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Since I have written about Blue Nile on this site, this post from the HG boards may be of interest. --Hewitt

Doug -

On the other hand, NILE told me last week they will issue ESO's (employee stock options) every year in an amount equivalent to 3% of beginning shares outstanding every year. Not good.

Think of it this way, let's say management goes ahead and spends that $100 million on share repurchases today. Share count falls by 17%, to 14.4 million shares from 17.3 million shares. Great, right?

Problem is, share count is back to 17.3 million shares in 6 years and change, given their stated 3% annual award issuance.

So if you intend to own NILE for 6 years, what have you gotten for that $100 million outlay? You don't have a bigger claim on the firm's net assets and earnings power, because you are back to today's share count. You haven't received a pro rata share of a $100 million dividend. You haven't seen your share of $100 million invested in assets that widen NILE's moat.

Ah, but Hewitt, you have a more incented workforce, given that the employees own a larger share of the business.

In theory, yes. But I am skeptical.

The "tell" about this ESO program is whether management holds on to their shares, or if they sell. If management sells their ESO's every year for "estate planning purposes," then we know they aren't really interested in owning a bigger share of the business; instead, they are just trying to maximixe their annual compensation.

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