Red Envelope shipped 453,000 orders during the third quarter and improved both its revenue and profit. But these results were diminished by serious Holiday fulfillment problems.
The San Francisco-based gift catalog reported revenue of $35.9 million, compared with $34.3 million during the same period in the prior year. Net income rose to $1.2 million from $900,000 in the quarter that ended on Dec. 28.
But strong customer response to new products turned out to be a “mixed blessing” because the firm ran into sourcing problems, according to CEO Allison May.
“This resulted in us not being able to meet all of the demand for our products,” May said in a statement. “In most cases, we initiated outbound calls to customers to let them know that the products they ordered were unavailable, and inevitably, this led to some cancellations.”
The company also experienced operational problems at its distribution center.
Red Herring was also disappointed with its online sales. While there was a 42% increase through all online channels, “we had anticipated an even stronger increase,” May said.
Shipping revenue fell by 19% due to promotional shipping offers, the change to a flat rate delivery charge, and lower product sales. But the company maintained high gross margins thanks to overseas sources and strong inhouse product development, May continued.
Catalog sales were exactly the same as last year’s, but margins were higher because the firm mailed 20% fewer books.
Revenue for the first nine months totaled $62 million, compared with $54.9 million during the prior year. At the same time, Red Envelope reduced its net loss from $5.1 million to $2.9 million.
The company’s customer file now contains roughly 1.7 million names. Existing customers now contribute 43% of revenue.
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