BEAR Vermont Teddy Bear (MM)

Vermont Teddy Bear Company(R) Reports 38.6% Revenue Increase in Fiscal Year 2004: Doubles Size of Distribution Facility in Shelburne SHELBURNE, Vt., Sept. 28 /PRNewswire-FirstCall/ -- The Vermont Teddy Bear Company(R), Inc. http://www.vermontteddybear.com/ (NASDAQ:BEAR) announced today annual net revenues of $55,828,000 for its fiscal year ended June 30, 2004, an increase of $15,553,000, or 38.6 percent, compared to $40,275,000 reported in fiscal year 2003. Net income available to common stockholders was $1,738,000 or $.30 per diluted common share, for fiscal 2004 as compared to $1,126,000, or $.19 per diluted common share, in fiscal 2003. The increase in net revenues is primarily attributable to the Company's August 29, 2003 acquisition of Calyx & Corolla(R), a floral mail order and catalog business. Calyx & Corolla, incorporated into the Company's operating results for the ten months following the August 29, 2003 acquisition, generated approximately $15.7 million of net revenues during the Company's fiscal year ended June 30, 2004. The addition of Calyx & Corolla along with the PajamaGram and TastyGram gift services extends the Company's product offering beyond the renowned Bear-Gram gift as the Company continues to offer customers additional premium gift choices. The Company's PajamaGram gift segment grew by approximately 40 percent to $7.4 million for the fiscal year ended June 30, 2004, from $5.3 million in the prior year. Increased revenues in both the Calyx and PajamaGram segments more than offset a $2.1 million decrease in the Company's BearGram business during fiscal 2004 as the Company scaled back its advertising in this segment by $583,000. The acquisition of Calyx & Corolla also contributed to a 54.4 percent increase in the Company's net income to common stockholders in fiscal 2004 as the Company successfully integrated Calyx into its operations during the ten months following the acquisition. "As we continue to add new gift product categories and materially invest in product develop and marketing to support them, we have added to both our net revenues and our profitability in fiscal 2004," stated CEO Elisabeth Robert. "Looking ahead we plan to pursue the development of additional gift product categories under stand-alone brands both organically and through acquisitions. In addition, we will continue new product introductions within each product category such as men's pajamas and spa products for our PajamaGram segment." To accommodate growth and ensure capacity to fulfill and ship orders for the coming peak selling seasons, the Company is expanding its distribution facility located on property contiguous to its factory headquarters in Shelburne, Vermont. Construction is nearly complete to double the size of the existing 60,400 square foot facility opened in the fall of 2000. The 60,400 square foot expansion will include additional picking lines for the PajamaGram and Calyx businesses. The BearGram picking lines are also being expanded to accommodate an increase in the number of orders that are personalized and dressed just prior to shipment. In addition, the expansion will house added packing stations and expanded conveyors systems to sort and process orders for shipment. Lastly, the Company will consolidate 25,000 square feet of offsite warehousing currently located in Williston, Vermont into the new space. An unfinished 25,000 square foot mezzanine in the new expansion space over and above the 60,400 square foot main floor space will allow the Company to consolidate and expand its call center operations in the future. Currently the Company's call center is fragmented with 200 seats spread out in multiple locations within the factory headquarters building. The mezzanine will accommodate approximately 250 seats in one area and free up space in the headquarters building for marketing and selling, and administrative operations. Consolidated gross margin in fiscal year ended June 30, 2004 increased by approximately $6.7 million to approximately $31.5 million from $24.8 million last year. Gross margin dollar increases in the PajamaGram, Corporate Wholesale, and TastyGram segments totaling approximately $1.7 million, in addition to the $7.5 million gross margin contribution of the new Calyx segment, more than offset the $2.1 million gross margin decrease in the BearGram segment and $365,000 decrease in the Retail Store segment. Gross margin as a percentage of net revenues decreased to approximately 56.4% from 61.7% last year, primarily as the result of including in consolidated operating results the Calyx 47.5 percent gross margin which is less than the Company's overall gross margin percentage prior to the acquisition. The Company achieved a gross margin percentage point increase of 4.1 points and 10.7 points in the PajamaGram and TastyGram segments, respectively, for the year as a result of better unit gross margins and changes to the product mix that more than offset increases in delivery costs. The improvement in the PajamaGram segment is primarily attributed to an increase in the quantities of private label goods imported directly from the Company's suppliers in Asia. A 2.7 point decrease in the gross margin percentage of the BearGram segment is attributed to increased unit manufacturing costs as domestic bear production volume was adjusted to lower revenues in this segment, and increased costs of common carrier deliveries related, in part, to fuel prices and other ancillary surcharges for residential deliveries. Marketing and selling expenses increased by approximately $ 4.5 million to $21.8 million for the year ended June 30, 2004 from $17.3 million last year. The increases are primarily due to the addition of $5.1 million of marketing and selling expenses associated with the new Calyx segment. Increased advertising costs of $356,000 in the PajamaGram segment, primarily for television and catalog, were more than offset by decreased advertising costs of $583,000 and $242,000 in the Bear Gram and TastyGram segments, respectively. During the year the Company also shifted material amounts of BearGram advertising dollars from its "live read" local radio ad campaign to syndicated radio programs and cable television. As a result, marketing and selling costs as a percentage of net revenues decreased to 39.1 percent in the year ended June 30, 2004 from 42.9 percent last year. General and administrative expenses for the year ended June 30, 2004 increased to $5.8 million from $5.0 million primarily due to the general and administrative costs associated with the Calyx & Corolla gift segment. However, general and administrative expenses decreased as a percentage of net revenues to 10.4% from 12.3% last year. 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. THE VERMONT TEDDY BEAR CO., INC. Condensed Consolidated Statements of Income For the Twelve Months Ended June 30, 2004 and 2003 Twelve Months Ended June 30, 2004 June 30, 2003 Net Revenues $55,827,533 $40,275,401 Cost of Goods Sold 24,326,047 15,445,502 Gross Profit 31,501,486 24,829,899 Operating Expenses: Marketing and Selling Expenses 21,814,290 17,261,185 General and Administrative Expenses 5,787,364 4,968,382 27,601,654 22,229,567 Operating Income 3,899,832 2,600,332 Interest Income 42,641 138,220 Interest Expense (668,262) (599,224) Other Income 5,550 5,796 Income Before Income Taxes 3,279,761 2,145,124 Income Tax Provision (1,339,836) (873,717) Net Income 1,939,925 1,271,407 Preferred Stock Dividends (183,632) (90,525) Accretion of Original Issue Discount (18,153) (54,492) Net Income Available to Common Stockholders $1,738,140 $1,126,390 Basic Net Income Per Common Share $0.35 $0.21 Diluted Net Income Per Common Share $0.30 $0.19 Weighted Average Number of Shares Outstanding 4,932,009 5,464,996 Weighted Average Number of Diluted Common Shares Outstanding 6,167,634 6,237,089 June 30, June 30, 2004 2003 Cash and Cash Equivalents $6,586,571 $5,168,177 Current Assets 12,831,098 11,805,830 Total Assets 27,312,738 21,022,425 Current Liabilities 7,879,743 6,109,936 Long Term Debt 6,754,669 6,751,191 Series C Preferred 93,042 164,889 Series D Preferred 2,510,274 0 Stockholders' Equity 10,075,010 7,996,409 DATASOURCE: Vermont Teddy Bear Company(R), Inc. CONTACT: Nicole L'Huillier of Vermont Teddy Bear, +1-802-985-1362, Web site: http://www.vermontteddybear.com/

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