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eToys tops estimates, says worst of losses over

EToys (Nasdaq: ETYS) on Thursday reported a fiscal fourth quarter operating loss of $36.6 million, or 30 cents a share, on sales of $23 million. Sales were in line with Wall Street estimates and the loss was two pennies lower than expectations.

However, the big news was eToys' profit projection. On a conference call with analysts, CEO Toby Lenk said the company "will be in striking distance of break-even by the holiday quarter of 2001 (third quarter)."

"We see a clear path to profitability," said Lenk. The largest of the quarterly loss is behind us. We're putting the stake firmly in the ground."

Lenk projected that eToys would be profitable on a $750 million to $900 million in sales.

Lenk said the company had "the DNA of profitability and should be profitable in fiscal 2002.

For the fourth quarter, gross margin was 20.5 percent. The company added 226,800 new customers at an acquisition cost of $24 per customer. Acquisition costs decreased from the seasonally strong third quarter. Repeat customers were 49 percent of orders in the quarter.

In the fourth quarter a year ago, eToys reported a loss of $8.9 million, or 10 cents a share, on sales of $6.1 million. Excluding non-cash charges for deferred compensation and goodwill amortization, eToys lost $148.1 million, or $1.29 per share, for fiscal 2000. Sales were $151 million for the year. The company ended the year with 1.9 million customers.

For fiscal 2000, eToys had a gross margin of 19.2 percent, average order size of $62 and customer acquisition costs of $36. EToys said it has enough in cash to last through 2001, and the company is "actively exploring opportunities to finance the company's growth until it achieves profitability."

Officials said eToys' recent move to expand distribution will make the the company more efficient and meet demand "at least for the next two fiscal years."

On Tuesday, eToys unveiled a summer marketing campaign designed to smooth out the company's results and acquire customers before the Christmas ad blitz. The company will promote its "Summer Shop'' "to strongly position the company as a year-round resource for kids-oriented products and ideas."

The company's results come just hours after Amazon.com (Nasdaq: AMZN) reported a strong first quarter. Amazon didn't break out toy sales. EToys also competes Toys R Us (NYSE: TOY) and Wal-Mart (NYSE: WMT).

Smarterkids.com results

In related news, Smarterkids.com (Nasdaq: SKDS), an educational toy store, reported a first quarter loss of $8 million, or 39 cents a share, on sales of $1.47 million. The results topped First Call estimates calling for a loss of 44 cents a share.