The Houston-based company said Monday it is spinning off recently acquired Guild.com. The spinoff, the second by Ashford in a month, leaves the struggling e-tailer with a windfall of cash and a residual partnership with the online art company.
"The spinoff represents an opportunity to continue to capture revenue but no longer incur ongoing costs," Ashford CEO David Gow said. "We're focusing all our energy on categories that can be cash-flow positive in the short term."
Like nearly all e-commerce companies, Ashford has been struggling to reach profitability and stay afloat. For its fiscal year, which ended in March, the company lost $137 million on $67 million in sales, according to a regulatory document filed last month.
Ashford's stock has slipped from more than $20 soon after its September 1999 initial public offering to about 18 cents. The company, which is under investigation by the Securities and Exchange Commission for how it reported recent marketing activities, has been warned that its stock could be delisted from the Nasdaq.
As of the end of March, Ashford had just $7 million in cash and $24 million in working capital. But the company said it has enough cash and credit to last it for at least 12 months.
Ashford has been taking familiar steps to conserve cash and pull itself into the black. Kenny Kurtzman resigned as the company's chief executive in April. Meanwhile, Ashford laid off 41 employees in May. Late last month, Ashford began to liquidate some of its inventory on eBay, joining a growing number of name-brand businesses on the leading auction site.
But the latest steps by Ashford to conserve and raise cash are somewhat unusual for a dot-com company, many of which have tried to follow Amazon.com's "get big quick" model at all costs.
Ashford announced plans to buy Guild.com in January and completed the transaction in May for about $4.3 million in mostly stock and stock options. The company stands to post a nice gain from the subsequent spinoff, which Ashford expects to close by the end of this month. Guild.com brought with it $7.3 million in cash, only $400,000 of which will remain with the company after it parts ways with Ashford.
Ashford will retain a 5 percent stake in Guild.com, which is seeking other investors. In addition, Ashford will continue to list art from Guild on its site and will take a 50 percent cut on the proceeds of those sales.
Ashford and Guild spent the last six months trying to make their systems work together but found they were simply too different, said Toni Sikes, Guild.com CEO. Although Guild.com comes out of the merger with significantly devalued shares in Ashford and far less cash than it started with, Sikes said she has high hopes for both her company and for Ashford.
"This allows us to focus on what we do best: selling art to people who want to buy art and working with artists to supply art," she said. "From Ashford's point of view, they're getting what they wanted: art to fill in their site."
In addition to Guild.com, Ashford spun off Watchnetwork.com earlier this month. Ashford completed its acquisition of the online watch retailer in March, but the deal was subsequently bogged down in a lawsuit. Unlike the Guild spinoff, Ashford expects to take a $2.4 million charge related to the dissolution of its merger with Watchnetwork and will retain no interest in the newly independent company.
The spinoff of Watchnetwork was "consistent with our drive toward profitability," Gow said.
Last month, Ashford sold the rights to two domain names, including Timezone.com, which it bought in 1999, Gow said. Although the company earned $400,000 in cash from the sales, it recorded a $500,000 loss from the transaction, according to a regulatory filing.
Separately, in a preliminary proxy statement filed last week, the company asked shareholders to approve a 1-for-10 reverse stock split to help keep its shares listed on the Nasdaq. The Nasdaq notified Ashford in April that the company's stock faced delisting because its shares had failed to maintain a trading price of at least $1.
Last month, Egghead.com directors approved a reverse stock split to buoy the electronics e-tailer's stock. Artistsdirect shareholders approved a similar split earlier this month. Despite the recent popularity of such moves, they often result in a further depression of shares.
Gow said although he realizes that reverse splits have not worked well for other companies, he said the failure had to do with the decline in those companies' performance.
"We believe in our case, our business performance is improving and will continue to improve after the reverse stock split," Gow said.