eToys Warns of Lower 3Q Results, Foresees Layoffs, Possible Sale or Merger

eToys(ETYS Quote) said Friday it expects wider losses for the fiscal third quarter than it had previously forecast on Oct. 30 due to weaker-than-expected holiday sales.

The Internet toy retailer also said it expects to announce a plan for layoffs in January and has retained Goldman Sachs to "explore strategic alternatives," including the sale of assets, a merger or a financial restructuring.

The Internet toy retailer said it anticipates sales for the quarter ending Dec. 31 of between $120 million to $130 million, down significantly from the $210 million to $240 million previously projected. This compares with sales of $106.8 million during the year-ago quarter.

Operating losses are expected to be between 55% and 65% of revenue, rather than between 22% and 28% of revenue, as previously estimated. This compares with operating losses of 59% percent of revenue during the year-ago period. No per-share figures were given.

The company blamed the shortcoming on a "harsh retail climate driven by concerns over the economy, the current disfavor of Internet retailing, and a consumer population meaningfully distracted by the presidential election and its aftermath."

In addition, eToys says it no longer anticipates profitability by the fiscal year ending March 31, 2003 or forecasts that its quarterly loss will narrow year-over-year beginning in the quarter ending Dec. 31.

The company says it believes its cash reserves will meet needs through March 31, 2001, rather than through June 30, as previously estimated.

Shares of eToys sank 3 cents, or 2.9%, to close at $1.03 a share in regular-session Nasdaq trading.