Egghead's Web move paying off

The software retailer's decision to become an Internet-only commerce company has so far proven to be a smart one.

3 min read
Egghead's move to put all its eggs into one basket by closing its retail stores and becoming an Internet-only commerce company has--so far--proven to be the right decision.

The software retailer today reported a growth in revenues and an increased number of registered bidders at Surplus Auction, its Internet auction site.

Egghead's shares jumped more than 60 percent on the news to reach a new high of 14.8125, before retreating and closing the day at 5.8125. The stock previously had traded as high as 12.75.

Egghead.com now operates two Net sites in addition to its computer store: Surplus Direct and Surplus Auction. Combined, the three offer more than 40,000 hardware, software, and peripheral products.

In February, Egghead closed its entire brick-and-mortar retail operation in order to focus exclusively on Internet sales. At the time, the company said it expected serious losses for at least two years, as it remodeled itself.

While Egghead.com, like Software.net, has a standard sales model, Surplus Auction is part of a trend toward taking advantage of the growing demand for auctions on the Net. Other online auction companies include Onsale.com, Ebay.com, and First Auction, which is a subsidiary of the Home Shopping Network. The sites sell everything from antiques to collectable stamps and coins.

"The auction site, of the three we operate, was the strong focus of our first-quarter efforts, and it has provided our best growth to date," said George Orban, Egghead.com's chairman and chief executive officer. He cautioned, however, against expectations of similar growth during the quarter for the company's other two sites.

Today's announcement marks Surplus Auction's first full year in operation, according to John Hough, an Egghead.com spokesman. The company is set to release earnings information for its other sites July 28.

"Egghead's revenues, till now, largely stemmed from the company's recognized brand name," said John Taylor, an analyst with investment banking firm Arcadia Investment. "They have great results considering they have not done an awful lot of advertising to drive traffic to their site."

Indeed, with little advertising, traffic at Surplus Auction grew to 168,000 by June 27, from 29,000 as of September 27, Egghead said.

Taylor pointed out that all three of Egghead's sites now operate on different platforms, but said that the company is in the process of unifying its systems. He added that he expects the company to have increased revenue growth once it completes the upgrade within three to six months.

For the fiscal quarter ending June 27, Surplus Auction recorded revenues of $13.7 million, compared with $7 million reported for the preceding quarter--an increase of 95.7 percent. Total auction revenues for the company's first year of operation were $28.2 million.

"Our auction growth has reflected the enormous potential of electronic commerce," Orban said.

Egghead.com's move to the Net has sent its stock flying. After it jumped more than 66 percent at the beginning of the year, three of the company's directors and an officer recently filed to sell a total of 368,300 shares in an effort to get a taste of the company's gains.

But Eggheads's move to the Internet did not come without costs. It reduced its staff to 200 from 1,000 employees when it closed its retail stores.