Overstock Posts a Q1 Loss
For those of you who run small businesses and home office businesses based on affiliate marketing may be interested to hear that Overstock has posted a $15.9 million dollar loss for the first quarter of 2006 and expect Q2 will see a similar result.
Overstock’s press release said in par:
Overstock.com Reports First Quarter 2006 Financial Results
Summary of results:
* Q1 Total revenue: $180.2 million, up 9% versus 2005
* Q1 Gross profits: $25.2 million, up 2% versus 2005
* Q1 Gross margins: 14.0% compared to 14.9% in 2005
* Q1 Net loss: $(15.9) million or $(0.82) earnings per share
SALT LAKE CITY, April 28 /PRNewswire-FirstCall/ — Overstock.com, Inc. (NASDAQ:OSTK) today reported financial results for its first quarter ended March 31, 2006.
“Chop wood, carry water.”
- Wu LiDear Owners,
We lost $15.9 million in Q1. I anticipate Q2 will look about the same, before we start climbing out of this hole in the second half of 2006. Our theme for this year is to slow growth during the first half of the year so we can work on improving internal business processes in preparation for stronger performance in Q4 and beyond. We continue to anticipate things will look better in Q3, and to be out of the ditch by Q4. Nothing that has happened recently suggests to me that we should change course.
Sales and operating expenses in Q1 were just what I expected, though margins were a bit lower than I anticipated. The lower margins are a function of a couple of things. Part of it stemmed from warehouse costs that were simply carryover from the systems problems that plagued us in the last part of 2005. We are currently working on an improved build-out of our Salt Lake City fulfillment warehouse, and I am hopeful that when we finish this in June, we will see a drop in our variable handling costs immediately. Additionally, a small amount comes from customer service costs, which again, were inflated due to our systemic problems in 2005, but also because we are emphasizing quality over cost: when our new customer service application goes live in June, I expect a significant drop in these costs.
Again, I believe that Q2 will look like this past quarter. It is going to take until Q3 to start seeing the benefits of the various technologies and platforms we have spent the last year building. I believe that our expense management (how much it costs to handle a package, a customer service call, etc.) will be much better starting in June and July. Other corporate expense management looks good. But gross margins will likely remain where they are in Q2 for other reasons. As a result of improvements in our inventory management systems, I believe we are carrying more inventory than we really need, and we plan to bring it down another $15-20 million over the next few months.
We ended Q1 with $52 million in cash and marketable securities, including $20 million of borrowings on our inventory lines. We have an additional $30 million of availability on our lines, and are continuing to reduce inventory to turn it back into cash.
In summary, I’m committed to stay the course: slowing growth while we improve our systems and enhance the service we provide to our customers. Unfortunately, Q2 will be another disappointing quarter at the bottom line; then the tide should start coming back in by Q3 and we should be afloat in Q4.
Your humble servant,
Patrick
