Bluefly Reports First Quarter 2007 Results

Bluefly, Inc. (NASDAQ SmallCap:BFLY), a leading online retailer of designer brands, fashion trends and superior value (www.bluefly.com), today announced strong growth in revenue and continued strong margin levels for the first quarter 2007. Highlights for the first quarter included: Revenue increased by approximately 31% to $22.1 million from $16.9 million in first quarter 2006; Gross margin decreased to 37.9% from 40.5% in first quarter 2006, primarily as a result of increased third party-shipping costs as well as a weaker Dollar compared to the euro; Gross profit increased by 22%; Operating loss increased to $3,222,000 compared to operating loss of $3,052,000, primarily as a result of $1.0 million incremental stock-based compensation expense incurred in connection with stock based compensation awards made in the fourth quarter of 2006 and in the first quarter of 2007 in connection with the Company’s recent Offer to Exchange. This increase was partially offset by a reduction of $466,000 in spending related to marketing and advertising. Average order size increased by over 10% to $269.21 from $243.92 in the first quarter of 2006. Net loss decreased to $3.1 million from $3.3 million. Loss per share decreased to $0.02 per share (based on 129.6 million weighted average shares outstanding after preferred stock dividends) from $0.22 per share (based on 20.4 million weighted average shares outstanding after preferred stock dividends). "We’re especially pleased with the 31% growth in revenue for the first quarter, especially given the marketing spend is down 13% year over year” said Melissa Payner, Bluefly’s Chief Executive Officer. "The decrease in the marketing spend is due to the shifting the launch of television advertising, from mid-February to mid-March, to better coordinate with our Spring product launch. Despite the four week delay in marketing spend, new customers are up over 27% compared to the same period last year. Even more encouraging is that our operating loss excluding stock-based compensation decreased by almost $1.0 million quarter over quarter.” The company will host a conference call webcast to discuss its first quarter today at 5:00 p.m. Investors can access the webcast at www.investor.bluefly.com. About Bluefly, Inc. Founded in 1998, Bluefly, Inc. (NASDAQ SmallCap: 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 ability to execute on, and gain additional revenue from, its marketing initiatives; the company’s history of losses and anticipated future losses; 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. CONDENSED STATEMENTS OF OPERATIONS – UNAUDITED   Three Months Ended March 31, 2007 March 31, 2006     Net sales $ 22,108,000  $ 16,876,000  Cost of sales 13,734,000  10,037,000  Gross profit 8,374,000  6,839,000  Gross profit percentage 37.9% 40.5% Selling and fulfillment expenses 4,399,000  3,433,000  Marketing expenses 3,611,000  4,031,000  General and administrative expenses 3,586,000  2,427,000  Operating loss (3,222,000) (3,052,000)   Interest and other income 195,000  45,000    Interest expense (76,000) (257,000) Net loss $(3,103,000) $(3,264,000) Preferred stock dividends (11,000) (1,231,000) Net loss available to common shareholders $(3,114,000) $(4,495,000)   Basic and diluted net loss per share (after preferred stock dividends)   $(0.02)   $(0.22)   Weighted average shares outstanding 129,629,498  20,367,508  SELECTED BALANCE SHEET DATA & KEY METRICS-UNAUDITED   March 31, December 31, 2007  2006    Cash $14,254,000  $20,188,000  Inventories, net 26,133,000  24,189,000  Prepaid Inventory 378,000  616,000  Other Current Assets 5,076,000  3,613,000  Property & Equipment, net 4,015,000  3,573,000  Current Liabilities 13,801,000  14,603,000  Shareholders' Equity 36,291,000  37,827,000    Three MonthsEnded March 31,2007 Three Months Ended March 31, 2006   Average Order Size (including shipping & handling revenue) $269.21  $243.92  Customers Added During Period 49,385  38,688  CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)   Three MonthsEndedMarch 31, 2007 Three MonthsEndedMarch 31, 2006   Cash flows from operating activities: Loss from operations $ (3,103,000) $ (3,264,000) Adjustments to reconcile loss from operations to net cash used in operating activities:   Depreciation and amortization 423,000  353,000  Warrant issued to consultant --  67,000  Non-cash expense related to warrants issued to supplier --  92,000  Provisions for returns (663,000) (629,000) Allowance for doubtful accounts 155,000  43,000  Stock options expense 1,721,000  612,000  Reserve for inventory obsolescence 302,000  240,000  Changes in operating assets and liabilities: (Increase) decrease in: Inventories (2,246,000) (4,787,000) Accounts receivable (1,060,000) (1,274,000) Prepaid inventory 238,000  326,000  Prepaid expenses (625,000) 634,000  Other current assets (93,000) 34,000  (Decrease) increase in: Accounts payable 509,000  2,063,000  Accrued expenses and other current liabilities (224,000) (186,000) Interest payable to related party shareholders --  149,000  Deferred revenue   (250,000)   672,000    Net cash used in operating activities (4,916,000) (4,855,000)   Cash flows from investing activities: Purchase of property and equipment     (850,000)   (110,000)   Net cash used in investing activities   (850,000)   (110,000)   Cash flows from financing activities: Employee taxes settled with stock (160,000) --  Net proceeds from exercise of Stock Options 6,000  --  Payment of capital lease obligation   (14,000)   (14,000)   Net cash (used in) provided by financing activities   (168,000)   (14,000)   Net increase (decrease) in cash and cash equivalents (5,934,000) (4,979,000)   Cash and cash equivalents - beginning of period   20,188,000    9,408,000    Cash and cash equivalents - end of period $ 14,254,000  $ 4,429,000