July 26, 2006, 12:00 AM

Zappos turns a first-half profit for first time, CEO says

Like most retailers, Zappos.com makes most of its revenue and profits in the fourth quarter, but 2006 marks the first year it has been profitable in both its first and second quarters, CEO Tony Hsieh says.

Paul Demery

Managing Editor, B2B E-commerce

Like most retailers, Zappos.com makes most of its revenue and profits in the fourth quarter, but 2006 marks the first year it has been profitable in both its first and second quarters, CEO Tony Hsieh says.

Zappos, No. 34 in the Internet Retailer Top 500 Guide to Retail Web Sites, continues to operate at a break-even cost structure within 1% of net sales, Hsieh says. But while it has traditionally operated at a loss in the first half and made most of its profits in Q4, it has improved efficiency this year to produce a small profit margin from the first quarter.

“In Q1 and Q2 of this year, were able to squeeze out a small profit in each quarter,” Hsieh says. “This is the first year where both Q1 and Q2 were profitable.” Hsieh made his comments in a memo to investors and in response to an inquiry from InternetRetailer.com.

To accommodate growth, Zappos completed a new warehouse in the first half, more than tripling its total warehouse capacity to 905,000 square feet. It now warehouses more than 2.5 million pairs of shoes, representing more than 800 brands. Zappos employs about 800 people and expects to do $600 million in gross merchandise sales this year, up from $370 million in 2005, Hsieh says.

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