Overstock.com reported financial results last week for the third quarter ending September 30, 2008. Auction gross merchandise volume was $2.628 million in the third quarter compared to $2.530 in the third quarter of 2007. Other key metrics compared to the same quarter in 2007 include:
- Total revenue: $186.9m vs. $160.1m (a 17% gain);
- Gross margin: 17.2% vs. 17.1%;
- Gross profit: $32.1m vs. $27.4m (a 17% gain);
- Net loss: $1.6m vs. $5.6m.
Overstock.com had to restate previous financials due to accounting errors mostly due to "fall-out from our Oracle ERP implementation of a few years ago." The total effect of the errors over the five and a half year period during which it generated nearly $3.5 billion in revenues is a reduction in revenue of $12.9 million and a $10.3 million increase to cumulative net loss.
The company also said that revenue growth was 17% this quarter, down from 26% in the first half, but "still above industry average," and stated, "The path to profitability seems clearer than ever."
CEO Patrick Byrne talked in a letter to shareholders about the opportunities presented to Overstock.com due to economic conditions:
This holiday shopping season and the quarters ahead will be challenging for the retail industry. I believe that in general we are counter-cyclical because in tough times consumers become deal-hunters: it remains to be seen if that dynamic can offset the macro dynamics settling over the whole economy. Yet the last two years were spent leaning out Overstock, and that has positioned us well for this scenario. Our supply chain is flexible, which lets us take advantage of shocks and dislocations in the supply chains of others.
Over the last month or two, we have seen a significant spike in the number of distributors and brands who are signing up to work with us, and we have been buying inventory more opportunistically than we have in years. Our product offering and customer satisfaction are at all-time highs.
Byrne also said in a conference call with analysts that it was a sudden downturn beginning in late September, "so sudden that supply chains were filled with inventory," and he predicted very heavy discounting across all retailing (online and offline).
The Associated Press reported that Overstock.com is benefiting not only from stores canceling some of their holiday orders, but also from store liquidations. "(Byrne) noted that he's now getting about three or four times as many offers from manufacturers compared with two months ago. Even "the lowball" sales estimates from stores turned out to be too high, he said."
In response to a question about the company's warehouses during the conference call, Byrne mentioned that Overstock.com is using the auction platform to sell returns. "Our auction business though it's been holding its own for several quarter, but it's doing a little bit more nicely, and we do some auctioning of our own products out of our warehouse, and so there's a line being set up there too that auctions some of our returns. Our returns that we don't want to sell again on our site get auctioned through our auction site, and that's doing reasonably well, and we're setting up 100,000 feet or so as being devoted to that in the new building as well.
Link to conference call
