Overstock Hit on Big Loss

The stock sinks 7%.
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The pain at

Overstock

(OSTK) - Get Report

continues.

The company Friday reported a loss of $15.9 million, or 82 cents per share, during the first quarter, compared with $4.3 million, or 22 cents, last year. Sales jumped 8.6% to $180.2 million. The results missed Wall Street consensus forecasts that called for a loss of 64 cents on sales of $186.3 million. Shares of the Internet retailer dropped $1.86, or 6%, to $26.87.

As usual, Patrick Byrne, the company's colorful leader, offered a blunt explanation to investors in a letter released to the media. His statement began with a quotation from Wu Li, a Chinese painter and poet, that read, "Chop Wood, Carry Water," alluding to the challenges the Salt Lake City-based company faces.

"Our theme for this year is to slow growth during the first half of the year so we can work on improving internal business processes in preparation for stronger performance in Q4 and beyond," writes Byrne. "We continue to anticipate things will look better in Q3, and to be out of the ditch by Q4. Nothing that has happened recently suggests to me that we should change course."

Sales and operating expenses were what he expected, though margins were "a bit lower" because of warehouse costs from stemming from computer system problems that plagued the company at the end of last year, he says. The company expects variable handling costs to decline once its new customer-service center in Salt Lake City is completed next month.

"In summary, I'm committed to stay the course: slowing growth while we improve our systems and enhance the service we provide to our customers," Byrne says. "Unfortunately, Q2 will be another disappointing quarter at the bottom line; then the tide should start coming back in by Q3 and we should be afloat in Q4."

Investors are starting to favor Internet media over commerce companies because the profit margins and growth prospects are stronger.

eBay

(EBAY) - Get Report

, whose new eBay Express service competes with Overstock, disappointed investors last week when it didn't boost earnings guidance.

Amazon.com's

(AMZN) - Get Report

in-line quarter didn't do much to boost the profile of the largest Internet retailer on Wall Street.

Missing from Byrne's letter, which he signed "your humble servant," was any mention of his crusade against short-sellers. Last year, Overstock filed a lawsuit alleging a wide-ranging conspiracy to manipulate the share price of the Internet retailer. Overstock alleges that research firm Gradient Analytics was in cahoots with short-sellers including Rocker Partners, which owns a small stake in

TheStreet.com

(TSCM)

, publisher of this Web site. Both Rocker and Gradient have denied wrongdoing.

TheStreet.com and James J. Cramer, its co-founder and major shareholder, were subpoenaed in February in connection with a

Securities and Exchange Commission

investigation into Overstock's allegations. The SEC has agreed that it will not, at this time, seek to enforce the portions of the subpoenas issued to the company and other media firms, including

Dow Jones

(DJ)

, that concern communications between journalists and their sources.