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eToys has warned that it won't be filling as many Christmas stockings as previously thought.

The Los Angeles-based e-tailer said late on Friday that orders for the current quarter were less than expected, forcing it to halve Q3 revenue forecasts. It now expects net sales of between $120 million and $130 million, down from the $210 million to $240 million it had expected. This compares to $106 million for the Christmas quarter 1999.

Losses are also expected to rise - eToys had pitched losses at between 22 per cent to 24 per cent of revenue, but on Friday it upped this figure to 55 per cent to 65 per cent, or $66 million to $85 million.

As a result of sagging sales, the online toy merchant said it will run out of cash on March 31 (it had previously thought funds would last until June 30). It has hired Goldman, Sachs & Co "to explore strategic alternatives for the company" - these include selling the company's assets, a merger, or a cash injection. It will also announce staff cuts early next year.

eToys blamed its woes on the general slowdown in the economy, the US presidential election dithering, and "the current disfavour of Internet retailing".

"We are disappointed that sales have not materialized to the degree we had expected, but we point to the fact that the company is expected to show between 12 percent and 22 percent growth in revenue versus the same quarter last year," said eToys president and CEO Toby Lenk.

"Going forward and based on current operating realities, we will take aggressive steps to reshape the company's cost structure and to best position the company for the future." ®

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