30, 2007, December 31,
    2006 and January 1, 2006


36Consolidated Statements of Changes in
    Stockholders Equity, for the fiscal years ended
    December 30, 2007, December 31, 2006 and
    January 1, 2006


37Consolidated Statements of Cash Flows, for the
    fiscal years ended December 30, 2007, December 31,
    2006 and January 1, 2006


38Notes to Consolidated Financial Statements


40Selected Quarterly Financial Information
    (unaudited)


53Financial Statement ScheduleSchedule II, Valuation and Qualifying
    Accounts


55All other schedules are omitted because they are
    not applicable or the required information is shown in the
    financial statements or notes thereto.   32




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the Board of Directors and Stockholders of

Blue Nile, Inc.

Seattle, Washington



We have audited the accompanying consolidated balance sheets of
    Blue Nile, Inc. and subsidiaries (the Company) as of
    December 30, 2007 and December 31, 2006, and the
    related consolidated statements of operations, statements of
    changes in stockholders equity, and cash flows for each of
    the two fiscal years in the period ended December 30, 2007.
    Our audits also included the financial statement schedule listed
    in the Index at Item 15. These financial statements and
    financial statement schedule are the responsibility of the
    Companys management. Our responsibility is to express an
    opinion on the financial statements and financial statement
    schedule based on our audits.



We conducted our audits in accordance with the standards of the
    Public Company Accounting Oversight Board (United States). Those
    standards require that we plan and perform the audit to obtain
    reasonable assurance about whether the financial statements are
    free of material misstatement. An audit includes examining, on a
    test basis, evidence supporting the amounts and disclosures in
    the financial statements. An audit also includes assessing the
    accounting principles used and significant estimates made by
    management, as well as evaluating the overall financial
    statement presentation. We believe that our audits provide a
    reasonable basis for our opinion.



In our opinion, such consolidated financial statements present
    fairly, in all material respects, the financial position of Blue
    Nile, Inc. and subsidiaries as of December 30, 2007 and
    December 31, 2006, and the results of their operations and
    their cash flows for each of the two years in the fiscal period
    ended December 30, 2007, in conformity with accounting
    principles generally accepted in the United States of America.
    Also, in our opinion, such financial statement schedule, when
    considered in relation to the basic consolidated financial
    statements taken as a whole, presents fairly, in all material
    respects, the information set forth therein.



As discussed in Note 6 to the consolidated financial
    statements, on January 2, 2006, the Company changed its
    method of accounting for stock-based compensation upon adoption
    of Statement of Financial Accounting Standards No. 123(R),
    Share-Based Payment.



As discussed in Note 1 to the consolidated financial
    statements, on December 31, 2006, the Company initially
    applied the provisions of Staff Accounting
    Bulletin No. 108, Considering the Effects of Prior
    Year Misstatements when Quantifying Misstatements in Current
    Year Financial Statements, and recorded a cumulative effect
    adjustment to beginning accumulated deficit in 2006.



We have also audited, in accordance with the standards of the
    Public Company Accounting Oversight Board (United States), the
    Companys internal control over financial reporting as of
    December 30, 2007, based on the criteria established in
    Internal Control  Integrated Frameworkissued
    by the Committee of Sponsoring Organizations of the Treadway
    Commission and our report dated February 26, 2008 expressed
    an unqualified opinion on the Companys internal control
    over financial reporting.





/s/ Deloitte & Touche LLP



Seattle, Washington

February 26, 2008

33




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  
          34




---



##### Table of Contents



BLUE
    NILE, INC.



Consolidated Balance Sheets

(In thousands, except par value) December 30,


December 31,2007


2006ASSETSCurrent assets:Cash and cash equivalents

$
122,793


$
78,540Restricted cash






117Marketable securities






19,767Trade accounts receivable


2,452



1,484Other accounts receivable


1,124



156Inventories


20,906



14,616Deferred income taxes


799



598Prepaids and other current assets


1,072



740Total current assets


149,146



116,018Property and equipment, net


7,601



3,391Intangible assets, net


286



319Deferred income taxes


3,489



2,285Other assets


64



93Total assets

$
160,586


$
122,106LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
85,866


$
66,625Accrued liabilities


9,549



7,315Current portion of long-term financing obligation


38



Current portion of deferred rent


238



197Total current liabilities


95,691



74,137Long-term financing obligation, less current portion


880



Deferred rent, less current portion


538



666Stockholders equity:Preferred stock, $0.001 par value; 5,000 shares
    authorized, none issued and outstandingCommon stock, $0.001 par value; 300,000 shares
    authorized; 19,513 shares and 19,073 shares issued,
    respectively; 15,973 shares and 15,972 shares
    outstanding, respectively


