Net sales increase by 12%, return rate decreases by 3% and an increase in members by almost 600%

NEW YORK -- (Business Wire)

Bluefly, Inc. (NASDAQ Capital Market: BFLY), a leading online retailer of designer brands, fashion trends and superior value (www.bluefly.com), today announced an increase of approximately 12% in net sales and a reduction in its overall return rate of approximately 3%.

Joseph C. Park, Bluefly’s Chief Executive Officer stated: “We advanced our strategic priorities in the quarter focused on increasing net sales and improving our inventory turns. While we were pleased to achieve a 12% increase in net sales in the quarter and the number of our new members increased six times over the prior period, the increase in promotional activity, as well as the previously announced separation agreement expense associated with our previous CEO, negatively impacted profitability in the quarter. As we look ahead, we expect the continued implementation of our inventory turn strategy to pressure gross margin. That said, we remain confident in our strategies and expect our efforts to result in continued sales growth and importantly improve long-term operating performance.”

Results for the first quarter of 2012 included the following highlights:

• Net sales increased by approximately 12% to $24.3 million, from $21.7 million in the first quarter of 2011, as a result of an increase in customer orders and a reduction of approximately 3% in the return rate.
• Gross profit margin decreased to 15.4%, from 37.8% in the first quarter of 2011 primarily as a result of a significant increase in promotional activity driven by an acceleration of our inventory turns for the purpose of using our capital more efficiently. As a result, gross margins may be lower than they have been historically, although it is not expected that our margins will be as low as they were during the first quarter of 2012.
• Total operating expenses increased by approximately 23% to $11.6 million, from $9.4 million in the first quarter of 2011. Included in total operating expenses is $1.3 million in separation costs of which $0.7 million was in non-cash stock-based compensation expense related to the departure of the Company’s previous CEO.
• Operating loss increased to $7.8 million, from $1.2 million in the first quarter of 2011.
• Net loss attributable to stockholders was $7.9 million, or $0.28 per share (based on 28.5 million weighted average shares outstanding), and included $1.3 million, or $0.05 per share, in CEO separation costs. This compares to a net loss attributable to stockholders of $1.3 million, or $0.05 per share (based on 24.6 million weighted average shares outstanding), in the first quarter of 2011.
• Adjusted negative EBITDA increased to $6.2 million, from an adjusted negative EBITDA of $0.3 million in the first quarter of 2011.
• Cash and cash equivalents decreased to $2.5 million at March 31, 2012, compared to $4.4 million at December 31, 2011.
• Inventory decreased to $27.5 million at March 31, 2012, compared to $32.1 million at December 31, 2011.

To supplement the consolidated financial results for the first quarter of 2012 presented in accordance with generally accepted accounting principles (GAAP), the Company is also reporting adjusted EBITDA as a non-GAAP financial measure that the Company believes allows for a better understanding of its operating performance. The Company defines adjusted EBITDA as net loss attributable to Bluefly, Inc. stockholders excluding interest income, interest expense, income tax provision, depreciation and amortization expenses adjusted for non-cash stock-based compensation expenses. The Company believes that this non-GAAP financial measure, when shown in conjunction with the corresponding GAAP measures, enhances the investor’s and management’s overall understanding of the Company’s current operating performance and provides greater transparency with respect to key operating metrics used by management in its financial and operational decision making process. The Company considers this non-GAAP financial measure to be useful because it excludes certain non-cash and non-operating charges, which enables investors and management to analyze trends in the Company’s operations. The presentation of this non-GAAP financial measure is not intended to be considered in isolation, as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. For more information, please see the table captioned “Reconciliation of Non-GAAP Financial Information,” which provides a full reconciliation of actual results to the non-GAAP financial measures.

About Bluefly, Inc.

Founded in 1998, Bluefly, Inc. (NASDAQ Capital Market: BFLY) is a leading online retailer of designer brands, fashion trends and superior value. Bluefly is headquartered at 42 West 39^th Street in New York City, in the heart of the Fashion District. In 2011, Bluefly expanded its portfolio, launching Belle & Clive, a Members-only shopping destination that presents highly-curated selections of important brands via limited-time sale events; and Eyefly, an online portal for fashionable prescription eyeglasses starting at $99. For more information, please call 212-944-8000 or visit www.bluefly.com.

This press release may include statements that constitute “forward-looking statements,” usually containing the words “believe,” “project,” “expect” or similar expressions.These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.Forward-looking statements inherently involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements.The risks and uncertainties are detailed from time to time in reports filed by the Company with the Securities and Exchange Commission, including Forms 8-K, 10-Q and 10-K.These risks and uncertainties include, but are not limited to, the following: the Company’s history of losses and anticipated future losses; the risk of availability of additional capital, if required, to satisfy the Company’s needs for cash flow and growth of the business; the Company’s ability to realize benefits from new initiatives such as its members-only web site Belle and Clive; risks related to the Company’s shift in strategy to emphasize inventory turns over product margin; the risks that our reduction in spending on offline marketing in favor of online methods will continue to be successful; risks associated with the new Belle & Clive initiative; risks associated with the slow recovery from the unfavorable general economic environment; risks associated with affiliates of Rho Ventures, LP, affiliates of Soros Fund Management, private funds associated with Maverick Capital Ltd. and affiliates of Prentice Capital Management, LP each owning a significant portion of our stock; the potential failure to forecast revenues and/or to make adjustments to our operating plans necessary as a result of any failure to forecast accurately; unexpected changes in fashion trends; cyclical variations in the apparel and e-commerce markets; risks associated with our dependence on one supplier for a material portion of our inventory; the risk of default by us under our credit facility and the consequences that might arise from us having granted a lien on substantially all of our assets under that agreement; risks of litigation related to the sale of unauthentic or damaged goods and litigation risks related to sales in foreign countries; our potential exposure to product liability claims in the event that products sold by us are defective; the dependence on third parties and certain relationships for certain services, including our dependence on UPS and USPS (and the risks of a mail slowdown due to terrorist activity) and our dependence on our third-party web hosting, fulfillment and customer service centers; online commerce security risks; our ability to raise additional capital, if needed, to support the growth of our business; risks related to brand owners’ efforts to limit our ability to purchase products indirectly; management of potential growth; the competitive nature of our business and the potential for competitors with greater resources to enter the business; the availability of merchandise; the need to further establish brand name recognition; risks associated with our ability to handle increased traffic and/or continued improvements to our Web Site; rising return rates; dependence upon executive personnel who do not have long-term employment agreements; the successful hiring and retaining of new personnel; risks associated with expanding our operations; risks associated with potential infringement of other’s intellectual property; the potential inability to protect our intellectual property; government regulation and legal uncertainties; uncertainties relating to the imposition of sales tax on Internet sales and our ability to utilize our net operating losses.

Contacts:

Investor/Press:
ICR, Inc.
Investors:
Allison Malkin, 203-682-8225
Rachel Schacter, 646-277-1243
or
Press:
Alecia Pulman, 203-682-8224

Source: Bluefly, Inc.