Bluefly’s Q3 revenue rises 11% to $18 million as net loss widens 43%

Revenue at Bluefly Inc.’s Bluefly.com rose 11% to $18 million for the third quarter ended Sept. 30, up from $16.3 million a year ago, as net loss widened 43% to $5 million, the company says. The transition to a new third-party fulfillment center temporarily made some products unavailable, hurting sales and margins, CEO Melissa Payner says.

“In an effort to improve the overall customer experience, we began the process of moving to the new third party fulfillment center late in the second quarter,” Payner says. “During this transition portions of our inventory were not available for sale to the consumer, which had a significant impact on our revenue growth. To further complicate matters, during the transition we were unable to fulfill all orders completely in a timely manner. This transition had a negative impact not only on our sales, but on our margins and on the overall customer experience. We are continuing to work through the issues and our efforts to provide an improved customer experience.”

Bluefly, No. 131 in the Internet Retailer Top 500 Guide, reported a Q3 operating loss of $5.07 million, up 40% from $3.63 million a year ago. It attributed the expanded loss primarily to an increase in stock-based compensation to $1.5 million, up 150% from $597,000 in Q3 of 2006, the company says in a statement filed with the Securities and Exchange Commission. Bluefly says the operating loss was also impacted by a $550,000 charge in Q3 against inventory costs related to its move to a new fulfillment center.

Gross margin fell year-over-year to 31.7% from 37.4%, it says.

Bluefly also says it reduced Q3 marketing expenses by 19% compared to Q3 of last year. “We are pleased with the growth in revenue in the quarter given the impact of our move and the reduction of the marketing spend versus last year,” Payner says.

For the nine months ended Sept. 30, Bluefly posted a net loss of $10.27 million on net sales of $61.8 million, compared to a year-ago net loss of $8.65 million on net sales of $49.99 million.

In the SEC filing, Bluefly notes that it may experience higher order return rates as its merchandise shifts toward higher-end products. “However, we believe that the higher return rates will be more than offset by the higher gross margin dollars and average order sizes,” the company says in the filing.