20



19Additional paid-in capital


134,207



115,751Deferred compensation


(3
)


(180
)Accumulated other comprehensive income (loss)


75



(2
)Retained earnings


24,569



7,110Treasury stock, at cost; 3,540 shares and 3,101 shares
    outstanding, respectively


(95,391
)


(75,395
)Total stockholders equity


63,477



47,303Total liabilities and stockholders equity

$
160,586


$
122,106    35




---



##### Table of Contents



BLUE
    NILE, INC.



Consolidated
    Statements of Operations

(In
    thousands, except per share data)  Year Ended


Year Ended


Year EndedDecember 30,


December 31,


January 1,2007


2006


2006Net sales

$
319,264


$
251,587


$
203,169Cost of sales


254,060



200,734



158,127Gross profit


65,204



50,853



45,042Selling, general and administrative expenses


42,792



34,296



26,993Operating income


22,412



16,557



18,049Other income (expense), net:Interest income, net


3,760



3,323



2,499Other income


415



100



5Total other income (expense), net


4,175



3,423



2,504Income before income taxes


26,587



19,980



20,553Income tax expense


9,128



6,916



7,400Net income

$
17,459


$
13,064


$
13,153Basic net income per share

$
1.10


$
0.79


$
0.75Diluted net income per share

$
1.04


$
0.76


$
0.71    36




---



##### Table of Contents



BLUE
    NILE, INC.



Consolidated
    Statements of Changes in Stockholders Equity

(In
    thousands)  AccumulatedAdditional


Deferred


Retained Earnings


Other








TotalCommon Stock


Paid-in


Stock


(Accumulated


Comprehensive


Treasury Stock


StockholdersShares


Amount


Capital


Compensation


Deficit)


Income (Loss)


Shares


Amount


EquityBalance, January 2, 2005


18,478


$
18


$
104,684


$
(929
)

$
(19,515
)

$
(2
)


(750
)

$
(636
)

$
83,620Net income


















13,153















13,153Other comprehensive income (loss):Unrealized gain on marketable securities, net of tax






















7











7Total comprehensive income


































13,160Tax benefit from stock option exercises










1,190























1,190Amortization of deferred stock compensation














312



















312Reversal of deferred compensation relating to cancelled options










(137
)


137



















Exercise of common stock options


167



1



574























575Issuance of common stock to directors


1







30























30Repurchase of common stock


























(565
)


(17,372
)


(17,372
)Balance, January 1, 2006


18,646



19



106,341



(480
)


(6,362
)


5



(1,315
)


(18,008
)


81,515Adjustment to beginning accumulated deficit (Note 1)


















408















408Net income


















13,064















13,064Other comprehensive income (loss):Unrealized loss on marketable securities, net of tax






















(7
)










(7
)Total comprehensive income


































13,057Tax benefit from exercise of stock options










2,961























2,961Amortization of deferred stock compensation














269



















269Reversal of deferred compensation relating to cancelled options










(31
)


31



















Exercise of common stock options


425







2,251























2,251Issuance of common stock to directors


2







94























94Stock-based compensation










4,135























4,135Repurchase of common stock


























(1,786
)


(57,387
)


(57,387
)Balance, December 31, 2006


19,073



19



115,751



(180
)


7,110



(2
)


(3,101
)


(75,395
)


47,303Net income


















17,459















17,459Other comprehensive income (loss):Reclassification of unrealized loss, net of tax






















2











2Foreign currency translation adjustment






















75











75Total comprehensive income


































17,536Tax benefit from exercise of stock options










6,848























6,848Amortization of deferred stock compensation














172



















172Reversal of deferred compensation relating to cancelled options










(5
)


5



















Exercise of common stock options


438



1



5,874























5,875Issuance of common stock to directors


2







97























97Stock-based compensation










5,642























5,642Repurchase of common stock


























(439
)


(19,996
)


(19,996
)Balance, December 30, 2007


19,513


$
20


$
134,207


$
(3
)

$
24,569


$
75



(3,540
)

$
(95,391
)

$
63,477    37




---



##### Table of Contents



BLUE
    NILE, INC.



