Wilsons The Leather Experts Inc. Announces Preliminary Unaudited Fourt

    Business Editors

    MINNEAPOLIS--(BUSINESS WIRE)--March 1, 2005--Wilsons The Leather Experts Inc. (NASDAQ:WLSN) today reported preliminary fourth quarter and full-year operating results.
    Comparable store sales for the fourth quarter ended January 29, 2005, decreased 3.8% versus an 8.7% decrease in the fourth quarter ended January 31, 2004. Net sales at Wilsons Leather stores for the fourth quarter ended January 29, 2005, decreased 25.4% to $200.1 million compared to $268.1 million for the same period last year. Sales for the quarter last year included approximately $3.3 million in liquidation sales resulting from the transfer of inventory to an independent liquidator.
    As further described below, Wilsons Leather, like many other retailers, is currently analyzing the impact of various lease accounting matters. As such, the Company is reporting unaudited preliminary results that do not include the impact of any potential lease accounting adjustments.
    In connection with the views expressed by the Office of the Chief Accountant of the Securities and Exchange Commission (the "SEC") on February 7, 2005, regarding certain operating leases and leasehold improvements that are funded by landlord incentives, Wilsons Leather, like many other retailers, is further evaluating its accounting practices relative to leases. Wilsons Leather has determined that its method of accounting for rent holidays and leasehold improvements that are funded by landlord incentives should be changed and it is currently evaluating the impact of these changes on its consolidated financial statements.
    Historically, Wilsons Leather has recognized straight line rent expense for leases beginning on the earlier of the store opening date or the contractual lease commencement date. This methodology excluded the build-out period (or rent holiday) when calculating the period over which rent is expensed. After further evaluation of the SEC's views and consulting with its external auditors, Wilsons Leather determined that it will include the build-out period in its lease term and calculation of straight line rent expense in accordance with Financial Accounting Standards Board Technical Bulletin No. 85-3, "Accounting for Operating Leases with Scheduled Rent Increases" and Financial Accounting Standards Board Technical Bulletin No. 88-1, "Issues Relating to Accounting for Leases." In addition, Wilsons Leather has historically capitalized landlord incentives earmarked for leasehold improvements as a reduction in leasehold improvement assets and depreciated the net leasehold improvement asset over the contractual term of the lease. After further evaluation of the SEC's view and consulting with its external auditors, Wilsons Leather determined that it will record leasehold improvements funded by the landlord as deferred rent and amortize the incentive as reductions to lease expense over the term of the lease in accordance with Financial Accounting Standards Board Technical Bulletin No. 88-1, "Issues Relating to Accounting for Leases."
    The Company anticipates completing its analysis of the impact of the lease accounting matters prior to filing its Form 10-K for the 2004 fiscal year and revisiting its results for the 2004 fiscal year and prior periods.
    Wilsons Leather reported net income for the 2004 fourth quarter of $42.1 million, or $1.05 per diluted share, compared to net income of $12.4 million, or $0.60 per diluted share, in the 2003 fourth quarter. Included in the results for the current fourth quarter is an after-tax loss of $2.3 million, or $0.06 per diluted share, related to performance bonuses related to former officers of the Company, retention bonuses and the remainder of the lease termination costs. Included in the results for the year ago fourth quarter is an after-tax loss of $8.6 million, or $0.41 per diluted share, related to the transfer of inventory to an independent liquidator, severance and other restructuring charges. Net income for the 2004 fourth quarter, when adjusted to remove the $2.3 million in restructuring charges, was $44.4 million, or $1.11 per diluted share and compares to, when adjusted to remove the $8.6 million in restructuring charges, net income of $21.0 million in the 2003 fourth quarter, or $1.01 per diluted share.
    Net sales for the year ended January 29, 2005, decreased 15.3% to $441.1 million compared to $521.0 million for the year ended January 31, 2004. Sales for the 2004 and 2003 fiscal years include $20.8 million and $3.3 million, respectively, in liquidation sales resulting from the transfer of inventory to an independent liquidator in conjunction with the previously announced closing of approximately 111 stores that was completed in April 2004. Comparable store sales for the 2004 fiscal year increased 0.6% versus a comparable store sales decrease of 6.8% for the 2003 fiscal year. Comparable store sales for the 2004 and 2003 fiscal years do not include sales from the stores that were liquidated.
    The 2004 fiscal year net loss was $23.6 million, or $0.75 per basic and diluted share, compared to a net loss of $33.6 million, or $1.64 per basic and diluted share, in the 2003 fiscal year. Included in the results for the 2004 fiscal year is an after-tax loss of $27.4 million, or $0.87 per basic and diluted share, related to the transfer of inventory to an independent liquidator in conjunction with the closing of approximately 111 stores, accelerated depreciation, fixed asset write-offs, lease termination costs related to store closings, severance, and other restructuring charges. Included in the results for the 2003 fiscal year is an after-tax loss of $8.6 million, or $0.42 per basic and diluted share, related to the transfer of inventory to an independent liquidator, severance and other restructuring charges. Net income for the year, when adjusted to remove the $27.4 million in restructuring charges, was $3.8 million, or $0.12 per basic and diluted share and compares to a net loss, when adjusted to remove the $8.6 million in restructuring charges, of $25.0 million for the 2003 fiscal year, or $1.22 per basic and diluted share.
    A reconciliation of the operating income or loss, net income or loss and basic and diluted income or loss per share with and without the charges related to restructuring appears in an accompanying table. Operating income or loss, net income or loss and basic and diluted income or loss per share excluding these restructuring charges are measures of performance that are not defined by U. S. generally accepted accounting principles ("GAAP") and should be viewed in addition to, and not in lieu of, the operating income or loss, net income or loss and basic and diluted income or loss per share as reported on a GAAP basis.
    Michael Searles, Chairman and Chief Executive Officer, commented, "We are very pleased with our accomplishments in 2004. Our focus was to strengthen our overall capital position, enhance the productivity of our existing store base and reduce our risk profile. We have achieved what we set out to do."
    "During the year we have reduced capital expenditures, limited store growth and enhanced the productivity of our remaining store base, and developed a corporate financial structure that effectively created adequate liquidity," said Searles. "As a result of these initiatives, our merchandise margin rates for the year are 210 basis points ahead of last year, our balance sheet continues to strengthen each quarter, and our year-over-year working capital position has improved 46.3%. Most importantly, we have reduced our corporate risk profile by returning to profitability when adjusting for our restructuring efforts. I am confident that the structural changes we have made in the business have taken hold. Going forward to 2005 we will be focused on maintaining our stability while executing strategies to ensure success during the ever important holiday selling season."

