BEAR Vermont Teddy Bear (MM)

Vermont Teddy Bear Co.(R) Reports 44% Increase in Q2 Revenues: Valentine's Day orders up 27% SHELBURNE, Vt., Feb. 17 /PRNewswire-FirstCall/ -- The Vermont Teddy Bear Company(R) today reported net revenues of $13.4 million for the three months endedDecember 31, 2003, an increase of approximately 44 percent as compared to net revenues of $9.3 million for the same period last year. Net income available to common stockholders for this second quarter was $372,000, or $.07 per diluted common share, ascompared to net income available to common stockholders of $81,000, or $.02 per diluted share, for the same quarter last year. Revenues in the first half of fiscal year 2004 increased approximately 28 percent to $18.4 million from $14.4 million in thesame six-month period last year. The Company reported net income available to common stockholders of $189,000 in the first half of fiscal year 2004, or $.04 per diluted common share, as compared to a net loss of $5,000, or ($.00) per diluted common share, reported for the first half of last year. The increase in net revenues in the second quarter is primarily attributable to revenues contributed by the Calyx & Corolla floral delivery business segment and increased revenues in the PajamaGram segment.These increases were partially offset by decreased revenue in the Company's BearGram segment. The Company acquired the net assets and the business of Calyx on August 29, 2003. Total orders for the first 14 days of February, the Company's Valentine's Day selling season, increased 27 percent. The Company shipped a total of approximately 140,000 Valentine's Day orders this year versus 110,000 last year. The 30,000 additional orders included approximately 12,500 orders in the Calyx segment. The Company also received approximately 10,000 more BearGram orders and 7,500 more PajamaGram orders for Valentine's Day this year as compared to last. As in past years, the Company came to the rescue of its beloved male last minute customer "Late Jack," by takingnearly 1000 Bear-Gram orders after 5:00 pm on February 13th this year. The Company was able to extend its Valentine's Day delivery guarantee to all orders placed up until 11:30 PM the night before. "As we build on the vision of becoming the premier gift company and expand our gift product offering under multiple standalone brands, we are re- allocating our advertising expenditures according to the seasonal demand for each of our product categories," said CEO Elisabeth Robert. "We emphasize Calyx floral arrangements and plants at Christmas, traditionally Calyx's biggest selling season, and focus on teddy bears with more advertising dollars at Valentine's Day, seeking to generate the greatest overall return on our advertising investment throughout the year. As a result, our marketing and selling costs decreased as a percentage of net revenues again in our second quarter. Seeking to leverage our operating infrastructure, we are also successfully leveling sales throughout the year. Thus far this year, we have increased sales proportionately more at Christmas than at Valentine's Day, which has traditionally been the Company's largest selling season." Consolidated gross margin in the three months ended December 31, 2003 increased to approximately $7.7 million from $5.7 million in the comparable period last year. In the quarter, the gross margin dollar contribution from the Calyx segment and gross margin dollar increases in the PajamaGram segment more than offset decreases in BearGram and Retail margins resulting from lower sales in these segments. Gross margin as a percentage of net revenues decreased to 57.1 percent in the second quarter from 61.1 percent in the same period last year. The Company achieved gross margin percentage point increases of 9.8 points in the PajamaGram segment, 15.1 points in the TastyGram segment, and 5.6 points in the Corporate/Wholesale segment as a result of its efforts to lower unit costs and change the product mix in each of these segments. These increases were offset by a 1.1 point decrease in BearGram margin attributed to higher unit bear costs associated with reduced throughput in bear production as the Company adjusted to lower sales volume. The 50.6 percent gross margin in the newly acquired Calyx & Corolla segment, which is significantly less than the Company's overall gross margin prior to the acquisition, also contributed to the decrease in the Company's consolidated gross margin as a percentage of net revenues in the quarter. Marketing and selling expenses increased to approximately $5.2 million in the second quarter of fiscal 2004 from $4.1 million in the second quarter of last year due to the addition of catalog and merchandising costs associated with the recently acquired Calyx segment and increased PajamaGram radio and catalog advertising costs. Offsetting these increases were reduced marketing and selling costs in the BearGram segment, as the Company curtailed less profitable advertising in the quarter. The Company also reduced marketing and selling expenditures in the Retail, Corporate/Wholesale and TastyGram segments in the quarter. As a result, marketing and selling costs as a percentage of net revenues decreased to 38.9 percent in the second quarter of fiscal 2004 from 44.3 percent in the quarter last year. General and Administrative expenses increased to $1.5 million for the three month period ended December 31, 2001 from $1.2 million as the result of expenses attributed to Calyx. However, G&A decreased to 11.1 percent of net revenues from 13.4 percent in the same period last year. "The prime driver of our increased profitability in the second quarter is the cost savings we have already achieved in the Calyx segment by integrating their operations into our own," Robert continued. "These savings were achieved