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This E-tailer Delivers Profits

After Tuesday's column about eBay, I was in the mood for another feel-good piece about Internet stocks. And wouldn't you know it, one dropped right in my lap.

Amazingly enough, it involves an e-tailer. Online flower and gift seller FTD.com just announced its second consecutive quarterly profit. Even better, the company also said it should be profitable for the entire fiscal year, which ends June 30.

Q2 figures for EFTD show revenue of $32.5 million, an increase of 38% from last year's second quarter. Net income was $2.3 million, or 5 cents per share, compared with a net loss of $11.2 million, or 24 cents per share in Q2 '2000. In the first fiscal quarter of the year, EFTD had a razor-thin net income of $253,000, or 1 cent per share.

Obviously, by eBay or Yahoo standards, these aren't blow-away numbers, but EFTD investors should be pleased (and relieved) the company already is in the black and headed toward increased profitability. In the e-tail sector, that's the equivalent of discovering the lost continent of Atlantis.

Not that EFTD is a pure, stand-alone e-tailer. The company is a subsidiary of Florists' Transworld Delivery (otherwise known as FTD), which retains majority ownership, and EFTD taps into FTD's network of florists for order fulfillments.

However, unlike competitor 1-800-FLOWERS.COM, which gets more than half its orders through the telephone, FTD.com's Internet operation was responsible for 84% of total orders in Q2, up from 69% in the year-ago quarter. That may be why EFTD has been able to nudge its gross margin to more than 30%. In contrast, Amazon.com's gross margin is less than half that.

FTD.com credits its move to profitability on a conscious decision to cut costs. It slashed spending on traditional media advertising (television and print), relying instead on Web advertising and catalogs to attract customers. The difference was dramatic: In the fourth quarter of fiscal year 2000 (ended June 30), EFTD's spending for cost of goods sold and operating expenses was $47.1 million. That total was reduced to $18.3 million just one quarter later.

Granted, the quarter ending in September is the slowest for flower sellers, as it lacks lucrative events such as Christmas, Valentine's Day and Mother's Day. Regardless, FTD.com still managed to cut operating expenses 24% from the year-ago quarter ended in September 1999.

Like most other 'Net stocks, EFTD shares have taken a beating over the past year, falling to as low as $1.06 in late December from their Dec. 31, 1999 starting price of $5.25.

But FTD.com's Q2 report pushed shares up 47% to $3.31 by Tuesday's close, just 37% below the '99 year-end mark. I'm not sure you can find another e-tail stock that comes close to matching that ticker performance.

On a revenue multiple basis, EFTD is a bargain, trading at 1.4x trailing 12 months' sales of $112.9 million. But on an earnings basis, FTD.com is still an open question, with only two quarters of profitability under its belt. Investors probably should wait for the company's next quarterly report to determine if it is still headed in the right direction.