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 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
with clicks of the mouse. Hey, there are even fashion tips.

Unfortunately, Bluefly has not been immune from the thrashing of
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

Further, the company has been making innovative use of e-mail marketing
(which, of course, is extremely cheap). The customer acquisition costs
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
joint ventures, strategic partnerships, sale of the company – basically,

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

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

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

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