Overstock.com generated second-quarter 2009 revenue of $176.1 million, a 7% drop from the $188.8 million it pulled in a year ago. Don’t weep for the online discount merchandise retailer, however: Despite the drop in sales, it turned a $7.4 million net loss into $389,000 in net income during the most recent quarter.
A $3.1 million reduction in sales and marketing expenses, from $14.2 million a year ago to $11.1 million, helped keep costs down. Additionally, during the first six months of 2009 the company recovered $2 million in underbillings and refunds for overbillings from its partners. The second-quarter impact on Overstock’s cost of goods from the underbillings was $87,000.
The company also generated nearly $1 million from retiring debt during the second quarter.
More important, however, was Overstock’s ability to hold down merchandise costs. In second-quarter 2008, cost of goods sold was 82.4% of total revenue. For the quarter just ended, this dropped to 79.6%.
The company has continued to shift from direct goods – those which it sells itself – to items sold through fulfillment partners. Under the latter model, Overstock never has physical possession of the items. Items sold through fulfillment partners traditionally have higher margins, and this holds true in second-quarter 2009.
Overstock offers brand-name merchandise at discount prices through its Web site.
The Analyst’s Take: Pick your metaphor: Is Overstock the Wal-Mart of online marketing, or is Wal-Mart the Overstock of retailing? Either way, similar forces are at work: Times are bad, and discounting is in. Two questions: First, how have changes to the company’s product mix, if any, contributed to higher margins especially given CEO Patrick Byrne’s first quarter contention “…[H]igh-end brands that had never been open to selling [to? Through?] us before are calling and willing to sell.? Second, does the drop in total revenue indicate a drop in the number of unique customers within the quarter?
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