Buy.com Execs Depart, Adding to Turmoil Over Plunging Sales

Internet superstore Buy.com said Tuesday that its top two executives have resigned, adding further turmoil to a company that analysts say is struggling to survive.

The departure of Chairman and Chief Executive Gregory Hawkins and Chief Financial Officer Mitch Hill came two weeks after the Aliso Viejo firm reported declining sales for the fourth quarter and major cutbacks aimed at conserving cash.

In a statement, the nation’s fourth-largest Web retailer attributed the departure of Hawkins and Hill, who both joined the company in 1999, to a “fundamental disagreement over the direction of the company.” Spokeswoman Geri Weinfeld declined to elaborate, saying simply: “The board made a decision.”

Buy.com said board member Donald Kendall, a retired PepsiCo Inc. chief executive, will become chairman. Another director, James B. Roszak, will serve as interim chief executive, and Robert Price, previously chief financial officer at Pairgain Technologies, a telecommunications firm in Tustin, will replace Hill.

Analysts said it appeared that Buy.com’s board pushed the two executives out in a bid to turn the company around after its disappointing performance in the fourth quarter.

“The company has just deteriorated drastically over the last year,” said David Kathman, a stock analyst for Morningstar.

After rapid revenue growth over successive quarters, Buy.com’s sales suddenly shrank 2% in the fourth quarter. The company’s stock price has dropped 97% in the past year, closing at 63 cents Tuesday, up 6 cents on Nasdaq.

Kathman said he was skeptical that Buy.com could survive, even under the austere measures it announced two weeks ago.

The company said it would fire 10% of its staff and trim its global operations to stem losses, which have totaled about $280 million over the last three years.

A critical issue for the company is cash. Its latest reported cash reserves were about $67 million, but analysts said Buy.com burned through $70 million in the last two quarters alone.

Buy.com said its cost-cutting steps will enable it to go through just $20 million in cash for all of 2001. But analysts said that would be a tough act.

“As many other e-tailers have found out, once you get a customer base, you can’t just sit there and take money from them,” Kathman said. “You have to keep spending money to keep them and generate more customers.”

Roszak, an original director of Buy.com’s board, did not specify any additional steps he would take as interim CEO. “We’ve proven our ability to attract customers and sell products,” he said in a statement. “Now we need to prove that we can make money.”

Neither Hawkins nor Hill could be reached for comment. After reporting a wider-than-expected $27.4 million fourth-quarter loss earlier this month, Hawkins projected an upbeat outlook. “Although many people are treating us as if we’re in the ninth inning, we think we’re still in the early innings,” he said.

Christine Loeber, senior analyst with the Yankee Group, a research and consulting firm, said Buy.com will have to do more than drive traffic. “They have to turn traffic into customers and do so at a reasonable expense.”

Buy.com’s strategy was to build a brand and customer base by offering very low prices and then begin raising prices on high-volume products to boost gross margins.

But when the company--which sells software, electronics, books and other items--started raising prices, its growth screeched to a halt, analysts said.

Buy.com said earlier this month that it expects annual revenue to shrink by at least 25% this year, hampered by a slowing economy and weaker sales of computer products.

Hawkins, a former sales executive with computer distributor Ingram Micro Inc., joined Buy.com in March 1999, replacing Scott Blum, who founded the company in June 1997. Hill, a former Walt Disney Co. executive, came aboard in November 1999.

For the fourth quarter, Buy.com lost $27.4 million, or 20 cents a share, excluding extraordinary one-time charges. It had sales of $196.7 million.

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Bloomberg News contributed to this report.