GSI Commerce Inc. announced results for the second fiscal quarter ended July 2, 2005.
“The second quarter was very exciting for GSI Commerce, highlighted by strong operating results, continued new partner momentum and the addition of international capabilities,” said Michael G. Rubin, chairman and CEO of GSI Commerce. “Our solid top- and bottom-line results reflect the strength of our partner base and platform as well as robust underlying e-commerce trends. The addition of three new partners brings our total for the year to nine new partners and already has us at the high end of our expected range of five to 10 new partners for the year. This reflects what we believe is a growing interest in e-commerce outsourcing and GSI Commerce's leadership position in the market. Through our agreement to acquire control of Aspherio, we now are able to offer international capabilities to our partners, opening up what we believe could be a significant growth opportunity for GSI Commerce. Overall, GSI Commerce had a strong first half of fiscal 2005 and we believe we are well positioned to deliver solid results for the balance of the year.”
Net Revenues and Merchandise Sales
Net revenues were $91.7 million for the second quarter of fiscal 2005, a 42% increase compared to $64.7 million in the same period in fiscal 2004. Merchandise sales were $136.8 million for the second quarter of fiscal 2005, a 53% increase compared to $89.6 million in the same period in fiscal 2004.
Components of Net Revenues and Merchandise Sales
Net revenues from product sales from the sporting goods category were $41.9 million for the second quarter of fiscal 2005, a 25% increase compared to $33.6 million for the same period last year. Merchandise sales from the sporting goods category were $51.4 million for the second quarter of fiscal 2005, a 36% increase compared to $37.9 million in the same period last year. Net revenues from product sales from other categories were $33.3 million for the second quarter of fiscal 2005, a 70% increase compared to $19.5 million for the same period last year. Merchandise sales from other categories were $85.4 million for the second quarter of fiscal 2005, a 65% increase compared to $51.7 million in the same period last year.
Service fee revenues were $16.5 million in the second quarter of fiscal 2005, a 43% increase compared to $11.6 million in the same period last year.
Net Loss, EPS and Adjusted EBITDA
Net loss was $2.8 million or 7 cents per share for the second quarter of fiscal 2005, compared to a net loss of $3.1 million or 8 cents per share in the same period last year. Stock-based compensation expense was $1.7 million in the second quarter of fiscal 2005, compared to $153,000 in the same period last year. The increase in stock-based compensation was primarily due to the impact that the increase in the price of the company's common stock during the second quarter had on historical stock awards subject to variable accounting and the issuance of restricted stock
awards under its new long-term incentive compensation program. Adjusted EBITDA was $2.5 million for the second quarter of fiscal 2005, compared to an adjusted EBITDA loss of $535,000 in the same period last year.
Gross Profit and Operating Expenses
Gross profit was $34.6 million in the second quarter of fiscal 2005, an increase of 38% compared to $25.1 million in the same period last year. Gross margin was 37.8% in the second quarter of fiscal 2005, a decline of 100 basis points from 38.8% in the same period last year. The decline in gross margin was primarily due to product sales
from other categories, which carry lower gross margins on a relative basis, growing more rapidly than product sales from sporting goods. Total operating expenses were $37.6 million for the second quarter of
fiscal 2005, a 32% increase compared to $28.5 million for the same period last year. Total operating expenses, as a percentage of net revenues, decreased to 41.0% in the second quarter of fiscal 2005 compared to 44.0% in the second quarter of fiscal 2004. Total operating expenses of $37.6 million, as a percentage of merchandise sales of $136.8 million, were 27.5% in the second quarter of fiscal 2005. This compared to total operating expenses of $28.5 million in the same period last year, which as a percentage of merchandise sales of $89.6 million, was 31.8 percent.
Balance Sheet
The company's cash, cash equivalents, short-term investments and marketable securities at the end of the second fiscal quarter of 2005 were $117.5 million compared to $75.4 million at the end of fiscal year 2004, and $48.2 million at the end of second fiscal quarter of 2004.
Key Events Since April 27, 2005
The company signed a multiyear agreement to provide a comprehensive e-commerce solution for General Nutrition Corporation (GNC), the largest global specialty retailer of nutritional supplements. The agreement calls for GSI Commerce to provide GNC with an e-commerce solution that includes core technology, fulfillment and customer care
operations. GNC's new e-commerce business is expected to launch in the fourth quarter of this year.
