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Bombay Announces Second Quarter Loss - Revenue Gain

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The Bombay Company, Inc. reported that revenue for the three months ended July 30, 2005 increased 5% to $128.0 million compared to $122.5 million for the three months ended July 31, 2004. For the six-month period, revenue increased 2% to $250.2 million compared to $246.1 million for the corresponding period of the prior year. Same store sales for Bombay stores in existence for more than one year increased 1% for the quarter and declined 2% for the year-to-date period. Net loss for the second quarter was $9.4 million or $0.26 per share compared to a net loss of $6.3 million or $0.18 per share for the corresponding period of the prior year. For the six months ended July 30, 2005, the net loss was $17.4 million or $0.48 per share compared to a net loss of $12.1 million or $0.34 per share for the six months ended July 31, 2004. James D. Carreker, Chairman and Chief Executive Officer, stated, "This quarter began the transition to Bombay's new in-store merchandise presentation and exciting upgrade in the assortment for fall. While the transition costs were higher than anticipated, we believe that the investment was critical to repositioning our brand for the future. We must differentiate ourselves from the competition and capitalize on the rich history of our brand that stands for classic and timeless home furnishings. Our focus is on upgrading the style and quality of our product and creating inspirational presentations to customers in our stores. We are pleased with the initial customer reaction and are cautiously optimistic about the remainder of the year. "We clearly underestimated the extent of the markdowns required to accomplish the transition. As each store changed to the new presentation, floor models for items no longer having a place in that particular store were aggressively discounted. Also, we reduced the overall number of SKUs as we repositioned the merchandise assortment, which resulted in clearing approximately 700 SKUs. In addition, we aggressively discounted normal seasonal clearance, exiting the spring season in good position for the fresh fall product introductions. We estimate that incremental markdowns accounted for approximately 500 basis points of the margin decline this quarter while adversely impacting the top line as well," noted Mr. Carreker. Overall transaction count, including new stores, increased 5% while the average ticket increased slightly during the quarter. Revenue from the direct-to-customer channel, which includes Internet and mail order, declined $2.5 million during the quarter. Actions to address marketing issues for these channels as well as enhance website functionality and appearance have begun. Revenue from Bailey Street Trading Company, the assets of which were sold during the quarter, were approximately $.5 million lower than last year. During the quarter, the Company completed the move to a new, larger distribution center in Canada and began shipments during June. The new distribution center is expected to result in a reduction of off-site storage costs and improved operating efficiencies in that facility. Higher selling, general and administrative costs reflect higher store payroll costs due in part to the changes in the in-store merchandise presentation as well as costs to complete the merchandise study with Accenture. Corporate overhead costs were below last year's levels. Based on performance to date, the Company has updated its estimate of the projected tax rate and has provided a benefit equal to 35.3% of the pre-tax loss for the six months compared to a 40.8% benefit during the first quarter. The cumulative impact of this change during the second quarter is equal to approximately ($.02) per share. The Company ended the quarter with $166.9 million in inventory, 22% above last year's levels due to the decision to flow inventory earlier to support the new merchandise presentation. The amounts are slightly higher than planned with the greatest increase related to merchandise in transit from the vendors. Purchases for the remainder of the year are expected to be lighter than historical levels on a relative basis and the Company expects to end the year with inventory levels in line with its plan of $135 to $140 million. The Company anticipates opening approximately 10 stores during the third quarter including three BombayKIDS stores in the combination format while closing six stores. During the fourth quarter, the Company expects to open 10 to 13 stores, including three to four BombayKIDS stores, and close 10 to 12 stores ending the year with approximately 497 to 502 stores which includes 59 to 60 BombayKIDS stores. Based upon the recent months' trends and actual second quarter results, the Company now expects results for Fiscal 2005 to be in the range of ($0.06) to ($0.12) per share. The Bombay Company, Inc. designs, sources and markets a unique line of home accessories, wall decor and furniture through 495 retail outlets, specialty catalogs and the Internet in the U.S. and internationally.

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