NEW YORK ( TheStreet) -- Bluefly ( BFLY), founded in 1998, is an online retailer that sells high-end clothes at discounts. The company has struggled to achieve profitability since its founding in 1997. Despite consistent losses, visible below, Bluefly's business is on the mend.

The New York-based company's first-quarter loss narrowed 52% to $1.5 million, or 7 cents a share, from the year-earlier loss. Revenue inched up 1.7% to $20 million. Bluefly has suffered nine consecutive quarterly losses, but the stock is safer than it appears. The company sold new common shares to growth investor Rho Ventures, which now owns 33% of the float, in December and February. The sale diluted its base, but put Bluefly on superior financial footing.

Management paid off outstanding debt and boosted its cash balance from $2 million to more than $14 million, translating to an ample quick ratio of 1.8. Bluefly is on the cusp of profitability. Its gross margin expanded from 38% to 44% in the latest period and its operating margin shrank from negative 14% to negative 7%. As the luxury clothing market picks up, Bluefly expects sales to follow. The average order size grew 12% during the first quarter.

Bluefly, whose $57 million market value makes it a micro-cap stock, is cheap in comparison to its Internet retail peers. The shares sell for a price-to-book ratio of 1.8 and a price-to-sales ratio of 0.7, 80% and 66% discounts to industry averages. The stock has tumbled 39% a year since 2007, but has rebounded from its March 2009 low. It has advanced 92% during the past year. Still, the shares have dropped 24% this year, while the Russell 2000 Index has lost 0.5%.

Hedge funds have taken a liking to Bluefly. Soros Fund Management, run by famed macro strategist George Soros, owns 24% of shares outstanding. Soros has taken heat for this investment, which was initiated during the tech boom of the late '90s, because it has consistently dogged his portfolio. However, recent institutional buying augurs well for Bluefly.

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