August 3, 2001, 12:00 AM

A drop in sales at Ashford is more than offset by cuts in marketing costs

Second quarter sales at were 8% below sales a year ago—but marketing spending was down 72%. Net effect: sales down $1 million, marketing spend down $3.8 million.

Second quarter sales at online gift retailer reached $12.1 million, down $1 million from the year-ago quarter, the company reported today. “We reduced marketing spending from $5.3 million to $1.5 million. Given that sales were down by 8%, that shows that we were very, very efficient with our marketing,” Brian Bergeron, CFO, tells

Operating loss totaled $6 million, down 37% from the same quarter a year ago. Net loss was $14.4 million, down significantly from $39.1 million for the same quarter a year ago. Net loss for the June 2001 quarter includes expenses of $8.4 million related to charges for restructuring and settlement, loss on sale of assets, loss from discontinued operations and depreciation and amortization.

"We believe our results this quarter demonstrate that the changes we`re implementing are improving our operating performance," said CEO David Gow. "We have reduced headcount, eliminated inefficient marketing spend, divested unprofitable business units, and reduced our inventory commitment in unproductive products. As a result, our business now operates with far lower costs, is marketed more efficiently, requires less capital, and is focused on the most profitable opportunities."

The company also reported:
--33% of sales were to repeat customers, up from 26% a year ago
--total expenses less non-cash depreciation and amortization and non-recurring charges dropped to $8 million vs. $12.2 million for last quarter and $12.7 million for the same quarter last year
--investment in inventory was reduced to $18.4 million vs. $24.1 million for last quarter.

Gross margins for the quarter were 17%, up from 6% last quarter. Margin would have been higher by 4 points, except for a targeted promotional offer with a corporate marketing partner. That offer expired at the end of June. The company said gross margins also were reduced by Ashford`s narrowing its product assortment and reducing overall investment in merchandise inventory.

Ashford implemented further cost reductions in mid June. "Next quarter, we will benefit from a full quarter`s worth of these savings -- supporting continued financial improvement,” Gow said. “We believe we are on a good trajectory, and that the steps we are taking will build a profitable and enduring business."

The company also announced the completion of the divestiture of, and a new strategic relationship between the two companies. In the relationship, Ashford will receive 50% of art sales generated on the Ashford site, and will no longer incur Guild`s costs, making the new relationship immediately cash flow positive for Ashford.


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