United Retail Group Reports Second Quarter 2007 Results

Business Wire, Sept 11, 2007

ROCHELLE PARK, N.J. -- United Retail Group, Inc. (NASDAQ-GM: "URGI") today announced operating results for the second quarter and first six months of fiscal 2007, ended August 4, 2007.

Second Quarter Results

For the second quarter, net sales increased 1% to $122.3 million from $120.9 million in the prior year period. Comparable store sales declined 1% for the fiscal quarter. Comparable store sales data does not include online sales, which increased 52% for the quarter versus the same quarter last year.

Gross profit for the second quarter was 23.0% of net sales compared with 26.4% of net sales for the comparable period in the previous year. Gross profit decreased principally because of lower merchandise margins and higher marketing expenditures, which resulted from increased promotional activity to manage inventory.

General, administrative and store operating expenses for the second quarter were 20.4% of net sales compared with 21.2% of net sales for the second quarter of 2006. The improvement was due principally to a reduction in bonus compensation.

Operating income for the second quarter was $3.2 million compared with $6.3 million in the prior year period.

Net income for the second quarter was $2.2 million, or $0.16 per diluted share, versus $5.0 million, or $0.35 per diluted share, in the second quarter of 2006. Income taxes had a disparate impact on the two years. Net income included a provision for income taxes of $1.3 million in the second quarter of fiscal 2007 compared with $1.7 million in the second quarter of fiscal 2006. Assuming a normalized income tax rate of 39.0% in both periods, adjusted net income for the second quarter of fiscal 2007 would have been $2.1 million, or $0.15 per diluted share, versus adjusted net income of $4.0 million, or $0.29 per diluted share, in the comparable period of fiscal 2006.

Six-Month Results

For the first six months of the fiscal year, net sales increased 1% to $233.3 million from $230.3 million in the prior year period. Comparable store sales for the first half of the fiscal year were flat. Comparable store sales data does not include online sales, which increased 52% for the first six months versus the first six months of 2006.

Gross profit for the first six months was 22.9% of net sales compared with 26.2% of net sales for the comparable period in the previous year. Gross profit decreased principally because of lower merchandise margins and higher marketing expenditures.

General, administrative and store operating expenses for the first six months were 21.6% of net sales compared with 22.1% of net sales for the first six months of 2006. The improvement was due principally to a reduction in bonus compensation.

Operating income for the first half of the fiscal year was $3.2 million compared with $9.3 million in the prior year period.

Net income for the first half of the fiscal year was $2.3 million, or $0.16 per diluted share, versus $6.9 million, or $0.49 per diluted share, in the prior year period. Income taxes had a disparate impact on the two years. Net income included a provision for income taxes of $1.3 million in the first half of fiscal 2007 compared with $2.8 million in the same period of fiscal 2006. Assuming a normalized income tax rate of 39.0% in both periods, adjusted net income for the first six months of fiscal 2007 would have been $2.2 million, or $0.16 per diluted share, versus adjusted net income of $5.9 million, or $0.42 per diluted share, in the comparable period of fiscal 2006.

Raphael Benaroya, the Company's Chairman of the Board, President and Chief Executive Officer, commented: "As I previously stated, we experienced softness in consumer spending during the first half of the fiscal year and unseasonable weather patterns during the first half of the Spring season. In response, we increased our promotional activity to bring inventory in line, which impacted our merchandise margins. However, we experienced growth in customer transactions in total as well as per average store for the second quarter and first half of the year. We believe that we are solidly positioned in our merchandise assortments and inventory levels for the Fall selling season. We continue to have confidence in the fundamentals of our business and we remain focused on implementing our long-term growth strategy."

Use of Non-GAAP Financial Measures

The Company has provided non-GAAP adjusted net income and earnings per diluted share information for the three months and six months ended August 4, 2007 in this release, in addition to providing financial results in accordance with generally accepted accounting principles. This supplemental information reflects, on a non-GAAP, adjusted basis, the Company's net income and earnings per diluted share based upon a normalized tax rate of 39.0%. This supplemental non-GAAP financial information is provided to enhance the reader's overall understanding of the Company's financial performance. The non-GAAP financial information should be considered in addition to, not as a substitute for or as being superior to, net income, earnings per share or other measures of financial performance prepared in accordance with GAAP. A reconciliation of this non-GAAP financial information to GAAP amounts is included in a supplemental table at the end of this release.