eTOYS Reports
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ETYS
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Monday October 30, 4:03 pm Eastern Time
Press Release
eTOYS Reports Continued Gains in Fiscal Second Quarter
LOS ANGELES--(BUSINESS WIRE)--Oct. 30, 2000--eToys Inc. (NASDAQ: ETYS - news):
Sales Nearly Double to $26 Million
Gross Margin Hits Record 22.5%
Customer Count Reaches 2.4 Million
$61 Order Size Sets Non-Seasonal Record
eToys Inc. (NASDAQ:ETYS - news) today announced financial results for the fiscal second quarter ended Sept. 30, 2000. Net sales for the quarter were $26.0 million, a 95 percent increase over net sales of $13.3 million in the same period a year ago.
Gross margin grew to a record 22.5 percent in the second quarter, up from 21.9 percent in the previous quarter and the third consecutive quarterly increase. Gross profit dollars for the quarter totaled $5.8 million, a 129 percent increase over the same period a year ago. Driving the margin gain was a continuing shift toward higher margin specialty products, including products and advertising sold by the company's BabyCenter unit.
Excluding non-cash charges for deferred compensation and goodwill amortization and non-cash charges attributable to preferred stock, eToys reported a loss for the fiscal quarter of $41.8 million, or $0.33 per share, compared with $32.1 million or $0.27 per share, a year ago. The quarterly loss was $0.02 better than the analysts' consensus of $0.35 per share as reported by First Call. Reported net loss for the quarter was $60.0 million or $0.48 per share, compared with $44.9 million or $0.38 per share during the same period a year ago.
eToys said that it expects its quarterly loss to narrow year over year for the first time next quarter and continue narrowing year over year for all subsequent quarters until breakeven in fiscal 2002.
The company added 223,000 new customers in the quarter, bringing total customer accounts to more than 2.4 million. While a sizable amount of new customers were added in the quarter, current customers continued to demonstrate loyalty by accounting for 44 percent of orders. Average order size for the quarter was $61, a record for a non-holiday quarter.
``This was an important quarter for eToys as we completed a large infrastructure expansion, significantly enhanced our technology capabilities and, at the same time, generated solid business results,'' said Toby Lenk, president and CEO. ``Coming into the holiday season, our systems are performing exceedingly well under day-to-day load and stress-testing, and we're seeing consumer enthusiasm build. Overall, we believe we're well prepared and well positioned for a very successful season.''
Customer acquisition cost for the quarter was $26 per customer based on advertising expense of $5.8 million for the quarter. On a rolling 12-month basis, the company's customer acquisition cost was $36, among the most efficient in the Internet retail industry.
Total fixed and variable fulfillment, customer service and credit card costs were $15.8 million for the quarter. On a rolling 12-month basis, these costs are running at 36.1 percent of revenue.
At the end of the quarter eToys had $111.4 million in cash and $61 million of owned inventory on hand. Additionally, the company said it has, as of Oct. 27, 2000, converted approximately 40 percent of its $100 million face value Series D convertible preferred shares issued in June 2000.
``We have completed the capacity build up program for this year and next,'' said Steve Schoch, executive vice president and chief financial officer. ``Capital expenditures on infrastructure will slow dramatically for the remaining quarters of fiscal year 2000 and on to our expected breakeven point in fiscal 2002. At the same time, annual cash requirements for operations will continue to decrease through breakeven in fiscal 2002.''
The company also reiterated the key initiatives it has undertaken in preparation for this holiday season.
Marketing
The company launched a fully integrated holiday marketing program that includes two new television commercials that began airing in late September, a consumer catalog premiering in November, and new or renewed partnerships with the Rosie O'Donnell Show, McDonald's and Cheerios.
Logistics
The company has completed its migration to 100 percent in-house fulfillment with the completion of warehouse/shipping hubs in southern Virginia and southern California. The facilities, totaling more than 1.9 million square feet, are operational and have been fully stress tested for the upcoming holiday season. The company anticipates these facilities will provide enough fulfillment capacity for at least this holiday season and next.
