ASHFORD NET BETTER THAN EXPECTED

Byline: Valerie Seckler

NEW YORK — With the holiday selling season beginning to unfold, Ashford.com gave Wall Street the gift of an upside surprise Monday: The pure-play purveyor of upscale accessories weighed in with a third-quarter loss that was nearly a third narrower than analysts had anticipated.
Buoyed by rising customer traffic and business from existing customers, as well as falling costs for customer acquisition, Ashford reported a net loss, excluding depreciation and amortization, of $8.8 million, or 19 cents a share, based on 45.6 million common shares outstanding. Wall Street was expecting a loss of between 27 and 29 cents a share.
That red ink for the quarter ended Sept. 30, compared with Ashford’s year-earlier loss of $7 million, or 41 cents a share, on 14.9 million common shares outstanding.
“We’re getting a better feel for what works best,” said Kenny Kurtzman, chief executive officer of Houston-based Ashford.com, who was in town Monday for the release of the company’s results after the closing bell on Wall Street. As a result, Kurtzman noted: “We had 17 percent more sales from repeat customers in the third quarter [versus a year ago], and our cost of acquiring customers decreased by 66 percent.”
Repeat customers are particularly valuable to e-tailers striving for profits because they make higher transactions, on average, than new customers and don’t have to be lured to the Web site for the first time with a pricy marketing effort. At Ashford.com, Kurtzman said, purchases made by newbies tally $430, on average, versus an average purchase of $650 transacted by the Web site’s repeat customers. Ashford had 144,028 registered customers at the end of the third quarter, up from 112,114 in the second quarter, and 33 percent of its sales stemmed from repeat customers, up from 26 percent in the second quarter and only 16 percent a year ago.
The pure play still expects to attain profitability in the fourth quarter of 2001. As of Sept. 30, Ashford had $26 million in cash on its balance sheet, plus the $25 million revolving credit line it obtained from Congress Financial Corp. during the second quarter, which, Kurtzman said, Ashford has not yet touched.
Ashford’s bottom-line loss for the third quarter came to $40.6 million, or 89 cents a share, against a loss of $8.6 million, or 57 cents a share, in the prior-year period.
The e-tailer’s sales for the third quarter amounted to $12 million, a more than twofold surge over revenue of $4.4 million in the prior-year period. Gross margin climbed to 19.1 percent from 18.6 percent in the second quarter ended June 30, propped up by an expanding corporate gift business as well as growing sales of higher-margin goods, such as diamonds and fine jewelry. Diamonds and fine jewelry, except watches, accounted for 20 percent of Ashford’s sales, or $2.4 million of its third-quarter business, Kurtzman stated.
“Our power-buyer customer currently likes classic styles with a twist — sleek, modern styles of pens, watches,” Kurtzman said, citing Cartier tank watches, Jorg Hysek pens and Oakley eyewear as examples. “It’s part of what’s defining us as a brand.” Ashford’s target customer, the luxury “power buyer,” only accounts for about 10 percent of luxe shoppers but produces roughly 30 percent of upscale purchases transacted online, according to a marketing study commissioned by the dot-com this May.
“The holiday season looks pretty good for us,” Kurtzman projected. “The fact that some of our competitors have gone out of business means we should be picking up some of their customers,” he added, in referring to Miadora.com and Adornis.com, jewelry e-tailers that respectively pulled the plug in September and October.
This year, Kurtzman said, Ashford plans to spend about $10 million on its holiday marketing effort — almost all of it online and none on TV or in print — which would amount to 25 to 30 percent of the sales Ashford is budgeting for the fourth quarter. It would also represent a sharp decline from the 70 percent of fourth-quarter sales Ashford spent on marketing for holiday 1999, before it identified its most productive customers and the best way to reach them: on the Web.
“We’ve seen our conversion rates go up in the third quarter,” Kurtzman said. “We’re running over 2 percent now, and it could rise to 4 percent during the holiday.” The Ashford ceo added that a number of changes have been made to the Web site during the past two weeks to give that rate another boost, including: the addition of a gift center on the home page to offer product recommendations; the launch of a keyword search function, across categories, on the home page instead of simply within those categories’ departments on the Web site; and the ability to ship to multiple locations and use multiple credit cards on one order.
Also expected to help holiday business, Kurtzman added, are Ashford’s reworked deals with Yahoo and Microsoft MSN — it renegotiated more favorable terms with Yahoo during the second quarter, as noted, and during the third quarter it increased its presence on MSN to become an anchor tenant.
“Search and shopping sites are working better for us than content or community sites,” Kurtzman noted, “so we’ve focused on portal and search deals like these.”

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