CEO: Overstock.com can profit off recession
Overstock.com, Inc. (Nasdaq: OSTK) CEO Patrick Byrne said a potential economic downturn could benefit the online retailer of discount brand-name merchandise. Affluent and low-income shoppers are normal discount shoppers, but he said economic turmoil could push middle-class customers to Overstock’s website.
“I’m really quite pessimistic about the state of the American economy, but I think we may pull it off again. I think it’s about a 50-50 chance,” Byrne said. “In general, that works for us. You go to a Costco parking lot and you see Mercedes Benzes and junkers. If we go into a recession, the claim [that middle-class shoppers don’t shop at low-cost stores] becomes less true. They’ll find more ways to discount shop.”
Middle-class shoppers will look to maintain their lifestyle as income shrinks, he said.
Before the opening, Overstock reported a fourth-quarter loss of $4.3 million, or $0.18 per share, compared with a loss of $45.6 million, or $2.15 per share, a year earlier. Wall Street analysts, on average, predicted earnings of $0.13 per share.
For the three months ended Dec. 31, Overstock’s revenue increased 2% to $300 million, up from $294 million during the year-ago period. The revenue results missed analysts’ projection of $307.8 million in revenue.
Quarterly operating expenses fell 22% to $53.6 million, from $68.3 million a year earlier. For fiscal 2007, operating expenses decreased to $169.6 million, from $188.6 million in fiscal 2006.
“I would say that you can expect [operating expenses during fiscal 2008] to be flat or down,” Byrne said.
Overstock.com has “slowly and reluctantly” become a technology company, the CEO said. The Salt Lake City-based firm is hiring “a lot” of developers and computer professionals, he said, and these employees will work on new projects to enhance the functionality of Overstock’s website.
“We built quite a tech team with help from some of our partners. [Tech] is no longer the bane of our existence,” Byrne said. “We’re actually able to come up with new ideas and get them built.”
On Jan. 16, Overstock was named no. 4 in a customer service poll conducted by American Express and the National Retail Federation.
“We’re one step below Amazon on that scale,” Byrne said. “Coming out of the ditch that we were in — we weren’t even in the top 150 a couple years ago — is a great tribute to [senior vice president of customer care] Stormy Simon.”
Jonathan Johnson, Overstock’s senior vice president for legal and corporate affairs, said the company is optimistic about the company’s ongoing litigation. In 2005, Overstock sued Rocker Partners, a hedge fund, for libel and unfair business practices saying it conspired with a research firm in short-selling the company by paying the research firm to publish negative reports about Overstock.com and providing pre-publication copies to Rocker. In February 2007, Overstock filed a lawsuit against the so-called prime brokers — Morgan Stanley, Goldman Sachs Group Inc. and other large Wall Street firms — saying the organizations participated in a massive and illegal short-selling scheme.
“The prime brokers have tried to get that suit dismissed and the trial court judge denied their request. That case is going forward,” Johnson said. “In the Rocker case, we have started discovery. Rocker, now known as Copper River, has filed a cross-complaint against [Overstock] and it is perhaps the most frivolous suit that I have ever seen. We expect to punch back hard and get that case dismissed.”
Byrne agreed with Johnson’s assessment.
“We feel very good about those lawsuits,” Byrne said. “If you’re just reading what the hedge fund shills would have you believe, they’re not giving a very accurate picture of how much progress is being made in those cases. In fact, read the appellate decision in the Rocker case, which was a very clear analysis of the real issues implicated as opposed to what favored journalists would describe the case as being about.”
In afternoon trading, OSTK shares are up 5.23%, or $0.56, at $11.27. Over the last 52 weeks, shares have ranged from $8.90 to $39.39.
