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Originally published May 6, 2014 at 4:31 PM | Page modified May 6, 2014 at 6:06 PM

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Zooming sales at zulily bring delivery delays and profit miss

Highflying zulily shares took a tumble after the company reported an 87 percent increase in revenue but a larger than expected net loss.

Seattle Times business reporter

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Moms shopping at zulily’s website have recently bought items faster than the company could ship them, creating a sizable backlog that hurt its revenues and profit margins.

The delay cast a pall over higher-than-expected revenue growth and an increase in annual sales estimates for the Seattle-based Internet company, which runs ‘flash sales’ of toys, apparel and home décor geared toward busy mothers.

Shares of zulily tanked 16.7 percent in aftermarket trading Tuesday, falling $7.64 to $38.25.

That’s close to where zulily initially traded after its debut as a publicly traded company in mid-November — and a major comedown from the high of $72.75 seen in late February, as the explosive sales growth of the website sent investors into a frenzy.

Unexpectedly high order volumes delayed the shipping of items ordered at the end of March. The delays brought the average shipment time for zulily, which already tends to be longer than its competitors, up even more: 13.2 days versus 11.3 days in the same period last year, Chief Financial Officer Marc Stolzman said in an earnings call Tuesday.

The company responded with a rapid ramp-up of operations at its fulfillment centers, which resulted in increased shipping and labor costs, according to executives.

At the same time, the revenue the company would have recorded on those orders got pushed into the next quarter. Zulily reported deferred revenues of $53 million at the end of March, versus $23.25 million at the end of December.

“We learned we could have planned faster and better,” Stolzman said in the call with analysts.

Executives said the issue has been worked through, and shipping times are back to normal as the company keeps investing in technology and in expanding its fulfillment centers.

But the issue highlights what analysts have pointed out as a weakness in zulily’s fast-growing business: It takes a lot longer to get products from zulily than it does to buy from competitors such as Amazon.

That’s because zulily doesn’t hold inventory. It orders items to its fulfillment center only after customers have made a purchase, then it redirects them to the customers.

CEO Darrell Cavens says that strategy helps keep prices low and offers a wider range of products so that zulily can give customers the opportunity to discover something new.

The lengthy shipping times have no impact on purchases from returning customers or in buyers’ engagement, because zulily fans don’t purchase based on need, he said in the call.

The backlog issue took the luster from what was otherwise a positive earnings report. Revenue rose to $237.9 million, up 87 percent from last year, beating analyst expectations of $233.8 million.

A net loss of $3 million, or 2 cents a share, was slightly wider than the penny-a-share loss analysts forecast.

Zulily even upped its 2014 guidance. It anticipates sales of $1.15 billion to $1.20 billion, up from the previous range of $1.10 billion to $1.15 billion.

Ángel González: 206-464-2250 or On Twitter: @gonzalezseattle

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