GSI Commerce increased its net revenues 28% to $64.7 million and reported a net loss of $3.1 million, or 8 cents per share, decreasing the company's net loss by $631,000, or 2 cents per share, compared to last year's second fiscal quarter. For the same comparable periods, adjusted EBITDA, a non-GAAP financial measure, improved by approximately $394,000 to a loss of $535,000, and net merchandise sales, also a non-GAAP financial measure, rose 63 percent to $89.6 million. Definitions of the non-GAAP financial measures, adjusted EBITDA and net merchandise sales, a discussion of why the company uses these measures and a reconciliation of these measures to the nearest GAAP measures appear later in this news release.
Net revenues were $64.7 million for the second quarter of fiscal 2004, which was a 28 percent increase compared to net revenues of $50.3 million for the second quarter of fiscal 2003.
Net revenues from product sales generated by the company's sporting goods category were $33.6 million for the second quarter of fiscal 2004, which was a 24 percent increase compared to $27.0 million for the second quarter of fiscal 2003. Net revenues from product sales generated by the company's other merchandise categories were $19.5 million for the second quarter of fiscal 2004, which was a 4.0 percent increase compared to $18.7 million for the second quarter of fiscal 2003. The company launched the Treo 600 smartphone from palmOne on the GSI Commerce platform approximately one month later than planned which, together with a lengthy product availability backlog for this popular product line, negatively impacted product revenues in the other merchandise sales category in the quarter.
Service fee revenues increased 150 percent to $11.6 million in the second quarter of fiscal 2004 compared to $4.6 million in the second quarter of fiscal 2003.
Net merchandise sales were $89.6 million for the second quarter of fiscal 2004, a 63 percent increase compared to net merchandise sales of $54.8 million for the second quarter of fiscal 2003. Net merchandise sales represent the retail value of all sales transactions, inclusive of freight charges and net of allowances for returns and discounts, which flow through the GSI Commerce platform, whether or not the company is the seller of the merchandise or records the full amount of such sales on its financial statements.
Net merchandise sales from the sporting goods category increased 40 percent in the second quarter of fiscal 2004 to $37.9 million compared to $27.0 million in the second quarter of fiscal 2003. Net merchandise sales from the company's other merchandise categories increased 86 percent in the second quarter of fiscal 2004 to $51.7 million from $27.8 million in the second quarter of fiscal 2003.
The company had a net loss of $3.1 million for the second quarter of fiscal 2004, which was an improvement of approximately $631,000 compared to the net loss of $3.8 million for the second quarter of fiscal 2003.
The company showed a $0.02 per share improvement with a net loss per share of $0.08 for the second quarter of fiscal 2004 compared to a net loss per share of $0.10 for the second quarter of fiscal 2003.
The company showed a $394,000 improvement in adjusted EBITDA, with an adjusted EBITDA loss of $535,000 in the second quarter of fiscal 2004 compared to an adjusted EBITDA loss of $929,000 in the second quarter of fiscal 2003. The company incurred severance, recruiting and other expenses of approximately $500,000 related to executive management transitions in the second quarter of fiscal 2004, which had not been considered in the company's guidance issued in the fiscal 2004 first quarter operating results news release. Adjusted EBITDA represents earnings (or losses) before interest income/expense, taxes, depreciation, amortization, and stock-based compensation.
The company's gross profit improved 47 percent to $25.1 million in the second quarter of fiscal 2004 compared to a gross profit of $17.0 million in the second quarter of fiscal 2003. Gross margin improved to 38.8 percent for the second quarter of fiscal 2004 from 33.8 percent in the second quarter of fiscal 2003, an increase of 500 basis points.
Total operating expenses were $28.5 million for the second quarter of fiscal 2004, an increase of 35 percent compared to $21.1 million for the second quarter of fiscal 2003. Total operating expenses, as a percentage of net revenues, increased to 44 percent in the second quarter of fiscal 2004 compared to 42 percent in the second quarter of fiscal 2003.
Total operating expenses of $28.5 million, as a percentage of net merchandise sales of $89.6 million, were 32 percent in the second quarter of fiscal 2004. This compared to total operating expenses of $21.1 million in the second quarter of fiscal 2003, which, as a percentage of net merchandise sales of $54.8 million, were 38 percent.
The company's cash, cash equivalents, short-term investments and marketable securities at the end of fiscal 2004's second quarter were $48.2 million compared to $69.5 million at fiscal 2003 year-end, a decrease of $21.3 million, which was primarily attributable to the expected seasonality of working capital and, to a lesser extent, the purchase of a new company headquarters building. Cash, cash equivalents, short-term investments and marketable securities at the end of fiscal 2004's second quarter decreased $1.2 million compared to the $49.4 million at the end of fiscal 2003's second quarter. During fiscal 2004's second quarter, the company purchased a new headquarters building in King of Prussia, Pa., for $17 million and secured a 10-year, $13-million mortgage loan.
The company's inventory at the end of fiscal 2004's second quarter was $22.0 million compared to $22.9 million at fiscal 2003 year-end, a decrease of $879,000. Comparing inventory at the end of fiscal 2004's second quarter to the end of fiscal 2003's second quarter, inventory increased $1.7 million to $22.0 million from $20.3 million.
