Stage Stores Announces Third Quarter Results; Updates Fourth Quarter & Raises Full Year Guidance

Business Wire, Nov 16, 2006

--Reports Third Quarter Net Income of $0.09 per Diluted Share--

HOUSTON -- Stage Stores, Inc. (NYSE:SSI) today reported that total sales for the third quarter ended October 28, 2006 rose 15.5% to $353.4 million from $306.0 million for the prior year third quarter ended October 29, 2005. The increase in third quarter sales was driven by a comparable store sales gain of 4.1%, by sales of $30.8 million generated at new stores not yet in the comparable store sales base, and by sales during the quarter from the former B.C. Moore stores prior to their conversion to Peebles stores of $11.5 million.

The Company also reported third quarter net income of $2.8 million, or $0.09 per diluted share, compared to $9.1 million, or $0.31 per diluted share, in the same quarter last year. The Company noted that this year's third quarter results are not comparable to last year due, in part, to the different inventory accounting methods (as defined below) as announced by the Company on October 24, 2006. On a year-over-year basis, the total impact on the Company's fiscal 2006 third quarter results was a reduction in earnings of $(0.03) per diluted share related to the changes in accounting principles, which include the implementation of the weighted average cost method versus the retail method and capitalizing certain of its distribution center handling costs, as well as the correction of an accounting error related to the deferral of credits received from vendors for handling charges at the Company's distribution centers (collectively "the different inventory accounting methods"). This year's results also reflect other non-comparable items, including:

* costs totaling $(0.08) per diluted share related to the acquisition, transition and conversion of 69 former B.C. Moore stores;

* charges totaling $(0.03) per diluted share related to professional fees paid to third parties associated with the Company's inventory valuation methodology review;

* incremental charges of $(0.02) per diluted share for stock option expensing and other long-term incentive equity awards;

* increased property insurance premiums of $(0.01) per diluted share due to claims activity related to last year's hurricanes; and

* reimbursements received by the Company related to last year's hurricane damages of $0.02 per diluted share.

The Company further noted that last year's results also included non-comparable charges of $(0.01) per diluted share related to the closure of its Knoxville, Tennessee distribution center.

Jim Scarborough, Chairman and Chief Executive Officer, commented, "This was a quarter filled with significant achievements for our Company. We posted record sales for the third quarter and reached the $1 billion mark in sales at the earliest point in any year in our Company's history. We also experienced positive comparable store sales performances in most of our major product categories. Our home decor and dress departments led the way with double-digit increases of 10.9% and 10.8%, respectively. Those increases were followed up by solid gains in our men's ( 8.8%), cosmetics ( 7.5%) and misses sportswear ( 7.4%) departments. Additionally, our Peebles Division produced positive comparable store sales in the third quarter, due to improved merchandise levels combined with increased promotional activities, which helped drive its sales gains during the quarter.

Another very significant achievement was the opening of 82 new stores during the quarter, which included the conversion of 69 former B.C. Moore stores, all of which were opened under our Peebles banner. These 82 store openings equated to unit growth of approximately 15%, and selling square footage growth of approximately 11%, during the third quarter. We also expanded our geographic presence to 33 states during the quarter by opening new Peebles stores in Massachusetts and Michigan.

I am also pleased to report that work progressed during the third quarter on six new Estee Lauder and six new Clinique counters in our Stage Division, and five new Estee Lauder and four new Clinique counters in our Peebles Division. We expect that the installation of these twenty-one new counters will be completed during the fourth quarter. I am also very pleased to announce that our Company's cosmetics offerings will be enhanced by the addition of the prestigious Lancome brand. During the third quarter, work began on our initial three Lancome counters, which will be featured in our Athens, TX, Eagle Pass, TX and Natchitoches, LA stores. The installation of these three counters will be completed during the fourth quarter. We look forward to expanding the number of our stores carrying their fine products in the future.

From an earnings perspective, we clearly exceeded the high end of our previously provided guidance range for the quarter. There were two key factors that contributed to our better than forecasted results. First, our third quarter gross margin performance was better than we had projected. Second, in estimating the impact on our third quarter results related to the different inventory accounting methods, we had previously projected that the impact of these changes would be a reduction in earnings of approximately $(0.06) per diluted share. As it turned out, the actual impact was a reduction of only $(0.03) per diluted share. We believe the impact of the different inventory accounting methods should result in an overall reduction in our full year earnings of approximately $(0.03) per diluted share, and as a result, we are reducing our previously forecasted fourth quarter benefits related to the different inventory accounting methods by $(0.03) per diluted share," Mr. Scarborough concluded.