May 7, 2014, 1:11 PM

Sales rise, but shipments slow for web retailer zulily in Q1

Orders in the first quarter increased 91% over the same period a year earlier, but average shipping time increased to 13.2 days from 11.3 days.

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Although zulily Inc.’s orders in the first quarter of 2014 increased 91%, the online flash-sale retailer’s revenue increased only 87%. The gap resulted from an order backlog at the end of the quarter, the company says, and zulily’s method of counting revenue when the customer receives the order rather than when it ships. Zulily estimates $53 million in deferred revenue from orders shipped in the first quarter but received in the second quarter.

The average time to ship an order increased to 13.2 days from 11.3 days in 2013—an increase of 16.8%. To combat the backlog, the retailer brought in more staff to increase fulfillment capacity, which resulted in higher wage costs. “So it’s in many ways the worst case in terms of the profit and loss: none of the revenue, all of the cost to fulfill and that additional overtime in staffing,” said Marc Stolzman, zulily’s chief financial officer on a call with analysts yesterday, according to a transcript from Seeking Alpha.

Zulily says the backlog has been cleared, but also announced a plan to invest $45 million to $55 million—the bulk of that going toward automation and technology in the company’s fulfillment centers, which includes doubling the size of the company’s facility in Nevada. “We are focused aggressively at driving down those ship times,” said Darrell Cavens, zulily’s president and CEO. “You see that investment in technology, and in infrastructure, and I think over time you will see that kind of trend down over time.”

But the shipping issues are not deterring zulily’s customers from coming back to shop, said Cavens. “A small movement in that shipping just doesn’t change customer behavior in terms of repeat, doesn’t change customer behavior in terms of engagement really in any way,” he said. “That’s surprising to lot of people again because the customer is coming in and discovering the products.”

For the first quarter ended March 31, zulily reported:

• Net sales increased to $237.9 million, up 87% year over year from $127 million.

• Net loss, which excludes stock compensation and acquisition-related costs, of $3.0 million compared to a $1.6 million loss in 2013.

• Active customers—defined as having ordered at least once in the last year—of 3.7 million, an increase of 93% over 2013.

• An average order value of $55.34, an increase of 4% from the 2013 quarter.

• Mobile orders accounted for 47% of the company’s total orders compared to 45% in Q4 2013 and 39% in Q1 2013.

Zulily is No. 55 in Internet Retailer's 2014 Top 500 Guide.

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