Troubled online grocer Webvan on Thursday announced the appointment of a new chief executive and a plan designed to keep itself afloat.
Webvan said COO Robert Swan has been named CEO, succeeding George Shaheen, who stepped down earlier this month. Swan joined Webvan in October 1999. He was considered by many to be the front-runner for the CEO post, sources said.
The company said it will cut 885 jobs through the closure of its service in Atlanta and an elimination of positions at its Foster City, Calif., headquarters.
"The euphoria of the markets is long gone," Swan said during a conference call Thursday morning. "The business looks dramatically different."
Swan said the decision to close Atlanta was a "tough one." The location was chosen because of its relative small size compared with the company's other top markets in Chicago, Los Angeles and Northern California.
"For us to be competitive at this point we thought our cash was better deployed in other markets," Swan said.
By slashing its work force, Webvan can afford to fund operations through the rest of the year. Earlier, the company said it would need between $5 million and $10 million to keep the company running into next year.
Webvan said last quarter that it would need about $40 million to finance operations for 2002, but by shuttering Atlanta and with the cost reductions, the company could meet its overhead for next year with about $25 million.
Swan told CNET News.com Thursday that Webvan was in talks with existing investors about increasing their stakes in the company. Swan declined to name the companies, though some of Webvan's investors include Amazon.com and VC firm Benchmark Capital.
"We are optimistic that through debt or capital financing, we'll have enough to meet our requirements," Swan said.
Webvan also set a reverse, 25-to-1 stock split. The company's stock closed at 24 cents Wednesday and was down 6 cents, or 25 percent, to 18 cents in late morning trading Thursday. The company is also appealing a Nasdaq delisting notice.
|Gartner analysts Geri Spieler and Kevin Murphy say consumer e-commerce dot-coms such as Webvan will not survive simply by raising more capital--they must shift their business models to focus on what they can do best.
Webvan reported a first-quarter pro forma net loss of $86.1 million, or 18 cents a share, compared with a loss of $38.7 million, or 12 cents per share, for the same quarter last year. Analysts surveyed by First Call had expected Webvan to post a loss of 19 cents a share.
Revenue for the quarter reached $77.2 million, compared with $37.5 million a year ago, an increase of 106 percent.
Webvan's Fullerton, Calif., operations broke even for the quarter, marking the first time any of the company's operations has come close to profitability. Webvan said it hopes to achieve profitability in the second half of next year.
One of the reasons for the success in Fullerton was the operation's skill at keeping costs downs, such as preventing food from spoiling, the company said.
Webvan executives told their employees two weeks ago that the Fullerton center would turn a profit for the quarter, employees told CNET News.com. The center "barely broke even," Swan said.
Reaching the break-even point is important to Webvan because if it has any chance at attracting new investment the company had to show a profit in at least one of its operations, analysts said.
Josh Peters, stock analyst with Chicago-based Morningstar, an independent financial information research group, said Wednesday he doubted
that profits at one of Webvan's operations would draw that many investors.
"Making money in one market doesn't mean you can do it in the rest of them," Peters said.
In an interview with CNET News.com, Shaheen said Webvan has been a victim of market influences that "clobbered" the entire home-delivery sector.
On Tuesday, Webvan closed
its Sacramento, Calif., operations because of a lack of demand and to cut costs. The company's Dallas operations were shut down
The closures leave Webvan operating in eight cities, a far cry from the company's original plan to be in 26 cities by 2001. The company had a whopping market value of $8.45 billion at the time of its initial public offering.
Also this week, the company's stock has been unusually active, trading at very high volume. Since closing Friday at 6 cents, the stock has skyrocketed this week to as high as 30 cents.
Peters said he was skeptical that the spike in Webvan's share price would last: "The stock is one of the embers of the Internet supernova. You're bound to have little embers glowing all over the galaxy."
Webvan on Thursday also announced changes to its board of directors. Former Yahoo CEO Tim Koogle and general partner with Sequoia Capital Michael Moritz have stepped down as members of Webvan's board. Joining the board is Ronald Fisher, a managing general partner of Softbank.