Eddie Bauer Reports Fourth Quarter and Fiscal 2008 Results; Company is in Discussions on Term Loan Amendment

SEATTLE, March 18 /PRNewswire-FirstCall/ -- Eddie Bauer Holdings, Inc. (Nasdaq: EBHI) today reported unaudited financial results for the fourth quarter and fiscal year ended January 3, 2009. Adjusted EBITDA (earnings before interest expense, income taxes, depreciation and amortization), excluding the fair value adjustments on the Company's convertible debt and certain other non-recurring and non-operational items for the full year, increased by $10.8 million to $52.7 million from $41.9 million in the prior year. Adjusted EBITDA decreased by $5.9 million to $54.0 million for the fourth quarter of 2008. "Income (loss) before income tax expense" is the comparable GAAP measure to EBITDA. (See the attached tables for the Company's unaudited financial statements as of January 3, 2009 and a reconciliation of adjusted EBITDA to GAAP financial measurements.)

"The swift and dramatic downturn in the economy had a major impact on us in the fourth quarter. The actions that we took throughout the year provided some buffer against the worsening recession, but not enough to protect us fully from the sharp pullback in consumer spending and a highly promotional retail environment. Still, for the year as a whole we were able to show a significant improvement in our EBITDA," said Neil Fiske, the Company's CEO.

FOURTH QUARTER HIGHLIGHTS (UNAUDITED)

Revenue

Total revenues for the quarter decreased by $22.5 million (5.7%) to $369.9 million compared to $392.4 million in the fourth quarter of 2007. Comparable store sales fell 5.7% for the quarter excluding the effect of foreign exchange rates resulting from the sharp decline in the Canadian dollar.

Comparable store sales were as follows:

                                                Q4 2008(%)
    Comp store sales           Q4 2008 (%)   (Excl. CDN impact)   Q4 2007 (%)
    Combined (retail & outlet)    (8.8)          (5.7)              4.8
      Retail                     (10.5)          (5.9)              8.6
      Outlet                      (5.4)          (5.4)             (1.9)

Comparable store sales for the fourth quarter and fiscal year have been calculated to include the addition of the first week of fiscal 2008, to make fiscal and fourth quarter 2007 (a 52-week year and 13-week quarter, respectively) comparable to fiscal and fourth quarter 2008, which are a 53-week fiscal year and 14-week quarter, respectively.

Net merchandise sales, included within total revenues, decreased by $21.6 million as follows:

                                  Q4 2008           Q4 2007
    Net merchandise sales     ($in millions)    ($in millions)      % Change
    Combined                        356.0            377.6            (5.7)
      Retail & outlet               255.9            274.2            (6.7)
      Direct                        100.1            103.4            (3.2)

Comparisons for net merchandise sales are not adjusted for the 52- or 53-week period. The Company operated 255 retail stores and 121 outlet stores at the end of fiscal 2008, compared with 271 retail stores and 120 outlet stores at the end of fiscal 2007.

Gross Margins

Gross margin percentage for the fourth quarter declined to 40.9% from 43.8% in the year-ago quarter. Gross margin dollars declined by $19.7 million in the fourth quarter of 2008 compared to $165.2 million in the prior year quarter, as a result of higher markdowns spurred by the overall increase in promotional activity by our competitors during the holidays and higher costs related to increases in headcount and professional services for buying functions.

Selling, General and Administrative (SG&A)

SG&A expenses showed improvement as the Company maintained its focus on its key initiative of removing $25 to $30 million in total SG&A expenses in 2008. SG&A decreased by 7.0% ($9.3 million) in the fourth quarter of 2008. The decrease in SG&A expenses resulted primarily from lower compensation expenses, lower professional fees, and lower advertising and marketing costs. Partially offsetting the lower expenses was a non-cash $7.5 million impairment charge for store leasehold improvements.

