GSI Commerce Inc.’s fiscal second quarter ended July 1, 2006, net revenues increased 30.1% to $119.6 million and their net loss expanded 24% to $3.6 million, or 8 cents per share, compared to net revenues of $91.9 million and a net loss of $2.9 million, or $0.07 per share, for 2005’s fiscal second quarter.
Included in net loss and net loss per share for the fiscal second quarter of 2006 is a non-cash charge of approximately $0.4 million, or $0.01 per share, to reduce the carrying value of the shares owned by the company in Odimo Incorporated from $1.3 million to approximately $0.9 million, which represents the market value of the shares as of July 1, 2006. These shares represent a portion of the consideration received when the company sold certain assets of Ashford.com to Odimo in fiscal 2002. GSI Commerce did not include this non-cash charge when it issued guidance for the second quarter and full year on April 26.
Other Financial Highlights
-- Merchandise sales were $208.0 million in the fiscal second quarter of
2006, a 52 percent increase compared to $136.8 million in the same
period in fiscal 2005. A definition of merchandise sales appears
later in this news release under "Non-GAAP Financial Measures."
-- Adjusted EBITDA was $2.8 million in the fiscal second quarter of
2006, compared to adjusted EBITDA of $2.3 million in the same period
in 2005, an increase of 19 percent. A definition of adjusted EBITDA
appears later in this news release under "Non-GAAP Financial
Measures."
-- Gross profit was $46.6 million in the fiscal second quarter of 2006,
an increase of 35 percent compared to $34.4 million in the same period
in 2005.
-- Gross margin was 38.9 percent in the fiscal second quarter of 2006,
an increase of 140 basis points from 37.5 percent in the same period
in 2005.
-- The company's cash, cash equivalents and marketable securities at the
end of the fiscal second quarter of 2006 was $128.6 million compared
to $156.7 million at the end of fiscal year 2005, and compared to
$117.5 million at the end of 2005's fiscal second quarter.
“We had a successful second quarter marked by strong revenue growth, better than planned adjusted EBITDA and the signing and launch of our deal with Toys “R” Us,” said Michael G. Rubin, chairman and chief executive officer of GSI Commerce. “We are pleased with the momentum in our business and continue to focus on driving strong growth, improving profitability and investing in our platform.”
The company provides the following guidance for the fiscal 2006 third quarter:
-- Net revenues are expected to be in the range of $105 million to $110
million, or increase between 24 percent and 30 percent.
-- Merchandise sales are expected to be in the range of $205 million to
$212 million, or increase between 62 percent and 67 percent.
-- Product sales are expected to be in the range of $75 million to $79
million, or increase between 10 percent and 15 percent.
-- Service fees are expected to be in the range of $29 million to $31
million, or increase between 77 percent and 89 percent.
-- Net loss is expected to be in the range of $6.7 million to $7.7
million.
-- Adjusted EBITDA loss is expected to be in the range of $0.25 million
to $1.25 million.
-- Depreciation and amortization is expected to be approximately $5.5
million to $6.0 million, compared to $3.7 million in the fiscal third
quarter of 2005.
-- Stock-based compensation expense is expected to be approximately $1.5
million to $2.0 million, compared to $1.1 million in fiscal 2005's
third quarter, and includes the impact of SFAS 123®, which the
company adopted in the first quarter of fiscal 2006.
-- Net interest income is expected to be approximately $0.4 million to
$0.5 million, compared to $0.2 million in fiscal 2005's third
quarter.
-- Consistent with fiscal third quarter of 2005, the company does not
intend to record a provision for income taxes in the fiscal third
quarter of 2006.
The company provides the following updated guidance for fiscal year 2006:
-- Net revenues are expected to be in the range of $567 million to $587
million, or an increase of between 29 percent and 33 percent.
-- Merchandise sales are expected to be in the range of $1.1 billion to
$1.15 billion, or an increase of between 61 percent and 69 percent.
-- Product sales are expected to be the range of $440 million to $449
million, or an increase of between 24 percent and 26 percent.
-- Service fees are expected to be the range of $130 million to $137
million, or an increase of between 53 percent and 61 percent.
-- Net income is expected to be in the range of $5.0 million to $6.5
million, or an increase of between 85 percent and 141 percent. Net
income guidance includes $2.0 million of impairment charges taken in
the first two fiscal quarters of 2006 related to the company's
investment in Odimo Incorporated.
