GSI Commerce Inc. saw fourth quarter net revenues increase 27% to a record $172.3 million and reported net income of $11.7 million, or 25 cents per diluted share, compared to net revenues of $135.6 million and net income of $10.1 million, or 23 cents per diluted share, for 2004's fiscal fourth quarter. For the fiscal year 2005, the company increased its net revenues 31% to a record $440.4 million and reported net income of $2.7 million, or 6 cents per diluted share, compared to net revenues of $335.1 million and a net loss of $0.3 million, or 1 cent per diluted share, for fiscal year 2004.
During the second half of 2005, the company explored an acquisition opportunity, which it decided not to pursue after completing a due diligence effort in December 2005. As a result, the external costs associated with this effort of approximately $1.5 million were included in general and administrative expense for the fiscal fourth quarter. In addition, the company recorded a provision for income taxes of $321,000 during the fourth quarter of fiscal 2005. The income tax provision was primarily related to state tax obligations. Also, as previously disclosed, during the fourth quarter of fiscal 2005, the company restated historical financial results to correct for previous errors, including the overstatements of its accounts payable balance and the recording of certain credits in the wrong period. The external expenses recorded in the fourth quarter of fiscal year 2005 related to the restatement, including remediation efforts, were approximately $700,000, which was $200,000 greater than the company had most recently forecast. These three items, which totaled $2.0 million, were not included in the guidance issued by the company on Nov. 15, 2005, when the company said it expected fiscal year 2005 net income would be approximately $5 million.
Net Revenues and Merchandise Sales
- Net revenues were $172.3 million in the fourth quarter of fiscal 2005,
a 27 percent increase compared to $135.6 million in the same period in
fiscal 2004. Net revenues were $440.4 million in fiscal year 2005, a
31 percent increase compared to $335.1 million in fiscal year 2004.
- Merchandise sales were $282.4 million in the fourth quarter of fiscal
2005, a 42 percent increase compared to $199.3 million in the same
period in fiscal 2004. Merchandise sales were $682.0 million in fiscal
year 2005, a 44 percent increase compared to $475.0 million in fiscal
year 2004. A definition of merchandise sales appears later in this
news release under "Non-GAAP Financial Measures."
Net Income, EPS and Adjusted EBITDA
- Net income was $11.7 million, or $0.25 per diluted share, in the fourth
quarter of fiscal 2005 compared to net income of $10.1 million, or
$0.23 per diluted share, in the same period in 2004. Net income was
$2.7 million, or $0.06 per diluted share, in fiscal year 2005 compared
to a net loss of $0.3 million, or $0.01 per diluted share, in fiscal
year 2004.
- Adjusted EBITDA was $17.2 million in the fourth quarter of fiscal 2005,
compared to adjusted EBITDA of $15.5 million in the same period in
2004, an increase of 11 percent. Adjusted EBITDA was $20.7 million in
fiscal year 2005 compared to $13.6 million in fiscal year 2004, an
increase of 53 percent. A definition of adjusted EBITDA appears later
in this news release under "Non-GAAP Financial Measures."
Gross Profit and Operating Expenses
- Gross profit was $74.2 million in the fourth quarter of fiscal 2005, an
increase of 34 percent compared to $55.4 million in the same period in
2004. Gross profit was $176.6 million in fiscal year 2005, an increase
of 34 percent compared to $131.7 million in fiscal year 2004.
- Gross margin was 43.1 percent in the fourth quarter of fiscal 2005, an
increase of 220 basis points from 40.9 percent in the same period in
2004. Gross margin was 40.1 percent in fiscal year 2005, an increase
of 80 basis points from 39.3 percent in fiscal year 2004.
- Total operating expenses were $61.9 million in the fourth quarter of
fiscal 2005, a 38 percent increase compared to $44.8 million in the
same period in 2004. Total operating expenses were $173.7 million in
fiscal year 2005, a 31 percent increase compared to $132.1 million in
fiscal year 2004.
Balance Sheet
The company's cash, cash equivalents and marketable securities at the end of fiscal year 2005 were $156.7 million compared to $75.4 million at the end of fiscal year 2004. Inventory at the end of fiscal year 2005 decreased to $34.6 million compared to $37.8 million at the end of fiscal year 2004.