Information Technology
The company upgraded its Web site technology to state-of-the-art Intel IA 64 bit processors and can support up to 1.6 million peak day visits. eToys' ``back-end'' technology infrastructure can support more than one million database transactions daily, has more than five terabytes of storage space and can process up to 200,000 orders per day. The company's inventory and order processing computer systems are based on 10 IBM NUMA-Q clusters running 40 processors, the fastest ORACLE servers available.
Merchandising/New Channels
The company launched www.ParentCenter.com to be a resource for parents as their children grow beyond BabyCenter's prime age range. The new site also provides the company an additional high margin revenue opportunity. Also, eToys launched a Party store, a Hobby store and a line of exclusive private label merchandise.
Expectations Regarding Third Quarter Operating Results
As of October 30, 2000, the company anticipates that its consolidated results of operations for the fiscal third quarter ending December 31, 2000 will include the following:
Net sales between $210 million and $240 million;
Gross margin between 22 percent and 24 percent;
Operating losses between 22 percent and 28 percent of revenue
(excluding non-cash charges for deferred compensation and goodwill amortization and non-cash charges attributable to preferred stock); and
Cash and cash equivalents at Dec. 31, 2000 between $100 million and $120 million.
These are forward-looking statements that are subject to the risks and uncertainties described below under the subheading ``Forward-Looking Statements.'' Actual results may differ materially from the expectations expressed above. The company does not undertake any duty to update these forward-looking statements and does not intend to do so until the next announcement of its quarterly operating results.
About eToys.com
Based in Los Angeles, eToys Inc. (www.eToys.com; www.eToys.co.uk; AOL Keyword eToys) is the premier Internet retailer for children's products with an extensive selection of both nationally advertised and specialty toys, software, books, videos, music, video games, hobby products, party goods and baby oriented-products. By combining this extensive selection, with helpful and fun ideas and award-winning customer service, eToys offers consumers a unique one-stop source for children's products. Through its wholly owned subsidiary, BabyCenter, Inc. (www.babycenter.com; www.babycenter.co.uk, www.parentcenter.com), eToys offers Webby-award winning content and community, as well as an extensive selection of merchandise for new and expectant parents.
Public Access to Analyst Conference Call
eToys will webcast today a management discussion of financial results live beginning at 1:30 p.m. PST (4:30 p.m. EST). The webcast will be available at www.etoys.com by clicking on the ``Earnings Conference Call'' link in the ``Learn More'' box on the bottom of the main page. To listen to the live call, please go to the Web site at least fifteen minutes before the start of the call to register and download any necessary software. For those unable to listen to the live broadcast, a replay will be available approximately two hours after the call and will be archived until the end of the year. Reporters without webcast capabilities may contact Gary Gerdemann at eToys, 310-998-6823, for call information.
Forward-Looking Statements
Statements made in this document that are forward-looking involve risks and uncertainties that could cause results to differ materially from those expressed. Such risks and uncertainties include, but are not limited to, the company's expectation of operating losses and negative cash flow for the foreseeable future. There can be no assurance regarding when or if the company will achieve profitability or, if achieved, whether profitability can be sustained or increased on a quarterly or annual basis in the future; whether the company will be able to raise additional capital on favorable terms when required, or at all, or the amount of additional capital that will be required to achieve profitability; or whether the company will be able to achieve its expectations expressed herein regarding revenues, gross margins, pro forma operating loss margins and cash and cash equivalent balance as of and for the quarter ending December 31, 2000. Other risk factors include the company's limited operating history, unpredictability of operating results, seasonality, inventory risk, reliance on key vendors and distributors as well as the competitive marketplace. Other risks are set forth in the company's Annual Report on Form 10-K for the fiscal year ended March 31, 2000, under the heading ``Business - Additional Factors That May Affect Results,'' in the company's quarterly report on Form 10-Q for the quarter ended June 30, 2000 and in the company's other filings with the Securities and Exchange Commission.
Note on Financial Presentation
Financial results are prepared in accordance with U.S. generally accepted accounting principles, except shares used in computation of basic and diluted net loss per common share for the six month period ended Sept. 30, 1999. Shares used in computation of basic and diluted net loss per common share is the weighted average number of common shares outstanding. For the six month period ended Sept. 30, 1999, this also includes the pro forma effects of the automatic conversion of the company's Series A, B and C Redeemable Convertible Preferred Stock into shares of the company's common stock effective upon the closing of the company's initial public offering as if such conversion occurred on April 1, 1999, or at the date of the original issuance, if later.
