Lindsey Leaves ...

Let me clarify right away that this is not a Lindsay Lohan story. We're talking about (Nasdaq: OSTK  ) President Jason Lindsey.

After trading closed yesterday, Overstock announced Lindsey's retirement, to be effective immediately. Following a year in which Overstock lost several board directors, and at least one senior VP to resignation, the news is expected to disturb Overstock shareholders. But I don't see cause for undue concern.

The spin
In a farewell press release, CEO Patrick Byrne praised Lindsey:

Jason co-founded the company and helped build it before retiring the first time. When I screwed it up a couple years ago he came out of retirement and has played a decisive role getting it back on track. ... Now that it is back in a solid trailing twelve month cash-flow-positive position, he wishes to return to our previous arrangement.

Fair enough. But does this explanation hold water -- or as Byrne might put it, "carry water"?

The facts
We first learned of Lindsey's return to Overstock on April 25, 2006. Three months later, in the firm's Q2 2006 earnings release, Byrne confirmed that Lindsey "is back as president and is contributing enormously, taking line responsibility for the entire buying team as well." Reviewing the firm's financials from the time Lindsey retook operating control through the last quarter reported, here's how Lindsey's contributions have panned out:

  • After rising steadily for more than four years straight, Overstock's (trailing-12-month) sales began a steady decline that only turned around last quarter.
  • Operating costs took a few months to turn around but have dropped significantly in the past couple of quarters.
  • The inventory picture improved dramatically, falling with each succeeding quarter before ramping up slightly last quarter in anticipation of Christmas sales.
  • Overstock posted positive EBITDA for the first time in a non-Q4 quarter last quarter.
  • Meanwhile, capital expenditures have declined steadily, resulting in positive trailing-12-month free cash flow for the first time since December 2004.

So to sum up, Byrne's statement does hold water. Lindsey has raised the ship, and if his successor (yet to be named) hews to the course Lindsey set, the ship should stay afloat. So focus, Overstock: Don't pursue sales growth regardless of costs. Do maintain low operating costs and low capital expenditures. Now that you've attained positive free cash flow, focus on keeping it.

Mind you, Overstock still isn't generating anything like its online competitors eBay (Nasdaq: EBAY  ) and (Nasdaq: AMZN  ) . But de-"screwed up" and "cash-flow-positive"? Check and check.

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