RightStart.com to get new start?

After pulling out of a planned initial public offering for its online subsidiary RightStart.com in May, children products cataloger/retailer The Right Start has enlisted the aid of investment bank Morgan Stanley Dean Witter to explore the possibility of merging the division with either another Internet firm or a traditional direct marketer.

The Westlake Village, CA-based company expects to receive Morgan Stanley’s recommendation in October or November, says president/CEO Jerry Welch. “Since we withdrew our IPO, we have been approached about merging RightStart.com with other companies.” A merger would help “accelerate the growth and development for RightStart.com,” which includes the print catalogs as well as the Website. Welch says he would also consider merging the subsidiary with a complementary retailer.

“By the time we were ready to go public, we knew that accessing the public markets for cash would be difficult,” says Welch.

Indeed, “dot-coms have a way of burning through cash, and the Wall Street pendulum has swung back from the new Web economy back to the old economy and profitability,” says Ken Gassman, an analyst with Richmond, VA-based Davenport & Co.

Online sales are The Right Start’s fastest-growing revenue source. Sales from the Web and print catalogs, which now represent about 40% of sales, were $4.8 million for the quarter ended April 29, up 183% from the year prior. But RightStart.com’s first-quarter losses – attributed to marketing expenses – ballooned to $3.7 million, compared to a profit of $179,000 last year.

As for the company’s retail division, the addition of 12 new stores during the first quarter bit into its bottom line. Sales for The Right Start’s 53-store retail group increased 14.3%, to $10.3 million for the quarter from $9 million a year ago. Losses, however, increased from $168,000 last quarter to $938,000 this quarter.

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