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Bombay Announces Second Quarter Operating Loss

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The Bombay Company, Inc. reported that revenue for the three months ended July 29, 2006 decreased 5.3% to $121.3 million compared to $128.0 million for the three months ended July 30, 2005. Same store sales for Bombay stores in existence for more than one year decreased 3.0% for the quarter. Revenue from retail stores declined to $113.3 million from $119.5 million on a lower store count while our direct-to-customer business, which includes Internet and Mail Order, grew to $7.3 million for the quarter compared to $4.5 million last year, driven primarily by Internet sales. Prior year amounts include $3.3 million of revenue from the Bailey Street operations, the assets of which were sold during Fiscal 2005. The loss before income taxes for the quarter ended July 29, 2006 was $20.2 million compared to $13.3 million for the quarter ended July 30, 2005. The net loss for the quarter ended July 29, 2006 was $19.9 million or $0.55 per share compared to a net loss of $9.4 million or $0.26 for the corresponding period of the prior year. For the six-month period, revenue decreased 4.1% to $239.9 million compared to $250.2 million for the corresponding period of the prior year. Revenue from retail stores declined to $224.0 million from $232.5 million as a result of the reduction in store count and a 2.1% decline is same store sales while our direct-to-customer business grew to $13.8 million for the quarter compared to $9.7 million last year, due to higher Internet sales. Fiscal 2005 amounts include $6.9 million of revenue from Bailey Street operations. The loss before income taxes for the six months ended July 29, 2006 was $36.1 million compared to $26.8 million for the six months ended July 30, 2005. The net loss for the quarter ended July 29, 2006 was $35.5 million or $0.98 per share compared to a net loss of $17.3 million or $0.48 for the corresponding period of the prior year. David B. Stewart, Chief Executive Officer, noted, "My focus since arriving in early June has been on developing a plan designed to return the Company to positive cash flow and improve operations to attract customers and drive sales and margins. Toward this end, first steps to impact Fiscal 2006 and position the Company included: - Selling unproductive inventory from our stores and distribution system. - Strengthening our store merchandise presentation to be more customer friendly and understandable by re-aligning rooms for a more logical product adjacency. - Developing in-store presentations designed to increase velocity of Core items. - Strengthening the merchandise buy for the second half of the year in key categories. "I believe that these actions were critical to position the Company to execute for the fall. Softness in sales and margins during May and June left the Company with higher levels of inventory and reduced profitability. Although adversely affecting the gross margin percentage, the summer clearance promotion generated significant sales, which helped bring inventory levels back in line and set the stage for our new August merchandise presentation. "On a longer term basis, in order to return to positive cash flow, we need to reduce costs. To that end, in addition to the store closings previously announced, we have identified four initiatives designed to save approximately $31 million on an annual basis. These initiatives include: - reducing head office overhead cost through headcount reductions including the elimination of three senior management positions that previously reported to me. - refocusing marketing and eliminating unproductive print advertising, converting our BombayKIDS operations to core assortments over the next 12 to 18 months, and reducing discretionary in-store markdowns. "To attract customers and drive sales and margins, we need to return to our heritage and capitalize on the niche that Bombay occupies in the specialty home furnishings area -- leveraging the strengths of our mall and off-mall store networks, improving the effectiveness of our marketing, focusing our product assortment, improving store execution and driving growth through bombaycompany.com website. We are laying the groundwork for a 2007 plan designed to do just that," concluded Mr. Stewart. The Company ended the quarter with $28.3 million in bank borrowings compared to $55.5 million last year. Inventory levels were $44.5 million lower than the same period last year when levels were unusually high in preparation of last year's "rooms" lifestyle store presentation. The Company is in the process of finalizing an amendment to its credit facility that would, among other things, enhance its seasonal borrowing capacity for the third quarter including adding an incremental facility secured by inventory during the peak borrowing season. As a component of the transaction, the Company contemplates entering into an agreement that would provide for a real estate loan secured by its corporate headquarters building to create additional borrowing availability under the revolving credit facility. The Bombay Company, Inc. designs, sources and markets a unique line of home accessories, wall decor and furniture through 472 retail outlets, specialty catalogs and the Internet in the U.S. and internationally.

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