Odimo Posts $13.9 Million Quarterly Loss

Online retailer Odimo, which operates Diamond.com, Ashford.com, and worldofwatches.com, announced net sales of $18.5 million for the three months ended December 31, 2005, compared to $21.5 million in the fourth quarter of fiscal 2004. The company reported a $13.9 million loss from operations, compared to a $1.7 million loss from operations in the prior year period.

Gross profit for the fourth quarter of fiscal 2005 was $4.4 million, 23.9 percent of net sales compared to $6.4 million, or 29.6 percent of net sales for the fourth quarter 2004. The decline in gross margin was primarily due to an increased proportion of sales of diamonds, which carry lower gross margin versus watches and luxury goods, as well as to higher promotional activity associated with the decision to discontinue offering brand name handbags.

Marketing expenses for the quarter were $3 million, or 16.1 percent of net sales, compared to $2.8 million or 13.2 percent of net sales in the same prior year period. The higher marketing expense reflects significantly higher online advertising costs.

Odimo is currently implementing strategies that include: reducing costs; seeking equity and debt financing; and exploring the sale of the company or certain assets.

As part of its strategy to reduce costs, the company has converted its diamond sourcing strategy from a mix of an inventory and online model to a completely virtual online model and has entered into an agreement to terminate its supply agreement with SDG Marketing, Inc. (of the Steinmetz Diamond Group). In connection with this termination, the company returned to SDG Marketing approximately $4.4 million of diamond inventory.

For the fiscal year ended December 31, 2005, net sales declined slightly to $51.8 million compared to $52.2 million in fiscal 2004. The number of orders for the year decreased 2.7 percent to 151,700 compared to 155,840 in fiscal 2004. Average order value increased by 3.4 percent to $387 from $374 in fiscal 2004, which reflected increased sales of diamonds and jewelry in 2005, which have greater average order values than watches and luxury goods.

Gross profit was $12.5 million, or 24.2 percent of net sales compared to $15.1 million, or 28.9 percent of net sales in fiscal 2004. The decrease in gross profit as a percentage of net sales for the year was primarily the result of an increased proportion of net sales being derived from diamonds which have a lower gross margin than luxury goods, as well as increased promotions and offers on the ashford.com website.

Marketing expenses for fiscal 2005 were $7.6 million – 14.7 percent of net sales – compared to $6.6 million, or 12.7 percent of net sales in fiscal 2004. The increase in marketing expense for the year was driven by a significant rise in online advertising costs.

In 2005, diamond sales were 31 percent of gross sales in fiscal 2005 compared to 27 percent of gross sales in fiscal 2004.

Jewelry sales were 20 percent of gross sales compared to 17 percent of gross sales in 2004.

Luxury goods sales were 11 percent of gross sales compared to 16 percent of gross sales in 2004.

Watch sales were 38 percent of gross sales compared to 40 percent of gross sales in 2004.