Consolidated
    Statements of Cash Flows

(In
    thousands)  Year Ended


Year Ended


Year EndedDecember 30,


December 31,


January 1,2007


2006


2006Operating activities:Net income

$
17,459


$
13,064


$
13,153Adjustments to reconcile net income to net cash provided by
    operating activities:Depreciation and amortization


1,772



1,868



1,717(Gain) loss on disposal of property and equipment


(8
)


5



11Stock-based compensation


5,832



4,434



342Deferred income taxes


(1,407
)


2,654



5,872Tax benefit from exercise of stock options


6,848



2,739



1,190Excess tax benefit from exercise of stock options


(1,847
)


(172
)


Changes in assets and liabilities:Receivables


(1,935
)


236



(849
)Inventories


(6,291
)


(2,852
)


(1,850
)Prepaid expenses and other assets


(306
)


88



(41
)Accounts payable


19,241



16,468



12,382Accrued liabilities


2,234



2,194



(452
)Deferred rent and other


(137
)


(208
)


(203
)Net cash provided by operating activities


41,455



40,518



31,272Investing activities:Purchases of property and equipment


(4,897
)


(1,908
)


(1,072
)Proceeds from the sale of property and equipment


23



1



8Purchases of marketable securities


(20,230
)


(75,030
)


(156,870
)Proceeds from the sale of marketable securities


40,000



98,000



156,000Transfers of restricted cash


120



2



(119
)Net cash provided by (used in) investing activities


15,016



21,065



(2,053
)Financing activities:Repurchase of common stock


(19,996
)


(57,387
)


(17,372
)Proceeds from stock option exercises


5,875



2,251



575Excess tax benefit from exercise of stock options


1,847



172



Principal payments under long-term financing obligation


(22
)






Net cash used in financing activities


(12,296
)


(54,964
)


(16,797
)Effect of exchange rate changes on cash and cash equivalents


78







Net increase in cash and cash equivalents


44,253



6,619



12,422Cash and cash equivalents, beginning of period


78,540



71,921



59,499Cash and cash equivalents, end of period

$
122,793


$
78,540


$
71,921    38




---



##### Table of Contents



BLUE
    NILE, INC.
  Consolidated
    Statements of Cash Flows
 (In
    thousands)
  Year Ended


Year Ended


Year EndedDecember 30,


December 31,


January 1,2007


2006


2006Supplemental disclosure of cash flow information:Cash paid for income taxes

$
3,894


$
325


$
328Cash paid for interest relating to long-term financing obligation

$
15


$



$
Non-cash investing and financing activities:Non-cash proceeds from the sale of property and equipment

$



$



$
21Property additions financed by long-term financing obligation

$
940


$



$
    39




---



##### Table of Contents



BLUE
    NILE, INC.



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  Note 1.
    Description
    of the Company and Summary of Significant Accounting
    Policies  The
    Company
    Fiscal
    Year
    Reclassifications
    Basis
    of Presentation
    Use of
    Estimates
    Concentration
    of Risk
     40




---



##### Table of Contents



BLUE
    NILE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year EndedDecember 30,


December 31,


January 1,2007


2006


2006Payments


Payments


PaymentsVendor A


8
%


9
%


11
%Vendor B


7
%


6
%


9
%Vendor C


6
%


6
%


5
%21
%


21
%


25
%   Cash
    and Cash Equivalents
    Restricted
    Cash
    Marketable
    Securities
      Inventories
    Property
    and Equipment
   41




---



##### Table of Contents



BLUE
    NILE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Asset

Life (in years)Computers and equipment

3Software and website development

2-5Leasehold improvements

Shorter of lease term or asset lifeBuilding

Shorter of lease term or asset lifeFurniture and fixtures

7   Capitalized
    Software
  98-1, (SOP 98-1) No. 00-2, (EITF 00-2).
  Impairment
    of Long-Lived Assets
    Intangible
    Assets
    Fair
    Value of Financial Instruments
    Treasury
    Stock
    Income
    Taxes
   42