Adjusted EBITDA and Operating Income (Loss)

Adjusted EBITDA decreased by $5.9 million to $54.0 million for the quarter when excluding certain non-operational and non-recurring adjustments. These non-cash items included the fair value adjustments on the Company's convertible notes, non-operational gains and impairment charges related to foreign investments and store leasehold improvements.

The $155.8 million increase in operating loss was primarily driven by $144.6 million of non-cash impairment charges of trademarks ($80 million) and goodwill ($64.6 million) during the fourth quarter. The goodwill impairment charge is based on the Company's enterprise value, which was estimated using an income approach calculated from discounted cash flows, and was further supported by market comparables for other retail companies, as well as the indicated value based on the Company's common stock price. The downturn in the economy, which impacts the Company's and other retail companies' future expected sales and cash flows, was a primary contributor to the impairment charges.

                                           Q4 2008       Q4 2007
                                       ($in millions) ($in millions)  $Change
    Operating Income (Loss)                 (108.3)       47.5       (155.8)
    Income (Loss) before Income Tax Expense  (99.7)       56.9       (156.6)
    EBITDA                                    61.3        74.4        (13.1)
    EBITDA excluding  non-recurring and
     non-operational items                    54.0        59.9        (5.9)

Net Loss

As a result of the $144.6 million non-cash impairment charges discussed above, which was partially offset by a lower provision for income taxes, net loss for the fourth quarter increased by $109.3 million to $127.5 million, or $4.13 per share compared to a net loss of $18.2 million, or $0.59 per share in the year-ago quarter.

YEAR-TO-DATE RESULTS (UNAUDITED)

Revenues

Total revenues for the year decreased by 2.0% to $1,023.4 million compared to $1,044.4 million in 2007. Comparable store sales were as follows:

                                Fiscal      Fiscal 2008(%)    Fiscal
    Comp store sales            2008 (%)  (Excl. CDN impact)   2007 (%)
    Combined (retail & outlet)    (1.8)           (1.1)          4.4
      Retail                      (2.0)           (0.9)          8.9
      Outlet                      (1.5)           (1.5)         (2.3)

The Company opened 8 retail and 6 outlet stores, and closed 24 retail and 5 outlet stores during 2008.

Net merchandise sales included within total revenues were as follows:

                              Fiscal 2008       Fiscal 2007
    Net merchandise sales   ($in millions)    ($in millions)      % Change
    Combined                      971.3            989.4            (1.8)
      Retail & outlet             697.1            711.5            (2.0)
      Direct                      274.2            277.9            (1.3)

Gross Margins

Gross margin percentage decreased 0.9% to 35.3% during 2008 from 36.2% in the prior year. Gross margin dollars decreased to $343.1 million for the period from $358.5 million in the prior year, as a result of lower merchandise margins and increased buying costs, partially offset by lower occupancy costs.

SG&A

SG&A declined by $48.3 million to $393.6 million, or 40.5% of net merchandise sales for the year from $441.9 million, or 44.7% a year ago. This exceeded the upper end of the Company's original target of $25-30 million in SG&A reduction, and is primarily due to substantial savings from better cost management and lower revenue-related expenses.

Adjusted EBITDA and Operating Loss

For 2008 adjusted EBITDA, excluding certain non-operational and non-recurring items, improved by $10.8 million to $52.7 million from $41.9 million in 2007.

Operating loss increased to $142.9 million during 2008, from $28.4 million for the prior year, primarily driven by the $144.6 million non-cash impairment charges of trademarks and goodwill.

                                         FY2008          FY2007
                                     ($in millions)  ($in millions) $Change
    Operating Loss                        (142.9)        (28.4)      (114.5)
    Loss Before Income Tax Expense        (161.5)        (32.5)      (129.0)
    EBITDA                                  47.5          42.0          5.5
    EBITDA excluding non-recurring
     and non-operational items              52.7          41.9         10.8

Net Loss

As a result of the $144.6 million non-cash impairment charges discussed above, net loss for 2008 increased by $63.8 million to $165.5 million, or $5.38 per share compared to a net loss of $101.7 million, or $3.33 per share, in 2007.

