Priceline.com plans layoffs, sees lower 4Q revenue

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Updated 7:00 p.m. ET

Priceline (Nasdaq: PCLN) reported third quarter sales in line with its lowered expectations, said its CFO resigned, announced 87 layoffs and warned fourth quarter revenue would be slightly lower.

After market close Thursday, the seller of travel services and other items reported a third quarter loss of a penny per share, in line with First Call's consensus estimate.

However, Priceline executives told analysts to plan for lower fourth quarter revenue. October sales of airline tickets were about 20 percent below September's already-disappointing results, said Daniel Schulman, president and CEO.

"Although demand has stabilized and has begun to pick up over the last few weeks, given October results and seasonal factors, we expect revenue to decrease sequentially," Schulman said, during an afternoon conference call.

Priceline plans to record unspecified non-cash charges in the fourth quarter for restructuring moves that include 87 job cuts and a new compensation plan. The company also expects a $9 million charge related to the amendment of stock warrants held by Delta Airlines (NYSE: DAL).

Shares of Priceline fell to 5.21 in afterhours activity on the Island electronic communications network, following the quarterly report. Priceline stock rose 0.6525 to 6.84375 in Thursday's regular trading, prior to the release of third quarter results.

Third quarter sales of $341 million were within the range of Priceline's revenue warning in September. Revenue fell 3 percent from the second quarter when it posted a loss of $1.6 million, or 1 cent a share, on sales of $352.1 million.

Although company officials cited fuel surcharges and special airline sales as factors affecting ticket revenue, executives mostly blamed "negative publicity" for hurting sales. Customer complaints about Priceline recently prompted an investigation from Connecticut's attorney general. Priceline was also evicted from Connecticut's Better Business Bureau. News outlets such as 60 Minutes ran critical pieces on Priceline.

"We clearly recognize the need to improve our customer satisfaction and service," Chairman Rick Braddock said Thursday. "We are working on a comprehensive program to strengthen our brand, customer satisfaction and service. ... The fourth quarter is basically a restaging quarter for us."

Customer service is already improving, with customer calls per unit sold down 50 percent in recent months, Braddock said.


Despite its recent problems, Priceline now generates enough revenue for the company to focus on profitability, executives said. Job cuts are part of reaching that goal, they added. Priceline will lay off 87 of its 535 employees.

Priceline has been cash flow positive for two quarters in a row, executives said.

"We believe that we have enough capital for our anticipated needs, as we look into the future," Schulman said. "So we feel comfortable with our cash position."

Executives said they still plan to extend its "Name Your Price" model -- through which customers bid on goods or services -- to other areas besides the travel industry. But new programs must pass more rigorous standards for profitability and other metrics, officials said.

"You can expect us to pass our horizontal businesses through a more demanding growth prism," Schulman said.

Priceline also announced the resignation of CFO Heidi Miller.

"We appreciate the contribution that Heidi has made and respect her decision to pursue opportunities and apply her talents in a more established business environment," Schulman in a prepared release. "We know she is supportive of the long-term direction the company is taking and wish her the best in her future endeavors."

Bob Mylod, formerly the vice president of finance, will assume the CFO duties.

In the third quarter, Priceline.com's customer base grew to 8 million users. Fifty-one percent of all sales were from repeat customers, up from 31 percent in the year-ago quarter.

Gross profit margins jumped to 15.9 percent, up from 12.2 percent in the same period last year.

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