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Business Services Industry

Design Within Reach, Inc. Reports Preliminary Results for Fourth Quarter and Year-Ended December 30, 2006

Business Wire, March 29, 2007

SAN FRANCISCO -- Design Within Reach, Inc. (NASDAQ:DWRI) today announced preliminary financial results for the fourth quarter and year ended December 30, 2006. The results are preliminary because the Company's year-end closing process was delayed as the Company completed its previously announced reconciliation of an imbalance between the Company's accrued inventory sub-ledger and the general ledger. Until the Company completes its financial statements and its independent public accountants complete their audit, the Company cannot be certain that the results reported below will not change and the Company will not be able to file its annual report on Form 10-K for the year ended December 30, 2006.

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Preliminary Fourth Quarter Results:

* Net sales, which are comprised of product and shipping revenue, increased to approximately $50 million, with product sales of approximately $46 million, compared to net sales of $41.4 million, with product sales of $37.1 million recorded in the same period last year.

* Gross profit margin improved slightly, to approximately 40% in the fourth quarter of 2006, compared to 39.4% in the same period last year due to more selective product and promotional initiatives in 2006 compared to the prior year period.

* Product margin, which the Company defines as product gross profit divided by net product sales, was approximately 43%, compared to 42.6% in the fourth quarter of 2005. For more information regarding the calculation of product margin, please see the discussion under the heading "Non-GAAP Financial Information" below.

* Selling, general and administrative expenses increased to approximately $23 million from $21.8 in the same period last year due to occupancy and payroll costs related to new studios and merchant fees related to increased sales volume.

* Net loss for the fourth quarter of 2006 was approximately $(0.13) to $(0.15) per share, compared to a net loss of $(0.28) per share in the fourth quarter of 2005.

Included in the fourth quarter 2006 results is approximately $1.9 million of charges for inventory write-downs and professional consulting fees associated with Sarbanes Oxley compliance and the completed reconciliation of the accrued inventory sub-ledger and the general ledger.

Preliminary Fiscal Year Ended December 30, 2006 Results:

* Net sales increased to approximately $178 million, with product sales of approximately $162 million, compared to net sales of $158.2 million, with product sales of $141.5 million, recorded in 2005.

* Gross profit margin was approximately 42%, compared to 42.9% in 2005, primarily due to higher shipping and handling expenses in 2006.

* Product margin was basically flat year-over-year at approximately 46%.

* Selling, general and administrative expenses were approximately $87 million, a decrease as a percentage of net sales compared to the same period last year, but an increase in absolute dollars due to costs associated with new studios, severance, Sarbanes-Oxley compliance and professional consulting fees.

* Net loss for 2006 was approximately $(0.57) to $(0.59) per share, compared to a net loss of $(0.15) per share in 2005.

"While 2006 was a challenging year, we initiated a series of corrective actions to improve Design Within Reach's operating performance and enter 2007 with signs of progress underway," said Ray Brunner, Chief Executive Officer. "We have assembled a strong new management team that is focused on the fundamentals of cost control and is committed to making sustainable profitability its top priority. In 2006, we successfully stabilized and repaired operations by significantly reducing corporate overhead, eliminating non-productive categories and liquidating excess inventory, stopping all non-essential capital expenditures and thoroughly examining and enhancing our financial reporting."

Mr. Brunner continued, "We believe that the challenges from prior years are predominantly behind us and that we have laid a strong foundation from which to see continued top-line growth and a return to profitability. In 2007, we will focus on improving DWR brand awareness among our target audience and broadening our reach to acquire new customers utilizing select media advertising, our web channel, studios and catalogs."

Net sales by distribution channel were as follows:

* Studio sales were approximately $31 million in the fourth quarter of 2006, up approximately 27% from the same period last year, due to the addition of seven net new studios since the end of 2005 and increased sales at existing studios, primarily due to added media advertising. For the year, studio sales increased approximately 22% to approximately $108 million from $88.2 million in 2005. Design Within Reach operated 63 studios and the DWR Annex, an outlet for returned and discontinued merchandise in Secaucus, New Jersey, at the end of 2006, compared to 56 studios open at the end of 2005.

* Direct sales (including phone sales and sales through the Design Within Reach website) were approximately $13.5 million in the fourth quarter of 2006, an increase of approximately 4% from $12.9 million in the fourth quarter of 2005. For the year, direct sales decreased approximately 4% to approximately $49 million due to lower phone sales during the first half of the year.

Business Services Industry

Design Within Reach, Inc. Reports Preliminary Results for Fourth Quarter and Year-Ended December 30, 2006

Business Wire, March 29, 2007

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