Management Commentary
“Our business performed very well in the fourth fiscal quarter of 2005. Our net revenues were better than we expected and were driven by the continuing strong trend of consumers making holiday purchases online,” said Michael G. Rubin, chairman and CEO of GSI Commerce. “Overall, we are pleased with the performance of both our new and existing partners' e-commerce businesses during the quarter. Fiscal 2005 was both a period of strong growth and improved profitability for GSI Commerce as well as a period marked by significant investments in our future.
“For fiscal year 2006, we expect to continue our strong growth in revenues and even faster growth in profits,” said Rubin. “At the same time, while we forecast strong growth and expanding profit margins, we will also continue to take a balanced approach toward improving our profitability while still investing to support our growth opportunity. In particular, in 2006 we expect to make incremental investments of approximately $17 million in fixed overhead to enhance our platform, with investments being made in all key areas of our business, including our technology, logistics, customer care and marketing services capabilities.”
Fiscal 2006 First Quarter and Annual Financial Guidance
The following forward-looking statements reflect GSI Commerce's expectations as of Feb. 15, 2006. Given the potential changes in general economic conditions and consumer spending, the emerging nature of e-commerce and various other risk factors discussed below and in our public reports, actual results may differ materially.
The company provides the following guidance for the fiscal 2006 first quarter:
- Net revenues are expected to be in the range of $101 million to $106
million, or increase between 11 percent and 16 percent.
- Merchandise sales are expected to be in the range of $176 million to
$181 million, or increase between 29 percent and 33 percent.
- Product sales are expected to be in the range of $80 million to $85
million, or increase between 4 percent and 11 percent.
- Service fees are expected to be in the range of $18 million to $20
million, or increase between 22 percent and 36 percent.
- Net loss is expected to be in the range of $3.0 million to $4.0
million.
- Adjusted EBITDA is expected to be in the range of $0.5 million to $1.5
million.
- Depreciation and amortization is expected to be approximately $4.0
million to $4.5 million, compared to $3.1 million in fiscal 2005's
first quarter.
- Stock-based compensation expense is expected to be approximately $1.5
million to $2.0 million, compared to a credit of $200,000 in fiscal
2005's first quarter, and includes the adoption of SFAS 123®
beginning in 2006. In calculating stock-based compensation expense, it
is assumed the company's stock price will remain unchanged from period
to period for future quarters.
- Net interest income is expected to be approximately $600,000 to
$700,000, compared to $110,000 in fiscal 2005's first quarter.
- Consistent with last year, the company does not intend to record a
provision for income taxes in the first quarter of fiscal 2006.
The company provides the following guidance for fiscal year 2006:
- Net revenues are expected to be in the range of $530 million to $550
million, or an increase of between 20 percent and 25 percent.
- Merchandise sales are expected to be in the range of $900 million to
$950 million, or an increase of between 32 percent and 39 percent.
- Product sales are expected to be the range of $415 million to $435
million, or an increase of between 17 percent and 22 percent.
- Service fees are expected to be the range of $105 million to $115
million, or an increase of between 24 percent and 35 percent.
- Net income is expected to be in the range of $5 million to $10 million,
or an increase of between 92 percent and 285 percent.
- Adjusted EBITDA is expected to be in the range of $30 million to $35
million, or an increase of between 45 percent and 69 percent.
- Depreciation and amortization is expected to be approximately $19
million.
- Stock-based compensation is expected to be approximately $7.5 million
and includes the adoption of SFAS 123® beginning in 2006. In
calculating stock-based compensation expense, it is assumed the
company's stock price will remain unchanged from period to period for
future quarters.
- Net interest income is expected to be approximately $2.5 million.
- A provision for income tax is expected to be in a range of 5 percent to
10 percent of pre-tax income.
- Capital expenditures are expected to be in the range of $25 million to
$30 million.
Key Events Since Nov. 15, 2005
- In February, the company signed its first new partner of 2006. The
unnamed apparel partner is expected to launch e-commerce operations in
the second quarter of 2006. Revenues from the new partner will be
recorded as service fees. The solution will include technology,
fulfillment services and customer care operations.
- The company launched new e-commerce operations for GNC Corporation and
adidas.
- In January, the company completed its acquisition of Aspherio, a
Barcelona, Spain-based provider of outsourced e-commerce solutions for
the international market. The acquisition is not expected to have a
material impact on the company's financial results for fiscal year
2006.
