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Egghead stages a comeback

Hoping to translate traffic into transactions, Egghead looks to position itself among the winners of online commerce.

    Hoping to translate traffic into transactions, Egghead (EGGS) has undergone a series of moves aimed at positioning the company among the winners of online commerce while allowing it to be competitive in the physical world as well.

    Egghead, including its recently acquired Surplus Direct, operates three Internet sales channels: www.egghead.com, www.surplusdirect.com, and www.surplusauction.com. Today, the company said the combined traffic on those sites has jumped, and it hopes to capitalize on that momentum.

    In September, Egghead launched a remodeled Web site to bring e-commerce to the forefront with what it called "an enhanced online shopping experience."

    That initiative seems to be paying off, as Egghead ranked third among Web sites showing the highest growth in reach during the month of September, according to Media Metrix, a computer marketing research company. Reach is a measure of unduplicated audience, expressed as a percentage of Web users.

    As Egghead's traffic continues to grow, the company hopes to increase the revenue it is generating from online sales.

    "We see [Internet sales] as a significant part of our business," said Brian Bender, Egghead's chief financial officer.

    Bender said the company is not trying to move away from traditional brick-and-mortar stores, but rather is attempting to compliment those stores.

    Egghead's core focus now has three prongs: direct marketing with hard catalogs, Internet sales, and large retail centers that offer the latest versions of products as well as older versions that retail at a lower cost.

    Earlier this year, Egghead stock was trading at its all-time low of 3-5/8, and consequently fell out of the analyst limelight. But in October, Arcadia Investment analyst John Taylor reinitiated coverage of the company with a "buy" rating. By that time, the stock had climbed 207 percent to its 52-week high of 11-1/8.

    Nevertheless, Bender has not yet pronounced a full Egghead recovery, although he says the company is now heading in the right direction.

    "We have not made a complete turnaround," Bender said. "A loss is not something you want to call a success, but we have made some success and are moving toward profitability."

    He said the company will continue to leverage its brand recognition by inking deals with partners, such as search engine providers. Egghead also plans to take advantage of banner advertising opportunities and include its offerings among online shopping sites in the future.

    For its most recent quarterly results, the company's sales fell to $55 million, compared with $80 million for the same quarter a year ago. Including its recent acquisition of Surplus Direct, Egghead sales reached $63.2 million, but still are off by about 21 percent from the previous year's results.

    The hardware and software reseller did manage to shrink its losses, however, a step that Bender said is worth noting for a company in recovery.

    During the current quarter, Egghead's pre-tax loss was $2.6 million, compared with a pre-tax loss of $7.3 million last year. Egghead's wholly owned subsidiary, Elekom, lost $800,000, compared with a $300,000 loss last year. In addition, the company incurred one-time costs of $1 million associated with the acquisition of Surplus Software, which incurred an operating loss of $500,000 during the period reported.