RealTime IT News

Bluefly: Singing the Blues?

The founder of Bluefly got the idea for his company when he had a frustrating day shopping. He was looking for off-price designer apparel, but every store seemed to be disorganized. There had to be a better way: the Internet.

He launched Bluefly.com in 1998 and since then, it has become a dynamic place to shop for off-price apparel. By using MyCatalog, customers can search for clothing based on brands, sizes and styles - building a wardrobe with clicks of the mouse. Hey, there are even fashion tips.

Unfortunately, Bluefly has not been immune from the thrashing of e-tailing stocks. In the past year, the stock was as high as $16-11/16. Now, the stock trades at $2-1/2. That's a market capitalization of $12.3 million.

Bluefly showed strength in the past quarter. Net revenues were $4.33 million, which was up 480 percent from the same period a year ago. The company added 36,063 new customers and repeat customers accounted for 46% of revenues. There were 130,000 new registered users (the total is 640,000).

Further, the company has been making innovative use of e-mail marketing (which, of course, is extremely cheap). The customer acquisition costs have been declining - going from $239.46 last year to $73.21 this year.

Despite all this, there is a big problem: The company is still losing lots of money ($5.3 million in the past quarter). There is a mere $3.9 million in the bank.

So, it is no surprise that Bluefly hired CS First Boston for help. Of course, the investment bank will look for "strategic alternatives"; that is, joint ventures, strategic partnerships, sale of the company - basically, anything.

Does this mean there is opportunity for investors? Probably not. Recent deals show that the gains - if any - from distressed e-tailers has been very short-term in nature. For example, when PlanetRx announced new financing, the company soared. But then it quickly returned below $1 per share. Why? Well, the financing package was very restrictive. After all, these companies are running out of money and have very little negotiating power. The Golden Rule definitely applies: He who has the gold makes the rules.

Also, even top e-tailers, such as Amazon.com, have seen their stock prices collapse, making it very difficult to do acquisitions (when's the last time Amazon.com made a purchase?) Rather, an acquisition of Bluefly would likely be from a traditional, brick-and-mortar player. Unfortunately, these types of companies do not like paying premiums. Look at the deal of Bertelsmann AG to buy CDNow. This was not at a premium.

Basically, a stock like Bluefly has day-trading opportunities - especially as rumors hit and spike the stock. But it probably would be a good idea to take your gains quickly.