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Peapod misses 3Q forecasts

Peapod (Nasdaq: PPOD) lost more than analysts expected in the third quarter.

In results released after market close Tuesday, the online grocer reported a third quarter loss of $6.5 million, or 37 cents per share, not including $2.9 million in one-time costs. First Call's survey of four analysts predicted a loss of 28 cents per share for the quarter ended Sept. 30.

Operating expenses rose 44 percent from the previous quarter, with general and administrative costs nearly tripling as Peapod recorded one-time costs related to hiring new management. Including $2.9 million in non-recurring revenue, Peapod lost $9.4 million, or 53 cents per share.

Third quarter sales of $16.5 million represent a 3.5 percent decline from $17.1 million in the second quarter. The third quarter is a seasonally slow time, said Bill Malloy, recently hired as Peapod's president and CEO.

Gross margins increased to 25.8 percent, from 24.4 percent in the second quarter and 21.6 percent in the third quarter of 1998. General and administrative expenses rose to $5 million from $1.9 million in the year-ago period, as Peapod announced the appointment of Malloy and other senior executives in the third quarter.

Fulfillment costs increased to $5.6 million, or 11 percent higher sequentially, because of higher volumes at distribution facilities where Peapod is scaling up, the company said. Peapod will strengthen its distribution and soon announce a strategic alliance, Malloy said during a conference call with analysts. The company has several options for financing, Malloy said.

Peapod executives remained confident about their ability to handle newer competitors such as Webvan, whose IPO is expected this week. "Let's see them (Webvan) get out on the market and get moving," said Malloy, who touted Peapod's experience. "A lot has been made of distribution, but the key will be serving the customer."

However, Webvan's initial public offering validates the Internet grocer sector as an investment venue, Malloy said. Webvan's IPO valuation also shows that Peapod's stock is "undervalued," Malloy said.

-- Larry Dignan contributed to this report>