---



##### Table of Contents



BLUE
    NILE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Revenue
    Recognition
  No. 99-19,
      Shipping
    and Handling Costs
    Cost
    of Sales
    Selling,
    General and Administrative Expenses
        Marketing
   43




---



##### Table of Contents



BLUE
    NILE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Segments
    Initial
    Adoption of Staff Accounting
    Bulletin No. 108
    Accumulated deficit, January 2, 2006, as reported

$
(6,362
)Cumulative effect adjustment


408Accumulated deficit, January 2, 2006, as restated

$
(5,954
)   Foreign
    Currency Translation
    Recent
    Accounting Pronouncements
  No. 06-3 (EITF 06-3), EITF 06-3 EITF 06-3 EITF 06-3;
  FAS 157-2
 44




---



##### Table of Contents



BLUE
    NILE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Note 2.
    Inventories    Year EndedDecember 30,


December 31,2007


2006Loose diamonds

$
690


$
230Fine jewelry, watches and other


20,216



14,386$
20,906


$
14,616   Note 3.
    Property
    and Equipment    Year EndedDecember 30,


December 31,2007


2006Computers and equipment

$
4,770


$
4,369Software and website development


6,225



6,002Leasehold improvements


5,312



2,103Furniture and fixtures


753



590Building


940



18,000



13,064Less: accumulated depreciation


(10,399
)


(9,673
)Property and equipment, net

$
7,601


$
3,391     Note 4.
    Commitments
    and Contingencies  Leases
   45




---



##### Table of Contents



BLUE
    NILE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    No. 97-10, (EITF 97-10),
    Financing


OperatingObligation


Leases2008

$
59


$
5092009


59



5102010


59



5102011


61



3272012


68



159Thereafter


122



292Total minimum lease payments

$
428


$
2,307Less: amounts representing interest


(85
)Present value of minimum lease payments


343Residual value


575Less: current maturities


(38
)Total long-term financing obligation less current maturities

$
880     Litigation
    Note 5.
    Preferred
    Stock   46




---



##### Table of Contents



BLUE
    NILE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 6.
    Stock-Based
    Compensation  Stock
    Option Plans
          Employee
    Stock Purchase Plans
    Option
    Grants to Non-Employees
  No. 96-18, (EITF 96-18). EITF 96-18
 47




---



##### Table of Contents



BLUE
    NILE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Stock-Based
    Compensation Expense
        Year EndedJanuary 1,2006Net income, as reported

$
13,153Deduct: Stock-based compensation expense determined under
    fair-value-based method, net of tax


(1,878
)Pro forma net income

$
11,275Income per share:Basic  as reported

$
0.75Basic  pro forma

$
0.64Diluted  as reported

$
0.71Diluted  pro forma

$
0.61     No. 00-15.
 48




---



##### Table of Contents



BLUE
    NILE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          Year EndedDecember 30,


December 31,2007


2006Stock option expense in selling, general and administrative
    expenses

$
5,621


$
4,257Stock option expense in cost of sales


114



82Total stock option expense on the consolidated statement of
    operations

$
5,735


$
4,339Total related tax benefit

$
1,967


$
1,501Stock-based compensation capitalized

$
79


$
64       Year EndedDecember 30,


December 31,


January 1,2007


2006


2006Expected term


4.5 years



4.5 years



4 yearsExpected volatility


37.1
%


36.0
%


44.6
%Expected dividend yield


0.0
%


0.0
%


0.0
%Risk-free interest rate


4.3
%


5.0
%


4.0
%Estimated fair value per option granted

$
29.26


$
11.86


$
12.57  49




---



##### Table of Contents



BLUE
    NILE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  
    Expected Term  This is the estimated period of time
    until exercise and is based primarily on historical experience
    for options with similar terms and conditions, giving
    consideration to future expectations. The Company also considers
    the expected terms of other companies that have similar
    contractual terms, expected stock volatility and employee
    demographics.
    Expected Volatility  This is based on the
    Companys historical stock price volatility in combination
    with the implied volatility of its exchange traded options.
    Expected Dividend Yield  The Company has not paid
    dividends in the past and does not expect to pay dividends in
    the near future.
    Risk-Free Interest Rate  This is the rate on nominal
    U.S. Government Treasury Bills with lives commensurate with
    the expected term of the options on the date of grant.    Weighted AverageWeighted Average


