GSI Sales Improve 52%; Loss Continues To Shrink

Net revenue of GSI Commerce was $50.3 million in the second quarter of fiscal 2003, compared with net revenue of $33.1 million in the second quarter of fiscal 2002, an increase of 52.3%. The net loss was $3.8 million in the second quarter of fiscal 2003, compared with net loss of $5.2 million in the second quarter of fiscal 2002. Net loss per share was $0.10 in the second quarter of fiscal 2003, compared with net loss per share of $0.13 in the second quarter of fiscal 2002.

EBITDA loss was $0.9 million in the second quarter of fiscal 2003, compared to EBITDA loss of $3.9 million in the second quarter of fiscal 2002. EBITDA represents earnings (or loss) before interest income/expense, taxes, depreciation and amortization and stock-based compensation.

"GSI Commerce reported excellent second quarter results and completed a strong first half of fiscal 2003. While GSI is clearly benefiting from the growth of e-commerce and the growth of business process outsourcing, our more than 50% increase in net revenue and more than 80% increase in net merchandise sales in the second quarter as compared to the same period in the prior year demonstrates that we are delivering a compelling value proposition to our partners and executing at a high level. Based on the momentum in our business to date, we are raising our guidance for fiscal 2003 and we expect to achieve EBITDA and GAAP net income profitability in fiscal 2004," said Michael Rubin, COB/CEO of GSI Commerce.

Net merchandise sales represents the retail value of all sales transactions, inclusive of freight charges and net of allowances for returns and discounts, which flow through the GSI platform, whether or not GSI is the seller of the merchandise or records the full amount of such sales on its financial statements. A reconciliation of net merchandise sales to net revenue is contained later in this release.

Net merchandise sales increased 83.9%, including a 43.3% increase in sporting goods, a 97.1% decrease in Ashford and a 432.7% increase in other categories. Sales and marketing, product development and general and administrative expenses, collectively, increased 8.5%, and declined, collectively, to 35.7% of net revenue from 50.1% of net revenue. Stock-based compensation expense was $400,000 in the quarter compared to a credit of $0.8 million in the year ago period, resulting in a $1.2 million or $0.03 per share non-cash negative swing in net loss.

Inventory declined to $20.3 million from $26.9 million a year ago and $25.1 million at the end of the first quarter of fiscal 2003.

GSI's wholly owned subsidiary, Global-QVC Solutions, was selected by the Public Broadcasting Service to develop and operate a new technology, customer service and fulfillment platform for its consumer and education products, including: the shopPBS.com Web site; the PBS Home Video catalog; on-air offers and business-to-business distribution.

GSI Commerce issued 1.65 million shares of GSI Commerce common stock to Interactive Technology Holdings, LLC, a joint venture company owned by Comcast Corporation and QVC, Inc. in exchange for warrants held by ITH to purchase 4.5 million shares of GSI Commerce common stock.

FY net revenue is expected to be in the range of $223-$232 million. Net merchandise sales are expected to be in the range of $264-$274 million. The net loss is expected to be in the range of $12-$14 million. EBITDA loss is expected to be in the range of $0-$2.5 million.

In Q3, net revenue is expected to be in the range of $42-$45 million. Net merchandise sales are expected to be in the range of $48-$52 million. The net loss is expected to be in the range of $5.5-$6.5 million. EBITDA loss is expected to be in the range of $2.25-$3.0 million.

Q4 net revenue is expected to be in the range of $82-$88 million. Net merchandise sales are expected to be in the range of $107-$113 million. Net income is expected to be in the range of $1.5-$3.0 million. EBITDA is expected to be in the range of $4.5-$6 million.