Updated from 9:45 a.m. EST
Capping a rocky year,
announced wholesale strategic changes Wednesday, saying it would narrow its focus and lay off 47% of its workforce. The company's founders have resigned as well.
Value America also said it has formed a committee to "explore strategic opportunities." The restructuring, which will also include closing some of the company's facilities, will result in a $5.6 million charge in the fourth quarter, the company said.
Value America's stock has
languished since going public at $23 per share in April and hitting $74 just after the IPO. The stock was down 1/2, or 13%, at 6 in midafternoon trading Wednesday.
The moves make sense, said Lauren Levitan, an analyst at
BancBoston Robertson Stephens
, which led Value America's IPO. "The company had lost the confidence of the investment community, so these were bold, good moves."
Value America's alternatives could include an outright sale, a strategic partnership or an equity partnership that falls short of a sale, said Levitan, who just last week downgraded Value America from a buy to long-term attractive.
The Charlottesville, Va.-based company said it has redefined itself as a "specialized online electronics, technology and office products superstore"; in its original incarnation, the Web site had offered everything from fashion and apparel to patio furniture. Now, the company is eliminating what it calls "non-productive categories" to focus on the product areas that it said generates almost 95% of its revenues.
"We are building on Value America's proven strengths and are discarding what doesn't perform," Glenda Dorchak, the struggling company's recently installed CEO, said in a statement.
The shift to a technology-oriented office superstore makes sense, Levitan said. "It's pretty much all they've been selling anyway."
While revenues for the fourth quarter will fall short of analysts' expectations by 6%-9%, which the company blamed on order fulfillment delays and transition issues, Value America said it would beat consensus estimates of earnings, excluding the charge. According to
First Call/Thomson Financial
, analysts expect the company to post a loss of $1.03 per share.
Value America also said it expects to "significantly increase its efforts in the business and government markets."
The company will also abandon its offline marketing efforts and focus on online advertising.
Value America has been plagued by customer service problems; up until now, it has poured money into marketing and advertising at the expense of "customer experience," said David Trossman of
First Union Securities
. For 2000, Levitan had forecast $136 million in spending on promotion, sales and marketing. Based on Wednesday's announcement, "that's going to shift dramatically," Levitan said. Among the company's challenges in the coming year is proving that it can drive sales growth with a much lower marketing budget, analysts said.
Trossman rates the stock a hold; First Union has not done any underwriting for the company.
As part of the company's strategic shift, it is reassessing many of its relationships with outside vendors, which play a key role in its "inventory-less" business model, Levitan said.
While its partnerships with
will remain intact -- FedEx Chairman Frederick Smith is heading Value America's special strategic alternatives committee -- Value America told analysts it is conducting an "overall assessment" of its vendor relationships and will reduce its number of suppliers from 450 to about 25. Partnerships with companies such as
Procter & Gamble
, which fall outside the new core strategy, will likely fall by the wayside, Levitan said.
A Value America spokesman confirmed that the company will "significantly reduce" its list of suppliers to more accurately reflect the new approach.
Craig Winn, who founded the company and still owns a chunk of its stock, has resigned. Wednesday's announcement comes just a month after Value America said Winn would relinquish his day-to-day role as chairman of the company and become chairman of the executive committee of the board of directors. In the same November announcement, the company unveiled the promotion of Dorchak as CEO, replacing Tom Morgan, who had been at the company for less than nine months.
Rex Scatena, the company's other founder and its vice chairman and chief counsel, has resigned as well.
Citibank was down 1/2, or 1% to 55; FDX was up 1/8 to 42 1/2; Procter & Gamble was down 2 3/4, or 2%, to 108 7/8; and Hasbro was up 1/8, or 1%, to 18 5/16 in midafternoon trading. (For the day, Value America closed down 13/16, or 11.93%, at 6 13/16; Citibank closed down 5/8, or 1.13%, at 55 1/2; Procter & Gamble closed down 2 1/4, or 2.02%, at 111 5/8; and Hasbro closed down 1/16, or 0.34%, at 18 3/16.)