even as we continued to incur one-time expenses associated with relocating operations and retaining certain Calyx employees temporarily to help with the transition of operations to Vermont." The expenses reported for the relocation of Calyx operations in September that are included in the Company's financial results in the six months ended December 31, 2003 total approximately $130,000. Also included in the results for the fiscal year to date are wage and severance costs of approximately $187,000 for Calyx employees at the Vero Beach location whose positions were eliminated in October and November. Reduced wage costs in Vero Beach may be partially offset by additions to personnel at the Shelburne, Vermont location. The Company purchased the net assets and the business of Calyx & Corolla from Equity Resource Partners, LLC on August 29, 2003. In its fiscal year ended June 30, 2003, Calyx & Corolla generated approximately $16.8 million of revenues. The purchase price consisted of a combination of cash and stock worth a total of $3.7 million along with the assumption of certain working capital liabilities. The Company financed the $1.2 million cash portion of the purchase price with a $1 million five-year term loan. The remaining $2.5 million of the purchase price was paid by the issuance of 250 shares of the Company's Series D Convertible Redeemable Preferred Stock at a price of $10,000 per share. The preferred shares are convertible into the Company's common stock at a price of $3.53 per common share and have voting rights on an as converted basis. The Company has completed the first phase of its plan to integrate certain operations of Calyx & Corolla into its operations in Shelburne, VT. All of Calyx's California operations were eliminated in September when inventory and order processing and fulfillment operations, and related information technology and equipment were relocated to Vermont. Also in September, the Company terminated Calyx's contract with a third party call center facility and moved all call center operations to the Company's existing call center facilities in Vermont. Since September, the Company has successfully transitioned Calyx's Florida based information technology, accounting and finance, and human resources functions to Vermont, leaving only the merchandising and brand related marketing functions in the downsized Vero Beach, Florida offices. A Vermont Teddy Bear Company Bear-Gram gift is a popular alternative to sending flowers.Each Bear-Gram gift includes a customized Vermont Teddy Bear accompanied by a personal greeting card and candy treat, all packaged in a colorful gift box with an air hole. Orders are placed by calling 1-800-829- BEAR or by shopping at http://www.vermontteddybear.com/. The PajamaGram Company is a gift delivery service where customers can pamper their loved ones by sending pajamas and spa products in luxurious packaging by calling 1-800-GIVE-PJS or shopping at http://www.pajamagram.com/. The TastyGram Company specializes in the delivery of creatively packaged, deliciously presented gourmet foods and sweets by calling 1-800-82-TASTY or shopping at http://www.tastygram.com/ Calyx & Corolla delivers premium direct-from-the-grower floral gifts through its catalog, by phone at 1-800-800-7788 or online at http://www.calyxandcorolla.com/. The foregoing can be interpreted as including forward-looking statements under the Private Securities Litigation Reform Act of 1995. Actual future results may differ materially from those suggested by the statements above. Contact: Nicole L'Huillier 802-985-1362 THE VERMONT TEDDY BEAR CO., INC. Condensed Consolidated Statements of Income For the Three and Six Months Ended December 31, 2003 and 2002 (Unaudited) Three Months Ended Six Months Ended Dec 31, 2003 Dec 31, 2002 Dec 31, 2003 Dec 31, 2002 Net Revenues $13,410,319 $9,290,099 $18,389,971 $14,374,035 Cost of Goods Sold 5,746,506 3,615,253 7,964,033 5,567,508 Gross Profit 7,663,813 5,674,846 10,425,938 8,806,527 Operating Expenses: Marketing and Selling Expenses 5,218,754 4,114,216 6,999,618 6,171,029 General and Administrative Expenses 1,484,051 1,247,972 2,556,981 2,329,321 6,702,805 5,362,188 9,556,599 8,500,350 Operating Income 961,008 312,658 869,339 306,177 Interest Income 5,735 20,383 17,760 83,845 Interest Expense (184,069) (143,185) (337,305) (277,476) Other Income 1,754 4,804 2,242 5,729 Income Before Income Taxes 784,428 194,660 552,036 118,275 Income Tax Provision (356,204) (77,864) (261,673) (47,310) Net Income 428,224 116,796 290,363 70,965 Preferred Stock Dividends (51,816) (22,003) (82,859) (49,077) Accretion of Original Issue Discount (4,530) (13,623) (18,153) (27,246) Net Income(Loss) Available to Common Stockholders $371,878 $81,170 $189,351 $(5,358) Basic Net Income Per Common Share $0.08 $0.02 $0.04 ($0.00) Diluted Net Income Per Common Share $0.07 $0.02 $0.04 $0.00 Weighted Average Number of Shares Outstanding 4,902,902 5,275,566 4,883,728 6,067,582 Weighted Average Number of Diluted Common Shares Outstanding 6,243,958 5,851,0645,971,473 7,012,306 Condensed Consolidated Balance Sheet Information December 31, June 30, December 31, 2003 2003 2002 (unaudited) (unaudited) Cash and Cash Equivalents $4,188,451 $5,168,177 $2,877,199 Current Assets 13,001,446 12,338,471 10,224,121 Total Assets 27,242,929 21,022,425 19,475,173 Current Liabilities 9,163,805 6,109,936 5,827,605 Long Term Debt 6,955,070 6,613,847 7,098,625 Total Liabilities 16,304,070 12,861,127 13,131,324 Series C Preferred 93,042 164,889 137,643 Series D Preferred 2,510,616 0 0 Stockholders' Equity 8,335,201 7,996,409 6,206,206 DATASOURCE: The Vermont Teddy Bear Company(R) CONTACT: Nicole L'Huillier of The Vermont Teddy Bear Company(R), +1-802- 985-1362, Web site: http://www.vermontteddybear.com/

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