Updated 5:22 p.m. EST -- eToys topped analysts' estimates by a couple cents a share in its second quarter Monday but still posted a loss of $41.8 million, or 33 cents a share, on sales of $26 million.
First Call Corp. consensus expected the online retailer to lose 35 cents a share in the quarter.
eToys (Nasdaq: ETYS) shares closed off 9 cents to $3.75 ahead of the earnings report.
The $26 million in sales marks a 95 percent improvement from the year-ago quarter when it lost $32.1 million, or 27 cents a share, on sales of $13.3 million.
The outlook, however, could give investors some pause. The company, which said it's ready for a big Christmas season, projected fiscal third quarter sales between $210 million to $240 million, a range slightly lower than some analysts' expectations. On a conference call, eToys officials said the company could top those revenue projections, but it took the safe route since the December quarter just started.
The company also sees gross margins between 22 percent and 24 percent. EToys also projected it would have $100 million to $120 million in cash as of Dec. 31.
"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 CEO Toby Lenk in a prepared release.
In the quarter, eToys increased its gross profit margins to 22.5 percent from 21.9 percent in the first quarter.
Company officials 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.
eToys added 223,000 new customers in the quarter, bringing its total customer accounts to more than 2.4 million. Average order size for the quarter was $61.
As for the competition, eToys officials said it hasn't seen waves from the recent Amazon.com (Nasdaq: AMZN) and Toys "R" Us (NYSE: TOY) alliance.
Last quarter, eToys posted a loss of $45.4 million, or 37 cents a share, on sales of $24.9 million.
The stock moved up to a 52-week high of $70.50 in December before falling to a low of $3.50 earlier this month.
Six of the 11 analysts following the stock rate it a "hold."
First Call Corp. consensus expects it to lose $1.45 a share in the fiscal year.