Stage Stores Announces Second Quarter Results and Provides Third Quarter, Fourth Quarter and Updated Full Year Projections

Stage Stores, Inc. (NYSE:SSI) today reported net income for the second quarter ended August 2, 2008 of $9.7 million, or $0.25 per diluted share, compared to $9.9 million, or $0.23 per diluted share, for the prior year second quarter ended August 4, 2007. As previously reported by the Company, sales for the second quarter were $372.7 million as compared to sales of $359.2 million last year. Comparable store sales for the second quarter decreased 1.4% versus an increase of 0.5% in the prior year period. Jim Scarborough, Chairman and Chief Executive Officer, commented, "We are pleased to have achieved a year-over-year increase in our second quarter diluted earnings per share. Our Q-2 results benefited from higher than projected sales in May and June, combined with the positive impact of our tight inventory and expense controls and previous stock repurchase activities. As a result of our strong inventory controls, we ended the quarter with our retail inventories down 8.9% on a comparable store basis. Additionally, despite the difficult macroeconomic environment, our financial condition remains strong. Our free cash flow for the first half of the year exceeded last year’s level, while opening 28 stores this year versus 14 stores last year. "Operationally, we made progress on a number of our strategic initiatives during the second quarter. We opened 5 new stores, two of which were opened in Idaho which expanded our geographic presence to 36 states, and we remain on track to open between 55 and 60 new stores for the entire year. We also relocated 3 stores during the quarter. As we continue to focus our growth strategy on small markets, it is encouraging to note that we achieved positive comparable store sales results in our small markets during the quarter. We also completed the installation of 5 new Estee Lauder counters and 1 new Clinique counter. Our continuing roll-out of Estee Lauder and Clinique counters is clearly having a positive impact on our cosmetics business, as this category achieved a 12.6% comparable store sales increase during the quarter. We also posted positive comp store sales results in our dresses, footwear, intimate apparel and petites businesses during the quarter. Lastly, I’m pleased to report that we successfully opened our third distribution center in July, which is located in Jeffersonville, Ohio. This new distribution center is capable of supporting approximately 300 stores, and we now have in place the overall distribution capacity for more than 1,100 stores, which is a key element in our future corporate growth plans,” Mr. Scarborough concluded. Total sales for the six-month period ended August 2, 2008 were $726.2 million versus $717.4 million for the prior year six-month period ended August 4, 2007. Comparable store sales decreased 3.4% versus an increase of 0.3% in the prior year period. Net income for the six-month period was $11.9 million, or $0.31 per diluted share, compared to $19.0 million, or $0.43 per diluted share, last year. Last year’s six months results include a non-comparable gain of $1.7 million, or $0.04 per diluted share, related to the March 2004 sale of the Peebles private label credit card portfolio. Fiscal 2008 - Third Quarter, Fourth Quarter and Updated Full Year Projections Commenting on the Company’s projections, Mr. Scarborough stated, "Despite some relative strengthening of our business in the second quarter, we believe that the macroeconomic environment will continue to be difficult during the last half of the year. As such, we are maintaining our previous guidance for our comparable store sales to be down between 1.0% and 3.0% during the final two quarters of the year.” 3rd Quarter 2008:   3Q 2008 OUTLOOK   3Q 2007 ACTUAL Sales ($mm) $ 366   -   $ 373 $ 355.1   Net Income ($mm) $ (0.4 ) - $ 1.9 $ 2.4   Diluted EPS $ (0.01 ) - $ 0.05 $ 0.06   Diluted Shares (m) 39,000 42,258 4th Quarter 2008:   4Q 2008 OUTLOOK   4Q 2007 ACTUAL Sales ($mm) $ 486   -   $ 497 $ 473.0   