Unaudited Balance Sheet Highlights Year Over Year

Debt: Short- and long-term debt remained substantially flat year-over-year.

Inventories: Decreased to $136.4 million at 2008 year-end from $158.2 million a year earlier, a decrease of $21.8 million or 13.8%. On a per store basis, retail stores' inventories decreased by 4.7% and outlet stores' inventories decreased by 15.3% due to improved inventory management.

Capital Expenditures: Decreased to $21.0 million for 2008 ($16.8 million net of landlord contributions) from $56.6 million in 2007, a reduction of $35.6 million, or 63%, as a result of the completion of the new corporate headquarters in 2007 and fewer store openings in 2008. The Company opened 14 stores and closed 29 stores during 2008, as compared to 29 stores opened and 32 closed during 2007. The Company has closed six stores to date in 2009, and expects to close one store and open two to three new stores in the remainder of 2009.

Amendment to Term Loan

Given the downturn in the U.S. and global economies, and the tightening in 2009 of certain ratios in the Company's covenants under its $225 million Amended and Restated Term Loan Agreement, on which approximately $193 million is outstanding, the Company faced significant risk of being in violation of its consolidated secured leverage ratio as early as the first half of fiscal 2009. In order to avoid a potential going concern opinion from the Company's independent registered public accountants, the Company is seeking an amendment to the Term Loan Agreement to provide covenant relief and flexibility to manage through a recessionary economy. The Company submitted two previous proposals to its Amended Term Loan lenders, both of which were not approved, before reaching an agreement in principle on the current amendment terms. The amendment terms currently being discussed include substantial upfront cash and payment-in-kind fees, a substantial increase in interest rates, as well as the issuance of warrants for the Company's common stock. Details of certain terms of the proposed amendment are contained in the Notification of Late Filing on Form 12b-25 filed by the Company on March 18, 2009.

"We expect 2009 to be a very challenging, difficult year. While the amendment we are seeking is expensive, it will give us a new level of covenants with considerably more room on the downside through the first quarter of 2010," said Mr. Fiske.

Since the disclosures to the Company's Annual Report on Form 10-K will be materially impacted by an amendment to the Term Loan Agreement, the Company is unable to file its Form 10-K until the amendment process is completed. The Company is filing a Notification of Late Filing on Form 12b-25 today for a 15-day extension to the time allowed for filing its Annual Report on Form 10-K.

The Company was in compliance with all of its loan covenants as of January 3, 2009.

In conjunction with the amendment to the Term Loan Agreement, the Company also intends to engage in efforts to reduce its total indebtedness, including a possible restructuring, conversion or modification of its 5.25% Convertible Senior Notes Due 2014 or obtaining new capital to be used to pay down existing debt.

CONFERENCE CALL

The Company will announce the time of its conference call to discuss its financial results for fourth quarter and fiscal year 2008 at such time as its Annual Report on Form 10-K is filed.

ABOUT EDDIE BAUER

Established in 1920 in Seattle, Eddie Bauer is a specialty retailer that sells outerwear, apparel and accessories for the active outdoor lifestyle. The Eddie Bauer brand is a nationally recognized brand that stands for high quality, innovation, style and customer service. Eddie Bauer products are available at 370 stores throughout the United States and Canada, through catalog sales and online at www.eddiebauer.com. Eddie Bauer participates in a joint venture in Japan and has licensing agreements across a variety of product categories.