Remaining


TotalOptions


Exercise Price


Contractual Term


Intrinsic Value(In thousands)Balance, January 2, 2005


1,917


$
11.26Granted


546



32.14Exercised


(167
)


3.43Canceled


(201
)


26.80Balance, January 1, 2006


2,095



15.84Granted


585



31.49Exercised


(425
)


5.30Canceled


(69
)


26.94Balance, December 31, 2006


2,186



21.73Granted


349



78.27Exercised


(439
)


13.40Canceled


(59
)


33.85Balance, December 30, 2007


2,037


$
32.84



7.32


$
80,611Vested and expected to vest at December 30, 2007


1,853


$
31.45



7.21


$
75,611Exercisable at December 30, 2007


1,158


$
20.22



6.38


$
58,389      50




---



##### Table of Contents



BLUE
    NILE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    OutstandingWeighted AverageRemaining





ExercisableContractual


Exercise





Weighted AverageRange of Exercise Price

Options


Life


Price


Options


Exercise Price(In thousands)


(In years)





(In thousands)$0.25 - $8.75


467



4.90


$
4.16



466


$
4.15$9.375 - $30.31


425



6.74



29.12



328



29.05$30.67 - $31.26


442



8.42



31.26



156



31.26$31.43 - $75.85


436



7.92



37.76



207



33.87$76.59 - $99.98


267



9.67



83.55



1



80.302,037



7.32



32.84



1,158



20.22   Note 7.
    Common
    Stock  24-month 24-month
  Note 8.
    Employee
    Benefit Plan    Note 9.
    Income
    Taxes    Year EndedDecember 30,


December 31,


January 1,2007


2006


2006Current income tax expense

$
3,685


$
1,389


$
335Tax benefit from stock option exercises recorded in equity


6,848



2,961



1,190Deferred income tax expense:Utilization of net operating loss






3,008



6,201Other, net


(1,405
)


(442
)


(326
)Total income tax expense

$
9,128


$
6,916


$
7,400A reconciliation of the statutory Federal income tax rate to the
    effective tax rate is as follows:Statutory Federal income tax rate


35.0
%


35.0
%


35.0
% 51




---



##### Table of Contents



BLUE
    NILE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Year EndedDecember 30,


December 31,


January 1,2007


2006


2006Other, net


(0.7
)%


(0.4
)%


1.0
%Effective tax rate


34.3
%


34.6
%


36.0
%    Year EndedDecember 30,


December 31,2007


2006Deferred tax assets:Current:Reserves and allowances

$
544


$
499Deferred rent


78



68Other


177



99Noncurrent:Stock options


2,800



1,395Excess of book over tax depreciation and amortization


439



542Deferred rent


188



233Financing obligation


308



Other


59



47Gross deferred tax assets


4,593



2,883Noncurrent deferred tax liabilities:Leased building


(305
)


Net deferred tax assets

$
4,288


$
2,883          52




---



##### Table of Contents



BLUE
    NILE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Note 10.
    Income
    Per Share      Year EndedDecember 30,


December 31,


January 1,2007


2006


2006Net income

$
17,459


$
13,064


$
13,153Weighted average common shares outstanding


15,919



16,563



17,550Basic net income per share

$
1.10


$
0.79


$
0.75Dilutive effect of stock options


895



715



1,047Common stock and common stock equivalents


16,814



17,278



18,597Diluted net income per share

$
1.04


$
0.76


$
0.71     Year EndedDecember 30,


December 31,


January 1,2007


2006


2006Stock options


112



1,159



177   Note 11.
    Selected
    Quarterly Financial Information (unaudited)    Q1


Q2


Q3


Q42007 quarter:Net sales

$
67,910


$
72,093


$
67,355


$
111,906Gross profit


13,249



14,943



13,357



23,655Net income


3,163



3,781



2,972



7,543Basic net income per share


0.20



0.24



0.19



0.47Diluted net income per share


0.19



0.23



0.18



0.45   53




---



##### Table of Contents



BLUE
    NILE, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Q1


Q2


Q3


Q42006 quarter:Net sales

$
50,694


$
56,916


$
53,248


$
90,729Gross profit


10,342



11,323



10,406



18,783Net income


2,355



3,132



1,824



5,753Basic net income per share


0.14



0.19



0.11



0.36Diluted net income per share


0.13



0.18



0.11



0.35   Note 12.
    Subsequent
    Event  Rule 10b5-1
 54




---



##### Table of Contents



BLUE
    NILE, INC.
  SCHEDULE II
 VALUATION
    AND QUALIFYING ACCOUNTS
  ChargedBalance at


