eToys will miss estimates

December 15, 2000: 7:04 p.m. ET

Online toy retailer blames slower economy, presidential impasse

NEW YORK (CNNfn) - Online toy retailer eToys Friday said its fiscal third-quarter operating loss will be higher than Wall Street had expected, citing sluggish holiday sales and other factors.

The company also said it will lay off a portion of its work force in an effort to reduce operating costs and has hired an investment banking firm to explore strategic alternatives, which could include a merger, asset sale or other restructuring.

After the close of trading, the Los Angeles-based company said it expects to post a loss, excluding one-time charges, that is between 55 percent and 65 percent of revenue, compared with its previous estimate of a loss between 22 percent and 28 percent of revenue.

The company said it now expects net sales to be between $120 million and $130 million, rather than the $210 million to $240 million it previously estimated.

eToys also said it now expects to finish the quarter with a cash balance of between $50 million and $60 million, compared with its previous expectations that it would finish the quarter with between $100 million and $120 million in cash.

As of Sept. 30, 2000, eToys said its cash reserve stood at $111.4 million.

Company executives blamed weaker retail sales driven by concerns over the economy, poor Internet retailing and consumers who said they were "distracted by the presidential election and its aftermath," referring to the U.S. presidential election impasse that was resolved earlier this week.

"We are disappointed that sales have not materialized to the degree we had expected, but we point to the fact that the company is expected to show between 12 percent and 22 percent growth in revenue versus the same quarter last year and that we are serving customers exceptionally well this holiday season," Toby Lenk, eToys' president and chief executive, said in a statement.

"Going forward and based on current operating realities, we will take aggressive steps to reshape the company's cost structure and to best position the company for the future," Lenk added.

In addition, eToys said it no longer expects to will achieve profitability by its fiscal year ending March 31, 2003, or that its quarterly loss will narrow year-over-year starting in the fourth quarter, which begins in January.

eToys said it has enough cash on hand to continue operations through March 31, 2001.

An eToys spokesman on Friday said the company intends to do a complete analysis of its cost structure and will provide specific details about the number of employees that will be laid off as well as any additional restructuring plans next month.

As of March 31, eToys had 940 full-time employees, according to documents the company filed with the Securities and Exchange Commission in May.

eToys (ETYS: Research, Estimates) shares fell 3 cents in Nasdaq trade ahead of the news. They were down another 9 cents at 94 cents in after-hours trade. The stock is down from a 12-month high of $61.50 reached last winter.