Sale or sink for Red Envelope

Red Envelope warned in February that it had only enough money to operate the business through June. But at press time it was looking like the gifts cataloger may not last until May.

According to a March 31 regulatory filing, the San Francisco-based merchant’s CEO, John Pound, resigned abruptly on March 30. The filing also said that Wells Fargo Retail Finance had withdrawn Red Envelope’s credit line. As such, the mailer claims it has insufficient funds to continue operations.

Red Envelope states in its filing that it has been in talks with two potential buyers; however, an acquisition would have to happen in a timely fashion to save the company. If it isn’t sold quickly, the cataloger will be forced to cease operations.

Calls to Red Envelope’s president/chief operating officer Frank Buettner were not returned. Richard Kestenbaum, partner in New York-based Triangle Capital representing Red Envelope, could not comment on any prospective deals.

“It is a shame, but I do believe that the intellectual property has some real value to a buyer who can capitalize on the name and customer file and start over with a clean slate in merchandising,” says Stuart Rose, managing partner for Wellesley, MA-based investment bank Tully & Holland.

For its fiscal third quarter ended Dec. 30, Red Envelope reported a loss of $4.3 million, compared with a net income of $5.3 million for the same period last year. Revenue fell to $45.2 million, from $57 million a year ago.

Founded in 1997 as 911 Gifts, the company, which changed its name to Red Envelope in 1999, has had its share of ups and downs. It seemed to be on an upswing in 2007, with revenue for the fiscal year up 7.1%, to $121.3 million, up from $113.2 million for the prior year. The company trimmed its net loss for the fiscal year to $3.5 million, compared with a net loss of $5.6 million in the previous fiscal year, according to its financials.

Red Envelope relaunched its Website and catalog last year just before the fall. Still, the company says it failed to achieve its goals for the holiday season.

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