Rag Shops Reports Comparable Store Sales Increase and Fifth Consecutive Quarter of Improved Results for Three Months Ended December 2, 2000

Business Wire, Jan 16, 2001

Business Editors

HAWTHORNE, N.J.--(BUSINESS WIRE)--Jan. 16, 2001

Rag Shops, Inc., (Nasdaq:RAGS) a specialty retailer of craft and fabric merchandise, reported today that income before cumulative effect of change in accounting principle increased 31% to $1,282,000 or $0.27 per share for the three months ended December 2, 2000 as compared to $980,000 or $0.20 per share for the three months ended November 27, 1999.

The increase in net income was achieved through higher sales for stores opened at least one year, the ability to leverage operating expenses against higher sales, and a favorable shift in the accounting calendar which resulted in the historically high sales week after Thanksgiving falling in the first quarter of the current year as compared to the second quarter of the prior year.

Net sales for the three months ended December 2, 2000 were $30.0 million, which represents an increase of 6.6% as compared to $28.2 million for the three months ended November 27, 1999. Sales from stores opened at least one year increased by 8.7%. Sales from stores opened at least one year aligned for the shift in the accounting calendar, as mentioned above, improved by 1.2%.

 (in thousands except per share data)



                                                   Three Months Ended
                                                   Dec. 2,    Nov. 27,
                                                    2000        1999

Net Sales                                        $30,048       $28,186

Income before cumulative effect of change
 in accounting                                      $1,282        $980
Cumulative effect of change in accounting,
 net of income taxes                                  0            198
                                                   ------       ------
Net income                                         $1,282       $1,178
                                                   ======       ======

EARNINGS PER COMMON SHARE (Basic and diluted):
Income before cumulative effect of change in
 accounting                                         $0.27        $0.20
Cumulative effect of change in accounting,
 net of income taxes                                 0.00         0.04
                                                    -----        -----
Net income                                          $0.27        $0.24
                                                   ======       ======

During the three months ended December 2, 2000 the Company opened one new store, did not close any existing stores and was operating sixty-six stores at the end of the period. During the remainder of the fiscal year ending September 1, 2001 the Company anticipates two additional new store openings and closing three stores.

This news release contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by safe harbors created hereby. Such forward-looking statements include those regarding the Company's future results in light of current management activities, and involve known and unknown risks, including competition within the craft retail industry, weather related changes in the selling cycle, and other uncertainties (including those risk factors referenced in the Company's filing with the Securities and Exchange Commission).

The Company's common stock is traded on the Nasdaq SmallCap Market System under the symbol "RAGS" and its Web site can be found at www.ragshop.com.