Varsity Nears Breakeven On Lower Revenues

The complete overhaul of Varsity Group's business model from one that focused on selling textbooks to students to one that serves as the online bookstore for private high schools and small colleges had a dramatic effect on the e-retailer's financials. Revenues for 2001 fell to $12.5 million from $28.5 million in 2000, but the net loss was reduced to $2.2 million from $34.0 million, and Varsity posted cash flow of $400,000 compared to negative cash flow of $27.5 million in the prior year.

The company's eduPartners program, which now serves more than 100 institutions, generated revenues of $9.3 million in 2001, compared to $7.3 million in 2000. The balance of revenues came from marketing service agreements, a line of business that the company is phasing out, plus $889,000 in shipping revenues. In 2002, Varsity expects nearly all of its revenues to be generated by its eduPartners business.

The new business focus allowed Varsity to slash its operating expenses in the year to $15.3 million from $63.2 million in 2000. The most significant cut came in marketing and sales, where expenses fell to $1.7 million from $23.3 million. The decline was due primarily to the elimination of its marketing and brand-building initiatives targeted to students as well as to dropping its network of student representatives. As of March 2002, Varsity had about 20 full-time employees, up from about 15 at the end of the third quarter but below the 97 employees the company had at the end of 1999.

Varsity stopped short of predicting profits in 2002, but noted in its 10-k filing with the Securities and Exchange Commission that it is "positioned to improve upon the financial performance of 2001." The company expects that earnings in this year's third quarter will be enough to offset losses in the first two quarters of the year. Varsity reported that it believes it has enough funds to meet its needs until the company posts an annual profit.