Election Section

SAN FRANCISCO— Struggling online grocer Webvan Group Inc. continued a crash financial diet Thursday by shedding its Atlanta delivery system and laying off 885 employees – about 25 percent of its work force. 

The Atlanta closure will jettison 485 workers. Webvan is trimming another 400 workers at its Foster City headquarters and a Kirkland, Wash. administrative office as the company tries to ration its cash until its unprofitable business starts making money. The company is promising to become self-sufficient during the second half of next year. 

Webvan still has a long way to go to fulfill the pledge. 

The company Thursday reported a first-quarter loss of $86.1 million, or 18 cents per share, on sales of $77.2 million. That compared to a a loss of $75.4 million, or 17 cents per share, on sales of $37.5 million at the same time last year. 

The latest setback raised Webvan’s losses to $697 million since 1998. 

In its scramble to survive, Webvan is slashing expenses. The Atlanta closure comes just a few days after the company decided to shut down its Sacramento service. In February, Webvan exited the Dallas market. 

After setting out to deliver groceries in 26 markets by the end of 2002, Webvan has whittled its operations to seven markets – San Francisco, Los Angeles, Orange County, San Diego, Seattle, Chicago and Portland, Ore. 

“The key question now is whether they have cut enough,” said industry analyst Jeetil Patel of Deutsche Banc Alex. Brown. 

Webvan’s newly appointed CEO Robert Swan thinks so. Webvan appointed Swan, formerly the company’s chief operating officer, to the CEO job Thursday.  

He replaces George Shaheen who resigned two weeks ago. 

“We feel like we have the right market footprint now,” Swan, 40, said during an interview. “I feel more confident about our model every day.” 

Patel believes Webvan should retrench even further by getting out of the Pacific Northwest and focusing on its California and Chicago operations. 

With the latest cuts, Webvan now has enough cash – $115 million as of March 31 – to make it through the end of this year, Swan said in an interview Thursday. Previously, Webvan had warned investors that the company might need to raise an additional $5 million to $15 million to make it through the year. 

The company still needs at least $25 million to stay in business next year, Swan said. Webvan has hired Goldman Sachs & Co. to explore its financing alternatives, which include the possibility of borrowing the money from several of its existing investors. 

Webvan’s service has developed a dedicated following. About 84 percent of the company’s first-quarter orders came from repeat customers.  

Webvan reported 761,780 active customer accounts as of March 31. 

The company’s profit hopes received a boost at the end of the first quarter when its Orange County distribution center generated a positive cash flow.  

Management pointed to the breakthrough as a sign that delivering groceries to online shoppers is a viable business. 

Investors aren’t convinced. In trading Thursday on the Nasdaq Stock Market, Webvan’s shares fell 10 cents to close at 14 cents. As part of an effort to boost its shares above $1 and avoid getting bumped off the Nasdaq, Webvan announced that its board has approved a reverse 25-to-1 stock split. 

The reverse stock split would result in a 25-fold reduction in the number of outstanding shares of Webvan stock – a change that the company hopes will dramatically increase the trading price of its shares. 

On The Net: 

http://www.webvan.com