Net Income ($mm) $ 32.1 - $ 35.2 $ 31.7   Diluted EPS $ 0.82 - $ 0.90 $ 0.78   Diluted Shares (m) 39,000 40,462 FY 2008:   FY 2008 OUTLOOK   FY 2007 ACTUAL Sales ($mm) $ 1,578   -   $ 1,596 $ 1,545.6   Net Income ($mm) $ 43.6 - $ 49.0 $ 53.1   Diluted EPS $ 1.12 - $ 1.26 $ 1.24   Diluted Shares (m) 38,970 42,720 FY 2007 results include a non-comparable gain of $1.7 million, or $0.04 per diluted share, related to the March 2004 sale of the Peebles private label credit card portfolio. Conference Call Information The Company will host a conference call today at 8:30 a.m. Eastern Time to discuss its second quarter results. Interested parties can participate in the Company’s conference call by dialing 703-639-1125. Alternatively, interested parties can listen to a live webcast of the conference call by logging on to the Company's web site at www.stagestores.com and then clicking on Investor Relations, then Webcasts, then the webcast link. A replay of the conference call will be available online until midnight on Friday, August 29, 2008. About Stage Stores Stage Stores, Inc. brings nationally recognized brand name apparel, accessories, cosmetics and footwear for the entire family to small and mid-size towns and communities through 723 stores located in 36 states. The Company operates under the Bealls, Palais Royal and Stage names throughout the South Central, Southwestern and Northwestern states, and under the Peebles name throughout the Midwestern, Southeastern, Mid-Atlantic and New England states. For more information about Stage Stores, visit the Company’s web site at www.stagestores.com. Caution Concerning Forward-Looking Statements This document contains "forward-looking statements”. Forward-looking statements reflect our expectations regarding future events and operating performance and often contain words such as "believe", "expect", "may", "will", "should", "could", "anticipate", "plan" or similar words. In this document, forward-looking statements include comments regarding the number of new stores that the Company plans to open in the 2008 fiscal year, as well as comments regarding the Company’s sales and earnings projections for the third and fourth quarters of the 2008 fiscal year and full 2008 fiscal year. Forward-looking statements are subject to a number of risks and uncertainties which could cause actual results to differ materially from those anticipated by the forward-looking statements. These risks and uncertainties include, but are not limited to, those described in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission (the "SEC") on April 1, 2008 and other factors as may periodically be described in our other filings with the SEC. Forward-looking statements speak only as of the date of this document. We do not undertake to update our forward-looking statements. (Tables to Follow) Stage Stores, Inc. Condensed Consolidated Statements of Income (in thousands, except earnings per share) (Unaudited)       Thirteen Weeks Ended August 2, 2008 August 4, 2007 Amount % to Sales (1) Amount % to Sales (1) Net sales $ 372,707 100.0 % $ 359,205 100.0 % Cost of sales and related buying, occupancy and distribution expenses   266,149 71.4 %   253,718 70.6 % Gross profit 106,558 28.6 % 105,487 29.4 % Selling, general and administrative expenses 88,521 23.8 % 87,950 24.5 % Store opening costs 1,231 0.3 % 486 0.1 % Interest expense, net of income of $6 and $0, respectively   1,221 0.3 %   1,069 0.3 % Income before income tax 15,585 4.2 % 15,982 4.4 % Income tax expense   5,922 1.6 %   6,106 1.7 % Net income $ 9,663 2.6 % $ 9,876 2.7 %   Basic and diluted earnings per share data: Basic earnings per share $ 0.25 $ 0.23 Basic weighted average shares outstanding   38,342   42,408   Diluted earnings per share $ 0.25 $ 0.23 Diluted weighted average shares outstanding   38,960   43,373   (1) Percentages may not foot due to rounding. Stage Stores, Inc. Condensed Consolidated Statements of Income (in thousands, except earnings per share) (Unaudited)       Twenty-Six Weeks Ended August 2, 2008 August 4, 2007 Amount % to Sales (1) Amount % to Sales (1)   Net sales $ 726,243 100.0 % $ 717,449 100.0 % Cost of sales and related buying, occupancy and distribution expenses   524,087 72.2 %   513,637 71.6 % Gross profit 202,156 27.8 % 203,812 28.4 % Selling, general and administrative expenses 176,860 24.4 % 170,238 23.7 % Store opening costs 3,539 0.5 % 1,241 0.2 % Interest expense, net of income of $11 and $0, respectively   2,522 0.3 %   1,838 0.3 % Income before income tax 19,235 2.6 % 30,495 4.3 % Income tax expense   7,309 1.0 %   11,512 1.6 % Net income $ 11,926 1.6 % $ 18,983 2.6 %   Basic and diluted earnings per share data: Basic earnings per share $ 0.31 $ 0.44 Basic weighted average shares outstanding   38,292   42,957   Diluted earnings per share $ 0.31 $ 0.43 Diluted weighted average shares outstanding   38,939   44,080   (1) Percentages may not foot due to rounding. Stage Stores, Inc. Condensed Consolidated Balance Sheets (in thousands, except par values) (Unaudited)   August 2, 2008 February 2, 2008   ASSETS Cash and cash equivalents $ 20,371 $ 17,028 Merchandise inventories, net 349,586 342,622 Prepaid expenses and other current assets   27,884     43,589   Total current assets 397,841 403,239   Property, equipment and leasehold improvements, net 354,177 329,709 Goodwill 95,374 95,374 Intangible asset 14,910 14,910 Other non-current assets, net   25,412     28,258   Total assets $ 887,714   $ 871,490     LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 116,321 $ 94,505 Current portion of debt obligations 8,915 6,158 Accrued expenses and other current liabilities   72,210     66,538   Total current liabilities 197,446 167,201   Debt obligations 63,915 94,436 Other long-term liabilities   93,324     89,007   Total liabilities   354,685     350,644     Commitments and contingencies   Common stock, par value $0.01, 100,000 shares authorized, 55,298 and 55,113 shares issued, respectively 553 551 Additional paid-in capital 484,544 479,960 Less treasury stock - at cost, 16,907 and 16,907 shares, respectively (278,200 ) (277,691 ) Accumulated other comprehensive loss (1,766 ) (1,766 ) Retained earnings   327,898     319,792   Stockholders' equity   533,029     520,846   Total liabilities and stockholders' equity $ 887,714   $ 871,490   Stage Stores, Inc. Condensed Consolidated Statements of Cash Flows (in thousands) (Unaudited)     Twenty-Six Weeks Ended August 2, 2008 August 4, 2007   Cash flows from operating activities: Net income $ 11,926 $ 18,983 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 29,204 23,547 Deferred income taxes (33 ) (1,116 ) Stock-based compensation tax (deficiency) benefits (146 ) 3,826 Stock-based compensation expense 3,280 3,487 Amortization of debt issue costs 123 144 Excess tax benefits from stock-based compensation (468 ) (3,684 ) Deferred compensation 357 - Construction allowances from landlords 9,167 5,099 Changes in operating assets and liabilities: Increase in merchandise inventories (6,964 ) (12,093 ) Decrease in other assets 18,499 13,547 Increase in accounts payable and other liabilities   21,418     12,081   Total adjustments   74,437     44,838   Net cash provided by operating activities   86,363     63,821     Cash flows from investing activities: Additions to property, equipment and leasehold improvements (52,334 ) (33,373 ) Proceeds from sale of property and equipment   -     31   Net cash used in investing activities   (52,334 )   (33,342 )   Cash flows from financing activities: Proceeds from (payments on): Borrowings under revolving credit facility, net (39,059 ) 29,197 Repurchases of common stock (509 ) (62,540 ) Finance lease obligations - 1,850 Debt obligation payments (3,190 ) (50 ) Debt issuance 14,485 - Debt issuance costs (145 ) (258 ) Exercise of stock options and stock appreciation rights 1,095 5,567 Excess tax benefits from stock-based compensation 468 3,684 Cash dividends   (3,831 )   (4,310 ) Net cash used in financing activities   (30,686 )   (26,860 ) Net increase in cash and cash equivalents 3,343 3,619   Cash and cash equivalents: Beginning of period   17,028     15,866   End of period $ 20,371   $ 19,485