The company signed a multiyear agreement with Zale Corporation to provide North America's largest specialty retailer of fine jewelry with multichannel e-commerce solutions for each of its brands – Zales Jewelers, Zales Outlet, Gordon's Jewelers, Bailey Banks & Biddle Fine Jewelers and Piercing Pagoda in the United States as well as Peoples Jewellers and Mappins Jewellers in Canada. The
e-commerce solution includes the core technology platform, customer care operations and multichannel initiatives. In addition, the company signed multiyear agreements with three new partners. All three partners are expected to launch their new e-commerce operations during the third and fourth quarters of this year. Revenues from all three new partners will be recorded as
service fees. GSI Commerce will provide its core technology platform and fulfillment services to all three new partners and customer care operations for two of the new partners. The company announced it had entered into a definitive agreement pursuant to which it would acquire control of privately held Aspherio, S.L., a Barcelona, Spain-based provider of outsourced e-commerce solutions (http://www.aspherio.com). Subject to the satisfaction of certain conditions, the acquisition is expected to close in late 2005 or early 2006. The company successfully raised approximately $80 million of net
proceeds through the concurrent sale of 1.8 million common shares and $57.5 million aggregate principal amount of 3% convertible notes due 2025. The company will use the net proceeds for working capital and general corporate purposes, including possible acquisitions.
Fiscal 2005 Third Quarter and Annual Financial Guidance
For the third quarter, the company expects net revenues to be in the range of $79.0 million to $84.0 million. Merchandise sales are expected to be in the range of $122.0 million to $132.0 million.
Net loss is expected to be in the range of $2.5 million to $3.0 million. Adjusted EBITDA is expected to be in the range of $1.5 million to $2.0 million.
For the fiscal year, Net revenues are expected to be in the range of $430.0 million to $445.0 million. Merchandise sales are expected to be in the range of $675.0 million
to $695.0 million. Net income is expected to be in the range of $9.5 million to $10.5 million.
Adjusted EBITDA is expected to be in the range of $28.0 million to $29.0 million.
“Our updated guidance reflects higher net revenue and merchandise sales expectations compared to our previous guidance primarily due to the addition of five new partners. Our third quarter guidance reflects the normal seasonality of our business. In fiscal 2004, launch activity in the second fiscal quarter drove higher sequential net revenue in the third fiscal quarter, whereas, in fiscal 2005, launch activity is expected to be concentrated late in the fiscal third quarter and early in the fiscal fourth quarter,” commented Jordan Copland, executive vice president and chief financial officer. “We have raised the low end of our adjusted EBITDA guidance, but kept the top end the same due to higher expected volume, offset to a large extent by higher launch costs attributable to the addition of new partners more quickly than expected during the year. While we are incurring the launch expenses for these new partners in 2005, we expect the principal benefit to be realized in 2006 and beyond. Our expected net income range has been adjusted primarily to take into consideration higher anticipated stock- based compensation expense. The expected increase in stock-based compensation expense for 2005 is due to the increase in our stock price in the second quarter of fiscal 2005 and the issuance or expected issuance of restricted stock awards as a portion of compensation for certain employees. Historically, GSI Commerce issued stock options to employees, for which there was no required earnings charge. In anticipation of adopting FASB 123® (Share-Based Payments), the company instituted a revised long-term incentive compensation program that emphasizes restricted stock awards and which required the expensing of certain grants beginning in the second quarter of fiscal 2005.”
GSI COMMERCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
July 3, July 2, July 3, July 2,
2004 2005 2004 2005
Revenues:
Net revenues from product sales $53,131 $75,158 $110,009 $151,810
Service fee revenues 11,558 16,488 20,948 31,194
Net revenues 64,689 91,646 130,957 183,004
Cost of revenues from product sales 39,564 57,046 81,072 114,672
Gross profit 25,125 34,600 49,885 68,332
Operating expenses:
Sales and marketing, exclusive
of $195, $934, $690 and $1,124
reported below as stock-based
compensation, respectively 16,787 21,288 34,236 42,199
Product development, exclusive
of ($47), $253, $2 and $223
reported below as stock-based
compensation, respectively 4,498 6,436 8,981 13,025
General and administrative,
exclusive of $5, $561, $88
and $171 reported below as
stock-based compensation,
respectively 4,375 4,519 8,295 9,744
Stock-based compensation 153 1,748 780 1,518
Depreciation and amortization 2,646 3,617 5,245 6,739
Total operating expenses 28,459 37,608 57,537 73,225
Other (income) expense:
Other (income) expense 2 (169) 3 (268)
Interest expense 54 413 54 646
Interest income (244) (475) (535) (818)
Total other (income)
expense (188) (231) (478) (440)
Net income (loss) $(3,146) $(2,777) $(7,174) $(4,453)
Earnings (loss) per share - basic
and diluted:
Net income (loss) - basic $(0.08) $(0.07) $(0.18) $(0.11)
Net income (loss) - diluted $(0.08) $(0.07) $(0.18) $(0.11)
