Budgeting errors and an uninspiring Valentine's Day will leave
fourth-quarter results below forecasts and the company's chief financial officer out of a job.
The online gift service expects to lose $3 million to $3.5 million in the quarter on revenue of $21.5 million to $22 million. Analysts were expecting earnings of a penny a share in the quarter on sales of $22.1 million.
Gross margin will also be about 10 percentage points below previous expectations, the company said.
About 3 percentage points of the gross margin shortfall is attributable to soft demand at Valentine's Day, while another 3 percentage points pertains to a "budgeting" error for costs of goods sold in the quarter. Another 3 percentage points reflects higher-than-expected return rates.
The company replaced its CFO, Eric Wong, with Polly Boe, formerly the chief financial officer of Sundance Catalog, a direct specialty retailer.
"We are grateful to Eric for his service to RedEnvelope, particularly in its transition to being a public company. We wish him the best in his future endeavors," the company said.
RedEnvelope reaffirmed a three-year growth target in the low-to-mid 20% range annually, and operating income growth in the range of 12% to 18% in 2008.
"While we are disappointed in what we anticipate will be the final results for the fourth quarter, we continue to be encouraged by the growth in traffic to our Web site," the company said. "We believe our product offering remains strong, especially in jewelry, men's accessories and new baby gifts. We also believe that we have an excellent assortment of unique and thoughtful gifts available for graduations, weddings, Mother's Day and Father's Day."