Bluefly Reports Record Fourth Quarter and Full Year Revenue And Margin

Bluefly Reports Record Fourth Quarter and Full Year Revenue And Margins

    Business Editors

    NEW YORK--(BUSINESS WIRE)--Feb. 22, 2005--Bluefly, Inc. (NASDAQ:BFLY)

    Fourth Quarter and Full Year Highlights

--	Gross Profit Increases 8.3% for Fourth Quarter and 44.9% for Full Year
--	Gross Margin Increases to 40.3% in Fourth Quarter - Highest Level Ever
--	Gross Margin for Full Year Increases by Over 750 Basis Points
--	Revenue Rebounds with 15.4% Increase in December, Bringing 3.7% Increase for Fourth Quarter
--	Revenue Increases by 15.5% for the Full Year
--	Net Income of $7,000 for Fourth Quarter

    Bluefly, Inc. (NASDAQ:BFLY), a leading online retailer of designer brands, fashion trends and superior value (www.bluefly.com), today announced record revenue and margin levels for the fourth quarter and full year. Gross profit increased by 8.3% for the fourth quarter of 2004, driven by a 3.7% increase in revenue to $14,515,000 from $13,993,000 and an increase in gross margin to 40.3% from 38.6%. Gross profit increased by 44.9% for the full year, driven by a 15.5% increase in revenue to $43,799,000 from $37,928,000 and an increase in gross margin to 37.5% from 29.9%. Revenue for December increased by 15.4% to $7,215,000 in 2004 from $6,251,000 in 2003.
    "Our strong performance in December capped a great year for us," said Melissa Payner, Bluefly's CEO. "Our goals for 2004 were to execute our new merchandise strategy, while fundamentally changing our margin structure and continuing to grow at a solid rate. We believe that we accomplished all of these goals. Our gross margin percentage for the full year increased by over 750 basis points, and our gross margin in the fourth quarter was our highest level ever. At the same time, we were able to reverse the decrease in revenue that occurred during October and posted revenue growth of over 15% in December. Based on these results, we believe that we have put ourselves in prime position for growth during 2005 and beyond."
    Other financial results for the fourth quarter and the full year were as follows (all comparisons are to the fourth quarter of 2003 or the year 2003, as applicable):

    -- Net income for the fourth quarter decreased to $7,000 from
    $111,000 in the fourth quarter of 2003. Net loss per share
    (which includes preferred stock dividends) was $0.07 per share
    in the fourth quarter of both 2004 and 2003.(1)

    -- Net loss for the year decreased to $3,791,000 from $6,369,000
    for 2003. Net loss per share decreased to $0.55 in 2004 from
    $0.88 in 2003.(2)

    -- New customers acquired during the fourth quarter decreased
    5.6% to 42,572 from 45,114. New customers acquired during the
    year increased 2.4% to 127,177 from 124,248.

    -- New customer acquisition cost for the fourth quarter increased
    by 34.1% to $14.12 from $10.53. New customer acquisition cost
    for the year increased by 11.6% to $11.41 from $10.22.

    -- Gross average order size for the fourth quarter increased by
    0.7% to $190.61 from $189.26. Gross average order size for the
    year increased by 7.0% to $187.32 from $174.99.

    -- Net sales attributable to the Company's Web site increased by
    approximately 7% during the fourth quarter to $14,230,000 from
    $13,356,000, while net sales attributable to the Company's
    temporary Manhattan store during the fourth quarter decreased
    approximately 46% to $251,000 from $465,000.

    About Bluefly, Inc.

    Founded in 1998, Bluefly, Inc. (NASDAQ:BFLY) is a leading online retailer of designer brands, fashion trends and superior value. Bluefly is headquartered at 42 West 39th Street in New York City, in the heart of the Fashion District. 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 company's history of losses and anticipated future losses; need for additional capital and potential inability to raise such capital; the potential failure to forecast revenues and/or to make adjustments to 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 market; the availability of merchandise; the need to further establish brand name recognition; management of potential growth; and risks associated with our ability to handle increased traffic and/or continued improvements to its Web site.

    (1) Net loss per share for the fourth quarter of 2004 is based on
    a weighted average of 14,819,235 shares outstanding, while net
    loss per share for the fourth quarter of 2003 is based on a
    weighted average of 11,613,721 shares outstanding.

    (2) Net loss per share for 2004 is based on a weighted average of
    14,586,752 shares outstanding, while net loss per share for 2003
    is based on a weighted average of 11,171,018 shares outstanding.

Bluefly, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED

Three Months Ended

December 31, -------------------------------------- 2004 2003 2002 ------------ ------------ ------------

Net sales $14,515,000 $13,993,000 $9,856,000 Cost of sales 8,664,000 8,588,000 6,801,000 ------------ ------------ ------------ Gross profit 5,851,000 5,405,000 3,055,000 Gross margin 40.3% 38.6% 31.0% Selling, marketing and fulfillment expenses 4,278,000 3,784,000 3,500,000 General and administrative expenses 1,437,000 1,356,000 1,140,000 ------------ ------------ ------------

Operating income (loss) 136,000 265,000 (1,585,000)

Interest (expense), net and other income (129,000) (154,000) (75,000)

Net income (loss) $7,000 $111,000 $(1,660,000) ============ ============ ============