SAFE HARBOR STATEMENTS

All financial information related to fiscal 2008 in this release is preliminary in nature based on unaudited, internal information as of March 18, 2009. This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases, you can identify these statements by forward-looking words such as "may," "might," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "intends," "potential", qualifiers such as "preliminary", and similar expressions. Forward-looking statements are not guarantees of future events, and the Company can provide no assurance that such statements will be realized. The Company can provide no assurance that an amendment to its Term Loan Agreement will be reached on acceptable terms, on a timely basis or at all. The Company can provide no assurance that an amendment will not contain additional terms which significantly increase the Company's interest expense, significantly dilute common stockholders or limit its ability to fund its operations or pay outstanding indebtedness. The Company can provide no assurance that if an amendment is reached, events in the future will not require the Company to seek additional capital or further amendments to its financing arrangements or, if so required, that such capital will be available on terms acceptable to the Company. Forward-looking statements contained in this press release are based on estimates and assumptions, which assumptions and estimates may prove to be inaccurate, and involve risks and uncertainties. Actual results may differ from those contemplated by such forward-looking statements as a result of a variety of factors, including a continued downturn in the national and global economies; the ability to meet the covenants contained in the Company's various credit facilities or the extent and nature of any relief that is obtained therefrom; changes in consumer confidence and consumer spending patterns; the Company's inability to effectuate the proposed turnaround of Eddie Bauer as a premium quality brand and improve profitability of retail and outlet stores, catalogs and website operations; the inability to hire, retain and train key personnel; risks associated with legal and regulatory matters; risks associated with rising energy costs; the volatility of foreign exchange rates as they impact results of operations; risks associated with reliance on information technology; increased levels of merchandise returns not estimated by management; the inability to source requirements from current sourcing agents; disruption in back-end operations; the inability to protect trademarks and other proprietary intellectual property rights; unseasonable or severe weather conditions; the Company's inability to use its federal net operating loss carryforwards, whether as a result of lack of future income from tax purposes or otherwise; and the other risks identified in the Company's periodic reports filed pursuant to the Securities Exchange Act of 1934, as amended, including the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 2007 and Quarterly Reports on Form 10-Q for the periods ended March 29, 2008, June 28, 2008 and September 27, 2008. The information contained in this release is as of March 18, 2009 and is unaudited, and except as required by law, the Company undertakes no obligation to update any of these forward-looking statements.

                                  --Tables Follow--


    Contacts:

    Investors and Media
    Eddie Bauer Holdings, Inc.
    Marv Toland, Chief Financial Officer (425)755-6226

                             EDDIE BAUER HOLDINGS, INC.
                            CONSOLIDATED BALANCE SHEETS
                                ($ in thousands)
                                   (Unaudited)


                                                      As of         As of
                                                   January 3,    December 29,
                                                      2009           2007

    Cash and cash equivalents                        $60,425       $27,596
    Restricted cash                                      180        30,862
    Accounts receivable, less
     allowances for doubtful accounts
     of $241 and $983, respectively                   25,181        30,122
    Inventories                                      136,423       158,223
    Prepaid expenses                                  27,667        27,297
      Total Current Assets                           249,876       274,100
    Property and equipment, net                      163,498       195,103
    Goodwill                                          43,174       107,748
    Trademarks                                       105,065       185,000
    Other intangible assets, net                      14,559        21,668
    Other assets                                      20,748        27,813
      Total Assets                                  $596,920      $811,432

    Trade accounts payable                           $50,041       $45,102
    Bank overdraft                                     9,770        12,915
    Accrued expenses                                  92,527       107,036
    Deferred tax liabilities - current                 6,408         6,356
    Current liabilities to Spiegel Creditor Trust        180        30,870
    Current portion of long-term debt                 14,693             -
      Total Current Liabilities                      173,619       202,279
    Deferred rent obligations and
     unfavorable lease obligations, net               43,035        42,811
    Deferred tax liabilities - noncurrent             34,707        30,490
    Senior term loan                                 178,076       196,162
    Convertible note and embedded
     derivative liability, net of
     discount of $17,284 and $19,629,
     respectively                                     59,418        66,113
    Other long-term liabilities                       12,617         7,802
    Pension and other post-retirement
     benefit liabilities                              22,638         9,503
      Total Liabilities                              524,110       555,160
    Commitments and Contingencies
    Common stock:
    $0.01 par value, 100 million shares
     authorized; 30,824,275 and 30,672,631
     shares issued and outstanding as of
     January 3, 2009 and December 29, 2007,
     respectively                                        308           307
    Treasury stock, at cost                             (157)         (157)
    Additional paid-in capital                        593,621      588,302
    Accumulated deficit                             (502,288)     (336,818)
    Accumulated other comprehensive
     (loss) income, net of taxes of
     $0 and $2,848, respectively                     (18,674)        4,638
      Total Stockholders' Equity                      72,810       256,272
      Total Liabilities and Stockholders' Equity    $596,920      $811,432



