GSI Commerce Inc. saw first quarter net revenue increase 28% to $146.3 million from $114.2 million during last year's quarter. Merchandise sales increased 69% to $322.5 million in the quarter from $191.0 million last year. Revenues from the sale of sporting goods products increased 37% to $76.8 million from $55.8 million last year. However, the loss from operations expanded to $4.8 million from a loss of $3.9 million in the year-ago quarter. Adjusted EBITDA increased 45% to $3.8 million from $2.6 million. The company's net loss shrank to $2.3 million or 5 cents per share from a lossof $4.4 million or 10 cents per share during the first quarter of 2006.
“I am very pleased with our first quarter performance. We executed well against our plan and our business maintained a healthy pace coming off a strong fiscal 2006,” said Michael G. Rubin, chairman and CEO of GSI. “Net revenues and merchandise sales grew 28 percent and 69 percent, respectively, and we exceeded the high end of our first quarter guidance on all of our key profitability metrics. I am optimistic about the balance of the year based on underlying momentum and a robust pipeline of prospects.”
Emerging Growth Initiatives
In addition to financial results, the company also announced plans to broaden its long-term opportunity with two emerging growth initiatives: international and interactive marketing services.
“Since launching our business in 1999, we have primarily focused on developing our end-to-end e-commerce capabilities in the U.S. market. Having reached a leadership position in our core market, the time is right to focus not only on continuing to rapidly grow our core business but to also add new, complementary growth opportunities that can meaningfully impact our overall potential in the long run,” said Rubin.
International:
The international growth initiative will be led by GSI executive Steve Davis. Davis will assume the role of president of the company's international business. By 2009, Forrester Research estimates that the U.S. online business-to-consumer market (B2C) will grow to approximately $213 billion while International Data Corporation estimates the global, online B2C market will grow to approximately $1.1 trillion. Using these estimates, the company predicts that approximately 81% of the global, online B2C market will be located outside of the U.S. by 2009. Thus, while the U.S. market has historically accounted for virtually all of the company's revenues, this initiative is designed to grow the company's international business to account for a meaningful portion of the company's revenues in the future.
Davis will run the international division from the company's international headquarters in Barcelona, Spain. Davis has been a member of the GSI senior management team since 2000. He has overseen account management for the company's partners and has led GSI's product management team. He is also credited with launching and directing gsi interactive(SM), a division of GSI Commerce, which provides a broad range of interactive marketing services.
Interactive Marketing Services:
A search is underway for a president of gsi interactive. This executive will be responsible for building on the momentum of GSI's marketing services division and servicing the online marketing needs of partners who continue to move their marketing dollars from traditional media to the online channel.
2007 Fiscal Year and Second Quarter Financial Guidance
The company provides the following updated guidance for fiscal year 2007
(dollars in millions):
GAAP Guidance Non-GAAP Guidance
Range Range
Net revenue $710.0 – $760.0 Merchandise sales (a) $1,590.0 – $1,690.0
Income from
operations $9.5 – $12.5 Adjusted EBITDA (b) $52.0 – $55.0
Net income $38.0 – $41.0 Non-GAAP net income (c) $12.0 – 15.0
(fully taxed)
The following additional fiscal 2007 year guidance is presented to reconcile the GAAP financial metric to its corresponding Non-GAAP financial metric:
a) Merchandise sales: add to projected net revenue estimated merchandise
sales from non-owned inventory of approximately $1.085 billion -
$1.135 billion and subtract estimated service fees of approximately
$205.0 million.
b) Adjusted EBITDA: add to projected income from operations estimated
depreciation and amortization of $34.0 million and estimated stock-
based compensation of $8.5 million.
c) Non-GAAP net income: add to projected net income estimated stock-based
compensation of $8.5 million and estimated amortization of
acquisition-related intangibles of $1.5 million and subtract estimated
income tax benefit of $26.0 million. This figure is then taxed at our
estimated annual effective tax rate of 38.5 percent.
Capital expenditures for fiscal year 2007 are estimated to be in a range of $50.0 million to $55.0 million.
The company provides the following guidance for fiscal 2007 second quarter
(dollars in millions):
GAAP Guidance Non-GAAP Guidance
Range Range
Net revenue $125.0 - $135.0 Merchandise sales (a) $280.0 - $300.0
Loss from
operations $(12.0) - $(11.0) Adjusted EBITDA loss (b) $(2.0) - $(1.0)
Net loss $(7.5) - $(6.5) Non-GAAP net loss (c) $(6.0) - $(5.0)
(fully taxed)
The following additional fiscal 2007 second quarter guidance is presented to reconcile the GAAP financial metric to its corresponding Non-GAAP financial metric:
a) Merchandise sales: add to projected net revenue estimated merchandise
sales from non-owned inventory of approximately $190.0 million -
$200.0 million and subtract estimated service fees of approximately
$35.0 million.
b) Adjusted EBITDA: add to projected loss from operations estimated
depreciation and amortization of $8.0 million and estimated stock-
based compensation of $2.0 million.
c) Non-GAAP net loss: add to projected net loss estimated stock-based
compensation of $2.0 million and estimated amortization of
acquisition-related intangibles of $0.4 million for fiscal 2007 second
quarter and subtract estimated income tax benefit of $4.0 million.
This figure is then taxed at our estimated annual effective tax rate
of 38.5 percent.
GSI COMMERCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended
April 1, March 31,
2006 2007
Revenues:
Net revenues from product sales $91,657 $108,750
Service fee revenues 22,586 37,533
Net revenues 114,243 146,283
Cost of revenues from product sales 67,066 76,802
Gross profit 47,177 69,481
Operating expenses:
Sales and marketing, inclusive of $1,309
and $557 of stock-based compensation 30,713 44,174
Product development, inclusive of
$192 and $288 of stock-based
compensation 8,403 13,738
General and administrative,
inclusive of $422 and $752 of
stock-based compensation 7,397 9,411
Depreciation and amortization 4,516 6,924
Total operating expenses 51,029 74,247
Loss from operations (3,852) (4,766)
Other (income) expense:
Interest expense 778 842
Interest income (1,490) (1,944)
Other (income) expense (150) 15
Impairment on investment 1,647 -
Total other (income) expense 785 (1,087)
Loss before income taxes (4,637) (3,679)
Provision (benefit) for income taxes 2 (1,334)
Net loss before cumulative effect of
change in accounting principle (4,639) (2,345)
Cumulative effect of change in
accounting principle 268 -
Net loss $(4,371) $(2,345)
Basic and diluted loss per share:
Prior to cumulative effect of
change in accounting principle $(0.11) $(0.05)
Cumulative effect of change in
accounting principle $0.01 $-
Net loss $(0.10) $(0.05)
Weighted average shares outstanding -
basic and diluted 44,680 45,999
