EToys Posts Huge Gain in Sales, Along With Big Loss
Online toy retailer EToys impressed Wall Street Tuesday by reporting a nearly 2,000% gain in quarterly sales, but said it lost $20.8 million, or 21 cents a share, in its first quarter as a publicly traded company.
The Santa Monica firm sold $8 million worth of toys, music, video games and other children’s products in the three months ending June 30, up from sales of just $381,000 in the same quarter last year. Analysts said those numbers signal the company is in line for strong sales during the crucial holiday shopping season.
But, as is the case with most Internet start-ups, EToys’ loss also widened considerably. The $20.8-million loss compares with a loss of $2.2 million, or 4 cents a share, in the first quarter of 1998.
Excluding a special charge for deferred compensation and amortization, the loss would have been $16.7 million, or 17 cents a share, the company said. That’s better than the loss of 18.7 cents per share that analysts had forecast, according to estimates compiled by earnings tracker IBES International.
EToys warned it would lose money for the “foreseeable future” when it went public in May. Nevertheless, its shares rocketed from $20 to $76.56 on their first day of trading, making it the most successful initial public offering of a Southern California company.
Since then, the stock has settled into a range of around $40. EToys shares closed at $39.28, up $2.66, in Nasdaq trading Tuesday before earnings figures were announced. The stock was marginally lower in after-hours trading.
Analysts said they were impressed that EToys had signed up 467,000 registered customers by the quarter’s end--up from 365,000 on March 31--and that 40% of the company’s first-quarter revenue came from repeat customers.
“Consumers continue to recognize that EToys presents a better shopping experience and that the existing retail experience is terrible,” said Chris Vroom, an electronic commerce analyst for Thomas Weisel Partners in San Francisco. “They’re laying the foundation for a very healthy increase in the Christmas period.”
Indeed, EToys Chief Executive Toby Lenk said the company is already working to ensure it will be able to fill orders for the holidays without problems.
“It’s no good having a great brand and spending a bunch on marketing if you can’t get the goods out the door in time for Christmas,” Lenk said.
The holidays are definitely the most important time of the year for EToys. Last year, the company recorded 95% of its annual sales--along with 58% of its losses--in the October-to-December quarter.
For that reason, analysts cautioned that the revenue and loss figures EToys reported Tuesday were not very meaningful because the spring quarter does not contribute significantly to its annual totals.
“The most important thing is that they didn’t deviate from the estimates a whole lot,” said Mitchell Bartlett, an e-commerce analyst with Dain Rauscher Wessels in Minneapolis.
Lenk emphasized that sales growth in the first quarter was strong across all categories, and he pledged to expand the company’s product line in the coming months. In July, EToys completed its acquisition of BabyCenter, a Web site catering to new and expecting parents, and launched an online children’s bookstore.
EToys will also grow by adding customers outside the U.S. and by adding such new services to the site as the online gift registry launched a few days ago, Lenk said.
That should help the company keep its lead in the online toy business, analysts said.
Web stores launched by bricks-and-mortar retailers Toys R Us and KB Toys have so far failed to dent EToys’ sales, but the company faces a new challenge from Amazon.com, the online bookselling behemoth that went into the toy business earlier this month, Bartlett said.
