Buy.com Loss Narrows Even as Revenue Skids

Hit hard by a precipitous drop in sales, beleaguered Internet retailer Buy.com (Nasdaq: BUYX) reported Wednesday that its first-quarter revenue plummeted 40 percent from the year-ago period and warned that its second-quarter revenue would see an even deeper decline.

The Aliso Viejo, California-based company said it was concentrating on slashing its losses in a bid to reach profitability.

"Our main focus is to achieve positive operating cash flow by the end of the year, through reductions in operating expenses and gross margin improvements," Buy.com chief executive officer Jim Roszak said.

Profit Progress?

Pro-forma net loss for the quarter ended March 31st dropped 60 percent to $10.4 million, or 8 cents per share, from $26.1 million, or 23 cents per share, in the first quarter in 2000, according to Buy.com.

"This quarter we established a balance that allowed us to offer our customers a deep selection at great prices, while at the same time make solid progress towards achieving profitability," Roszak said.

However, factoring in non-cash and restructuring charges, the company showed a net loss of $45.2 million, or 33 cents per share, compared to a loss of $33.9 million, or 28 cents per share, in the year-ago period.

Buy.com said that revenue for the first quarter fell to US$124.6 million from the $207.6 million posted in the year-ago period.

No Way Back?

Buy.com "has been deteriorating over the past year to a shocking degree," Morningstar.com analyst David Kathman told the E-Commerce Times.

"One of the things they needed to do was grow really fast," said Kathman. "But their revenue has gone into reverse, they've been exiting non-core businesses and they've cut costs to the bare bones in order to survive."

While Buy.com said it expected to cut its first-quarter pro forma loss by 50 percent in the second quarter, the e-tailer cautioned that revenue would fall off from first-quarter levels.

The company also did not provide any financial guidance for the full year.

Fast Burn

Buy.com may only have a limited amount of time to turn its situation around. The e-tailer said that it burned through $33.7 million during the first quarter, leaving only another $33.7 million in cash and marketable securities, $20 million of which is restricted under credit obligations.

Kathman noted that in its fourth quarter 2000 financial results, the company's previous management team had estimated it would have between $45 million and $50 million on hand by the end of the first quarter.

"They're burning through cash quicker than they wanted to, and if they run out of money then that's it," Kathman said.

Kathman thinks that it is unlikely that the e-tailer will be able to secure additional funding in the current market. If it were to do so, he predicted that the funds would likely be "death spiral funding," which would likely require Buy.com to give away a "huge chunk" of the company in order to survive.

Expense Account

On a positive note, Buy.com said it managed to drive down operating expenses considerably, to $29.8 million in the first quarter from $40.6 million in the same period last year.

The e-tailer said that it achieved this result due to the layoffs of approximately 125 workers in February and an increase in prices for some of its goods.

Meanwhile, the company also said it has improved gross margins to 11.6 percent, up from 6.8 percent in the fourth quarter of 2000.

Problems Mount

Since going public in February 2000, Buy.com has seen its stock price slip steadily from $35 per share to 58 cents per share in early trading Thursday.

The firm has also weathered an internal shake-up. Last month, it announced that two members of its board of directors were leaving.

The departures came on the heels of the resignations of CEO and chairman of the board Gregory Hawkins and chief financial officer Mitch Hill in March for unspecified reasons.

In the past year, the company has opened -- and subsequently closed -- e-tail operations in the UK, Canada and Australia. Buy.com also exited the golf business it had acquired when it bought Buygolf.com and closed its sports store.