GSI Commerce wrapped up an eventful fiscal 2008, a year of radical ups and downs that included the largest acquisition in the companys history, along with the Chapter 11 filing of Linens N Things, one of the companys top clients.
Despite numerous setbacks and a tumultuous 2008 economic environment that hampered revenues across the board, the provider of e-commerce and e-marketing services managed 29% growth in revenues for the fiscal year along with a 57% boost in non-GAAP income from operations and a record free cash flow totaling $38.8 million. Net revenues for the year were $966.9 million, up from $750.0 million last year. Service fees accounted for 40% of net revenues for the year versus 32% for 2007. Revenues included approximately $3 million in service fees related to gift certificate breakage.
Significant increases in expenses relating to product development and account management resulted in a net loss of $16.9 million, or 36 cents per diluted share, for fiscal 2008 after the company reported a net income of $3 million, or 6 cents per diluted share, in the preceding fiscal year. Also contributing to this was a loss from operations of $9.0 million for the year which was driven down by several expenses, including stock-based compensation.
Fourth quarter revenues grew 16.8% to $391.4 million from $335.1 million in the year-ago period. Management said the company had made a concerted effort in Q4 to increase promotional efforts in light of the shorter holiday season and in response saw “very large” year-over-year increases for Thanksgiving Day, Black Friday and Cyber Monday. Likewise, representatives said efforts to heavily promote end-of-season sales were a success. Revenues were driven by a 9.8% increase in product sales along with a 32% jump in service fee revenues during the quarter.
The fourth quarter was negatively impacted in both years by Linens 'N Things and BabyCenter, but revenues were still up in the high-single-digits in the fourth quarter when excluding the two clients, with “notable strength in apparel and health and beauty.” GSIC said it posted a “modest decline” in average order value, offset, in part, by an increase in units per order. The full year growth rate was in the mid-teens with Linens 'N Things and BabyCenter excluded.
Earnings for the quarter jumped 48.1% to $24.4 million, or 45 cents per share, from $16.5 million, or 30 cents per share, in the year-ago period. Fourth quarter numbers include a $1.7 million charge for the impairment of equity investments.
Regarding outlook, representatives noted that 2009 would see “moderately lower” results due to several factors, including the losses of Linens N Things and BabyCenter and the transition to a new non-seller model with Dicks Sporting Goods.
Effective February 1, Dick's Sporting Goods transitioned to a service contract and is now the “seller of record” for goods sold though the GSIC platform. DKS is now responsible for assortment and pricing and is in the process of transitioning inventory ownership as current inventories are sold down. GSIC management said they expect other retailers may also see this as a preferred model, but were open to discussing those changes at this time.
The company expects first quarter revenues in the range of $187 million to $192 million along with a loss from operations between $20.0 million and $21.9 million for the period.