                          EDDIE BAUER HOLDINGS, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     ($ in thousands, except per share data)
                                   (Unaudited)

                     Three Months  Three Months
                         Ended         Ended
                       January 3,   December 29,
                          2009         2007      Fiscal 2008    Fiscal 2007
    Net sales and
     other revenues    $369,898     $392,430      $1,023,437     $1,044,353
    Costs of
     sales,
     including
     buying and
     occupancy          210,436      212,394         628,191       630,853
    Impairment of
     indefinite-lived
     intangible
     assets             144,574            -         144,574             -
    Selling,
     general and
     administrative
     expenses           123,235      132,517         393,585       441,875

      Total operating
       expenses         478,245      344,911       1,166,350     1,072,728
    Operating
     income (loss)     (108,347)      47,519        (142,913)      (28,375)
    Interest expense     (6,193)      (6,987)        (22,800)      (26,698)
    Other income
     (expense), net      18,422       16,376          13,385        23,695
    Equity in
     losses of
     foreign joint
     ventures            (3,610)        (20)          (9,134)       (1,147)

    Income (loss)
     before income
     tax expense        (99,728)     56,888         (161,462)      (32,525)
    Income tax
     expense             27,802      75,137            4,067        69,193

    Net loss          $(127,530)   $(18,249)       $(165,529)    $(101,718)

    Net loss per
     basic and
     diluted share       $(4.13)     $(0.59)          $(5.38)       $(3.33)

    Weighted average
     shares used
     to compute
     basic and
     diluted net
     loss per
     share           30,854,355  30,677,625       30,749,922    30,524,191



                             EDDIE BAUER HOLDINGS, INC.
                    RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
                                  ($ in thousands)
                                    (Unaudited)

                           Three Months  Three Months
                              Ended         Ended
                            January 3,   December 29,
                               2009         2007    Fiscal 2008  Fiscal 2007

    Income (loss) before
     income tax expense      $(99,728)    $56,888    $(161,462)     $(32,525)
    Impairment of
     indefinite-lived
     intangible assets        144,574           -      144,574             -
    Interest expense            6,193       6,987       22,800        26,698
    Depreciation and
     amortization              10,253      10,566       41,618        47,782
    EBITDA                     61,292      74,441       47,530        41,955
    Fees and other costs
     related to terminated
     merger agreement               -           -            -         6,396
    Severance charges
     (2008-RIF/2007-CEO)            -           -        2,500         8,418
    Litigation settlement           -           -            -         1,600
    Loss on extinguishment of
     debt                           -           -            -         3,284
    Gain on sale of net
     financing
     receivables/payables           -      (9,303)           -        (9,303)
    Impairment of store
     leasehold
     improvements               7,453           -         7,453            -
    Curtailment gain           (3,918)          -       (3,918)            -
    Impairment of foreign
     joint ventures             3,678           -        7,600             -
    Write-off related to
     foreign joint venture          -           -          606             -
    Change in fair value of
     convertible
     note embedded
     derivative
     liability                (14,487)     (5,229)      (9,040)      (10,483)
    EBITDA, excluding
     certain
     non-operational and
     non-recurring items
                              $54,018     $59,909      $52,731       $41,867

SOURCE Eddie Bauer Holdings, Inc.