Deemed dividend related to beneficial conversion feature on Series B and C Preferred Stock -- -- --

Preferred Stock Dividends (1,099,000) (871,000) (643,000) ============ ============ ============ Basic and diluted net loss per share (which includes preferred stock dividends) $(0.07) $(0.07) $(0.22) ============ ============ ============

Weighted average shares outstanding 14,819,235 11,613,721 10,391,904 ============ ============ ============

Year Ended

December 31, -------------------------------------- 2004 2003 2002 ------------ ------------ ------------

Net sales $43,799,000 $37,928,000 $30,606,000 Cost of sales 27,393,000 26,603,000 20,571,000 ------------ ------------ ------------ Gross profit 16,406,000 11,325,000 10,035,000 Gross margin 37.5% 29.9% 32.8% Selling, marketing and fulfillment expenses 13,996,000 12,061,000 11,547,000 General and administrative expenses 6,333,000 5,239,000 4,686,000 ------------ ------------ ------------

Operating income (loss) (3,923,000) (5,975,000) (6,198,000)

Interest (expense), net and other income 132,000 (394,000) (281,000)

Net income (loss) $(3,791,000) $(6,369,000) $(6,479,000) ============ ============ ============

Deemed dividend related to beneficial conversion feature on Series B and C Preferred Stock -- (225,000) (15,295,000)

Preferred Stock Dividends (4,275,000) (3,225,000) (2,489,000) ============ ============ ============ Basic and diluted net loss per share (which includes preferred stock dividends) $(0.55) $(0.88) $(2.44) ============ ============ ============

Weighted average shares outstanding 14,586,752 11,171,018 9,927,027 ============ ============ ============

SELECTED BALANCE SHEET DATA & KEY METRICS (Unaudited)

Dec. 31, Dec. 31, 2004 2003

Cash (including Restricted Cash of $1,253,000 as of December 31, 2004) $7,938,000 $7,721,000 Inventories, net 12,958,000 11,340,000 Other Current Assets 2,559,000 1,863,000 Property & Equipment, net 1,933,000 1,659,000 Current Liabilities 9,413,000 8,243,000 Notes Payable to Related Party Shareholders (including interest payable) 4,658,000 4,375,000 Shareholders' Equity 11,389,000 10,279,000

Three Three Year Year Months Months Ended Ended Ended Dec. Ended Dec. Dec. 31, Dec, 31, 31, 2004 31, 2003 2004 2003

Gross Average Order Size (including shipping & handling) $190.61 $189.26 $187.32 $174.99 Gross Average Order Per New Customer (including shipping & handling) $154.15 $167.16 $159.38 $158.38 Gross Average Order per Repeat Customer (including shipping & handling)* $222.27 $204.93 $205.10 $184.95

Customers Added During Period 42,572 45,114 127,177 124,248 Revenue from Repeat Customers as % of Total Revenue 68% 63% 69% 66% Customer Acquisition Cost ** $14.12 $10.53 $11.41 $10.22

* Repeat customer is defined as a person who has bought more than once from Bluefly during their lifetime.

** Customer Acquisition Cost is calculated by dividing total advertising expenditures (excluding staff related costs) by total new customers added. New customer number is based on unique email addresses.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

Three Three Months Months Ended Ended Dec. 31, Dec. 31, 2004 2003

Cash flows from operating activities: Net income $7,000 $111,000 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization 223,000 353,000 Loss on disposal of assets 35,000 -- Reserve for inventory obsolescence -- (75,000) Non-cash expense related to warrants issued to supplier 70,000 -- Provisions for returns 614,000 814,000 Allowance for doubtful accounts 75,000 26,000 Stock option expense 24,000 -- Changes in operating assets and liabilities: (Increase) decrease in: Inventories (2,362,000) 1,199,000 Accounts receivable (104,000) 188,000 Other current assets (149,000) (17,000) Prepaid expenses (88,000) (56,000) (Decrease) increase in: Accounts payable 1,015,000 (2,458,000) Accrued expenses and other current liabilities 169,000 386,000 Interest payable to related party 138,000 114,000 Deferred revenue 20,000 (160,000) ----------- -----------

Net cash (used in) provided by operating activities (313,000) 425,000

Cash flows from investing activities: Purchase of property and equipment (595,000) (89,000) ------------ -----------

Net cash (used in) investing activities (595,000) (89,000) ----------- -----------

Cash flows from financing activities: Net proceeds from exercise of Employee Stock Options 549,000 2,889,000 Proceeds from issuance of Notes Payable -- 2,000,000 Repayment of related party notes payable (236,000) -- Repayment of capital lease obligation (90,000) (71,000) ----------- -----------

Net cash provided by financing activities 223,000 4,818,000 ----------- -----------

Net increase (decrease) in cash and cash equivalents (685,000) 5,154,000

Cash and cash equivalents - beginning of period 7,370,000 2,567,000 ----------- -----------

Cash and cash equivalents - end of period $6,685,000 $7,721,000 ----------- -----------

--30--NR/ny*

CONTACT: Investor: Bluefly, Inc. Pat Barry, 212-944-8000 ext. 239 pat@bluefly.com or Press: Berns Communications Group Stacy Berns/Melissa Jaffin, 212-994-4660

KEYWORD: NEW YORK INDUSTRY KEYWORD: RETAIL EARNINGS SOURCE: Bluefly, Inc.

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