Etsy is cutting roughly 12% of its workforce as it tries to adapt its marketplace to changing online-shopping habits.

The second-hand retail site is laying off about 220 employees, mostly in its product and engineering division. The cuts weren't driven by cost-cutting initiatives or artificial intelligence, Chief Executive Kruti Goyal said in a letter to employees Wednesday.

Goyal said Etsy needs to evolve alongside its customers, who are using new and different tools to discover the products Etsy sells. That evolution will involve operating with smaller, faster teams and using revenue to invest in more complex projects, she said.

"Buyers are discovering products in new ways. Sellers have access to increasingly powerful tools to build their businesses. And the expectations they have of Etsy continue to rise," Goyal said.

The announcement came alongside a second-quarter report showing growth across the business, prompting Etsy to raise its outlook for annual gross merchandise sales.

Revenue from continuing operations rose 6.2% to $668.3 million, ahead of the $646.1 million analysts were projecting, according to FactSet.

Gross merchandise sales from continuing operations increased 1% to $2.58 billion, ahead of Wall Street's estimate of $2.51 billion. Average order value was the biggest contributor, primarily due to higher listing prices, Etsy said.

Etsy now expects annual gross merchandise sales will increase by a mid-single-digit percentage, up from its previous guidance of low-single-digit growth.

The Brooklyn, N.Y., company has already shed some weight this year, selling its second-hand clothing app Depop to Ebay in July. The $1.4 billion sale is meant to allow Etsy to focus on its core marketplace business, the company has said.

Goyal spent time as chief executive of Depop before becoming Etsy's top executive in January. She has stressed that Etsy needs to clarify its long-term vision to understand where the business is headed.

The workforce restructuring is part of that goal, she said. While Goyal explicitly said the decision wasn't driven by AI, she did acknowledge that the technology is changing how her teams work.

"It will continue to change how we build products and solve problems," she said. "As the tools available to us evolve, the skills we need, the ways we work together, and the capabilities we build across Etsy must evolve as well."

AI has the potential to change how shoppers navigate platforms like Etsy and Ebay, which both have enormous product inventories. Customers can use the technology to describe what they are looking for or take a picture of something they want to find, and sellers can use it to streamline the listing process.

Etsy expects to incur $35 million in charges related to the layoffs, which will be executed by the end of the third quarter. It will have about 1,600 workers once the cuts are made, it said.

"Cost savings are a consequence of these changes, but they are not the objective," Goyal said.

During the second quarter, active buyers continued to decline year-over-year, but increased sequentially.

Profit from continuing operations was $114.3 million, or 98 cents a share, compared with $45.6 million, or 39 cents a share, the previous year. Analysts polled by FactSet expected 75 cents a share.

Etsy recorded a loss from discontinued operations of $161 million, related to the Depop sale.

Etsy swung to a second-quarter loss of $46.7 million, or 36 cent a share, from a profit of $28.8 million, or 25 cents a share, in the prior-year period.

Etsy's board also authorized a $2 billion share buyback, which will be partly funded by the Depop proceeds. At the end of June, the company had $578.2 million remaining on its current buyback program.

In the current third quarter, the company expects $2.53 billion to $2.58 billion in gross merchandise sales. Analysts are projecting $2.49 billion.