to Revenue,





Balance atBeginning


Costs or





End ofDescription

of Period


Expenses


Deductions(A)


Period(In thousands)Year ended December 30, 2007Reserve for sales returns

$
1,179


$
26,743


$
(26,641
)

$
1,281Reserve for fraud

$
105


$
118


$
(93
)

$
130Year ended December 31, 2006Reserve for sales returns

$
976


$
19,893


$
(19,690
)

$
1,179Reserve for fraud

$
151


$
(22
)

$
(24
)

$
105Year ended January 1, 2006Reserve for sales returns

$
988


$
16,989


$
(17,001
)

$
976Reserve for fraud

$
152


$
55


$
(56
)

$
151     (A)
    
    Deductions for sales returns and fraud consist of actual sales
    returns and credit card chargebacks in each period. 55




---



##### Table of Contents



Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Disclosure
    Controls and Procedures
        Report of
    Management on Internal Control over Financial
    Reporting
  Rule 13a-15(f)
        Changes
    in Internal Control Over Financial Reporting
    /s/  Diane M. Irvine

/s/  Robin EastonChief Executive Officer and President

Chief Financial Officer  56




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
      Internal Control  Integrated Framework
        Internal Control  Integrated Framework
  Share-Based
    Payment ,
    Considering the Effects of Prior Year Misstatements When
    Quantifying Misstatements in Current Year Financial
    Statements.
       57




---



##### Table of Contents



Item 9B.
    Other
    Information   PART III  Item 10.
    Directors,
    Executive Officers and Corporate Governance    Item 11.
    Executive
    Compensation    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters    Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence  Proposal 1-Election
  Item 14.
    Principal
    Accountant Fees and Services   58




---



##### Table of Contents



PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules      Page1.

Financial Statements:Reports of Independent Registered Public Accounting Firms


33Consolidated Balance Sheets, as of December 30, 2007 and
    December 31, 2006


35Consolidated Statements of Operations, for the fiscal years
    ended December 30, 2007, December 31, 2006 and
    January 1, 2006


36Consolidated Statements of Changes in Stockholders Equity,
    for the fiscal years ended December 30, 2007,
    December 31, 2006 and January 1, 2006


37Consolidated Statements of Cash Flows, for the fiscal years
    ended December 30, 2007, December 31, 2006 and
    January 1, 2006


38Notes to Consolidated Financial Statements


402.

Financial Statement Schedules:Schedule II, Valuation and Qualifying Accounts


55All other schedules are omitted because they are not applicable
    or the required information is shown in the financial statements
    or notes thereto.3.

Exhibits:The exhibits listed in the Index
    to Exhibits, which appears immediately following the signature
    page and is incorporated herein by reference, are filed as part
    of this Annual Report on
    Form 10-K.  59




---



##### Table of Contents



SIGNATURES         By
    /s/  Robin
    Easton   Chief Financial Officer
 (Principal Accounting and Financial Officer)
   POWER OF
    ATTORNEY
      By

/s/  Diane
    M. IrvineDiane
    M. Irvine, Chief Executive Officer, President and Director(Principal Executive Officer)

February 26, 2008By

/s/  Robin
    EastonRobin
    Easton, Chief Financial Officer(Principal Accounting and Financial Officer)

