NEW YORK — Shares of Alloy Inc. plunged by more than half in heavy Nasdaq trading Friday, establishing an all-time low, as the teen multimedia network significantly reduced earnings guidance for the fourth quarter and 2003.
Citing selling and marketing expenses that were higher than expected because of the promotional retail environment, Alloy said that, despite improved revenues and gross margins, its earnings before taxes and amortization (EBTA) are expected to land at $11 million to $12 million for the quarter ending March 17, $4 million lower than earlier estimates. Last year, Alloy reported EBTA of $7 million.
Alloy also said it now anticipates total revenue for the quarter to exceed $100 million compared with the range of $94 to $98 million it previously projected, with merchandise revenues of $63 million to $64 million and sponsorship revenues of $36 million to $37 million.
For the fourth quarter, Alloy said it had $2 million in additional costs for fulfilling orders, while $1 million more than budgeted was spent for shipping. Selling and marketing costs exceeded plan by $1 million.
The higher revenue forecast did nothing to bolster Alloy’s stock price on a day when investors were in a surly mood from start of trading. Shares closed at $4.53, off $4.57, or 50.2 percent, and reached an all-time low of $4.16, less than one-fifth their 52-week high, in intraday trading.
“The increased costs reflect our efforts to continue increasing Alloy’s market share in both the merchandise and sponsorship areas of the business in the face of highly competitive market conditions and a soft economic environment,” Matt Diamond, Alloy’s chairman and chief executive, said in a statement. “We believe our efforts have us well positioned to continue to grow our franchise, deliver high-quality service and take advantage of improved economic conditions.
Lauren Cooks Levitan, an analyst at SG Cowen, said the downward earnings guidance is a major disappointment for the business, particularly given its 15 consecutive quarters of meeting or beating expectations.
The SG Cowen analyst lowered her fourth-quarter operating income per share estimates to 15 cents from 21 cents and next year’s operating EPS estimate to 48 cents from 63 cents. “We believe the increasing complexity of the business and the numerous moving parts of the business model have hindered management’s ability to accurately forecast the business, in particular the bottom line,” she said.
Still, she added that while the expense misjudgments were disappointing, she doesn’t believe Alloy’s hybrid business model is broken. “The demand is clearly there,” she said. “Unlike other retailers, Alloy was proactive in promoting, not reactive, as indicated in their sales and margins.”
Most recently, Alloy announced Dec. 17 it paid $9.6 million in cash to acquire Old Glory Boutique Distributing, Inc., a direct marketer of music and entertainment apparel and accessories
For the coming year, Alloy said it is targeting EBTA of $35 million to $40 million; merchandise revenues of $190 million to $200 million, and sponsorship revenues of $175 million to $185 million.
In its most recently completed third quarter ended Oct. 31, Alloy delivered profits of $11.6 million, or 28 cents a diluted share, reversing a loss of $2.7 million, or 11 cents, in the same period of 2001. Sales rang in at $93.2 million, more than doubling sales from the year-ago quarter of $44.5 million.