“GSI Commerce has performed well since our last report,” said Michael Rubin, chairman and CEO of GSI Commerce. “We have generated strong growth from sports and other categories, improved our bottom line, continued our strategy of meaningfully investing in our business to support our substantial growth opportunity and added key new partners. We are on track to meet our guidance and are also positioned well for future growth.”
Highlights since April 28, 2004
-- Polo Ralph Lauren and Timberland successfully launched their e-
commerce stores at http://www.polo.com/ and http://www.timberland.com/,
respectively, on GSI Commerce's e-commerce platform.
-- The company signed new partner agreements with two luxury brand
designers and retailers of high-quality apparel, accessories and home
products. The company expects to launch these partners' online
stores on GSI Commerce's e-commerce platform later this year.
-- GSI Commerce secured a multi-year contract extension with palmOne,
Inc. In addition to continuing to operate palmOne's
online stores in the United States and Canada, GSI Commerce will
replace and operate palmOne's Treo(TM) online store, currently
operated in-house by palmOne. The new site will include phone
activation services and credit authorization interfaces with an
expanded list of telecommunication carriers, including AT&T, Sprint,
Cingular, T-Mobile and Verizon.
-- GSI Commerce signed a multi-year extension of its contract to operate
the online retail store for Reebok International Ltd., a leading
worldwide designer, marketer and distributor of sports, fitness and
casual footwear, apparel and equipment.
-- Robert Blyskal was named to the newly created position of co-
president and chief operating officer. Blyskal directly oversees the
business management, technology and information services, and
fulfillment and customer service groups and reports to Michael Rubin.
-- The company's e-commerce platform was selected by more of the Top 300
Web retailers in the United States than any other solution provider's
platform, according to research published in June by Internet
Retailer Magazine in its "2004 Top 300 Guide."
-- GSI Commerce completed the purchase of a new 104,000-square-foot
headquarters building in King of Prussia, Pa. The company intends to
occupy the building in the fourth quarter of fiscal 2004, enabling it
to consolidate its headquarters staff into one facility from the
three facilities it currently occupies.
-- GSI Commerce leased a 400,000-square-foot fulfillment center. This
is GSI Commerce's second fulfillment facility. The lease is
contingent upon receiving certain tax-related incentives from the
state where the facility is located. Provided that the state
incentives are approved, GSI Commerce intends to operate the
facility, which would nearly double fulfillment capacity to 870,000
square feet from 470,000 square feet, beginning in the fourth quarter
of fiscal 2004.
The company provides the following guidance for the fiscal 2004 third quarter:
-- Net revenues are expected to be in the range of $62 million to $67
million.
-- Net merchandise sales are expected to be in the range of $92 million
to $97 million.
-- Net loss is expected to be in the range of $4.9 million to $3.9
million.
-- Adjusted EBITDA loss is expected to be in the range of a $1.5 million
to $500,000.
The company provides the following guidance for the fiscal 2004 fourth quarter:
-- Net revenues are expected to be in the range of $117 million to $130
million.
-- Net merchandise sales are expected to be in the range of $177.5
million to $190.5 million.
-- Net income is expected to be in the range of $12.1 million to $13.1
million.
-- Adjusted EBITDA is expected to be in the range of $16.6 million to
$17.1 million.
The company also updates its previous guidance for fiscal 2004:
-- Net revenues are expected to be in the range of $310 million to $328
million.
-- Net merchandise sales are expected to be in the range of $445 million
to $463 million.
-- Net income is expected to be in the range of $0 to $2 million.
-- Adjusted EBITDA is expected to be in the range of $13.5 million to
$15 million.
GSI COMMERCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 28, July 3, June 28, July 3,
2003 2004 2003 2004
Revenues:
Net revenues from product sales $45,722 $53,131 $89,895 $110,009
Service fee revenues 4,626 11,558 9,332 20,948
Net revenues 50,348 64,689 99,227 130,957
Cost of revenues from product sales 33,307 39,564 65,160 81,072
Gross profit 17,041 25,125 34,067 49,885
Operating expenses:
Sales and marketing, exclusive
of $279, $195, $508 and $689
reported below as stock-based
compensation, respectively 11,095 16,787 24,219 34,236
Product development, exclusive
of $0, $(47), $0 and $2
reported below as stock-based
compensation, respectively 3,418 4,498 7,117 8,981
General and administrative,
exclusive of $125, $5, $184 and
$89 reported below as stock-based
compensation, respectively 3,457 4,375 6,538 8,295
Stock-based compensation 404 153 692 780
Depreciation and amortization 2,734 2,646 5,432 5,245
Total operating expenses 21,108 28,459 43,998 57,537
Other (income) expense:
Interest expense - 54 - 54
Interest income (290) (242) (671) (532)
Total other (income) expense (290) (188) (671) (478)
Net loss $(3,777) $(3,146) $(9,260) $(7,174)
Losses per share - basic and diluted:
Net loss $(0.10) $(0.08) $(0.24) $(0.18)
Weighted average shares outstanding:
basic and diluted 38,838 40,991 38,811 40,930