February 26, 2008By

/s/  Mark
    C. VadonMark
    C. Vadon, Executive Chairman and Director

February 26, 2008By

/s/  W.
    Eric CarlborgW.
    Eric Carlborg, Director

February 26, 2008By

/s/  Joseph
    JimenezJoseph
    Jimenez, Director

February 26, 2008By

/s/  Michael
    PotterMichael
    Potter, Director

February 26, 2008 60




---



##### Table of Contents



By

/s/  Steve
    ScheidSteve
    Scheid, Director

February 26, 2008By

/s/  Joanna
    A. StroberJoanna
    A. Strober, Director

February 26, 2008By

/s/  Mary
    Alice TaylorMary
    Alice Taylor, Director

February 26, 2008  61




---



##### Table of Contents



EXHIBIT
    INDEX  Form 10-K
  ExhibitNumber

Description3
.1(1)

Amended and Restated Certificate of Incorporation of Blue Nile,
    Inc.3
.2(2)

Amended and Restated Bylaws of Blue Nile, Inc.3
.3(3)

Amendment to the Bylaws of Blue Nile, Inc.4
.1

Reference is made to Exhibits 3.1 and 3.2.4
.2(4)

Specimen Stock Certificate.4
.3(2)

Amended and Restated Investor Rights Agreement dated
    June 29, 2001 by and between Blue Nile, Inc. and certain
    holders of Blue Nile, Inc.s preferred stock.10
.1.1(2)*

Blue Nile, Inc. Amended and Restated 1999 Equity Incentive Plan.10
.1.2(2)*

Form of Stock Option Agreement pursuant to the Blue Nile, Inc.
    1999 Equity Incentive Plan.10
.2.1(4)*

Blue Nile, Inc. 2004 Non-Employee Directors Stock Option
    Plan.10
.2.2(7)*

Form of Stock Option Agreement pursuant to the Blue Nile, Inc.
    2004 Non-Employee Directors Stock Option Plan.10
.3(2)*

Blue Nile, Inc. 2004 Employee Stock Purchase Plan.10
.4.1(5)*

Blue Nile, Inc. 2004 Equity Incentive Plan.10
.4.2(7)*

Form of Stock Option Agreement pursuant to the 2004 Equity
    Incentive Plan.10
.4.3(6)*

Blue Nile, Inc. Stock Grant Notice pursuant to the 2004 Equity
    Incentive Plan.10
.4.4(11)*

Form of Restricted Stock Unit Grant Notice and Form of Award
    Agreement under the Blue Nile, Inc. 2004 Equity Incentive Plan.10
.5.1(5)

Sublease Agreement, dated May 22, 2003, between Amazon.com
    Holdings, Inc. and the registrant.10
.5.2(5)

First Amendment to Sublease Agreement, dated July 3, 2003,
    between Amazon.com Holdings, Inc. and the registrant.10
.6.1(5)

Lease, dated June 28, 2001, between Gull Industries, Inc.
    and the registrant.10
.6.2(5)

First Amendment to Lease, dated December 11, 2002 between
    Gull Industries, Inc. and the registrant.10
.6.3(5)

Second Amendment to Lease, dated November 15, 2003, between
    Gull Industries, Inc. and the registrant.10
.7(9)

Commercial lease, dated July 21, 2006, between Gull
    Industries, Inc. and the registrant.10
.8(12)*

Offer Letter with Diane M. Irvine, dated December 1, 1999.10
.9(2)*

Offer Letter with Dwight Gaston, dated May 14, 1999.10
.10(2)*

Offer Letter with Susan S. Bell, dated August 22, 2001.10
.11(2)*

Offer Letter with Darrell Cavens, dated July 30, 1999.10
.12(10)*

Offer Letter with Robin Easton, dated August 20, 2007.10
.13(5)*

Form of Indemnification Agreement entered into between Blue
    Nile, Inc. and each of its directors and executive officers.10
.14(8)*

Blue Nile, Inc. Executive Officer Cash Incentive Program.10
.15(8)*

Director Compensation.21
.1(13)

Subsidiaries of the Registrant.23
.1(13)

Consent of Deloitte & Touche LLP.23
.2(13)

Consent of PricewaterhouseCoopers LLP.24
.1

Powers of Attorney of Officers and Directors signing this report
    (see page 60). 62




---



##### Table of Contents



ExhibitNumber

Description31
.1(13)

Certification of Chief Executive Officer Required Under
    Rule 13a-14(a)
    or
    Rule 15d-14(a)
    of the Securities Exchange Act of 1934, as amended.31
.2(13)

