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O.C. BUSINESS PLUS Reports Wider Losses, Cuts Work Force

E-commerce: Slow economy and weak computer sales prompt the Aliso Viejo e-tailer to slash marketing and scale back operations abroad.


Internet superstore Inc. on Thursday reported diminished sales and wider-than-expected losses for the fourth quarter and announced a bid to conserve cash by sharply curtailing its ambitious operations.

The Aliso Viejo company, the nation's fourth-largest online retailer, said it expects annual revenue to shrink by at least 25% this year, dragged down by a slowing economy and weaker sales of computer products.

Bracing itself, said Thursday that it had laid off 25 staffers, or 10% of its work force. It will further save money by slashing its marketing drastically and shutting down or selling operations in Canada, Australia and the United Kingdom.

Some analysts said the latest results raised serious questions about the company's ability to endure.

"It doesn't look very good to me," said David Kathman, an analyst at Morningstar. "The question for Amazon is how big it should be. The question for is whether they can survive or if they'll run out of cash." said earlier this week that it would lay off 15% of its work force. The nation's biggest Web store had previously announced its sales for this year would fall 10% to 17% below previous estimates.

But unlike Amazon, which has continued to post sizable revenue growth,'s sales during the holiday quarter shrank 2% from a year earlier, to $196.7 million. It was the company's first year-over-year drop in sales.

For the quarter, lost $27.4 million, or 20 cents a share, excluding extraordinary one-time charges. That's one-third less than the $40.9 million, or 44 cents a share, it lost the previous year, but a penny more a share than analysts' consensus estimate.

Company executives called the results "a trade-off" has gradually raised prices to move toward profitability, sometimes exchanging sales volume for profit margin. But they acknowledged they had not expected such a hefty fall-off this holiday season, especially in technology, their dominant product category.

"We certainly didn't see the revenue we had hoped for," Chief Executive Greg Hawkins said Thursday. "Since we're a tech- and consumer-electronics-dominated e-tailer, we certainly saw the effects of it."

Hawkins, however, denied the company faces imminent danger of closing. said cash reserves had dipped to $67.4 million, not much considering it typically burns about $20 million per quarter. But the company also said it would move to stem the red tide, going through just $20 million for the entire coming year.

"Although many people are treating us as if we're in the ninth inning," Hawkins said, "we think we're still in the early innings."

Certainly last year's final quarter was tough on many Internet stores as brick-and-mortar powerhouses like Wal-Mart, Best Buy and Kmart unleashed serious online pushes. But analysts said's weak fourth quarter suggested it had fallen behind its main competitors.

"The market overall is growing--not as fast as it was, but at a very nice clip," said Barry Parr, director of consumer e-commerce research for IDC. "Clearly, is not keeping up. The question is whether there's a sustainable business at a smaller size."

For all of last year, lost $97.9 million, or 76 cents a share, compared to $106 million, or $1.19 a share, for the previous 12 months. Annual sales were up 32% from $587 million in 1999 to $788 million, but most of the increase occurred in the year's first half.'s shares fell 3 cents Thursday, closing at 91 cents in Nasdaq trading. That is down from a 52-week high of $30.25.

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