ALLOY ON PACE FOR PROFITABLE QUARTER

Byline: Vicki M. Young

NEW YORK — What a difference a year makes.
Seeking to prove that a company targeting a specific demographic can make money in cyberspace, teen-destination site Alloy Online said Thursday it is on track to turn a profit in the fourth quarter that will end Jan. 31. Like other startups, the company hasn’t recorded any profits since going public in May 1999. But unlike other newly public companies that are still losing money each quarter, that’s set to change.
Matt Diamond, co-founder and chief executive, reaffirmed projections of fourth-quarter profits at a company presentation during the Robertson Stephens Consumer Conference at the Pierre here. Unlike the year-ago presentation to a crowded room, this year’s was attended by under a dozen individuals, and not all were investors. Those who didn’t attend missed Diamond’s recap on the strides the company has made, as well as how Alloy has remained on track to record fourth-quarter profits.
According to Lauren Cooks Levitan, a Robertson Stephens analyst who tracks Alloy, the teen-focused company is expected to earn 1 cent a share in the fourth quarter.
Diamond said that the company is on target for fourth-quarter profitability because of its ability to leverage its brand both online and off. “We are the distribution vehicle that teenagers know,” the chief executive boasted.
He said the company’s convergence multiplatform model allows it to reduce marketing costs and at the same time increase its brand penetration.
“We are able to touch teens in as many places as we can through our media reach [such as] Alloy wireless access, the Alloy catalog, Alloy.com, our e-zine [at the site] and Alloy books,” the chief executive said.
He added that even though the company sells apparel through its catalog and Web site, Alloy branded product is not sold anywhere. “One of our key success factors is we didn’t want the Alloy brand to be associated with a [particular] fashion or style.”
Currently, the company’s gross margins are between 50 and 60 percent, and the plans are for that number to inch up. Over 50 percent of revenues are from online sales, with the catalog operation running fairly close and the balance from noncommerce advertising income. The company has signed long-term marketing deals with Procter & Gamble, Johnson & Johnson, Nike and Reebok, all of whom advertise on the Alloy site.
According to the ceo, the catalog is still the most effective traffic driver anyone can have. At least 35 million catalogs will be circulated over the next 12 months. Sending a catalog out, Diamond noted, is cheaper than a portal deal or some ad campaign: “Nothing is more cost effective than taking $1 million to send out two million catalogs. We can get the catalog into the home for 50 cents.”
The catalog helps reduce marketing costs because it functions as a magazine, and its references to contests and games drive teens to the Web site.
Besides a major push into the entertainment sector through television, music and Alloy books, the company recently purchased CCS Inc., a direct marketer to teen boys, to help build that sector of the teen demographic. CCS sells a complete line of clothing, shoes and hard goods inspired by action sports such as skateboarding and snowboarding.

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