Certification of Principal Financial Officer Required Under
    Rule 13a-14(a)
    or
    Rule 15d-14(a)
    of the Securities Exchange Act of 1934, as amended.32
.1(14)

Certification of Chief Executive Officer Required Under
    Rule 13a-14(b)
    or
    Rule 15d-14(b)
    of the Securities Exchange Act of 1934, as amended, and
    18 U.S.C. Section 1350.32
.2(14)

Certification of Principal Financial Officer Required Under
    Rule 13a-14(b)
    or
    Rule 15d-14(b)
    of the Securities Exchange Act of 1934, as amended, and
    18 U.S.C. Section 1350.     *
    
    Denotes a management contract or compensatory plan, contract or
    agreement, in which the Companys directors or executive
    officers may participate.(1)
    
    Previously filed as Exhibit 3.1 to Blue Nile, Inc.s
    Form 10-Q
    for the quarterly period ended July 4, 2004
    (No. 000-50763),
    as filed with the Securities and Exchange Commission on
    August 6, 2004, and incorporated by reference herein.(2)
    
    Previously filed as the like numbered exhibit to Blue Nile,
    Inc.s Registration Statement on
    Form S-1
    (No. 333-113494),
    as filed with the Securities and Exchange Commission on
    March 11, 2004, as amended, and incorporated by reference
    herein.(3)
    
    Previously filed as Exhibit 3.2 to Blue Nile, Inc.s
    Current Report on
    Form 8-K
    (No. 000-50763),
    as filed with the Securities and Exchange Commission on
    February 7, 2008, and incorporated by reference herein.(4)
    
    Previously filed as Exhibit 10.1 to Blue Nile, Inc.s
    Current Report on
    Form 8-K
    (No. 000-50763),
    as filed with the Securities and Exchange Commission on
    June 19, 2006, and incorporated by reference herein.(5)
    
    Previously filed as the like numbered exhibit to Blue Nile,
    Inc.s Registration Statement on
    Form S-1/A
    (No. 333-113494),
    as filed with the Securities and Exchange Commission on
    April 19, 2004, as amended, and incorporated by reference
    herein.(6)
    
    Previously filed as Exhibit 10.1 to Blue Nile, Inc.s
    Current Report on
    Form 8-K
    (No. 000-50763),
    as filed with the Securities and Exchange Commission on
    December 13, 2004 and incorporated by reference herein.(7)
    
    Previously filed as the like numbered exhibit to Blue Nile,
    Incs Annual Report on
    Form 10-K
    (No. 000-50763),
    as filed with the Securities and Exchange Commission on
    March 25, 2005 and incorporated by reference herein.(8)
    
    Previously filed as Item 5.02 to Blue Nile, Inc.s
    Current Report on
    Form 8-K
    (No. 000-50763),
    as filed with the Securities and Exchange Commission on
    March 22, 2007, and incorporated by reference herein.(9)
    
    Previously filed as Exhibit 10.1 to Blue Nile Incs
    Current Report on
    Form 8-K
    (No. 000-50763),
    as filed with the Securities and Exchange Commission on
    July 27, 2006 and incorporated by reference herein.(10)
    
    Previously filed as Exhibit 10.1 to Blue Nile, Inc.s
    Current Report on
    Form 8-K
    (No. 000-50763),
    as filed with the Securities and Exchange Commission on
    August 28, 2007, and incorporated by reference herein.(11)
    
    Previously filed as Exhibit 10.2 to Blue Nile, Inc.s
    Current Report on
    Form 8-K
    (No. 000-50763),
    as filed with the Securities and Exchange Commission on
    June 29, 2007, and incorporated by reference herein.(12)
    
    Previously filed as Exhibit 10.7 to Blue Nile, Inc.s
    Registration Statement on
    Form S-1
    (No. 333-113494),
    as filed with the Securities and Exchange Commission on
    March 11, 2004, as amended, and incorporated by reference
    herein.(13)
    
    Filed herewith. 63




---



##### Table of Contents



(14)
    
    Filed herewith. The certifications attached as
    Exhibits 32.1 and 32.2 accompany this Annual Report on
    Form 10-K
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
    and shall not be deemed filed by Blue Nile, Inc. for
    purposes of Section 18 of the Securities Exchange Act of
    1934, as amended. 64