-- Adjusted EBITDA is expected to be in the range of $33 million to $35
million, or an increase of between 60 percent and 69 percent.
-- Depreciation and amortization is expected to be approximately $21
million.
-- Stock-based compensation is expected to be approximately $7.0 million
and includes the impact of the adoption of SFAS 123®.
-- 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 $40 million
to $45 million, including expectation to purchase rather than lease
the company's new call center and additional capacity to support
incremental volume.
The company signed a long-term agreement to provide Toys “R” Us®
with technology and customer service for its toysrus.com and
babiesrus.com businesses. The Web stores launched on July 1.
The company was subsequently selected to provide marketing services
to Toys “R” Us. The marketing services that GSI Commerce will
provide to Toys “R” Us include online media buying, email creation
and delivery, web site design and digital photography.
The company launched Dockers® during the second quarter, which is
the second Levi Strauss & Co. brand to go live on the GSI Commerce e-
commerce platform. The company is providing Dockers online store
with technology, fulfillment and customer care operations. Dockers
was one of the two unannounced apparel partners referenced by GSI
Commerce in its fiscal first quarter 2006 operating results news
release.
In July, the company signed a multiyear agreement to provide a full-
service e-commerce solution for the global fashion company BCBG Max
Azria Group for its BCBG Max Azria and BCBGirls brands. With an
expected launch in the first quarter of 2007, GSI Commerce is
providing the Web stores with online technology, fulfillment and
customer care operations. Revenues from the partner will be recorded
as service fees.
Also in July, the company signed a multiyear agreement with an
unnamed partner in the health and beauty category. The partner is
expected to launch its e-commerce operations in the fourth quarter of
this year. Revenues from the partner will be recorded as service
fees. The agreement includes technology, fulfillment and customer
care.
In June, the company elected two new members to its board of
directors, Andrea M. Weiss and Michael J. Donahue. Weiss has 25
years experience in executive and senior management retail positions
and is president and chief executive officer of Retail Consulting
Inc., an international retail consulting company. Donahue, one of
the founders of KPMG Consulting, has more than 20 years experience as
an executive with BearingPoint Inc. and KPMG LLP.
GSI COMMERCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)Three Months Ended Six Months Ended
July 2, July 1, July 2, July 1,
2005 2006 2005 2006Revenues:
Net revenues from product
sales $75,158 $94,526 $151,810 $186,183
Service fee revenues 16,716 25,102 31,422 47,688Net revenues 91,874 119,628 183,232 233,871
Cost of revenues from product sales 57,439 73,036 115,026 140,102
Gross profit 34,435 46,592 68,206 93,769
Operating expenses:
Sales and marketing, inclusive
of $927,$1,070, $1,110, and
$2,378, respectively, of
stock-based compensation 22,157 28,863 43,199 59,575
Product development, inclusive
of $253, $228, $223, and $420
respectively, of stock-based
compensation 6,689 8,763 13,248 17,166
General and administrative,
inclusive of $553, $550, $155,
and $973, respectively, of
stock-based compensation 5,072 7,884 9,899 15,281
Depreciation and amortization 3,617 4,861 6,739 9,377Total operating expenses 37,535 50,371 73,085 101,399
Other (income) expense:
Interest expense 413 777 646 1,555
Interest income (475) (1,494) (818) (2,984)
Other (income) expense (93) 140 (208) (10)
Impairment on investment - 379 - 2,027Total other (income)
expense (155) (198) (380) 588Loss before income taxes and
cumulative effect of change in
accounting principle (2,945) (3,581) (4,499) (8,218)
Provision for income taxes - - - 2Net loss before cumulative effect of
change in accounting principle (2,945) (3,581) (4,499) (8,220)
Cumulative effect of change in
accounting principle - - - 268Net loss $(2,945) $(3,581) $(4,499) $(7,952)
Basic and diluted loss per share:
Prior to cumulative effect of
change in accounting principle $(0.07) $(0.08) $(0.11) $(0.19)Cumulative effect of change in
accounting principle $- $- $- $0.01Net loss $(0.07) $(0.08) $(0.11) $(0.18)
Weighted average shares outstanding
- basic and diluted 42,551 44,993 42,106 44,836