    About Wilsons Leather

    Wilsons Leather is the leading specialty retailer of leather outerwear, accessories and apparel in the United States. As of January 29, 2005, Wilsons Leather operated 436 stores located in 45 states, including 311 mall stores, 109 outlet stores and 16 airport stores. The Company regularly supplements its permanent mall stores with seasonal stores during its peak selling season from October through January.

    Except for historical information, matters discussed in this press release are forward-looking statements that involve risks and uncertainties, and actual results may be materially different. Such statements are based on information available to management as of the time of such statements, and relate to, among other things, our results of operations and expected demand for our products. Factors that could cause actual results to differ include: changes in customer shopping patterns; competition in our markets; economic downturns; weather conditions; failure of results of operations to meet expectations of research analysts; change in consumer preferences and fashion trends away from leather; reductions in our comparable store sales over the past three years; risks associated with our debt service; our inability to grow the business as planned; decreased availability and increased cost of leather; risks associated with foreign sourcing and international business; risks associated with estimates made in our critical accounting policies; seasonality of the business; loss of key members of our management team; reliance on third parties for maintaining our management information systems; concentration of our common stock; volatility of our common stock; war, acts of terrorism or the threat of either; and interruption in the operation of corporate offices and distribution centers. The information included in this press release is operative as of this date only. Wilsons Leather does not undertake any obligation to update its forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. In order to ensure that all investors continue to have equal access to the same information, Wilsons Leather will refrain from updating projections made in this press release unless it does so through means designed to provide broad distribution of the information to the public.

WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)

January 29, January 31, 2005 2004 (1) ----------- ----------- ASSETS (unaudited) Preliminary - subject to change ----------------------- CURRENT ASSETS: Cash and cash equivalents $48,821 $42,403 Accounts receivable, net 3,643 6,122 Inventories 86,059 89,298 Prepaid expenses and other current assets 3,246 3,719 ----------- ----------- TOTAL CURRENT ASSETS 141,769 141,542

Property and equipment, net 37,278 60,047 Goodwill and other assets, net 2,205 2,538 ----------- ----------- TOTAL ASSETS $181,252 $204,127 =========== ===========

LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $17,697 $10,198 Notes payable - 490 Current portion of long-term debt - 30,635 Accrued expenses 21,378 26,670 Liabilities of discontinued operations - 406 Income taxes payable 4,307 3,214 Deferred income taxes 5,585 6,477 ----------- ----------- TOTAL CURRENT LIABILITIES 48,967 78,090

Long-term debt 25,000 25,064 Other long-term liabilities 12,178 13,893 Deferred income taxes - 1,726 TOTAL SHAREHOLDERS' EQUITY 95,107 85,354 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $181,252 $204,127 =========== =========== ----------------------------------------------- 1. Derived from audited consolidated financial statements

Note: The Company's inventories are determined by the retail method on the last-in, first-out ("LIFO") basis. The difference in inventories between the LIFO method and the first-in, first-out method was not material as of January 29, 2005 or January 31, 2004.

WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited)

For the quarters ended ----------------------- January 29, January 31, 2005 2004 ----------- ----------- Preliminary - subject to change -----------------------

NET SALES $200,067 $268,094 COST OF GOODS SOLD, BUYING AND OCCUPANCY COSTS 116,590 168,070 ----------- ----------- Gross margin 83,477 100,024

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 38,634 50,309 DEPRECIATION AND AMORTIZATION 3,708 6,675 ----------- ----------- Operating income 41,135 43,040 INTEREST EXPENSE, net 1,345 3,237 ----------- ----------- Income from continuing operations before income taxes 39,790 39,803 INCOME TAX EXPENSE (BENEFIT) (2,183) 27,431 ----------- ----------- Income from continuing operations 41,973 12,372 Income from discontinued operations, net of tax 173 - ----------- ----------- Net income $42,146 $12,372 =========== ===========

BASIC INCOME PER SHARE: Income from continuing operations $1.08 $0.60 Income from discontinued operations - - ----------- ----------- Basic and diluted income per share $1.08 $0.60 =========== ===========

Basic weighted average shares outstanding 38,872 20,641 =========== ===========

DILUTED INCOME PER SHARE: Income from continuing operations $1.05 $0.60 Income from discontinued operations - - ----------- ----------- Diluted earnings per share $1.05 $0.60 =========== =========== Weighted average shares outstanding - diluted 40,159 20,776 =========== ===========

WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited)

For the years ended ----------------------- January 29, January 31, 2005 2004 (1) ----------- ----------- Preliminary - subject to change -----------------------

NET SALES $441,071 $521,025 COST OF GOODS SOLD, BUYING AND OCCUPANCY COSTS 304,257 377,060 ----------- ----------- Gross margin 136,814 143,965

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 129,240 150,678 DEPRECIATION AND AMORTIZATION 26,086 19,207 ----------- ----------- Operating loss (18,512) (25,920) INTEREST EXPENSE, net 7,427 10,868 ----------- ----------- Loss from continuing operations before income taxes (25,939) (36,788) INCOME TAX BENEFIT (2,183) (3,205) ----------- ----------- Loss from continuing operations (23,756) (33,583) Income from discontinued operations, net of tax 173 - ----------- ----------- Net loss $(23,583) $(33,583) =========== ===========

BASIC AND DILUTED LOSS PER SHARE: Loss from continuing operations $(0.76) $(1.64) Income from discontinued operations 0.01 - ----------- ----------- Basic and diluted loss per share $(0.75) $(1.64) =========== ===========

Weighted average shares outstanding - basic and diluted 31,275 20,528 =========== ===========

1. Derived from audited consolidated financial statements

WILSONS THE LEATHER EXPERTS INC. AND SUBSIDIARIES SUPPLEMENTAL INFORMATION (In thousands, except per share amounts) (Unaudited) Preliminary - subject to change

Reconciliation of the GAAP operating income (loss), net income (loss) and basic and diluted income (loss) per share to the adjusted operating income (loss), net income (loss) and basic and diluted income (loss) per share

For the quarter ended January 29, 2005

Basic Diluted Operating Net income per income per income income share share --------- --------- ---------- ----------

As reported $41,135 $42,146 $1.08 $1.05 Restructuring and other charges (1) 2,260 2,260 0.06 0.06 --------- --------- ---------- ---------- Adjusted $43,395 $44,406 $1.14 $1.11 ========= ========= ========== ==========

(1) Includes $2.3 million related to performance bonuses related to former officers of the Company, retention bonuses and the remainder of the lease termination costs.

For the quarter ended January 31, 2004

Basic Diluted Operating Net income per income per income income share share --------- --------- ---------- ----------

As reported $43,040 $12,372 $0.60 $0.60 Restructuring and other charges (1) 8,599 8,599 0.42 0.41 --------- --------- ---------- ---------- Adjusted $51,639 $20,971 $1.02 $1.01 ========= ========= ========== ==========

(1) Includes $8.6 million related to the transfer of inventory to an independent liquidator in conjunction with the closing of approximately 111 stores, accelerated depreciation, asset write-offs related to store closings, severance, and other restructuring charges.

For the year ended January 29, 2005

Basic and diluted Operating Net income income income (loss) (loss) (loss) per share --------- --------- ---------

As reported $(18,512) $(23,583) $(0.75) Restructuring and other charges (1) 27,388 27,388 0.87 --------- --------- --------- Adjusted $8,876 $3,805 $0.12 ========= ========= =========

(1) Includes $27.4 million related to the transfer of inventory to an independent liquidator in conjunction with the closing of approximately 111 stores, accelerated depreciation, fixed asset write-offs, lease termination costs related to store closings, severance, and other restructuring charges

For the year ended January 31, 2004

Basic and diluted Operating loss per loss Net loss share --------- --------- ---------

As reported $(25,920) $(33,583) $(1.64) Restructuring and other charges (1) 8,599 8,599 0.42 --------- --------- --------- Adjusted $(17,321) $(24,984) $(1.22) ========= ========= =========

(1) Includes $8.6 million related to the transfer of inventory to an independent liquidator in conjunction with the closing of approximately 111 stores, accelerated depreciation, asset write-offs related to store closings, severance, and other restructuring charges.

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CONTACT: Wilsons The Leather Experts Inc., Minneapolis Pete Michielutti, 763-391-4000 or Stacy Kruse, 763-391-4000

KEYWORD: MINNESOTA INDUSTRY KEYWORD: CONSUMER/HOUSEHOLD APPAREL/TEXTILES RETAIL EARNINGS CONFERENCE CALLS SOURCE: Wilsons The Leather Experts Inc.

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