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eToys Inc.
Consolidated Statements of Operations
(in thousands, except per share amounts)
Quarter Ended Six Months Ended
September 30, September 30,
2000 1999 2000 1999
--------- ---------- ---------- ----------
(Unaudited)(Unaudited)(Unaudited)(Unaudited)
Net sales $ 25,976 $ 13,306 $ 50,838 $ 21,281
Cost of sales 20,134 10,752 39,549 17,209
--------- ---------- ---------- ----------
Gross profit 5,842 2,554 11,289 4,072
Operating expenses:
Marketing and sales 25,604 20,012 55,207 31,585
Web site and technology 14,017 12,188 26,543 17,023
General and
administrative 6,594 4,298 14,094 7,254
Goodwill amortization 8,545 9,546 17,035 9,626
Deferred compensation
amortization 3,108 3,314 6,217 7,096
--------- ---------- ---------- ----------
Total operating
expenses 57,868 49,358 119,096 72,584
--------- ---------- ---------- ----------
Operating loss (52,026) (46,804) (107,807) (68,512)
Interest income
(expense), net (1,386) 1,860 (2,562) 2,786
Provision for
taxes - - - (1)
--------- ---------- ---------- ----------
Net loss (53,412) (44,944) (110,369) (65,727)
Accretion of
discount and
dividends on
preferred stock (6,589) - (9,095) -
--------- ---------- ---------- ----------
Net loss applicable
to common
shareholders $(60,001) $ (44,944) $(119,464) $ (65,727)
========= ========== ========== ==========
Basic and diluted
net loss per
common share $ (0.48) $ (0.38) $ (0.97) $ (0.60)
========= ========== ========== ==========
Net loss,
excluding deferred
compensation
and goodwill
amortization costs
and accretion of
discount and
dividends on
preferred
stock $(41,759) $ (32,084) $ (87,117) $ (49,005)
========= ========== ========== ==========
Basic and diluted
net loss per
common share,
excluding deferred
compensation and
goodwill
amortization
costs and accretion
of discount and
dividends
on preferred stock $ (0.33) $ (0.27) $ (0.71) $ (0.45)
========= ========== ========== ==========
Shares used in
computation of basic
and diluted net loss
per common share 125,249 119,374 123,401 108,784
========= ========== ========== ==========
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eToys Inc.
Consolidated Balance Sheets
(in thousands, except share amounts)
September 30, March 31,
2000 2000
----------- ----------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 111,394 $ 139,627
Inventories 102,386 60,309
Prepaids and other current assets 25,529 14,350
----------- ----------
Total current assets 239,309 214,286
Property and equipment, net 123,987 54,488
Goodwill, net of
accumulated amortization 127,434 142,828
Other assets 10,314 13,556
----------- ----------
Total assets $ 501,044 $ 425,158
========== ==========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 84,410 $ 32,422
Accrued expenses 13,568 10,789
Current portion of long-term
notes payable and capital
lease obligations 10,789 6,090
----------- ----------
Total current liabilities 108,767 49,301
Long-term notes payable
and capital lease obligations 28,421 10,471
Long-term convertible
subordinated notes 150,000 150,000
Series D Redeemable Convertible
Preferred Stock; $.0001 par value,
10,000 shares authorized; 6,900 and
none issued and outstanding at
September 30, 2000 and March 31, 2000,
respectively 52,750 -
Stockholders' equity:
Common stock; $.0001 par value,
600,000,000 shares authorized;
129,192,187 and 121,214,105
issued and outstanding at
September 30, 2000 and March 31,
2000, respectively 13 12
Additional paid-in-capital 528,936 476,529
Receivables from stockholders (740) (1,817)
Deferred compensation (25,914) (37,082)
Accumulated other comprehensive loss (1,272) (1,803)
Accumulated deficit (339,917) (220,453)
----------- ----------
Total stockholders' equity 161,106 215,386
----------- ----------
Total liabilities and stockholders' equity $ 501,
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