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Retailer eToys Raises $100 Million

June 13, 2000

LOS ANGELES (AP) _ Online retailer eToys Inc. has raised $100 million from a group of private investors, providing the troubled children’s products merchant a significant cash infusion as it gears up for the holiday shopping season.

The Santa Monica, Calif.-based company said Tuesday that the sale of its preferred stock was headed by Promethean Asset Management. The stock carries a 7 percent dividend yield payable in cash or eToys common stock.

Like many e-retailers, eToys has been struggling to prove to Wall Street that it is a viable merchant with long-term potential.

Its stock has lost more than 90 percent of its value since October, when it reached a record high of $86. It was down 34.38 cents at $6.063 in trading Tuesday on the Nasdaq Stock Market.

The online toy market has been under particular pressure in recent months amid intense competition, with too many companies on the Web _ from Wal-Mart to Amazon.com _ selling similar products.

A number of Web toyshops recently went out of business. Nickelodeon closed its Red Rocket retail toy site last month, and Toysmart.com and ToyTime.com have shut down over the last few weeks.

Also Tuesday, KBkids.com withdrew its pending initial public offering for up to $210 million in stock. The Denver-based company originally filed the offering on Jan. 27 and then postponed the IPO on April 13.

The company, which is a division of Consolidated Stores Corp., cited market conditions as the reason for the withdrawal.

Lauren Levitan, a toy industry analyst with Robertson Stephens in San Francisco, said eToys needs a strong holiday season to reassure Wall Street of its potential.

``Certainly there is a great deal of investor scrutiny that will be placed on the company’s ability not only to drive sales but also demonstrate that the infrastructure and brand building are paying off,″ she said. ``This is a very important season and, I think, there is high expectation.″

Steve Schoch, eToys chief financial officer, said the new funding will help the retailer maintain its operations through most of next year.

The company ended the first quarter with $140 million in cash on hand and $50 million in owned toy inventory. That, combined with the $100 million announced Tuesday, will carry the company through the fall of 2001 at least, Schoch said.

EToys will use the money for general corporate purposes, Schoch said. The money came from the sale of preferred stock that is convertible to common stock at the market price at any time during the next three years, and from warrants that give investors the right to purchase up to 5 million shares of common stock at $7.17 per share.

EToys executives have said they expect to break even in terms of operating profits by 2002. The company has lost more than $220 million in its three years in business.

``We’re feeling like it’s not that far off, but we also realize we’ve got to show the milestones along the way. I think there’s a pretty well-versed set of expectations out there right now that we’re working against,″ Schoch said.

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On the Net:

http://www.etoys.com

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